Title

Author(s)

Economic policy in the Philippines during the American

colonialperiod

Lam, Yip-wai, Constant.; .

Citation

Issue Date

URL

Rights

1980

http://hdl.handle.net/10722/28002

The author retains all proprietary rights, (such as patent

rights) and the right to use in future works.

THE i r m s m

o r fiorG L O N G

ECONOMIC POLICE IN TIE PHILIPPINES DURING

THE AMERICAN COLONIAL P E R I O D

A DISSERTATION

Submitted to the Faculty of A r t s

of the University of H o n g K o n g
in P a r t i a l Pulfillraent of the R e q u i r e m e n t s
For the Degree
M a s t e r of Acts

(IN CCMPAItATITE ASIAM S T U D I E S )

By
Constaxit LAM Y i p - v a i

Hoi)^ K o n g
A u g u s t 1980

I h e r e b y declare that this clir;3ert3.tion ropresents

my ovn work and tnat it has not nreviovinly been s::bmi tteci to
this or any other institutions in annlj.cation for a d e c r e e ,
d i p l o m a , or a n y other q u a l i f i c a t i o n .

(Constant LAM Yi:o-wai)

TABLE OF CONTEIWS

PREFACE

vii

Chapter
X

Introduction

The Formulation of the Economic Policy

in the Philippines during the Colonial
Period
A n Overview

II

1
***

11

Tariff Policy

The Period of the Military Government

20

The Period of Preferential Tariff

22

The Period of Qualified Free Trade

with the United States
The Period of Complete

25
Trade

with the United States

26

The Commonwealth Tariff

27

Impact of the Tariff System on the

Philippines

III

Internal Revenue Policy

36

Internal Sevenue System ( 1 8 9 8 1 9 0 5

37

The Internal Revenue Law of 1904

J8

Modifications after the Internal Revenue

Lav of 1904

42

Chapter
Internal Revenue System of the C o m m o n w e a l t h
Period 1 9 3 5 - 1 9 4 2 )

43

Impact of the Internal Revenue System

on the Philippines

TV

M o n e t a r y and Finance Policy

44

48

Introduction of the Gold Exchange S t a n d a r d * *

The Establishnerrt of Currency Reserve Fund

49
51

The Establishment of the Philippine

National Eank

54

The Commonwealth Government Period

60

Impact of the M o n e t a r y and Finance P o l i c y

on the Philippines *,***********

61

Provision of Infra-structure and G o v e r n m e n t s

Intervention into Business

64

The Road System

Railroads

*
*

65
&9

Port Improvement and Interisland S h i p p i n g

72

Government's Intervention in Business

75

Industrial Plarmirig in the C o m m o n w e a l t h

Period
Summary and Observation

VI

81
".**"*****

85

La^id Policy
Limitation on Grants of Land

89

The Solution of the Friar Land Issue

90

Chapter
Home steading

95

Land Registration

mprovemeirt of Production

95
97

Legislative Measures Regulating

Landlord-tenant Relationship

98

Commonwealth Land and Agriculture Policy

99

Measure to Alleviate the Landlord-tenant

Relationship

100

Purchase of Landed Estates

101

Expansion of Cultivated Land

102

Impact of the Land and Agricultural Policy

on the Philippines

YII

Conclusion

Sources Consulted

102

106

112

LIST O P TABLES

1#

US Share of Philippine Exports and Imports f

18891940

2,

50

GonModity Distribution of Export T r a d e ,

18991937

51

3*

Total Mileage of Roads in Existence 1 9 0 7 1 ^ 2 5

67

4*

Kilometers of Roads B u i l t , 1 9 5 6 1 9 4 1

69

5*

Peso Investments in M a n u f a c t u r i n g , E x p o r t - P r o c e s s i n g
Industries and in Sugar P r o c e s s i n g , 1 9 0 2 1 9 J B .

Growth Rates of Philippine I n d u s t r y , 1 9 0 2 1 9 3 8 .

7#

Average Yield Per Acre Principal Rico

Growing Regions

8*

B4
85

98

Statxis of Persons W o r k i n g Farms

(Percentage b y Y e a r )

105

PREPACE

The objective of this dissertation is to give a

fairly comprehensive account of he economic policy 111 the
Philippines from 18S8 to 1942.

Though the main focus is

on the content of the various policies, it goes beyond a pure

description of the eccnomic policies in that it also deals
with the reasons for the implementation of such policies and
the iiLpact of the policies on the Philippine

society

Besides being a historical retrospection^ this study,

1 believe, is relevant to the understanding of the current
development of the Philippine society*

Many authors have

argued that the American colonial rule had superimposed

an

alien political and economic structure on the Philippine

society.

This is also taJcen as the seed for the inherent

unstable and conflicting nature of the Philippine s o c i e t y ,

study of the economic policy in the colonial pexiod can

illuminate the formation of such national conflicts
bare the ear

I t lays

reaction of the Filipino elites on the American

introduced economic system and thus showj how the governing

Filipino elites change and modify the policies to their own
"benefits which affected the development of the Philippines
afterwards.
I have chosen the years from 1898 to 1942 as the
reference period for this study*

The reason for including 1898

to 1935 is obvious since the Philippines in this period was

vii

in all the sense a colony or Imperial possession of the U n i t e d

States.

With the passage of the Tydings^:cDuffie A c t in 1 9 5 4

the Filipino elite wsus however given the power to form the
Commonwealth Government of the Philippines under the auspices
of the United States P r e s i d e n t .

The ten years p e r i o d f r o m 1935 to

1946 under the Commonwealth government was n o r m a l l y r e g a r d e d as

a transitional period preparing for ultimate i n d e p e n d e n c e .

The

Commonwealth goverrment w a s , however, not an i n a e p e n d e n t

government as foreign policy and national defence m a t t e r s of
the Philippines were to be decided ^bj the Congress of the
United States rather than by the Filipino t h e m s e l v e s t

In

a d d i t i o n , the United States president had the r i g h t to v e t o

acts passed by the Philippine Con^press.

As a saxrvey of the

colonial economic policy, it would not be complete, t h e r e f o r e ,

without going beyond 1955 into the Commonwealth p e r i o d .
M o r e o v e r , during this period, the Filipino g o v e r n i n g elites were
given the chance to decide on the Internal economic p o l i c i e s
*

of the country*

A review of this period w i l l show w h e t h e r the

vision of the Filipino elites on the development of the

Philippine economy is a mere extension of the former c o l o n i a l
foreign administrators or otherwise.

This may s h e d light 011

the future government economic policy of the i n d e p e n d e n t P h i l i p p i n e

nation.
M y survey stops at 1942 w h e n the Japanese invaded the
Philippines*

Since after the w a r , the Philippine e c o n o m y v a s

in total destruction and the few years preceding i n d e p e n d e n c e

viii

was mainly concerned with reconstruction and rehabilitation, this

part of the history has less relevance to my study.
The present work seeks to reveal the colonial econoniic
policies in the Philippines around five themes, n a m e l y , tariff
policy (Chapter 2), internal revenue policy (Chapter 5) provision
of infrastructure and government intervention into business
(Chapter 5) ajid land policy (Chapter 6 ) .

Due to the limitation

of time, I regret that I have left out those public policies

such as labour and education which are inore peripheral to the
economic sphere #

However, it cannot be aenied that these

policies affect the economic development of the Philippines

greatly.
The arrangement of the materials in this dissertation
is topical*

This has the advantage of giving a more detailed and

coherent treatment of each topical economic policy*

The danger

is that the reader may lose sight of the overall view of the
whole period under consideration.

I try to bridge

this g a p b y

giving a brief review of the issues affecting the vhole period

in the introducion

chapter.

I am deeply grateful to Br L Wright for his patient

supervision and invaluable guidance given me all along this
work*

I would not have teen able to finish this work without

my w i f e , Catherine's support and encouragement.

F i n a l l y , to all

of the lecturers and my classmates in the Comparative Asian Studies

Course who have given precious comments and refreshing ideas o n
my draft, I express my appreciation*

ix

Chapter I
Introduction
The Forniiilatlon of the iLconomic Policy in the Philippines during
the Colonial Period
The economic policy of the Philippines during the colonial
period was determined nainly by the governing political e l i t e s .
Bein^ an agrarian society, the masses in the Philippines were not
organised and for centuries they vexe denied
to participate in the political scene.

the opportunity

A3 a result, m o s t of the

economic lecislations were formulated according to the interests

of the American colonial administrators and the upper class of
the Philippines society.
For the American colonial administrators f the economic
interests in this country had direct and indirect influence on
their economic decisions

The main views of these groups were

expressed in the debates of the American c o n f e s s in this period.

On the other hand, from 1907 and onwards, the Filipino elites
vere given the opportunity to participate in the governrient
through the Philippine Assembly.

Their opinions were reflected

in the assembly*
It is important to note that right from the beginning
of the annexation of the Philippines, many Americans opposed
this kind of outright occupation*

President H c K i n l e y s proposal

of retaining the Philippines was debated in a furious manner in

the Congress and there was a tie between those against and those
for the annexation of the Philippines*

Finally, the annexation

2
decision was passed with only one vote more than the n e c e s s a r y
two-third minimum n o t e s .

Immediately after the passage of the

annexation decision in 1899, some senators lobby for a promise

of eventual independence to the Philippines.

Again there was a

tie on the vote on this and the Yice-President had to vote

against it to break the tie.

In the Congress, the Repubicans

vere generally Xor the annexation decision and the Democrats

against i t .

A deeper analysis of the interest groups for and against

annexation and the promise of independence for the Filipino people
will reveal that It is an argument not so much based on partylines but on economic interest,

According to Constantino the American Sugar nefining

Company and the Sugar Trust haa become the sixth largest corporation
T

in the United States in 1890 s and it controlled 98 per cont

the United States sugar refining industry*

of

It was alleged to

have supported McKinley's campaign for Presidency and many other

senators.

In order to
secuxe chsa-psr rsiw su^jar for its cwn

"benefits, this corporation backed

the President in favouring

the armcxation of the Philippines.

On the other hand, the su^ar grovers were generally
against the annexation.

They feared that cheap imported sugar

from the Philippines vould endanger their economic i n t e r e s t .

Constantino t Renato, A History of the Philippines, H

Monthly Review Press, 1975 PP 285 - 285

Senator S a m ; e l McEnery representing the sugar growers of Louisiana,

for example, was the strongest opponent

of the annexation.

If the debate on the annexation was confined to the

fev years at the turn of the century, the debate on the independence
on
of the Philippine3 dra^ged A for the whole period of the American
colonial controls

Again the basis of the debate was economicjl*

Those lobbying for an early independence of the

Philippines incluae the 19 beet growing states vhich were represented
by the American Farm Bureau Federaticn t National G r a n g e , National
Growers

Association, National City Bank of l\tew Y o r k , the Kid

western Dairy man and Southern Parmers which were represented "by
the Watioiial Dairy Union and the National kilk Products Association,
the American Cordage Institute and the American Federation of
Labour,

A l l these groups feared that imported sugar, coconut

products, cordage and immigrant labour from the Philippines vonld

compete with them and thus lover their profitability.
found support in many senatorsBacon who

Their voice

For example, Senator Augustine

was representing the sugar growers of G e o r g i a , was the

strongest supporter for granting independence to the Philippines

as soon as possible.

2
According to T . A . friend

the interest groups opposing

the granting of independence to the Philippines were mainly those

2

F r i e n d f Theodore A* t 'American Interests and Philippine

Independence, ^$2$ 1955* in Philippine S t u d i e s V o l . 11,
1 5 n o . 4 , pp* 505 525

Americans with vested investments in the Philippines, importers

and processors of tax-free Philippine products, manufaotiirers
and exporters of products to the tax-free Philippine market and
"the American businessmen in the Philippines.

They were represented

by organisations such as the American Public Utilities C o m p a n y ,

"Food Companies and Standard O i l , the Chamber of Coranierce on the
Pacific Cot and the American ChaiQter of Commerce in the P h i l i p p i n e s .
The last organisation has been known to be the strong supporting
organisation for Governor-General food's policy in the P h i l i p p i n e s .

The debate on the suitable time for eventual indepenasnce

of the Philippines was highly relevant to the fornulation of the
economic policy of the Philippines in this periods

For those who

supported the early independence of the Philippines, they opposed

the entry of big American corperation into the Philippines for
fear that more American direct investment in the Philippines
would increase American involvement in the Philippines and th^se would
hinder the pace of early independence t

This is the background

for the land limitation law in the land policy of the Philippines
as described in Chapter 6

Moreover, the American farm interests

supporting the early independence of the Philippines for their own

benefits were strong opponents of free trade between the Philippines
and the United States,

They argued that protective tariff was

important in protecting domestic farm interests.

On the other hand for those who supported the continuation

of American rule believed that the potential of the Philippine
market has yet to be realised.

They thought it e s s e n t i a l in

attracting more American investment into the Philippine m a r k e t .

They therefore supported the move to lift the land limitation
law so that more land could loe acquired by American imperialists
for economic investment.

In addition, they generally supported

the concentration of more power in the hands cf the GovernorGeneral rather than the Filipino dominated Philippine A s s e m b l y .
Therefore # the American Chamber of Conimerce supported Wood* s
policy in diluting the power of the Filipino political elites
during bis administration in 1?21 - 1927*

This w a s important

as the ilipino elites were all united by the common ideology of

fighting for national independence, Tney had prepared to do their
utter most in furthering their course, even at the expense of
sacrificing economic development by attracting more foreign investment in the colony*

In this debate on the date of independence for

the

Filipino people, the Republican party was generally against

granting early independence to the Philippines*
longer period of probationary tutelage-

They expected a

The Democratic party w a s

however more supportive of an early independence*

They agreed

that more political power should be given to the Filipinos and

this would assist the transition of power to the F i l i p i n o s .

After-

wards these two attitudes were reflected in the different attitudes

of the United States Presidents towards the Philippine queston*
Ihiripg 1898

to 1955, the only President from the D e m o c r a t party

was Woodrow Wilson from 1^15 to 1921 *

The Governor-General Francis

Burton Harrison appointed by President Wilson acted quite differently

from the other Governor-Generals and his policies vas formulated

mainly for the prepaxation of an early independent Philippines nation-

Apart from the views of the different economic groups

regarding the date of independence for the Philippines, the prevailing
ideology in the United States also coloured the views of the
decision-maicers of the economic policy in the P h i l i p p i n e I n

late

19"th to early 20th century, in the economic circle there vas a

^jreat debate on the effectiveness of the laissez-faire type of
economic policy*

The Progressive Movement in the United States

movement led by middle class and supported by the lowsr class

Coining c^oimd*
1

inuckral:e

Between 1903 and 1906, many new magazines, called

ma^asiries

promoting labour rights and attacking "big

business enterprises like the Kor^an-Eockefeller Northern Secnrities

were pubifhea,

Iany intellectuals were drawn into this movement

and they be^art to question the effectiveneBS of the self-regulating

force of thG free market economy.

They argued that the market was

distorted by the monopolised big business enterprises arid the

government had to take a more active role in protecting the interests
of the

1 m a n .

In the Progressive Movement, agrarian reformers and

conservationiats pushed new restraints on he land market by ending
the railroad land grants and reforming the homestead l a w s ,
on the sale of pu"blic land was achieved by these groups.

Restriction
Labour

groups on the other hand were able to force the governmerit to

introduce more labour lavs safeguarding their interests.

The

Progressive Novement gained its force especially in the period

following the Civil Wax where severe and sometimes prolong^depreasion
struck the United States,

In this

period, members of the Democratic

Party were more sympathetic to the views 01 the Progressive Movement*

i.iany Democrats favoured more government intervention to regulate
the economy and the Party adopted the free coinage of silver as a
plank in its party platform a^ against the self-regula-ting gold
standard.

Nevertheless, the depression at the tturn of the century

was very l)rief_

Izi general, the Americans enjoyed prosperity*

The

Republican party belieyed that this prosperity was due to the

success of the self-regulating market.

The Progressive m o v e m e n t

remained a force outside the g o v e n m e n t bureaucracy during 1897 to

1907 when the Hepublicans controlled both the Congress and the
Presidency,

This situation changed when Taft and Wilson "became

presidents from 1909 to 1915 and 1915 to 1921, respectively.
Some historians claimea that Taft was basically a conservative
Republican who had to succumb to the increasing force of the
Progressive Movement.

W i l s o n , however, was a sincere believer in

some of the views in the Progressive Movement*

Under his leadership,

a Federal Trade Commission was establisheu to make the b i g business

enterprises or trusts accountable for their deeds in court

Wilson

also made many concession to the farming groups and the labour u n i o n s
He also carried out an active conservation programme by establishing
a federal Water Pover Commission to regulate private development
of water poyer sites.

Under ilsor^s term of presidency^ the

government intervened actively in the economy and public life of

the United S t a t e s ,

8
The influence of the Ir^gressive Movement was also
reflected in the policy of the GovernorGeneral in the P h i l i p p i n e s ,
Harrison, the Governor-General appointed by V/ilson, was greatly
influenced by the trogressive Movement and he had supported active
government intervention into the Philippine econoirsy.

His policies

in this aspect is described in Chapter 5

The survey of the factors contributing to the formulation
of a particular economio policy in the Philippines w o u l d not be
complete without mentioning the influences of the Filipino elites
1

or the * iltistrado class *

The ilustrado class was the vealhy, politically outstanding and conscious Fj lipino elites.

According to C w e n 3 , they

were descenden^s of pre-Spanish datus and Chinese M e s t i z o s .

might be urban tasbd or rural based*

They

The hacendpros caciques ^Jid

principal!a were members of the ilustrado class who had r u r a l

power origin*

They were united by the same oducation backtjround

and. personal clientele and wealth.

In general f they might be

called the upper class of the Philippine society who included

"big landowners, urban real estate owners and usurious moneylenders
Being sceptical of the First Philippine Republic led by
Aguinaldo, which had semi-proletarian elements, they swiftly
turned to support the United States occupation of the Philippine 13*
Their support for American leadership was further consolidated by
the move of the Americans to grant education opportunities to all
Filipinos,

W h e n compared with the Spanish r u l e , the Americans

^Owen, Norman G* Compadre Colonialism : studies on

the Philippines under America^ k u l e f Michigan Paper on South
and Southest Asia N o , 3

suddenly became more benevolent.

The conscious policy of the

Americans to co-opt the ilustrado class into the political

arena also pleased the i lust ratio class

This intentional move of the Anericans to co-opt the

i lust ratio class into the political process was taken as
important signs of the 'good relationship' between the
colonisers and the Filipino people*

This was needed "by the

Americans to shov that they vere not suppressing the Filipino

society at large when they suppressed the revolutionaries of
the First Philippine ^epu"blic-

The ilustrado class, the

respectable class 211 the Philippines society, on the other

h a n d , also sanctioned this move to bring about law and order
in the colony.

The appointment of the three Filipinos in the

Philippine Commission headed by William Howard Taft ^as
indicative of the determination of the Americana to rely on
the help of the upper class in ruling the colony right from
the start*

IPhe three members were

Jose Luzuriaga, a sugar planation ovner from the

island of Negros, who fled to the U . S . Authoritos to
plead for
troops to occupy Uegros and to protect
him and his fellow landowners from the revolutionists
Benito Legarda, a Manila landowner and moneylender who
openly expressed contempt for his own people; and Trindad
H_ Pardo de Tavera a landowner and aristocrat who wanted
U*S* statehood for the Philippines and who founded a

10

subservient Federal Party to recruit Filipinos to serve

the U . S , regime and to^ convince those resisting conquest
to give u p ,
Taft also helped to form the Federal Party of the

Philippines which

controlled hy the Americans

Politically,

the Americans secured the support of the ilustrado class b y

putting restriction on the voters fox the municipal o f f i c e r s .
According to law, a voter for municipal officers must "be m a l e , at
least twenty-three years old, with additional requirement of
holding office during the Spanish period, or paying a minimum
of fifteen dollars of tazes per annum or knowing E n g l i s h or
Spanish,

This meant that voting was limited to the upper class*

This restriction was not lifted until the passage of the Jones
Act which broadened the suffrage by cancelling "the additional
requirements for a rrale voter*

Therefore, in the early American

colonial period, the ilustraidq class was firmly entrenched

politically.
The ilustrado class of the Philippines represented
the most conservative land-owning sector of the Social structure,
Their idea of economic progress was limited to

commercial and

agricultural changes that were not disturbed by industrialisation.

There was a consistent unwillingness of the ilustrado class to
increase taxation in the agricultural sector as this w o u l d be
contrary to their economic interests.

They vere also reluctant

to pursue a more progressive internal revenue policy as they vould

not like their wealth t^ be taxed away.

M o r e o v e r , the ilustrado

class we^. opponents of foreign investments in the P h i l i p p i n e s ,

Pomeroy, illian + + J., An American Made. Stragedy, International

Publishers, Mew York, 1^74, h .
^

11

lest the investment of modern agricultural enterprises in

the Philippines would compete with their own land interests and
they supported the land limitation law for foreign enterprises
entering the Philippines,
The opposition of the IXustrado class to greater foreign
involvement in the Philippines coincided with their coimioti
ideology of promoting Independence for the Philippines.

Independence

was taken to mean the control of the government by the Filipinos, or

more specifically, the control by the ilustrado class.
All in all, the ilustrado class vaa conservative In
politics*

The eDunomio policy formulated during the American

colonial period clearly reflected this tendency of the ilustrado

class*
An Overview
Immediately after the signing of the Treaty of Paris
ceding the Philippines to the United States* the war between
the two nations began-

This marked the military rule of the

Philippines by the Americans.

During this period, 1&98

to

1901, much effort of the military government was spent on public

construction work so as to facilitate the suppression of the
resistent movement of the Filipinos*
During this period, Schiirman was appointed by President
KcKinley to look Into the situation of the Philippines and
recommend the most suitable form of governments

The Schuxman

report was published in 1900 which recommended that the Philippines

should have its own separate finance from the United States, it
should also have its own self-supporting financial structure.

12
M

Schurman further proclaimed the policy of t o the people of

the Philippines"*
ii this context, Taft was appointed as the first
civil Governor-General of the civil government to replace the
military goverruoent in 1901.

This began the so-called Taft

era which lasted until

Under Taft's direction f

the

colonial administrators established a close and intimate

alliance with the ilustrado class in running the colony 4
Taft himself was conscious in selecting men who would be as
orthodox in matters as the A m e n ^ Taft saw the alliance with the
ilustrado class as safe and suitable for the American r u l e .

Duxing

Taft s rule, the Spooner Act was passed giving the President of
the United States the power of appointing administrators to the
Philippines to form the governonent.

In 1902 f the Cooper Act

was passed allowing the Philippines to organise a popularly

elected Assembly.

In 1900 the Partido Federal vas formed under

the patronage of the Americans and the first Assembly election

was helti in 1907.

Obviously enough, the ilustrado class got a

firm hold of the Assembly and this continued to the end of the
American r u l e .
T a f t , being the son of the Secretary of W a r in President
Grant * s cabinet, had a brother working as lawyer for the J . P ,
Morgan "banking group,

Taft had sympathy with the people of the

Progressive Movement but he was rather a conservative Republican

He was eager during his administration to help the entvy
American investment in the Philippines*

of

He wanted the Philippines

to become a profitable market for the United States

He maintained :

13
r

rhe promotion of their material and i n t e l l e c t u a l

welfare w i l l necessarily develop wants on -their p a r t f o r
things w h i c h in times of poverty they regard as l u x u r i e s ,
v h i c h , as they grow more educated and as they grow
wealthier* become necessities. The caxrying out of the
p r i n c i p l e , "the Philippines for the Filipinos" in f i r s t
promoting the welfare, material, spiritual, and
intellectual of the people of these Islands is the one
course w h i c h can create any market here' among the p e o p l e
f o r A m e r i c a n goods5
During the e a r l y years of Taft's governance of the Philippines>
he facilitated the entrance of American textile p r o d u c t s ,
A m e r i c a n investments 111 railroad, public u t i l i t i e s , m i n i n g
and sugar centrals in the Philippines.
the

He also p r o p o s e d to raise

25>000 acres maximum limit of land which could be a c q u i r e d

by a foreign enterprise for investment as he believed that

this land limitation law vas inimical to more foreign
Governor-General Lvike

investments.

White (1904-6) t H e n r y G . Ide

1906) and James P , Smith (1906-9) did not alter su"bstantially

the political and economic policy laid down hy T a f t .

Moreover^

T a f t actually became the President of the United S t a t e s f r o m

1909 to 1913 and surely he wanted his own policy to be carried
out in the c o l o n y
The Governor-General of the Philippines d u r i n g 1909
to 1913 was

Cameron P o r b e s .

A g a i n , he did n o t alter m u c h

the policies formulated by T a f t .

However, he placed more

emphasis on the development of the inra-structure of the

Philippines (See Chapter 5) and he began to use the m o n e t a z y
reserve f u n d of the Philippines in ways different f r o m h i s

^Quoted from Alfonso, Oscar*

T a f t v i e w s on 'The
1 tT
Philippines for the Filipinos,
Asian Studies ( D e c e m b e r ,
1968), p , 244.

predecessors.

This had great repercussion on the economy of

the Philippines and this was dealt vith in Chapter 4 on the

monetary and finance policy of the period,
When Voodrow Wilson succeeded as the President
of the United States in 1913*

He consciously tried to p-uraue

a policy towards Philippines different from the Republican

Party.

He appointbd Francis Burton Harrison as the Governor-

General of the Philippines from 1913 to 1?21 *

U n d e r tfilson,

he established free trade with the Philippines by the Underwood

Tariff Act (described in Chapter 2) which was congruent with
the policy of the Democratic party*

The Jones Act was also

passed in 1916 promising eventual independence for the Silipino

people

Under the same Act the political system of the Philippines

was changed to give more political power to the Filipinos*

The

Philippine Commissioii was replaced by a Philippine Seriate and a

House

of liepre sent at iv e s *

Suffrage was also "broadened.

Being a Democrat believing in the ideology of the

Progressive Movement, Harrison thonght government intervention
vas essential in creating a "better society and could correct
the possible side-effects of the self-regulating market & r c e s .
Under Harrison's rule, he introduced many government enterprises
in the Philippines.

The intervention of the government into

the economy was also enormously enlarged.

This was descrilDed

in Chapter 5_
When the Republican party won the presidency election
again under the term of Warren G* Haxding and Calvin Co olidge
in 19215 and 192J-9 respectively, they changed a^ain the policy
of the Democratic Party.

President Harding appointed Leonard

Wood and W , Cameron Fortes to head a mission to investigate the

economic situation of the Philippines immediately after the
return of &overnor-General Harrison,
The mission reported that the insular currency vas
no longer backed by gold, the tank had over-extended its
credit and there was widespread inefficiency in the government
operated businesses*
T

Democrat s

Many Republicans tlamea this on the

policy of increasing the g o v e r n m e n t ^ involvement

in business excessively and the prematura

decision of giving

more political power to the Filipinos.

President Harding was therefore convinced that the
thilippines was not yet suitable for independence and he
appointed Wood to correct the situation in the Philippines,
Wood arrived in Philippines in 1921 as the G o v e m o r - G e n e r a l .

Wood Was a staunch advocate of laisses-faixe

principles.

He argued that the self-regulating market system

should be restored in the Philippines as in the'Taft p e r i o d .

He urged the disposal of government-owned businesses and
encouraged the entrance of foreign capital to the i s l a n d s .
In repeating the same argu merit, Wood pledged a change i n the
land limitation law,

Nevertheless this was never supported h y

the ilustrado land-owning class.

The conflicting view of Wood and the Filipino
politicians culminated in the Cabinet Crisis in 1925*

The

bitterness between the two parties corttinued until Wood died

in office in 1927*

6
T

At the beginning of the 1 9 3 0 s t more Americans began

o feel more deeply that the Philippines was a liability rather
than ail asset for the United States given the failure of greater
investment in the Philippines and the unsuccessful effort in the
further expansion of the Philippine market for American g o o d s .
As depression set in t farm and labour groups began their
campaign to impose more tariff on imported agricultural
products.

They supported therefore an early or definite

independence for the Philippines #

Finally, in 1935 the Kare-

Hawes Cutting Act vas passed and later replaced by the Tydings-

McSuffie

Act which was basically the same In promising the

exact date of independence for the Philippines*

It stated

that after one year of the enactment of the A c t , the Philippine

Legislature was to call a constitutional convention and
independence would be granted to the Philippines after a ten years
period of transitign*
The Governor-Generals after Wood generally maintained
good relationship with the ilustrado class,

Tljey did not

introduce many new economic policies in the Philippines*

Henry L . Stimson (1928-9) for example lnd tried to stimulate
again more foreign investment in the Philippines*
not much progress va.s m a d e .

Nevertheless

He also encouraged the formation

of co-operative farming in rural area, especially the region

around sugar centrals so as to increase efficiency*

Dwight

Davis (1929-32) after Stimson emphasised^ on the other h a n d , the

importance of diversification of the Philippine economy.

He

believed a viable independent'economy was essential for the

future independent state*

Theodore Roosevelt, Jr (1932-3) and

17

Frank Murphy (1933-5) did not introduce any nev idea on the
economic development of the Philippines.

Their interest was

mainly concentrated on political matters relating with democracy

and suffrage.
With the establishment of the Commweath of the
Philippines under President Maunuel ^ueson (1955-44), the
Filipinos finally gained full political control of the
Philippines.

Though the United States still had sorerigniy

over the Philippines, the Filipino elites were able to pursue

many economic policies at their own design.

This brought a

revival of government intervention into the private businesses*

The early years of the Common-wealth was marked loy increasing
social unrests*

The Sakdalista Revolt (1955) was the most

famous in the period.

These happenings had also pushed the

Commonwealth government to adopt some more progressive economic

policies to effect a more equitable social structure.

Unfort-unately r

the progressiveneS3 of the Commonwealth government was frequently

in paper only.

This could be seen in the reconstruction of the

internal revenue policy in this period (Chapter 5)

It is

stricksn^ to note that during the Commonwealth p e r i o d , the

Filipino political elites did not formulate any economic policies
which were radically different from the colonial administrators
They remined as conservative as before *

Chapter II

Tariff Policy

The tariff system introduced by the Americans in the

Philippines has been the most potent force in determining the
future economic development of the islands*

Throughout the period

under study # the tariff system was under the strictest control of
the United States goveimment, namely in the hands of the Congress
and the President of the United States.

The mother country

consistently sou^it a policy to increase trade with the colony*

As most of the legislation conoerning tariff policy vas installed
by the imperial country, it is not hard to find evidence in the
Butse^uent discussion that many; laws tended to favour United
States

economic interest more than the Philippines*

For the Philippines 9 thus the fomrulation of the

tariff policy was a reflection more of exogeneaus than indigenous

factors*

In the mother country, the Rept^ican Party was known

to be a traditional advocate of a protective tariff in foreign

trade.

The Democratic Party* on the other h a n d , vas committed

to a free trade policy*

Nevertheless, these stands weire not

strictly followed by party meabers*

In the numerous votes on

tariff lavs, ve find that the economic interest of a particular

group vas more effective in determining the voting behaviour
of a senator rather than his party allegiance*

Among the various

pressure groups, the sugar and tobacco interests are of h i g h e s t

significance.

Whenever new legislation hit the interest of these

two groups f severe opposition ensued*

Thus Alfonso remarked,

19

Philippine tariff hopes (to reduce the ringley

rate) were felled by party politics. But
opposition otherwise developed and was
manifested according to economic interests
rather than along party lines.
An additional factor which deiieniiined the "tariff policy of the
Philippines was the consideration of China.

The United States

liad always supported a Open Door Policy for China and this
attitude was logically expected also in the Philippines*
In discussing the tariff policy of ho Philippine
islands, American-Philippines tariff policy was of paramomit
importance especially after 1913 when the United StatesPhilippine trade was over 60 percent of all Philippine foreign
trade.

Actually, the special Am eric an-Philippine tariff

relations after 199 shaped the subsequent economic development

of the Philippines^

Within a few years time after free -trade

with the United States, Philippines became solely dependent on the

United States market for the sale of its primary products*

At

the same *timeT trade with other countries tended to retreat

to the background*

The ensuing discussion of he tariff policy

of "the Phil ippines will therefore follow

the several

distinctive periods of Philippine-American trade;

j
Alfonsof Oscar, M* Theodore Roosevelt and the
Philippines 1897-1909- Quezon City : University of Philippines
Press, 1970, p-132,

The above periodization was adopted

from Am ado
rr
A* Castro's classification in his article
Philippine-J\merioan
tr
Tariff and Trade Relations, 1$89-1954 in the Philippine
Economic Journal t Nurn"ber Seven, First Sanester 19^5 V o l . I V ,
No.l p p . 29-57.

20

1. The period of the military governmentAugust

20,

1898 -to March 8 , 1902*

2 . The preferential t a r i f f March 8 , 1902 to August
1909*
3. Qualified free t r a d e August

1909 to Ocrtoter

1913.
4* Complete free t r a d e ~ Oci;ober 3 1913 to November
19355- Ths Commonwealth November 15, 1935*

The Period of the Miiitary a Government

During the initial occupation of the Philippines,
the Americans adopted a tariff structure very similar to "the
Spanish schedule* In the Spanish schedule, a basic t

specific

duty on imports was levied at ten percent of the official

valuation of imported Gommodity,

In addition there w a ^ a

two percen-t unloading "tax and a six percent extraordinary

tax

on imports which wore collectively termed as ad v a l o r e m .

To complicate the picture, there were also a ten percent

harbour improvement tax included in the basic -tariff and a
consumption t a x ,

Little change was made 011 this schedule

except that the ad valor was collected at a single rate of

six percent at this period.

This extraordinary -tax was levied originally in

1896 to finance Spanish military operations and it was applied
against a tatle of fixed Spanish official valuaiiioxis* This
table was different from the ens used to oolleci; Tsasic specific
duty on imports and was criticised for its arbitrariness ty
Americans*

21

The Americans^ however, were critical of "this Spanish

Schedule*

They regarded it as regressive because it imposed

high rates on necessities as against the low rates on luscuries*^

Secondly, it was irrational thai; the same rate was levied on
ar-tioles of the same kind but of different quality*

The

calculation of the tariff was also criticised for its complexity

since each product was assessed, according to its components
which each ma^f have different iax rates*

Lastly, the Americans

believed that the tariff rate was too high.

As a result, in June, 190 a board of tariff revision
was appointed by General Arthur MacArthxir to vfork out a more
satisfactory measure*

After receiving the report from the "bcardf

the Secretary of War sent it "to all major business groups in

United States for oommen%*

After this, it wag enacted by the

Philippine Commission in 1901.

According "to Grunder and Livezey t "the "desire to
accord a sympathetic ear "to interested Americans became standard
1

practice ^ in future drafting process of Philippine tariff measures.

^ It was assessed that the effective tariff rate on

rice was 18*2^ while the rate on prepared food was only 9*4^
similarly, the rate on ooiiton cloth was 25 whereas silk was
taxed at 2 0 . o n l y . (Repor-fc of tiie Philippine Peace Commission,
SDoc. N o . 138 T 56th Cong., 1st sess* f 1900, p p , 99-100, Quoted
from Giesecke, Leonard F . History of American Economic Policy
in the Philippines During the American Colonial Period, 1900-19B5i
(University of Texas), University Microfilin Interna-tional 1975 p-62
5
Garel A Grunder and William E . Livezey r
PhiXippinas i
arid the United States, Greenwood Press, 1973- (First Published :
1951) P . 106

22

During this period, the legal status of "the Philippines

was also clarified in a series of Insular cases heard
United States Supreme Court in 1901-

in the

The court decided, -that

the Philippines was not a foreign "territory of the U n i t e d States

As a r e s u l t , the United States tariff laws on foreign importing
countries were not applicable to the Philippines*

H o w e v e r , the

Court decided further that thougji the Philippines should not

be considered as a foreign "territory bat like Puerto R i c o , xt
was not an "incorporated" state as the rest of -the U n i t e d States*
It followed thai; the Congress had the power 1;o regulate trade
between the "incorporated'

and the "unincorporated* states*

After these decisions, the congress w a s atle to re-enact the

Philippine "tariff act of Uovonber, 15 1 9 0 U

The Period of Preferential Tariff

As mentioned above,he decision of the Supreme
Court in the Insular Cases had placed the power of enacting
tariff laws in -the hands of the Congress of

United S t a t e s .

This satisfied most interests in the United States "because from

"thence the United States Congress had t h e power to manipulate
trade laws to favour the local economic Interests*
The re-enacted Philippine Tariff Act of 1901 "became
law on March 8 f 1^02*

This Act soxxght to reduce the overall

tariff rate of the Spanish Schedule on imports from all

countries and the regressivity of "the sys-fcem.

It also a i m a d

at the encouragement of "the use of machines V

levying less

duty on imported farm maciiinery and the encouragement of the

importation of American goods.

On the other hand, the export

duties of sugar and tobacco followed the old Spanish Schedule

while the duty levied on copra and hemp doubled.

Furthermore,

a new export tax was raised on rice.

Apart from re~enacttig he above Philippine t a r i f f ,
the Congress passed three other provisions.

The f i r s t of

these provided for the payment of 75 percent of the standard

M n g l e y rates of Philippine products entering the United. S t a t e s .
The second provision maintained that export duties on Philippine
goods destined, to the United States should be abolished and
internal revenue taxes on Anerican goods coming into the
Philippine

market should also be remitted to American p r o d u c e r .

Th5 was also applicable to the United States where taxes and
duties collected on Philippine imports should "be refunded to
the Philippines Treasury some time in the future.

T h i r d l y , the

Congress approved the extension of the United States coastal

shipping laws to the Philippines.

The lack of American ships

however made the application of the law impossible and su"bseq.uently,

the Congress -voted for it3 postponement for several t i m e s .

Up

to the end of the Colonial rule this law was never exercised
in the Philippines.
As a preliminary observation, The Philippine Tariff
Act and the Congress decision removed the fear of m a n y local
sugar and tobacco farmers on the competition of imported cheap
Philippine sugar and tobacco as the Dingley rate effectively
barred the entry of a large volume of Philippine sugax and
tobacco.

The Governor General of the Philippine Commission

had consistently argued for a reduction of the 75 percent

Dingley rate but of no avail.

24

On the other hand, the system of refundable d u t i e s

between the United States and the Philippines actually b r o u g h t
a reduction in the revenue of the Philippine Government,

At

"the time when this law was passed the refunded duty collected
b y the Philippine Government was very small as the import of
sugar and tobacco to the United States was not great in amount*
H o w e v e r , the refund system of duties collected for U n i t e d
States' products trou^ht loss to the revenue of the Philippine
Government *

Phe refunded export duty of goods g o i n g to the

United States was actually a. subsidy for the cordage manufacturers

in America because the major products in demand in the U n i t e d
States at this period was hemp and coconuts*
Between 1902 and 1909numerous bills were introduced
in Congress to reduce the tariff rate but none of these w o n
majority support.

Most of the opposition came from the United

States farm interests yho disapproved the flooding of the

1

United S t a t e s s market with cheap sugar and other agricultural

products from the Philippines*

In 1905 the Congress considered another bill to

revise the tariff system in favour of United States Interests
through a reclassification of cotton goods to favour the
narrow-width looms of the United States to the double-width
looms employed in Surope*

Thought the two goods were

practically the same, the TInlted States regarded the latter

looms as finished or seuii-finished material and charged it
with higher duties*

This again showed tbe prejudice of the

Congress in the economic interests of the imperial c o u n t r y .

The Period of RualUTied Free Trade with the United States

An important consideration which deterred the
United States from granting free trade to the Philippines
was the equality provision of the Treaty of Paris*

The

Treaty stated that any concessions in favour of American

goods would automatically extend to Spanish goods.

This

treaty would be enforced up to 1909*

As the Treaty of Paris lapsed on August 5, 1909
President Taft signed the Payne-Aldrich Taxlff Act which
established qualified free trade between the United States
and the Philippines.

It should te noted that the passage

of this Act was consistent with the views of President Taft

as far back as the days when he was Governor-general of the
Philippine Commission who had argued for a reduction of the
tariff so as to boost

trade between the United States and

the Philippines*
The Philippine section of the Payiie-Aldrich law
sanctioned the principle of free trade between the TTnited
States and the Philippines with the following qualifications
1* Sice was not on the free trade list*
2* Annual quotas ware limited on
cxgaxs

150>000,000

wrapper and filler totacco

sugar

1,000,000 lbs,

300,000 gross tons*

Not more than 20 percent of imported manufactured

goods from the Philippines should consist of
foreign materials,
Free trade under the Philippine section of this
act according to Castro^ meant a reduction of about $1 million

^ Castro t loc^cit., p p . 29 - 56

26

in the Philippine customs revenue.

A new tariff schedule f o r

the Philippines was set up and it was made with an understanding

that tariff procedures should be brought in line wih the system
in the United States.

The Philippine duties on goods coming

from other countries was thus charged on the new rate in the
Philippine Tariff Act of 1?09.

On the whole, the new schedule

charged luss tariff than the old tariff structure.

In conclusion, the Philippine tariff act admitted
free of duty all Americans imports.

A moderate tariff w a s

imposed on goods from other countries.

Sbcport of hemp c o p r a ,

to"baoco and sugar had continued to pay export taxes if it

was going to foreign countries except the United. S t a t e s .
I t should be noted that the Payne-Aldrich Act was
"bitterly opposed by the Philippine Eesident Commissioners i n
the "United States.

They "believed that in the long run this

would "be highly prejudicial to the economic interest of the

Philippines.

Filipino oppositions were also centred on the

loss of revenue due to the imposition of this neVr tariff l a w .

The Period of Complete Free Trade with the United States

Complete free trade with the United. States started
with the enactment of the Underwood Tariff Act 011 October 3 ,
1913.

This act retained the Philippine section of the

Payne-Aldrich tariff with the removal of the limitations on

the qt^antitles of duty-free entry of sugar and tobacco to the
United S t a t e s .

The enactment of this lav represented the

victory of those people who had consistently fought for free

trade between the United States and the Philippine, notably
American importers to the Philippines.American exporters in

27

the Philippines and the Democratic Party.

It is worthwhile to

note that this Act was passed when Vilson, a Democrat, gained h i s
hold, of the White H o u s e .
Underwood Tariff Act stipulated further that r i c e
should be put in the free list.

Philippine goods containing

more than 20 percent foreign material had to pay import duties

as in the past.

Export duties on Philippine hemp, su^ar, copra,

and tobacco sent to other foreign countries were also abolished.

I n 1916, the Jones Act was passed to grant the
Philippine legislature the power to enact its own tariff laws
with all nations other than the United States on the condition
that it was approved "by the President of the United S t a t e s .
According to Castro, "this right was never of great
consequence as only sporadically was it involved f o r the purpose
of making tariff changes" and for the whole period before the
Commonwealth, "the Philippine tariff was not systematicallyrevised since its enactment b y Congress in 1909."^
K

The { C o p ^ n w e a l t h Tariff
She Great Depression in the United States d u r i n g the
thirties caused quite a lot of hardship in the agricultural
sector*

The protectionist voice became louder and louder*

In the years 195032 numerous tills and resolutions vexe

proposed to cut off the preferential relations between the
United States and the Philippines,

Gradually, more people in

the United. States were persuaded by farm interests to believe

that the colony was a tnixden or liability rather than an asset

Castro* l o c j c i t , , p* 40*

28

to the United States.

Farm groupst dairy organisations and

domestic sugar producers concluded that the only way to restrict

Philippine imports was by cutting loose the tie between the United
States and the Philippines.

After granting independence, the ITnitecl

States had no responsibility to the colony and therefore was free

to place tariff barriers against Philippine imports.
The Hare-Hawes**Cutting Act was thus

passed in December,

1932 which stated that the Philippines would be a Couanonwealth of

the United States for a transitional period of ten years before
full independence.

During the p e r i o d t h e tariff system "between

the United States and the Commonwealth was fixed as follows :

1. All import and export bills should "be approved
by the President of the United States*
2* The 1 imitations on putlic delit were to be fixed
by the Congress,
J. A gradual export tax was to "be imposed on the
Philippine exports to the America maricet at the rate of 5 percent
of the regular United States duty for the sixth yeox; 10 percent
on the seventh year and so on with 5 percent more every year
until 25 percent of the United States duty was collected.

Upon

independence, the full United States duty ^bb to "be collected.

4 , Annual quotas were set on the following products
Unrefined sugar 800,000 long torts
Refined sugar 50,000 long tons
Coconut oil
Cordage

200,000 long tons

5,000,000 pounds.

Ebccessive Imports above the set quotas to the United

States should pay full import duty.

Ko provision was however made

29

on the limitation of American imports into the Philippine islands.

Moreover, as the Act stated, the Commonwealth had no authority to
restrict imports of American products.
T^r political reasons, the Philippine legislature
rejected the Hare-Haves-Cutting A c t .
the United States to lobty
Philippines.

Mawnuel Quezon then went to

more favourable terms for the

This resulted in the passing of the lydings-McBaffie

Act on March 2 4 , 1934 which differed little

the former Act

in its trade provisions*

There were' some minor modifications to the quotas set
in the Tydings-McDuffie Act afterwards.

For example, the Jones-

Costigan Act passed in May, 1934 stated that sugar imports into
the United States were placed under a system of quotas to be set
by the Secretary of Agriculture*

Accordingly, quota roughly e^ual

to that provided in the Tydings-McDuffie Act was set and became

retroactive to January, 1954*
the Filipinos*

This caused wide criticism from

The Revenue Act of May, 1934 (US) on the other

hand imposed an internal processing tax of 3 percent on each

pound of coconut oil and extended this to all Philippine oil
imports.

This action also caused great dismay among the

Philippine people.

Lastly the Cordage Act of June 141935* relaxed

the quota of Philippine cordage to the absolute quota of 6,000,000

pounds for three years before the re-application of the q^uota
limit set down T?y the Tydings-McDuffie A c t .
In 1937, Preeident Roosevelt and ftaeaon created a
Joint Preparatory Committee for Philippins Affairs to study the
trade relatione between the United States and the Philippines*
Hie study culminated in the passage of the Tydings-Kocialkowski
Act in July 51, 1959-

The main idea of the Act included the

suggestion to extend the period, of adjustment teyond the ten

years period, and up to i960, and to replace the scheme fey

increasing export duties by annual declining duty-free q u o t a s .
Nevertheless^ the recommendations of this Act were practised
for only one year in 1941

When the Japanese occupied the

island in 1942, foreign trade of the Philippines was virtually

at a standstill*

Impact of the Tariff System on the Philippines

The tariff system in the Philippines created the
dependence of the Philippines on the United States,

This could

te seen in the following table :

Ta"bXe

tfS Share of Philippine Exports and Imports, 1889 - 1 9 4 0

Percentages

Period
1889 - 1908
1916 - 1925

Total
Trade

Year

Exports

Imports

23.7

1889

26

1902

40

12

1908

52

62.8

(1910)
1926 - 1955

71-4

1923-28

72.9

1930-55

17
(40)

75
(62)

(1929)
1956 - 1940

83

65

Thou^ti the figures are n o t exactly comparable, we can

see that the trade pattern of the Philippines was greatly affected
by its tariff laws.

In

of the total exports.

preferential trade.

the American market atsorbed only

In 1908 it rose to 32 percent due to

But after the introduction of qualified free

Source8 Valdepenas, T.B* The Emergence of the Philippine

Piguxe in brackets from Grander & L i v e s e y ,
op. c i t . A p ' 2 1 2
Pctpy^

TT7

trade with quota, expert to the United States rose to 5 ( ^

in 1 9 H *

The percentage increased greatly after the Underwood-

Simmons Free Trade Ac-t provision in 191J to 70 percent in 1920

and

in 1935.

A direct result of thia was the decline of trade

with other countries.

This could "be seen in the United States

share of total trade which was only 25.7 in 1889-1908 bat jumped
to 72.9 during 1936-1940.
*Phe special tariff relationship with the United States
also "brou^it a stimulus to a number of primary products which
were in great demsind in the American market. These were sugar,
abaca^

copra, coconut oil and tobacco products.

Table 2.2 below

shows the distrilratioii of the different primary export crops from

1899-1937 in the export trade.
Table 2
Commodity Distritnution of Export Trade, 1899 - 1937

PercentaRea
Coconut
Oil

Tobacco
Products

Period

Sugar

Abaca

Copra

Total

1699

25.3^

53.8?

4.

1900-05

10.7

64.55

10.40

6.25

91.88

1904-09

14*35

59.25

14.1$

3.45

91 .20

1910-15

18.75

59.35

25.25

9.80

93.15

19H-20

20.12

36.64

942

14-62^

9-17

89.97

1921-25

29.21

19.76

13.74

14.70

9.07

86.48

1928-50

54.10

16.06

11.56

12.40

2.70

76.62

1951-34

56.57

6.89

7.45

9.16

5.25

83.10

1955-57

38.20

12.63

10.76

11.93

4-0

77.52

88.375S

Sources : Hugo Miller, Economic Conditions in the EhlliPT>ine3 T Boston,

1920. Joint Preparatory Committee on Philippine A f f a i r a ,
Report of J&y 20, 1938 Statistical Bulletin.

Quoted from : Valdepenas, op cit., p . 11

As noted by O w e n ^ t mutual free trade of the U n i t e d States

and the Philippines did not benefit all products exported to the
United States from Philippines.

For e x a m p l e f at the period w h e n

the Payne-Aldrich Act of 1909 was p a s s e d , the U n i t e d States also

began a s l i t downward revision of American duties 011 the imports
of all other coxmtries.

This reduction was carried f a r t h e r also

at the time when the Underwood Tariff A c t of 1913 was e n a c t e d .

Only until 1922 did the United States raised tariff on coconut oil
and cordage through the Fordney-McCumber Tariff A c t .

The peak of

the U n i t e d States protective move against foreign imports was

the setting u p of a highly tariff wall
Smoot-Hawley {Tariff*

in 1950 through the

Nevertheless, a"baca and copra from all

countries were never subject to tariff control and Philippine

export of tieee two products was not benefited by the free trade
w i t h the United States as it still had to compete w i t h other
countries.

This explained the apparent greater fluctuations of

these two products in Table 2*2.

It w a s mainly a response to

international competition and demand,

A s a result, Owen remarked that it w a s "the ironies of

colonialism that precisely those Philippine products w h i c h
competed with American goods benefited most from the imperial
11
tariff relationship".

The primary exports from the P h i l i p p i n e s

to the United States which benefited from the tariff r e l a t i o n s h i p

were sugar t coconut oil, cordage, tobacco and e m b r o i d e r i e s .

All

these products experienced a'great leap forward' after the y e a r

1922 vhen

they became 'protected' products in the American m a r k e t .

Qwen, N*G f c (ed) Compadxe Colonialism : Studies on

the Philippines mider Ajnerican Rule M i c h i g a n , 1971
p . 109

11

Owen, Ibid,

5
3

The increase in export was more spectacular for sugar*

In 1900

it earned only 5 million pesos tut in 1954* its export earnings

was 131 million pesos.

Tobacco was the only product which did not

prosper due to tariff protection because of the change of American

consumer taste towards cigarettes.
The Btlmulation of the protected primary export products
also generated an I increase in their proportion on the total acreage*
This problem will be discussed more thoroughly In Chapter six.
Yet f the most important single impact of the tariff
system had been on the economic development of the Philippines,
As has already been noted, the tariff system in the Philippines
was in the firm control of the United States government*

This

made the Philippine government unable to direct economic development

of the islands by the manipulation of the tariff structureIndustrializatiorj "became quite impossible given the
special tariff relationship between the United States and the
Philippines.
the

Given the free entry of all United States imports,

Philippines just could not compete with the industrial products

of the TJnited States which enjoyed the scale of production and

advance technology*

Moreover, the United States was basically

interested in securing the Philippines as a supplier of raw

material and a market for its industrial products.

This being the

case, no effort was made to industrialise the economy of the

Philippines through taxiff revision*
Moreover, the limitation on the use of foreign components
in Philippine manufacturing products sending to the United States
prevented the Philippines from developing industries similar to
Japan vhich used a lot of foreign raw materials.

3
4

The total results combined to create the vulnerability

of the Philippine economy.

If we compare the m a j o r exports of

the Philippines at the end of 1941 to those of 1899, they were

practically the same : sugar, copra, coconu-t oil, tobacco and
abaca accounted for about $Ofc of the total export*

It is a cliche

to repeat the argument that primary products are more vulnerable

to price changes and caused instability in the national e c o n o m y .
But this is exactly the case for the Philippines in the 1940s*
The many years of free trade with the United States
had also maintained and sheltered the inefficiency of the production
method in the Philippines*

The case at point is sugar p r o d u c t i o n .

The cost of sugar production of the Philippines wb.b e s t i m a t e d at

12
double the cost of production in Java,

When compared w i t h C u b a ,

the total production cost per pound for Philippines w a s 1 . 1 1 cents

while it was only 5-52 cents for Cuba.^"^
I agree with Owen that 'from a strictly economic
standpoint...Amorican tariff policy has been beneficial rather
than deleterious'

The boom in the primary products m a r k e t

had brou^it sulDstantial ecorjoroic gain to the whole economy of the

Philippines.

The failure of the colonial government to take

advantage of this gain and to re-structure the economy of the

Philippines, however, had great repercussion on the future
development of the Philippines.

12

O w e n t op. cit*t

Faced with increasing population

p.110

Figure calculated from the U S Tariff

Commission, Report
l
No* ?3 appeared in L.C* Stine The Economic P o l i c y of
the Commonwealth Government of the Philippine Islands'
in the Journal of East Asiatic Studies, V o l X, M a r . 1966 p,8
K

O w e n , op. cit*, p* 111

and aggravating tenancy relationships the Philippines, immediately

after independence, was left to puzzle on how to cope with these
problems given its static and agrarian economy.

Chapter III

Internal Hevenue Policy

The ma^or concern of the American administrators in

running

the newly acquired colony of the Philippines was to make

it economically self-sufficient.

This implied that the adminis-

trators should run the government with the smallest possible sum
of revenue and it would be most desirable if "the Philippine
Commission could create some surplus in the "budget.

Broadly

speaking, the fiscal policy of the Philippine Commission during

the American period from 1898-1934 vas conservative and of
laissez-faire* type*
It is interesting to note that the Filipino il^istrados
consented to thin policy.

They believed that an increase in the

CL

budget would probably imply^heavier tax "burden on them as they

were the? well-off sector and vere expected to share a greater part
of the tax burden n

This perception was reinforced by the procla-

mation of the Americans to replace the regressiveness of the Spanish

economic policy and create a just society.

Secondly, the Philippine

Assembly believed that by keeping the executive short o f f u n d s , they

could gain greater control of the political apparatus*

This would

help in expanding their power ajid finally the realisation of their

common goal of'political independence*
For the newly created Commonvealth Government under the
auspices of the American government

departed little a t first

from the Internal revenue system designed for them b y the former
colonial power.

There were afterwards several measures to make

the taxation system more progressive so as to pacify the great

56

37
majority of the population.

However, the tax structure to the

end of the Commonwealth period differed insignificantly from

the American period.
Internal Revenue System (1898190^)
In this period the American "basically followed the
Spanish system with some modifications*
highly complex and archaic.

The Spanish system was

Moreover# it wa^ generally r e g r e s s i v e ,

Ihiring the Spanish period from 1894-95* the m o s t Important

source of direct taxes came from the cedula and its variants: the
Chinese poll tax and the tributes from the wild tribes *

These

represented 58 percent o f all Internal revenues collected*

The

most important indirect taxes were receipts from the opium contract
and the lotteries * Th^e provided 16*9 percent of all internal revenue
tax r e c e i p t s ?
The cedula was a charge made for certificates of identity*
A l l persons over the age of eighteen, male and female, were required
to pay for these certificates*

There were sixteen classes of oeri;i-

ficates and it varied generally according to the income of the p e r s o n ,

The gobernadoroilloa and ca^ega as veil as people of the church were
exempted from the cedula tax*

The Chinese poll tax was a discrimi-

natory form of the cedula imposed on Chinese.

I t was generally

higher than the cedula on the Filipinos*

The Spaniards based on the urbazia and industria taxes
to compute the cedula.

The urbaiia was a tax o n urban houses and

the Industria was a tax on industry and commerce*

Agricultural

products were exempted from tax.

Laton
"American Internal Revenue Policy in the
Philippines to 1916" in Norman G . Owen (ed.),
c d t p. 134.

3
The other major forms of indirect tax came from
"the sale of

documentary stamps and the national lottery.

The government monopolies of opium selling was also a major

revenue-producing item.
During the first six years of the American
administration of the Philippines, the military government
suspended the contract for the sale of opium, lottery* and
mint charges for coinage of money*

ith the establishment

of the civil government^ the urbana was reploced b y a tax on

real estate.

This became known as the land tax*

The land, tax was levied on both urban and ru x a l

real estates It waa assessed at the rate of 1 percent of
the markeli value of the real estate*

Once o f U r the land tax

was imposed, the administrators found that the system was

hardly working.

In the first instance, land title in rural

area was in utter confusion.

Secondly* the process of appraising

the land value was highly influenced by political and familial

factors and was riot fair*

Thirdly^ the introduction of the

taxation system on agricultural land was an innovation of

the Americans

this encountered numerous objections fron

the land-owning class.

This land tax was suspended in 1906

and 1907 because of lsad harvests and strong resistance from

the ilustrado land-owing class. More important f the land
tax was a local rather than a national tax and there vas
ample room for evasion by the landlords 0 simultaneously
were also the political dominators of the municipal councils.

a/

According to Bonifacio

Salamanca

2
(

in 1905 the

three Filipino members of the Philippine Commission proposed

to revise the land tax*

They suggested that land tax should

be assessed according to the income of the land rather than

the m a r k e t value of the land.

If this was passed, it would

of c o u r s e be of benefit to the large landlords who held

uncultivated land*

Probably due to the ideological commitment

of the Americans to a more equitable tax structure than the

S p a n i a r d s 9 this proposal was not passed in the Philippine
Commission*

Nevertheless, evasion of the land tax was

prevalent in the Aiaerican period and the punishment for such

evasion -was sli^it*

This incident showed once again how

the ilustrado land-owning class manoeu-vredin the political

arena for their OTO benefit ,
The Internal Revenue Lav of 1904
The Iirtemal Revenue Law of 1904 vas passed mainly
as a reaction to the difficulty in collecting land tax*
Commissioner Henry C , Ide (later Governor-general o f the
Philippines in 1906) was charged with the responsibility of
re-drafting the internal revenue sys tern. This Internal
Revenue Law was quite important since it formed the basic
struotxore

i^iich continued until the end of the American

colonial period and even Into the era of the Philippine

Commonwealth*
In the course of drafting the Lav f it was taken
back to the Philippines for comiaent "by the influential
Pilipinos*

The Lav was

Salajaanca Bonifacio, S. The Filipino R e a o t i o n

to Aingrican R^Ie 1^01 -1913* Harden, C o m : The Shoe String
Press, 1968, p. 1 4 4 - H T /

40
weighed in advance f and had been f o u n d ,
w a n t i n g , by those interests it affected

A s a result of debate f two provlsioi^ of the draft were deleted*

These

included a provision for a tax upon corporations and a n o t h e r for an inheritance tax*

d o

Obviously* the latter deletion was a concession to the

class.

The Act then vent into effect on J a n u a r y 1f

1905.

The A c t pcrescri"bed ten major sources of internal

revenue:
License taxes on firms dealing in
alcoholio beverages and totacco
2.

Excise taxes on a c h o l i c "beverages

and

totaoco products

3.

Taxes on banks and bankers

4*

Document stamp taxes

5*

The Cedula

Taxes 011 insurance and insurance c o m p a n i e s

7*

Taxes on forest pccoduots

6,

Mining concessions
Tax on business and manufacturing

10.

Occupational licenses

According to the American administrators f this lav

was m a d e with the intention of creating a m o r e s i m p l i f i e d and
rationalised tax collection system*

It was a l s o guided a t

least initially with a sense of progressive m o r a l i s m to create

a more equitable system.

For example f in the alcove f i r s t and

second item, Ide and Hord tried to shift the tax on a r t i c l e s

of necessity to articles of luxury or optional c o n s u m p t i o n ,

^John S . H o r d , "Internal T a x a t i o n i n the Philippines***

Johns Hopikijis tjniversity Studies in Historical and P o l i t i c a l
Science< XXV-1 (1907), 7-431 Quoted from L u t o n , op* cit* Hord
was the collector of Internal Revenue for the P h i l i p p i n e s and
had assisted Ide in drafting the N e w Internal R e v e n u e Law*

41
It vas assigned that only the more vell-to-do could afford to
buy liquors and tobacco and therefore heavier tsoc on these
items would not affect the poor.

This was made in contrast

with t h e Spanish system which collected heavier tax on

imported rice and cloth rather than canned.food and s i l k .
The change on the other hand ho the documeii s t a m p
tax was introduced to make the collection of this tax more
simple and efficient*

The new Revenue A c t of 1904 exempted

sums less than 50 pesos from such taxes and deleted a

"multitude" o f documents and drastically reduced the rates
on o t h e r s .

Throughout the whole American period, d o c m e n t a x y

stamp duties remained low when compared to the Spanish p e r i o d .

This vas a conscious move of the Americans to stimulate business
development
The Cedula underwent changes in the new legislation*
D u r i n g the military government, they had already altered the
rate o f the Cedula

It was reduced in amount from a n average

of five pesos per adult male to a straight tax of one p e s o .

%

The importance of the Cedula as a source of revenue g r e a t l y

declined due to this move*
direction.

The new Revenue A c t reaffirmed Hits

In 1907, provinces were authorized to levy one

additional peso fee for certificates of identity.

This w a s

the so-called Dout>le Cedula which provided expenditure for

the construction and maintenance of roads for the different
provinces%
A s mentioned earlier the industria tax was levied
by the Spaniards on the "business community*
highly c o m p l e x .

This system was

Industrial and commercial activities were

divided into about four hxmdred. types and in each activity

42
a tax was set roughly equal to its profitability*

The new A c t

imposed a percentage tax on sales payable qxiarterly*

The tax

rate was one peso on each 300 pesos worth of sales and it was
assumed by the administrators that small merchants would pay
less as his volume of business was limited and the system vould
therefore be more fair and just.
Modifications after the Internal Revenue^ l^r o f J 9 0 4
During the passage of the Underwood Tariff A c t of
1915, there m s an expectedly sharp reduction

.n the revenue

of the Philippine government due to the lifting of export

taxes levied on sugar f tobacco 9 copra and h e m p .

Governor-

General p a n e l s Burton Harrison therefore urged

an increase

in the tax: receipts to msk.e up for the loss.

By this period^ the Filipinos had already got control
of the Assembly^

However, they did not take this opportunity to

introduce any major change to the tax system*

M i n o r changes

of the 1904 Internal Kevenue Act to increase more tax receipts

were made mainly by imposing taxeson mines > petrolema products
and certain dealers of ipetrolettm products and tobacco
Other new sources introduced in the tax structure
were few in later years*

In 1314, an income tax was introduced*

In 1919 t a small inheritance tax vas also created*

finally, in

1932 f a national lottery vas created to generate more revenue*

Nevertheless^ none of these nev introductions created really
significant tax income*

The income t a x , for e x a m p l e , generated

less than 2 percent of total government revenue in 1915 and t y

1950's, it still generated less than 5 percent.

Internal Revenue System of the Commonweanth Period (1^55-1942)

When the Filipino finally got political pover from the
hands of the Americans, the general public of the Philippines had
expected that the new political national elites would do more to
improve their conditions.

It was generally felt that the American

tax system was not really equitable as the burden of the tax fell
more heavily on the poor.
This forced the national political elites to introduce
measures and new legislations to make the taxation system of the
CoEimonwealth to appear to be more equitable.

In 1936, the Philippine

Commonwealth Government began to increase the income tax: rates*

This

new income tax rate increased the surtax rates on n e t incomes of

individual in excess of 10,000 pesos and reduced the personal exemption of individuals n
increased*

The income tax rate on corporations was also

In the following y e a r , the Ceduia T a x was abolished#

The alaolition of the Ceduia seemed to be a progressive move

to alleviate the poor from this inequitable "head-tax'*.

H o w e v e r , in

1940, another tax called residence tax was imposed o n every inhabitant
of the Philippines over 18 years of age and also o n every corporation*
Though this tax was graduated according to the ability of the person
to pay, it was in fact a minor modification o f the Ceduia rather
than a radical departure from the inequitable old system*
The more important and far reaching change o f the taxation
system of the Philippines occured i n 1959.

In this y e a r , the Common-

wealth Government drafted the National Internal Hevenua C o d e .

The

major changes of the new tax system could be sunmiarised as follows i

44
The normal tax of 3 percent and the
surtax on income was replaced by a
single tax at progressive rate
2.

Personal exemptions were reduced

3*

Corporation income taxes were increased

4.

The inheritance tax was sli^itly increased

by introducing tajces on inherited estates
or gifts donated in the name of the dead person

5*

The cumulative sales tax was replaced by a

single turn-over tax of 10 percent on luxuries

6*

Tsoces on liquors, cigarettes, forestry products

and mining products were all increaaed*

7*

Dividends were made taxable

In conclusion* the tax structure of the Gommonwealth

could not be desori"bed as equitable*
revenue was still on indirect tax*

The major source of

Over fifty percent of

the revenue was indeed taxed from indirect sources and therefore it was less fair for the poor.

On the otker hand* we

should admit here that the Commonvealth system was a b i t more

equitable

when compared with the American revenue s y s t e m .

Nevertheless their difference Is one of degree rather than

of kind*
iLmpac of, the Internal Revenue System i B on the Philippines
It is important to note that the Americans gained
control of the Philippines with the consent and acquiescence
of the ilustrado class*
class.

The ilustrado class v a s a land-owning

As a result, the economic policy of the Philippines

(hiring the American colonial period and the Commonwealth period

tended to reflect this class bias in the formulation and

shaping of the actual policies.

Ptom the Internal Revenue

policies f it could easily be seen that the taxation system

tended to favour the wealthier ones and especially those
who owned land*
The internal revenue system was never progressive
in the Philippines during the period londor review*

The

abandonment of the proposal to introduce an inheritance

tax at the 1904 Internal Revenue Act was indicative of this
tendency to favour the upper class.

That the importance of

indirect tax vas generally greater than the direct taxes

implies the burden of tax could be more easily shifted to
the consumer and thus the wealthy could still "benefit more
than the poor in the taxation system.

Both the Americans

and the ilustrado class in the Commonwealth period "believed

that heavy taxation on liquor and tobacco would not affect
the poor very much as they thought that those who could
afford to buy these products would not "be too poor.

However t

110 evidence clearly confirms that the poorer sector does not
drink wine and smoke.

Moreover, the consumption of alcohol

and tobacco need not increase with income and therefore the
well-to-do need not carry a heavier tax burden on these items*
Some vriters believed that the 1939 National Internal
Hevenue Code vas a marked move towards progressive taxation.
The new income taz systen vas cited as an example as it increased
the ratio of tax to higher income groups than the pre-1959
period.

However, it is import ant to note that in the n e w

code a new rate of 0.5 percent was levied on those who earned
a net income of less than 2,000 pesos.

Thus by lowering the tajc

46

exemption l i m i t , the poor did not actually benefit b y the increase

of

the t a x

xa.te on the higher income bracket groups.

I n addition,

the replacement of the Cedula by the residence tax f a t h e r

indicated that the tax system of the Commonwealth period was
not m u c h more progressive than the American colonial period*
In the whole period under study, the tax "burden a c t u a l l y fell
heavily o n the poor.

The social structure affected "by the

revenue and taxation system w one which was marked by

inequality*
Perhaps the single feature which characterised the
internal revenue system of the Philippines during the colonial
period and the Connnonwealth period was the low taoc o n agriculture.

The producer or exporter of agricultural products

were exempted from tax payments*

The land tax of the

A m e r i c a n period was usually undertaxed and this tax never

constituted a major revenue source of the Philippine government*

This tax was finally abandoned in the Commonwealth

period*

The revenue system together with the tariff system

therefore helped to promote a surge of export agricultural

products.

The system served to reinforce the export dependent

economy of the Philippines on primary products*

Finally, there was no conscious effort of the Ajnericans
to use the internal revenue system to diversify the economy*
did the Americans use the internal revenue system to direct
economic development*

A s Luton remarked

the modern sectors of the economy

carry a disproportionate share of the tax burden,
such as the income tax of 1915, were most
effective in taxing the more modernised sectors
of the economy*^

\ytott , H^^t-y op* c i t p . 145.

Nor

47
Basically* the land-owning class was favoured by this tax
system*

A s a result t the incentive for industrial investmeni

vas n o t h i in the Philippines in this p e r i o d .

W h e n the

"background of the ilustrado class who occupied positions in

the government was taken into consideration In c o n j u n c t i o n
with this lenient tax policy on the l a n d i t is not d i f f i c u l t
to find a reason accounting for this phenomenon*

Chapter IV

Monetary and Finnic Policy

When the Americans came to the Philippine i s l a n d s ,

they discovered that the currency system of the islands vas
very unsatisfactory.

In the first instance, there were coins

of several countries circulating in the market and th*.s often

caused confusion.
of currency*

Moreover, there seemed to "be a n insufficiency

Lastly! the introduction of the American currency

had caused inflation in the Philippines.

The military government at first followed the old
system b y importing Mexican pesos to make disbursement in
the Philippines,

Believing that the silver pesos were the

most widely used coins at that time, the military government

hoped that by usin^ more silver coins, the confusion in the
variety of coins could be reduced*
H o w e v e r , this was upset b y the rapid rise in the
price of silver in the Par East due to the Boxer Rebellion*
A lot of silver pesos were being secretly exported out from
the Philippines and soon there was again a shortage of
circulating currency,

48

When the Philippine Commission took power, they

began to investigate the situation.

C . A . Conant, a n expert

in monetary affairs, was appointed by the government to

investigate the situation.

Later his recommendations were

accepted and "became law in the Acts of Congress in 1902 and

1905.
Introduction of the Gold Exchange Standard
In the Philippine Coinage A c t , the gold peso was
fixed at a rate of one-tenth of the U . S . five dollar ^old
piece, i . e . two peso to one U . S . dollar parity.

The Congress

further ordered that a silver peso representing this theoretical

gold peso be coined along with subsidary coins.

The pure gold

standard therefore gave way to a silver equivalent.

This was

due to the belief of the Americans that the introduction of

pure gold coins in the Philippines might run the risk of
disappearance from the market.

IPhis was attributed to the

melting of gold coins for ornamental purposes.

On the other

hand the introduction of pure gold standard was thou^it to be

inflationary.

This was due to the conjecture that the Filipinos

had used to receive payment in coins and a Filipino worker

might demand to receive the same one new gold peso as wage
which was actually of higher value than the ptreviotis one
silver peso.

Inflation would thus result*

The Coinage Act further permitted the Philippine

Commission to issue silver certificates on the condition

that it should fee backed ^y the deposit of silver pesos i n a

Silver Certificate Reserve Fund*

The Commission was authorised

to issue $10,000,000 worth of certificates of indebtedness.

The Philippine Commission further established a
Gold Standard Fund to maintain the parity of the peso to
the dollar.

The fund was to be kept on deposit in taiiks in

the tlnlted States.

It was the desire of the designer of the

currency system of the Philippines to malce it self-regulating.

It was conceived that the raoney supply would automatically
increase when the colony had a n export trade balance and
decrease when there was an import balance.
With the introduction of the gold exchange standard,
the Commission government immediately experienced a number
of problems.

The first problem stemmed from the conception

of most of the Filipinos who thought that the new Filipino

peso was of the same value as the old Mexican silver p e s o .
Actually, the new peso had a greater gold v a l u e .

As a

result, some profiteers sold Philippine pesos for drafts

against the Gold Standard Fund and use the dollaxs so
acquired to import Mexican pesos to the Philippines.

This

was solved when the authority later for"bade the impoxtation

of non-gold"Convertible

currencies.

The second problem emerged due to a rise of silver

price again in 1905.

There was therefore a continual out-flov

of silver pesos of the Philippines for conversion into b u l l i o n .

This pushed the Congress to grant permission to the Philippine

51

Commission to recoin its currency.

The new coin was made

with a lower silver content and this stopped the flow

effectively*
A t the same time* it was found out that the
silver certificates were popular among the ilipinos and
paper currency was preferred to silver pesos^

This made

the silver certificate reserve quite unnecessary as there

was no evidence that the Filipinos would ever be eager to
convert the certificates into silver coins
As a result, in 1905 Congress allowed the
Philippine govemmeTit to hold u p to sixty percent oX the
total amount of silver certificates in the form of gold
coins of the United States and that the certificates could
either be redeemed in silver pesos or in gold coins*
The Gold Standard Fund grew rapidly in the
following years*

In 1908, the Gold Standard Fund was

eq.ual to forty percent of the total monetary circulation

in the Philippines*

In 1908, the Philippine Commission

began to deposit a portion of the Gold Standard Fund i n

banks in Manila*
The Establishment of Currency Reserve Fund
Thxee Gold Standard Fund Acts were passed in later
periods.

In 1911,he P h i l i p p i c Commission recommended

that f subject to the approval of the Governor-General, part

of the Gold Standard Fund be invested in-the Muslim srnd n o n Christian provinces*

The Second A c t maintained that the

amount of Gold Standard Fond should be fixed at 55 percent

of the money in circulation issued by the Philippine
Government.

The excess amount was recommended to he

reverted to the Philippine Treasury.

This act also

provided that 25 percent of the Fund be made available

for loans to the Manila Railroad and another 25 percent
be made loanable to provincial and municipal governments
for public works

In 1915 the third Act was passed to

raise the amount of the Fund that could be lent for

investment up o 80 percent.

The resulting effect o f

these Acts was a reduction of the liquidity of the Gold

Standard Fund.

Since most of the loans were on l o n ^ term

"basis, which included loans to public work?and the sugar

and coconut Indus trie

only the scant cash remaining was

available for honouring drafts against the Fund.

The operation of the Silver Certificate Fund
also diverged from the originally d e s i r e d plan of the
system.

By 1916* due to the decision of the Judge

Advocate General

1
f

silver certificate reserve deposits

^The original Congress legislation provided

that the fund should be deposited in the treasTiry of the
government or its tranches. Judge Adovocate General ruled
that the1 branch could be in the United States*
Luthringer,
George J , The G o l d - E x c h a n ^ Standard in the Philippines.
Princeton University Press, 1934t Quoted from Giesecke,
op* c i t * 1 1 0 .

were made in banks of the United States.

According to

Luthringer t the silver reserve deposits in the U n i t e d

States grew to $28,400,000 which vas eq.ual to 81 percent
2

of the Silver Certificate Fund ^y 1918 *

This vas

actually in contradiction to the legislation mentioned

earlier which stated that only sixty percent o f the total
amount o f silver certificates could be in the form of gold
coins of the United States.
have
The violation of this standard mightAbetin"brought
about b y the boom of the export economy of the Philippines
tfy the World War I which demanded more money supply in the
Philippines*

On the other hand, there was a rise of price

of silver durir^ this period.

The Philippine Government

took this opportunity to gain more revenue b y selling

silver held in the treasury*
A s a result of the above confusions and deviation
from the originally planned system* in 19^8 the Philippine
Commission proposed to combine the Gold Standard Pund and
the Silver Certificate 'Fund into a single Currenoy Reserve
Fund.

I n the same proposal, vhich was later p a s s e d , i t

f a t h e r recommended that the Treasurer had the discretion

of redeeming silver certificates either in silver coins or
gold currency.

A n e v certificate called Treasury Certificate

vas to replace the silver certificate.

The Currency Reserve

was to te equal to 100 percent of all the treasury certificate

2

op#

L u t h r i n g e r t op* c i t " p- 4 2 .
c i t " p . 110*

Quoted from Giesecke*

in circulation plois 15 percent of all money in circulation

in the Philippines^
The Estalalishinent of the Philippine National Bank
Before 1916, two British banking institutions

the Manila branches of the Hongkong and Shanghai Banking

Corporation and the Chartered Bank of India, Australia axtd
China monopolised most of the Philippine trade.

This chain

of banks were accused by pilipinos of monopolising the export

trade and failed to invest in the Philippines.
Therefor$ Quezon advocated that the Philippines
should be ,,financially independent of zxxy outside corporation
so as to break the monopoly of the British banks.
Philippine National Bank (ENB) ws set up in 1916.

The
It was

designed as a commercial bank ^ith 51 percent of its stock

owned by the Government.

c s main aim vas to provide

capital for commercial d jvelopment of the Philippines,

With the establishmer ^ of this bank, the functions of the
Agricultural Bank created by the Philippine Legislatiire on
June 1 8 , 1908 vt.re replaced.

Tlv original Agricultural Bank of the Philippines

vas not to tally satisfactory.

Firstly, the baaxfc was of n o t

much assistance to the farmers as most applications for

Quezon to S* Osmena f December 9 195* Harrison

Papers t Box . Quoted from Masse t Eugene H . Francis Burton
Harris9n T Governor General of the Philippine Islands t 19131921 Tha Catholic University of America, Michigan ;
University Microfilms International, 1979. pt 199.

5
5

loans were rejected due to defective account of the land

titles.

The majority of loans then went to large hacienda

owners and sugar planters.

the l^ank was found to

During the World V a r I b o o m ,

lack tJjtcapital to supply for the

high demand im. its loans.

The creation of "the Philippine

National Bank was thought to be one of the solutions to the

problem as the new creation had a capital of $20,000,000
which was 20 times the initial capital of the Agricultural
Bank.

The ability of the new bank to make loans to the

farmers and businessmen was therefore greater*

Harrison, the Governor General at thg

time,

appointed D r . H . Parker Willis to head the seven^Board of

Directors of the bank.

Under the law, the bank was not

allowed to lend more than fifty percent of its capital to

agriculturers.

In addition, the "bank should not issue its

own bank notes in excess of 75 percent of the value of short term

securities it held.

All deposits of the Philippine Clcvernment vas

hitherto demanded to "be made through the Philippine Mational B a n k .

B y 1918, the "bank had grown to substantial s i z e .
Meanwhile f 75 percent of the Currency Reserve Fund was o n
deposit with the Philippine National Bank in N e w York C i t y . ^
Monetary Crisis and Solution
Once

the Bank vas established, it experienced

a shortage of banking personnel*

IPew Americans were interested

^ u t h r i n g e r , o p . cit*^ p . 94op* cit. # p* 116*

Quoted from Giesecke^

to go to the Philippines to develop a banking c a r e e r .

On the

other h a n d , few Filipinos were trained in finance*

In 1916Ferguson succeeded Willis to the presidenqsr
of the Bank*

Perguson initiated the trar^ferrence of the

Currency Reserve Fund to the New Y o r k branch of the P h i l i p p i n e

National B a n k ,

Thus the reserve fund which should have

secured treasury certificates vas put under the control of

the Bank*

Moreover* the currency reserve was loaned to

stigar centrals and oil m i l l s .

A c c o r d i n g to M . E u g e n e
In 1919 the Currency Ee serve Fund a m o u n t e d to
$46 million; in 1921 the fund was $2 m i l l i o n . The
Philippine National Bank's own notes b e i n g secured
only b y the capital and reserve of the B a n k , The
remainder vas sq.'uandered*
The reason accounting for the a/bove situation was
due to the misioariagemerif the business of t h e B a n k "under
Ferguson's leadership*

I n the first two yeaxs o f the i n c e p t i o n

of the b a n k , it had brought substantial contribution to the

industrial and agricultural development of the*islands*

It

"brought down the interest rate and made credit more e a s i l y

available for enterprises.
H o w e v e r t starting from Perguson t the B a n k treated

the Currency Reserve Fund as a monetary asset

and u s e d i t

widely to extend credit to the "business and a g r i c u l t u r a l

sector*

Excessive allowances of credits were granted to

^Nathaniel P e f f e r , Philippine H e r a l d , June 1 9 1 9 2 1 ,

Hairrisori P a p e r s , B o x 4 4 . Quoted from M a s s e , op* c i t p* 204-

7
5

businessmen dealing with hemp and coconut oil during the

administration of the third President of the Baiik,

Con-

cepcion and his Vice-President Delaney who were bct^

Filipinos.

Throu^i these transactions f Concepcion secured

control of a nitmber of new sugar mills for himself.

The

Philippine Vegetable Oil Company and Philippine ^Prust

Company # in which Delaney was a director

of the board,

were among the greatest borrowers of the Philippine National

Bank.
The collapse of the war "boom in 1919 caused a
sudden fall in the price of sugar and coconut products *
This worked unfavourably on the Philippine trade balance*
The government was soon

short of foreign exchange and

the sale of drafts for foreign exchange had to be siispended

in the same ye ax.
.

Further depression in the twenties gave an

additional blow to the export indi^try of the Philippines

Many major "borrowers of the bank was in bankcruptcy and
the monetary crisis of the islands continued until the
end of the Harrison period
When Leonard Vood suceeded as the GovernorGeneral of the Philippines he was convinced that the
monetary crisis was a demonstration of the inability of the
Filipinos to govern themselves

He felt that the Americans

should remain in the islands for still a long period to come

and was determined to restore the self-regulating monetary
system and efficient management of the Government,

58
A t the end of the Harrison*s administration, the
insular c-urrency was no longer backed lay gold.

A s already

mentioned t this was due to fact that the Philippine National

Bank had used the Ciirrency Reserve Fund in its N e w York
branch as a source for long term loans i n the islands.

Wood

proposed to restore a new Gold Standard Pund and it was to

be deposited in the United States either in Federal Reserve
Banks or in tanks that vere members of the Federal Reserve
System*

The Fund should cover 25 percent of the ciarrency

in circulation in the Philippines.

The old Silver Certificate Fund was re-established
in the name of a Treasury Certificate Fund which consisted
of silver pesos or half pesos kept in the -vaults of the
Treasiory of the Philippines*

It should be equal to all o f

the Treasiary Certificates in circulation*

Permission was sought from the Congress to use
debt financing*

It was granted by the Congress that the

government could issue bonds within the liiait of 10 percent

of the assessed value of property.

Througii the above

measures 9 the fananciai crisis of the Philippines was

solved by 1922.

In this period the peso was exchanging

far dollaxs at pan:*

Wood was also determined to limit the influence
of the Philippine Sational Bank*

He ended a l l requirements

to deposit governnent funds in the l>arik and sought to reduce

the capitalization of the bailk by 50 percent.

The government

f a t h e r helped the tanlc to stand o n its feet by purchasing

9
5

the stock of the corporation held privately and the cancellation

of government deposits remained m

the loank.

The redemption

of notes of the baua^ vas guaranteed by the sale of bonds to

provide a reserve*

All iHicolleota"ble loans vere written o f f .

Since the opening of the Philippine National Bank

and up to 1924 the Report of the Governor-General concluded
that
total losses^suffered by the PNB h a d been in
excess of $76,OOO t OOO*
M o r e o v e r , the bank was mainly geared to the sugar interests
which borrow nearly two-third of Its loans.
The revival of the world econon^y in late twenties
brou^it back prosperity to the Philippines and the currency
of the Philippines vas on sound "basis once again*

All

subsequent Governor-Generals followed strictly the law

in maintaining the defined amount o f the Treasury Certificate
Fund and the Gold Standard Fund*

Againt as be foret Filipinos

preferred to use paper currency, treasury certificates*

Thus

the Treasury Certificate Fund had taken the place o f the Gold
Standard Fund*

The financial policy of the Philippine

Ckivernment after Governor General Harrison became more

conservative.
necessary*

The monetary reserve vas actually more than

I n 1952 for example, the liquid reserves of the

Philippines amounted to 123 percent of the m o n e y issued b y

the Philippine G o v e r n m e n t

^Quoted from Giesech^ op^ c i t p , 120*

L u t h r i n g e r , p , 254*
P . 122.

Quoted fxom G i e s e c k , op* cj/t"

Extension of Sankin^ and Credit Jkcilities during

the Coninionvealth Governiaent period
The Commonwealth Government up to 1942 did not
alter the banking legislation and monetary policy established
"by the colonial government.
qxialified personnel

The problem of the lack of

continued*

Frequent scandal and mal-

practices in the tanking circle vere also reveal e d .

Perhaps

taking the lesson of the Philippine National Bank in the

Harrison period f a l l Philippine banks were rather conservative and a l l had a reserve usually above the required araoimt*
What most politicians felt in the Coninionwealth period
was the lack of sufficient banking and credit facilities in the
Philippines,

Iri 19311 a lav was p ^ s e d by the Philippine

Legislature to provide for the establishment of rvral banks

throughout the Islands*

Nevertheless* no laanks were established

under this lav*

W i t h the establishment of the Commonwealth Government,
Agricultural Credit Cooperative Associations were encouraged*
These Cooperatives should have a mem"bei^ship of 20 to 100 and
should have a capital of not less than 1,000 pesos nor more than
5 0 1 0 0 0 pesos

One year crop loans for production of crops or

loans for agricultural operations promotion could "be obtained

from the Philippine National Bank*

A"bout 500 such Associations

existed in the Commonwealth period.

It should, however, be emphasised that these
cooperative associations were not meant for the "benefit

61

of small tenants.

The small sum required for becoming a member

of the Association was already beyond the reach of the majority

impoverished small tenants.
In 1939, the Commonwealth Government organised an
Agricultural and Industrial Bank.

Its function was to provide

long term credit for industry, -trade and agriculture.

The

bank also "became a trustee for a number of funds formerly

managed by the National Investment Board.

These incliided

the Agricultural Cooperative Pund, Government Service

Insurance Investment Fund, Land Title Assurance F u n d , and
Municipal Loan Fund. etc.

The bank had jiist started operation

before the Japanese wax amd came to art halt in the w a r .

The

total amount of funds held by the bank amounted to 53,684,654

pesos at June JO, 1940. 8

In addition, the t?ank was provided

with 25,000,000 pesos from the Coconut Oil Tax Rind,

In the Commonwealth period, tanking facilities
outside Manila remained insufficient*

Only the Philippine

Sational Bank had ten "branches and. 46 agencies.outside

Manila*

These were not sufficient to meet the demand of

the public.
Impact of the Monetary and Finance Policy on the Fhlli-ppinea
From the a>1ive discussion of the monetary and finance
policy of the Philippines, it could "be seen that the Philippine
did not consciously manipulate monetary policy to facilitate
the economic development of the Islands.

The monetary system

vas built on a laissez-faire model of non-inteirwention.

Army Service forces Manual, Civil Affairs Hsmdljook.

fhe Philippines, S e c . 5, p . 22. Quoted f^om Stine, o p . cit.,
P . 115.

62

The use of the reserve fund for credit to

agriculturers vas a divergence from the original monetary
model which was not meant for such manoeuvre.

The

inexperience o f the administrators and the corruption

of the Filipino elites had caused the monetary crisis
of the Philippines towards the end of the Harrison
period*
A f t e r the Harrison

period, subsequent

Governor-General? were overtaken by the lessons of the

monetary c r i s e s created b y the Philippine National B a n k .
They began

to t^ce a more conservative stand on the

monetary fund of the Philippines.

The excessive amount

of reserve meant that some part of the reserve which could

originally be engaged in profitable imrolvement was n o w
lain i d l e ,

The subsequent conservative monetary policy

served to reinforce the status guo and the economic

structure of the Philippines*
O n the other hand, it could be seen that the
credit facilities developed on the islands during the
period reviewed mainly catered for large landlords and
sugar interests*

The nature of the borrowers from the

Philippine National Bank and the membership requirement

of the Agricultural Credit Cooperative Associations
vindicated this observation.

63

Though the Philippine Na/tiona Bank was thought to

be an important instrument m

t m a n c i n ^ the industrial

development of the islands, it never realised its potential*

Due to other factors, e*g* tariff policy and internal
revenue policy, industrialisation was never encouraged
by the American colonial government*

Given this prevalent

situation, the Philippine National Bank was m a i n l y geared

to the financing of agricultural investments-

Chapter 71

Provision of Infra-strueture and Government's

Intervention into Business

The development of the infra-structure of the

Philippines was intimately related to the overall economic
development policy of the Islands*

The occupation by the

Americans had altered the economic structure of the Philippines

to become eTrport-dependent on the American market.

Moreover,

there was a growing dependence on the export of primary

products*

All "these called for better transportation and

shipping facilities which tied the economy of the imperial

and dependent country together.

Good transportation system

is essential for an export dependent economy and the American

administrators had realised this.

There is no wonder then

w h y the colonial administrators paid so much attention to the

development of the transportation system of the Islands despite
its meagre involvement in developing other spheres of economic
activities.
The involvement of the colonial government in
Trasiness revealed two contradictory trends a

These two trends

could be epitomised by the two different views of GovernorGeneral Harrison ( 1 9 1 5 1 9 2 1 ) and Governor-General Vood (1921
1927).

The former represented a supporter o f the Progressive

movement in

and, being a Democrat, he supported the early

64

independence of the Philippines*

Under his leadership, he

successfully Filipinlzed the civil service and embarked on

a number of projects to encourage the greater participation
of the Filipino elites in the management and intervention in
the economy,

Governor-General \Ioodf loeing a stout advocate

of economic literalism, tried to dismantle most of the

government owned 'business enterprises of the Philippines*
This caused considerable conflict with the Filipino elites
T

and mounted to the faipous cabxn2t crisis

of the Philippines*

"When the Com!nom e^] ih government took power, they

were ready to revitalise the cvernnerrts involvement in th^
development and oontro] of the economy.

This represented a

reaction to the Wood adminfration as veil as a movs to

expand the powsr of the political elites in economic s p h e r e s .
I n this chapter, 1 shall outline first the government's
intervention in the transportation system, namely, the road
s y s t e m , the railroads, shipping and the improvement of ports,
1

then the government s effort in business ventures*

The Road System
Ever since the military government, the Americans
were quite serious in developing the road system in the
Philippines*
purposes

A t first, roads were btiilt mainly for m i l i t a r y

This would enalDlo the American army to gain better

access to suppress the resistant Filipino guerilla^

During

this period, the building of roads was not subject to longterm and systematic planning.
W h e n Fortes became a member of the Philippine
Coinmission in 1905, he began to pay more attention to

developing a comprehensive road system in the P h i l i p p i n e s .

H e

proposed at first to require every mail in the Philippines

to contribute five days labour each year or pay a substitute

amount of labour for constructing and maintaining roads
However, the stri king similarity of this system with he
forced laboiir system of the Spanish period made it h i g h l y
unpopular arid few provinces adopted the system,
Prioir to 1 a c c o r d i n g

to Forbes , the road

system vas unsatisfactory and the deterioration of roads

was swift due to the tropical weather of the islands*

The

only road improvement measure implemented was the replacement

of the post of provincial supervisor of roads b y a n engineer
directly responsible to the Bureau of Public W o r t o o f the
Insular Government and the prchitition of bullock carts
from using public roads as they caused destruction to the
road bed due to the sharp and narrow-rimmed w h e e l s .
In 1907i the Double Cedula A c t was passed giving
power to the provincial government to collect an a d d i t i o n a l
one peso per person Cedula tax for road maintainence and
construction.

This tax system vas quickly adopted by a l l

provinces because the Insular government ordered that a n y

appropriation for public works would be made o n the condition
that the provincial government applying for the appropriation
adopted the Double Cedula s y s t e m .
Following this, Forbes introduced the caminero
system to the Philippines

The camineroe were road workers

employed by provincial governments from the Double C e d u l a

fund for the maintainence of r o a d s ,

A resolution w a s passed

Forbes, William C . The Philippine Islands Cambridge:

Haward University Press, 1945* P* 199*

67
requiring the employment of one caminero for each two kilometers
of first class roads at normal times.
Apart from the emphasis on the maintainence of the
roads in the Philippines which were partieularl,susceptible to
:ropical weather erosion, Forbes insisted on the use of permanent material to build bridges and culverts.

Concrete was

used to rcplace w o o d e n or steel which were less resistant to

the erosion of humid climate.
Under Harrison's

adainistration more roads were

built but at the expense of good quality.

Due to the competi-

tion of the politicians in the provincial governsent, more

roads were builfc to please the voters.

When Leonard W o o d

came to the islands, he restored the insistance on p e m a n e m ;

and sood quality roads as^the Porbea period.
The increase of the road mileage was impressive
during thn American administration.

The folloving table

tshows the achievements

Table 3
Total Mileage of Roads in Existence 1907_192^

Year

Pirst-class roads mileage

1907

503

1910

764

1915

1 ,yo6

1920

2,920

1925

5520

SoTirce: He port of the Governor-aeneral, 1925 & 1 9 4 2 .

Quoted from F o r b e s , o p . cit., p . 2 0 2 .

68

Kot all of the funds for road building were tised for
building roads which had helped in economic development.
building of the Benguet road to Baguio is an e x a m p l e .
of Ba^uio was a complete invention by the A m e r i c a n s .

The

The city
This "was

"built as a temperate resort for the American colonisers.

In

buildine a road to the 'invented' city, the Americans accidentally

"though
chose a wrong route which passed^a region of shale rock f o r m a t i o n .
The biillding of the road was extremely difficult and once when
the road was built (in 1905) it suffered frequent collapse due
to heavy rain and the particular geological structural weakness
of the area.

Finally, the road had to be re-built in 1914 and

this had already cons used a total of ,,J2,754,281 .05.^

In the initial period of the Commonwealth Government,
more emphasis was on the building of second and third class
roads

These were roads to new areas which were formerly

neglected, by the Americarns duo to th^If little economic si^nifi

canoe

The building of first olass roads received much more

attention after 1941 *

A n interesting point to note is that in the Commonwealth
period, considerable road construction was undertaken in M i n d a n a o ,
Quezon believed that this was in line with the southern expansion
programme and economic development of Mindanao.
Table 5.2 below shows the aohievement of the Commonwealth
Government in road buildings

Elliott, Charles B * , The Philippines: To the E n d of the

Commission Government
: Greenwood Press, 1?68, p , 298*

Table 4
Kilometers of Roads Built 1 9 5 6 1 9 4 1

Year

1st class

2nd class

3rd^class

1956

271.8

523.6

443.5

1957

517.5

405.0

no data

1958

527.0

321.0

705.0

1959

208.3

878.9

85L4

1940

155.1

538.8

150.0

1941

703.2

405.4

592.0

Railroads
The Americans vere not so successful in introducing
railroad transport as a means of transport*

Early in the Taft era

the Philippines Commission had tried to develop r a i l transport

in the islands by guaranteeing payiaent of interest on bonds
issued by railroad construction oompanies for building new
railway lines m

the islands.

Indeed, in 1905 the Philippine

Commission advertised in Vashington and Manila for bids for the

construction of railway along eleven routes in L u z o n , Panay f
Gebu t Samar, and Leyte,
not satisfactory*

The response, however, was

Tnere were only three applications and the

Comanission had to schedule for another bid*

UnforttHiately, in

the second bid there were only two bidders.

Only one, the Visayan

Syndicate 9 was accepted for lines in Penay, Gebu and N e g r o s ,

A s mentioned, the goverrunent had to guarantee four
percent interest on the bonds issued by the Syndicate.

Free

concession to the land required for the railroad was also granted.
The Syndicate was incorporated into the Philippine Railway

^Quoted from Stine, o p v q i t "

p- 77

Company,

It only constructed lines in Panay and Cetiu.

The

line constructed was not very profitable but important

"because it transported considerable amount of sugar in
Panay and coment in Cebu,
Before the arrival of the Americans, a British owned
company called the Manila Railway Company, Ltd* had already
been operating a railway line in the vicinity of M a n i Z a ,

When

the Americans occupied the Philippines, the company had always

pushed the Government to make payments to the company under
the terms fixed by the Spaniards and to claim damages during
the war*

None of these demands were entertained by the A m e r i c a n s .

Finally a new Manila Railroad Company was formed in

the United States and was entirely owned by the Manila RailwayCompany Ltd* of Great Britain.

This newly incorporated company

took control of the Manila Railway Company and o"btained similar

concessions as those obtained by the Visayan Syndicate except
for the absence of guaranteed interest payments on b o n d s .
The situation changed in 1909 vhen Forbes promised
to grant guaranteed interest payments on the bonds of the
company 011 condition that it connect the existing line with
the Port of M a n i l a , the extension of the line in the province
of A l t a y and the construction of another line to Baguio*
More important, Forbes tried to use the Gold Standard
Fund to finance the company for its new construction projects
The eagerness of Fortes to help in financing the new projects
of the Manila Railroad Company was mainly due to his private
interest to develop the Baguio city as a resort for the Americans
This coincided with the failure of the road to Bagnio in ^^0^

71

when there was a typhoon which nearly completely destroyed the

whole r o a d .
V h e n Harrison came to the Philippines to succeed
F o r b e s , he was critical of Portes' oolicy toward the M a n i l a
R a i l r o a d Company.

He believed that the Gold Standard Fond

should "be used to finance other more useful public w o r k s .

In 1912, a railroad scandal of the Coapany further
strengthened the determination of Harrison to alter the policy

of F o r b e s .

I t was found, out that several high rank officers

of the Company purchased land in advance which were designated

to be railroads and then resell it to the company for profit.
In 1915 Harrison recommended the Philippine Qovernmerrfc to purchase the Manila Railroad Company.

Harrison "believed

that the granting of perpetual franchise to the Company wou]d

i

left the Government with no power to control the company in a

easy w a y .

In view of the malpractice of the company which had.

already been detected the Government purchased the Company for

4,000,000.

The Company was officially acquired "by the Commission

in 1 9 1 T .
During the Commonwealth period, in 1935 "the Govermieiit
provided further funds to be loaned to the Manila Railroad
Company.

In 1938 and 1959, the government made further

subscription to the capital stock of the railroad company.

After acquiring sufficient fund, the Company began the operation
of its Mindanao Motor line in 1940.

Meanwhile, the Government

took over and operated the Cebu and Panay railroad because the
Visayan Syndicate failed to pay its bonds when they were d u e .
1

Nevertheless, heavy indebtedness resulted from the operation of

the railroad in Cebu and Panay.

P o r t

Improvement and Inter-island Shipping

It is important to develop a close link bewen the imperial

country and the colony.

The Americans were therefore keen on in:provins

the Manila haxlaour which was the major link between the United States and
the Philippines.

Back in the military government period, Amfirican

administrators had already spent a lot to enlarge the storage faciil-tiss

of the Port of Manila so as to facilitate the transportation of rdlltsry
supply for the suppression of the islands.
During the Taft E r a , a new breakwater was "built and
dredging work was carried out to make the port a 35 feet deep
sea h a r b o u r .

From 1901 to 1907, a total of $4,500,000 was

spent on the improvement of the Port of Manila

Since the Port of Manila was the only artery for the
import and export activities of the Philippines, it attracted
the major bulk of
monGy spent on port improysnsnt

Thsice was

however a supri^Ingly slow progress on the improvement of ports

in other parts of the archipelago.

In 1905 harbour improvement

work was carried out in the ports of Oebu City and lloilo.
1905 the Commission initiated a anrvey
harbours in the Philippines.

In

on all the ports and

By 1910, 46 ports were surveyed.

H o w e v e r , no action was taken to implement the results of the

sux^ey*

According to Giesecke^
O n the average f however, slightly less than
one million pesos were appropriated for port improvements
in Manila, and almost
all the rest was devoted to w o r k in
6
Cebu and Iloilo.

^"Report of the Chief of the Bureau of Insular

A f f a i r s A n n u a l Report of the W a r Separtment^ 1907, 71,
p . 59* Quoted from Giesecke,
c i t r p . 149*
^Giesecke, op* ci p* 151

3
7

Only until 1918 did the government pay

some attention

on the improvement work in other islands, notably in Mindanao

and Central Philippines*

Nevertheless, the port facilities

of these places remain old and insufficient.

For the first three years of the Commonwealth t

the

governnenL spent about 5,500,000 pesos for port improgeneric

and maintenance work.

The improvement work was more widely

extended to a"bout 90 ports.

This was necescary as the Cormon-

wealth government felt greater n^ed to integrate the whole

country into a nation-state.
The provision of inter-island shipping had caused a
debate between the smoporteraof

government intervention and the

supporters of laissez-faire economic policies*

Back in the esxly

American occupation period, inter-island shipping w&s left to

the hands of private companies

The situation was not satis-

factory as the quality of the service was erratic and poor*

This vas due to the small demand, for inter-island transport which
had little

promise of future expansion*

In 1903* all the private firms engaged in the inter

island shipping business united to call for an increase in fares t

This forced the govornmGnt to allow and authorise foreign ships
to come to the islands to compete vith these companies

However t

the situation did not improve.

As a result, beginning from 1904 the government hoped
to regulate the service b y more government intervention.

This

was achieved by contracting routes to private companies by the

government and in return, fixing the price and regulating the
service of the companies

In the same year^ 21 routes vere

74
opened for bidding.

However, the response was not encouraging

and the government had to go into direct consultation with the

companies*

Only 11 out of the 21 routes were finally contracted

to companies for operation.

In 1905 the government decidrd

operate its o\m fleet in the remaining routes vh^re

companies had no interest to operate.

to

private

A t first, the government

had no Intention to operate these routes permanently,

TrSz

thought, for example, after government's initiation, when

more

private companies had interest in these routes, they vould til:e

over those routes*

However, this never happened.

In the Harrison period* a Public Service CoTnmi^sicn

was set up in 1914.

One of its functions was to r e f l a t e

rates and services of inter-island, shipping "business.

the

Harrison
1

had not the slightest intention to decrease the government s

role in maintaining inter-island shipping service,
When Wood came as Governor-General t he had a completely
different view.

He wanted the government to get out from the

inter-island shipping business as soon as possible.

A t the end

of 1922, he had sold 40% of the government vessel s*

However,

he was unable to get the government completely out of the business

as the absence of government

intervention did not result in

competition and "better c[uality.

The government finally had to

reckon the fact that running the inter-island shipping business

was a service and due to its low profit margin# it had to be
provided by the government.

^HhiB attitude continued to the

end of the American administration.

During the Commonwealth period, the government sought
to increase its influence in shipping business once again by

b u i l d i n g u p a Philippine merchant fleet through the N a t i o n a l

Development Company.

Loans were available from the C o m p a n y

to private shipping firms which had expansion projects in

mind.

D u e to this, Philippine merchant fleet increased its

tonnage rapidly in the first few years of the C o i m o n w e a l t h

government*

Noevertheless, during the Japanese w a r , m o s t

of the ships vere destroyed and sunk.

Government's Intervention in Business
The Republican administrators before the H a r r i s o n ' s
D e m o c r a t i c administration wert not actively involved in business
operations.

M o s t of the business ventures created were due to

a shortage of some services which were needed by the p u b l i c .

A n o t h e r motive for the creation of a particular type of
buGiness venture was to stimulate private interest to further
d e v e l o p this type of new business.
Prior to 1907 a member of business ventures were
developed.

In 1899* the Department of W a r of the United

States gave permission to build an ice and cold-storage plant

in ilanila-

Thin plant was installed due to an acute shortage

of ice and storage service at that period,

Despite the plant

wa.s m a k i n g considerable; profit, the government Intended to sell

it to private hands after 1905*

There was armual a d v e r t i s e m e n t

to sell the plant until 1914 when the new Democratic a d m i n i s t r a tion stopped i t #
Another venture in early A m e r i c a n occupation was the
operation of the Manila H o t e l .

Due to the severe shortage of

hotels in Manila in that period, Americans had to build

o v n hotels for the government*

their

In 1909i a corporation was formed

76

o build the hotel.

utility companies.

Its stock was subscribed to several public

The hotel was completed in 1912 "but it was

not financially sourd.

In 1919, the Manila Railroad Company

iDOUght CMTt the other ctockbolders and became the owner of the
hotel*

A t that time, the Manila Railroad Company

already

a government owned company ani this r.ieant that the Philippine

Commission nationalised the

Hotel.

The Forbes administration, was particularly keen

develop Baguio.

to

Heavy investment \ras made in Ba^uio where

T r

c o t t a r s ^ hotels and dormitories . ere constructed at guvernnent

expende*

Forbec further adopted a system of "reimbursable

,r

appropriations

This was a system under which each government

department could use its income to finance its own expenditure.

A maximum amount on certain item va.s fixed so as to avoid
extravagance *

For those departments which could not self-

support thrniselves the deficit

the central government.

could be made u p by grants from

This creatod a spirit of competition

and free enterpriso in the government system*

For example,

the Bureau of Printan^ gained substantial profits in the sale

of its services, the Bureau of Science profited from the sale
of Philippine birds to other countries and the Bureau ot
Education gained in the trade of its products from the trade
schools*
This system was short-lived as the Filipino Assembly
was critical of its adoption*

They feared that this would

erode their control on the different departments which now

became financially quite independent*

In

refused to pass an appropriation for that year.

the Assembly
This pushed

77
t h e

V n i t e &

S t a t e s

C o n g r c s s to pass an act maintaining that when

an appropriation could not be agreed by the two houses of the

Philippine Assembly, the sum of the previous year could be
appropriated automatically.

In is context, Forbes" started

to use the Gold Exchange Fund to finance a number of his

development plans for the Phili-opines.
When Vilson became the President of the United States,
he appointed Harrison to rpla.ce Porbes ss the Governor-General *
Harrison was a strong advocate of the P r o ^ e s s i v e movement and
he firmly believed in the necessity of early independence of
the Philippines.

He directed the swift Filipnization movement

of the civil service in the islands.

More important in relation

to our discussion here is Harrison's novo to increase the

government intervention in economic activities.
7

According to Apoctol , the motive for this sudden

intensification of government activities in the economic sphere
was to prepare the Filipinos to take raore active part in the
economic sphere.

This was in line with the Harrison policy of

preparing an early retreat of the Americans in the Philippines.

In the first year of administration, Harrison created
the Public Services Commission, a Sugar Central Board, a Coconut
Products Board and a New Industries Board.

The Public Service

Commission was to rejulate rates and services of the public

utilities.

The Sugar Central Board and the Coconut Products

Board were concerned with export promotion and. product improvement.

The N e w Industries Board was created by the "Infant Industry Act"
which also provided for a guarantee of 5 percent return on any

A p o s t o l , Jose P., The Economic Policy of the Philippine

Government. Manila: University of the Philippines, 1927, p . 25.

78
investment in new industries in the islands.

This 3oard was

later replaced by the National Development Corporation in 1?18.

Under the Corporation, Harrison created numerous specific
development companies

They were the National Coal C o m p a n y ,

the National Petroleum Company, the National C e m e m : Company,

the National Iron Company and the National Development Gonpany
which were all created during 1917 to 1919.

These develcpm-nt

companies were thought to be the most dynamic inventions by

Harrison to direct the economic development of the Philippines,
The Natiorxal Coal Company vas organized as a reaction
to an increase in the price of coal,
"business in

The compan7 began its

Unfortunately, since its inception the

company never made any profit*

The reason was attributed to

the heavy initial investment in developing the coal fields and

inexperienced management.
The National Petroleum Company and the National Iron
Company were never organised*

The National Cement Company was

founded to decrease the cost of cement in the Philippines.

Financed hy the National Development Company, the Cement
Company "began
loss*

operation in 1921

A t first it suffered

Finally it developed the Cebu Portland Cement Company

and turned a profit in 1926*

The National Development Company was originally
entrusted with a systematic and comprehensive development
progranmie to stimulate the industrial and commercial
activities of the country*

However its activities had been

circumscribed*

It bought estates

to reselliAemto farmers

in small lots

It also lent money to a p r i m t e cordage

factory and supplied loans to the National Coal and Kational

79

Petroleum Company.

The failure of these Companies to gain

profits brought loss also to the Kational Development ComTjany.

Harrison was also interested in developing the
agricultural sector and the tanking facilities of the Philippines
^ore government intervention.

In 1919 for examplef a Rice

and C o m Fund of p1,000,000 was set up to open neu lands xor corn
and rice*

The Philippine National Eank vas also a creation of

Harrison in

the problem of vrhich had been discussed in the

previous chapter.

Apart from these, Harrison ventured into the

transport business by buying all the stocks of the Kanila

Railroad Company,
In 19^6 Harrison crep-ted a body called the Council
of State to coordinate the government activities.

It

consisted

of the members of the Governor s cabinet, the Governor-General

and the Presidents of the two Houses of the National A s s e m b l y .
Out of the Council a smaller Isody called the Board o f Control
vas created*

The latter vas composed of the Governor-General t

the Speaker of the House and the President of the Senate*

When the Republican president Harding was elected in
the United States, he appointed an invest! ^ation team to find
out the conditions in the Philippines.
Leonard Wood and V , Cameron Forloes

The team was led by

The Vood-Forbes Commission

foTJnd there was a financial crisis in the Philippines due to

the misappropriation of the Gold Exchange Fund,

In vigw of this)

the Commission recommended that the Philippines was not ripe for
independence.
Vood was appointed as the Governor-General of the
Philippines in 1921

he cam with a view that

so

.
the Government should be gotten out of
as rapidly as sound business methods permit, for
experience of the World Max has demonstrated any
more clearly than another, it is that government
s u c c e s s f u l l y or advantageously conduct b u s i n e s s .

business
if the
one t h i n g
cannot

V o o d first tried to transfer the management of the

M a n i l a Railroad Company to a Private Company in N e w Y o r k and
to limit the activity of the Philippine N a t i o n a l B a n k , a l l of
w h i c h had been mentioned briefly in the previous c h a p t e r s .

It

i s h o w e v e r , important to note that the Filipino Congress objected

to the transfer of the ownership of the Railroad C o m p a n y and
Quezon expressed his disafpreement on closing the Philippine
N a t i o n a l Barlk^s agencies and "branches*

Osmena on the other

hand objected to the proposal of selling the sugar centrals

created by the Sugar Central Board to Americans
Despite much objections from he L e g i s l a t u r e , o o d
succeeded in Gelling the National Cement Company to a private
company*

Vood further tried to sell the National C o a l Company

but later leased it to a private company as a compromise*

Finally in
Board of C o n t r o l .

he asked for the dissolution o f the

The A11orney~Gen^ral of the United States

supported W o o d in ruling that the Board of C o n t r o l was u n c o n s titutional,

However, Wood died before he could really dissolve

the B o a r d in 1 9 2 7 .
The Governor-Generals after Wood generally were n o t
so hostile to the government owned enterprises

A l l of them

generally consented to the continuation of the r e m a i n i n g

government enterprisen.

^tessange of the OovernQr-General of the Philippine

L e g i s l a t u r e , October 28 )9Z2* Quoted from A p o s t o l , o p , qit*
1927 P . 9 2 .

81

Industrial Planning in the Commonwealth Period

The interest in the development of industries d'jorins the
Commonwealth Period, stemmed from the previous attempts to increase
the government' s role in directing "tiie economic develot^neryt of
the Philippines*

We see that the Pilipino elites were very

supportive of

Harrison's programme to s t e p up government s

intervention into business*

Naturally their hostile attitude

towards food's action in 11 quidating these ventures vas expected.

W h e n Quezon became the first president of the Commonwealth, he
was eagar to increase the contrcl of the economy
established Filipino political elite.

the nevly

The attempt of the

Commonwealth Government in industrial planning could be partly

explained by the fact that they realised the importance of
industrial development in view of the severing of the preferential treatment to importing Philippine products to the United
States,

Certainly, the desire of the newly established

iliiatrado cla^s in the political arena to control the economic

development of the Philippines vas also one of the reasons for
such ventures
In 1935* Queson recommended the creation of a National
Economic Council to coordinate the industrial plans.

The Council

recommended that the government should be involved in power

development, research and developEnent of some industries through
government owned corporations ajid the improvement of trans portation facilities*
In 1956 a National Pover Corporation was established
to look into the possibility of developing cheaper power supply
for industrialisation.

Before 1942 i"t completed four studies

82

i n A a n o Hi^er neax Sauio, Caliraya Elver near M a n i l a , A a n o River

n e a r T a ya"bas and Anqat Hiver near Bulacan to see the feasibility
o f d e v e l o p i n g hydro-electric power stations in these l o c a t i o n s .
T h e C a l i r a y a Hiver Project was indeed nearly completed when
t h e Japanese invaded the islands.

Therefore in actuality, the

C o m m o n v e a l t h Government during the period under r e v i e w did not

succeed in providing any cheap power to the c o u n t r y .
A t the "beginning of the Commonwealth period, the
g o v e r n m e n t relinquished the idea of development throu^n the
N a t i o n a l Development C o m p a n y .

The Company wa3 re-organised

with a capital stock of 50,000,000 pesos^ to aid in the

G o v e r n m e n t ' s economic adjustment programmes.
A l l the government owned corporations were financed
by the refund of the coconut oil tax from the United S b a t e s .
A s at 1 9 4 0 , a total of 69,086,150 pesos were invested i n 8
10
such corporations.
The Commonwealth Government continued the operation
of the past established corporations of the Cebu-Portland
Cement C o m p a n y , the M a n i l a Railroad Company and the M a n i l a
H o t e l C o m p a n y , the Philippine National Bank.

Furthermore,

d u r i n g the year 19561959, it established the following n e w

corporations i the National Rice and Corn Corporation, the
N a t i o n a l P o w e r Corporation, the national Produce E x c h a n g e , the
N a t i o n a l Pood Product Corporation, the National "Warehousing
C o r p o r a t i o n , the Insular Sugar Refining Company, the People's
^Stine, op* c i t " p . 6 9 .

10

S t i n e , o p . cit. t p . 7 0 .

Homesite Corporation, the National Pootweax Corporation, the

Textile M i l l s , the Rural Progress Administration, the National
land Settlement Administration, the National A"baca and other
Fibres Corporation, the National Trading Corporaion and
lastly the Agricultural and Industrial Bank.
The various development companies had also carried
out some researches on the development of new Industries in
the Philippines and a Textile Mill Company was established
to develop the industry of textile production.
potential of these companies was

The full

never realised and w h e n

the Japanese invaded the Philippines f their programmes came

to a complete standstill.
Summary and Observation

Trom

the above discussion it could be seen that

for m o s t of the time, the American administrators were

faithful advocates of laissez-faire economic policy*

They

believed that government intervention into the economy

improper and would distort the market mechanism.

was

They w e r e

satisfied with the economic development of the Philippines

vhich remained an exporter of raw material and agricultural
products to the major market of the United States*

No

particular attention was g'Ven to change this status or to

encourage the development of industries in the Philippines
d u r i n g the American occupation period*
Is r e v e a l ing:

The following table

84

Table 5
Peso Investments in Manufacturing, Export-Processing
Industries and in Sugar Processing,
Period

nves merit
i n

ManuXacturiTiff
A
1902

53,784,386

1918

22^,47^^92.8

Investment
in Export
Processing
Industries
B
21,671,146
115,895,251,19

Percent
B/A

19021903
Investment
in Sugar
Processing

Percent

40

16,953,495

31

52

52,407,5U.1

25

the early period o the American occupation^ A m e r i c a n investments

were m a i n l y directed to the export-processing industries and
ecpecially in sugar processing industry.

This economic p o l i c y

was actually practised through-out the whole A m e r i c a n

p-jriod^

Since laissez-faire economic policy was practised, it would be

abcurd for the colonial administrators to develop mnufacuxin
industries in the Philippines which vould compete w i t h the cheap
imported manufacturing products from the United S t a t e s ,

Dictated

by the economic forces of free-trade with the United States t it

wns just natural to foster the production of commerc ial crops in
the Philippines,
Figure 5*3 showed that investment in
in 1910 was about 52 million Pesos.

processing

In 1955* h o w e v e r , the
1:

investment in sugar central alone had risen to 84 m i l l i o n peaos

and according to Pomeroy

American investment in m a n u f a c t u r i n g

in this year was less than 4 percent of its total investment in

11

V _ B op*

S o u r c e s ; Census of 1903, 1918.

p. T 24.

Quoted from Y a l d e p e n a s ,

Quo ted from Valdepenas, op> ,cit, t p*

13 Pomeroy, op> c-i t p . 9*

the Philippines.

All these figures pointed to the fact that the

A m e r i c a n economic policies were not aimed at promoting the

development of a self-supporting Industrial structure i n the
Philippines.
The sudden and greater participation of the govsrnmeni:
in the economy during the Harrison period could be seen as a
tactic move of the Democrat administration to hasten the independence of the Philippines.

This was of course hailed a n d

supported by the ilustrado class who believed that this would

strengthen their economic as well as political stronghold of the
country.
More important, as this chapter shows, the A m e r i c a n
investments in the Philippines were mainly concentrated in
primary industries*

Other investment were mainly concerned

with the development of the infra-structure of the P h i l i p p i n e s .

These investmente- were not aimed at helping- the manufacturing
industrial development of the Philippines but to generate a
better marketing network for the export primary i n d u s t r i e s .
A s a result, apart from mining and forestry, the investment
in transportation and electric power generation had the
highest growth rate in the American period.

This could "be

seen in the following ta"ble:

Table

6 '

Grovth Rates of Philippine Industry 1902

190218
Industry
5.1
Manufacturing

191858
0.5
4.7

^Source: 19021961 R . V . H o o l e y . "Long Term Growth

of Philippine Economy 1902- 1961" Philippine Economic J o u r n a l ,
1st Semester, 1968. Quotetl from Valdepenas, T . B . o p , c i t . , p . 1 3 9 .

66

190218

191838

Commerce

2.9

-0.1

Electric Power

9.3

6.4

Mining and Forestry

23.7

15.8

Transportation/
Communication

15.1

9.6

4.4

1.8

A l l industries

Lastly, the economic planning of the Conmoriwealth

period should not be seen as real goverraient planning as such*
M o s t of the National Companies created in the Commonwealth
period did not directly engage in economic production
activities*

M o o t of their work concentrated in the a r e a

of research or the provision of credit to the particular

industry covered "by the National Ccnpany,
Though some new Industries, notably textile m i l l i n g
was encouraged in the Commonwealth e r a , the whole economy was
still mainly agrarian and dependent on the American m a r k e t .
W h e t h e r during tho Harrison period or the Conunonvealth h e y d a y s ,
the g0vernmerrt-"0vned enterprises failed to make the economy of
the country more independent and self-sufficient*

Chapter 71

Land Policy

When the Americans took the Philippines in 1698,

they inherited the land problem of the Spanish period.

The

tasic problem at that time vas the confusing nature o f the

land title system of tbo inlands.

This was seen as a major

"barrier to economic development as the existing land title

system made the collection of property tax on land difficult.
This became a major obstacle in collecting sufficient funds
for the development of the inlands by the local governments
which depended their income very much on property tax.
Before the arrival of the Spaniards f land was not
a scarce resource in the Philippines*

Slash-and-burn

agriculture was the dominant form of cultivation and land

was not considered as private property.

The Spaniards

his pan! zed the land system of the Philippines t y creating -the
permeinent Pueblos settlement pattern.

The hill people were

consistently tempted or forccd to settle in lovland areas as

permanent settlers

Under Spanish law, land was defined as

private property and uncultivated land was considered as

royal domain*

87

88
the
linearly Spanish period, a system called encomienda
was established to administer the pacified a r e a s .

In this

system, the Spaniards granted special rights to a person called

encomenderos to collect tribute from the Filipinos within
his jurisdiction.

In 1721 f this system was abolished

Nevertheless, according to Corpus , the encomenderos

became land
o>rti6rs th ems elves af te^cwaxds*

Some SpaJiisxds

and ecclesiastical corporations formed large h a c i e n d a s ,

Their origin may be traced back to the time of the
encomjenda, system. -the
The creation of large hacienda
hastened its pace a t t l a t e nineteenth century.

Another

group of people who gained prominence in the land system

of tl^ Philippines were the Chinese mestizos who prospered
and succeeded in commercialising their holdings and formed
smaller size h a c i e n d a s .

Jbrmer d a t u and principalia also

gained control of land and became landlords thou^i their

holdings were generally more fragmented.
groups f land titles were clearer*

In these few

Sharecropping seemed to

be the dominant form of cultivation.

For the other cultiva-

ted lands, the predominant form was self-owned s m a l l f a r m s ,

La^d titles for these small owner farms were m o s t c o n f u s i n g .
Land fragmentation was the characteristic for these farms
too.
W h e n the Americans occupied the P h i l i p p i n e s , they
regarded their most important task as establishing a clear
land title system.
1

They tried to solve the friar land

Crpuz Onofre D T h e Philippines, N.J*:

P r e n t i c e - H a U * Inc., 1965p- 33*

89

problem at the outset because of the strong Filipino

resentment ^

this system.

A l l the policies introduced

were important in determining the future economic development of the Philippines*

American Land and Affricuitiire Policy ( 1 8 9 8 1 9 3 5 )
Limitation on Grants of Land

2
According to Grnnder and Livezey the public
domain in the Philippines when the Americans acquired the
Philippines was estimated to be about 60,000,000 acresA s mentioned beforer the sugar interests in the United
States were highly perplexed by the acquisition of the
Philippines as they perceived the colony as a potential
competitor in sugar production*

They therefore opposed a

land policy vhich made provisions for large land grants.

O n the other hand, the ilustrado or land-owning class were
also bitter opponents to large land grants as they
already owned land and large foreign owned agricultural
enterprises in the Philippines would also compete with
them for land and

people.

This was the background for

the legal limitation on the disposal of the public domain

in the Philippines.
The Congress passed the Organic Lav of 1902 and
limited land grants to 1024 hectares for each corporation,
144 hectrea f o ^ ^ r i v a t e A ^ i d 16 hectares to each person*
However, there vas no legislation to reduce existing land

G n m d e r , Garel A . and Livesey, Williaan E. op*

P . 152*

cit

90

holdings.

This meant that large hacienda and plantations

existing before the occupation of the Americans were not

affected "by this law*
Immediately after the passage of the b i 3 1 t
different economic interest groups which favoured imperial
penetration of the Philippines sought to amend the bill #
Later the bill was amended to make provision for corporations
to acquire more land than the official limit if this was f o r
the purpose of irrigation*

Nevertheless, the excess land

that could be acquired under this provision was not really

great*

Therefore the first Governor-General t Taft openly

requested that the limitation be lifted to something like

25,000 acres so as to attract foreign investment in the
land of the Philippines,
A l l subsequent Governor-Generals had also r e c o m mended the repeal of this limitation except Harrison*
Hovever f their requests vere ignored in the Congress of
the United States.
V e shall see that this limitation -was also
applicable to the selling of friar land*
The Solution of the F^iar i L ^ d i M I s s u e
Friars had symbolised all the evils of the S p a n i s h
regime in the yes of the Filipinos.

They were accused o f

treating the natives unfairly and collectcd exorbitant fees

for religions ceremonies.

Indeed, in the insurgence against

the Spaniards, Filipinos made the expulsion of the friars

and the restitution of their land one of the^r p l a t f o r m s .
In the Kaiolos Constitutiorij actual measvu:e had been taken

91
to confiscate iriar lands and s e p a r a t e the power of the
church from the state.
The Schurman Conunission a n d other A m e r i c a n s saw
the settlement of he friar land i s s u e as essential in
pacilying the Filipinos.

Nevertheless> they were bounded

by the Treaty of Paris in which the Americans promised to

protect the property of all kinds o f ecclesiastical b o d i e s .
Finally, the Commission tried to resolve this d i l e m m a b y
purchasing the friar lands 4
W h e n Taft came as the G o v e r n o r - G e n e r a l he was veryeager to solve this problem so as to please the F i l i p i n o s
and make the
running of "the c i v i l govextunsnt effective and
efficient with at east the s u p p o r t of the ilustrado c l a s s .
O n Taft's proposal, the Secretary of W a r E l i h u R o o t approved
the issuance of "bonds and the purchase of the friar l a n d s ,
ii 1902, Taft vent to Rome and discussed w i t h the Pope o n
the friar lands issue*

The q u e s t i o n was settled f i n a l l y

w i t h the Vetican officials who agreed to s e l l the lands to

the A m e r i c a n s .

The Pope further agreed to introduce priests

of other nationalities into Philippines and to w i t h d r a w

Spanish friars on a voluntary "basis.

I n the same y e a r f

the

Organic A c t vas passed "by the Congress and one s e c t i o n of

if provided r o r the issuance of tonds b e a r i n g tax-free
interest of 4 t percent*
The actual purchase o f the land was c o m p l i c a t e d
and d i f f i c u l t .

This was because i n some cases the friar

orders owned stock in a corporation w h i c h legally owned

the land and thus, negotiation had to involve d i f f e r e n t

92

parties-

In other cases^ there were disputes over the title

of the land *

After some "bidding and counter bidding on the

price, the Philippine Commission bought a total of 410,000

acres of frsdr land at a price of $7,000,000 4
Two thirds of the purchased land was sold to the
Pilipinos at the original cost of the land on a twenty-year
installment plus interest each year and the lancSs expenses
of administration,
to biiy*

The price was often too high for tenants

As a result much of land went into the hands o f

already strong landlords*

The other one-third of the friar land purchased
was unsold for quite some time "because It was unoccupied
at the time when it vas purchased
tract was in K i n d o r o ,

The largest unoccupied

In 1909 American investors took

interest in the land and offered to purchase it*

had an area of 55,000 acres*

The tract

This exceeded the land

limitation of puTslic land that could be acquired.

The

Philippine Commission however ruled that friax land was

public property but not public land and therefore should
be excluded from the limitation.

The United States A t t o r n e y

General also agreed to this interpretation.

In 1910, this

interpretation vas challenged by the Congress of the United

States *

Finally the Secretary of War directed that future

sale of the friar lands should also be subjected to the

limitation of the Public Land Act until the Congress
decided otherwise.

In 19^0, the Philippine Assembly

further reiterated their opposition to the selling of

large tracts o f friar land.

On paper they claimed that

93
this was against the interest of the Filipinos.
As a side point, the selling of this remaining unoccupied
friar lands was not without prololems.

For example, Vorcestor was

accused of selling a 997 acres of friar estate to his nephew in

Kenva Ecija and Frank Carpenter, a member of the Philippine
Commission leased

13000 hectres of friar land in Tala Estate^

for himself.
The Americans did not purchase all of the friar lands *
and there was no obtainable information on the total acres of
land still under Church control at this period*

Nevertheless *

most writers agreed that the Americans were successful in solving

the age-old problem of the domination of the religious order on
land in the Philippines

What remained now in the hands of the

church during and after the American colonial period was no

longer fria,r estates of agricultural land as in the past.
Homesteading
The policy to encourage homesteading was transposed
from the United States to the Philippines,

American adminis-

trators thought this vas a possible measure to encourage

agricultural development in the hitherto unoccupied public
lands*

This policy was also instituted as an alternative to

increase acreage in view of the limitations on the sale of

public land*

Since acquisition of land by large plantation

corporation was indirectly deterred by the Land Limitation

A c t , the American administrators resorted to the encouragement
of small holdings in expanding he cultivatle acreage by
homes teadingt

^Information accordtng to Constantino, Renato, 1975*

op c i t p , 298.

The home steading programme was basically ail American

idea.

When practised in the Philippines, it proved to be a

major failure *

Both the climate and the sanitary conditions

of the Philippines make homesteadin much more difficult

in the United States*

than

On the other h a n d , Filipinos were not

used to live outside the umbrella of their large extended

family and the different

^i^alect^t languages also made

settlement in other places difficult*

There was also no

systematic help from the government to the new homesteaders,

The legal process of filing and patenting a homestead was
slow due to the scarcity of siirveyors to define the boundary
of a homestead and to classify the land which is suitable for
homestead*

Under the law, a homesteader was required to

cultivate* during a probationary period of five y e a r s , at

least twenty percent of his claim and the claim was standardised at forty acres.

This area was actually too large to be

manageable 'by a single family ui that period.

As a result

majiy homesteaders failed to fulfill this requirement and were

not approved to own the piece of land afterwards.
Generally speakings it could be said that the
homes "beading problem did not benefit the small tenants or
self-ovners in the Philippines*

Due to the alaove reasons

most small farmers failed to get benefits out of the s c h e m e .

The wealthy and speculators became the beneficiarCefc

They

dominated the provincial government and monopolised the

information on the better sites for home steading.

As a

result most of the homestead near nev roads and hi^taways

\tere claimed "by these people firs*

95
Between 1904 aJid 1934

less than 35000 homestead

applications were approved and p a t e n t e d and the total number

of hectares patented was only about 3 5 0 t 0 0 0 ^ ,
Land Registrsition

Late in the Spanish period land title system was

introduced in the Philippines,

V/hen the Americans came to

the islands > they found the land title system incoherent and
confusing.

They considered a clear system of land title would

facilitate the collection of tax and the proper administration

o f the land.
Torrens

The Philippine Commission then adopted the

system of land registration.

This system began

in Australia and was later adopted in Canada and became

popular.

Under this system, there is no need to undergo

the long process of title search so as to ensure the

legality of land transaction.
For the Philippine Torrens
given a certificate of title.

system a landholder was

This title shoved the name of

the holder of the land and his right to hold this piece of
land until claim was niade*

The correctness of the title vas

goaranteed by the law and title research becomes unnecessary*

W h e n there was a transaction, the government vould charge a
sumfcr those who received titles*

This Bvm was made into a n

^ r i c h H* Jocoby, A g r a r i ^ Unrest in Southeast Asia

(2nd ed* N e w York: Asia Publishing House, 196l) f p . 2 1 6 * Q u o t e d
from Giesecke, o p . c i t p* 214*
^Philippines, Department of Agriculture and Commerce,
The Philippines Statistical Review, V o l # 1 No* 2 (Manila: Bureau
of Printiri^ 2nd Quarter, 1954), P* 97* Also quoted from Giesecke^
o p , cit, T
214*

96
insurance fund to indemnify anyone who might lose his land
irnder the system.

During transaction t the title was endorsed

and recorded in a register kept by the goveriMent*

The Torrens system soon proved to "be a more convenient
system for land transaction due to its simplicity.

However* in

the Philippines this also proved to be detrimental o the

interests of the smaller ovner peasants as their land was
now more susceptible to the appropriation of those wealthier
landlords,
Despite constant urges from the Philippine Commission
on the Filipinos to register their land f icttu progress was m a d e .
Probably this was due to the lack of land surveyors to determine
the exact "boundary of a piece of land claimed by its owner*
Moreover, after being registered, the title owner of the land
must pay land tax and this mighl; he another reason accounting
for the relixnctaxice of the peasants to register*
In 1915* therefore, the Philippine legislature passed
a n act for a general survey of all lands in the Philippines.
After the survey in municipalities 9 land taxes receipts to the
government increased by about 2$ percent.

This was a good

reflect ion of the rel ctanoe of landowners to acquire a formal

title to his land.
According to Constantino^ landlords often legalised
their Torrens title by fraudulent stirveys. Moreover all
titles granted ty the Philippine Court o f Land Registration
u p to 1910 vere for large private landholdings.

^Constantino^ 1975 op. oit., p* 299.

97
Improvemeni: of Production
The Bureau of Agriculture was created in 1902 to
look into general agricultural matters of the Philippines,
The major efforts of the bureau vena spent on pest control
methods

I n 1915 the rinderpest had disappeared from the

archipelago with the exception of one small district on the

7
island of Luzon"*

During the Wood administration, cattlo vers required

to be immiinised*

The Biireau had also taken active measures

to combat such diseases as anthrax and foot-and-mouth d i s e a s e .

Zebu of India was imported to breed with the Philippine cattle.
The result was highly satisfactory as the new breed was resistent
to rinderpest and foot-and-mouth disease.
Other active measures were taken to experiment and
Introduce better seeds and the use of fertilizers*

Agricultural

mechanization was encouraged with lover tariff^ on Imported

machines*
All these measures f however, were not too successful
In boosting production.

The major hindrance to the increase in

agricultural production seoms to be the vast number of absentee

landlords.

Thejr were not interested in spending too m u c h money

on the improvement of seeds or production methods in their

estates since the marginal increase in income was not too
attractive to them as they had already collected large sums
of money from the vast latids they owied,

Cameron Forbes, op* cit., p . 249*

98
Little progress was made in enhancing production
even by the Commonwealth Government.

Agricultural production

in the Philippines remained to "be less efficient than other

neighbouring countries.

This was shown in the following table:

Tabic

Average Y i e l d Per Acre

Principal Rice G r o w i n g Regions

A v e , B u . per acre

Country

_(1933--1939)

Japan

75.4

China (Ave. 19311937)

50.3

United States

49.8

Thailand

30.1

Burma

27-8

India

26.5

Indo-China

22.1

Philippines

21.5

Legislative Measures Regulating Landlord-tenant R e l a t i o n s h i p

Toward the end of the American colonial p e r i o d , the
administrators witnessed a rising tide of rural unrest
Philippines*

in the

In 1955 the Philippine Legislature passed the

Philippine Rice Share Tenancy A c t with the aim to regulate the

relationship of the tenant and. his landlord*

The A c t ' s m a i n

provisions included:
1*

Contract tetveen landlord and tenant m u s t be

written in the dialect of the tenant

2.

C o s t of production should te borne e q u a l l y b y

the tenant and the landlord

Army Service Forces Manual, Civil Affairs Hand'bQok4

The Philippines, S e c . 7 p* 31 ftaoted from S t i n e , loc* oil; ra
p. 48.

9
9

Landlords may not charge more than 10 percent

interest on loans and advances made to the
tenants

4*

15 percent of the tenant s share is exempted

fTom claims for repayment of loans and
indebtedness

5*

Taxes must "be borne fey 'the landlord

6*

The Act is to take effect only in those

provinces where the majority of the
municipal councils shall by resolution
have petitioned for its application to
the Governor-General #

The last provision made the whole Act useless.

As

the municipal councils were dominated by landlords f naturally

they would not recommend the institution of this Act*

Even

towards the end of the colonial occupation, this Act was not
enforced.
Commonwealth Land and Agricultiire Policy 1 9 3 5 1 9 4 2 )
During the Commonwealth period not many measures
were taken to bring about any drastic changes in the agricultural sector*

However # in general t the Commonvealth officials

were more avare of the deep*-seated problem of unequal landowner ship

which has aggravated during the Colonial period.

This vas due

to the fact that the elites who controlled the Commonwealth

Government were part of the landed aristooraoy and they had
strained th6 landlord tenant relationship.

Towards the end

of the American oociipation, there were numerous land unrest

Agrarian unrest

during this period culminated in the Sakdal

100

revolt in M a y , 1935*

Several legislative measures were

introduced to solve or pacify the sius/tion_

Measure to Alleviate the Landlord^tenant Relationship
In 1935 President Quezon appointed a Rice
Commission to study the conditions of rice-growing peasants.
The Commission was headed by Manual Roxas *

recommended a

thorough investigation of the landlord and tenant relationship

thorou^iout the Philippines, but there was no follow-up actions
to this recommendation.
A t the end of 195the former Philippine Rice Share
Tenancy A c t was discussed in the First National Assembly of
the Oommonvealth Government.

Finally it passed, an amendment

to the A c t which gave power to the President of the Philippines

to proclaim the enforcement of the Act in certain provinces*
A s a result of the passage of the A c t , Que son proclaimed 12
provinces to be under the Philippine Sice Share Tenancy Act*
The areas covered were mainly rice-growing regions
This was the only measure undertaken by the C o m m o n wealth Government to control the landlordtenant jxroblem during
the period under review.
n

There was actually an introduction of

a R i c e Share Tenancy Act" in 1946 which

fixecD

the legitimate

share between the landlord and the tenant on crop y i e l d .

It

vas fixed at 70 percent of the harvest as the amount that a

landlord or a tenant could get depending on who had furnished
the work animal and paid the expenses of plan-tir^.
In retrospect, the regulation of the landlord-tenant
relationship was

confined to the rice-growing regions and

101

little was achieved in effectuating a more equal re-distribution

of wealth between the landlords and the tenants through any form
of land-reform.

Purchase of Landed Estates

During the American period, the American were
successful in settling the friar land issue hy purchasing

tht
it and reselling it to the occupants,

In^early Commonwealth

period, some Filipinos thought that this might be a good

method in solving the problem of land-concentration in a
few h a n d s .

The Skadals, for example, maintained that the

government should divide the landed estates and gave the

land to the tiller but the Nacionalista Party was relunctant
to do s o .
As a response to public demand or a gesture to
secure votes^ the Assembly gave the President power to make
desired purchases of large landed estates for re-distribution
to the bona fide occupants *

There were sons surveys and

purchases made during 1 9 3 6 1 9 3 8 , nevertheless, the progress

was at snai speed and such programme was iirtroduced only in
estates where there was agrarian unrest, probably as a pacification measure rather than a policy applicable to the whole
country.
In 19J8, the Commonwealth Government tried to get round
this problem by recommending that large landed estates should be
leased to the bona fide occupants rather than outright purchase
by the government, the government thus avoided sinking large
funds in the purchasing activities*
shelved when the Japanese invade

However, the programme was

the Philippines*

102

Expansion of Cultivated Land

Burdened with the relunctance and failure in piirchasing
large landed estates for distribution, the Commonwealth ^ v e r n inent sought other methods to solve the problem of too many
landless peasants -

This was similar to the homesteading

programme practised earlier by the American Colonisers.

In 1959 the National Assembly created the Land
Settlement Administration to take care of this programme*
Several projects were undertaken in the Island of Mindanao
Kie largest settlement was created in Koronadal Valley in
Southeastern Cotabate on the Island of Mindanao.

A total

of 3*035 settlers and their 10,4^7 dependents moved to this

9

place in 1941 *
Impact of the a Land and, Agricultural Policy on the PhilipTJines
When we look at the situation of the rural sector of
the Philippines in 1898 and 1942 one striking fact is the
little difference In the rural landscape.

The same four

export crops were planted for export, namely, sugar^ tobacco t

coconut and abaca*

Large haciendas which gained iJn^V prominance

In the late Spanish period were untouched and they continued to

dominate the plantation export sector.

There was little American

investment in the actual production work*

went to the sugar centrals.

Most of the m o n e y

On the other hand, agricultural

production of the Philippines continued to rank low when

compared with other Southeast Asian countries*
Some authors maintained that the American land policy
had, worsened the tenancy problem and more peasants became landless

^Source from the National Land Settlement Administration,

Yearbook of Phft^ppine Statistics^ (1946) p . 205* Quoted from Stine,
loc, c i t p 4

112

a the end of the Colonial administration.

Their conclusion

was mainly deduced from the observation of the f o l l o w i n g

talole:
Table

in

Status of Persons Working Farms (Percentage by Y e a r )

Owner

60

Part Owner

1118

1959

77-7^

49

Tenant

19,2

15.6
22.0

55,1

As shown in the table, tenancy increased rapidly a f t e r

11
1910,

However, Owen

discovered that the data of these three

Censuses were not comparalole mainly because the definition of a

farm differs in each census* Owen therefore remarked that t h i s
renders suspect most conclusions a b o u t
comparative rates of tenancy t except insofar as one c a n
assume that fragmentation of holdings is as freciuent
among tenants as a m o n ^ owner operators (a plausible
a s s u m p t i o n t but unsubstantiated)*
W i t h this problem, it therefore cannot be c o n c l u d e d
that during the American period tenancy worsened due to its
economic policies.

However> it is equally valid to m a i n t a i n

that the particular land title system adopted in the P h i l i p p i n e s

had facilitated land transaction and made it easier for l a n d l o r d s

in

Source: Censuses of 1903*

and 1 9 3 9 n o t e :
Percentage does not necessarily sum to 100 Toe cause of rottnding
of figures and the censuses of 5 and 1918 do n o t include the
category of part owners# Quoted from Giesecke* op* c i t p . 226*
1 1

O v e n , N . G - , op* c i t p . 1 1 6 1 1 8 ,

12,
Ibid

104

0 increase their holdings by fraudulent survey, land titling

and foreclosure of mortgages and ty purchases of the land
owned by small-owner peasants.
%

Anyhow, the census in 1939 showed that tenancy rate

was highest in sugar growing areas*

The percentage of tenant

occupance of sugar growing areas was 60 percent.

It was

followed by a rate of 40 percent for rice and tobacco areas and

21 percent for coconut growing fields.

The living standards of

the tenant farmers Were generally lower than the owner farmers.
r

In t h e 1950 s they had to pay usurious rates of interest in the

region of 50 to 100 percent charged for the advances*

Many

tenants, especially the share ones were in constant indebtedness

Indebtedness of the tenants made them cling
lord or haciendero*

to the sa^e land-

For example the manager of Goinpania General

de Tabacos de Filipirias owned 1,500 hectres in Isabala and said

that
* * with few exception^ tabacalera tenants
remained with the Company for g e n e r a t i o n s 5
A t the end of the American period, land concentration
vas severe.

The situation was more serious in Central L u z o n ,

especially in Pampanga, Nueva Ecija and Bulancan,

In Nueva

Ecija, 10 percent of the landowners ovned half of the oiQtivated

land.

Tho censiis of 1938 showed that less than 50 percent of

the cultivated land was cultivated by the owners of the land,

and that while the average area of farm for all farmers in the
Philippines was only 4,09 hectres, the average area of farms
operated by farm managers vaG J20.54 hectres.

D a v i s "Tobacco Planting in the Philippines' in

Pacific Affairs, Sept. 1939, p* 506- Quoted from Constantino,
1975, QP* cTt77 P* 547,

105

As a result, even if the American land policy did

not worsen the tenancy rate, they should be blamed for f a i l i n g
to implement a policy to control the situation and maintain a
more equal distribution of the rural income*

From the beginning

to the end of the colonial rule, land reform was never mentioned
and carried out by the administrators *
whole ilustrado

This vas natural as the

class co-opted into the colonial Toureaucracy vere

land-owning and they were the ones to

increasing rate of tenancy.

benefit

from the

This sitiiation carriedwto the

Commonwealth period> where many measures to alleviate the

situation were merely on paper.

If there were, a n y active

measures taken to improve the situation* it; vas dictated "by

circumstances of agrarian unrest which threatened the founda
ion of the i l u s t r a d o p o w e r *

Chapter 711

Conclusion

Valdepenast writing on American economic colonization

of the Philippines, remarked that economic changes o f the
Philippines from 1900 to 1941 w e m
triggered directly by un^estrictive A m e r i c a n
commercial policies the favourable world market conditions ( and the subsequent investment of Filipinos and
foreigners in seroral primary export industries*
The present study basically confirms this observation*

Indeed,

there was n o conscious effort taken by the A m e r i c a n Colonial

administrators to direct changes in the cconcmic structure of
the Philippines*

Economic policies were designed to let the

Philippine marketA:ruled by self-regula tin[ forces *

As a result, the colonial government had tried its
best to minimise its expenditure on the islands.

D u r i n g the

For"bes administra/tion the system of reiml:ursa"ble appropriation

actually allowed market forces to determine the operations of
the colonial government.

The monetary system of the Philippine

islands was also designed according to the laissea-faire

economic model*

In the original system, the m o n e y s u p p l y vas

supposed to be self-regulating and the government was not

supposed to manipulate the money market*

In the land system^

the introduction of the Torrens title system facilitated

market transactions tn l a n d .

Government intervention into

private business vas not widespread and vas m a i n l y confined

1 Valdepenas", op* cit * < p# 112*

106

107
to the provision of infra-structure for the development of the
export primary industries.
Under the broad ftamevork of economic liberalism,
there were some deviations*

Daring Fortes' administration,

the Governor-General began to use the Gold Exchange Purid to

finance government operated enterprises*

This stemmed from

^orToes's struggle with the Filipino Assembly over the control

of the appropriation of funds by the various government
departments.

The cause for this deviation from the non-

intervention model vas political rather than economic

This was also the case for Governor-General Harrison who

used the monetary fund in such a way which nullified the
original intention of the self-re^ulatin^ monetary system
of the Philippines*
Governor-General Harrison's economic policy was based
on a path difTereirfc from the laissez-faire model vhich
characterised the whole colonial period

The influence of

the Progressive movement made Harrison think that economic

intervention by the government was essential in correcting
some of the \mdesirable consequences of the literal economic
policies.

The economic policies of the Commonwealth period

had more similarities with Harrisor^s view than with the

other governor-generals *

Despite Harrison's Progressive

tendency in general, the economic policies exercised "by

him vas still under the framework of economic liberalism,
There was no central goTernment planning in economic
development of the islanor.
small and unimportant 4

The state sector was relatively

108
over
Though economic liberalism prevailedthe w h o l e
period u n d e r review, it was interesting to note that A m e r i c a n
policies w e r e benevolent rather than exploitative. ^ I n the
first p l a c e , the occupation of the Philippines somehow cast
doubt oil the original moralistic righteousness of the Americans
in f i g h t i n g S p a i n .

This forced the early imperialists like

P r e s i d e n t M c K i n l e y to declare

that the American

n i s s i o n in the

Philippines was to correct the oppressive policies of the

Spanish government and to educate the Palipinos for s e l f - r u l e .
Of more importance is the different ^rou-p interests in the
United States which prevented the thorough exploitation of
the P h i l i p p i n e s .
The conflict of interests between the b i g business
and the supporters of the Progressive movement; the imperialists
and the farm-la"bour groups in the United States made each of
these groups support
Philippines*

different economic policies in the

The farm Interests for example w e r e critical

of a n y economic prograjnmes which might facilitate the development

of

large-scale plantation farming in the Philippines b y the

Americans

The labour groups were* on the other h a n d , s t r o n g

opponents to large-scale American industrial investments in

the Philippines*
If the influence of the different economic groups
in the U n i t e d States is important in determining the f o r m u l a tion of a particular economic policy of the P h i l i p p i n e s , the
social structure of the Philippines under colonzal rule is
equally important in shaping the economic p o l i c i e s .

The

118

reliance of the civil government under Taft on the ilustrado

class in pos"tin^ o, hcirmoni ous AHisricScn^FiXipino t*e lat; i onshi p
had great repercussions on the colonial eoonoiuic policy.

The

compadre relationship between the Americans and the ilustrado

class was considered necessary because of the hostility of
the First Philippine Republic towards the American occupation.
A s the prevalence of peace was a precondition for the establishment of the civil government in the municipal level, Taft was
just too eager to rely heavily a t the support of the conservative land-owning ilustrado class to create a n atmosphere of
peace and order.
The American rule had actually consolidated and
expanded the power of the ilusbrado class.

The conservative

attitude of the ilustrado class in domestic economic matters

was shown in its relunctance to introduce a more progressive
taxation system in the Philippines*

The abolition of the

proposed inheritance tax in the American colonial period

was mainly a concession to the ilustrado class*

Under the

influence of the ilustrado class f agricultural production

was under-taxed throughout the colonial period.
In the name of fighting for independence, the
ilustrado class united to oppose the entry of foreign large
scale investment in the islands. They supported the land
T

limitation act and the increase of fpvernment s participation

in developing the economy rather than the attraction of
foreign interests to invest in the Philippines*

B y opposing

foreign investment in the Philippines and maintaining a policy

which favoured the agricultural sector, the land-owning ilustrado

110
c 1 e l s s

actually gained the greatest econonic benefits

The

special comioadra relationship between the Americans and the

ilustrado class created a social structure which is inimical
to a more equal distribution of social wealth*

'

During American occupation, most of the colonial

economic policies had gained the consent and support of the
ilustrado class.

This being the case, there vas no wonder

why the Commonwealth government differed so little with the

former colonial government in terms of its econonic policy^
Therefore, it was wrong to put all the blame on the Americans
for their failure In developing and modernising the economy
of the Philippines during the colonial period.

The ilustrado

class who had participated in the political processes should

share equal responsibilities.
To recapitulate the impact of the American colonial
economic policy on the Philippines, let us look "briefly at
the pre-war economic conditions of the Philippines.

Just
o

before the Japanese war, according to Legarda and Garcia

three quarters of the labour force were engaged in the

production of primary industries and agricultiire.
percent vas employed in secondary industries*

Only ten

Out of these

ten percent two-thirds were in the production of traditional

handicrafts.

Moreover, United States share of total Philippine

trade expanded from 66 percent in 1920 to 81 percent in 1940*

In 1940* 83 percent of the Philippine exports vent to the
United States and two-thirds of Philippine export earning
2

Legarda and Garcia*

'Pre-War Philippine Economic
Situation" in Golay,
(ed-) - The United States and the
Fhili^pines, New Jersey: Prentice Hall, 1966, p . 131.

111

depended on /

Lean trade preferences^

On the side of imports

to the Philippines, 77 percent came from the United S t a t e s ,

T

Secondly, according to Jenkns s s t u d y d u r i n g the prewar

period, United States investment in the Philippines accounted
fcr 60 porcent of the total foreign investment in the Philippines
r

This a .Qiuited to $258 million and. it was about JO percent of the

total An^rcan investments in the Far E a s t , Pomeroy ^ further
observed that in 1935

percent of United States investment

in the Philippines was in mining, sugfir production*

public

utilities, plantations and merchandising concerns *

Only

4 percent of the investment was on manufactiiring.

Most of

the latter investment vas on the processing of raw materials

for export.
Prom the above figures, we cannot avoid but to
conclude that the economy of the Philippines in the prewar
period was highly dependent on the United States*
no economic independence.

There vas

The Philippines remained an

a ^ a r i a n society as in the Spanish period.

was still under-developed and. backward.

Industrialisation

A l l theeo symptoms of

underdevelopment had its roots in the economic policies pursued

duxing
study,

the American colonial period which was traced in this

^Jenkins, Shirley. Americaii Economio Policy Towards

the,. Philippines^ Standford: Standford University P r e s s , 1954
P . 38,
* p o m e r o y , William J* A n American made Tragedy:
Keocolonialism and Dictatorship K.Y* Irrtemational Publishers
G o , , 1974, P* 9 .

Sources Cons-ulted

Books
Abelarde, Pedro, E , American Tariff Policy Towards the
Philippines , N.Y.: King's Crown Press, 1947.
A b a y a , Hernando, J , Betrayal in the Phill-ppines, N.Y.:
A .A. W y n , 1946, Seprint, Quezon C i t y , 1970.
Agoncillo, Teodoro, A . Philippines History, Manila:
Inang Wika P u b . C o . 1^60.
A l f o n s o , Oscar, M . Theodore Roosevelt and the Philippines,
Quezon City: University of the Philippines 1 9 7 0 .
Apostol, Jose, P . The Economic Policy of the Philippinesi
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