We are approaching the 250th anniversary of the Declaration of Independence of the United States on July 4, 1776. However, the same year has a different meaning in Latin America. Instead of the beginning of a system based on limitations on the power and freedom of the individual in the United States, 1776 represented a major revolution on the other side of Latin America.
In Philadelphia, the thirteen colonies began to break away from federal control to formalize a long-standing tradition of local self-government. In contrast, in Latin America, the Spanish Crown reorganized its territories by creating the Viceroyalty of the Río de la Plata and forcefully Bourbon variations. This consistency in time reveals a significant and important difference.
In the United States, 1776 was the culmination of the grassroots movement based on institutional agreement. In Latin America, it was the strengthening of a centralized, bureaucratic approach aimed at modernizing state governance through tighter economic controls and bureaucracy. When the wars of independence reached Latin America decades later, they did not arise from the natural progression of self-government but rather from an external fallout: Napoleon’s invasion of the Iberian Peninsula.
In 1950, the Mexican writer Octavio Paz published El labyrintho de la soledad, an article that, viewed through this historical lens, provides the best framework for understanding why liberalism flourished in the United States, while in Latin America it was little more than a footnote. Paz’s work is important here because it moves the debate beyond economics, into the fundamental principles and cultural evolution of the region. While the United States built its liberal framework on the basis of historical continuity and a shared social myth, Latin American nations, as Paz argues, often adopted liberalism as an imported philosophy. It was an ideal placed above the basic reality of entrenched traditional classes and different social values. The main thesis of El laberinto de la soledad that the historical legacy of Latin America favored centralized authority and social structures over individual freedom.
That this separation occurred is supported by the work of the 1993 Nobel Prize in Economics, Douglas North. North argued that long-term economic success is shaped not simply by resources or technology but by the evolution of institutional structures—the formal rules and informal constraints that govern human interaction. According to this view, the United States succeeded because it established a strong institutional system that ensured stable property rights, reduced transaction costs, and placed real limits on leaders. In contrast, Latin America inherited a complex institutional environment where laws favored rent-seeking over productive investment, occupying the very labyrinth Paz described.
This institutional division, as an economic historian Deirdre McCloskey highlights, focused on differences of opinion and rhetoric. He argues that wealth and freedom do not develop from institutions alone, but from fundamental changes in the way society communicates and values individual effort. In the United States, the ‘virtues of capitalism’—appreciation of the principles of innovation, enterprise, and personal responsibility—gained mainstream cultural prestige. In Latin America, however, the propaganda has never changed. The region remained culturally bound to an inherited anti-bourgeois ethos The Counter-Reformationwhere wealth was gained through political privilege and connections to the crown (or later, the kingdom), rather than through market establishment
Octavio Paz believed that the main problem in Latin America was not a persistent economic deficit but a fundamental disconnection from institutions. The most obvious sign of this is the widening gap between those who rule and those who are ruled. The abrupt break with the monarchy did not bring freedom to Spain’s former colonies. Instead, the break left Latin American societies in a state of deep confusion.
The framework that existed since the Bourbon Reforms and the consolidation of the Catholic Counter-Reformation—the governing system of government—did not disappear as a result of the revolution. As Paz points out, independent Latin America faced a major contradiction: The region adopted legal structures that did not reflect its social realities, turning constitutions into legal masks—illusions designed to hide the persistence of the old colonial system. After independence, Creole elites rushed to fill the legal gap by importing ideas and institutions from the American and French revolutions, and the latter often felt more familiar with them than followers. Jean-Jacques Rousseau.
This forced imitation of institutions ultimately strengthened the central authority where democratic processes were superimposed on the deeper reality of humanity and democracy. That’s why Latin American educational systems taught the French Revolution as an important moment in Western history, while the independence of the United States was often treated as a side note. In 1787, the US Constitution reflected the society that already existed—a network of merchants, landowners, and Puritans whose customs and written laws were consistent. As mentioned earlier, there was no such consensus in Latin America.
Contrary to the Constitutional Convention in Philadelphia that sought to formalize entrenched social and political agreements, Latin America fell into a destructive cycle of violence marked by ongoing instability and bloody conflicts. Lacking the kind of shared understanding that the US Constitution has been able to legitimize, the region has become a battleground for the clash of political projects without a common cause. In this area of lawlessness, caudillismo (strongman politics) and patrimonialism took the place of non-existent institutional structures, resolving ideological conflicts by force instead of voting. In these battlefields, different political models fought to form states that lacked secure foundations, where borrowed ideas of abstract freedom collided with a strong, absolutist, and authoritarian legacy.
This conflict reflects the dire challenges of state-building in Latin America during the nineteenth century. While the United States used its post-independence years to expand its domestic market, establish legal stability, and consolidate administrative power, Latin America squandered its early post-colonial years with constant chaos and oppression. The reality of this wasted opportunity was harsh. The region struggled for more than fifty years to define the foundations of the state’s sovereignty. Without a unified understanding of the law, the state could be seen not as a protector of rights but as a trophy to be claimed by opposing parties. Political power is used for the urgent task of restoring order and central control, leaving no room for building permanent legal structures.
This prolonged institutionalization explains why sustainable economic development was not possible in the region during this critical period. The high cost of Latin America’s post-independence disorder is evident in the data provided by North et al. (2000): while the region began the 19th century with a per capita income comparable to that of the United States, by 1900 the US institutional framework had increased per capita wealth four times that of Spanish America.
As North emphasized, economic growth requires a framework of reliable bonds that reduce the risk of long-term investment. In nineteenth-century Latin America, the complete lack of such institutional agreement made property rights unstable, contracts unenforceable, and the threat of land expropriation constant. The generation of wealth depended on political choices rather than productive efforts. Thus, the absence of constitutional consensus not only led to political violence but also prevented the emergence of modern capitalism, locking Latin America back in an economic climate that neither borrowed ideas nor vague laws could correct.
This conclusion becomes very important to explain Paz’s central political study, which serves as a powerful precursor to modern institutional economics. Long before Douglass North formally demonstrated that formal laws fail if they are not properly aligned with informal constraints, in this novel, Paz accurately exposed the fallacy of viewing freedom as permission to go from top to bottom. His core political lesson highlights the fundamental flaw of treating freedom as something that can only be granted by a central authority. As Paz famously said, the founding fathers of Latin America faced a tragic end when “our political systems were good, but not related to our reality,” turning liberal jurisprudence into a mere cover for persistent humanism.
Therefore, Paz’s progressive thesis is a warning: regional institutions will be stable and strong only when we break free from the colonial mentality that forces us to subordinate the law to the will of a powerful leader. As long as we wait for a leader to resolve what each of us must build, the way out of the labyrinth will remain closed, and isolation will continue to be our only destiny.
References
McCloskey, DN (2010). The Shadow of the Bourgeois: Why Economics Can’t Explain the Modern World. University of Chicago Press
North, DC (1990). Institutions, Institutional Change and Economic Performance. Cambridge University Press.
North, DC (1991). Institutions. Journal of Economic Perspectives, 5(1), 97-112.
North, DC, Summerhill, W., & Weingast, BR (2000). Order, Disorder and Economic Change: Latin America vs. United States. In B. Bueno de Mesquita & HL Root (Eds.), Governing for Prosperity (pp. 17-58). Yale University Press.
Paz, O. (2019). El laberinto de la soledad, Postdata, Vuelta a El laberinto de la soledad (6ª ed.). Fondo de Cultura Económica. (Original work published in 1950).
Constanza Mazzina works as the Director of the Undergraduate Program in Political Science and the Graduate Program in Institutional Economics and Political Science at the Universidad del Cema in Buenos Aires. He is also a member of the Friedman Hayek Center and a member of the Education Council of Libertad y Progreso.
