We are approaching the 250th anniversary of the United States’ Declaration of Independence on July 4th, 1776. However, that same year carries a different meaning in Latin America. Rather than the beginning of a system based on limits to power and individual freedom in the United States, 1776 represented a major turning point in the opposite direction for Latin America. 

In Philadelphia, the thirteen colonies started to break away from imperial control to formalize a long-standing tradition of local self-governance. In contrast, in Latin America, the Spanish Crown reconfigured its territories by creating the Viceroyalty of the Río de la Plata and aggressively enforcing the Bourbon Reforms. This coincidence in timing highlights a significant and fundamental difference. 

In the United States, 1776 was the culmination of a grassroots movement grounded in institutional agreement. In Latin America, it was the strengthening of a centralizing, authoritarian approach aimed at modernizing imperial rule through tight economic and bureaucratic control. By the time the wars of independence reached Latin America decades later, they did not arise from a natural progression toward self-rule but rather were precipitated by an external collapse: the Napoleonic invasion of the Iberian Peninsula. 

In 1950, the Mexican writer Octavio Paz published El laberinto de la soledad, an essay that, when viewed through this historical lens, provides the best framework for understanding why liberalism thrived in the United States, while in Latin America it became little more than a footnote. Paz’s work is essential here because it moves the debate beyond economics, diving into the foundational values and cultural evolution of the region. While the United States built its liberal framework on a heritage of historical continuity and a shared civic myth, Latin American nations, as Paz argues, often adopted liberalism as an imported philosophy. It was a noble abstraction superimposed onto an underlying reality of deeply rooted traditional hierarchies and distinct communal values. The core thesis of El laberinto de la soledad is that Latin America’s historical heritage favored centralized authority and communal structures over individualistic liberalism.

That this divergence occurred is supported by the work of the 1993 Nobel laureate in economics, Douglass North. North argued that long-term economic success is shaped not just by resources or technology but by the evolution of institutional frameworks—the formal laws and informal constraints that govern human interactions. From this viewpoint, the United States succeeded because it established a resilient institutional system that ensured stable property rights, reduced transaction costs, and imposed real limits on leaders. Conversely, Latin America inherited a complicated institutional landscape where the rules favored rent-seeking over productive investment, trapping the region in the very labyrinth Paz described. 

This institutional divergence, as economic historian Deirdre McCloskey highlights, is deeply rooted in a contrast of ideas and rhetoric. She argues that wealth and liberty do not flourish from institutions alone, but from a fundamental shift in how society talks about and values individual initiative. In the United States, the ‘bourgeois virtues’—the ethical appreciation for innovation, commerce, and personal responsibility—gained widespread cultural dignity. In Latin America, however, the rhetoric never shifted. The region remained culturally tied to an anti-bourgeois ethos inherited from the Counter-Reformation, where wealth was achieved through political privilege and connection to the crown (or later, the state), rather than through market innovation

Octavio Paz believed that the main issue in Latin America was not the ongoing economic underdevelopment but a fundamental disconnect in institutions. The most apparent symptom of this disconnection is the wide gap between those who govern and those who are governed. The sudden break with the monarchy did not bring freedom to the former Spanish colonies. Rather, the break left Latin American societies in a state of deep confusion. 

The framework that had developed since the Bourbon Reforms and the blending of the Catholic Counter-Reformation—a hierarchical, authoritarian system—did not vanish with the revolution. As Paz pointed out, independent Latin America faced a serious contradiction: The region adopted legal frameworks that did not reflect its social realities, turning constitutions into mere formal masks—illusions designed to hide the persistence of the old colonial system. After independence, the Creole elites rushed to fill the legitimacy gap by importing ideas and institutions from the American and French revolutions, with the latter often feeling more familiar to them as followers of Jean-Jacques Rousseau. 

This forced imitation of institutions ultimately reinforced a centralized authority in which democratic practices were laid over a deeply personalist and patrimonial reality. This is why Latin American educational systems taught the French Revolution as a key moment in Western history, while the independence of the United States was often treated as a side note. In 1787, the US Constitution reflected a society that already existed—a network of merchants, landowners, and Puritans whose customs and written laws were aligned. As previously mentioned, there was no such alignment in Latin America. 

In contrast to the Constitutional Convention in Philadelphia that sought to formalize deeply rooted social and political agreements, Latin America fell into a destructive cycle of violence marked by ongoing instability and bloody conflicts. Lacking the type of shared understanding the US Constitution was able to formalize, the region became a battleground for clashing political projects without common ground. In this environment of lawlessness, caudillismo (strongman politics) and patrimonialism took the place of the absent institutional structures, resolving ideological conflicts with force instead of ballots. On these battlefields, wildly different political models fought to shape states that lacked secure foundations, where borrowed ideas of abstract liberalism collided with a strong centralist, absolutist, and authoritarian legacy. 

This conflict illustrates the tragic challenges of state-building in Latin America throughout the nineteenth century. While the United States used its post-independence years to grow its domestic market, establish legal stability, and unify jurisdiction, Latin America wasted its early post-colonial years in continual chaos and despotism. The reality that resulted from this wasted opportunity was harsh. The region struggled for over fifty years to define the basics of state sovereignty. Without a collective understanding of the rules, the state was seen not as a fair protector of rights but as a trophy to be claimed by rival factions. Political energy was consumed by the urgent task of restoring order and central control, leaving no space for building lasting legal structures. 

This prolonged institutional disconnection explains why sustainable economic development was impossible for the region during this crucial time. The high cost of Latin America’s post-independence disorder is reflected in the data provided by North et al. (2000): while the region started the 19th century with a per capita income comparable to that of the United States, by 1900 the U.S. institutional framework had propelled its per capita wealth four times higher than in Spanish American nations. 

As North emphasized, economic growth needs a framework of credible commitments that reduces the risks of long-term investments. In nineteenth-century Latin America, the complete lack of such an institutional agreement made property rights unstable, contracts unenforceable, and the threat of expropriation constant. Wealth generation depended on political favoritism rather than productive efforts. Thus, the absence of a constitutional consensus not only led to political violence but also hindered the emergence of modern capitalism, trapping Latin America in economic backwardness that no borrowed ideas or abstract laws could fix. 

This conclusion becomes most important to articulate Paz’s central political lesson, which essentially serves as a powerful precursor to modern institutional economics. Long before Douglass North formally demonstrated that formal rules fail when misaligned with informal constraints, in this novel, Paz intuitively exposed the fallacy of viewing freedom as a top-down concession. His core political lesson highlights the fundamental mistake of treating liberty as something that can be granted by a central authority. As Paz famously argued, Latin America’s founders faced a tragic disconnect where “our political programs were beautiful, but they had no relation to our reality,” effectively turning the liberal legal order into a mere cover for a persistent personalism. 

Therefore, Paz’s enduring thesis is a warning: the region’s institutions will only become stable and strong when we break free from the colonial mindset that forces us to place the law beneath the will of a powerful leader. As long as we wait for a leader to solve what each of us must build, the way out of the labyrinth will remain shut, and solitude will continue to be our only fate.

 

References

McCloskey, D. N. (2010). Bourgeois Dignity: Why Economics Can’t Explain the Modern World. University of Chicago Press

North, D. C. (1990). Institutions, Institutional Change and Economic Performance. Cambridge University Press.

North, D. C. (1991). Institutions. Journal of Economic Perspectives, 5(1), 97-112.

North, D. C., Summerhill, W., & Weingast, B. R. (2000). Order, Disorder and Economic Change: Latin America vs. The United States. In B. Bueno de Mesquita & H. L. 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 1950).

 

Constanza Mazzina serves as the Director of the Undergraduate Program in Political Science and the Postgraduate Program in Institutional Economics and Political Science at the Universidad del Cema in Buenos Aires. She is also a Fellow of the Friedman Hayek Center and a member of the Academic Council of Libertad y Progreso.