We are approaching the 250th anniversary of the United States Declaration of Independence on July 4, 1776. But that same year has a different meaning in Latin America. Rather than the beginning of a system based on limits on power and individual freedom in the United States, 1776 marked a major turning point in the opposite direction for Latin America.
In Philadelphia, the thirteen colonies began to break away from imperial control and formally establish a long tradition of local self-government. In Latin America, by contrast, the Spanish crown reorganized its territory by creating the viceroyalty of Rio de la Plata and aggressively implementing the Bourbon reforms. This timing coincidence highlights an important and fundamental difference.
In the United States, 1776 was the culmination of a grassroots movement based on institutional consensus. In Latin America, it was an intensification of a centralized, authoritarian approach aimed at modernizing imperial rule through tight economic and bureaucratic control. By the time the wars of independence reached Latin America several decades later, they did not result from a natural progression toward self-government, but rather were caused by external collapse, Napoleon’s invasion of the Iberian Peninsula.
In 1950, Mexican author Octavio Paz published El Labyrinth of Solitude. Viewed through this historical lens, this essay provides the best framework for understanding why liberalism flourished in the United States but remained a footnote in Latin America. Paz’s research is essential here because it moves the discussion beyond economics and into the fundamental values and cultural evolution of the region. While the United States built its liberal framework on a legacy of historical continuity and a common civic myth, as Paz argues, Latin American countries often adopted liberalism as an imported philosophy. It was a noble abstraction superimposed on the underlying reality of deeply rooted traditional hierarchies and clear community values. The core thesis of The Labyrinth of Solitude is that Latin America’s historical legacy favored centralized authority and communal structures over individualistic liberalism.
That this divergence occurred is supported by the work of Douglas North, winner of the 1993 Nobel Prize in economics. North argued that long-term economic success is shaped not only by resources and technology, but also by the evolution of institutional frameworks such as formal laws and informal constraints that govern human relationships. From this perspective, the United States succeeded because it established a strong institutional system that ensured stable property rights, reduced transaction costs, and imposed real constraints on leaders. Conversely, Latin America inherited a complex institutional situation in which rules prioritized rent-seeking over productive investment, trapping the region in the very labyrinth described by Paz.
As economic historian Deirdre McCloskey has emphasized, this institutional difference is deeply rooted in contrasts in ideas and rhetoric. She argues that wealth and freedom do not thrive from institutions alone, but through fundamental changes in the way societies talk about and value individual initiative. In the United States, “bourgeois virtues”—an ethical appreciation of innovation, commerce, and personal responsibility—gained widespread cultural dignity. But in Latin America, the rhetoric never changed. The region remained culturally tied to the anti-bourgeois ethos inherited from the Counter-Reformation, where wealth was achieved not through market innovations but through political privilege and association with the crown (and later the state).
Octavio Paz believed that Latin America’s main problem was not ongoing economic underdevelopment, but a fundamental fracture in its institutions. The most obvious symptom of this disconnect is the wide gulf between those who govern and those who are ruled. The sudden collapse of the monarchy did not bring freedom to the former Spanish colony. Rather, this interruption plunged Latin American society into a deep state of turmoil.
The framework that had developed since the fusion of the Bourbon Reformation and the Catholic Counter-Reformation, a hierarchical and authoritarian system, did not disappear with the revolution. As Paz pointed out, independent Latin America faced serious contradictions. The region has adopted a legal framework that does not reflect its social reality, turning the constitution into a mere formal mask, an illusion created to hide the persistence of the old colonial system. After independence, Creole elites scrambled to fill the legitimacy gap by importing ideas and institutions from the American and French Revolutions, the latter often identifying with them as followers of Jean-Jacques Rousseau.
The forced imitation of this system ultimately reinforced centralized authority, with democratic practice resting on a highly individualistic and patrimonial reality. This is why Latin American education systems taught the French Revolution as a key moment in Western history, while American independence was often treated as a side note. The U.S. Constitution of 1787 reflected the society that already existed: a network of merchants, landowners, and Puritans whose customs and written laws matched. As mentioned earlier, there was no such coordination in Latin America.
In contrast to the Philadelphia Constituent Convention, which sought to formalize a deeply rooted social and political consensus, Latin America has fallen into a destructive cycle of violence marked by ongoing instability and bloody conflict. Lacking the common understanding that the U.S. Constitution was able to formalize, the region became a battleground for clashes between disparate political projects. In this lawless environment, caudilism and patrimonialism replaced a lack of institutional structure, and ideological conflicts were resolved by force instead of voting. In these battlefields, vastly different political models fought to form states that lacked secure foundations. There, borrowed abstract liberal ideas clashed with strong centralist, absolutist, and authoritarian traditions.
This conflict illustrates the tragic challenges of nation-building in Latin America throughout the nineteenth century. While the United States spent its first years of independence growing its domestic market, establishing legal stability, and unifying jurisdictions, Latin America wasted its early postcolonial years in continued turmoil and despotism. The reality of this wasted opportunity was harsh. The region has struggled for more than 50 years to define the basics of national sovereignty. Without a collective understanding of rules, the state was seen as a trophy for rival factions to claim, rather than an impartial guardian of rights. Political energies were expended on the urgent task of restoring order and central control, leaving no room for building permanent legal structures.
This long-standing institutional disconnect explains why sustainable economic development in the region was not possible during this critical period. The high cost of post-independence disability in Latin America is reflected in the data provided by North et al. (2000): Although the region began in the 19th century with a per capita income comparable to that of the United States, by 1900 the U.S. institutional framework had produced per capita wealth four times that of Spanish America.
As Mr. North emphasized, economic growth requires a framework of credible commitments that de-risks long-term investments. In nineteenth-century Latin America, the complete lack of such institutional agreements made property rights unstable, contracts unenforceable, and the threat of expropriation ever present. Wealth creation depended on political favor rather than productive effort. Thus, the lack of constitutional consensus not only led to political violence, but also prevented the emergence of modern capitalism and trapped Latin America in an economic backwardness that could not be resolved with borrowed ideas or abstract laws.
This conclusion becomes paramount because it clarifies the central political lesson of Paz, which essentially serves as a powerful precursor to modern institutional economics. Long before Douglas North formally demonstrated that formal rules fail when out of sync with informal constraints, Pass intuitively exposed in this novel the fallacy of viewing freedom as a top-down concession. His core political lesson highlights the fundamental mistake of treating freedom as something conferred by a central authority. As Paz famously argued, Latin America’s founders faced a tragic rupture in which “our political projects, beautiful as they are, have nothing to do with our reality,” effectively turning a liberal legal order into a mere cover for deep-rooted individualism.
Mr. Paz’s enduring assertion is therefore a warning. The region’s institutions will only become stable and strong if they are freed from colonial thinking that forces laws to be subject to the will of powerful leaders. As long as each of us waits for a leader who will solve what we need to build, the path out of the labyrinth will remain closed and loneliness will remain our only destiny.
References
McCloskey, D. N. (2010). Bourgeois dignity: Why economics cannot explain the modern world. University of Chicago Press
North Washington, DC (1990). Institutions, institutional change, and economic performance. Cambridge University Press.
D.C. North (1991). institution. Journal of Economic Perspectives, 5(1), 97-112.
North, D. C., Summerhill, W., and 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.
Pass, O. (2019). Labyrinth of Solitude, Afterword, Return to Labyrinth of Solitude (6th Edition). Economic and Cultural Fund. (Original work published in 1950).
Constanza Mazzina is director of the undergraduate program in political science and the graduate program in institutional economics and political science at Del Sema University in Buenos Aires. She is a fellow at the Friedman Hayek Center and a member of the Academic Council for Freedom and Progress.
