Chile’s conquest of the Atacama Desert from Bolivia and Peru in the War of the Pacific (1879-1883) completely transformed her economy. Within the confines of this rainless and remote region lay the only commercially productive nitrate deposits in the world; and the exploitation of this resource immediately became Chile’s most important enterprise. For forty prosperous years Chilean nitrate retained a virtual monopoly in the world market. So great was the impact of the expanding nitrate industry that the era extending from 1880 to 1919 has been termed Chile’s Nitrate Age. Producers reaped immense profits while the government obtained the bulk of its revenues from a tax on nitrate exports. Their rich harvest aroused the awe and envy of the world.
Nevertheless, despite the exceedingly prosperous aura surrounding nitrates, producers often encountered serious difficulties in realizing profits from their endeavors. Their greatest difficulty, at least until 1900, stemmed from a succession of depressions or crises, as they were called in Chile. Crises occurred even though Chile enjoyed a world monopoly of nitrate production because the consumption of nitrate failed to advance as rapidly as the industry’s productive capacity. The quantity of nitrate purchased by farmers, who provided the main market, depended upon its price, their knowledge of its qualities as a fertilizer, and prevailing economic conditions. Throughout the Nitrate Age the chief obstacles to greater consumption was the fact that nitrate prices remained at relatively high levels. Both the government and producers bore partial responsibility for the high price of nitrate. The export tax, representing no less than thirty and as much as seventy per cent of the price of nitrate in Chile, and production restrictions imposed by producers for almost half of the Nitrate Age exacted a heavy tribute in the marketplace.1 The industry, ultimately with government support, did achieve considerable success in promoting consumption through nitrate propaganda activities; however, completely beyond their control was the third determinant of nitrate use—world agricultural conditions. With at least three-fourths of output used as fertilizer, the importance of the level of farm income for the nitrate industry can hardly be exaggerated. When prices of farm products rose, the desire to obtain maximum yields created a strong demand for nitrates; but in periods of decline, a cutback in fertilizer purchases was one of the earliest economy measures adopted by farmers.2 The nitrate industry was particularly sensitive to the economic status of sugar-beet cultivation in western Europe, the branch of agriculture that consumed the largest quantity of Chilean nitrate.
When nitrate crises occurred, producers sought to bolster demand and increase prices by intensifying nitrate propaganda activities and by limiting production. These endeavors were directed by an organization called the Combination.3 Although combinations or industrial pools were typical of business enterprise in that era, nitrate combinations are of exceptional interest. Operating in an industry which possessed a monopoly of a limited natural resource, they could be expected to attain maximum effectiveness in regulating output. Furthermore, nitrate combinations commanded the constant attention of Chile’s highest authorities because their activities greatly affected government revenue, the country’s labor force, and the powerful agrarian and capitalist upper class. Not the least of the issues connected with combinations arose from the fact that foreign entrepreneurs were closely associated with or actually controlled the policies of the combinations. This development so stirred nationalist sentiment that the Chilean commitment to private enterprise and the laissez-faire theory was seriously challenged. The government, seeking to promote the national welfare, sometimes supported and at other times opposed combinations, depending upon conditions in the industry. Regardless of which policy prevailed, the combination question always involved controversy, for even the producers disagreed about it.
Chile’s first nitrate crisis developed early in the Nitrate Age. When the government returned the industry to private operation in 1881, high prices prevailed and demand in Europe was rising.4 The rush to capitalize upon these circumstances raised exports fifty-seven per cent within three years; but unfortunately, demand failed to increase proportionately. Nitrate prices declined steadily through 1884.5 Accustomed to high profit margins, producers asserted that falling prices deprived them of legitimate profits and “threatened [them] with speedy and certain ruin.”6 It was “a truly difficult and critical situation.”7 But the real threat to established producers stemmed from the prospect of further catastrophic production increases. The Shanks process, a new method of refining nitrate ore then being introduced in the industry, promised greater output at lower costs.8 New producers employing the Shanks process could expect huge profits even at the reduced price level, while those with obsolete facilities were apt to become marginal producers.
Unwilling to adjust either to a low price or to the new technology, producers undertook to restore the favorable conditions that had prevailed in 1881. The plan adopted involved production controls enforced by a combination of producers into which new operators could be drawn; however, determining the method of allocating production among producers required tedious and lengthy negotiations. This problem, always the most difficult one faced by organizers of combinations, finally was resolved by setting an industry-wide quota based upon the theoretical capacity of each enterprise. An elected board of directors administered the affairs of the combination, subject only to the terms of agreement and the actions taken by general meetings of producers held at least annually.9
The First Combination began operations on August 1, 1884, intent upon reducing annual output by twenty per cent to ten million quintals. But because theoretical capacity was set unrealistically high at seventeen million quintals, the quota adopted seemed to require a more drastic cut-back than is indicated by production statistics. The initial quota of forty-five per cent was soon lowered to thirty per cent, yet total nitrate exports for 1884 about equalled the previous year’s record and no price increase occurred.10 Although disappointed with the lack of results, producers realized that to test the combination’s potentials a longer trial period was needed. Because unusually large shipments had been made before restriction took effect, the combination had started under especially difficult circumstances. Moreover, members had exceeded their allotments and only producers in the province of Tarapacá had co-operated.11
In 1885 the combination neared its goal. While a resolution against further expansion of productive capacity and the threat of legal proceedings against members who exceeded their quotas proved to be futile gestures, the enrollment of all nitrate producers provided effective control of production. Exports fell from 12.1 million to 9.5 million quintals, and the average annual price rose eight per cent to a “desirable level.”12 In renewing the combination for the year 1886, producers hoped for further gains, but output remained the same and most of the price recovery was lost.
The combination was plagued, meanwhile, by internal rivalry. Producers who normally maintained full capacity operations or had low-cost advantages obtained “more than their fair share” in the distribution of allotments, while high-cost producers exaggerated the capacity of their factories in order to receive a larger share of the market.13 As a result, the widespread belief that allotments were inequitably distributed induced many producers to exceed their quotas. The swift advance in productive capacity became another source of rivalry. New producers and those who were expanding and building Shanks type refineries insisted upon preferential treatment. Finally, several new low-cost producers refused to join the combination. Claiming that an increase in demand eliminated the need for restriction and that free production would bring greater total profits, they made it impossible to renew the combination when the agreement expired in December, 1886. Disappointment at the unsatisfactory record of the combination in 1886 also contributed to this result.14
Obviously, the First Combination had failed to attain its objective. Yet in temporarily reversing the long-term trend of greater production at progressively lower prices, it had served producers well. Far different was the effect on the Chilean government which suffered a substantial loss of revenue as collections from the tax on nitrate exports declined. Yet the loss did not provoke government intervention. Before the Combination was organized the Minister of Finance had expressed his approval of “a voluntary agreement” to restrict production to ten million quintals. This policy reflected both the laissez-faire commitment of the government and the prevailing belief that production controls would prolong the life of this vital industry.15 The fact that an influential group of Chilean capitalists benefited from restricted production provided an additional reason for government support of the First Combination.16
The optimistic forecasts made in 1886 proved to be fully justified. During the ensuing nitrate boom exports rose rapidly, reaching 15.5 million quintals in 1887 and over 23 millions in 1890. Strong demand from European sugar-beet growers kept prices steady and brought enormous profits until the middle of 1889. At that time accumulating surpluses again depressed the market, pushing the average annual price to new lows in 1889 and 1890.17 At the first indication of another nitrate crisis, interest in forming a combination revived.
In arranging the Second Combination rivalry developed between the West Coast producers and the English nitrate companies. The West Coast producers—a heterogeneous group composed of Chileans and resident foreigners, chiefly Germans, Spaniards, and Italians— included a few large companies and many small family enterprises. The English group was composed of sixteen producing companies, most of which had been established during the nitrate boom of 1887-89. Industrial leadership rested with the English companies which contributed sixty per cent of output in 1890; nevertheless, having excessive capital structures, the majority of English companies were particularly hard hit by the nitrate crisis of 1889-91.18 Their representative, the Permanent Nitrate Committee in London, provided the initiative in forming the Second Combination. The Committee’s proposal that seventy per cent of the allotments be assigned to English concerns was one cause of delay in organizing the combination, because the proposal favored English companies unduly. The West Coast group accepted English leadership but resisted domination. Moreover, by 1889 West Coast producers were less interested than the English in production restrictions.19 Doubtless the belief that a combination was inimical to the interests of Chile was partly responsible for their attitude.
Government policy toward combinations changed during the presidency of José Manuel Balmaceda (1887-1891) who openly opposed the formation of a second combination. Because the dominant English nitrate companies, led by Colonel John T. North, the Nitrate King,” furnished the chief support for restricting production, Balmaceda viewed a combination as part of North’s monopolistic maneuvers in Tarapacá.20 National interest required opposition to North’s “Nitrate Ring.” To the President no greater calamity could befall the country than the conversion of the nitrate industry and the northern provinces in which it was situated into “simply a foreign factory.”21 Also involved was the conflict of interests between the nation and nitrate producers. Although a reduction in nitrate exports might raise the prices producers received for nitrate, it would lessen government revenues which were based upon the volume of nitrate exports. To Balmacedists the welfare of a few nitrate producers, most of whom were foreigners, was obviously less important than the national welfare which required expanding government revenues to finance the public works program. The government raised other objections to a combination. Restriction would encourage the production of synthetic fertilizers; nitrate workers would be adversely affected; and the principle of competition enshrined in the liberal economic theory would be violated. The vigorous opposition of Balmaceda’s government was the decisive factor in postponing the formation of the Second Combination until 1891.
Meanwhile, producers continued to negotiate. On the insistence of English entrepreneurs, proposals that restriction be based on theoretical capacity or actual production under free conditions were rejected in favor of a third plan called the time-method. The time-method avoided the troublesome problem of assigning quotas by closing all nitrate establishments a part of each year and permitting unlimited operations for the remainder. Presumably, this system would preserve each producer’s relative position in the industry; however, critics claimed that the time-method would create burdensome problems particularly for non-producing interests. Industry-wide shut-downs would interrupt the flow of funds into the public treasury, disturb established marketing practices, put workers on a part-time basis, and increase the cost of production. These objections were satisfied by two concessions included in the final combination agreement. The first provided that factory shut-downs be staggered so that work-gangs could be shifted from one factory to another and exports continue throughout the year. The second concession allowed producers to return to a fixed quota basis after the time-method had been given a year’s trial.22
Before the Second Combination officially began functioning in March, 1891, the revolution against the Balmaceda government started. Fighting in the nitrate provinces from January to March disrupted the industry; exports ceased and many factories stopped production. When operations resumed under authorization of the revolutionary Congressional government, a shortage of labor and of ocean transport, both effects of the continuing revolution, aided in reducing exports.23 For the entire year nitrate shipments fell twenty per cent to 18.7 million quintals; the average price increased almost ten per cent; and two million quintals of surplus stocks were absorbed by the market. The combination continued operating successfully after the revolution ended in September, 1891. In its second year, it maintained the price level and further reduced surplus stocks by slightly lowering output. In 1893 increased demand advanced prices another eight per cent in spite of an upward revision of the production goal made necessary by government pressure.
Unlike its predecessor, the Second Combination encountered persistent governmental opposition. The hostile policy of the Balmaceda government was renewed by the victorious Congressional regime once it was firmly entrenched in power. Industry leaders had expected favors from the Congressional government. Before the revolt the nitrate interests that Balmaceda attacked had received strong support from the Congress, and during the revolution Congressional leaders courted nitrate producers to the extent of boasting of their close ties with English capitalists.24 The ouster of Balmaceda, however, did not change the government’s attitude toward the combination or toward the English segment of the industry.
This became fully apparent in 1893 when the Chilean press, reflecting the opinion of government officials and the public, launched a “violent attack” upon “the high handed and insolent conduct of certain of the capitalists, who control the Nitrate industry from their board rooms in London.”25 The group referred to was North’s “Nitrate Ring,” which controlled the Triple Syndicate—composed of the Second Combination, the Nitrate Railways Company, and the Bank of Tarapacá and London. The charges levelled against the combination repeated and expanded upon those stated earlier by the Balmaceda government. It reduced government revenues, lessened commerce, jeopardized foreign exchange rates, and placed workers on a part-time basis. National resentment at the large profits foreigners took from nitrates, presumably at Chilean expense, underlay each of these complaints.26
The British Minister to Chile admitted that the actions of the Triple Syndicate were “inconvenient to the general commercial and financial interests of Chile”; and in June, 1893, President Jorge Montt warned that the government would legislate against combinations if output was too greatly limited.27 At the same time the Minister of Finance made clear the government’s determination to protect the nation’s interests in the nitrate industry.28 When Congress finally approved the sale of a substantial bloc of state nitrate lands, the government struck its most effective blow at the combination. The sale not only presented the long-range threat of increased capacity; it also heightened tensions already building up within the combination.
The desire of certain producers to take full advantage of the improved market for nitrate before new establishments were completed, together with unfruitful negotiations with these same new refiners, cast doubt upon the organization’s ability to maintain effective controls. When North refused to enroll his huge new Lagunas Nitrate Company, efforts to renew the Second Combination ended. Apparently, the Nitrate King precipitated the collapse of the combination he had helped to create in order to favor a new speculation.29 Unregulated production resumed in April, 1894.
The industry continued to display cyclical characteristics. Under free production exports jumped from 20.6 million quintals in 1893 to 24 millions in 1894 and to 27.2 millions in 1895. Partly because of a depression among European sugar-beet and cereal producers, consumption failed to rise proportionately. Nitrate prices declined sharply in 1895, and the industry suffered its third and most severe crisis in the Nitrate Age.30
As the depression increased in severity, the government modified its policy toward combinations. The head of the Nitrate Agency took the lead in supporting the formation of a new combination, asserting that it was “indispensable” for Chilean producers who could not endure prolonged losses as well as foreign entrepreneurs.31 By 1896 the Minister of Finance publicly recognized the necessity of limiting production.32 The rising importance of West Coast producers, who had considerable political influence, partly accounts for this change; having a similar effect was the belief that the government, through the sale of deposits, had created the crisis.
In spite of the change in government policy, the Third Combination (March, 1896–October, 1897) was formed only after considerable discussion. It was a complete fiasco. Final arrangements granted favored treatment to all small operators, several large companies, and producers bound by long-term contracts. The agreement, which reinstituted the quota system, also permitted full-scale production for the first three months and the right to exceed quotas by fifteen per cent.33 Although necessary to obtain the support of all producers, these concessions prevented restriction from having an immediate effect on the market. The production goal of 23.5 million quintals was exceeded by one and one-half millions, and nitrate prices continued to decline.34 Producers became discouraged, and their confidence in combinations was shaken. Internal rivalries increased until in October, 1897, a new English company refused to accept a quota. When the combination swiftly dissolved the secretary of the combine gloomily predicted “the ruin of some producers, the impoverishment of the others, and the enrichment of the farmers of Continental Europe.”35 The crisis reached its nadir in 1898.
Official concern over the continuing plight of producers was tempered by confidence in an eventual upswing in the nitrate cycle.36 Calculations showed that in the long-run the supply-demand relationship would turn sharply in favor of nitrate producers. Prevailing estimates of the amount of unexploited nitrate deposits indicated the exhaustion of supply within a half century at the current rate of consumption. With nitrate supplying two-thirds of the fertilizer market and no replacement in sight, the scarcity of the product seemed to offer every hope for renewed prosperity. In fact, as long as combinations did not reduce consumption by excessive restrictions, they would promote national interests by prolonging the life of the industry and of the all-important revenues obtained therefrom.37 Granted the premises involved, these theories had merit. The government could afford to overlook current difficulties, because its nitrate revenues remained unaffected by the low prices.
Producers found it more difficult to be optimistic because profits were reduced drastically by the crisis. Vainly producers urged a reduction in the export tax as the best means of promoting the industry’s revival.38 Attempts to lower production costs made no headway; and nitrate’s chief rival, sulphate of ammonium, seemed to be cutting into traditional markets.39 The search for a solution to the crisis fostered a new combination scheme based on a centralization of sales. The English firm backing the proposal claimed that production restrictions alone had proved inadequate; but West Coast producers and merchants rejected the plan as another English monopolization effort.40 When the market for nitrate improved in 1899, therefore, it was without the aid of a combination.
The crisis had passed, but efforts to re-organize the combination continued unabated until an agreement was reached. In sponsoring a combination during prosperous times, producers hoped to break the traditional nitrate cycle and thus prevent recurring crises. By maintaining the organization on a permanent basis, the combination could act quickly and effectively when lagging consumption again made restraints necessary. The price stability thereby achieved would adequately compensate producers for any sacrifice in output. For those whose supplies of nitrate ore were approaching exhaustion, lower volume would bring the further advantage of extending the life of their deposits.
Auspicious circumstances prevailed at the launching of the Fourth Combination in April, 1901. Demand for nitrate from both agricultural and industrial users already had lifted output and prices well above the depression lows. In drafting the agreement, moreover, the negotiators avoided making the special concessions that had wrecked the previous combination. The principal improvement was in assigning quotas. By negotiating separately and secretly with each producer, the directors of the combination eliminated the rivalries that had frustrated previous attempts at agreement. The quality of deposits, a vital factor in determining output, was assessed along with the capacity of the refining apparatus; and so that errors could be corrected, establishments that failed to reach their quotas were obliged to accept reduced allotments.41 Another factor auguring well for the future was the government’s recognition that a combination would bring “secure and normal” conditions to the industry.42 Industry leaders wisely explained their intention of allowing a moderate annual increase in production, enough to keep pace with growing consumption without outstripping it and sufficient to permit an increase in nitrate revenues.43 This was a policy the government could support wholeheartedly.
Complete harmony, however, did not prevail. The government chose to sell additional blocs of state nitrate deposits in 1901 and 1903, knowing that with the return of prosperity the deposits would bring good prices.44 Established producers condemned this action and warned that it would destroy the combination and lead to a depression.45 But the boost in capacity neither broke the combination nor depressed the industry. Actually the industry needed added capacity since the drop in production from thirty million quintals in 1900 to twenty-seven millions in 1901 had been due to the inability of producers to meet their quotas, not to a planned cutback in output.
Prosperity grew to boom levels during the five year period of the Fourth Combination. Demand faltered only once. In 1902, the high price of nitrate—which had increased twenty per cent the previous year—coupled with a brief crisis among sugar-beet growers, restricted consumption. On the whole, however, favorable agricultural conditions and the increased use of nitrate in the United States provided a strong demand.48 Modest annual increments in output brought exports of nitrate to 35.9 million quintals in 1905, while the price of nitrate showed a sixty per cent gain over 1900, the last year of free production.
With earnings virtually assured by the combination, producers competed for larger quotas by purchasing lands and improving their refineries. In Tarapacá, still the center of the industry and of foreign enterprise, many producers found it profitable to mine the costra or overburden that contained small quantities of nitrate ore.47 Chilean entrepreneurs also benefited by the boom. The favorable market finally made profitable the working of the low-grade deposits in Antofagasta province where Chilean capital was dominant. Significantly, the number of nitrate establishments located in the Antofagasta region increased from twelve to forty-four between the years 1904 and 1907.48
The number of working nitrate factories increased from sixty-six in 1901 to 113 in 1905 and all joined the combination.49 Quotas had to be revised downward in order to accommodate the host of new producers, but the fact that the majority could not fill their original allotments minimized the discontent this produced. Some pressure was felt by large low-cost producers when marginal operators reopened and claimed a share of production. Yet despite lower quotas, the well-situated enterprise earned enormous profits. The success of the Liverpool Nitrate Company in maintaining profits at an all-time high on one-third less output, for the year 1904, illustrates the benefits attributable to the combination.50 According to the government, profits for producers averaged one-third of the market price of nitrate; other estimates reached as high as fifty per cent.51
In 1905-06, several obstacles temporarily thwarted efforts to renew the combination. Low-cost producers, dissatisfied with their quotas and mindful of the creation of new productive facilities, insisted upon basic changes in the agreement. Noting that allotments already had fallen thirty per cent below the original distribution made in 1901, they rejected the sharply reduced quotas planned for the future. They even claimed the right to larger allotments; the sacrifices necessary to perpetuate restriction would have to be borne by the high-cost operators who benefited most under past combinations. Another difficulty arose when producers in Tarapaca refused to grant a larger share of the market to producers in the fast developing Antofagasta area.52
Doubtless the Fourth Combination would have collapsed under these pressures had the Chilean government not intervened. Reflecting the views of Chilean entrepreneurs, speakers in the congress declared that the collapse of the combination would benefit the large foreign enterprises at the expense of Chilean producers. Foreign entrepreneurs in Tarapaca, it was claimed, could endure a depression because they had “sold ahead” for a year or more at high prices. Furthermore, having invested early in the Nitrate Age they had low capital costs and the richest nitrate ores. Recently established Chilean concerns, on the other hand, were burdened with debts and low quality ores. If the price of nitrate fell sharply, as inevitably it would without a combination, Chileans would be forced to sell their properties to the affluent foreigners at bargain prices.53 This assessment misconstrued the actual nitrate situation in several important respects, but it reflected the opinions of a substantial number of producers and the Minister of Finance. The latter official called a meeting of nitrate producers and induced them to make the compromises necessary to reach an agreement. Apparently the Minister threatened direct government intervention to perpetuate the combination.54 Thus the government joined the majority of Chilean and English producers in championing production restrictions.
The Fifth Combination (April, 1906, to April, 1909), pushed nitrate prices to an all-time high in 1906 and into 1907. For both years the quota remained at seventy per cent of theoretical capacity or forty-eight million quintals. But because effective productive power was much less, the actual export goal was 43.5 million quintals.55 Even this could not be reached as production totalled less than 40 million quintals each year, for only a small fraction of producers filled their quotas. Without the combination production could have been increased somewhat by the large concerns, but factors unrelated to the combination—a labor shortage, the exhaustion of rich deposits, inadequate transportation facilities, and a scarcity of water in Antofagasta—curtailed the output of all producers.56
During the last eighteen months of the Fifth Combination, a new crisis enveloped the industry. Responsibility for the new crisis rested largely on the combination. By keeping the price of nitrate high, the combination retarded the growth of consumption thereby making the industry vulnerable to external adversities and to any substantial rise in nitrate productive power. In 1907-08, financial panics in Germany and the United States and extraordinarily large shipments of nitrate following the great nitrate strike of December, 1907, initiated the crisis. At this juncture, with the completion of many new refineries, rivalry within the combination intensified. Now efficient refiners could profitably market more nitrate than the combination currently allowed, but without high prices and assured allotments the numerous marginal producers would be ruined.57 The struggle for control of the combination was won by the marginal operators, and the quota was cut from seventy to fifty-three per cent.58 But instead of solving the crisis, this decision broke up the combination. Producers exceeded their quotas, prices continued to drop, and the combination ceased to function when the agreement lapsed in March, 1909.59
Actually, efforts to form a Sixth Combination had been doomed from the start by the lack of government support. In 1908-1909 opinion in Chile divided on the nitrate question. The advocates of intervention presented a variety of arguments to substantiate their recommendations. They wished to protect Chilean entrepreneurs, take advantage of the “natural monopoly” for “national economic interests,” and provide conditions that would attract needed capital to the industry.60 The head of the Nitrate Agency backed many projects including the establishment of a government-directed combination to control the production and sale of nitrate.61 But higher authorities rejected his advice. The government was not prepared, either financially or administratively, to assume direct control of the nitrate industry.
In fact, in 1908 and 1909 the Ministers of Finance refused to intervene in negotiations for a renewal of the combination. A re-assessment of the nitrate situation showed that the crisis had not halted the expansion of the industry. Instead, lower prices improved the competitive position of nitrate and fostered greater consumption. Moreover, since tests had revealed that remaining deposits would sustain the industry for another century, the argument that Chile needed to conserve the vital national resource no longer held true. The growing rivalry from synthetic fertilizers provided another reason for rejecting a high-price policy.62 With these developments in mind, the government left the problem of re-organizing the combination to the producers. Previous experience indicated that under this condition a successful negotiation was quite unlikely.
In destroying the Fifth Combination low-cost producers enhanced their own prospects; but in the opinion of many opponents of the combination, the more significant result was the improvement in outlook for Chile. They expected free production to stimulate maximum activity in the industry which in turn would foster an expansion of trade, greater demand for Chilean agricultural products and workers, and a substantial boost in the government’s nitrate revenues. In this way, following the classical economic system, Chile could gain far more than by protecting a few small native nitrate producers.63 Subsequent developments largely justified this view.
The crisis continued for another year while the industry adjusted to free market conditions. But when prosperity returned in 1910-11, it was destined to last, with only minor interruptions, until the close of the Nitrate Age. Efforts to revive the combination occurred from time to time; but for the Nitrate Age, the era of combinations had passed.64
Combinations had aided the industry during the crises of the late nineteenth century. They also had heightened prosperity early in the twentieth century. High cost producers probably gained the most, but all benefited by the consequent extension of the life of their deposits. Combinations can be credited, too, with the initiation of nitrate propaganda activities, the most progressive step taken by the industry in the Nitrate Age.
But several basic weaknesses prevented combinations from attaining a permanent existence. They failed to attract permanent government support; they limited production excessively; and they never solved the problem of equitably distributing quotas. Each of these weaknesses was capable of generating pressure sufficient to destroy a combination. The activities of foreign entrepreneurs and the large number of nitrate producers created added problems for combinations. Because centralization of sales was not joined with production restrictions, combinations lacked the breadth of activity necessary for complete success. Sales control remained in the hands of a few large nitrate merchants. Their manipulations created an excessive spread between prices in Chile and prices in Europe and produced erratic price gyrations harmful to the nitrate trade.65
Combinations probably did not prolong the existence of the industry. The need to conserve the raw material supply had always been a major argument in favor of combinations. But once the vastness of the deposits was clearly established, this belief was effectively undermined. Opponents of combinations argued that production restrictions contributed to the premature decline of the industry. To an extent this was true, for the high price of nitrate did provide an important stimulus to the search for chemical fertilizers. But both the high price of nitrate and the search for a replacement were predicated upon the belief that the deposits would soon be exhausted. The scarcity of nitrate, therefore, provides a more basic answer to the question than the fact of high prices.66
The Chilean government shared with producers responsibility for the course of developments in the Nitrate Age. Although quick to establish a high tax on nitrate exports, the government was slow in taking positive measures to alleviate crises or to promote long-range interests connected with the industry. The widely held belief that the tax was the primary cause of nitrate crises, and therefore of combinations also, was partly true; but it failed to take into account factors other than price that affected the volume of consumption.67 However, while justified in taxing nitrate exports, the government erred in refusing to consider a reduction, especially after production costs and competition increased early in the twentieth century.
In the Nitrate Age many comprehensive plans were proposed to reconcile the needs of the government with the interests of producers and to protect long-term considerations without sacrificing the immediate necessities of the industry.68 Several of the plans merited serious consideration. But the large number of producers involved and the requirement of heavy capital investment were insuperable obstacles to a privately organized nitrate trust. Some producers wished the government to take the initiative in thoroughly re-organizing the industry; however, divided counsels, political instability, and the belief that the government could not successfully direct an industrial enterprise impeded this move. Positive government action in conjunction with producers awaited the appearance of a truly competitive product—nitrogen produced by the air-fixation process. That event, however, marked the end of the Nitrate Age.
The tax on nitrate exports imposed October 1, 1880, remained unchanged throughout the Nitrate Age. It was payable in gold at the rate of two shillings four pence per Spanish quintal (101.44 pounds).
Mirko Lamer, The World Fertilizer Economy (Stanford, 1957), pp. 81-86.
Propaganda activities were placed on a permanent basis in 1889 by the Permanent Nitrate Committee in London. In 1894 its activities were enlarged by the creation of the Asociación Salitrera de Propaganda with headquarters in Iquique, Chile.
In 1875 Peru had nationalized the nitrate industry in the major nitrate-producing province of Tarapacá. There was no significant opposition to the Chilean denationalization decree of June 6, 1881. Chile, Ministerio de Hacienda, Memoria del Ministro de Hacienda presentada al Congreso National en el año 1888 (Santiago, 1888), pp. 161-165 (Hereinafter cited as Min. de Hac., Memoria).
From 1881 to 1884 prices fell twenty-five per cent or more. Nitrate statistics have been taken from Chilean government reports. Except for the 1880’s, the available data is extensive.
Francisco Valdés Vergara, La crisis salitrera (Santiago, 1884), p. 5.
Min. de Hac., Memoria presentada en 1884, pp. lv-lvi.
Valdés Vergara, La crisis salitrera, p. 6.
Ibid., p. 10; J. W. Merriam to Department of State, April 8, 1886, Iquique, II, 28-32, National Archives, Washington, D. C., Consular Reports, Chile.
Ibid., pp. 32-34; Miguel Cruchaga, “La combinación salitrera,” in M. Cruchaga, Salitre y guano (Madrid, 1929), p. 191. The essay is dated Dec. 31, 1886.
Productive capacity estimates made by all combinations are grossly exaggerated. Effective productive power probably never exceeded two-thirds and was often as low as one-half of estimated capacity. The seventeen million quintal capacity set in 1884 was not matched by actual production until 1888, and the twenty-eight million quintal estimate for 1886 was not approached until 1895.
Merriam to Dep. of State, April 8, 1886, Iquique, II, p. 38. Production from Tarapacá provided 83 per cent of output. To the south were the other nitrate fields: Tocopilla, Antofagasta, Taltal, and Aguas Blancas.
Ibid., pp. 34-35; Cruchaga, “La combinación,” p. 201; Inspector General de Salitreras, “Memoria presentada al Ministro de Hacienda en el año 1886,” in Min. de Hac., Memoria presentada en 1886, p. 3.
Great Britain, Diplomatic and Consular Reports, Miscellaneous Series, 1889, No. 142, p. 1.
The South American Journal and Brazil and River Plate Mail (London), XXIV (Jan. 8, 1887), 4; Charles LeGrand, ed., Cuestiones salitreras (1892), p. 38; Cruchaga, “La combinación,” pp. 205-207.
Min. de Hac., Memoria presentada en 1884, pp. Ivi, lix; Memoria presentada en 1885, pp. xl-xli; Valdés Vergara, La crisis salitrera, pp. 9-10.
Great Britain, Consular Reports, Misc., No. 142, p. 1.
Ibid., pp. 1-2.
Agustín Ross, Memoria sobre las relaciones comerciales entre Chile y la Gran Bretaña (London, 1892), pp. 80-83; South American Journal, XXX (Jan. 10, 1891), 35.
South American Journal, XXVIII (Jan. 4, 1890), Supplement, p. 6; Feb. 8, 1890, p. 169; XXIX (Aug. 9, 1890), 157; Nov. 22, 1890, p. 628; Dec. 13, 1890, p. 711; Dee. 20, 1890, p. 765; The Economist (London), XLVIII (Feb. 8, 1890), 171-172; Dec. 20, 1890, p. 1602.
See Enrique Bunster, Bombardeo de Valparaiso y otros relatos (Santiago, 1948), pp. 151-176, and H. Blakemore, “John Thomas North, the Nitrate King,” History Today, XII (July, 1962), 467-475.
José Manuel Balmaceda, Discurso de S.E. El Presidente de la República en la apertura de Congreso Nacional de 1889 (Santiago, 1889), pp. 8-10; see also José M. Yrarrázaval Larraín, “La administración Balmaceda y el salitre de Tarapacá,” Boletín de la Academia Chilena de la Historia, No. 47 (1952), pp. 47-74.
Asociación Salitrera de Propaganda, Circular Trimestral, Iquique, No. 15 (May 13, 1898), p. iv.
South American Journal, XXX (Feb. 14, 1891), 197; XXXI (Sept. 12, 1891), 295; Oct. 10, 1891, p. 420; XXXII (Apr. 23, 1892), 469. The large West Coast firm of Folsch and Martin did not join the Second Combination.
Osgood Hardy, “British Nitrates and the Balmaceda Revolution,” HAHR, XVII (May, 1948), 165-180.
The Chilian Times, June 10, 1893, quoted in South American Journal, XXXV (July 29, 1893), 104-105; Sept. 30, 1893, p. 331; J. Gr. Kennedy to Lord Rosebery, No. 63, Sept. 15, 1893, Public Record Office, London, Foreign Office Archives, Chile (hereinafter cited as F.O. 16), Vol. 288.
Ibid.; on the Nitrate Railways see J. R. Brown, “The Chilean Nitrate Railways Controversy,” HAHR, XXXVIII (Nov., 1958), 465-481.
According to Kennedy, animosity toward English producers was caused principally by their selling nitrate “direct to London” instead of through Valparaiso merchants.
Kennedy to Rosebery, Sept. 15, 1893, F.O. 16/288; Jorge Montt, Discurso de S. E. El Presidente de la República en la apertura del Congreso National de 1893 (Santiago, 1893), p. 21.
Min. de Hac., Memoria presentada en 1893, pp. lxxx-lxxxiii.
South American Journal, XXXV (Sept. 23, 1893), 303; Economist, LI (Oct. 14, 1893), 1235, 1263.
The difficulties confronting the nitrate trade are accurately reviewed in the reports of Messrs. Thomas Aikman and Co. published in South American Journal, XL (Jan. 4, 1896), 14; June 6, 1896, p. 642; XLIV (Jan. 18, 1898), 40.
Delegado Fiscal de Salitreras, “Memoria por 1894,” in Min. de Hac., Memoria presentada en 1895, pp. 154-156.
Min. de Hac., Memoria presentada en 1896, p. lxxiii.
Asoc. de Propaganda, Circular Trimestral, No. 3 (Feb. 10, 1895), p. 2; No. 4 (May 7, 1895), pp. 1-2; No. 5 (July 23, 1895), pp. i-ii; No. 6 (Oct. 22, 1895), pp. i-v; No. 7 (Jan. 22, 1896), pp. i, iv; No. 8 (May 4, 1896), p. i.
The Third Combination’s quota, approximately one-third of estimated capacity (70 million quintals), again failed to reflect the actual nitrate situation. Between 1896 and 1900, effective productive power was nearer to 40 million quintals. See Asoc. de Propaganda, Circular Trimestral, No. 9 (July 25, 1896), pp. ii-iii; No. 12 (Aug. 21, 1897), p. v; Delegado de Salitreras, “Memoria presentada en 1897,” p. 457; Min. de Hac., Memoria presentada en 1897, p. lxviii; Memoria presentada en 1900, I, cxiii.
Asoc. de Propaganda, Circular Trimestral, No. 13 (Nov. 25, 1897), pp. ii-iii.
Min. de Hac., Memoria presentada en 1898, p. lxxxi.
Min. de Hac., Memoria presentada en 1896, p. lxxiv; Memoria presentada en 1900, I, cxiii-exviii.
Delegado de Salitreras, “Memoria presentada en 1897,” pp. 461-462.
Delegado de Salitreras, “Memoria presentada en 1898,” pp. 589-598; Min. de Hac., Memoria presentada en 1899, pp. lxiii-lxiv. The shipment of nitrate containing a high percentage of perchlorate harmful to crops was widely publicized by producers of sulphate of ammonium. As a result the latter product gained a temporary advantage over nitrate.
Asoc. de Propaganda, Circular Trimestral, No. 12 (Aug. 21, 1897), p. vi; South American Journal, XLV (Sept. 17, 1898), 311.
Delegado de Salitreras, “Memoria por 1898,” pp. 20-32; “Memoria presentada en 1901,” pp. 25-36.
Min. de Hac., Memoria presentada en 1900, I, cxiv-cxv.
Erwin Semper and Dr. Michels, La industria del salitre en Chile, translated, edited, and enlarged by Jávier Gandarillas and Orlando Ghiliotto Salas (Santiago, 1908), pp. 145-147.
Min. de Hac., Memoria presentada en 1900 I, cxiv.
Semper and Michels, La industria del salitre, p. 176; Delegado de Salitreras, “Memoria por 1902,” pp. 421-422.
Ibid., p. 417; Thomas Aikman Report for 1902 in South American Journal, LIV (Jan. 17, 1903), 64.
Sir Robert Harvey in Ibid., LVI (May 7, 1904), 489.
Min. de Hac., Memoria correspondiente a 1907, p. xcvi.
Delegado de Salitreras, “Memoria presentada en 1916,” pp. 30-31.
Sir Robert Harvey in South American Journal, LVII (Nov. 12, 1904), 531.
Delegado de Salitreras, “Memoria por 1907,” p. 241; International Union of American Republics, Monthly Bulletin (Washington, D. C.), XXV (Nov., 1907), 1081.
Min. de Hac., Memoria presentada en 1906, pp. ic-c.
Chile, Cámara de Diputados, Boletín de las Sesiones extraordinarias en 1905-06 (Santiago, 1906), pp. 266-267, 680-686.
Min. de Hac., Memoria presentada en 1906, pp. ic-c; American Republics, Monthly Bulletin, XXII (June, 1906), 1702.
Thos. Aikman Report for 1906 in South American Journal, LXII (Jan. 5, 1907), 17. Beginning in 1906 the relative importance of production from Antofagasta province increased substantially.
Ibid.; LXIII (July 6, 1907), 16; Min. de Hac., Memoria correspondiente a 1908, p. civ.
South American Journal, LXIV (May 9, 1908), 535; LXVI (Jan. 2, 1909), 10-11.
Ibid., LXIV (May 9, 1908), 534-535, 539; Min. de Hac., Memoria correspondiente a 1907, pp. c-cii; Memoria correspondiente a 1908, pp. xcix-c.
South American Journal, LXVII (July 3, 1909), 13. The production, export, and consumption of nitrate rose steadily from 1908 through 1913. In these years, production increased from 42.8 to 60.3 million quintals, exports rose from 44.6 to 59.5 millions, and consumption advanced from 39.9 to 55.6 millions.
Alejandro Bertrand, La crisis salitrera (Paris, 1910), pp. 50-78; Chile, Cámara de Diputados, Boletín de las Sesiones Ordinarias en 1909 (Santiago, 1909), pp. 1253-1254, 1487.
Delegado de Salitreras, “Memoria por 1909,” pp. 401-414.
Min. de Hac., Memoria correspondiente a 1908, pp. xcvii, c-civ; Memoria correspondiente a 1909, pp. lxxiii-lxxx.
Cámara de Diputados, Sesiones Ordinarias en 1909, pp. 1485-1493.
During the last five months of the year 1913, a group of producers agreed to restrict production. But the combination dissolved after failing to obtain the co-operation of two-thirds of the industry.
South American Journal, LXVII (July 10, 1909), 45; July 17, 1909, pp. 71-72; Delegado de Salitreras, “Memoria por 1909,” pp. 420ff.
Min. de Hac., Memoria correspondiente a 1907, pp. ciii-civ; Chile, Min. de Hac., Informes i actas de la Comisión Salitrera (Santiago, 1909), pp. 65-66; Bertrand, La crisis salitrera, pp. 30-41.
South American Journal, XXII (April 18, 1885), 176; Cruchaga, “La combinación,” p. 188; Bertrand, La crisis salitrera, p. 26.
Several projects are mentioned in Delegado de Salitreras, “Memoria por 1909,” pp. 421-424. Details of the widely discussed plan submitted by Darío Schiattino are reproduced in Min. de Hac., Informes i actas de la Comisión Salitrera, pp. 145-187.
Author notes
The author is professor of history at Northeast Louisiana State College, Monroe, Louisiana. The research was made possible by a grant from the American Philosophical Society.
