A Fragile Prosperity: Credit and Agrarian Structure in the Cauca Valley, Colombia, 1851-87

For most Latin American countries the advent of political independence brought with it not only a resilient liberal vision of economic progress, but a notably rapid incorporation into the commercial and financial orbit of the industrializing nations. Less than a century after independence, this industrial, commercial, and financial incorporation was everywhere in evidence, be it in the form of copper in Chile, wheat and beef in Argentina, coffee and rubber in Brazil, or sugar and bananas in the Caribbean. Despite nascent industrialization after World War I and a policy of heightened import substitution after the depression of 1929, the economic history of Latin America in the twentieth century has been an intensification of what many have termed a neocolonial, dependent relationship between that region and the industrialized nations.¹

While much scholarly attention has been focused on the political, social, and even cultural dimensions of this relationship as it has evolved since 1930, comparatively little research has been carried out on the period from 1825 to 1930, during which time the foundation of this relationship was laid. Although foreign economic demands on Latin America increased after 1825, their impact was uneven and selective, and large areas of Latin America were either left untouched or only marginally affected. In those regions distant from the centers of the export-import trade, what forms of adaptation developed that allowed the survival of elite control over labor, capital, land, and political power? Specifically, how did the mechanisms of control evolve in regional societies moving from bondage to free labor; subsistence to commercial agriculture; church credit and specie to modern banking and paper money?

These questions take on particular meaning in Colombian history. The very concept of nation after 1825 was especially tenuous in Colombia, challenged repeatedly by powerful regional loyalties forged by time and formidable geography. Similarly, rather than a national economy, there were loosely knit local and regional economies deprived of coherence by the elimination of crown authority and by the commercial disruption occasioned by the wars of independence. Trade in anything but gold was a risky affair subject to unforgiving terrain, exorbitant shipping costs, scarce credit, and an uncertain market.² Though gold production benefited some areas after 1825, notably Antioquia, it was not until the 1840s that this autochthonous pattern of economic activity began to give way to an export trade founded upon tobacco.

Cultivation of this crop brought prosperity and settlement to the lower Magdalena Valley and a vision of commercial progress to the Radical Liberals of Bogotá. Indeed, not only Liberals, but most thoughtful Colombians of the time, saw the creation of an economy open to the “civilizing currents” of world trade to be the only option remaining after nearly two decades of largely unsuccessful attempts to establish domestic industries.³ Most realized that such an economy would depend fundamentally on the free flow of capital—foreign and domestic—as well as of trade goods. Circulation of both would require vastly improved means of communication and an effective network of public and private credit arrangements to link the disparate domestic economies to the international marketplace. Such a network could only function through a uniform system of exchange, which in turn required fiscal and monetary reforms. With the above there was little disagreement. In a society where the secular power of Catholicism was pervasive, however, where large amounts of capital and credit flowed through the bewildering maze of perpetual liens and trusts of ecclesiastical corporations, how did one proceed? Could the “nation” as a new and vaguely understood entity hope to recast symbols as complex as money and credit in the mold of a commercial world that was utterly alien to most Colombians? While the government at Bogotá might command obedience at the customs house or on the battlefield, what was the nature of its authority in the marketplaces of the land?

In the buoyant optimism generated by the vision of commercial progress during the 1840s the gravity of these issues was not immediately apparent; but it soon became so. What distinguished the Radical Liberals from their contemporaries was not the desire to transform the economy, but the revolutionary fervor with which they set about dismantling the institutional obstacles that barred the way. Their ascent to power under José Hilario López in 1849 inaugurated an era of dramatic fiscal and political reforms designed to break the corporate power of the Catholic church, appease foreign bondholders, and stimulate an export economy within the framework of a highly federalist political structure.⁴

The enduring success or failure of these reforms has long been obscured by the civil wars that accompanied them and by a strongly partisan historiographical tradition. Because conflict centered on control of the national government, few writers paid much attention to the effects of reform at the state or regional level. Even in recent years, most scholars, concerned with theories of political and economic modernization at the national level, have bypassed analysis of regional transformation. In the prevailing view, the Liberal era, 1850 to 1885, was one of misguided idealism that brought violence and political fragmentation, not national development. Only after 1885, with the centralist Regeneration program of Rafael Núñez and the rise of coffee, did Colombia begin to emerge as a modern nation.⁵

In a country where regionalism has been such a pervasive influence, shattering grand political visions and economic processes alike, can such a conclusion be sustained? We must bear in mind that the development of an export economy in Colombia was a far more sluggish and uneven process than in certain other parts of Latin America.⁶ Some regions, like the lower Magdalena Valley, Antioquia, the Quindío, Cundinamarca, and parts of Santander, were radically transformed, while others, like Boyacá and Cauca, were buffered by isolation. In the last, subsistence production and intraregional trade continued to thrive on the margins of a nascent export economy. Given these conditions, was the process of commercialization a centralizing one—culminating in coffee—or was it one that reinforced regional autonomy, giving rise to not one, but several, processes of economic modernization, each proceeding at its own pace? In this context, what constituted prosperity?

In exploring these questions, we will first take up the general features of the export-import trade between 1850 and 1902, with particular attention to the value of imports, shortages of specie, and the growing importance of domestic and foreign credit. I should note that money and credit, as used here, are conceived not only as symbols of exchange linking production to market, but as delicate symbols of trust spanning the private loyalties of family-clan and the more abstract loyalties of nation.⁷

Although the accuracy and completeness of trade statistics for nineteenth-century Colombia have been much debated, there is little doubt that a major commercial expansion took place. Led by tobacco and quinine bark sales, the annual value of exports (excluding gold) quadrupled between 1845 and 1858, rising from 894,000 pesos to 4,240,000 pesos.⁸ The boom did not last, though. Instead, the Liberal vision of a sustained, steadily expanding export trade disintegrated into so many compelling mirages as one bonanza after another ended abruptly in depression and civil war. In addition to the tobacco boom from 1850 to 1857, there were three periods of intense growth: 1870-73 (tobacco, coffee, quinine bark), 1878-83 (quinine bark, coffee), and 1893-98 (coffee), each followed by war, namely the wars of 1876-77, 1885, and 1899-1902 (see Table I). In broad terms, the export trade during the second half of the nineteenth century was one of irregular and gradual expansion that responded more to uniquely favorable world economic conditions than to any self-generating dynamism in the Colombian economy. In short, it was a time conducive to short-term speculation in export commodities rather than long-term investment in domestic development.⁹

Initially, however, speculation and development were indistinguishable parts of a process that was bringing unprecedented prosperity to the land. From 1850 to 1875 the harsher effects of world market fluctuations on domestic economic life were limited by the small size of the export sector and by the rapid recovery of export prices. Indeed, according to the most recent analysis of Colombian exports, this period was not only a time of exceptionally high world prices for Colombian exports, but a time of falling prices for imported European goods (especially textiles) as technological advances in maritime shipping and factory production dramatically reduced costs.¹⁰ While Colombian per capita real exports increased 120 percent over the period 1846-50 to 1879-81, the buying power of exports in terms of European goods increased 190 percent.¹¹ Under such favorable terms of trade, the volume of imports expanded rapidly (see Table II).

The trade in imports, however, differed from that of exports. Where the export of quinine bark, tobacco, gold, or coffee directly benefited those regions that were accessible to world trade and capable of such production, the trade in foreign imports spread to most urban centers of the country, including those in areas marginal to the export economy. In the distant Cauca, for example, while progressive Vallecaucanos like Evaristo García, a physician, deplored rural backwardness and the “maddening indolence” of the region’s cities, the stream of imported textiles, pharmaceutical goods, and even processed foods caused the number of almacenes (large wholesale and retail firms) in Cali to increase from three in 1868 to seven in 1874.¹² Tableware and a wide selection of clothing were available to grace the homes of the well-to-do. As one local merchant had it, “In those times [the 1850s] when Cali had only three tiendas de comercio [small retail stores] … the fanciest dresser had no more luxurious wear than his Sunday best of paño de San Fernando. In those times, our fathers were free of the many troubles caused us by our foreign creditors and even those we caused ourselves.”¹³

Given Colombia’s highly fragmented domestic economy, did this import trade aggravate regional imbalances, draining capital and population out of those areas distant from export centers of production? Or did the surge of imports stimulate local production and revitalize interregional commerce, creating thereby centers of prosperity less immediately affected by fluctuations in the export trade? In the absence of research on the subject, the issue is far from clear.

While the increasing volume of imports symbolized prosperity, it also introduced new complications. European creditors accepted payment only in gold, which posed little problem for the merchants of Medellín or Bogotá. In regions like the Cauca Valley, however, where export earnings were modest and overseas credit arrangements more tenuous, a favorable balance of trade was difficult to maintain. When the value of imports exceeded export earnings, payment in gold was made up in the equivalent value of domestic specie, which was almost entirely silver. Obviously, the local economy depended upon the same medium for exchange. Thus, barring new supplies of gold and silver specie, the vitality of domestic commerce stood to suffer in the event of prolonged imbalances in the export-import trade. This problem was compounded by the terms of Colombia’s adoption of the gold standard (1873), which stipulated a fixed bimetallic exchange rate of 1: 15.5 (gold to silver) at a time of declining world prices for silver.¹⁴ Now, not only was domestic silver used to pay for imports, but increased amounts of it were required to meet prices set in gold.

What prevented a major commercial crisis from occurring simultaneously at the regional and national levels from 1850 to 1875 was, as noted above, the convergence of high export prices and falling prices for imported goods. The benevolent effects of this convergence were most striking during the decade of the 1870s, a time that also marked the political apex of the Liberal party. With the boom of 1870-73, the export economy reached its greatest point of diversification, with tobacco, coffee, quinine bark, gold, and hides sharing importance as prime export commodities.¹⁵ The world financial panic of 1873 and the resulting fall in export prices after 1874, however, reverberated strongly through the Colombian domestic economy. During the following four years sporadic specie shortages became general in both export centers and marginal regions, undercutting local economic life and straining credit networks.¹⁶ In the resulting economic crisis, political and religious antagonisms flared, touching off the Civil War of 1876-77.

The economic crisis was not as destructive as it might have been, thanks to the credit and banknotes of the newly founded private banks, which buffered the domestic economy from the worst effects of the world depression. Indeed, banks and banknote emissions increased rapidly. By 1881, there were forty-two regional banks in the country with a combined banknote circulation of 8,000,000 pesos based on 14,000,000 pesos of subscribed capital.¹⁷ Buttressed by the capital and credit of these institutions and by high world prices for quinine bark, the export-import economy recovered and boomed from 1878 to 1882.¹⁸ The role of banks during this time, however, is far from clear. On the one hand, they were new institutions of credit that stood at the intersection of domestic trade and the export economy, participating in both. On the other hand, as private institutions founded upon the reputation of local investors, they were clearly the product of the regional economies. Were they simply by-products of the export-import trade or did they represent a new dynamism in the domestic economy? In the Cauca, they appeared to be a new corporate extension of elite family-clan wealth existing within the framework of a joint-stock enterprise open to modest investors. In a society supposedly inhospitable to such forms of association, how and why were these banks formed? What were the effects of their banknotes and investment policies on the prosperity of the regions they embraced?

The fact that regions marginal to the export trade prospered after 1878 remains a virtually unstudied subject. If state revenues are an indicator of economic conditions, those of the Cauca suggest a dramatic improvement in the domestic economy (see Figure 1). A large part of this improvement can be attributed to cacao exports (to Antioquia) and, especially, to aguardiente (“brandy”) receipts (see Figure 2). At the national level, Carlos Calderón, minister of finance in 1899, confirmed the increase of state revenues. Contrasting the deficits of the national treasury after 1886 with the increasingly prosperous departments (formerly states), he concluded,

Politically, such a situation could not be allowed to continue. Regional challenges to national authority, turned back temporarily by the military victory of the Núñez government in 1885, were gaming a strong economic base. Left unchecked, they posed a serious threat to the centralist order proclaimed by the Constitution of 1886. Radical Liberal opposition to Núñez’s policies, centered in private banking and export-import commerce, reemerged in strengthened form with the coffee boom after 1887. By 1892, with the Conservative Miguel Antonio Caro in the presidency, treasury deficits and increasing partisan opposition threatened the prosperity promised by coffee.

To cover its deficits and undercut Radical Liberal influence, the national government could raise tariffs and impose an export tax on coffee, or it could tighten controls over private banking and increase the emission of paper currency by the Banco Nacional. The former option entailed the opposition of cafeteros, importers, and bankers. It proved unworkable and ultimately disastrous, given the collapse of world coffee prices after 1896.²⁰ The second option is more difficult to assess in view of the clouds of rhetoric that surrounded the issue of papel moneda. This option, however, may have had a far more powerful effect on Colombian economic life precisely because it bore directly upon the credit structure of the regional economies that had developed after 1878. Private banks went out of business, trust in paper money declined as the value of national banknotes plummeted, and interest rates soared. On the eve of the War of the Thousand Days at the close of the century, it seemed apparent that the course of political centralization symbolized by the Regeneration had run counter to the multiple processes of economic transformation set in motion by the Liberal reforms. Rather than bringing prosperity, Regeneration fiscal policies ultimately undermined both the coffee economy and the economies at the regional level.²¹

In the balance of this article we will examine these themes in the context of one of the most remote and violence-torn regions of Colombia during the nineteenth century: the Cauca Valley. Specifically, we will explore the economic and political transformations under way during the 1850s and the impact on the region of the secularization of church wealth after 1861. I will argue that long-term alterations in credit and agrarian structure brought about by Liberal reforms had achieved a precarious, potentially beneficial, equilibrium within the framework of the first modern bank of the region: the Banco del Cauca. As both a repository for elite family-clan wealth and a vehicle for capital mobilization and investment, the bank gave structural expression to the sentiment of compromise in a society torn by the abolition of slavery, chronic violence, and anticlericalism. As an institution of credit, its banknotes shielded the region from the worst effects of commercial depression and laid the foundation for an integrated regional economy. Ultimately, both the bank and the regional economy it embraced were threatened by reforms implemented after 1885 at the national level.

A Fragile Prosperity

As a region distant from the commercial awakening of Bogotá and the Magdalena Valley to the northeast, the Cauca Valley appeared the very embodiment of economic and social backwardness decried by Liberals. Gold mining, centered in the Chocó and Raposo districts along the Pacific slopes of the western cordillera, no longer enriched the family-clans of the Valley as it had during the eighteenth century. War and the social dislocations that accompanied independence had exacted a high price in damaged equipment, lost capital, and scattered slave cuadrillas,²² Although the extent of damage to the mining economy is unclear, recovery after 1821 was complicated by the manumission law of that year and by increasingly severe conflict between factions of the elite. Ultimately, the violence and racial antagonisms unleashed in the War of the Supremos (1839-42) shattered elite solidarity and opened deep fissures in what was clearly a dying slave society.²³ Attempts by the small Liberal minority of Cali in 1848 to organize a base of popular support around the issue of ejido rights further polarized the elite and, in the minds of worried property-owners, courted social revolution.²⁴ Little wonder that Liberal observers like Próspero Pereira Gamba painted the Valley in stark tones. For him, the Cauca was an anomaly in an age of progress: a land of breathtaking physical beauty marred by the presence of feudal estates and caste-ridden cities, riddled throughout by religious fanaticism and the multiple corruptions of slavery.²⁵

In such conditions, progress born of commercial prosperity was no more than a remote possibility. Commercial life in the principal cities of the region bordered on stagnation. With the exception of the new settlement of Palmira, the wealth of Cartago, Buga, and Cali was “neither flourishing nor scarce, despite the fact that speculators invest their capital in enterprises no greater than a single hacienda or retail shop; nor [do they] form associations, so necessary for the rapid accumulation of large profits.”²⁶ Cali, the largest and most prosperous city of the Valley with a population of 14,000, had not a single commercial house.²⁷ Indeed, to the critical eye of Ramón Mercado, a native son, price manipulation and dominance of the aguardiente trade by the local clergy and landowning elite not only stifled commerce, but intensified the poverty of the mass population.²⁸

Of course, such observations were charged with the redemptive vision of the Radical Liberals, and one can question the imagery of stagnation, a catchword in the Liberal lexicon. A more sympathetic observer, Bernardino Torres y Torrente, pointed out the profitable export of cacao (200,000 pesos annually) and cattle (150,000 pesos annually) to Antioquia and Popayán.²⁹ Like his more radical countrymen, Torres was struck by the cruel contrast between the “beauty, exuberance, and richness of the soil” of the region and the “apathy, inactivity, and poverty of its inhabitants.” Commercial progress had little chance for success in view of the power of the church and the rigidity of a society characterized by “a few lords dictating orders to their vassals, and a multitude of slaves humbly obeying their mandates.”³⁰

Given the volatile social conditions of the region, the imminence of sweeping Liberal reforms triggered new waves of violence. Gangs of perreristas roamed the outskirts of Cali and other Valley cities in November and December of 1850, burning property and terrifying landowners.³¹ Retaliation came swiftly. Following scattered revolts in April and May of the following year, Conservative landowners in the provinces of Buenaventura, Cauca, Popayán, and Pasto rose in rebellion against the Bogotá government. Led by Julio Arboleda and Eusebio Borrero, the rebellion spread to Antioquia before it was finally put down in September 1851.³²

While the abolition of slavery (law of May 21, 1851) was obviously a key factor in the rebellion, rampant insecurity, spawned by what appeared to be a complete breakdown of order, loomed large in the minds of property owners. In the words of Manuel Ibáñez, one of the leaders:

Ultimately, concurrent Liberal attacks on the Catholic church gave a profound moral dimension to the insecurity and racial fears of property owners. Legislation passed in May 1851 abolished the ecclesiastical fuero, granted the municipalities authority to appoint priests and administer parish revenues, and called for the redemption of religious censos (“mortgages”) at half their face value.³⁴ Such acts cut to the very heart of the Conservative world. Not only property, but the moral foundation of society itself, was in the balance. Ibáñez singled out the redemption of censos as a mortal blow. Without them,

Despite Ibáñez’s bitter denunciations of the Liberal reforms in 1853, from his Lima exile, the full measure of their impact on the society and economy of the Valley is not clear. While the attack on the church was a powerful element in the protest of aggrieved Conservatives, they, as well as Liberals, hastened to redeem censos under the legislation of 1851.³⁶ Moreover, the direct economic effects of abolition appear to have been far less destructive than slave owners predicted. In his travels through the Valley in 1853, Isaac F. Holton—one of the most perceptive foreigners to visit Colombia at mid-century—described only isolated cases of hardship caused by abolition. Where one would expect to find lengthy discussion of the issue or, at the least, an extended chronicle of economic devastation, Holton complained of mealtime delays.³⁷ Indeed, rather than regionwide prostration, he noted the rise of a new trade in tobacco and quinine bark.³⁸ Were these stirrings of economic activity testimony to the mild impact of abolition on the Valley? Or were they the effort of slave owners bent upon salvaging what remained of a shattered economy? In the absence of more complete research on the subject, we can only conclude that among the dying and damaged sectors of the economy, there were new centers of vitality in rapid expansion.³⁹ By 1855, the pessimism of Liberal visionary and Conservative slave owner alike had given way to hope as the impact of the first export boom on Colombia found an echo in the Cauca Valley.

Perhaps the most evident sign of this prosperity was the transformation of the stock-raising industry in the central and southern parts of the Valley. Under way since the 1840s, the transformation was based on the rapid spread of new types of pasturage, mainly Pará and Guinea grasses, that were quick growing and ideally suited for the fattening of cattle.⁴⁰ Cultivation expanded at the expense of the dense forests that had covered the lands east of the Cauca River, between Cali and Palmira, and from the latter town to Buga. By the 1860s the cattle fattened on these grasses—ganado de ceba—commanded nearly three times the price of the half-wild range cattle fed on natural pasturage (32 versus 11.20 pesos per head).⁴¹

Doubtless due to the higher value of these pasture lands, reflected in higher cattle prices and in the concern for enclosing the new potreros (“pastures”) with wooden fencing, land values were clearly rising by the 1850s. One among several examples of this increase was that of the lands that later became the Hacienda Yunde in what is now the municipality of Candelaria on the east bank of the Cauca River. In 1844, two Caleños, Juan Antonio Zamorano and Pascual Zorrilla, purchased a block of land in that area for 400 pesos. Twenty years later, Zorrilla sold the property for 4,966 pesos, or twelve times its original purchase price.⁴² To be sure, not all of this price can be attributed to the increased value of the land, for the bill of sale included the value of livestock and improvements. Using values mentioned in other notarial transactions for the same time period, however, we can estimate the combined worth of livestock and improvements at 1,572 pesos, leaving a total value of 3,394 pesos—eight times the original purchase price of 400 pesos.

Next in importance to cattle raising was the incipient expansion of an export trade based on quinine bark and tobacco that stimulated the formation of several merchant houses in the Valley. The most impressive enterprise dealing in quinine bark was the commercial house capitalized at 122,000 pesos and formed by Marcos Fernández, a Bugueño resident in Cali. Evidently, the business prospered, for when making his will in 1864, Fernández estimated the capital assets of the firm at 800,000 pesos.⁴³ While profits from quinine bark were clearly high in the 1850s and would continue to enrich those who exported it until the early 1880s, the queen of exports was tobacco.

First monopolized and systematically cultivated in the late eighteenth century, tobacco became the prime export commodity for the central Valley and underwrote the emergence of Palmira as an important entrepôt by the 1850s. At that time, tobacco from Palmira was predominantly a commodity for domestic use, although its high quality—when dried and packed properly—commanded premium prices in Bremen and London. Numerous merchants in the Valley were involved in the tobacco trade, most notably Pío Rengifo, whose estate assets at his death in 1867 amounted to at least 123,464 pesos—the amount distributed to his widow and children.⁴⁴ By 1859, net annual exports from the Palmira zone of the Valley totaled 40,000 arrobas (roughly one million pounds).⁴⁵

Finally, on many Valley estates production of aguardiente was increasing. This was a capital-intensive activity that afforded quick and lucrative profits after 1850 when the liquor monopoly became a preserve of the municipalities. The landowners’ postabolition reliance on often intractable liherto labor could be held to a minimum, while a supply of cane sugar for the trapiche (“mill”) would continue to be furnished through a land rental and labor mobilization arrangement called the concertaje system.⁴⁶ For the owner of one of these estates, Sergio Arboleda, however, the prosperity of the Cauca Valley was a fragile achievement, all too vulnerable to the uncertainties in politics and economy that had been unleashed after 1851.

Arboleda, one of the most articulate and thoughtful Conservatives of his time, explained in a lecture delivered to seminary students in Popayán in 1857, the nature of the changes taking place in the region. He faulted the Radical Liberals of 1849 for the precipitate destruction of most of the institutional bulwarks that regulated society, noting that “everything is linked together in society. Above all, the branches of industry have between them, and those of morality and politics, bonds so tight that one cannot be altered without all being affected.”⁴⁷ In the Cauca, competent artisans were hard to find; subsistence agriculture lay abandoned; and, while commercial agriculture seemed to be expanding, it was toward the production of anise and cane sugar to fuel the rising consumption of aguardiente. All evidence pointed to a decisive decline in domestic commerce in favor of foreign trade. “Today imports are six times what they used to be.”⁴⁸ He went on to observe that there were six general conclusions that could be drawn from the seeming paradox of decline within prosperity. These were: (1) those industries unable to cope effectively with foreign competition had declined; (2) new industries dependent on substantial, long-term capital investments and a delayed return in profits had not developed; (3) capital investment had concentrated in the export-import trade; (4) industries known to be productive, that either did not require large capital commitments, or that promised a quick return on investment—like those concerned with aguardiente—grew even though they had not modernized; (5) despite the expansion of the above industries, neither the benefits of a larger operation, i.e., economies of scale, nor lower retail prices had materialized; and (6) capital not invested in either the export-import trade or the fast return domestic industries had flowed into the comparatively immobile, but secure, investment promised by urban property.⁴⁹ The underlying feature that bound these factors together, Arboleda concluded, was lack of confidence.

What appeared to be at issue in Arboleda’s mind was how best to stimulate the flow of capital into productive areas. Here he was concerned not with an absolute scarcity of capital, but with the motives of investors—a fundamentally different problem. Viewed in these terms, the attainment of prosperity was not so much a structural problem—as most Liberals conceived it—as it was a psychological and cultural problem that required reforms of a markedly different nature from those enacted by Liberals after 1850. These reforms had sought progress in the freeing of wealth from colonial constraints and the creation of new, more sophisticated forms of credit and capital mobilization, all within the context of an expanding export trade. What separated Arboleda from Liberal partisans was precisely the issue of freeing wealth. Since “everything was linked together in society,” if one stripped away the institutional framework that had defined and channeled wealth for centuries, what would safeguard private wealth from the anarchic excesses of such a revolutionary act? What would preserve the economic foundation of society if the Catholic, authoritarian heritage that had shaped it was itself destroyed?

If we see the problem in this perspective, the question of credit assumes social as well as economic importance. On the one hand, as a symbol of value, credit was a key element of capital formation in a specie-short economy. Based on the capital accumulated over generations in religious endowments and trusts—capellanías (“chaplaincies”) and obras pías (“pious works”)—secured by censos on property, it underwrote the spiritual well-being and future survival of the family-clans. Channeled by family-clan patronos (“administrators”) or church agencies, it had also fueled the expansion of mining and agriculture in the Valley during the eighteenth century.⁵¹ On the other hand, credit was a vehicle of trust in a nascent commercial economy where trust—be it in government, institutions, or one’s fellow man—was in critically short supply. In both senses, credit played a central role in questions of political economy precisely because it was the critical link between the needs of an expanding commercial economy and the traditional capital resources of the elite family-clans.⁵² Arboleda’s concern lay beyond this, however.

The Catholic church, in its multiple roles as trustee, banker, and financial custodian, had traditionally dominated credit. Accordingly, credit, as both a symbol of value and a symbol of trust, was interwoven with the bonds of faith and authority embodied by that institution. Moreover, the foundation of ecclesiastical credit was productive property, specifically the urban and rural properties that undergirded the economic power of the Valley’s elite families. Thus, in a society where wealth was concentrated in the hands of a few; where the domestic market forces were enfeebled by isolation and scarcely transcended the limits of a subsistence economy; where fixed capital (in land) vastly overshadowed liquid capital (cash) as a determinant of wealth; and where external sources of capital—governmental, commercial, or foreign—were remote, any movement forward, any progress, could succeed only by way of major attacks on the economic influence of the church.

Any attack on the church, however noble the cause, in a region as socially volatile as the Cauca Valley, risked severing the bonds of trust that held elite society together. This was Arboleda’s ultimate concern, and the measure of his perceptiveness. For, by 1860, events at the national level had cast the whole question of economic progress in increasingly partisan, anticlerical terms. With the rebellion of Tomás Cipriano de Mosquera, president of the state of Cauca, against the Granadine Confederation in 1860, the fragile prosperity of the preceding years was eclipsed by a sequence of events that resulted in a sweeping assault on the corporate mainstay of property and credit: the Catholic church.

The Secularization of Church Wealth and the Economics of Insecurity

As an event in Colombian history, the secularization of church wealth was the culmination of a long process of encroachment on clerical authority by both crown and republic. It took place in two phases—1851 and 1861—each the product of an array of social, political, and economic forces peculiar to its time, but each sharing certain common features. The first phase, enacted into law by congress on May 30, 1851, was one of several measures aimed at reforming the church and ending in the separation of church and state in 1853. As noted above, it followed by nine days the formal abolition of slavery (May 21, 1851), which, in concert with other issues heavy with social and political overtones, had touched off a revolt by major landowners in the southern provinces of Buenaventura, Cauca, Popayán, and Pasto.⁵³ As a wartime law sanctioning emergency action, it was clearly a measure designed to raise badly needed revenue in the shortest time possible. As such, it was concerned primarily with the relatively liquid assets of the church as represented by censos, and not the wealth invested in urban and rural properties. It was repealed on April 24, 1855, as one of the first acts of the moderate, transition government of Manuel María Mallarino.⁵⁴

The second phase was contained in the executive decree of September 9, 1861, which Mosquera issued during the last stages of his successful revolt against the Confederation government of Mariano Ospina. Far more radical than the 1851 measure, and bearing a striking resemblance to the Mexican Lerdo Law of June 25, 1856, the provisions of the 1861 decree extended the process of secularization to its greatest limit as part of a general suppression of clerical power.⁵⁵ The decree and its implementing legislation included liberal use of exile, forced loyalty oaths, and the institution of rigid government control over church functions in the form of laws on “guardianship and inspection of religion.”⁵⁶ The provisions of the September decree were designed to support a major reorganization of public credit, which, in turn, would ease the apprehensions of foreign bondholders as to repayment of the 16,352,056 pesos Colombia owed for loans extended in 1822, 1824, and 1826.⁵⁷ Administration of this complex program of reform was carried out by the Supreme Directive Committee of National Credit in its weekly meetings between September 21, 1861, and December 23, 1862.⁵⁸

Information about the value of property involved and the volume of mortgage redemptions carried through is at best fragmentary, in contrast to data available on the secularization of 1851, where the value of censos redeemed nationally amounted to 1,529,382 pesos.⁵⁹ The magnitude and comprehensiveness of the 1861 decree opened the way for miscalculation and confusion. Several of the reports of the secretary for treasury and credit during the 1860s and early 1870s are apparently missing, and to date little scholarly attention has been paid to the thirty volumes of Bienes desamortizados stored in the National Archive.⁶⁰ According to Felipe Pérez, in his Geografía general, física y política, de los Estados Unidos de Colombia (1883)—one of the most authoritative sources available—the value of disentailed properties and censos the government received by 1871 amounted to 12,131,390 pesos, distributed as follows:⁶¹

By 1881 the amount had risen to 15,904,130 pesos, to which Pérez added the value of properties taken over directly by the government and not returned, so that the total figure was probably 20,000,000 pesos.⁶² Such estimates of value mean little by themselves, however, and tell us nothing about the impact of secularization at the regional level.

On the surface of it, the implementation of the secularization program in the Cauca Valley could hardly fail to benefit the landowning elite, particularly that part of the decree dealing with religious credit. Thus, in Cali, it was not surprising that the redemption of censos and other religious encumbrances on property was dominated by a handful of major families active in both landowning and commerce, and was carried out by both Liberals and Conservatives. Some of the central aspects of this process of redemption merit specific mention.

In the first place, the total value of censos redeemed in the municipality of Cali from 1863 to 1872, as registered in the two notarial archives for that district, amounted to no less than 129,602 pesos, and probably substantially more. Of this amount, 92,943 pesos, in ninety-six redemptions, are recorded in the Notaría 1, while 36,659 pesos, in forty redemptions, appear in the index to the Notaría 2.⁶³ The more complete information in the Notaría 1 shows that the ratio of redemptions in terms of rural to urban properties is roughly two to one, namely, 66 redemptions worth 70,487 pesos to 30 redemptions worth 22,456 pesos, respectively. Using the same source to determine type of encumbrance, we find that those funds invested in chaplaincies and cofradías (“lay brotherhoods”)—primarily as mortgages on rural property—were by far the most extensive (see Table III). Few notarial transactions made any distinction between the interest paid on the capital of religious trusts and the interest paid on funds loaned by trust administrators to borrowers. Nevertheless, the amount of religious capital circulating as loans seems to have been substantial.

The total value of censos redeemed in Cali is disproportionately large when compared to recent estimates for the entire state of Cauca during the same time period, which amount to 315,775 pesos.⁶⁴ Surely the value of redemptions in Buga, Popayán, and Pasto—to mention only a few cities where church influence was strong—exceeded that of Cali. As a point of reference, the figures compiled by Fernando Díaz Díaz for the state of Boyacá, certainly no stronger a bastion of Catholicism than the Cauca, reveal a total of 538,150 pesos in redeemed censos.⁶⁵ In view of the Cali figures, we must conclude that the amount of capital tied up in religious trusts and, hence, the extent of religious credit, as represented in only one modestly wealthy municipio (out of sixteen that made up the state of Cauca), were far greater than the available figures suggest.

Second, the redemptions were overwhelmingly concentrated (43 percent) in the hands of three family-clans: the Caicedo-Nieva, Córdoba-Velasco, and Garcés-Velasco-Molina, the last two preeminent among Cali Conservatives. Each of these families carried out multiple redemptions on several properties that spanned city and country; each had major commercial and agricultural interests; two (the Caicedo and Garcés families) had been extensively involved in the mining economy during the eighteenth century. It should come as no surprise, therefore, that more than a fourth of the fifty-nine individuals who redeemed censos belonged to the wealthiest sector of Cali society, i.e., those possessing capital assets in excess of 20,000 pesos. Most of the remaining redeemers (40 percent) belonged to ten additional families, each accounting for 3 to 5 percent of the total.⁶⁶

Third, to judge from the clan affiliation of the redeemers, it appears that those rural properties most affected by the redemptions of 1861, i.e., those most heavily encumbered by trusts and mortgages, were precisely those that had been linked traditionally with the mining economy on the Pacific Coast. Prominent among these properties was the Hacienda Mulaló of the Caicedo-Nieva family, which was publicly auctioned in 1865 because, as its owner declared, it was

As an example of the immense benefit reaped by the redeemer, suffice it to say that of the religious mortgages mentioned here, four, worth 10,556 pesos, were redeemed on May 28, 1865, for a total of 528 pesos in cash, with the balance due in eighteen months in the form of government debt paper that was then circulating at barely 10 percent of its face value.⁶⁸ The total outlay was 1,532 pesos, one-tenth of the debt.

Fourth, the redemptions gave a strong impetus to speculative investment, primarily in urban properties. The activities of one Federico Caicedo, a merchant and speculator, provide an example. In April 1863, Caicedo purchased a house in Cali for 1,600 pesos, of which 720 pesos constituted the principal of two religious censos. Thus, his cash payment amounted to 880 pesos. Two years later, he redeemed the censos for 200 pesos, thereby effecting a capital gain of 520 pesos. In 1866, he sold the house for 1,240 pesos, out of which he was able to pay off three short-term debts and still pocket 200 pesos.⁶⁹ If one considers the total capital invested by Caicedo—1,080 pesos—his net profit of 160 pesos represented a return on investment of 15 percent, achieved at virtually no risk, save that of his immortal soul, if he heeded the stern injunctions of the church.⁷⁰

The only sure loser in this affair was the chaplain maintained by the censos, Father Miguel Santiago Escovar, whose annual stipend would now be payable in government bonds. These bonds, 6 percent treasury bonds, were also the medium of payment to the hundreds of friars and nuns decloistered by decree in November 1861. Furthermore, the bonds were issued as interest payment on the secularized capital assets of hospitals, schools, and the myriad of pious works, brotherhood funds, and other monies that sustained the interlocking network of rural and urban services. As we have already seen, government bonds were virtually worthless except to the growing army of brokers and commission agents, agiotistas, whose stock in trade was economic uncertainty.⁷¹

Finally, for those active in commerce before the war, the benefits of redemption, specifically the circulation of depreciated bonds, eased the onerous duty of paying off debts, thereby contributing to the recuperation of commercial life. According to documents of incorporation on file in Cali notarial archives, thirteen commercial associations were formed between 1867 and 1872, with a total capital investment of 61,886 pesos, much of which was put up by the same elite families active in the redemption process.⁷² Of these firms, seven were dependent upon the export-import trade, three were mining enterprises (gold and silver), and three were collective experiments in commercial agriculture for foreign export.⁷³ What struck Arboleda as a disturbing tendency in 1857 had become a pattern of investment by the late 1860s.

We can conclude from these observations that the secularization of church wealth did stimulate economic activity, as the Liberals predicted it would, by affording debtors of all kinds a one-time windfall. Real property, urban and rural, began to circulate in greater volume and more rapidly than in preceding years under a wide range of lease, sale, and part-interest arrangements that will be examined more fully later. Capital had found its way out of religious trusts and the “dead hand” of mortgages into a flurry of commercial associations, all of which met the Liberal criteria for prosperity.

The secularization, however, was a curious kind of stimulus that intensified investment in the export-import trade to the general exclusion of the domestic economy. It also eliminated a large-scale, complex institution of credit, leaving a vacuum that would eventually undermine the short-term benefit in debt savings if other sources of credit were not developed. Commercial and mortgage banks did not exist; neither foreign capital nor credit was widely available. To be sure, a modest amount of capital circulated as commercial loans, but the high rate of interest (12 to 18 percent annually) precluded its use as a replacement for ecclesiastical credit.⁷⁴ Moreover, if one examines these loan transactions carefully, a surprising pattern emerges.

Of the 125,259 pesos in new loans registered in the Notaría 1 of Cali between 1863 and 1872, a large amount (46,544 pesos) was circulating at no interest.⁷⁵ While these loans may have contained disguised charges, there is no evidence of such charges either in the initial transaction or in the form of repayment. Many of the remaining loans bore very low interest rates (5 percent or less annually) and were repayable over a generously long period of time, e.g., 60 to 72 months as opposed to 6 to 12 months. The bulk of this capital was derived from intrafamilial borrowing by the elite families, as in the case of the Garcés family, whose borrowing made up nearly 50 percent of the total capital loaned in 1864 (8,800 pesos out of 17,785 pesos), and 39 percent in 1865.⁷⁶ Confronted with the turbulent economic conditions of the 1860s and the manifest absence of other sources of credit, the family clans of the elite fell back upon their own long-established internal credit and capital networks, thereby absorbing wartime losses and generating new capital for investment. The case of the Barona family provides one among several illustrations of this process.

Manuel María Barona, scion of a distinguished landowning and merchant family with strong ties and investments on the east bank of the Cauca River, was among those Cali Conservatives supporting the losing cause during the War of 1860. He managed to raise 51,575 pesos for the Conservative cause, largely by tapping the capital resources of his and allied families. As security, he mortgaged all the family properties: one hacienda, four large pastures, three urban dwellings, and a two-story warehouse-store in Cali.⁷⁷ Upon his death in 1863, and the defeat of the Conservatives in the same year, his widow was obliged to surrender the properties to her husband’s creditors. The pain of this sacrifice was short-lived: often within days of the debt payments, her merchant son, Joaquín Policarpo, systematically repurchased each of the properties. This task was greatly eased by a variety of intrafamily arrangements, discounts, and tacit understandings that appear between the lines of the formal legal verbiage of the notarial documents. Thus, although the Hacienda Guabito, together with an urban property, was turned over to creditors on May 11, 1864, in settlement of 17,413 pesos in debts, we find the same properties repurchased five days later at 14,080 pesos.⁷⁸

By the terms of the repurchase, the creditors, who happened to be don Joaquín’s aunt and her husband, waived 4,333 pesos in accumulated interest and provided a generous five-year repayment period at no interest.⁷⁹ By December 1867, Barona was even able to put up 6,400 pesos to underwrite a new pharmaceutical firm in Cali.⁸⁰ Five years later, the family had recouped its losses and once again was one of the most powerful in the city.

For the Barona family and other family-clans of the elite, the expansion of intrafamilial credit rested on the increasing importance of urban investments. As has been noted, the existing urban assets of Manuel María Barona in 1863 afforded his son, Joaquín, a foundation upon which to reconstruct the family fortune. The survival of this fortune, however, came to depend not on the restoration of rural properties and production, but on the relative security of urban investments. By 1867, Joaquín had sold the most lucrative of his lowland pastures.⁸¹ Ten years later, accelerated by the War of 1876, this gradual shift of the family’s assets to the city was completed by the sale of the Hacienda Guabito.⁸² Implicitly, the shift to the city can be seen as one of several strategic adaptations by Cali families to the pervasive insecurity after 1861.

Here we are confronted by major problems of evidence and interpretation. What was the real impact of insecurity on the rural economy? To what extent did this insecurity shape the commercial upturn after 1867 that seemed to ratify the fondest hopes of the Radical Liberals of 1861? To explore these questions, we must take up the problem of violence in the region and the changes under way in the rural economy.

For the vast majority of Colombians, civil war meant shortages, expropriations, forced loans, and the omnipresent threat of recruitment into one or the other army. Commerce ceased; rural families sought refuge in city or mountain wilderness. There was, however, a difference in 1860. The war touched off in that year not only burned longer and with a greater intensity than any of those in the past, but gave rise to a virulent anticlericalism. This sentiment, and the impassioned defense of the faith it inspired, revived latent fears in the former slaveholding Cauca. Already divided by a legacy of partisan conflict in past years, the elite found itself spread thinly over a volatile and largely former slave population that vastly outnumbered it. Now, with the institutional authority of the church under attack, the moral suasion of a mediating clergy was no longer present to cushion frictions of race and class. In its absence, elite control over the course of violence—be it in field armies or in bands of irregulars—was increasingly precarious. Banditry, clothed in lofty ideals, abounded. Notorious among bandits of the time was a mulatto called Peñalorza, whose former slave followers, from their dense forest hideouts along the Cauca River, terrorized landowners in the central Valley.⁸³ Military campaigns became holy crusades fired by racial antagonisms that only harsh discipline and charismatic leadership could contain. In these conditions, the exploits of rival caudillos assumed mythical proportions. The feats of the rabidly anticlerical mulatto Manuel María Victoria were echoed in the aristocratic virtues and military prowess of the Conservative warrior-poet, Julio Arboleda.⁸⁴ Significantly, both died not on the battlefield, but by an assassin’s hand.

War in the Cauca was becoming not only more destructive in social and economic terms, but more frequent as well. Following the conflagration of 1860, large- and small-scale conflicts punctured the fragile peace of the region in 1865, 1867, 1871-72, 1876-77, 1879, and 1884-85, roughly once every three to five years. While the destruction of war might vary from one locality to another, its frequency spread insecurity throughout the region. Indeed, only the threat of hostilities sufficed to bring artisans to the barracks and peasants to the city:

A measure of the intensification of conflict was the toll exacted in lives and property. One contemporary observer, Federico C. Aguilar, estimated the direct cost in lives in the Cauca as follows: 2,200 in 1830; 3,400 in 1840; 4,000 in 1854; 6,000 in 1860; and 9,000 in 1876; “and these deaths imply as many others in wounded, and double that, at least, in orphans and widows.”⁸⁶ These figures are more meaningful if one bears in mind that the population of the state numbered 435,078 in 1870.⁸⁷ Aguilar went on to place the cost of these wars in material and property damage (including commercial losses) at sixty million pesos.⁸⁸

In general terms, the effects of the War of 1860 shattered the budding prosperity of the state and dealt the treasury a blow from which it did not recover for three years. As late as 1871, the federal government still owed the Cauca 202,939 pesos for damages caused by war. Of this amount, 34,000 pesos were due for the confiscation and slaughter of cattle from the municipality of Cali. This confirms other evidence of a substantial loss of livestock from its surrounding haciendas.⁸⁹ Property owners in the rich, new pasture zones of the central Valley suffered staggering losses. One of these, Juan Antonio Salazar, claimed at the time of his will to have lost not only prime cattle, but horses and mules worth 20,000 to 25,000 pesos.⁹⁰ In view of the turbulent state of affairs in the region, leasing and rental arrangements were frequent; several included special escape clauses such as the following:

Whatever the true impact of insecurity in the rural areas of the Valley, the central process under way was the fragmentation of many large estates. For the municipality of Cali, the property transactions on file in the notarial archive 1 of Cali for the years 1863-72 provide a perspective on this process (see Table IV). Of these figures, over one-half in most years represented sales of part ownership or usufruct rights (derechos de tierra), many of which concerned pasture land and parcels of hacienda land on both sides of the Cauca River. The ratio remained roughly the same even when the number of transactions increased over the period. Moreover, sales of small properties (category C in Table IV), i.e., ranches, mangas, rastrojos, and labranzas (all small, cultivated plots usually under five hectares in size), made up a large part of this overall increase. The debt-forced sale and repurchase of haciendas like Guabito of the Barona family, accounted for a large part of the value of the remaining rural sales.

In his detailed reply to the questionnaire circulated by Aníbal Galindo, for what would become the Anuario estadístico of 1875, the jefe municipal of Cali, Tomás Rengifo, confirmed the process of land parcelization described above. Whether for reasons of insecurity or labor availability, there was a growing population of independent, rural small-holders and correspondingly few tenant farmers (colonos). “In this municipality, there are hardly any colonos who live on the property of others, because the majority of small farmers occupy land belonging to the city; others have their own lands, and many others who do not fit either of these conditions do not pay anything.”⁹²

Finally, this process of parcelization was manifest even in the fortunes of the Caicedo family, the most powerful landowning family of the Valley. In 1872, the Hacienda Cañasgordas, an immense sugar and cattle estate south of Cali, was divided into six parts and distributed among the surviving heirs of Manuel Joaquín Caicedo.⁹³ In subsequent years, according to notarial transactions, those six parcels were fragmented into numerous, smaller holdings leased or owned outright by a wide variety of individuals, most of whom were engaged in stockraising and subsistence agriculture.⁹⁴ As if to confirm this pattern, in the following year, 1873, another branch of the Caicedo clan formed a land development company in association with one David R. Smith, president of the Cauca Valley Mining and Constructing Company (Peoria, Illinois), that predated what would become the famed Burila Company by a decade.⁹⁵ By the terms of incorporation, the Caicedos put up 60,000 pesos in the form of the Haciendas La Paila (26,000), Burila (20,000), and El Medio (14,000). The objectives of the company embodied the curious confluence of insecurity and commercial prosperity in the Valley that had undermined the continued operation of large estates. These objectives were openly commercial and speculative: “To encourage by all means possible the improvement of the lands of said haciendas in general, with a view toward their increased value and subsequent sale.”⁹⁶ Of particular interest in this flurry of land speculation was the fact that one of the firm’s partners, Lisandro Caicedo, bought out the testamentary claim on La Paila held by his mother with fourteen shares of a daring new enterprise that had just been founded in Cali: the Banco del Cauca.

The Banco del Cauca and the Emergence of a Regional Economy

With the founding of the Banco del Cauca on November 29, 1873, the diverse patterns of economic change set in motion after 1851 came together in one institution. As the first credit establishment of its kind in the region, it represented a major advance in the mobilization of capital and the extension of credit by way of its banknotes. As a credit institution in a fledgling market economy, the bank straddled uncertain, at times openly contradictory, economic currents as foreign-linked commercial influences expanded within a largely subsistence economy. In structure and financial backing, the bank was manifestly an enterprise of the landowning and commercial elite of the Valley, who subscribed 300,000 pesos in the first weeks of December. Among the stockholders were most of the individuals who had figured prominently in the redemption of censos after 1861. Similarly, each of the major family-clans of Cali had invested generous sums in the bank, an investment paralleled closely by their already substantial investments in urban property. Of the 599 shares subscribed, the following family-clans headed the list of stockholders: Caicedo-Nieva (62 shares), Sinisterra (40 shares), Rengifo (24 shares), Velasco (20 shares), Quintero (14 shares), Cabal (13 shares), and Borrero (12 shares).⁹⁷ The remaining shares were scattered among an assortment of small investors and a handful of Antioqueño, Bogotano, and foreign capitalists.

In view of the recent history of political and economic turbulence in the Valley, stockholders had good reason to celebrate this unprecedented experiment in collective trust. The achievement could not conceal the fact, however, that there were fundamental differences in philosophy among the stockholders: differences that grew out of the curious nature of prosperity after 1850. On the one hand, the bank was a welcome haven for the liquid assets of family capital and a potentially valuable adjunct to the internal credit networks of the elite family-clans. On the other hand, it embodied the spirit of commercial progress that had quickened the hopes of merchant and speculator alike after 1867. Among stockholders, every major commercial association in Cali, and several from out of state, were represented. The first group was principally conservative, wary of risk, and jealous of the prerogatives of its own intrafamilial credit and capital resources. The second group was essentially progressive, receptive to limited risk taking, and committed to a thoroughgoing reform of the monetary and credit structure of the region that ostensibly promised economic prosperity. Initially, these differences were smoothed by the commercial upturn after 1867, and both groups found common cause in the revitalization of urban life and the renewed sense of comunidad that this revitalization fostered.

The return of commercial prosperity was based on the revival of the export-import trade in tobacco, gold, quinine bark, and, increasingly, coffee after 1867. As observed above, the value of exports nationally rose from 7.4 million gold pesos in the period between 1864 and 1870 to 10.1 million gold pesos in the period between 1875 and 1877 (see Table I). Imports followed suit, rising from 5.9 million pesos in the period 1865-70 to 8.8 million pesos in the period 1871-76 (see Table II). In the Valley, of the 42,209 cargas (“mule-loads,” roughly 250 pounds) of export goods that passed over the western cordillera from Cali to Buenaventura from 1869 to 1870, nearly half were tobacco, double the amount of the preceding year.⁹⁸ For the same period, 33,219 cargas were imported, consisting of salt from Peru and cotton goods from Great Britain.⁹⁹

The commercial revival, as mentioned earlier, was manifest in the chartering of thirteen new commercial associations between 1867 and 1872. In addition to these firms, Cali could boast a Society for Industrial Development, formed in early 1869 with the specific purpose of encouraging tobacco cultivation in that municipality. By the middle of that year, there were 20,000 new plants, scattered on numerous small plots of land.¹⁰⁰ Large-scale commercial agriculture focused on the cultivation of indigo and led to the formation of several joint-stock enterprises throughout the Valley. The largest of these was the Obraje de Añil de las Piedras in Buga; among its stockholders were most of the major commercial houses of the region.¹⁰¹ In the case of one such enterprise founded on a 64-hectare parcel of the Hacienda Cañasgordas, the investors hedged their bets by stipulating that should the enterprise fail before the expiration of its ten-year charter, the renters had the option of leasing the trapiche of the hacienda for the production of loaf sugar.¹⁰² As it turned out, this option was a wise one. The expansion of foreign cultivation in Java and India, together with the German development of a synthetic equivalent in 1869, flooded the market with indigo. Having peaked in 1870-71, export volume of this product followed prices in a rapidly descending spiral.¹⁰³

Meanwhile, encouraged by the advent of foreign commerce, several efforts to improve transportation and communication links within the Valley took form. These included intra-Valley road construction, an attempt to develop steam navigation on the upper Cauca River, and the successful completion of a telegraph line connecting Buenaventura and the main Valley cities to the rest of the country in 1873.¹⁰⁴ Chief among these efforts was the revival of an earlier attempt to construct a carriage road between Cali and Buenaventura. The project took on new life, thanks to local public and private subscriptions of capital, foreign loans, and a combination of federal and state subsidies. By 1871, eight leagues (roughly twenty-four miles) of roadway had been completed at a cost of 556,856 pesos.¹⁰⁵ This accomplishment awakened interest in an even more ambitious undertaking that was to absorb the attention of Valley residents for the balance of the century: the construction of a trans-mountain railroad. Upon the inauguration of that project by the Cauca Valley Mining and Constructing Company, its president, David R. Smith, captured the commercial enthusiasm of the time in a letter to stockholders and potential United States investors. Noting the backward state of the economy and the pervasive insecurity that engulfed the people of the Cauca Valley, he observed:

As we have seen, what appeared to be the actions of a “very enterprising people” embarked on an era of prosperity rested upon an uneasy compromise between divergent philosophies of what constituted prosperity. As the bank began to draw together the disparate local economies of the Valley, aided by increasing export commerce, the harshness of the modern world became apparent. Following the reverberations of the world financial panic of 1873 and the downturn of the leading industrial economies after 1875, prices for tobacco and other exports plummeted, choking off the export trade, but not the rising volume and falling prices of imported goods. By the late 1870s, this ruinous combination of forces was drawing specie from the region at an alarming rate, thus imperiling recovery and placing enormous pressures on the bank.

By 1879, after four years of depression and an especially destructive civil war in 1876-77, stockholders had received no dividends in three years, delinquent debts due the bank amounted to 140,000 pesos in principal and an additional 32,000 in interest, and the desperate bond emissions by the state to ease its fiscal crisis had made debt collection by the bank all but impossible.¹⁰⁷ Buffeted by these reverses, the stockholders divided bitterly over whether to liquidate the enterprise. For the proponents of such a measure, the issue was clear: “In this country, respect for property has been lost, and official acts have been carried out that tend to nullify property rights; where there is no property, there is nothing upon which to base credit; since the banks are credit establishments they cannot exist here.”¹⁰⁸ Against this argument, the supporters of the bank could offer only their faith in the new government of Rafael Núñez in which “official acts have been carried out that tend to confirm property rights as a sacred right.”¹⁰⁹ Evidently persuaded by this faith and by the “moral regeneration” that informed it, the majority of stockholders on September 6, 1880, voted to continue the bank’s operations.¹¹⁰ Among the policies agreed upon by that vote was one admitting at full face value the banknotes of the newly founded Banco Nacional.

During the next five years, the recovery of the bank was manifest in its investment returns and in the spread of its banknotes, despite the collapse of the export trade in quinine bark after 1882. Banknote circulation increased from 42,000 pesos in 1878 to 62,000 pesos in 1881, and to 100,200 pesos in 1883.¹¹¹ In that year, the directors declared a dividend of 17 percent on invested capital and could boast of widespread acceptance and confidence in its notes, from Tuluá to Popayán.¹¹² By the mid-1880s, bank lending had not only generated extensive urban construction, but had become instrumental in the development of the cacao trade with Antioquia. From letters introduced in a civil suit filed against two Antioqueño cacao merchants in the amount of 20,000 pesos in 1890, the credit of the Banco del Cauca in that trade was deemed indispensable.¹¹³ By 1887, despite severe flooding of the Cauca River in 1886-87 that “destroyed millions of [cacao] trees, especially in the new plantations,” cacao had become the prime commercial commodity of the Valley, exported to Antioquia and increasingly to the European market.¹¹⁴ Significantly, cacao production was centered overwhelmingly on the smallholder plots of the proletaries (a new term coming into use) along the seasonally flooded margins of the Cauca and its tributaries.¹¹⁵ On December 17 of that year, the first river steamer began to ply the Cauca between Cali and Cartago.¹¹⁶ Prospects for a rapid expansion in the interregional trade with Antioquia and rapidly growing Caldas had never seemed brighter.

The flowering of the Banco del Cauca and the rise of a vibrant small-holder economy based on cacao, however, were overwhelmed by a series of far-reaching decrees emanating from the Regeneration government after its military victory over the Radical Liberals in 1885. On December 4 of that year, the Núñez government decreed that the banknotes of the Banco Nacional, whose circulation had been swollen by successive emissions during the war and whose value was now seriously depreciated, were henceforth nonconvertible in hard specie and were of mandatory receipt as legal tender.¹¹⁷ The following year, by way of Law 87, all public and private contracts were required to stipulate payment only in the paper notes of the Banco Nacional.¹¹⁸ Finally, with Law 57 of 1887, in the midst of a nationwide inflation that hovered around 35 percent annually, Núñez suspended the privilege of banknote emission of all private banks and ordered those notes in circulation to be withdrawn.¹¹⁹

In reflecting on these momentous changes and their meaning for the Banco del Cauca, the progressive editor and founder of the Cali newspaper El Ferrocarril, Eustaquio Palacios, summed up the feelings of many in the Valley with his editorial of September 16, 1887. Using the elliptical, metaphorical language made necessary by the growing constraints on freedom of the press, he commented on the proximate demise of the bank:

Conclusion

In nineteenth-century Colombia credit was a vehicle of trust in society as well as a central element in the meaning of prosperity. While the abolition of slavery and the secularization of church wealth freed capital after 1851, family-clan investment flowed into the relatively secure export-import trade and urban speculation instead of the domestic economy. Many large estates, undermined by chronic insecurity, disintegrated in a maze of parcel sales, lease-rental agreements, and part-interest rights, the precise nature of which remains unstudied. By the early 1870s, on the crest of a boom in the export trade, the pattern and magnitude of the elite’s investments gave rise to a new structure of credit: the Banco del Cauca. This institution, in turn, by way of its banknotes and investments, survived war and economic depression after 1873, and laid the foundation for a regional economy based on cacao that was just beginning to emerge by the early 1880s. Precisely at this point, the newly centralized national government had realized in the vehicle of fiduciary credit vast new fiscal powers with which to ease its deficits and assert its political dominion over the regions of the country. With the rapid expansion of coffee exports in the years following, this political dominion found an economic focus and foundation, which have largely shaped twentieth-century Colombian history.

What this article suggests is not a unitary process of nation building, but a congeries of modernizing processes set in motion by the Liberal reforms after 1850. Given the pronounced regionalism of Colombia, these processes resulted not only in the growth of an export-import trade, but in the development of regional economies focused on regional banks. In this context, the Regeneration effort to achieve political centralization after 1885 without sacrificing regional prosperity faced a formidable challenge indeed. Its initial success depended upon bipartisan support and the same foundation of collective trust that supported the banknotes of the Banco Nacional. These, when linked to the amplified legal authority of the new Constitution of 1886, were at once the most powerful economic weapon of the government and the most sensitive indicator of trust in that government’s authority. Thanks to the credit networks and banknotes created by the regional banks after 1870, monetary policy could be used as never before to undercut effectively a political opposition centered in export commerce and banking. Used carefully, it could also promote domestic economic integration and give tangible meaning to the abstract concept of nation. Paper money was, therefore, at one and the same time a symbol of trust and a symbol of tyranny. With the dramatic fall in world coffee prices after 1896, and the expanding circulation of badly depreciated national banknotes, the delicate equilibrium between trust and tyranny was upset. All the insecurities that had begun to recede at the regional level in the early 1880s found new life in the fiery issue of papel moneda. Little wonder, then, that on the eve of the presidential election of 1897, Liberal candidate Miguel Samper could echo the concerns Sergio Arboleda had expressed forty years earlier. The disease that afflicted the nation was not one of structure, but one of trust: “Insecurity is the name of this vice; misery was its fruit in 1867 and is today as we finish this retrospection.”¹²¹

Author notes