Mine Owners, Moneylenders, and the State in Mid-Nineteenth-Century Chile: Transitions and Conflicts Open Access

The 1820s opened a period of nearly 50 years of expansion of mining in Chile. During that decade, Chile’s mines produced a yearly average of 2.7 million kilograms of bar copper. Production increased by nearly 70 percent over the next decade, and reached an annual average of more than 9 million kilograms by midcentury. Copper production in all its forms continued to climb, approaching 80 million kilograms a year in the 1870s.¹ Yet producers seemed far from enthusiastic about their prospects. El Copiapino, the northern mining zone’s major newspaper, cautioned that “the miner who does not have the good fortune to strike it rich within one year of starting work, faces ruin.. . .”² Indeed, the naysayers proved correct as copper production gradually weakened. By the 1890s, total yearly production averaged less than 30 million kilograms. Unable profitably to exploit lower-content ores, Chilean producers saw the industry slip from their grasp. By the end of World War I, more than 87 percent of Chilean copper production was in the hands of U.S. investors.³

The Chilean encounter with the reality of diminished development in the twentieth century, after the grand promise of rapid growth inherent in the nineteenth century, is a frequent theme in Chilean historiography.⁴ Arnold Bauer is the most recent of historians to examine the question. He suggests, among other factors, that Chilean manufacturing did not experience a European-style succession, from household production to a merchant capital phase of “proto-industry” to the self-sustaining manufacture of textiles, because local producers were “obliterated” by the post in dependence tide of cheaper goods from Europe. “To hold back the flood,” Bauer stresses, “would have required an enforced tariff and a political will that are difficult to imagine given the class interests of the most powerful groups of the country in the early nineteenth century—great landowners, merchants, and miners who were interested in the freest trade possible.”⁵

Any consideration of “political will” raises the issue of what the state was doing or could have done to lay the groundwork for future economic development; and that is the topic explored in this article. Simply put, how did the state see its political and economic tasks, and to what extent did its perception of the country’s material reality create or resolve difficulties for the political economy in general and the mining industry in particular?

The Conservative governments that ruled from 1831 until the 1860s shepherded an extraordinary transition from the colonial period (and the relatively short period of turmoil that followed independence) to the emergence of a new political state. Joaquín Prieto (1831–41), Manuel Bulnes (1841–51), and Manuel Montt (1851–61) fashioned a state that combined the Hap.sburg objective of centralized authority and the Bourbon aspiration of efficient bureaucratic administration with the republican goal of a state structured by law rather than individual or corporate prerogative.

The Chilean state that emerged after the ouster of a liberal governing alliance in the 1830 Battle of Lircay bore the intellectual marks of the authoritarian Diego Portales. Portales, a young merchant-turned-minister in the Prieto government, helped fashion a new state form in Chile. The Portalian state, as it has been called, most closely represented the interests of wealthy merchants and central valley landowners. These two sectors, sharing a common cause in the creation and perpetuation of an open, export-oriented economy, staffed the upper reaches of government ministries, the Senate, and even the presidency, and set the dominant cultural, social, economic, and political tone in the central valley and hence the nation as a whole.

While this Santiago-centered state defended the personal economic interests of the elite and saw itself as attending to “developmentalist” interests in general (to impose a contemporary gloss on the problem), its physical, political, and cultural isolation from the northern miners and the southern flour millers would induce a serious political rupture and generate a decade of angry strife (1850–59) bracketed by two civil wars (1851, 1859). The resolution of the crisis that led to the conflicts, and that involved both intraelite and interclass struggles, ultimately redefined the nature of politics in Chile by lessening the state’s relative autonomy from the economic elite, opening the door to the emergence of civil society, and producing new patterns and modes of labor discipline and control of the lower classes.

Chilean historiography traditionally has stressed the state’s hostility toward northern mining interests. Historians have argued that the state’s fiscal policy consistently favored central valley landowners, and that the government was always willing to improve central valley infrastructure while expecting the northern miners to pay their own way in such matters.⁶ Such interpretations can certainly help us understand the roots of the midcentury civil wars—particularly because these arguments accurately describe the northern rebels’ own understanding—but they do not provide a framework for comprehending what followed the insurgents’ defeat in those wars. By losing, the northern mine owners and southern flour millers actually won. By the early 1870s, the state’s freedom of action was being mediated for the first time by a Congress that itself reflected the growing power of a wide variety of economic interests, not just those of the landowñers around Santiago.

Before the early 1860s, Chile’s constitutional system sanctioned the emergence of a quasi dictatorship that vested in the president and his ministers a prodigious amount of authority. While Chile’s presidents from 1831 to 1861 most often upheld the narrow interests of central valley landowners and merchants, their power was formally independent of any reference to or negotiation with the economic elites.

The president, not Congress, ruled. Executive-branch representatives (intendants, governors, prefects) administered provinces and local governments. The president appointed lower and district court judges as well as supreme court ministers, determined the budget, appointed and promoted military officers, and set the salaries of all public officials. Not only was suffrage restricted by property, income, and educational qualifications, but directly appointed executive-branch officials supervised both the registration and the actual voting of this diminutive pool of eligible citizens. Senate candidates were nominated by the president or his ministers. The president could veto legislation, and neither he nor his ministers were subject to congressional censure or interpellation.

Nevertheless, even if Chilean presidents were empowered to act independently of the economic elite or sectors of it, they did not necessarily do so. Indeed, the regular departure of presidents every ten years from 1831 to 1871, and every five years thereafter until the early 1890s, suggests that no president felt “autonomous” enough to bite the hands that penned the Constitution of 1833.

The question, then, is how this Santiago-centered state perceived its tasks during this period, when it had more room to maneuver and less need to respond directly and immediately to the demands of all sectors of the economic elite. The issue is particularly intriguing as it relates to one sector, the mine owners (hereafter referred to as “miners” as distinct from “mine workers”). The mine owners provided the state with a substantial portion of its total exports, and yet, by virtue of geography, politics, and even culture, they remained far from the corridors of power.

The political elite and this sector of the economic elite held clearly disparate ideas of what activities the state should pursue to encourage the young nation’s development. The miners wanted the state to take concrete steps to underwrite the future growth of their industry by reducing taxes and tariffs; opening additional ports to direct foreign trade; and investing in key infrastructural projects, from railroads to warehouse facilities. They deeply resented the political elite’s close ties to the central valley landowners, and they felt that their own industry was disproportionately taxed. The miners ultimately believed that the state survived because of mining income, and that it was putting its short-term interest in revenues ahead of the nation’s long-term needs, which required additional investment in the mines.

The state’s approach to the mining industry, on the other hand, reflected the political elites’ belief that the industry was doing exceptionally well as it was and did not require additional attention. State elites did not believe they were unfairly taxing or otherwise burdening the industry. Nor did they see mining revenues as the budgetary pillar the miners did; they felt that the miners had an inflated view of their own worth.

Chilean Mine Production, 1803–1850

Reading the words of Chilean mine owners in the late eighteenth and nineteenth centuries, one cannot miss the persistent rattle of their discontent. They complained that it was hard to get workers, more difficult to find circulating currency with which to pay them, often impossible to transport ore to port, and ruinous to raise capital to finance the whole operation. This unending flood of criticism is surprising only insofar as it accompanied a period of successful expansion in the industry.

Based on gold production in the eighteenth century, Chilean mining progressively shifted to silver and copper in the nineteenth.⁷ A series of stupendous discoveries, including those at Agua Amarga (1811), Arqueros (1825), Chañarcillo (1832), Las Animas (1833), and Tres Puntas (1848), pushed the silver-copper frontier further into the northern deserts and bolstered mining revenues. Production statistics are unreliable before 1844, but all estimates suggest a significant increase in production from the 1780s through the end of the 1820s, with a more substantial expansion thereafter.⁸ By 1829, Chile was producing more than ten thousand kilograms of silver and nearly 2 million kilograms of copper annually.⁹ The average yearly value of all mining exports nearly tripled, from 5.5 million pesos in the period 1844–50 to more than 15 million in 1861–65, even though copper and silver prices tended to decrease after 1855.¹⁰ During this period, mining exports accounted for two-thirds of all exports by value.¹¹

These production increases, however, only hid the structural weakness of the industry. While smelting and refining managed some technological advances during this period, engineering practices in the mines remained at a rudimentary level. Juan Egaña, a prominent creole lawyer and intellectual who undertook a systematic evaluation of the Chilean mines in 1803, lamented that “even the most basic means of working the mines are unknown.”¹²

Chile’s colonial and national mining codes, together with the very high price of capital, encouraged mine owners to initiate operations rapidly and discouraged any costly or time-consuming delays in production. Hence the chaotic nature of the engineering, which struck many English travelers who visited Chilean mines in the early 1800s. Miners “never begin by sinking a perpendicular shaft,” wrote a Captain Andrews in 1827, “but follow the vein through all its mazes, so that in a short time it becomes a perfect labyrinth. . .”¹³

Output increased because more mines entered into production. In 1803, according to Egaña’s careful census, 165 mines were operating in Chile. By 1875, the figure had jumped to 848.¹⁴ The estimated 2,000 mine workers of 1803 surged to more than 24,000 by 1872.¹⁵ Not surprisingly, labor costs represented the mine owners’ largest single expenditure at midcentury. Ignacio Domeyko, a geologist and naturalist, estimated that labor costs and supplies represented 92 percent of total costs in the Chañarcillo silver mines in 1842.¹⁶ Pierre Vayssière found that labor costs in the silver mines of the Copiapó district fluctuated between 56 and 69 percent of total costs, while fixed costs varied a mere 5 to 8 percent.¹⁷ Fragmentary reports from Vallenar’s silver mines in the 1830s pegged labor costs at 82 percent of total costs, followed by interest, which consumed an additional 14 percent.¹⁸

The mid-nineteenth century was not a particularly fecund moment for advances in mining engineering anywhere. But at least U.S. and European inventors and miners were producing better and cheaper drill steel and wire rope, applying steam to the problem of drainage, and developing the effective Brickford explosive fuse and high-powered explosives.¹⁹ The Chilean mines remained woefully deficient, with only 33 out of 788 employing steam power as late as the 1870s.²⁰

Smelting and refining operations were generally more sophisticated, for both copper and silver ores. By the 1850s most copper refiners in northern Chile had abandoned their older colonial equipment and techniques and were producing by the “Swansea” method: reverberatory furnaces, multiple firings, high technical standards, and more specialized equipment.²¹ Yet the refining capabilities of the Chilean industry were edging toward irrelevance. In 1850, Chile exported nearly 54 percent of its copper as highly refined bar. Ten years later, Chile shipped only slightly more than 15 percent of its copper in this refined state.²²

There were, to be sure, highly productive, innovative, and capitalintensive mines in Chile in the mid-nineteenth century. José Tomás Urmeneta’s copper mines at Tamaya, José Ramón Ovalle’s operations at Carrizal Alto, or Carlos Lambert’s Brillador and San Antonio mines testify to that. But they were exceptions. The vast majority of Chilean mines were small, very risky, labor-intensive operations, all of which faced the same pressing problem: accumulating sufficient capital to pay the first work crews and sink the first shafts.

The Rise of the Habilitador

According to the Chilean mining code—a virtual copy of the 1785 Mining Ordinances of New Spain that would remain largely intact until 1888—once a miner staked a claim (pertenencia), he or she had only 10 days to fix the mine’s boundaries and 90 days to sink a shaft of at least ten yards. These steps taken, the state ceded the subsoil mining rights to the operators as long as the mine continued to be exploited.

While these regulations at times encouraged a vigorous expansion of the mining industry, they created for the miner an immediate need for startup funds. In the absence of public lending institutions, mine owners turned to private, informal credit markets, at whose center stood the habilitadores—literally, “enablers”—first cousins to U.S. and British factors. In Chile and also in Peru, merchants became the primary habilitadores in the early national period, extending credit for incoming British, French, and U.S. goods to a wide network of local retailers.²³ But while nationals played this major intermediary role in Peruvian merchant financing, foreigners and nationalized expatriates dominated the stage in Chile. With the defeat of the Spanish in Chile, British and other foreign merchants immediately filled the void left by departing or bankrupt Spanish and creole traders. Customs statistics from Santiago and Valparaíso reveal that only one of the 40 most important merchants from the period 1808–1818 still traded actively in the following decade.²⁴ The figures are similar for the Huasco-Vallenar region, the northern center of Chile’s nineteenth-century copper district, where only one major preindependence merchant persevered into the national period. More than 70 percent of the most active merchants trading in Huasco copper in the period 1818–1840 were foreigners, agents of foreign merchant houses, or recently naturalized Chileans.²⁵ In the mining north as well as the agrarian center, a new group of merchants, mostly of British extraction (the Edwardses, the Walkers, Juan Sewell, and Samuel Haviland), quickly cornered the commercial and financial markets.²⁶

With no public banking or lending institutions, habilitadores were essential to the success of the mining industry. Providing small producers with the credit and equipment to begin or sustain production, and funneling mine yields to the port merchants, the habilitadores linked Chilean supply with world demand and also furnished wealthier miners with the luxury imports they desired.

Nevertheless, not everyone viewed the habilitadores favorably. The mine owners saw these merchant-lenders as highwaymen “into [whose] hands fell all [the] commercial and industrial profits” of the young nation.²⁷ Basil Hall, a British traveler in the early years of Chilean independence, presents a fairly common impression of habilitadores. He recounts the story of a Huasco miner who tried to operate his holdings independently. Despite the wealth of his mines, the miner soon had exhausted his capital and faced ruin. Enter the habilitador, offering to pay the mine workers their back wages and revive the operation. The creditor was to be repaid in copper, but at approximately four to five pesos per quintal below market price. The miner had no choice but to agree, and “went on producing copper, solely for the benefit of the habilitador, without the least diminution in his debt, and without any prospect for ever realizing money enough to make his wished-for purchase of [a] large farm.”²⁸ Like small entrepreneurs everywhere, Chilean mine owners inevitably had to scramble to raise capital. But in their case, Ben Franklin’s caution “he who goes a-borrowing goes a-sorrowing” seems particularly appropriate.

This depiction of the habilitador’s power is accurate on several levels. First, the habilitadores were ubiquitous in Chilean mining operations and, indeed, in the financing of mining throughout Latin America. Their influence during the colonial period has been widely reported.²⁹ David Brading notes, for example, that since only the wealthiest of miners in late colonial Mexico were able to self-finance their operations, “simple miners, refiners, and integrated enterprises all required financial backers.”³⁰ The same dependence on private capital markets continued into the national period, with local merchant-lenders often linked to a credit system dominated by foreign merchant houses.³¹

Second, it is quite clear that habilitadores often charged dearly for their services. Lenders might squeeze the miners at both ends of their transactions, hiking the price of commodities they supplied while lowering the price of ore they received in lieu of cash payment.³² Unlike U.S. commission merchants, who commonly earned the greater part of their income from sales commissions and fees for handling commercial paper, Chilean habilitadores realized their profits by speculating in minerals and boosting their interest charges.³³ This meant that a miner and his factor shared little common ground, because for the habilitador higher commodity prices—and higher commissions—did not necessarily translate into bottom-line success.

Yet although mine owners frequently felt they were being gouged by their lenders, this perception was often inaccurate. There were considerable periods when factors shaved their own profits either to undercut competitors or to attract an even larger pool of clients.³⁴ In fact, from the 1820s into the 1840s, the price paid by habilitadores for copper in the northern mining centers (the “forward-bar” price) was consistently on a par with or even above prices available on the open market (Table 1). As it turns out, lenders were scrambling to meet the portside merchant houses’ demand for copper and silver by increasing their own pool of ore suppliers. This short-term strategy—drawing in more borrowers by lowering effective interest rates—might have succeeded if the price of copper or silver increased dramatically or if producers reduced their costs by modernizing and rationalizing the industry. But neither condition occurred with any regularity.

From Factor to Producer

Mine owners may have named habilitadores as the cause of all their woes, but in reality the merchant-lenders themselves failed more often than they succeeded. Even first and second-generation expatriate merchants with outstanding connections to the foreign merchant houses were just as vulnerable to bankruptcy as their Chilean colleagues. That mine owners lived and died on account is no surprise, but one might expect more stability from the area’s largest lender-merchants. And yet, as the following cases illustrate, not even the wealthiest factors were immune. Caught between the demands of the foreign merchant houses and the realities of Chilean production, hard-pressed habilitadores increasingly turned to direct investment in mining and its related industries. Profitability still eluded them.

The partnership of Rodríguez, Valdés y Cía, formed in the early 1820s, was well equipped to exploit the mining boom, possessing what could be considered the best mining and agricultural properties in the Huasco Valley. The process by which partners José María Rodríguez, Pedro Nolasco Valdés, and José Manuel Cea acquired their holdings is somewhat hazy. Of the three, only Cea could be considered truly wealthy. While he came from an important land-owning family, much of his fortune was self-generated. In 1824, he and Diego Portales were awarded monopoly privileges to trade in tobacco, playing cards, imported liquor, and tea (the so-called estanco). The following year, the Chilean senate gave the firm exclusive rights to supply an expedition to drive the Spanish out of Chiloé.

Unlike his partner. Cea shunned politics and remained in the world of commerce. Foreseeing the importance of building ties to the new foreign merchant community, he began to work with two British firms; Wylie, Miller y Cía and Sewell y Patrickson. Apparently Cea even connived with the two firms to circumvent a law prohibiting foreigners from carrying domestic goods between Chilean ports, by claiming that he owned the merchandise.³⁵

Through a combination of fortuitous discoveries, foreclosures, and outright purchases, Rodríguez, Valdés y Cía acquired some of the most productive copper mines in Huasco. The Santa Rita mine in Carrizal, which José María Rodríguez purchased for 150 pesos in 1833, was valued at 10,000 pesos in 1840.³⁶

In 1825 Rodríguez purchased some of the highly prized land around the Perales estate in the river valley surrounding Vallenar, and completed construction of a costly irrigation canal. The firm also acquired the nearby Paona estate.³⁷ This land was devoted to alfalfa production for the company’s pack animals and sites for its highest-volume smelters.

Many of the partnership’s assets existed only on paper, leaving it quite unprepared for unanticipated demands for cash. At those moments, the partners turned to the private money market, particularly to Wylie, Miller and Sewell y Patrickson. By 1830, the firm had borrowed more than $350,000 from the two merchant houses and had run up a total debt of $730,000, not including Cea’s initial investment of $220,000.³⁸

To dig out from under its mountain of debt, the company restructured, changing its name to Rodríguez, Cea y Cía, altering its capital structure, and opening branch offices in Valparaiso, Coquimbo, and Huasco. In a plea for time, the firm promised to repay its creditors over the next 18 months and to liquidate its business within 4 years. On the strength of assets valued at $1,322,300, it again appealed to Wylie, Miller and Sewell y Patrickson to continue their habilitación of the firm’s mines and refineries, estimating that $12,000 a month was needed to run the operations in Huasco alone.³⁹ The lenders agreed to the new terms, signing a contract with Rodríguez, Cea in 1831. While they offered the company a fair price for its copper, they tacked on 24 percent in yearly interest charges to the outstanding debt and placed their own agents in charge of the company’s smelting works.⁴⁰

With so many debts and each creditor elbowing to be first in line for repayment, it was doubtful that Rodríguez, Cea would get back on its feet again. Each creditor could petition the court to embargo the firm’s mines or refineries until it was repaid. The partners disagreed intensely about what action to take. Cea in particular seemed anxious to reach a rapid settlement with the creditors. Not so Rodríguez. In 1831, against Cea’s wishes, Rodríguez himself petitioned for an embargo to be placed on the copper refined in the Perales smelter so that Sewell y Patrickson could not acquire it. Rodríguez fought to keep control of the firm, but he proved no match for Cea and the British who supported Cea’s cause. In October 1832, Cea officially turned over administration of the company to Wylie, Miller and Sewell y Patrickson.⁴¹ The firms agreed to honor the company’s debts and promised to return Rodríguez, Cea to its original partners when all the debts had been canceled. This they never did. Instead, the two merchant houses assumed ownership of some of the choicest land, mines, and refineries in the Huasco Valley.

Rodríguez, Cea is a telling example of the problems faced by even the wealthiest of the local factors when they became direct owners. It suggests two conclusions, besides the obvious point that many British merchant houses benefited from their ultimate control over the flow of credit into mining. First, for these Chilean producers, vertical integration was not necessarily driven by the fear of dependence, but rather by the notion that it was the best way to ensure that minerals actually reached the appropriate port at the appointed time.⁴² Even vertically integrated enterprises, though, remained vulnerable. Before regional rail lines were built in the 1850s, producers were dependent on large numbers of pack animals to move their ore to the coast, and prolonged drought in this semidesert environment could decimate even the largest herd.⁴³

The second conclusion, as the rapid buildup of Rodríguez, Cea’s debts illustrates, is that capital could be quickly concentrated and evacuated from the productive system. Without questioning whether the beneficiaries of Rodríguez, Cea’s demise productively employed their newly won assets, it is clear that the unstable credit pyramid on which Chilean mining rested represented a continual threat to the industry’s prolonged growth. It is equally certain that the instability inherent in this system was not an obstacle for Chileans alone. As the next case will demonstrate, even émigré merchants with good ties to the foreign commercial community lived precariously.

After independence, China and India became Chile’s major purchasers of copper, in a commerce facilitated by U.S. ships that, lacking their own products to carry to the East, sought out Chilean copper for that leg of the journey.⁴⁴ The Calcutta merchant house of Fletcher, Alexander dominated this trade in the 1820s. The firm’s agent, Juan Sewell, was the first to organize an exchange between Indian and Far Eastern tea, silk, and porcelain and Chilean copper.⁴⁵

Following the astonishing success of his first voyage in 1821, Sewell relocated to Valparaíso as Fletcher, Alexander’s agent. He later joined Thomas Patrickson, another of Fletcher’s agents, to form Sewell y Patrickson, perhaps the largest merchant-lending firm operating in the Chilean copper belt. In the early 1830s, the two partners collaborated with Juan, Alejandro, Guillermo, and Roberto Walker to form Sewell, Walker y Cía, which operated offices in Huasco, Coquimbo, and Valparaíso.⁴⁶ Before long, even the mighty house of A. Gibbs & Sons considered Sewell y Patrickson one of the most important merchant-lenders in the country.⁴⁷

Sewell y Patrickson operated as an investment bank, providing credits to factors rather than attending to the needs of petty retailers or individual mine owners. It was in that capacity that the firm (along with Wylie, Miller) captured Rodríguez, Cea’s considerable assets when the latter failed in 1832. And yet, like many large merchant houses, Sewell y Patrickson had substantial paper assets but little liquidity, and often teetered on the brink of bankruptcy when faced with the redemption of a particularly untimely bill of exchange.

In the mid-1830s a number of these bills came due, and Sewell y Patrickson had to resort to its own lenders. Relatively small and diversified at first, Sewell y Patrickson’s loans Increasingly originated with two firms: Naylors, Boardman and Gibbs, Crawley.⁴⁸ In 1836 Sewell y Patrickson obtained a $12,000 note from Naylors, and by the early 1840s it had contracted almost $70,000 in additional loans from the firm.⁴⁹ Sewell y Patrickson signed an initial habilitación contract with Gibbs, Crawley for $40,000 in 1837. As security for the loan, Sewell mortgaged all the properties it had received from Rodríguez, Cea. Two years later, Gibbs, Crawley was again called on, this time by Sewell y Valdés, the partnership formed by Sewell to administer his mines in Copiapó. Gibbs, Crawley lent the firm $50,000 and continued to act as its major creditor until 1847, when Sewell y Valdés, $79,572 in debt to the merchant house, was forced to settle its accounts.⁵⁰

By the late 1840s, Sewell y Patrickson had become one of the major suppliers of copper and silver to the Valparaíso merchant houses. The firm filled the demand of the portside houses by calling on its own debtor-suppliers from its own mines, smelters, and ore stockpiles scattered throughout the north. Its operations, however, required a considerable infusion of cash to remain productive, and this need began to take its toll.⁵¹

Sewell y Patrickson was forced into liquidation in 1848, crushed by an outstanding debt of $261,290 to Gibbs, Crawley (by then called Guillermo Gibbs y Cía).⁵² Nearly all its real estate, mines, and refineries in Copiapó and the Huasco Valley had been mortgaged to the Gibbs house. Once again, mining capital had traveled from miners to local merchants-turned-mine operators only to end up with the largest merchant houses of Valparaíso.

Efforts Toward a National Bank

Capital accumulating in the mining industry was spilling out into the hands of foreign merchant houses. For many mine owners, rapacious moneylenders created the problem, and state-fostered banking would provide the solution. National banks, as well as joint-stock commercial banks, were conspicuously absent from the early Chilean state as, indeed, from all Latin American countries before the 1850s except Brazil and Cuba.⁵³ Any financial institutions operating in Chile in the late colonial and early national periods were confined to very modest, deposit-type banking. Credit was provided by individual merchants advancing funds for the purchase of imported merchandise or prepayment on sales of Chilean products ⁵⁴

And yet, even in the late colonial period, attempts were made to encourage banking operations. Some members of the colonial Santiago consulado favored the development of modest financing projects in the early years of the nineteenth century, Anselmo de la Cruz, for example, argued unsuccessfully in 1811 for the establishment of a bank tied to the trade body that would pay 5 percent interest on deposits and lend at 6 percent. “One cannot deny,” he argued, “that there are in this kingdom men of well-known means who, finding their ranches filled with stock and yet not wanting to run the risk of overseas commerce, are not able to find a means of employing [their capital],” so they allowed it to languish out of circulation.⁵⁵

With independence, Liberals and Conservatives debated the chartering of a national bank. The victor ultimately was Juan Egaña’s Conservative position, favoring a purely monetary bank whose main purpose would be to guarantee the responsible repayment of Chile’s first foreign debt, an 1822 British loan of £1 million.⁵⁶ Two years later, Mariano Egaña, Chile’s representative in London, reversed his father’s position and attempted—with his father’s support—to obtain foreign backing for a Chilean bank of issue with the right to originate notes for 15 years, interest rates being determined by the market. Nothing plagues the country more than a shortage of capital,” Mariano brooded. But this attempt also failed when news of political turmoil in Chile undercut the minister’s efforts to calm his British backers.⁵⁷

By the 1830s and into the 1840s, mine owners were loudly bewailing their reliance on the grasping habilitadores. Annual charges of 36 percent were common throughout the period 1800–1830, a deflationary era.⁵⁸ What is a merchant? What is a miner in these [northern] towns?” wondered the governor of Vallenar, who answered his own question by observing, “the second are but a dependent of the first.”⁵⁹ La Serena’s local newspaper defended the patenting of a new silver-refining process as one way to free “the poor miners from the usury of their hahilitadores.”⁶⁰

Spurred by this discontent, mine owners and others pressed the government to charter a national hank, Mariano Fragueiro, an Argentine resident in Chile for nearly 20 years, argued in a midcentury monograph, Organización del crédito, that public credit should be an element of the nation’s “sovereignty as stable and long-lasting as society itself. . . It is national capital attracting all the disparate social capitals to one single point and, from there, sending it out in different directions, in the utmost harmony between individuals and the public, and to the ultimate benefit of national wealth.”⁶¹ Fragueiro’s San Simonian tract proposed nothing less than the absolute ban of all credit transactions between individuals, suggesting instead that the state he given a monopoly over all lending activities.

Although Fragueiro’s antiusury sentiments found a sympathetic audience among mine owners, his proposals were bitterly attacked by the press, not just in Santiago and Valparaíso but also by the north’s most important paper, El Copiapino.⁶² The northern press concurred with Fragueiro that lending practices had become abusive, but argued that centralizing credit operations in the state’s hands would foster despotism, not “liberate industry from its desperation,’’⁶³

Fragueiro soon found his most forceful champion in Pedro Félix Vicuña, a wealthy miner who would lead the north in a war against the central government in 1851. Vicuña himself had tried unsuccessfully to organize a bank as early as 1828. For him, the creation of a national hank, which he deemed the “fourth branch of our political organization,’ was nothing less than a matter of “national sovereignty.”⁶⁴

Vicuña and other northern miners grew increasingly agitated over the absence of state-regulated credit markets, A British Foreign Office memorandum from 1850 notes that the growing opposition to the Bulnes government was coming in large part from “the mine owners who find themselves in debt and therefore favor a national bank”⁶⁵. Their sense of frustration was undoubtedly heightened by the forced closure of the Arcos Bank in 1850. The previous year, Antonio Arcos, a Spaniard, had proposed the establishment of a state bank. When the Bulnes government turned him down, he created instead the Banco de Chile de Arcos y Cía as a joint-stock company operating as a bank of issue. The government challenged the legality of Arcos’ bank, and in 1850 the Supreme Court, led by Chief Justice Manuel Montt—soon to be president, and a lightning rod for the miners’ discontent—ordered its doors closed. It was not until 1860 that Chile’s first general banking law was written, decades after the country had established a respectable level of political stability, internal creditworthiness, and a highly productive export sector.⁶⁶

The habilitadores played a pivotal role in maintaining the credit and productive structure of the mining industry, facilitating the movement of capital from the large merchant houses of Valparaíso and Santiago to points of production throughout the country. Mine owners relied on them for supplies when needed and payroll when their funds ran out; the large merchant houses expected them to forward ore on a regular basis to waiting British and Chilean ships. No one tolerated delays.

Yet the habilitadores were not banks. They lacked a bank’s unique ability to create money by extending credit, either through deposit loans or by issuing notes. When habilitadores extended credit to their clients, they only lent them the money they had on hand or, increasingly, money they had borrowed in order to lend, acting as finance companies.

In this respect and others, Chilean mining habilitadores closely resembled antebellum cotton factors operating in the U.S. South. Like habilitadores, cotton factors served to funnel capital resources from primary merchant-banking cities (New York and London, in this case) to local producers throughout the South.⁶⁷ Merchants in the north or in Europe allowed southern factors to draw on them based on an expectation of repayment either in cotton, sterling, or New York bills. Like the habilitadores, southern factors were widely regarded as the key economic actors in the region. As Alfred Holt Stone put it, “If cotton was king, the cotton factor was the power behind the throne.”⁶⁸ More recently, however, historians have taken issue with that interpretation, stressing that, just like the habilitadores, the factors were not independent actors, and that the real “power behind King Cotton’s rickety throne was located in New York and Liverpool rather than in New Orleans, Mobile, Savannah, and Charleston.”⁶⁹ At least until the banking debacles of 1837 and 1839, factors worked through a wide network of state-chartered banks (901 by 1840) to extend short-term credit to the planters, provide them with immediate cash, facilitate movement of their funds, and exchange their currency.

Some southern factors attempted to break with the powerful northern banks, and a number of northern merchant-bankers advised severing ties with British banks. Moses Taylor, a leading New York-based commission merchant dealing in Caribbean trade goods and a director of New York’s City Bank, was highly critical of the role played by the “London-American Bankers.” In his estimation, by granting huge credits to U.S. businessmen, English bankers had “afforded facilities for speculation and overtrading,” which provoked the panic of 1837.⁷⁰ But there is no indication that Chilean habilitadores bore a similar attitude toward their own creditors in the British merchant-banking community. Perhaps they more easily recognized that demand for capital in the mining zone was very limited, and that without portside merchant capital flowing into the region the mining industry—and their best chances of making a profit—would collapse. They certainly did not agitate for state-chartered banking as the miners did, even though objectively they were every bit as threatened by the power of the major foreign merchant houses.

Threads of Opposition

“Banks never originate with those who have money to lend,” an observant Bostonian wrote in 1857, “but with those who wish to borrow.”⁷¹ Chilean miners, seriously prejudiced by high interest rates and subject to any inflation that might arise from the issuance of paper currency, called for state-chartered banks of issue. Why did the state reject their demands? Two points make the question intriguing. One is that contemporary observers and economic theorists widely believed that the mining industry was threatened by a lack of investment capital. The other is that, by any account, the Chilean state was strong, even at midcentury. Its political and economic thinking was still heavily influenced by neomercantilist traditions arising from the later Bourbon monarchs, who had argued for a strong state role in shaping and encouraging the nation’s economic direction. Nevertheless, the political elites shied away from endorsing a banking system that, the miners argued, would have stimulated Chile’s major export industry.

Historians have offered a variety of opinions to suggest why the state delayed so long before sanctioning banks of issue and deposit. Some economists point to a widely prevalent fear of paper currency, not unusual in a time when banks of issue experienced serious problems even in stronger economies.⁷²Others have suggested that Chile did not charter banks because political and fiscal conditions “did not inspire the needed confidence.”⁷³ While these hypotheses are quite pertinent for the 1820s, they do not indicate why the problem persisted at midcentury.

The most obvious explanation, and one certainly sustained by the case studies detailed above, is that the foreign merchant honses would not abide losing their monopoly hold on the credit market. A British consular official admitted that when Antonio Arcos attempted to establish his national bank in 1849, he had to contend with the “undisguised hostility of most of the foreign merchants at Valparaíso (who were at the same time naturally interested in keeping up the present high rate of interest and were fearful that the project of a national bank might lead to an abuse of paper money).”⁷⁴ Add a weakness in the Chilean capital structure and instability created by Chile’s failure to make prompt repayments on the London loan of 1822—all these issues certainly discouraged the state from moving precipitously toward national banking. But the absence of a banking network also reflects specific limitations of economic theory and politics.

To a certain extent the new state distorted its credit markets by artificially pegging public interest rates at 5 percent annually while allowing private contracts to sidestep that limit.⁷⁵In a curious coincidence, the Chileans placed a cap on interest rates the same year that the British rescinded a similar law. In fact, the Chilean legislation reveals a mercantilistic penchant for state-rather than market-determined rates, as well as older Spanish scholastic concerns with canonical prohibitions against usury.

A number of economic historians have ably demonstrated that the church’s antiusury doctrine was in full retreat in Europe by the sixteenth century. Emerging nations had little difficulty restricting usury prohibitions to specific contracts or writing endless loopholes into antiusury legislation.⁷⁶ Nevertheless, economic writers in Chile continued to address the issue defensively well into the nineteenth century. Anselmo de la Cruz, the consulado secretary who had proposed the deposit banking plan of 1811, sought to head off one line of opposition to his project by arguing that “evangelical precepts and sacred canons [only] prohibit usury in cases where we are obligated to assist those in emergency situations approaching extreme indigency, and not where people possess all that they need and wish to acquire more.”⁷⁷

A more serious problem was the general weakness of theory regarding finance, credit, and monetary systems. These theoretical gaps served to debilitate Chile’s emerging financial system even as technical shortcomings—the absence of double-entry bookkeeping, bills of exchange, and joint stock ownership forms—hobbled its commercial operations.

While one can glimpse flashes of liberal thought in Chile by the 1820s, economic liberalism did not drive Chile’s political economy until well into the nineteenth century.⁷⁸ Manuel de Salas, for example, one of the late colony’s most important economic thinkers, was solidly cast in the neomercantilist mold. He encouraged a freer commerce between Chile and Spain—as did virtually all Chilean statesmen—but still argued that the state should play a leading role in the colony’s economic development.⁷⁹

As for mining, Salas decried state lending policies’ negative effects on the growth of the industry, but his analysis of the problem reveals a very different theoretical approach to monetary supply than that of the Liberals. As a director of the Tribunal de Minería from 1797 to 1801, Salas had a firsthand opportunity to mediate the state’s role in mining. The tribunal had authorized the creation of a mining bank (Banco de Avíos) to advance credit to mine owners and provide them with reasonably priced inputs. The state, in essence, would plow mining profits back into the industry. Nevertheless, during its short life—from 1791 to 1818—the Banco de Avíos disbursed only $63,300 in 35 interest-free loans, a relatively paltry sum given the industry’s capital needs.⁸⁰

Salas objected to the bank’s de facto policy of lending only to wealthy miners who could find financial guarantors to back their loans. The problem, as he saw it, was the interest rate. While some argued that the mining code permitted up to 5 percent annual interest on the bank’s loans, Salas understood the code to exempt from interest charges any borrower who found a loan guarantor.⁸¹ In either case, according to Salas, these practices undercut the bank’s self-financing mechanism, drained its funds, and ultimately supported those who were least in need of assistance.

The bank, Salas suggested, was required to collect a reasonable amount of interest on its loans in order to fund its own operations and to attract the widest possible class of borrowers. Anticipating the reasoning of Anseimo de la Cruz, Salas saw the bank as a self-financing collection and disbursement agency, a limited bank of deposit. It provided a service, moving sums from one place to a more useful one, and paid for itself with the interest it collected.

Identifying the problem as the interest rate and finding no way around state rate restrictions, Salas essentially halted the bank’s lending activities. Of the $63,300 in loans made between 1791 and 1818, only $7,000 was disbursed after Salas left the bank in 1801.

Even as English and French political economists such as Hume, Cantillon, and Condillac worked toward a new understanding of credit and money, Salas, as well as most Spanish and colonial scholars, remained more influenced by Colbert and other mercantilists.⁸² Late scholastics were acquainted with many of the features of emerging capitalism: stock exchanges, lending, instruments of credit. If they were familiar with bank notes, they recognized them simply as instruments that made it easier and safer to handle money. But they were ignorant of the new financial and commercial uses for bank notes, particularly when such uses involved extending credit.

Late scholastics would analytically divide what we call a credit transaction—a sales contract calling for future payment—into two components, one involving the sale proper and the other being a loan of money. The loan, in its characteristic as a deposit of money—a depositum irregulare under Roman law—gave ownership to the receiver of the deposit. If two (or more) individuals were each other’s lenders and borrowers, they could clear their transactions without any actual use of cash. In fact, for scholastics, neither lending nor credit transactions had anything to do with the functioning of the monetary system. “These things,” Joseph Schumpeter notes, “involved the use of money, no doubt, but in no other sense than does buying for money or making a gift in money or paying taxes in money.”⁸³ For these economists, the banker’s task was to gather money from many small, stagnant pools and disburse it among more productive uses. Thus credit presumably could only speed the circulation of money, not affect its volume.

By the early eighteenth century, Richard Cantillon, a Parisian banker of Irish extraction, was arguing that it was indeed the volume of money itself as well as the velocity of circulation that was increased by introducing credit to a system. Bankers who gathered sums of money to lend out again, he maintained, were actually advancing the same money repeatedly before the first borrower ever repaid, in effect increasing the quantity of money in circulation. Such a realization could have an important impact on how banking was viewed in relation to overall economic development and industrial growth. Thus, while Salas and creole writers contemplated interest rates either from an older canonical concern with usury or from the more contemporary mercantilistic perspective of how interest could offset operating costs, the British and French were more absorbed with how credit would affect the money supply.

The latter thinking was not altogether lost on the Chileans, although it appeared as a minority position and, after the Portalian ascendancy, was politically suspect as well. José Joaquín de Mora, a Spanish journalist living in exile in London, arrived in Chile in 1828 at the invitation of the Liberal government of Francisco Antonio Pinto. Author of the short-lived Chilean Constitution of 1828, Mora became a member of a government commission established to examine banking practices in Chile.

Mora’s years in London had left him favorably impressed with the English banking system. To keep up with a tremendous boost in consumption, English merchants and manufacturers had developed an intricate credit system that, by 1800, extended from the Bank of England to include private banking houses, bill brokers, and country banks.⁸⁴ By the early nineteenth century, traders outside of London commonly were using bills of exchange for making payments. A buyer who accepted such a bill could endorse it and then pass it on as payment for his own future purchases. As these bills proliferated throughout the English countryside, it was obvious that lending had become a distinctly impersonal process and that the bills had become part of the supply of money, not an element in its total demand.⁸⁵ The point was not lost on Mora. His argument for the establishment in Chile of a similar, if smaller, system of public credit more closely resembled those of emerging European monetary theorists than the pronouncements of the Spanish neomercantilists. Like Cantillon, Mora argued that credit created “wealth which did not before exist” and facilitated the best utilization of a society’s total savings.⁸⁶

As Pinto’s intellectual alter ego, Mora, through El Mercurio Chileno, a political and literary review, and the Liceo de Chile, a secondary school of which he was director, articulated a full range of Liberal views on commercial policy, taxation, and education. It should come as no surprise that the journalist’s ideas were renounced and he himself driven into exile in 1831 when the Prieto-Portales government consolidated its hold on the state.

The Conservative victory at Lircay in 1830 would affect the development of national banking in Chile in a number of ways. As noted, it led to the direct and uncompromising rejection of many Liberal ideas that had been introduced in the mid and late 1820s. Portales remained deeply suspicious of all intellectuals, including those who served with him in the government.⁸⁷ The governments of the 1830s and 1840s did liberalize some aspects of Chilean commercial policy, but by and large their commercial and economic policies remained protectionist and Conservative.⁸⁸

In terms of financial policy, the baby was thrown out with the Liberal bathwater. Portalian presidents and their finance ministers resisted calls to create a bank of issue until 1860. This is all the more relevant in that finance ministers Manuel Rengifo and Joaquín Tocornal astutely reestablished Chile’s internal credit by consolidating the internal debt, resuming payment on treasury notes, and backing future borrowing with a mortgage on customs revenues. In 1842 Chile became the first of the Latin American countries that had defaulted on their 1820s-period foreign loans to reach a settlement with British bondholders to resume regular payments on that debt.⁸⁹ Yet even with its internal credit reestablished and its future credit tied to a burgeoning export sector, the state still backed away from national banking legislation.

Early attempts by Conservative governments to charter a national bank were equally discouraged by Portales’ personal unwillingness to confront the merchant houses, a likely result of his role in the estanco fiasco. In 1822, Chile raised a loan of five million pesos (one million pounds) from Hullet Brothers and Co. in England. Two years later, having failed to meet its scheduled payments, the government decided to peg repayment of the loan to the estanco, the state’s second most important source of revenue.⁹⁰ After some debate and controversy, this monopoly right to sell tobacco, playing cards, imported liquor, and tea was turned over to the firm of Portales, Cea y Cía, as noted earlier. For its part, the state would ultimately lend Portales, Cea some $500,000 worth of tobacco, free of interest. In return, the company was required to pay Chile’s London creditors $355,250 a year for ten years out of the proceeds from the sale of estanco products. Portales, Cea, which had neither capital nor experience in tobacco trading, was unable to persuade the government to intervene forcefully against contraband tobacco imports. It failed miserably in its obligations, to the utter frustration of Mariano Egaña in London and the rising anger of the British merchant houses.

While historians have speculated as to why the contract was awarded to Portales, Cea, none has suggested that the affair put Portales himself into the pocket of the British merchant houses. But it is not unlikely that the estanco disaster encouraged Portales to think twice about challenging the economic (and political) strength of the British lenders. It is no less likely that this business failure stiffened his hostility to “disorder” and weak governments, rather vague enemies that he held ultimately responsible for the entire fiasco.⁹¹ What’s more, the Conservative victory at Lircay brought to power a state elite that had little regional or political attachment to the northern miners or their creditors and an increasingly clear concept of what its own role should be regarding the country’s political and economic order. Meanwhile, the case studies presented earlier illustrate how the mine owners saw their interests increasingly impaired by state inaction or hostility. Other studies have shown that flour millers and wheat growers, in many ways as desperate for low-priced credit as the miners, also resented their dependence on the private money market.⁹²

The State’s Perspective

In 1851, and again in 1859, the anger of these economic sectors fueled sizable uprisings against the Santiago government.⁹³ A number of sparks touched off the 1851 conflagration, but it was no coincidence that the revolt whipped through the northern mining areas not long after the Supreme Court, headed by Montt—whose disputed election to the presidency that year was the revolt’s most immediate cause—upheld a prohibition on paper currency that effectively destroyed Antonio Arco’s attempt to create a national bank of issue. Mine owners were particularly bitter toward a state whose policies on transportation development, internal taxation, and commercial development all seemed to favor central valley interests. This was even more galling because mine owners believed that their export revenues disproportionately sustained that state.

And yet, extrapolating from the data, it is clear how the state arrived at a very different understanding of the situation. In the first place, the mine owners may have grumbled, but they also produced. Silver output rose by approximately 46 percent between 1831 and 1850, while copper production soared by nearly 98 percent.⁹⁴ In fact, the more accurate statistics available after 1843 reveal an even brighter portrait of the industry in the 1840s. Exports of bar copper increased by more than 126 percent between 1844 and 1850, and the value of copper exports in all forms climbed by 50 percent in the same period.⁹⁵ Silver was even more impressive, as exports of bar silver increased nearly 235 percent between 1844 and 1850. From the state’s perspective, if its policies were undercutting the productive capacity of the mines, export figures certainly did not reveal it.

It is virtually impossible to know precisely how much capital was entering the mining economy in the form of credit in the mid-nineteenth century. But an examination of archival records in Chile’s major midcentury copper regions—Vallenar, La Serena, Freirina, and to a limited extent Copiapó—suggests wider trends.⁹⁶ The data from these areas show a positive correlation between the number of loans recorded, as a rough indication of the total credit entering the mining economy, and the production of copper. The increased flow of credit to the Huasco economy from 1826 to 1835 and 1841 to 1845 helped underwrite a surge of copper production in the 1830s and 1840s. Again, if state functionaries seriously investigated the miners’ complaints of a shortage of credit—and there is no indication that they examined the problem statistically as opposed to anecdotally—they would have found an increase in lending to the mining zones in the 1830s and 1840s, not a decrease. The state was not about to fix something that, in its opinion, was not broken; much less so if it involved introducing an already suspect banking system.

Nor did the state feel any special obligation to attend to the miners’ interests on the basis of mining’s contribution to the state budget. The miners considered theirs a paramount role. By value and volume, mining exports constituted the largest category of Chilean exports. Between 1844 and 1850, for example, minerals made up nearly 62 percent of all exports by value, with agricultural products a distant second at 16 percent.⁹⁷ Yet the mine owners did not produce the entire revenue stream by themselves.

Chilean revenues, like those of the other Latin American countries in the nineteenth century, depended heavily on trade taxes. In the quarter-century between 1833 and 1858, for example, commercial taxes accounted, on average, for more than 61 percent of total revenues.⁹⁸ Before 1856, Chilean statistics do not differentiate between import and export duties when reporting the total of commercial tax revenues. Yet when the separate figures finally appear, it is obvious that the greater portion of trade taxes originated from import, not export, duties. In the first ten years for which data appear, 1857–1866, import duties accounted for an average of 39 percent of total revenues, while export duties made up 5.2 percent. It is likely that the contribution of import duties to total revenues was even higher in the period before 1857. Between 1857 and 1861, for example, import duties were fully 90 percent of the total revenue collected from trade taxes.⁹⁹ Again, a lack of solid statistical data makes evaluation difficult, but it seems clear that these import taxes were generated largely by the purchase of consumer goods rather than duties paid on the import of capital goods.¹⁰⁰ This would be particularly true in the mining sector, where, as we have seen, fixed capital investments were rare except in smelting and refining. What’s more, Chilean tax structures favored entrepreneurs seeking to import capital goods. From 1830 through the end of the century, the ad valorem-equivalent import tax for final consumer goods ranged from 20 to 35 percent, significantly higher than the 10 to 15 percent paid for intermediate goods; capital goods entered duty-free.¹⁰¹

What these data suggest is that while the mine owners created substantial pockets of private wealth, they did not subsidize the state. From a finance minister’s perspective, the wealthy landowners of the central valley were much more pivotal to the state budget, because it was their purchases of imported luxury items (along with those of a smaller pool of wealthy mine owners) that bankrolled the state budget.

The state did not view the problems of the mining industry through the same lens as the mine owners, but this does not mean that it shunned the miners’ concerns. The state simply took a different approach. The mine owners wanted access to capital; the state offered to help them control their labor force.

As the demand for copper grew throughout the 1830s and 1840s, the demand for labor grew apace. “The primary need of this province is workers, El Copiapino complained in 1849. The impact of their shortage is immense, and the government does nothing to help us obtain them.”¹⁰² In many Latin American countries, such a demand would target nearby peasant communities.¹⁰³ But the northern deserts of Chile lacked these stable, substantial communities, and workers most often had to be imported from the labor-surplus central valleys or from across the cordillera.

Of course, the shortage of workers was not absolute; the problem was their cost. Real wages in the mines, which remained low or in decline for unskilled labor in the late colonial period, began to increase with independence and advanced notably in the 1840s and 1850s.¹⁰⁴ Given the relative abundance of mines competing for the relatively limited pool of workers, the state saw as its objective to undercut the workers’ bar-gaining power by legislative or political means. From the 1820s through midcentury and beyond, government officials aided the mine owners by restricting the rights of free-wage labor in the mines. Workers were not permitted to travel to the mines without the consent of a mining judge. No workers could leave a mine without a passport signed by the mine owner. Mine owners were prohibited from employing workers who lacked a passport signed by their previous employer, stating that they were free of all debt. All workers were required to reside in close proximity to the mines; and women, including workers’ family members, were excluded from the mining camps.¹⁰⁵

Still, it was not easy to control the flow of workers in the large mining zone, particularly with a widespread shortage of police and military forces. When a local official reported the discovery of a new silver mine some 15 leagues from Copiapó in 1852, he worriedly observed that more than six hundred people had poured into the new site in the eight days since its discovery, and he asked that a special police patrol be sent in.¹⁰⁶

In an attempt to defuse similar situations, local mining commissions suggested importing everything from European workers to foreign priests.¹⁰⁷ The state, however, continued to respond with new regulations—rulings allowing local officials to impress vagrant laborers into public works, prohibiting workers from carrying arms, banning the lighting of fires in workers’ dwellings, forbidding workers from supporting claims by fellow workers, outlawing the gathering of more than three workers when presenting claims to the mine administrators or four workers when walking down the street.¹⁰⁸

In the context of the times, in an industry whose success depended on its ability to control labor costs, and in a region that was already attracting private capital, the state’s presumption that it would do more for mining by hobbling labor than by generating credit is not too puzzling. It was not just a philosophical disinclination to liberalism that steered the state away from the promotion of banking, nor was it a reluctance to redistribute capital to additional elite sectors by offering cheaper credit.¹⁰⁹ It was a different understanding of what the state could do, in a theoretical sense, and should do, in a very practical sense. It is in the analysis of these different conceptualizations that the full historical context of this debate comes through.

The Chilean State in Transition

The first phase of the Portalian period, from the victory at Lircay in 1830 to the defeat of the insurgent forces in the 1859 civil war, was one of great transition in Chile. The early Portalian state struggled between simply reimposing a Hapsburg authoritarian model—which was, in many ways, its preferred representation—or constructing and inventing a new state in which social, political, and economic control would be articulated through and validated by market relationships; a “national” culture that would establish new boundaries between private and public, personal and communal; a new set of relations between civil elites and the state.

Portales’ own views embody the contradictions inherent in this transition. He envisioned a Chile led by an omnipotent president—one indication of his desire to recapitulate a colonial order, as well as an illustration of his belief that democracy was an “absurdity” for Latin America at that time.¹¹⁰ Yet he also recognized that the monarch’s authority, which was personal and hereditary, had to be supplanted by the legitimacy of a legal system that was abstract and impersonal—indeed, incapable of favoritism. Portales once remarked that if his own friends were found guilty of crimes against the state, “I would already be shedding tears over their tombs.”¹¹¹ This apparent commitment to a republic based in law has led some observers to compare him with Montesquieu.¹¹² Yet he also once fumed, along more Machiavellian lines, “Damn the law if it doesn’t allow the arm of government to proceed freely at an opportune moment.”¹¹³

These contradictory sentiments indicate tensions at the level of the state regarding how best to discipline its lower-class citizens and integrate its upper-class constituents. Paul Gootenberg has argued that the concurrent period of economic nationalism in Peru (1821–52) was “inherently conservative, statist, even reactionary.”¹¹⁴ The Portalian state in Chile was most certainly conservative and statist, but it was not reactionary: it toyed with, but ultimately did not seek, a return to previous patterns of social control. Thus the state attempted to foster mining by developing new models of labor control appropriate for an expanding market economy and wage labor system; it did not favor the reimposition of modified colonial forced-labor systems.¹¹⁵ These efforts spread beyond the mine workers. New legislation increasingly encroached on workers’ private lives and leisure activities; new taxes made lower-class social diversions too costly. Regulations specified where the clase humilde could celebrate during carnival season. The government even issued laws establishing proper attire for churchgoers, banning those in ponchos from the cathedral in Santiago.¹¹⁶

Relations between the state and its civil elites were also undergoing a sea change. While the early Portalian governments continued the colonial tradition of shaping their politics to meet the needs of the central valley’s frondaaristocrática, the “aristocracy” was becoming increasingly differentiated economically and geographically. The Conservative victory at Lircay consummated the political domination of central valley interests, but it also ushered in an unusual period in which the state was relatively autonomous from the economic elites.

The Constitution of 1833 gave the president and his ministers an extremely broad mandate to govern. It legitimated an antidemocratic presidential authority almost entirely free of any formal need to rely on the consent of other sectors. Unlike its neighbors, the post-1830 Chilean state could take an expanding series of actions without negotiating with civil society. Portales’ own antipathy to the Santiago aristocracy is well known. But the decision of a variety of governments between 1830 and 1860 to ignore some compelling calls to action by important sectors of the economic elite reflected more than the vestiges of Portales’ personal whims. It expressed the extent to which Portales and others located the legitimacy of the state in the “nonpartisan” matrix of the state elites, rather than in any one sector of the economic elites.

This does not mean, however, that the state chose to exercise all the power at its command, or that it even understood the power it had. This essay has argued that the Chilean state declined to organize a national banking system for a number of reasons, not the least of which was its belief that banks were a proposed solution to a problem that did not exist. Yet it is also possible to argue that while the state arrived at its position through quite “rational” means, the state elite still had no firm concept of the immense social influence inherent in the control of a financial system.

The credit system carries the power to regulate or direct the use to which money is put. Manipulation of the credit system can shift money between industries, regions, current and future uses, and production and consumption. Yet credit remains “fictitious capital,” representing production that has not yet occurred. Because of this, a permanent tension exists between all forms of credit (all financial instruments, for example) and real money (that is, the monetary backing of credit, be it gold, artworks, or notes). But who decides, in a crisis, what the most “real” form of money is? Will it be the state, banks, private producers, or foreign merchant houses? By allowing that decision to remain with the merchant houses, the early Portalian state indicated that it was not yet fully aware of the social power implicit in the control of the credit system.¹¹⁷ The state essentially remained in transition, exploring the various forms of control available, applying some, and ignoring others.

The 1850s became the great pivot on which the modern Chilean state swung. A decade of intraelite civil wars, worker revolts, and increasing upper-class fear of mass disorder would help reshape the state and redefine its relations with civil society. The strength of the Portalian state would persist into the second half of the nineteenth century, but by then civil society would more strongly mediate the state’s autonomy. That mediation would become evident in the rather dramatic steps taken to limit presidential powers in favor of a resurgent Congress; in the limitation of presidential terms to a single, five-year period; in the institution of parliamentary interpellation and the censure of presidential ministers; and in the broadening of suffrage to include an increasing number of men no longer limited by property or income qualifications. It would also show in the blossoming of a banking and finance system that would link mining to agricultural interests, cementing intraelite loyalties and providing the basis for upper-class control far into the twentieth century.

The author would like to thank his colleagues Gary Kornblith and Marcia Colish for their enlightened assistance on specific aspects of the research. He would also like to thank the anonymous referees for their constructive and timely comments and the staff of the HAHR for their editorial help.