page_title: Economic history of Chile
section_title: Saltpetre Republic (1873–1914)
hierarchical_section_title: Economic history of Chile / Liberalism / Saltpetre Republic (1873–1914)
caption_attribution_description: Español: Vendedor ambulante en Chile, inicios siglo XX.
context_page_description: The economy of Chile has shifted substantially over time from the heterogeneous economies of the diverse indigenous peoples to an early husbandry-oriented economy and finally to one of raw material export and a large service sector. Chile's recent economic history has been the focus of an extensive debate from which "neoliberalism" acquired its modern meaning.
  Chile emerged into independence as a rural economy on what was the periphery of the Spanish Empire. A period of relative free trade that began with independence in the 1810s brought a modernizing development of certain sectors of the Chilean economy. This was accompanied by formation of a local business class, a novelty in Chile. Chile experienced its first modern economic crisis with the Long depression in the 1870s. The exploitation of lucrative nitrate deposits of the north conquered in War of the Pacific marked a whole epoch in the history of Chile and the economic legacy of nitrate has been widely debated.
  In the first half of the 20th century Chile suffered severe economic recessions including the Great Depression.
context_section_description: Starting in 1873, Chile's economy deteriorated. Chilean wheat exports were outcompeted by production in Canada, Russia, and Argentina. Chilean copper was largely replaced in international markets by copper from the United States and Río Tinto in Spain. Chile's silver mining income also dropped. In the mid-1870s, Peru nationalized its nitrate industry, affecting both British and Chilean interests. Contemporaries considered the crisis the worst ever of independent Chile. Chilean newspaper El Ferrocarril predicted 1879 to be "a year of mass business liquidation". In 1878, then-President Aníbal Pinto expressed his concern through the following statement:
  If a new mining discovery or some novelty of that sort does not come to improve the actual situation, the crisis that has long been felt will worsen
  — Aníbal Pinto, president of Chile, 1878.
  It was during this context of economic crisis that Chile became involved the costly War of the Pacific (1879–1883) seizing control of mineral-rich provinces of Peru and Bolivia. The notion that Chile entered the war to obtain economical gains has been a topic of debate among historians. The crisis in has also been considered by Jorge Pinto Rodríguez a force behind the new pulse of conquest of indigenous lands that took place in Araucanía in the 1870s.
  When Chile found herself in command of the then still Peruvian province of Tarapacá during the War of the Pacific and being subjected to pressure from Peru's creditors, who threatened Chile's credit in Europe if their claims were not met, the Chilean government essentially had two options: to nationalize the industry for Chile (that is to pay the Peruvian debt certificates), or to recognize the holders of the Peruvian debt certificates (which John Thomas North hurried to purchase at knock-down prices) as the owner of the assets. On June 11, 1881 Chile issued a decree in favor of the second option and to enact an export tax upon the export of saltpeter. The Chilean war debts, the impossibility to assume the financial obligations of nitrate certificates and the will to deflate European opposition to the annexation were the reasons to the decree that was criticized in Chile after the war.
  As the victor and possessor of a new coastal territory following the War of the Pacific, Chile benefited by gaining a lucrative territory with significant mineral income. The national treasury grew by 900 percent between 1879 and 1902, due to taxes coming from the newly acquired lands. British involvement and control of the nitrate industry rose significantly, but from 1901 to 1921 Chilean ownership increased from 15% to 51%. The growth of Chilean economy sustained in its saltpetre monopoly meant, compared to the previous growth cycle (1832–1873), that the economy became less diversified and overly dependent on a single natural resource. In addition the Chilean nitrate, used worldwide as fertilizer, was sensitive to economic downturns as farmers made cuts on fertilizer use one of their earliest economic measures in the face of economic decline. It has been questioned on whether the nitrate wealth conquered in the War of the Pacific was a resource curse or not. During the Nitrate Epoch the government increased public spending but was however accused of squandering money.
  The 1870s saw of industries like sugar refineries, confectioneries and shoe and textile factories emerge. Since the 1880s some scholars argue that Chile was en route to becoming an industrialized nation before 1914, economist Ducoing claims no industrialization took place, but rather a modernization process.
  Starting in 1878, the Chilean state increased the issuing of new banknotes (fiat currency) causing the Chilean peso to devaluate. When the War of the Pacific began in 1879 the government issued more fiat currency in order to afford the costly war, and continued to do so in 1880 and 1881. In 1881 the country prepared for a return to the gold standard and to gradually eliminate fiat currency. However, during the Chilean Civil War in 1891 the government of José Manuel Balmaceda issued more fi
caption: Chilean hawker in the early 20th century.
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