By this time the dispute with the Argentine over the possession of the southern extremity of the continent had become acute, and public feeling in both countries had risen to a height perilous to the maintenance of peace. The only boundary treaty between Chile and Argentina—that of 1856—provided that the limits should be as they had been during colonial times, but these were not certain because throughout the Spanish occupation the territory now disputed had been uninhabited, and neither the viceroy of Buenos Aires nor the captains-general of Chile had concerned themselves about it. Since independence Chile had always claimed to the Andes on the east and to Cape Horn on the south, including the region about the Straits of Magellan over to the Atlantic side. As early as 1843 she had established a post at the eastern end of the straits, and Argentina at first did not seriously dispute her possession. In 1870 guano was discovered in the region, and when Chile promptly proceeded to treat it as her own the Argentine government protested. For ten years the two countries bickered, but with the Peruvian war impending Chile thought it wiser to make some concessions, and the dispute was finally settled by a treaty in 1881 by which the territory was divided, Chile getting the more valuable part with the control of both ends of the straits, although this great interoceanic waterway was declared neutral and no fortifications may be erected there.
CHAPTER V
CHILE'S GREATNESS AND THE CIVIL WAR
Since 1873 the low prices of Chile's chief exports, wheat and copper, had turned the balance of trade against her. The government could not make both ends meet, and in 1878 the banks were compelled to suspend specie payments. They resorted to the issue of more notes, backed by the government's guaranty. Just at this juncture the Bolivian government levied a heavy royalty on the nitrate extracted by the Chilean companies operating in Bolivian territory. This threatened ruin to the most promising enterprise in which Chilean citizens were engaged, and was believed to be a manifest violation of the terms of the treaty of 1866. The government determined not to stop short of war itself if necessary to defend Chilean interests, though war on Bolivia also meant war on her ally, Peru.
A meagre description of the stirring events of this contest will be found in that part of this volume devoted to Peru. Chile's overwhelming victory not only profoundly affected her international position, but also her internal condition. The preparations of the spring of 1879 plunged the government into expenditures which ordinary revenues were totally insufficient to meet. A new issue of paper money was resorted to, but the interest on the foreign debt was kept up. The first nine months of 1879 were an anxious time for Chileans. Pitted against two nations whose combined population was nearly double her own, her treasury empty, while that of Peru was supplied by the marvellous nitrate deposits of Tarapacá, the result appeared doubtful and the consequences of failure almost too horrible to face. When the Peruvians lost their iron-clad, Independencia, hope rose, but the ease with which the Huascar eluded the Chilean ships made the people again lose confidence in their navy, and the coast towns were terror-stricken. But the destruction of the dreaded iron-clad in the naval battle of the 9th of October changed in the twinkling of an eye fear into confidence, apprehension of national ruin into the joyful assurance that a Chilean army would soon be in possession of the Golconda of the Pacific. Within a month the Chilean forces were landed in the nitrate country, the Peruvians and Bolivians had been chased across the desert, and the Chilean collectors were receiving a million and a half a month from the royalties of the nitrate mines. A net sum nearly equal to the total revenue which Chile previously had been collecting from all sources was added to her income, and she was no longer driven to painful expedients in order to raise money to meet her military expenses. Although the issues of paper money were continued and prices consequently rose, business flourished and a period of abundance replaced the hard times which had reached a crisis in 1878. The government was able to abolish the odious tobacco monopoly, and the war rather lightened than increased the burdens of commerce. The centralised government of Chile proved an admirable instrument for times of war. The president and his ministry, backed by a compact congress, wielded the whole force and resources of the country like a weapon fitted to the hand, striking heavy and relentless blows until Peru lay prostrate.
After the complete destruction of the allied army by the Tacna campaign in March, 1880, the government, confident that a treaty of peace would soon be signed, delayed further aggressive operations for several months. But the Peruvians were obstinate and later in the year it was resolved to carry the war to the centre of the enemy's country. Lima fell on the 17th of January, 1881, and the glorious news was received while the liberals were contending over whom they should select as a candidate to succeed Pinto. There was much striving among the rival chiefs and one convention had already adjourned without coming to any agreement. Pinto ventured to interfere in a more decided way than any previous president had done and his influence was sufficiently powerful to induce the liberal party to unite on his personal choice, Santa Maria. The opposition tried to rally around the candidacy of General Baquedano, the greatest general of the war, but the prestige of the administration was too powerful.