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[First Page] [23], (1) Lines: 0 to 5 ——— 0.75452pt ——— Short Page PgEnds: TEX [23], (1) JerryW . Cooney 2. Economy and Manpower Paraguay at War, 1864–69 In the early morning of 1 March 1870 in remote northeastern Paraguay, a bullet in the back from a Brazilian army carbine ended the life of PresidentMarshal Francisco Solano López.After five bloody years of struggle,the most destructive international war ever fought in SouthAmerica was over. For four years the landlocked Republic of Paraguay, with its population of less than half a million, had fended off the military might of Brazil, Argentina, and Uruguay.1 The war placed great strains upon Paraguay’s internal economy, and yet the republic managed to resist a much more powerful coalition. How it accomplished that feat is a complex tale, involving the internal financing of the war, the countering of the allied economic blockade, a maximum mobilization of manpower,and overcoming the difficulties of the production and transportation of supplies to the fighting forces.2 Administration and Finance The mobilization of resources for war presented few administrative problems. Since independence in 1813,Paraguay had been a highly centralized state,and its leaders had created a crude but effective command economy. Subordinates in the countryside followed orders fromAsunción to direct needed labor and resources for national purposes.The people obeyed with little protest. Communications from the seat of government to rural officials were facilitated by the republic’s relative small size, for at least 50 percent its population and many of its resources lay within an eighty-mile semicircle around Asunción. Later during the war itself, López was absent from the capital much of the time—either at the military encampment and headquarters of Cerro León or near the southern fortress of Humaitá. His vice president,Domingo Francisco Sánchez, bore most of the administrative responsibility of the directed economy, particularly food production and supply of the troops. After hostilities began in October 1864, López determined that Paraguay needed greater financial reserves.3 A few months later the Paraguayan Congress authorized a 25,000,000 peso loan guaranteed by yerba and land revenues. At the same time, the president attempted to raise 200,000 pounds 24 Economy and Manpower [24], (2) Lines: 50 ——— 0.0pt PgV ——— Normal P PgEnds: T [24], (2) sterling on the money markets of BuenosAires. He found no takers for either enterprise as the turmoil occasioned by the war made potential lenders wary.4 Some historians have cited this abortive resort to international funding after the war began as evidence of the economic incompetence of the marshal. One might also interpret it as evidence that he had no firm plans for aggression until events came to a head with the seizure of the Brazilian steamer Marquês de Olinda in November 1864. The republic now had to depend solely on its internal financial reserves, which included property confiscated from the president’s political rivals and seized from enemy nationals. Paraguay turned to a paper emission of 2,900,000 pesos in March 1865, more than doubling the amount of paper pesos in circulation .5 That recourse had a precedent in the 1850s,when President Carlos Antonio López (the father of the wartime president) had taken the same action to expand the republic’s money supply,and even then paper had rapidly depreciated 20 percent against gold. But in the 1850s,taxes on yerba exports and land revenues had supported the paper currency. Argentina’s entrance into the war in April 1865 brought the economic isolation of Paraguay and the loss of export and import revenue to give any support to the expanded currency supply. In the same month, Solano López decreed that all government purchases would be paid solely in paper currency rather than the one-third in specie and two-thirds in paper as in the past.6 Even greater emission of paper ensued and, as a consequence, depreciation of the paper peso and inflation. In Asunción prices for basic commodities rose as much as 160 percent over the first nine months of the war as the government diverted foodstuffs, such as corn, manioc, and beans, to the large military encampment of Cerro León. The impressment of cart drivers into the army also contributed to food shortages in the capital, as did the confusion in the countryside when cultivators were called to service.7 So severe was this crisis that the government...

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