History doesn’t repeat itself but it often rhymes

Mark Twain allegedly

The Malthusian Trap is an idea from Thomas Malthus regarding population levels and food supply. He contends that populations will grow to in excess to what the food supply can support and the result will be starvation and population decline. History also shows that human populations will be in excess to food capacity. Couple that with inequality that persists in every society in every country ever. It can more or less explain why there are always people starving and suffering. He must’ve been great at parties.

As a result of the Agricultural Revolution and the Colombian Exchange humans seemed to have overcome the Malthusian constraints on population size. The potato which is native of South America provides someone with nearly all the nutrition needed for sustenance. It can also grow pretty much anywhere. Inventions and developments in agriculture processes increased crop yields with less labor inputs. But a critical problem started to manifest: how to replenish the soil’s nitrogen. Which was being depleted by increased farming. This put the food supply of industrialized nations in jeopardy and risked the return of the Malthusian trap.

You can’t have life without death. This is especially true in agriculture as decaying organic material provides the bacteria necessary to convert nitrogen into a form that plants can consume. Before the Agricultural revolution farmers would use crop waste or manure from farm animals. But increased agricultural production demanded more than these sources could meet. An alternative that would seem repulsive today was the use of ground up bones. In fact an industry developed during the Napoleonic Wars of using the bones of fallen soldiers and horses picked from the battlefield for food production.

Fortunately the Chincha Islands off of the coast of Peru had the answer: Guano or hardened bird poop.

The Chincha’s have the perfect conditions necessary for Guano production. Large numbers of seabirds congregate there. There are plenty of fish nearby to provide the birds with food. Finally and most importantly, they are located in the Humboldt Current which brings cold dry air from Antarctica so it rarely rains. Rainwater will cause the guano to lose its nitrate capacity and be useless as a fertilizer.

Peru like most former Spain colonies were plagued with corruption, political instability, and conflict. In addition, Peru took out large loans from London based financiers to fund their independence war (1820’s). However, Peru was unable to service the debt and went into a state of default from 1826 to 1849. This resulted in Peru having horrendous creditworthiness which increased the borrowing costs of future debt. The societal structure and physical infrastructure of the country was still that of a resource extraction colony. Reforming the Peruvian economy would have been a tremendous task since a majority of the population was illiterate subsistence farmers, any proceeds from mining went to service government debts (held outside of Peru), and an unstable political situation. To get an idea of of the lack of stability: During 1850-1875 there were 14 changes of government of which 10 resulted in civil war or violent uprisings.

The Chincha islands and their massive bird poop deposits were Peru’s golden ticket. The extraction of guano does not require significant capital expenditure but it was a labor intensive process. More on that later. Its use as a fertilizer was highly coveted by British and American farmers. The only problem was that ships would have to be moored offshore for long periods of time which immensely complicated the financing involved with these voyages (insurance, high costs, and advanced shipping technology). Since Peru at the beginning of the Guano boom had large outstanding debts in London and also lacked the financial infrastructure to handle the logistics. A mutually beneficial deal was brokered between the Peruvian Government(s) and financiers in London. While the British merchants got access to the valuable Guano the Peruvian Government(s) received dramatically increased revenues and much lower borrowing costs.

A part of the story that should not be overlooked is the conditions that the workers were under. Referring to these workers as de facto slaves would not be a stretch. They were a mix of Chinese indentured servants and native Peruvians that were coerced in some manner into working. They would have to work 13 hour days in the hot sun with the only water to drink coming from mainland Peru. When extracting the Guano it creates microscopic poop dust that is extremely damaging to the respiratory system. I guess you could say it’s a shitty job.

So you might be wondering what the Government(s) did with this huge windfall. Did they build schools, railroads, and other improvements to the country? Keep dreaming. What actually happened was most of the proceeds went to debt servicing and military spending for all the civil wars (So productive). By 1870, the Chincha Islands guano deposits were mostly exhausted. In addition, developments in fertilizer had more or less made Guano obsolete.  So Peruvian sovereign debt returned to pre-guano levels with higher yields and frequent insolvency.

Below are some charts for the finance nerds out there:

The Peruvian Guano boom provides some useful insights. First a country dependent on a single commodity must work to become independent of it.Secondly, Structural economic reforms are difficult and require more than large sums of money. Finally, despite what some may say military spending does not provide good ROI. But the real question is what is the “crap denominated” asset out in the world right now?

If you found this topic interesting and have any interest in Economic History. I highly recommend 1493. It is where I first heard this Story and is a tremendous collection of stories about the Colombian Exchange.

Also, here’s the paper that I got a lot of good info and the charts from:
Vizcarra, Catalina. “Guano, Credible Commitments, and Sovereign Debt Repayment in Nineteenth-Century Peru.” The Journal of Economic History, vol. 69, no. 2, 2009, pp. 358–387. JSTOR, http://www.jstor.org/stable/40263960.