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  July 30th, 2012 | Written by

Commercial Warfare

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 The epic economic battle between early Americans Charles Flint and W.R. Grace raged across the late 1800s, severral industries and two hemispheres. So who won?

The breakup of a partnership often resembles a divorce in bitterness and acrimony. But usually the national government, its navy, spies and international intrigue are not involved. When Charles Flint broke with W.R. Grace, however, the battle raged over two hemispheres.

W.R. Grace, an Irishman with commercial houses in Peru and New York, took on Charles Flint as one-third partner in 1872. The young Flint was staked by his father, one of the United States’ larger shipbuilders and a substantial New York merchant. The new partnership’s main business was in Peru and Brazil. The company, which began as an international consignment agent, branched out; it became the exclusive agent for Peruvian guano (an important fertilizer made from cormorant dung) and nitrates (also used for fertilizer as well as gunpowder) in the U.S. market. It also wrangled concessions for coal mines and a railroad. In Brazil, the firm controlled a major share of rubber exports to the United States. The W.R. Grace trading house prospered: its capital swelled sevenfold within a decade.

But Grace’s fortunes began to sour when Peru, Bolivia, and Chile fought the War of the Pacific between 1878 and 1881. Although the commercial house benefited from the war itself, selling Peru armaments, munitions and ships, it suffered from Peru’s defeat. Chile now claimed the former Peruvian province of Tarapaca, where the guano and nitrate deposits lay. Despite the efforts of U.S. secretary of state James G. Blaine to convince the victorious Chileans to return the occupied territory or at least honor the concessions to American companies, Chile’s government refused. Throughout the decade of the 1880s, the Graces continued to plead their case and Chilean officials, angered that the Graces had armed the Peruvians, continued to deny them access.

In the middle of this, Grace and Flint split up. The divorce came when Grace and Flint decided in 1885 to form the New York Trading Co. to corner the raw rubber market. Flint and Grace disagreed over how the NYTC should be run. The Irishman was simply interested in a commercial corner on rubber while Flint, revealing the inclinations that would later make him the “Father of Trusts,” wanted to combine rubber manufacturers as well. Now “Charlie,” who W.R. had treated like a son, turned on Grace with a vengeance. He left the NYTC, joining his father and brother in Flint and Co., and began bringing together the largest rubber exporters to corner the market for himself. At the same time, he combined the rubber shoe, cloth and mechanical manufacturers to create U.S. Rubber in order to control the rubber industry. He also effectively seized control of the only American steamship line to run between the United States and Brazil—the United States and Brazil Mail Steamship Co.. The former Grace partner went so far as to use his political influence to have a Grace man replaced as U.S. consul in Belém and forced the only U.S. steamer line in Brazil to fire a Grace merchant as its agent. By the early 1890s, the Grace company had effectively withdrawn from the rubber trade, leaving it to Flint.

On the western side of South America, the battle between the two merchants raged even more fierce. The Graces, tired of being in the bad graces of Chile’s nationalist president Balmaceda, saw opportunity knock when the Chilean congress and navy revolted early in 1891. Hoping to ingratiate themselves, the company financed and supplied the rebels’ arms purchases.

At this point, Flint reentered the picture. Unlike the Grace brothers, who had long been closely associated with Peru—and were therefore unpopular in Chile—Flint had won important friends in Balmaceda’s country ever since he first visited it in the early 1870s. Indeed, he was Chile’s consul in New York for three years in the end of the 1870s. He continued his extraordinary relationship probably because he was one of the United States’ most active representatives at the first Pan American Conference in Washington, D.C., in 1889. By the time of the congressional revolt, Flint was Chilean consul general. Even more extraordinary, Flint, not the Chilean minister, had a power of attorney from Balmaceda to act in his behalf.

This he quickly used when his uncle tipped him off about Grace’s actions. Sending detectives on Grace’s trail, Flint soon discovered that weapons were being shipped to the insurgents. He notified the Chilean minister, who asked the secretary of state—once again James Blaine—to prevent the shipment on the grounds of the laws of neutrality. (At the same time, Flint was sending torpedoes to Balmaceda’s forces.)

But Blaine at first found no grounds for official action. Flint then suggested that Balmaceda hire John W. Foster (grandfather of John Foster Dulles and Allen Dulles) to represent him. Foster, a wealthy international lawyer and part-time diplomat, was a good friend of Blaine’s.

Another meeting was held, this time with Flint, Foster, the Chilean minister, and Blaine. Suddenly, Blaine—who was also friendly with Flint and had been the beneficiary of generous campaign funds from the U.S. and Brazil Mail S.S. Co.—recognized that the Grace arms shipment to the rebels was a violation of neutrality. He ordered a naval ship to intercept the cargo. Flint was fortunate that the Republicans were in office, since Grace, two-time Democratic mayor of New York, was intimate with Grover Cleveland, who as president certainly would have sided with the Irishman.

Receiving the Republican order, the ship took chase of the cargo now loaded on a Chilean ship, the Itata, safely out in international waters. The American naval vessel arrived in Iquique, Chile, the day before the Itata. The rebels, afraid of bringing the United States fully into the war since Blaine had earlier displayed hostility toward Chile, surrendered the weapons. By the time an American court ruled in favor of the Chileans, the fighting had ended. Luckily for the Graces, the congressional forces had overwhelmed Balmaceda even without the weapons aboard the Itata. So even though Flint won this battle too, the Graces won the war.

Flint withdrew from the west coast of South America. Today, as one walks down New York’s 42nd street, one comes across the graceful, towering Grace building. Charles Flint has slipped into anonymity.

Steven Topik is a professor of history at the University of California, Irvine. With Kenneth Pomeranz, he is the author of The World that Trade Created: Society, Culture and the World Economy, 1400 to the present (M.E. Sharpe).

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