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Villa and the American mining companies

In March 1914 various mine operators arranged with the Chihuahuan State Treasurer, Sebastian Vargas, hijo, through instructions from General Francisco Villa, to purchase Constitutionalist money with drafts made by their superintendents for American gold. The drafts were made payable to bearer, and delivered to Vargas, who gave out the Constitutionalist money at a rate of three pesos for each American dollar. With this money they paid rail freights, and purchased all the supplies within the territory controlled by Villa, and also paid their pay rolls (the average daily wage for a miner was about two pesos). At the time Constitutionalist money was being sold as low as five pesos for one American dollar but the mining companies were buying directly from Villa SD papers, 812.5157/51 letter Price McKinney, Corrigan, Mckinney & Co., Cleveland, Ohio to W. J. Bryan, Secretary of State, Washington, D. C., 4 April 1914. The mining companies were obliged to operate under penalty of having their taxes doubled and of having their mines taken from them and operated by the local authorities SD papers, 812.5157/111 letter Francis D. Winehart, President, to Robert Lansing, Secretary of State, Washington, 7 December 1915. The U.S. consul in Chihuahua, Marion Letcher, reported that only one company, the Alvarado Mining and Milling Company, of Parral, resisted the payment of this artificial rate of exchange and continued to buy its local currency in the open market. No direct action was taken against them as a consequence of their refusal to comply with the Government’s decree, but indirectly they were very much persecuted, on one occasion all the principal employees of the company having been arrested on the charge of passing counterfeit money (SD papers, 812.5157/68 report Marion Letcher, consul, Chihuahua to Secretary of State, 10 March 1915). However, Letcher was opposed to the revolutionaries, and the Alvarado certainly did buy counterfeit currency so the government’s action was justified.

The U.S. consul in Chihuahua, Marion Letcher, reported that when mine operators were required to buy their local money at the state treasury, these purchases were paid for either in New York or El Paso gold drafts. “It is now shown that only about ten per centum of the aggregate amount paid by the mining companies reached the government, the great bulk of it, as shown by endorsements or the returned drafts, having gone to the private bank accounts of the wives and daughters of officials, these being, in the main, the secretary of state, the state treasurer, and the chief of arms. It is even further shown in the same way that drafts of considerable amount were endorsed to keepers of brothels and prostitutes. Lately, about February 26, presumably to obviate the danger of disclosures of this kind being made, a rule was adopted by which all American operators must pay taxes, duties, etc. in actual cash in U.S. currency. It might be noted further, that all the officials indicated were poor men preceding the present era, but now are living in a luxurious and sumptuous scale requiring the expenditure of considerable sums."SD papers, 812.5157/68 report Marion Letcher, consul, Chihuahua to Secretary of State, 10 March 1915.

In early 1915 representatives of the Mine and Smelter Operators Association in Mexico had many meetings with Francisco Escudero, the Secretario de Fomento in Villa’s cabinet, with the view of securing modification in the rate of export taxes which the Secretario proposed to levy upon the mining industry. As a result of these meetings they finally entered into a contract with Escudero, representing the de facto Federal Government, and Fidel Avila, Military Governor of Chihuahua. As a result of this contract, and based upon its terms, Villa, in Monterrey, on 19 March issued a decree on export tax, laying out the rates for various forms of ore, to be paid, in Mexican gold or its equivalent in American gold, at the rate of two for one.

On the same day Escudero issued a decree drastically modifying the law under which titles to mining properties were held in Mexico. Upon receipt of the decree, on 26 March, the Mine and Smelter Operators called upon Escudero at Chihuahua, discussed the terms with him very fully and the next day sent him a letter stating that it was impossible to comply with the decree and suggesting its repeal. A committee of the Mine and Smelter Operators Association then called a meeting at El Paso on 1 April where they argued that the decree would lead to the forfeiture of most of the mineral titles heldForfeiture could be occasioned by
(1) Non-payment of taxes within the prescribed period.
(2) Voluntary suspension of working of mine for 60 days or more, excepting because of fortuitous circumstances individually approved by the Secretary of Fomento as being of sufficient weight to justify the non-operation of the property.
(3) Abandonment of work.
(4) Deficient exploitation (to be determined by the Secretary of Fomento).
(5) Failure to maintain prescribed work in each five-hectare section (regardless of the practicability of such work or the irregular occurrence of the mineral deposits).
The operators wrote: "As a result of the conditions in Mexico during the last few years, the U.S. government had advised foreigners to leave the country until such time as conditions should render it safe for them to return to their respective business occupations. As a result, at least 85% of the foreign-owned mining properties in the Republic of Mexico had been closed down and their owners have returned either to the United States or to Europe, feeling that their investments were safe so long as they continued to pay the tax upon their properties as fixed by law. American citizens, after losing in many instances large amounts of personal property as a consequence of the internal disorder, but nevertheless having paid at considerable cost and sacrifice the taxes imposed by one, and in some cases by two, of the Mexican factions claiming to be de facto governments, were now threatened with the loss of their properties if they did not expend further sums, regardless of profit, in the development and operation of the properties which they held, irrespective of whether such expenditure was worthwhile or technically feasible.
. They also sent a telegram to the Secretary of State and on April 7 the latter telegraphed Carothers urgently to protest against the application of the decree’s provisions to the property of Americans and other foreigners. On 16 April Carothers, from Irapuato, .

On 20 April the Mine Operators discussed the matter with Llorente, who in the course of his conversations, stated that he had been advised by Villa that this decree would not be enforced at the present time, but that it would be enforced when conditions had improved in Mexico and transportation facilities were such as would, in the judgment of the Minister of Finance, permit the operation of the properties. Llorente stated that it was not the intention of his government to make the law retroactive insofar as it referred to the amount of property that could be held under the decree, but in all other respects, and particularly as to the conditions and sufficient operation, it would apply to every property within the Republic.

The Mine Operators argued the American government had to insist upon the repeal of the measure in its entirety, as they believe that the enforcement of the decree, even in a modified form, would result in an effort to confiscate foreign-owned property in Mexico, with serious international complicationsSD papers, 812.63/148 report Mine and Smelter Operators et al. to Special Agent Canova, Washington 21 April 1915. The American and English governments complained against the confiscatory nature of the decree, but nothing was done except the following explanation credited to Manuel Bonilla and made by authority of the Secretario of Fomento, Francisco EscuderoSD papers, 812.63/99 Homer C. Coen, American vice-consul, Durango, to Secretary of State, 15 May 1915:
“I have been authorized by the Minister of Fomento to make a statement to the press for the purpose of dispelling the incorrect impressions which seem to exist in the minds of the people of the United States, as well as those of other foreign countries, in regard to the reforms decreed by General Villa's Secretary of Fomento, Licenciado Escudero. My ideas are in conformity with those of Mr. Escudero and make this statement in pursuance of a conversation had with the Secretary regarding these laws.
“The principal objection which most of the American periodicals and the people interested in properties in Mexico seem to have, and which upon its face appears to have some foundation, is the fact that on account of changed circumstances, such as the state of war and military operations existing in Mexico, it will be impossible or impracticable for some miners to work their properties for some time. There is, however, no foundation for any fear in this respect, because there is a clause or article in the new law which provides that any owner who for some just or plausible reason is not able to work the property owned by him in accordance with the requirements of said decree, may apply to the Government with a full exposition of his case, and his reasons for not working his claim or mine; and in the event the reasons stated are reasonable from a business, economic or other standpoint, he will be afforded an extension or some concession, so that his rights shall be protected and in no way injured. It has been the policy of the Government and the Department of Fomento, and it will in future be their policy, to grant such privileges and extensions, and no bona fide application based upon fact will be refused, and no interest which in justice should be protected will in any way be injured.
“The miner with means to work his property or a desire to work the same in a bona fide manner need have no fear that he will be unjustly deprived of his rights. However, the person who dreams about holding a property to the exclusion of others until someone with money comes along and pays him a royalty for that which he has not earned or developed, and the person who holds large tracts of pertenencias as a land owner, holds big tracts of farming land unused without developing the natural resource of the country, certainly would receive no encouragement of their dreams. Let the mines be exploited by actual work; and if you claim that some harm is done you because the law sets at naught the realization of dreams of becoming rich by exploitation of others and without work, think of the claim of these people whom you are depriving of their right to work and who are debarred from the inalienable right to live by the avaricious monopolies of land and wealth.
"The ancient mining law of Mexico provided that in order for one to keep his rights to a certain mine, the owner should not only file his claim as discoverer of a new ledge, or as willing to work some abandoned property, but he was also required to start and maintain actual work in the mine. The Government has eminent domain on each and every portion of its territory, and is sovereign to fix such conditions precedent or subsequent for granting the right to work or own a ledge as it may deem meet and proper.
“Later on, under General Diaz's Government, his Minister of Finance, Mr. Limantour, changed the system, and the new mining law came into existence, providing that in order to maintain the right or property in any extension of mineral ground it was not necessary to work the fundo minero, and the only condition was the payment of six pesos a year for each “hectare constituting the ground.
"Since the Diaz Government seemed to have had the undisputed right to change and amend the mining laws, why should the right be disputed of the present Mexican Government to change or amend its laws by what amounts to a repeal of the Limantour amendment, and thus place the law in the status which from the standpoint of political economy was to the best interests of the people? The Limantour amendment or change in no way benefits either the Government or the country, and any speculator could, under that law, hold a promising ledge in his grasp indefinitely, provided he has the money to pay six pesos for each two and a half acres contained in his grant.
"The man next to him who starts work and carries the same on in a bona fide way, pays salaries to the employees and increases the wealth of the country and the circulation of money is handicapped by the provision of the Limantour amendment, and he bears a larger burden economically than the man who merely pays the annual tax The man who works his property provides for the payment of duties on exportation and other taxes derived from the production of ore and bullionEl Paso Morning Times, 15 April 1915".

On 8 April Escudero sent a circular to mining tax collectors that the annual tax upon mining claims should be made, commencing 15 April, in Mexican gold or in its equivalent in American gold, at 2 for 1, that is to say, the rate of exchange that existed before the Constitutionalist RevolutionSD papers, 812.63/99 Homer C. Coen, American vice-consul, Durango, to Secretary of State, 15 May 1915.

It was reported that on 14 April General Tomas Urbina, in Auza, San Luis Potosí, issued a decree requiring the payment of all employees of Durango mining properties in Mexican silver or its equivalent in American gold, instead of the usual Villa currency. The penalty for failure to comply was confiscation of the mining property by the state government. Some mine owners said they had been notified by Urbina's officers that if they did not comply, they would be executedEl Paso Morning Times, 5 May 1915. In fact Urbina’s decree stated that the issue of notes or tickets (bonos or boletas) by foreign residents was strictly prohibited, and required the employees of foreign residents be paid in Mexican silver coin (plata sellada Mexicana) or American gold. The local military commander informed the American-owned Guanacevi Mining Company, in Guanacevi, Durango, that, on penalty of severe punishment of owners and confiscation of mines, all foreign mine owners must pay their employees in Mexican gold and silver coin or American gold, with no paper money being allowed to circulate. The State Department instructed Carothers to investigate and to point out to Villa that Mexican gold and silver were not now circulating and that it would be practically impossible to import American gold or silver to many mines because of unsettled conditions and resultant certainty of robbery and perhaps murder of messengers carrying money. Carothers was to urge Villa to withdraw or amend his orderSD papers, W. J. Bryan to Carothers, 17 May 1915. Carothers replied that he would take up the matter of final adjustment but had an assurance that there will be no enforcement especially against foreignersSD papers, 812.63/96 telegram Carothers, Gómez Palacio, 19 May 1915.

On 4 May Villa, at Aguascalientes, ordered firstly, that “the wages or salaries which the mining companies or individuals working mines have agreed to pay their workmen in that part of the Republic controlled by the Army under my command shall be considered to be upon a basis of silver or gold of the national coinage, or its equivalent in American money of silver or gold at the rate of two for one, the minimum daily wage to be one peso of Mexican silver or gold or its equivalent as stated above”, and secondly, that “the payment of the salaries or wages shall be made in coin or in paper money of forced circulation at the rate agreed upon between the parties, and in case of disagreement the rate of exchange on that day shall be used”.

The American vice-consul in Durango argued that the payment of taxes in Mexican gold and the payment of wages of employees in Mexican silver or gold were manifestly impossible, for such money was not in circulation and could not be bought in sufficient quantities in the country. “One possible motive for the decrees may have been that it was hoped that foreign interests could be forced to bring in outside capital and spend it within the country in order to save their property from confiscation, thus materially aiding the de facto government, which is moving heaven and earth to obtain gold with which to buy war supplies from the United States. This theory was tenable until the promulgation of the last decree requiring all mines to pay wages in silver or gold, or its equivalent in paper money of forced circulation. When this last decree of May 4, 1915 was issued, the motive for the entire series at once became evident, and the conviction clearly confirmed, that the intention and motive was confiscation by seeming legal requirements but which in reality are absolutely physically impossible to comply with."SD papers, 812.63/99 Homer C. Coen, American vice-consul, Durango, to Secretary of State, 15 May 1915.

When Villa ordered that mine labourers had to be paid in silver, the big foreign mining companies promptly sent men to the border and began bidding for pesos. The price had been around 36 cents, or approximately the value of the actual silver contained in the coin, but the heavy demand soon pushed up the price, so by June it had reached as high as 45 cents. Even at this greatly increased price the large buyers soon found that the demand could not be filled: the small supplies in New York became exhausted, and for the first time in years Mexican pesos were repatriated from China.

This sudden rise in the silver peso caused a rapid increase in the value of Mexican bank notes and the state issues, as they were redeemable at any time in silver. Currency dealers on the border declared that if suit was brought against the state banks by holders of their paper currency they could be forced to redeem them, provided always that they still had any assets left with which to pay. Believing that a settlement was not far distant, the officials of many of the state banks in Mexico shrewdly purchased their own money. Another factor, that tended to keep up the price of both Carranza money and state bank notes, was the fact that the latter were allowed to circulate in Carranza territory and many merchants, especially in Veracruz, were turning their Carranza money into this money. For months such 'federal money' found in Villa territory had been subject to immediate confiscationEl Paso Herald, 10 June 1915.

In May 1915 it was reported that a movement has been started in northern Mexico to require the payment of wages in mines, mills and smelting works in silver instead of paper money. A conference of mining and metallurgical interests, which was attended by representatives of Villa, took place in New York on May 11 to consider the questionThe Engineering and Mining Journal, Vol. 99, No. 20, 15 May 1915. Two days earlier Lazaro de la Garza had told Villa that a decree requiring the companies to pay their workers in U.S. gold or silver would completely destroy the value of their paper currency and encourage the troops to abandon them LG papers, 1-K-41: telegram de la Garza, New York, to Villa, Cuartel General. 9 May 1915

De la Garza wrote, on 7 June, that to halt the depreciation of their currency they should first insist that the mining companies etc. pay their workers with their paper, at a fixed rate of 5c or 10c oro. As the companies could buy the paper currency in the market at 2c or 3c, this would cause a demand and increase its value. If companies continued to pay, as agreed, with cheques, goods or gold, the price would collapse completely. Moreover, paying the workers in coin could cause the troops to desert as their own paper wages would have no value. Certain import and export taxes should be paid in gold but for other transactions it was necessary to continue the forced circulation of paper moneyLG papers, 1-J-15 letter from L. de la Garza, El Paso (?), to Villa, Cuartel General, 7 June 1915. On 17 June Villa wrote to Escudero that the latter’s disposition on paying miners in silver or gold was excellent and very judicious but in actual fact prejudicial since, although it benefitted the workers, it threatened the Convention government. He suggested Escudero should agree with the mining companies that they pay the gold or silver rate, but in paper currency at a fixed rate of exchange, which they could buy from the governmentLG papers, 1-J-18, letter Villa, Aguascalientes, to Francisco Escudero, Chihuahua, 17 June 1915.

On 1 July 1915 Villa decreed that his money should have a fixed value of thirty cents American money for one peso in the territory under his control, though the actual purchasing value of the peso had dropped to three cents. Imprisonment or heavy fines or both penalties were fixed by the decree for refusal to accept the money at this value.

In July several hundred smelter employes in Torreón went on strike, demanding their wages be paid in silver instead of Villista paper Albuquerque Journal, 3 July 1915.

On 5 August the Cuartel General of the Brigada M. Chao, of the División del Norte, in Parral, told the various local mining companies that in future they should pay their employees in silver, in accordance with the express instructions of the Ministerio de HaciendaAMP, Gobierno, Jefatura Política y Presidencia Municipal, Correspondencia, caja 71, exp. 3.

On 9 August Villa issued a decree that anyone introducing or reintroducing his paper money into the area under his control had to pay a tax of 20 centavos silver or 10 centavos gold on every peso. This was to stop counterfeiting and speculation but would have put an end to any legitimate introductionsPrensa, 12 August 1915.

On 15 August Francisco Escudero and General Villa had a series of meetings with representatives of mining corporations in Ciudad Juárez, where they proposed that the mining companies should use Villista paper currency to meet their payrolls instead of silver. Escudero reported that the original decree causing the mining companies to pay mine workers in metallic currency was issued with the soundest intention but had unfortunately caused an economic upheaval among working people, especially railway workers, who protested that the miners were receiving a special privilege. Therefore the government had resorted to two measures, firstly, fixing an official rate for paper currency at 60 centavos silver, or 30 cents American gold and secondly, putting a rate of 20 cents silver or national gold, or 10 cents American gold, on the reimportation of each peso paper currency that might be exported and then reimported, or might at that date be outside of the zone controlled by the convention government, and now suggested a third measure, namely:
(1) All mining companies or owners of mines would in future pay workmen and employees in paper of a forced circulation:
(2) They would buy this currency from the treasury at the official price of 60 centavos silver or 30 centavos gold:
(3) They would pay the value of the currency in all silver coin of national currency or American gold or American metallic currency or silver bars or first class ores according to the market price of same:
(4) Payment of mining taxes would continue to be made in silver or gold in order the government could use this money to purchase articles in foreign countries.”
Escudero pointed out that unless a powerful effort was made the mining companies would be compelled to suspend operations because the military necessity of the government would be limited to a few trains, insufficient for the transportation of freight. The mining companies were expected to give their response the next dayAlbuquerque Journal, 15 August 1915.

When the value of the paper money dropped further and the Villa government raised the taxes and duties and made these payable in gold, the result was that the Villista notes became useless as a mode of exchange. The Batopilas Mining Company, to avoid riot and destruction, was obliged to redeem the dos caritas which it had paid to its workmen with metallic silver, silver coin and merchandise. The result was a large accumulation of notesat the time $101,156.85 which it could neither use nor get redeemed. In December 1915 the Batopilas Mining Company wrote to the State Department suggesting that as the area was now under Carrancista control the State Department should suggest to the Mexican government that these notes should be redeemed or exchanged for currency which was accepted by the government and acceptable to the public SD papers, 812.5157/111 letter Francis D. Winehart, President, to Robert Lansing, Secretary of State, Washington, 7 December 1915. The State Department passed the matter on to its representative in Mexico City, Charles B. Parker SD papers, 812.5157/111 letter Alvey A. Adee, Second Assistant Secretary to Batopilas Mining Company, 50, Broad Street, New York 17 December 1915.