For its part, the State Department viewed the FEA position with alarm, believing it threatened to “seriously jeopardize the economic and social stability of Bolivia.” According to Ambassador Thurston, although Patiño could continue to produce tin for Great Britain profitably at FEA prices, it was “likely” that all “Aramayo production would be suspended” and Hochschild would be forced to follow suit. In effect, “our principal current production sources of supply would be terminated” if FEA’s “untenable” proposal was implemented. There was little chance, if any, that Villarroel might roll back wage increases or taxes to allow the mines to remain profitable and even less chance that he might “relinquish his power to more conservative civilian groups.”45
Assistant Secretary Braden’s diplomats argued that the FEA should not even suggest “slashing wages or depriving the workmen of the benefits of recent social legislation.” Doing so would only “increase the rift between the Government and the miners and involve us in a very messy domestic situation.” Indeed, the most likely consequence of the FEA’s approach seemed to
be nationalization of the mines. If Aramayo and Hochschild ceased or even reduced their operations, Villarroel would be compelled to seize and reopen the mines, if only to ensure the flow of foreign exchange. It did not help that elements of the RADEPA and the MNR were already ideologically disposed to do so. Any or all of these steps would at best only “delay a return of sound, democratic government.” Instead, Undersecretary of State Will Clayton suggested his own price schedule, which would keep the tin price at 60¢ per pound for a year.46
Ambassador Andrade and the tin barons naturally found the FEA proposal unthinkable and Undersecretary Clayton’s alternative only marginally less so. Outraged by the FEA’s uncompromising stand, Andrade argued that the U.S. position was “unjust,” “unwise,” and based on unrealistic assumptions. It was unjust because it punished the Bolivian producers who had dramatically increased their production during the war to support the U.S. war effort and unwise because it would almost certainly force Villarroel to nationalize the mines to sustain the national economy. The ambassador had no illusions that the government could operate the mines for more than two years before tapping out the best veins; moreover, he knew that nationalization would scare off desperately needed foreign investment and eliminate any possibility of his nation receiving foreign loans for the foreseeable future. On the other hand, he saw little reason why the price of tin should be reduced at all before Asian production facilities were in Allied hands, and he doubted FEA claims that significant quantities of Malay Straits tin would be available within three years. It made little sense to assert, as the FEA did, that it was to the benefit of Bolivians to deny them a fair price for a year to prepare them for an even lower one the next. Indeed, if his country did not receive 70¢ per pound, “Bolivia [might] have to be written off as a casualty of war.” If, however, the United States would maintain the tin price for several years, Paz Estenssoro could realize his program and Bolivia would “emerge as a diversified and largely self-sufficient economy.”47
Although Mauricio Hochschild derided this “dream” of self-sufficiency, he agreed entirely with Ambassador Andrade that U.S. policies were “unfair
and unjust” and that the Bolivian government would “exhaust and ruin” any nationalized mines. Not surprisingly, he believed that the tin price should be “at least” 80¢ per pound and “very probably” $1.00. He also claimed that he and Carlos Aramayo were already “losing money” at the current price and “had not made any money” during the war because his labor costs had, thanks to the 1943 revolution, increased from eighty-five to five hundred dollars per ton. If the United States government would not pay him what he believed his tin was worth, it should at least pressure the Villarroel government to “cut out labor agitation” and “revise the tax system.” When told that this would violate Good Neighbor nonintervention pledges, Hochschild cited Braden’s campaign against Perón, claiming that “although [the United States] talked the doctrine of nonintervention, [it] did not follow it.” He was quick to point out, however, that this was “exactly the right thing” to do. Indeed, because the U.S. tin contracts explicitly stipulated that the Bolivian government not impose taxes or other charges that might impede production, he argued that the State Department was obligated to intervene on his behalf. Sidestepping his argument, the Truman administration countered that, because the Bolivian tin industry had been more productive under Villarroel than ever before, there was no basis for a U.S. protest.48
Ignoring Hochschild’s appeals, the State Department initially left negotiations to the Foreign Economic Administration. According to Ambassador Andrade, FEA representative Alan Bateman told the Bolivians that he had set up three chairs outside for those who “wished to dispute” his terms. He then assured them that “I will not occupy one of those chairs.” When Hochschild claimed that Bolivia could obtain a higher price in an open market, Bateman made three counterarguments. The third and most compelling was simply that the U.S. and British governments had no intention of easing their controls over tin purchases, so further discussion was pointless. The Bolivians still did not understand the lengths that the Truman administration was willing to go to guarantee tin imports to the United States and its stockpile. At the same time the FEA’s Bateman was browbeating Ambassador Andrade, State Department officers were using a proposed loan to quietly blackmail the Dutch government into giving the Reconstruction Finance Corporation a ten-year option to purchase East Indian production despite its negative impact on Dutch interests.49
Bateman did, however, take up and support Hochschild’s complaints regarding Villarroel’s tax and labor policies. Dismayed State Department officers were stunned by the FEA’s willingness to place “our Government, before the public both at home and abroad, in the position of protesting wage increases to Bolivia’s impoverished workers.” When Ambassador Andrade and the State Department lodged protests against Bateman’s “brusque” approach, Bateman had, according to Andrade, “disappeared suddenly from the Washington scene.” The FEA then reversed course and agreed on a schedule that would reduce the price of Bolivian tin concentrates to only 58½¢ per pound. Although the State Department was “very happy” with how the matter had been resolved and Andrade later boasted that his efforts had held the price steady against heavy odds, U.S. diplomats warned that Bolivia had nine months to prepare “to meet the situation whereby the best price she could hope to get for tin would be 52 cents.”50
The signing of the tin contract, however, was only the prelude to further developments. In January 1946, Foreign Minister Pinto, believing rumors that the British were paying the Malaysians 72¢ per pound, informed U.S. chargé Adam that he desired a revision of the contract. Adam responded, without consulting his superiors, that his government was hesitant to pay more because the profits from “increased prices would be frittered away in further salary increases and social benefits.” Though crassly put, this was a real concern in Washington and one that the State Department had shared for years. The Bolivian export taxes on tin were the highest in the world and further impeded tin firms already handicapped by unfavorable geography. Moreover, it fell hardest on small and medium-sized companies, which would have much preferred a tax on profits that would have targeted the Big Three. Because the tin contracts imposed a flat price on all producers in the nation, owners with particularly rich veins (like Patiño) could reap exceptional profits at prices that would bankrupt smaller or less efficient ones. Finally, the government’s reliance on the export tax permitted the agricultural elite to pay almost no taxes whatsoever because tin quite literally sustained the Bolivian economy.51
The solution was for the Bolivian government to join with U.S. officials and private experts in a “technical commission” to examine and rewrite the tax codes in a way that would more equitably distribute the tax burden, encourage tin production, and permit Bolivian tin to compete with Malay Straits tin in the long term. This, Undersecretary Clayton and Ambassador Andrade agreed, would result in replacing the production tax with one on profits that would, at the very least, shift the burden onto the shoulders of the tin barons and assist the small and medium producers.52 Although Hochschild also agreed, at least in the abstract, he and the tin barons were, in fact,