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Spaniards came to the New World for God, Glory, and Gold.
They settled where they found precious metals, principally gold and silver, and
large numbers of sedentary Indians accustomed to working under direction. They
held other places which were necessary for these ends. Panama was one of these.
In theory, all trade was closely regulated to make sure that it benefited Spain. Goods from Europe went to Sevilla or Cadiz and then across the Atlantic to Veracruz for goods bound for New Spain (Mexico) or the Isthmus of Panama for goods bound for Lima, Peru and South America. Smaller amounts went to Cartagena for the coast and hinterland of New Granada. They carried silver and gold from Mexico and Peru, which all Europeans wanted. So the ships going back to Europe had to face pirates, buccaneers, and enemy warships. European wars were also fought in the New World, disrupting the Spanish trading system. Spain would grant temporary trading rights to its ally, France. Both the British navy and individual Brits raided on both sides of the isthmus.
The most important defensive measure for the history of the Isthmus of Panama was the fleet system. Fleets started in the 1520s but regularized by the mid-1550s. Two fleets a year—one to New Spain called the Plate Fleet, the other to Tierra Firme, Cartagena, and Panama, called Galleons. Returned the next year, meeting, going to Havana, and then to Europe. Some fleets contained 60 vessels but most had fewer. After 1574, Nombre de Dios, founded by Diego de Nicuesa in 1510, a Spanish explorer, hosted a fería or fair for goods bound for the Viceroyalty de la Plata and Buenos Aires; in 1597 it was moved to Portobelo With the final destruction of Nombre de Dios by Francis Drake. The galleons would go first to Cartagena, unload some goods for its fair, and await news that that the fleet from Peru had reached the Pacific side of the isthmus. Then the fleet of ships would go to Portobelo. Sometimes 4,000-5,000 people came. Similarly, Panama City virtually emptied to attend the fair. Prices for goods and services skyrocketed. Merchants rented places to swell their wares. Even sailors sold goods they had acquired. Inevitably, whores sold their wares as well. The Crown had a large customs house and a fort, San Jerónimo, for protection.
Silver bullion from Peru was used to pay for the goods. Much of the bullion was also just being shipped to Spain. The last fleet went to Portobelo in 1741 and Panama lost much of its function and fell into the doldrums.
While it lasted, the fleet system was successful. Spain only lost two fleet to humans, one to Sir Francis Drake in 1572 when he raided Nombre de Dios. In 1573, he crossed the isthmus and sacked Panama and took its silver. The other to the Dutch in 1628. Weather was a more serious threat because storms could dismember or destroy a fleet. Although the bulk of treasure was transported in a fleet, there were individual ships and they were more vulnerable to buccaneers, foreign navies, and pirates who would not only raid ships at sea but shore settlements as well. The principal opponent of Spain after the 1570s was Drake, the Dragon; he was well known and feared. Spanish-speaking mothers used the threaten their children when they misbehaved by saying Drake, "El Draque" (the Dragon) would get them if they didn't behave! In 1578-79, he raided the Spanish Main and then sailed to the Philippines.
Spaniards and others engaged in contraband trade. The system was porous and men had amply incentive to cheat. Although the Crown tried to enforce its laws, the Caribbean was too vast and government officials too few. One clever means of avoiding the trade laws was to exploit the maritime law that refuge be given to a ship in distress, even the ship of an opponent or enemy. If a ship encountered a severe storm or was otherwise in danger of sinking, it had the right to pull into any port. While there, it could buy supplies to enable it to proceed on its original course but not engage in trade. Life on the high seas was chancy, so this practice was followed by maritime nations. In the records, there are instances when a ship or ships sailed into port claiming to be in distress. The weather was fine, however, judging from other contemporary documents. The officials and the mariners were in cahoots to do illegal trading. The two parties to the trade would pass goods or money, as the case might be, over the city wall. Government officials also engaged in trade and took bribes. When all parties had finished and whatever "repairs" had been done, the weather suddenly "cleared."
From 1524 until the mid-19th century, people realized that a canal across the isthmus would help. Emperor Charles V, who ruled Spain, considered it in 1524. The Spanish considered it again in 1534. The idea did not die but Spain did not have the capability of doing it.
Goods were transported across the isthmus by human porters and mules. The Spanish eventually completed a seven-foot wide road known as the Camino Real (Royal Road) across the isthmus of Panama. It went from the Caribbean port (Nombre de Dios and then Portobelo) a few miles by sea to the Chagres River, then by barge fifty miles on the river to Cruces. There were warehouses and mule pens at Cruces. Then by mule to the Pacific. Panama's population was about 2,000 Europeans and thousands of blacks and mulattoes.
The railroad changed Panama as well as the rest of the world. Steam-driven machines could go faster and carry more than animal- or wind-powered machines. Railroads increased trade because more people were inter-connected and could ship goods more easily and more cheaply than ever before. In the United States, If one were going from Cincinnati on the Ohio River to New York City in 1815 by keelboat and wagon, the trip would take over fifty days. By 1850, however, the same trip could be made by railroad in six to eight days. Similar gains were made in the cost of shipping. Whereas the cost of a ton-mile in 1815 was 70 cents, in the 1850s it had dropped to between 2 and 9 cents if shipping by railroad and one cent if shipping by canal. It was obvious that money could be made if faster, easier transit across the isthmus could be found.
Before long, industrialized nations began investigating the possibility of building a railroad across the Isthmus of Panama. Great Britain, investigated the possibility of building a railroad or a canal in the 1840s, but the project was abandoned. France obtained a railroad grant from the government of New Granada in 1848, but realizing that the cost and the engineering requirements were too much, defaulted on the contracts in 1849. Under the 1848 free transit treaty with New Granada (Colombia), the United States intervened in Panama nine times at the request of Colombia. The impetus for United States citizens to build a railroad came from an unanticipated event.
The discovery of gold in California in 1849 and the rush of people to California created the necessity of finding a better way to move people, supplies, and mails from the eastern United States to California. The Isthmus of Panama assumed new importance. The population of California grew saw fast that, by 1850, it was petitioning Congress to become a state. Congress had to devise a way to get mail to and from California, so it authorized contracts for the establishment of two mail steamship lines, one from New York to Chagres, and the other from Oregon and California to Panama. William H. Aspinwall secured the line on the Pacific side and George Law the line on the Caribbean side. The ships in the Pacific helped to relieve the congestion on that side, but it was more than offset by the number of new arrivals at San Lorenzo, for of course in addition to mail, the ships carried passengers.
The tremendous bottleneck, both for mail and for people was that ghastly fifty-mile hike through the jungle. A railroad was the obvious answer. After a commission had surveyed the isthmus and pronounced a railroad feasible, Aspinwall immediately returned to New York and conjointly with his partners, John L. Stephens and Henry M. Chauncey, incorporated under the name of Panama Railroad Company and a formal contract was entered into on April 15, 1850, with the Government of New Granada (Colombia) for the exclusive privilege of establishing "an iron Railroad between the two oceans across the Isthmus of Panama." The company was had to build the road within six years and would have the right to operating the road for a period of forty-nine years from the date of completion.
In May,1850, the Panama Railroad Company began work at the Island of Manzanillo, renamed Aspinwall and eventually Colón because the Portobelo-Panama City route, the old Spanish route, had been bought cheaply by George Law, who wanted to sell it to the railroad at a high price. So the company decided on a route that turned out to be much more difficult. Swamps, jungles, and mountains stood in the way. Right of ways across swamps had to be filled. Rainfall could be torrential. The Chagres River could rise 47 feet. Accidents were common. Disease, such as yellow fever and malaria, sidelined or killed thousands. In 1852, Cholera swept from a New Orleans steamship docked at Colon across the isthmus. Of 50 US technicians working, 48 died. When the US 4th Infantry and dependents crossed, 150 died. As its commander US Grant said "The horrors of the road in the rainy season are beyond description. " Then there were snakes and poisonous insects. Men could work only one week out of three.
We don't know how many died. Perhaps 6,000 died; that's a conservative estimate. Maybe 12,000 did. The company only kept track of whites. In 1853, over 75% were black. Food and materials had to be shipped thousands of miles. There were not enough natives near enough so labor was imported from the United States, England, Ireland (called navies), the Germanies, China (who were brutally treated), and the West Indies, particularly Jamaica. So many died for whom the authorities only knew their first names and had no way to identify relatives, that their bodies were pickled in barrels and sold to medical schools. It was the heroic labor of West Indian blacks that got the railroad and, eventually, the canal built.
The Panama Railroad Company ran out of money after laying only seven miles of track. It appeared that all was lost but sheer luck saved the road. The Panama Railroad was rescued financially by a 1,000 men who came on the paddle-wheel steamers, the Georgia and the Philadelphia, trying to reach the gold fields of California and, to do so, paid exorbitant prices to ride those 7 miles to walk along the right of way. They charged $25.00 to ride seven miles and $10 to walk the right of way. In the 1850s, one could go from the Atlantic Coast of the United States to Chicago or St Louis in two days for $20. If US railroads had been charging Panama Railroad rates, such a trip would have cost $3,500! The average working man only earned about $450 in 1900 and probably only $200 in 1850. Forty-niners continued to come because the alternatives were worse. The railroad was the only safe way to cross Panama. Instead of traveling 2,000 miles overland in the United States for 4-6 months with a high unlikely odds of making it (only 10% did), or sailing around Cape Horn in South America, for 2 to 4 months, a distance of over 13,600 miles, or sailing to Chagres in Panama (which took 2 weeks), cross overland (1 week), Sail from Panama City to San Francisco (2 weeks), which took a little over 1 month, a total distance of a little over 5,200 miles. Having a monopoly, the railroad never lowered its fares. It made a fortune not only from passengers but also from freight.
With such a healthy income stream, the road was completed. By March, 1852, regular passenger train service was running 16 miles from Aspinwall (Colón). By July, the lines had been laid to the town of Barbacoas, 23 miles from Colón. The railroad was also being built from Panama City, a distance of ten miles. Its 4775 miles and 304 bridges were completed in 1855 at the cost of $7,407,535.00. With the Panama Railroad, one could cross the Isthmus in four hours.
Its position on the isthmus was unassailable. Colombia was unable to govern Panama which it could only reach by sea. So it gave the railroad company full power to police the isthmus. The Panama Railroad in 1856 created a steamship line to based in Panama City to service Pacific ports and a British company created one going to Chile, Peru, Bolivia and Ecuador from Panama City. By 1858, the value of trade reached $2,000,000 a year. Colombia had given the railroad a concession for 49 years but this was upped to ninety-nine years on August 16, 1867, to ninety-nine years but it had to pay Colombia one million dollars in a lump sum and then $250,000. In addition, it had to transport "free of charge troops, chief officers and their equipage, ammunition, armament, clothing and similar effects that may belong or be destined for the immediate service of the Government of the State of Panama."
The Panama Railroad fortunes declined rapidly after the joining of the Union Pacific and Central Pacific Railroads in May, 1869. No longer was it necessary to go to Panama to get to California and other western places. The Compagnie Universale du Canal Interoceanique bought control of it in 1881, a year after it had begun work on the Panama Canal.
The Spanish realized as early as 1524 that a canal across the isthmus would solve problems. Existing technology meant nothing was done. Others through the years also considered the idea. Great Britain dominated the Caribbean but had to contend with growing United States' power and interest in the region. To forestall the Americans, it negotiated the Clayton-Bulwer Treaty in 1850 which stipulated “that neither … will ever obtain or maintain for itself any exclusive control over the said ship canal … that neither will ever erect or maintain any fortifications commanding the same … or occupy, or fortify, or colonize or assume, or exercise any dominion over Nicaragua, Costa Rica, the Mosquito coast, or any part of Central America.” Surveys made between 1859 and 1875 indicated that the best routes were across Nicaragua or Panama. An international company got a concession from the Colombian government in 1878 to dig across Panama but failed. In 1880, Ferdinand de Lesseps of France, the builder of the Suez Canal, organized the Compagnie Universale du Canal Interoceanique with a public stock offering. Thousands bought because he was successful with the Suez Canal. He planned to build a sea level canal across Panama. French engineering was among the finest, if not the finest, in the world.
Ferdinand de Lesseps and his engineers badly miscalculated. Building across the dry, relatively flat Egyptian terrain was quite different from building across Panama. They worked for 18 years. Over 22,000 people died from disease, mud slides, and accidents. The financial cost was $260 million. Had they built locks, less soil would have had to be excavated. As it was, they excavated 78 million cubic yards from Culebra Cut (later renamed Gaillard Cut), of which almost 30 million was useful to the later U.S. canal builders. He never understood that he had to have an adequate railroad to move men and materiel as work on the canal proceeded so the Panama Railroad was not properly used. He had trouble feeding and housing the gigantic work force his company employed. No one could figure out what caused yellow fever, malaria, and other tropical diseases which were killing so many..
Financial woes mounted. Cost overruns became serious. Several times, Lesseps was forced to go back to his countrymen to garner funds, often as loans and once as a lottery. In 1885 the plan changed to include a single, temporary lock. The company was mismanaged. The stock failed. In 1889, the Company was declared bankrupt amidst financial scandals. De Lesseps was tried and jailed for fraud.
On October 20, 1894, the Compagnie Nouvelle du Canal de Panamá (New Panama Canal Company) was "formerly incorporated and work was continued. Machinery was kept in a state of preservation, more surveys and mapping were done and excavation proceeded at Culebra and other points on the locks canal plan." Not much progress was made. The chief asset of the Company was the concession from Colombia to build a canal. Knowing that the Americans were interested, the Company priced its assets—the work already done and the concession—at $109,141,400. Philippe Bunau-Varilla, the engineer who headed the company, realized that it was necessary to sell before the chief asset, the concession from Colombia ran out. He and some Americans would change the course of history. .