Castillo y Rada: Secretary of the Treasury

Castillo y Rada: Secretary of the Treasury

Luis Guillermo Velez Alvarez

Economist, ECSIM Partner

Introduction

In the first of his famous Memoirs to Congress, presented 18 months after taking office, the Secretary of the Treasury of the Republic of Colombia, Don Jose Maria del Castillo y Rada, pointed out that the establishment of a solid administration of finance, without which a republic is not viable -in itself an arduous problem in ancient countries and where peace reigns- faces frightful difficulties in a new country, overwhelmed by a long and obstinate war that has impoverished it by the paralysis of trade, the destruction of capitals and the reduction of the population.

It was the turn for Castillo y Rada -the first Minister of Finance in the history of the country- to carry out his office, for which he had been appointed in the Congress of Cucuta, in a period -1821 to 1828- especially turbulent. The war of independence had not yet concluded and the Republic, born in the Congresses of Angostura and Cucuta, had not yet achieved to define itself either institutionally or territorially.

Background of the personage

Born on December 21, 1776, in a distinguished family of Cartagena, he received the best possible education at the time: Latin and Humanities in the Colegio Mayor de Nuestra Señora del Rosario. Philosophy and Jurisprudence at the Universidad de Santo Tomas, where he received the degree of Doctor in Civil Law. He holds the chair of this discipline at the Colegio de San Carlos in Cartagena and the Colegio del Rosario in Bogota. In 1802 he was admitted to practice as a lawyer in the Royal Councils and all the Audiences of Indias, and he exercises his profession in Bogota for seven years.

He intervenes actively in the independence events that were unleashed on the occasion of the invasion of Spain by Napoleon, in 1808. That year, he participates in the frustrated attempt to establish in Bogota a Supreme Junta with independence purposes. The consideration of the Viceroy Amar towards his uncle and tutor General Narvaez, saves him from being punished for his seditious action. He traveled to Cartagena and there he lived the events of 1810, intervening, once again, in the attempt, again frustrated, to proclaim, in April of that year, the Supreme Junta of Cartagena.

Once the independence was proclaimed on July 20, 1810, he is linked in various ways to the effort of transforming the Viceroyalty of Nueva Granada into a sovereign state. At the beginning of 1811, he was present in the Constituent Congress of the Kingdom, where he presented a draft of republican constitution, opposite to the monarchical project of Tadeo Lozano, which was finally adopted, proclaiming Fernando VII as King of the State of Cundinamarca. In 1812, representing Mariquita and Tunja, is deputy in the Congress of the United Provinces, in which the act of confederation is adopted. It should be ratified by all provinces. Also in 1812 he participated in the proclamation of the absolute independence of Cartagena.

Throughout that period of the First Republic, 1810-1816, known as the Patria Boba, Castillo y Rada travels tirelessly throughout the country. He is related to the most prominent patriots, writes abundantly in El Argos de la Nueva Granada and provides services in different positions as Governor of the State of Tunja and President of the United Provinces. In the exercise of that position, in November, 1814 he meets Bolívar, who at that time is -he writes in his Memoirs- a miserable general who returns from his unfortunate campaign in Venezuela. In 1815, Fernandez Madrid, successor of Camilo Torres in the Presidency of the United Provinces, appointed him Minister of War, position that he is performing when the Spanish forces of the reconquest occupy Bogota on May 6, 1816.

The sentence to be hanged for treason is commuted to life imprisonment, thanks, according to his biographers, to the request for clemency raised before General Morillo by the ladies of the Santa Fe society, among whom he enjoyed special esteem, since, according to Medardo Rivas, "he exercised a magical prestige on the beautiful sex for the charm of his sweet word". In August, 1817, he benefits from the pardon granted by Fernando VII to all the condemned by treason in the colonies of America. For almost two years he remains isolated and apart from the military and political events that are taking place in other parts of the country. Due to his seditious background, he was again imprisoned in April, 1819. In July, 1820, he was released as a result of a prisoner exchange agreed upon by General Mariano Montilla, who in command of the liberating troops is occupying Barranquilla and is preparing to march on Cartagena.

These are the antecedents of the personage that on June 7, 1821, takes a seat in the Constituent Congress of Cucuta, in representation of the provinces of Neiva, Pamplona and Cartagena.

Deputy in the Congress of Cucuta

The Congress of Cucuta had the mission of giving institutional form to the Republic of Colombia, proclaimed in December, 1819, in the Congress of Angostura. The most outstanding intellectuals of all the provinces of the old Captaincy of Venezuela and the extinct Viceroyalty of Nueva Granada arrived at Villa del Rosario de Cucuta. The new Republic emerged from their union. There, among others, arrived Dr. Jose Felix Restrepo from Antioquia, the lawyer Jose Ignacio de Marquez from Boyacá, and Pedro Gual from Caracas, who would compete with Castillo y Rada in knowledge of economics and finance.

 

Church of the Rosario de Cucuta - Headquarters of the Congress of 1821

In addition to the Constitution of the Gran Colombia, the Congress of Cucuta issued an abundance of laws and decrees on a wide variety of subjects. What in today´s constitution is called "The economic and fiscal regime", in that of Cucuta is defined in no more than five concise articles.

Article 55 establishes the attributions of the Congress in economic matters, which include: setting annual public expenditures; to arrange what is convenient for the administration, conservation and alienation of national assets; establish taxes, duties and contributions and ensure their investment; contract public debt; establish a national bank and determine and standardize the value, weight, type and name of currency.

To say that they are merely economic, would be to minimize the importance of articles such as 177: "No one may be deprived of the least portion of his property, nor shall it be applied to public uses, without his own consent, or that of the Legislative Body". 178: "Colombians will not be prohibited from any kind of work, culture, industry or commerce". 179: "The foundation of primogeniture rights and all kinds of linkages are forbidden". Finally, the 180: "No amount of gold, silver, paper or other equivalent form will be extracted from the Common Treasury, but for objects and investments ordered by law".

The properly economic legislation emanating from the Congress of Cucuta was broad and dealt mainly with taxes, foreign trade and currency.

Ospina Vasquez, in his famous historical apology of protectionism, describes colonial taxes broadly and reproduces the estimation of their importance in the collection around 1810, included by Francisco Soto in his Memoria de Hacienda of 1837. The Congress of Cucuta had the task of demolishing this ominous taxation, but tried to do it with the care of not undermining the precarious income of the nascent Republic.

A law suppresses the state monopoly of the aguardiente, the second in importance in the collection, and declares its distillation free. But another maintains that of tobacco, equivalent to 20% of the collection, because it is not possible to abolish it "without causing great detriment to public finances". The rights on foodstuffs and domestic exports are abolished, as well as the rights paid by the gold washers or mazamorreros. The alcabala (sales tax) is suppressed for all goods, except real estate and foreign goods. The tithe was kept, waiting for a concordat with the church. Perhaps in the hope that it will be a source of resources to replace those inherited from the colony, a law promulgated on September 30 creates a direct contribution on income.

Special mention deserves the elimination of the indigenous tribute, of a reduced fiscal cost, less than 2% of the collection, but of special significance for the vision of citizenship that it entails. It is inevitable to quote the first article of that law to appreciate how much we have regressed in this matter:

"The natives of Colombia, called Indians in the Spanish code, will not pay in the future the tax known by the degrading name of tribute; nor can they be assigned to any service by any class of persons, without being paid the corresponding salary, which they previously stipulate. They are all the same as other citizens and will be governed by the same laws".

Customs and foreign trade legislation has a marked protectionist bias which, as noted by Anibal Galindo, is not surprising because the deputies, for the simple reason of the historical moment, were imbued with the mercantilist vision of international trade. It is very likely that most of them ignored English and very probably few had access to the first Spanish translation of the Wealth of Nations, by Jose Alonso Ortiz, published in 1794. In addition, just in 1821, the definitive edition of The Principles of Political Economy and Taxation, by David Ricardo, is being published. The theory of comparative advantages -foundation of the liberal vision of international trade- is presented there for the first time in a rigorous way.

But even so, the protectionists of Cucuta promoted a protectionism that was more intelligent and accurate than that of their emulators today. They declared free of import rights the importation of books, printing presses and implements for agricultural work and navigation. They banned the importation of coffee, indigo, sugars and molasses and eliminated the export rights to these products and to the aguardiente and construction wood. They established a progressive import tariff, lower for inputs and raw materials and higher for consumer and luxury goods. In a remote advance of Plan Vallejo, they ordered the return of import duties on foreign products that would then be exported from the country. Finally, it was ordered to free of all taxes the imported and exported products in the province of Riohacha, to promote its development.

To deal with the shortage of cash, the issuance of 200,000 pesos of copper money and the minting of platinum coins at a rate of 4 strong pesos per ounce of purified platinum was ordered. The export of this metal was forbidden and this coin was given total libertarian power. It was decreed the issuance of 200,000 pesos of forced currency paper money, backed by the product of the salt mines of Zipaquira, Nemocon and Tausa, fiscal monopoly of the Nation. Although the historian Frank Safford gives as a fact the actual issue, none of the consulted numismatists has seen a bill with the caption: pay the bearer 2 pesos salt. None of these provisions had a practical scope. In the Memory to the Congress of 1823, Castillo reports that the minting of platinum and copper coins has not been possible.

These constitutional and legal dispositions, good part of which are a product of his own brain, constitute the frame of action of the Secretary of the Treasury Castillo y Rada between 1821 and 1828.

The secretary of treasury in action

The three Memorias de Hacienda, presented to the Congress in 1823, 1826 and 1827, and his letters to Vice-president Santander, testify, at the same time, the enormous difficulties to apply the economic legislation emanating from the Congress of Cucuta and the solid Castillo's conviction that this legislation was fundamentally appropriate. He thought that the beneficial results expected from it depended on its understanding and acceptance by the citizens and on a good administration, which means responsible officials who fully comply with their obligations.

Therefore, while revealing the state of public finances, Castillo tries to persuade: Explaining and teaching the principles of taxation and the efficient administration of public resources. He had been a professor at the beginning of his career and will exercise this office again during the last years of his life, after his retirement from public life.

When exposing the figures of the Treasury, quite scarce and unreliable, Castillo shows a hopeful optimism, summed up in one sentence: We have made progress, but there is still a long way to go. In the 1923 Memoir, he speaks of a collection of 5 million pesos, still insufficient to cover expenses, but, he affirms, superior to that of the old regime, which Francisco Soto, in his Memoir of 1837 -quoted by Ospina Vasquez- estimated at about 2.5 million. In the Memoir of 1827, he argues that the collection of ordinary income slightly exceeds 12 million, in spite of the disturbances that still persist and the inactivity of the departmental administrations that seem to expect the laws to act alone.

Castillo is convinced that the tax legislation emanating from Cucuta, his work in the fundamental, is adequate. The reason for sustaining this is that, according to "the luminous principles that every tax is an evil", it is designed

 

Castillo y Rada, the Secretary of the Treasury

to inflict the least possible evil to the citizens and gives them the freedom to apply to all kinds of industry, which is "the true source of public and individual wealth". This is the main leitmotiv of his argument: "If you want to make abundant the product of contributions it is essential to stimulate the interest of citizens and provide them with the means to freely exercise all kinds of industry, removing all obstacles that hinder it", insists in his Memory of 1823.

His thought about the direct contribution shows a curious evolution. In the 1823 Memory, when he still hopes that it can be implemented when the availability of required information makes it possible, he affirms that the legislators of Cucuta saw in it the origin of prosperity, while the indirect "have the character of hidden diseases, unknown but mortal (...) insensitive to taxpayers; but these are stationary in their fortune, without prospering, when they do not retreat and run every day to the abyss of poverty". In the Memory of 1827, perhaps tired of the ineffectiveness of departmental administrations, which have been unable to raise the cadastres and make lists of taxpayers, and of the hostility of potential taxpayers who have convinced the Libertador that its establishment is contrary to peace, achieving its abolition in 1826, he resigns and admits: "Direct contributions must be sustained as a subsidiary resource, and charged only when the indirect do not cover all expenses". It would be necessary to wait until 1918 to see the establishment of direct contributions nationwide.

The other reiterative subject in the Memoirs is that of the importance of good administration to achieve the collection objectives. If, despite having a tax legislation that is among the least bad, taxes do not progress as they should, this is due to poor administration. Laws do not act alone, he insists again and again. "The excellence of the government –he points out- is estimated by the goodness of the administration. The best government is always the best managed. The administration is nothing else than the government put into action".

Things were not easy for Castillo in the exercise of his duties. Then as today, when the collections are insufficient to cover the expenses and take care of the debt, it is a fault of the secretary or minister of Finance, who has failed to provide the nation with adequate legislation to meet the persistent demands of the other secretaries or ministers, who only "know" to spend. "The Secretaries of State -he will say- are all equal, and our duties are equal (...) and we should all be judged with equality".

Santander, the Vice-president, pressed by Bolivar and the other ministers, pressures him in turn for extraordinary taxes. He responds to the Vice-president -even though he has told him that he does not want lessons- with an unparalleled letter, on September 9, 1826, which is a miniature treaty on rational public finances. This letter is collected by Rodriguez Piñeres.

My assignment, he writes, cannot be limited "to the resolution of a special problem (...) and I would miss my duty if I limited myself to proposing V.E. a partial and momentary remedy, because the evil would be repeated and aggravated".

Then, he states that "It should not be understood that incomes do not reach when they are not collected or not met, or when they are not well managed or are poorly distributed. Appropriately and truthfully can only be said that the income of the State do not reach when faithfully collected all the legal contributions, the expenses are still greater".

Then he makes a report on the progress of the economic activity and expresses his bewilderment because the returns on taxes and contributions have not progressed in the same way. And he bets: "If taxes and contributions were collected faithfully, their current yields would at least double".

To achieve this, he challenges Santander, saying that the first thing to do is that V.E. "Display the energetic severity that characterizes you, restore the vigor of all laws and require under penalty to those responsible for their execution with the most effective responsibility".

Once the growth of rents has been assured by an effective administration of the existing ones, there is something else to do before decreeing new taxes: "Appeal to the savings that can be made". And he makes a list of the cuts that can be made, to conclude that "In all these fields (...) if there is no dissipation, all the economy that should exist is missing and at the end of one year the expense is very high".

All of which allows him to conclude that: "If the increase of income is achieved -by force and severity in cases of infringement- and if savings are achieved by reducing expenses, surely the current problem is solved".

Epilogue

Castillo leaves the position of Secretary of the Treasury, in which he had been ratified by Bolivar, to preside over the Ocaña Convention, where he leads the Bolivarian faction, which fails to change the Constitution of Cucuta for another that would be of greater pleasure to the Libertador. In August, 1828, Bolivar, erected dictator, appointed him President of the Councils of Ministers and State. He has an important role in all the events of those turbulent years that precede the dissolution of the Gran Colombia.

The exit from Bogota towards Santa Marta of a discredited and besieged by his enemies Libertador, affects the position of Castillo, due to his closeness to Bolivar, whom he even replaced in the Presidency, between January 9 and July 28, 1829. Even so, he returns to be Secretary of State, this time in the Secretary of the Interior, in the government of Domingo Caicedo. The possession of Santander as President in September, 1832, leaves Castillo with no space in political life, since the President wants little to know about his former Secretary of Finance and of whom, after the “septembrina” conspiracy, he succeeded in obtaining the death penalty was commuted by exile.

In December, 1832, Castillo took possession of the Rectory of the Colegio Mayor de Nuestra Señora del Rosario, even though Santander had banned his inclusion in the list of candidates. In 1833 he entered politics again, representing Cartagena in a Senate that appointed him President, despite the bitter opposition of Santander. His resentment towards Castillo led him to refrain from paying tribute to this personage on the occasion of his death on February 23, 1835.

Bibliography

Castillo y Rada, Jose Maria, Memorias de hacienda 1823, 1826 y 1827. Bogota, Universidad Nacional de Colombia, Digital Library,  http://www.bdigital.unal.edu.co/10862/

Galindo, Anibal, Estudios economicos y fiscales, Bogota, ANIF-COLCULTURA, 1978.

Lecompte Luna, Alvaro, Castillo y Rada: el grancolombiano, Bogota, Instituto Caro y Cuervo, 1977.

Ospina Vasquez, Luis, Industria y proteccion en Colombia 1810-1930, Medellin, Oveja Negra, 1974.

Palacios, Marco y Safford, Frank, Colombia pais fragmentado, sociedad dividida: su historia. Bogota, Grupo Editorial Norma, 2002.

Rodriguez Piñeres, Eduardo, La vida de Castillo y Rada, Bogota, Academia Colombiana de Historia, 1949.