Faculty Brownbag: Phil Brock

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Title: Golden Nuggets: The California Gold Rush and the Founding of the Banco de Valparaíso, 1855

Abstract: The decade of the 1850s was a transformative period for Chile’s economy. The California Gold Rush provided the external impulse to this transformation. Between 1849 and 1855 tens of thousands of gold-seekers sailed around Cape Horn, stopping at the Chilean port city of Valparaíso on their way to San Francisco, generating broad-based commercial activity and a need for formal banking institutions. In mid-1854 a group of prominent merchants in Valparaíso approached the Chilean government with a proposal to create a commercial bank. The proposal was debated in Congress during October 1854 and led to the passage of two important laws: the law for the priority of claims in bankruptcy (10/25/1854) and the law for joint-stock companies (11/8/54). In June 1855 the Congress passed a law authorizing the Banco de Valparaíso, which began as follows: Article 1. The President of the Republic is authorized to approve the establishment of the “Banco de Valparaíso” for deposits and discount bills, in accordance with the principles on which the laws for joint-stock companies and priority of claims are based. This paper documents the historical process leading to the June 1855 law and interprets the Banco de Valparaíso as a financial contracting institution whose founding required substantial reform of Chile’s bankruptcy law as well as the creation of limited liability company law.