After several decades of arrested development, Uruguay's economy underwent a series of important changes during the latter half of the 1800s. The consolidation of political control by the Colorado Party (Partido Colorado) and the division of the control of the departments in 1872 spelled the end of almost constant warfare and meant that the departments of Uruguay were finally united as one nation. Internal barriers to trade were removed, and the issuance of a national currency (the peso) in 1862 favored commercial activity. Political stability also allowed increased foreign involvement in the economy and encouraged technological advances. The framework for Uruguay's primaryproduct export economy, which supplied food and basic inputs to Europe's dynamic industrial sector, was erected during this period.

Livestock production changed in several ways as Uruguay adjusted to the export model. First, meat-packing technology was introduced in the mid-1860s, allowing canning of meat for export. Until then, beef was preserved only in a dry, salted form (tasajo), which appealed to a narrow export market (principally Brazil and Cuba, where it was fed to slave laborers). Second, livestock production was diversified when sheep ranching expanded rapidly, reflecting the British textile industry's demand for imported wool. After 1870 Uruguay had more sheep than cattle, largely because of an influx of sheep ranchers from France and Britain. A third change in the livestock sector came about in the 1870s with the introduction of barbed wire. For the first time, the boundaries of large estancias were marked off precisely, decreasing the number of ranch hands needed to watch over herds and driving many subsistence farmers off lands on the margins of large estates. Finally, the construction of railroad lines and telegraph networks provided the infrastructure that linked rural Uruguay to the thriving port of Montevideo.

These changes in the structure of the economy paved the way for a substantial increase in export earnings while reinforcing the importance of livestock production. In 1876 Uruguay had a positive balance of trade for the first time, and its export volume more than doubled over the next decade. Exports of wool increased dramatically, matching the value of leather exports by 1884. Residents of Montevideo were said to gauge the country's prosperity by counting the stacks of cowhides and bales of wool waiting to be loaded aboard ships. After 1900 the ability to ship frozen meat to Europe and the United States transformed the beef industry, added to Uruguayan export earnings as world demand for beef grew, and raised the importance of cattle production.

The nation's rising prosperity at the turn of the twentieth century rested firmly on rural livestock production. Paradoxically, however, it was in Montevideo that the most dramatic demographic and economic effects of growth were felt. The city's population increased, mainly because several waves of immigrants arrived from Europe. Most of these immigrants came from urban areas of Italy and Spain, so it was natural that they tended to settle in Uruguay's urban center, where jobs were available. At the same time, the city's population was increasing because of the arrival of displaced laborers from the Uruguayan countryside. Both natives and immigrants made up a growing pool of labor for Montevideo's small but dynamic industries, many of which were owned by foreigners. Using mostly artisanal techniques, the city's workshops began to supply the home market with a variety of goods, such as footwear, clothing, wine, tobacco, paper, furniture, and construction materials.

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Source: U.S. Library of Congress