The revolution of August 1904 began as a popular movement, but Liberal rule quickly degenerated into factional feuding, military coups, and civil war. Political instability was extreme in the Liberal era, which saw twenty-one governments in thirty-six years. During the period 1904 to 1922, Paraguay had fifteen presidents. By 1908 the radicales had overthrown General Ferreira and the cívicos. The Liberals had disbanded Caballero's army when they came to power and organized a completely new one. Nevertheless, by 1910 army commander Colonel Albino Jara felt strong enough to stage a coup against President Manuel Gondra. Jara's coup backfired as it touched off an anarchic two-year period in which every major political group seized power at least once. The radicales again invaded from Argentina, and when the charismatic Eduardo Schaerer became president, Gondra returned as minister of war to reorganize the army once more. Schaerer became the first president since Egusquiza to finish his four-year term.

The new political calm was shattered, however, when the radicales split into Schaerer and Gondra factions. Gondra won the presidential election in 1920, but the schaereristas successfully undermined him and forced him to resign. Full-scale fighting between the factions broke out in May 1922 and lasted for fourteen months. The gondristas beat the schaereristas decisively and held on to power until 1936.

Laissez-faire Liberal policies had permitted a handful of hacendados to exercise almost feudal control over the countryside, while peasants had no land and foreign interests manipulated Paraguay's economic fortunes. The Liberals, like the Colorados, were a deeply factionalized political oligarchy. Social conditions- -always marginal in Paraguay -- deteriorated during the Great Depression of the 1930s. The country clearly needed reforms in working conditions, public services, and education. The stage was set for an anti-Liberal nationalist reaction that would change the direction of Paraguayan history.

Paraguay's dispute with Bolivia over the Chaco, a struggle that had been brewing for decades, finally derailed the Liberals. Wars and poor diplomacy had prevented the settling of boundaries between the two countries during the century following independence. Although Paraguay had held the Chaco for as long as anyone could remember, the country did little to develop the area. Aside from scattered Mennonite colonies and nomadic Indian tribes, few people lived there (see Natural Regions Minority Groups , ch. 2). Bolivia's claim to the Chaco became more urgent after it lost its seacoast to Chile during the 1879-84 War of the Pacific. Left without any outlet to the sea, Bolivia wanted to absorb the Chaco and expand its territory up to the Río Paraguay in order to gain a river port. In addition, the Chaco's economic potential intrigued the Bolivians. Oil had been discovered there by Standard Oil Company in the d1a e 1920s, and people wondered whether an immense pool of oil was lying beneath the entire area. Ironically, South America's two greatest victims of war and annexation in the previous century were ready to face each other in another bout of bloody combat, this time over a piece of apparently desolate wilderness.

While Paraguayans were busy fighting among themselves during the 1920s, Bolivians established a series of forts in the Paraguayan Chaco. In addition, they bought armaments from Germany and hired German military officers to train and lead their forces. Frustration in Paraguay with Liberal inaction boiled over in 1928 when the Bolivian army established a fort on the Río Paraguay called Fortín Vanguardia. In December of that year, Paraguayan major (later colonel) Rafael Franco took matters into his own hands, led a surprise attack on the fort, and succeeded in destroying it. The routed Bolivians responded quickly by seizing two Paraguayan forts. Both sides mobilized but the Liberal government felt unprepared for war so it agreed to the humiliating condition of rebuilding Fortín Vanguardia for the Bolivians. The Liberal government also provoked criticism when it forced Franco, by then a national hero, to retire from the army.

As diplomats from Argentina, the United States, and the League of Nations conducted fruitless "reconciliation" talks, Colonel José Félix Estigarribia, Paraguay's deputy army commander, ordered his troops into action against Bolivian positions early in 1931. Meanwhile, nationalist agitation led by the National Independent League (Liga Nacional Independiente) increased. Formed in 1928 by a group of intellectuals, the League sought a new era in national life that would witness a great political and social rebirth. Its adherents advocated a "new democracy" that might sweep the country free of petty partisan interests and foreign encroachments. An amalgam of diverse ideologies and interests, the League reflected a genuine popular wish for social change. When government troops in October 1931 fired on a mob of League students demonstrating in front of the Government Palace, the Liberal administration of President José Guggiari lost what little legitimacy it retained. The students and soldiers of the rising "New Paraguay" movement (which wanted to sweep away corrupt party politics and introduce nationalist and socialist reforms) would thereafter always see the Liberals as morally bankrupt.

Data as of December 1988