DOLLAR DIPLOMACY

DOLLAR DIPLOMACY involved arrangements by which insolvent foreign governments gained access to U.S. private bank loans in return for direct U.S. financial supervision or for acting as part of an economic consortium of great powers. Often U.S. financial experts tied to the loan process assumed the tasks of fiscal reorganization and administrative management within the client country, while U.S. government emissaries orchestrated the arrangements. Imposed fiscal reforms included adoption of the gold standard, "scientific" tax reform, and administrative rationalization.

The phrase is a loose one, indiscriminately applied to decades of economic policies ranking from trade with British and Spanish colonies to penetration by multinational corporations. In its most conventional sense, it focuses on the presidency of William Howard Taft. In his first annual message, dated 7 December 1909, Taft said, "Today, more than ever before, American capital is seeking investment in foreign countries." In his final annual message, dated 3 December 1912, he boasted that his administration was characterized as "substituting dollars for bullets." Secretary of State Philander Knox, an avid promoter of dollar diplomacy, well articulated such goals on 15 June 1910: "The problem of good government is inextricably interwoven with that of economic prosperity and sound finance." According to Taft-Knox tenets, loans from U.S. business, or at least from multinational groups in which U.S. business participated, could expedite the repayment of crippling debts while launching prosperity. In the eyes of their framers, who envisioned "every diplomat a salesman," the loans-for-supervision arrangements would aid the U.S. economy by alleviating overproduction, supplying needed manufactured goods to underdeveloped nations, and offering monopolized spheres for American investors. Eventually, economic progress, political stability, and the spread of Western, indeed U.S., "civilization" would result. Of necessity, the policy often involved U.S. competition with Europe and Japan in the developing countries, centering on such matters as buying bonds, floating loans, building railroads, and establishing banks. When the contemporary press first used the term "dollar diplomacy," Taft took umbrage, saying the label entirely ignored "a most useful office to be performed by a government in its dealing with foreign governments."

Caribbean

The Caribbean served as a major focal point, for there the United States had its eye on strategic as well as commercial interests, particularly in light of the ongoing construction of the Panama Canal. Knox remarked that in the Caribbean "the malady of revolutions and financial collapse is most acute precisely … where it is most dangerous to us."

Soon after he assumed office in 1909, Knox wanted American bankers to assume the debt Honduras owed to British investors. In 1911, he signed a treaty with the Honduran minister allowing American bankers to refund that nation's foreign debt and establish an American customs receivership. The Honduran government, however, refused to ratify the convention. Knox was more successful in Haiti in 1910, persuading four New York banking firms to invest in Haiti's national bank to aid in currency stabilization.

Nicaragua, however, remained the classic case of dollar diplomacy. In 1909, the United States supported a rebellion against the dictator José Santos Zelaya and his successor José Madriz, sending marines to the Nicaraguan city of Bluefields to protect foreign nationals and property. In 1911, because of U.S. backing, Adolfo Díaz, the former secretary of the United States–Nicaragua concession, became Nicaragua's president. On 6 June 1911, Knox signed a treaty with the Nicaraguan minister establishing a U.S. customs receivership and enabling two New York banking firms to refund Nicaragua's foreign debt. Democrats in the U.S. Senate, however, blocked ratification of the Knox-Castrillo Treaty. While the Senate was debating the matter, American bankers began to rehabilitate Nicaraguan finances. At the State Department's request, New York bankers advanced $1.5 million, receiving in return majority control of the state railways and the National Bank of Nicaragua. Later in the same year, the banking houses appointed an American receiver-general, who was approved by both governments.

Díaz, however, lacked popular support. In 1912, Zelaya and his Liberal Party launched a revolt. Amid widespread disorder, insurgents seized U.S. properties, and thirty-three Americans and more than a thousand Nicaraguans were killed. Zelaya would have succeeded had Taft not sent 2,700 marines and several warships to suppress the uprising. These marines remained for many years, intensifying anti-U.S. feelings in Latin America.

East Asia

The objectives of dollar diplomacy in East Asia were nearly as ambitious as those in Central America. In Asia, Willard Straight, a former U.S. diplomat who represented various banking groups in China, was highly influential in pressing for a more active American role. In 1909, because of the crucial role played by railroads in China's economic development, Straight and Knox demanded that American financiers be allowed to join a major British-French-German consortium. The group had contracted with the Chinese government to build a network of railroads, including a route between Beijing and Guangzhou (Canton). Despite the hostility of the European powers, Knox got his way, and an American banking syndicate formed by J. P. Morgan and Company was admitted. The entire project, however, eventually was aborted. Knox also proposed a multilateral loan aimed at currency reform, but the overthrow of the Manchu government in 1911 terminated the scheme.

The efforts of Straight and Knox to neutralize Manchuria in 1909 and to open it to the commerce of all nations also were unsuccessful. The two Americans sought to form a consortium of American, European, and Japanese bankers who would lend China sufficient funds to purchase the Chinese Eastern Railroad, owned by Russia, and the South Manchurian Railroad, owned by Japan. In January 1910, however, Russia and Japan vetoed the plan. The British also opposed the plan, as they were encouraging Japanese expansion in Manchuria to keep Japan safely away from their own sphere of influence.

Dollar diplomacy had few successes. As seen in Honduras, Nicaragua, and China, it gained none of its objectives. At the same time, it deepened the antagonism of both the Latin Americans and the Japanese.

BIBLIOGRAPHY

Munro, Dana Gardner. Intervention and Dollar Diplomacy in the Caribbean, 1900–1921. Princeton, N.J.: Princeton University Press, 1964.

Rosenberg, Emily S. "Revisiting Dollar Diplomacy: Narratives of Money and Manliness." Diplomatic History 22, no. 2 (spring 1998): 155–176.

Scholes, Walter V., and Marie V. Scholes. The Foreign Policies of the Taft Administration. Columbia: University of Missouri Press, 1970.

Trani, Eugene P. "Dollar Diplomacy." In Encyclopedia of American Foreign Policy: Studies of the Principal Movements and Ideas. Vol. 2. Rev. ed. Edited by Alexander DeConde et al. New York: Scribners, 2002.

Justus D.Doenecke

See alsoChina, Relations with ; Foreign Policy ; Haiti, Relations with ; Latin America, Relations with ; Nicaragua, Relations with .

DOLLAR DIPLOMACY

The concept of the U.S. government protecting U.S. commercial enterprises abroad and offering political loans to foreign governments is not unique to any specific time period. The term "Dollar Diplomacy," however, became particularly associated with the policies of President William Howard Taft (1909–13) that were designed to further U.S. interests in Latin America and China. Taft sought to use U.S. economic aid in order to coax underdeveloped countries to follow U.S. political leadership and at times accept a U.S. military presence.

Almost a century earlier in 1823 President James Monroe (1817–25) established what became known as the Monroe Doctrine. While Spain was involved in the Napoleonic Wars in Europe, a number of New World countries proclaimed their independence. Concern rose in the United States that Spain might attempt to reassert its colonialist control in countries of the Western Hemisphere following the war. Anticipating increased economic trade prospects with newly independent Latin American countries, Monroe held that the hemisphere was closed to further European colonization. Any efforts by European nations to reestablish political control would be considered a threat to U.S. security. President Theodore Roosevelt (1901–09) later broadened the Doctrine by asserting that the United States had the right and obligation to intervene when Western Hemisphere nations became so politically or economically unstable that they were vulnerable to European control. However Roosevelt's forceful intervention with several countries stirred considered hostility in the region.

As Secretary of War in Roosevelt's administration, Taft oversaw construction of the Panama Canal and establishment of the U.S. Canal Zone. In his later role as president, Taft and his advisors, including Secretary of State Philander C. Knox, became concerned over security of the canal and how to protect it from foreign encroachment. Heavily indebted to European nations, the overwhelmingly poor Latin American countries experienced continual economic and political unrest. Fearing that European nations might forcibly intervene in Latin American affairs while seeking repayment of outstanding loans, Taft and Knox sought to promote an aggressive program of economic and political stability.

Chief targets for Dollar Diplomacy included Colombia, Honduras, and Nicaragua. Dollar Diplomacy consisted of Taft and Knox lobbying private U.S. bankers to "invest" in these nations. The bankers would provide the countries with loans so they could pay off their debts to European nations. The U.S. was to control investment markets of the Latin American nations, thereby eliminating economic competition while incorporating the countries' economies into the political and economic world of the United States.

Taft began putting Dollar Diplomacy into action, but he ran into many obstacles. Colombia, heavily in debt to European banks but still bitter from the loss of the land surrounding the Panama Canal, refused U.S. economic advances without first settling the loss of Panama. Taft also lobbied U.S. bankers in 1909 to loan money to Honduras so that it could pay its debt of $110 million, which was primarily owed Britain. After Taft successfully persuaded J.P. Morgan (1813–90) and others to participate, Congress failed to approve the plan. Revolution erupted in Honduras, leading to U.S. armed intervention. Fearful of the political instability and Honduras' refusal to fully cooperate, the companies withdrew their loan offers and the proposal died. Nicaragua, holding an alternative canal route to the Panama Canal, antagonistically threatened the United States that it would sell canal rights to Great Britain or Japan. Taft sought to have U.S. bankers loan Nicaragua $20 million, but Congress withheld approval until after Taft left office. Dollar Diplomacy in Latin America was a failure.

Taft and Knox also attempted to apply Dollar Diplomacy to the Far East in 1910. Knox was convinced that European funding of major railway construction in China threatened U.S. access to free trade. Taft again arranged for financier J.P. Morgan to establish a syndicate of U.S. bankers to enter the project. Though loans were made, little profit resulted. Concern also arose over possible Japanese and Russian involvement in railroad construction in Manchuria. Taft arranged for U.S. bankers to form a six-nation consortium to fund the project. Both of Taft's efforts in Asia failed.

Taft had been unabashed in his efforts to expand the U.S. economy through international trade, reporting to Congress a $300 million gain in exports in 1910 and another $200 million in 1911. Taft even suggested that Congress establish U.S. banks abroad.

Dollar Diplomacy failed as a crudely designed foreign policy. Critics saw it as economic imperialism replacing territorial imperialism. Indeed Taft himself described it as "substituting dollars for bullets." The strategy's blatant nature brought the policy into disrepute and was bitterly debated at home and abroad. Many viewed with alarm use of government employees, such as diplomats and consuls, to establish new inroads for private U.S. commercial enterprise. The term itself became a derogatory description of international economic coercion. Following Taft in the White House, President Woodrow Wilson (1913–21) explicitly repudiated Dollar Diplomacy in 1913. The United States continued to pursue programs of political intervention by providing economic and military aid to Latin American countries, but with less blatant economic gain in mind. In 1965 President Lyndon Johnson (1963–69) unsuccessfully tried similar tactics in Southeast Asia when he offered $1 billion in aid in an attempt to avoid armed conflict.

See also: Big Stick Diplomacy, William Howard Taft

FURTHER READING

Drake, Paul W., ed. Money Doctors, Foreign Debts, and Economic Reforms in Latin America from the 1890s to the Present. Wilmington, DL: SR Books, 1994.

Harrison, Benjamin T. Dollar Diplomat: Chandler Anderson and American Diplomacy in Mexico and

Nicaragua, 1913–28. Pullman, WA: Washington State University Press, 1988.

May, Ernest R. The Making of the Monroe Doctrine. Cambridge, MA: Harvard University Press, 1992.

Minger, Ralph E. William Howard Taft and United States Foreign Policy: The Apprenticeship Years, 1900–08. Urbana: University of Illinois Press, 1975.

Munro, Dana G. Intervention and Dollar Diplomacy in the Caribbean, 1900–21. Princeton, NJ: Princeton University Press, 1964.

under taft, pan-americanism made no progress. while brazil attempted at the fourth pan-american conference at buenos aires in 1910 to win an endorsement of the monroe doctrine, the delegates made it quite clear that they wished to limit united states influence in the caribbean.

paolo e. coletta, the presidency of william howard taft, 1973

Dollar Diplomacy. The term “dollar diplomacy” is associated primarily with the foreign policy of President William Howard Taft (1909–1913).Taft and his secretary of state, Philander C. Knox, believed that bringing financial stability to debt‐ridden but strategically important countries would promote both international progress and U.S. interests. They sought to expand upon President Theodore Roosevelt's actions in the Dominican Republic, where American bankers refunded defaulted loans and the U.S. government established a customs receivership to guarantee the bankers' repayments. Wider use of similar U.S. private bank loans, Taft and Knox hoped, could leverage the acceptance of financial advisers and fiscal reform, encouraging gold‐standard currencies, honest and efficient revenue collection, modern banking and tax systems, and stable democratic governments. Taft and Knox tried to institute dollar diplomacy arrangements in China, Liberia, and several Central American nations. China persistently refused American loans linked to advisers. Nicaragua and Liberia, along with the Dominican Republic, became prime examples of dollar‐diplomacy dependencies, but the expected stability and prosperity never materialized, and U.S. economic influence became increasingly heavy‐handed and exploitative. Critics of American capitalism abroad turned the phrase “dollar diplomacy” into a pejorative term portraying the U.S. government as a bill collector for American banking and corporate interests, and connoting a general corruption of public diplomacy for private profit.

Still, Taft's strategy, using loans to discipline nations into fiscal responsibility, survived in various forms under his successors. President Woodrow Wilson and the Republican regimes of the 1920s all cooperated with bankers and professional financial advisers to facilitate loan and advising arrangements in many nations. And the Bretton Woods system, established after 1944, institutionalized the practice of attaching “conditionalities” to projected loans—the basic formula of dollar diplomacy. In short, the Taft administration's assumptions about using loans to accomplish certain goals of international policy, although criticized, became a normal part of U.S. policy‐making in the twentieth century.
See also Bretton Woods Conference; Expansionism; Foreign Relations: U.S. Relations with Africa; Foreign Relations: U.S. Relations with Asia; Foreign Relations: U.S. Relations with Latin America; Foreign Trade, U.S.; Good Neighbor Policy; Multinational Enterprises.

Bibliography

Emily S. Rosenberg , Financial Missionaries to the World: The Politics and Culture of Dollar Diplomacy, 1900–1930, 1999.

Emily S. Rosenberg

dollar diplomacy (USA) A phrase associated with President Taft, who announced in 1910 his intention of engaging in economic and commercial expansion in developing markets overseas and promoting US interests through private corporations and banks, which he characterized as ‘substituting dollars for bullets’. Markets thus stabilized by US capital would be encouraged to pursue prudent economic management. In part, the policy was intended to replace the active interventionist tendencies of Theodore Roosevelt with a more traditional policy of neutrality and mercantile development. Dollar diplomacy revealed American weakness in Asia and South America, as Taft could not fully protect American investors and investments overseas. When Woodrow Wilson came to power, he withdrew even nominal support for American bankers in Manchuria. However, a policy to pursue US economic interests by encouraging the development of capitalism abroad remained a central feature of US policy for the remainder of the century and beyond.

dollar diplomacy A term used to describe foreign policies designed to subserve US business interests. It was first applied to the policy of President TAFT, whereby investments and loans, supported and secured by federal action, financed the building of railways in China after 1909. It spread to Haiti, Honduras, and Nicaragua, where US loans were underpinned by US forces and where a US collector of customs was installed in 1911. Although the policy was disavowed by President Woodrow WILSON, comparable acts of intervention in support of US business interests, particularly in Latin America, remained a recurrent feature of US foreign policy.