Dollar Diplomacy

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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