Dollar Diplomacy

Dollar Diplomacy, a stratagem closely associated with the foreign policy of U.S. President William Howard Taft (1909–1913) and his secretary of state, Philander Knox. Dollar diplomacy was most clearly manifested in Latin America, especially Central America and the Caribbean, but the Taft-Knox team also labored hard to apply it to China. The proponents of dollar diplomacy intended to avoid direct military intervention to protect U.S. interests or to induce the stable political and social order necessary to establish a favorable environment for U.S. commercial and financial expansion. Their objective was to develop important U.S. political, economic, cultural, and strategic influence by substituting the power of U.S. capital and financial aid for more direct diplomatic or military pressure. These goals were pointedly expressed in 1911, when Knox declared: "It is rational to hold that a fatherland owes its children the duty of assuring them opportunity for self-advancement. The Department of State can help in this way by securing for our citizens equal and fair opportunity abroad commensurate with that which the National Government aims to secure for them at home." President Taft summarized his administration's foreign policy when he explained in his final message to Congress on 3 December 1912, that "the diplomacy of the present administration sought to respond to modern ideas of commercial intercourse. This policy has been characterized as substituting dollars for bullets. It is one that appeals alike to idealistic humanitarian sentiments, to the dictates of sound policy and strategy, and to legitimate commercial aims."

U.S. economic and security interests were most evident in the small Central American and Caribbean island states, which were the chief targets of dollar diplomacy, although historians have traced implementation of the policy to Ecuador and Mexico as well. The U.S. government induced the Caribbean and isthmian governments to accept U.S. customs collectors, financial advisers, tax administrators, and economic consultants appointed with the cooperation of the State Department. Dollar diplomacy resulted in numerous military interventions, despite claims to the contrary, because it insisted upon a U.S. role in the financial and economic life of the republics around the Caribbean. U.S. Marines occupied Nicaragua, Haiti, and Santo Domingo for long periods and landed frequently in Cuba and Panama and on at least two occasions in Honduras.

The core idea behind dollar diplomacy was an old one: managing another society's political economy without recourse to a costly and bloody conflict. Early U.S. efforts to exert such influence in Mexico included the Corwin-Zamacona (1861) and the Corwin-Doblado (1862) loan treaties. These loans were to be used to pay the principal and interest on the outstanding Mexican debt to France, Great Britain, and Spain and thereby reduce the threat of European intervention in Mexico's La Reforma conflict. The U.S. Congress, however, rejected the loans, and the three European powers intervened.

U.S. officials and private parties had frequently compared the political and economic benefits and the costs of foreign and U.S. investment in Latin America, especially in the Caribbean-Central American regions, with alternative diplomatic-military activity. Emily Rosenberg has placed dollar diplomacy within a framework of liberal developmentalism that describes dollar diplomacy as merely one variation of numerous efforts to spread the American system abroad. For example, such considerations were common in the 1890s, when U.S. officials and private businessmen wished to replace British economic and financial involvement in Nicaragua's Mosquito region. Similar reasoning prompted President Theodore Roosevelt's decision to announce the policy that became known as the Roosevelt Corollary to the Monroe Doctrine. The Roosevelt administration assumed (as did the Taft administration) that financial and economic activity translated into political and strategic power. The U.S. government used the Roosevelt Corollary to claim a financial and economic supervisory authority over the economies of Latin American states. Under Taft and his successors, banks, financial institutions, humanitarian organizations, corporations, and other private agencies were selected as "chosen instruments" to advance U.S. objectives, but without formal involvement of U.S. institutions because that course would have been inconsistent with laissez-faire principles. However, by the 1920s, many of the original policymakers involved in dollar diplomacy criticized the program. For instance, several officials believed that the policy caused banks to make poor investment decisions based solely on the presence of U.S. advisors. Bad investments in turn created financial crises and economic instability. This reservation has stood the test of time. Simon G. Hanson has described the Alliance for Progress in the 1960s as a modern, unsuccessful, and formal U.S. governmental variation of that same policy outlook.

See alsoGood Neighbor Policy; Monroe Doctrine; Roosevelt Corollary; United States-Latin American Relations.

BIBLIOGRAPHY

Scott Nearing, Dollar Diplomacy: A Study of American Imperialism (1925).

Dana G. Munro, Intervention and Dollar Diplomacy in the Caribbean, 1900–1921 (1964).

Robert Freeman Smith, "Cuba: Laboratory for Dollar Diplomacy, 1898–1917," Historian 28, no. 4 (1966): 586-609.

Eugene P. Trani, "Dollar Diplomacy," and Joan Hoff Wilson, "Economic Foreign Policy," in Alexander DeConde, ed., Encyclopedia of American Foreign Policy, vol. 1 (1978), pp. 265-274 and 281-291.

Emily Rosenberg, Spreading the American Dream: American Economic and Cultural Expansion, 1890–1945 (1982).

Additional Bibliography

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

LaFeber, Walter. Inevitable Revolutions: The United States in Central America. 2nd ed. New York: W. W. Norton, 1993.

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

Schell, William, Jr. Integral Outsiders: The American Colony in Mexico City, 1876–1911. Wilmington, DE: SR Books, 2001.

                                        Thomas Schoonover