Diplomacy and Capitalism

The Political Economy of U.S. Foreign Relations

Christopher R.W. Dietrich

• Publisher: University of Pennsylvania Press
• Year: 2022
• ISBN:
  9780812298567
• Topic: Geschichte
• Subtopic: Nordamerikanische Geschichte

At the same time as modern capitalism became an engine of progress and a source of inequality, the United States rose to global power. Hence diplomacy and the forces of capitalism have continually evolved together and shaped each other at different levels of international, national, and local transformations. Diplomacy and Capitalism focuses on the crucial questions of wealth and power in the United States and the world in the twentieth century. Through a series of wide-ranging case studies on the history of international political economy and its array of state and non-state actors, the volume's authors analyze how material interests and foreign relations shaped each other. How did the rising and then disproportionate power of the United States and the actions of corporations, creditors, diplomats, and soldiers shape the twentieth-century world? How did officials in the United States and other nations understand the relationship between foreign investment and the state? How did people outside of the United States respond to and shape American diplomacy and political-economic policy? In detailed discussions of the exchanges and entanglements of capitalism and diplomacy, the authors answer these crucial questions. In doing so, they excavate how different combinations of material interest, geopolitical rivalry, and ideology helped create the world we live in today. The book thus analyzes competing and shared visions of international capitalism and U.S. diplomatic influence in chapters that bring the book's readers from the dawn of the twentieth century to its end, from Theodore Roosevelt to Ronald Reagan.Contributors: Abou Bamba, Giulia Crisanti, Christopher R. W. Dietrich, Max Paul Friedman, Joseph Fronczak, Alec Hickmott, Jennifer M. Miller, Alanna O'Malley, Nicole Sackley, Jayita Sarkar, Erum Sattar, Jason Scott Smith.

Chapter 1

Investment and Invasion: The Clash Between Capitalism and State Sovereignty in Latin America, 1903–1936

Max Paul Friedman

One way to understand U.S. relations with Latin America in the first third of the twentieth century is as a series of clashes over the relationship between international capitalism and state sovereignty, at a time when there was a close link between investment and invasion. Ever since the arrival of the Spanish and Portuguese colonizers, foreigners have engaged in the extraction of wealth and resources from what Eduardo Galeano called the open veins of Latin America.1 From independence until today, the arteries infusing capital from the world’s major industrial powers into Latin America were an equally vital element of the same circulatory system: investment poured in, profits and commodities poured out. Political and military intervention followed the pathways of those same capital flows. Where investment capital pooled, sites of conflict erupted, resulting in the literal spilling of blood. From the Pastry War of 1838, when a French squadron blockaded Mexican ports, to the shelling of Venezuelan port cities by a joint Anglo-Italo-German naval force in 1902 to the Marine landings on Caribbean beaches in the 1910s and 1920s, gunboat diplomacy to force the repayment of debts was a norm for Europeans and North Americans. “Between 1870 and 1913,” a team of scholars calculated, “defaulting governments ran a forty-percent chance of facing foreign intervention via blockades or, more commonly, via the imposition of foreign control over their domestic finances under the threat of blockade.”2

Escalating U.S. intervention in the Caribbean in this era was driven by a combination of financial interest, geopolitical rivalry, and an ideology that combined faith in progress with a pronounced racial hierarchy. Sometimes this took the form of direct protection of U.S. investments from peril or diminished profit when nationalists came to power and renegotiated the sweetheart concessions made by their positivist predecessors, or threatened to do so. Other times, the Marines landed to ensure repayment of massive loans made by J.P. Morgan, National City Bank, Brown Brothers, and other major banking houses, especially through the innovation of customs receiverships that redirected national income from taxes on imports and exports, the principal source of revenue for most small countries, from national development and patronage networks to foreign investors. A strategic element entered into Washington’s calculations when European lenders were prominent, because their similar conduct was deemed intolerable under the Roosevelt corollary to the Monroe Doctrine. The Monroe Doctrine, an early assertion of U.S. primacy in the Western Hemisphere, held that Europeans should not extend their political systems to independent countries in the Americas. Theodore Roosevelt’s corollary was the claim that in order to forestall European gunboat diplomacy—the use of force to collect debts—the United States would unilaterally intervene in Latin American countries at will. Latin American complaints and proposed alternatives were discounted in part because they came from “beneath the United States,” from people deemed inherently inferior.3

This essay focuses on the clashing visions of international capitalism in the first third of the twentieth century by U.S. and Latin American officials, who, conferring in the shadow of the gunboats, diverged in their understanding of the role of foreign capital, the rights of creditors and borrowers, and the appropriate relationship between foreign investment and the state. Their debates and the changes to policy and practice they wrought reflect this volume’s theme that, as Christopher Dietrich writes in the introduction, “diplomacy and the forces of capitalism . . . have continually evolved together and shaped each other at different levels of global, national, and local transformations.”4 Theodore Roosevelt, Woodrow Wilson, Elihu Root, and other U.S. officials with deep understanding of economics and international affairs spoke simultaneously of the need to protect U.S. investments and of the need for a better approach to Latin America. Regardless of their sensitivity to Latin American sovereign rights, these officials defended intervention in the region on the articulated principle that investor and creditor rights demanded it. The United States was not a monolith, and the two leading political parties differed somewhat in their approach to capitalism. The laissez-faire era of the late nineteenth century gave way under early-twentieth-century Republican presidents Roosevelt and Taft to modest Progressive regulation of the market and some restrictions on powerful corporations. The parties and their standard-bearers expressed differences on foreign investment and military intervention, at least rhetorically, but in practice, the distinction weakened at the water’s edge. Woodrow Wilson, a Democrat, denounced his Republican predecessors for intervening militarily in Latin America—and then outdid them in the number of interventions he ordered. Republican presidential candidate Warren G. Harding then attacked Wilson’s Democratic administration for its “rape of Haiti,” where, he claimed, he would not write “a constitution for helpless neighbors in the West Indies and jam it down their throats at the point of bayonets borne by U.S. Marines.”5 Once in office, he did not end the occupation. Leading U.S. officials in this era were united in heeding the principle that investment may call for invasion when the national interest demanded it. As Dietrich writes, “U.S. decision makers understood the growth of American-led business as a crucial component of its national power in the twentieth century. American diplomacy often worked to claim a degree of private economic control over foreign resources, land, and people for businesses owned by citizens. Capitalist expansion, from this perspective, was not only or even principally about the pursuit of profits. It was about creating a world—often through trade, law, or commodity exploitation—in which the United States could thrive, first as a great power and then as a superpower.”6

Against this trend, Latin American leaders such as Argentine president Hipólito Yrigoyen and Mexican president Venustiano Carranza and influential diplomats such as Carlos Calvo and Luis María Drago of Argentina and Isidro Fabela and José Manuel Puig Casauranc of Mexico, promoted new rules of the road for international capitalism designed to change the terms under which foreign capital was linked to foreign state power. They aimed to protect debtor nations from the hazards to their sovereignty posed by their reliance on foreign investment—capital that was simultaneously essential to their development and the chief menace to their independence. It would take decades of effort and a sea change in international economic conditions—the global crisis of the Great Depression—for them to achieve most of their goals.

The surprising degree to which their ideas acquired purchase in the inter-American system is significant for debates over a diffusionist model that emphasize North-South transmission of ideas, as well as for understanding how a disproportionately powerful state can be hemmed in by the concerted efforts of weaker states that find effective venues and circumstances in which to advance their claims.

* * *

Argentine thinkers had been wrestling for some time with the need to preserve inflows of foreign capital while protecting weaker Latin American states from the power of the investors’ home governments when disputes arose. Long dependent on British capital, Argentina seemed vulnerable, even as its export-led growth made it seem on the cusp of acquiring the status of a great power in the early twentieth century. This paradoxical condition—an acute sense of vulnerability combined with ambition to be treated as the equal of the world’s leading states—provided the context in which Argentines would assert their standing to create or interpret international norms and to challenge those coming from the global North and increasingly the United States. Two of Argentina’s best-known diplomats, Carlos Calvo (1824–1906) and Luis María Drago (1859–1921), would come to promote formal doctrines forbidding gunboat diplomacy. As early as the 1860s, Calvo began to campaign for an absolute prohibition on diplomatic or military intervention for debt collection. His Le droit international théorique et pratique (Theoretical and Practical International Law, 1868) challenged extraterritoriality, the principle by which European powers and the United States held that their nationals living in “backward” countries were subject to their own laws. This claim that “national law” (i.e., the law in one’s country of citizenship) superseded “domicile law” (i.e., the law in one’s country of residence) was a “juridical fiction” for Calvo. Instead, he insisted, disputes must be resolved through the courts of the country in which the business took place.7

Although the Calvo doctrine did not find formal acceptance in international law, and D. R. Shea’s major study went so far as to claim that Calvo’s ideas had no impact and were effectively “dead,” Argentine diplomats pressed for the adoption of new norms to constrain the great powers in international venues.8 In 1889, U.S. secretary of state James Blaine launched the First Pan-American Conference to try to create a customs union and system of arbitration in Latin America, both under U.S. leadership. This was the first of many meetings that would create the formal machinery of the inter-American system, what eventually became the Organization of American States in 1948. At the first meeting, held in Washington in 1889–1890, the Argentine delegation was successful in rallying Latin American opposition to block the U.S. projects.9 At the Second Pan-American Conference in 1902–1903, Argentina submitted a version of the Calvo doctrine, prohibiting extraterritorial intervention (diplomatic or military) to resolve pecuniary disputes and holding that natives and foreigners were equal before the law.

During the Venezuela crisis of 1902–1903, Foreign Minister Drago wrote a message to the Roosevelt administration calling for an absolute prohibition on military intervention in “the territory of American nations.”10 Roosevelt ignored him. While belatedly objecting to European intervention, President Roosevelt claimed a special U.S. right to intervene. The United States, he declared, must exercise “international police power” in the hemisphere, in what came to be known as the Roosevelt corollary to the Monroe Doctrine. The enduring image was of the hemispheric policeman, but it should have been of an armed debt collector. Roosevelt explained the need for intervention with a countercase: “If a nation shows that it knows how to act with reasonable efficiency and decency in social and political matters, if it keeps order and pays its obligations, it need fear no interference from the United States.”11 The converse was the unspoken but unmistakable warning: Falling into arrears was good reason for fear.

Drago made the opposite argument in the note he asked his minister in Washington, Martín García Mérou, to deliver to Roosevelt. Debt default led to such grave consequences in loss of prestige and denial of access to future credit that there was no need for foreign intervention to aggravate “the transitory calamities of insolvency,” he said. Public debts and the obligations to repay them “are in no way divested of value because the collection cannot be carried out in practice by way of force.” He offered the case of Argentina’s payments to European creditors, twice suspended when lengthy nineteenth-century crises made it impossible to stay on schedule, and resumed once circumstances permitted. “Now we have the most cordial relations with all of them,” Drago concluded.12 He could have added that the investors continued to profit handsomely from Argentina’s growth.

The State Department’s solicitor, William L. Penfield, wrote a stern defense of gunboat diplomacy in response. Drago’s “ingenious” paper showed “much art and skill in persuasive and insinuating appeals,” he admitted. But if adopted, it would “result in the sacrifice of the interests and of the right to justice, of those enterprising Americans who have invested large sums in the development of the resources of Central and South America.” Even worse, it “would forever stop the United States from resorting to armed intervention for the protection of its vast and growing interests in the Latin-American States.”13 Investment required reserving the right to invade.

Latin American opposition to gunboat diplomacy was increasingly focused on the United States, because after 1903 the United States was increasingly responsible for gunboat diplomacy in the circum-Caribbean. The Roosevelt corollary followed the taking of Panama and then was made flesh by interventions in Cuba (1906) and the Dominican Republic (1905), where the United States set up a customs receivership to ensure the House of Morgan would be first in line for any government revenues. William Howard Taft continued the practice, extending customs receiverships to Haiti and Honduras, and gave rise to the term “dollar diplomacy” by telling Congress he was “substituting dollars for bullets.” But he soon sent bullets after the dollars, dispatching troops to Nicaragua in 1909 and 1912 to thwart rebels opposed to U.S. loans and to enforce a customs receivership. This was “an assault on the sovereignty of an independent republic,” the influential Mexican foreign affairs expert and advisor to Mexican presidents Isidro Fabela would later explain, because dollar diplomacy “consisted of lending money to poor and weak countries by diplomatic force, in order later to collect by force of arms.”14 U.S. officials claimed that the interventions were necessary for the sake of preserving stability. The U.S. military governor of Cuba, General Leonard Wood, summed up the underlying policy in a sentence: “When people ask me what I mean by stable government, I tell them, ‘money at six percent.’”15

These policies drew fire from across the region.16 To try to improve the U.S. image, Secretary Root in 1906 undertook a tour to reassure Latin Americans. “We neither claim nor desire any rights or privileges or powers that we do not freely concede to every American Republic,” Root declared, overlooking the right of “international police power” Roosevelt had arrogated exclusively to the United States.17 (At a speech for U.S. and British expatriates at Prince George’s Hall in Buenos Aires, Root was more direct about his broader purposes: “I should like to see the great surplus capital which we are accumulating in the United States turn southwards.”18 He was already doing his part; on his previous stop he signed a contract in Brazil that replaced Argentine flour imports with U.S. flour imports.19) Former foreign minister Drago tried to pin Root down at a banquet for six hundred guests at the Teatro Colón: could the prohibition against “the forcible collection of public debts by European nations” become as much a “principle of American diplomacy” as was the Monroe Doctrine? Root’s reply contained key weasel words: “the United States of America has never deemed it to be suitable that she should use her army and navy for the collection of ordinary contract debts of foreign governments to her citizens.”20 This only nodded toward the Drago doctrine, because the specification of “ordinary contract debts” excluded the major category of public debt, that is, loans to governments in the form of bonds, which had been the issue at stake in both the Venezuelan and Dominican crises. Soon Root acknowledged more clearly that nothing had changed. In response to a Panamanian request for a clarification of U.S. policy, Root stated that “the United States possesses the inherent right to protect its property and enforce its rights wherever located and wherever imperiled.”21

Argentina’s efforts continued. At the Third Pan-American Conference in 1906, Argentina sought the adoption of the Drago doctrine but was blocked by the United ...

Table of contents

• Cover
• Title Page
• Copyright Page
• Dedication
• Contents
• Introduction. On Value and Values: Power, Progress, and Inequality in the American Century
• 1. Investment and Invasion: The Clash Between Capitalism and State Sovereignty in Latin America, 1903–1936
• 2. Gangster for Capitalism: Smedley Butler Abroad in the Age of Empire
• 3. From Nashville to Port-au-Prince: Giles A. Hubert and the Agrarian New Deal in Postoccupation Haiti
• 4. Weapons of the Strong: The Multinational Firm, Infrastructure, and the Neoliberal Legacies of the New Deal
• 5. Rivers of Money: American Expert Influence on Pakistan and the Indus’ Water Economy
• 6. Productivity as a Way of Life: USIS Propaganda Films in Cold War Italy
• 7. Selling Cooperative Capitalism Abroad: The U.S. Cooperative Movement and International Development During the Cold War
• 8. Building a Capitalist Consciousness: Japan and Visions of Capitalist Asia
• 9. Cash for Gold: The Role of Private Finance in Shaping Decolonization in South and Central Africa, 1960–1974
• 10. Courting American Capital: Public Relations and the Selling of Ivorian Capitalism in the United States, 1960–1980
• 11. Nuclear Reaganomics: Corporate Lobbying After Three Mile Island, 1979–1985
• Notes
• List of Contributors
• Index
• Acknowledgments