Safeguarding Democratic Capitalism

U.S. Foreign Policy and National Security, 1920-2015

Melvyn P. Leffler

• Publisher: Princeton University Press
• Year: 2017
• ISBN:
  9781400888061
• Topic: Politics & International Relations
• Subtopic: International Relations
• Index: Politics & International Relations

Safeguarding Democratic Capitalism gathers together decades of writing by Melvyn Leffler, one of the most respected historians of American foreign policy, to address important questions about U.S. national security policy from the end of World War I to the global war on terror. Why did the United States withdraw strategically from Europe after World War I and not after World War II? How did World War II reshape Americans' understanding of their vital interests? What caused the United States to achieve victory in the long Cold War? To what extent did 9/11 transform U.S. national security policy? Is budgetary austerity a fundamental threat to U.S. national interests?Leffler's wide-ranging essays explain how foreign policy evolved into national security policy. He stresses the competing priorities that forced policymakers to make agonizing trade-offs and illuminates the travails of the policymaking process itself. While assessing the course of U.S. national security policy, he also interrogates the evolution of his own scholarship. Over time, slowly and almost unconsciously, Leffler's work has married elements of revisionism with realism to form a unique synthesis that uses threat perception as a lens to understand how and why policymakers reconcile the pressures emanating from external dangers and internal priorities.An account of the development of U.S. national security policy by one of its most influential thinkers, Safeguarding Democratic Capitalism includes a substantial new introduction from the author.

1

The Origins of Republican War Debt Policy, 1921–1923

A CASE STUDY IN THE APPLICABILITY OF THE OPEN DOOR INTERPRETATION

Like most graduate students studying diplomatic history in the 1960s, I was enormously influenced by the writings of the “Wisconsin school” led by William A. Williams. Following the research agenda of many of Williams’s students—like Walter LaFeber, Tom McCormick, Lloyd Gardner, and Carl Parrini—I turned my attention to the views of businessmen, especially those interested in international trade. I looked at the proceedings of elite business, banking, and farm organizations like the National Foreign Trade Council, the National Association of Manufacturers, the Chamber of Commerce of the United States, the American Farm Bureau Federation, and the Investment Bankers Association. I found that the Wisconsin school was remarkably prescient in illuminating the interest of American businessmen and agricultural spokesmen in foreign markets. Far from ignorant about the needs of European reconstruction after World War I, elite factions of the American business, banking, and farm sectors grasped that war debt payments were intimately related to the controversies over German reparations, the restoration of European currency stability, the promotion of American exports, the alleviation of unemployment, and the revival of agricultural prosperity.

Yet translating these views into constructive policy was hard. Bankers, manufacturers, traders, and farmers cared greatly about levels of postwar taxation that would be affected by cancellation of the war debts or even the reduction of interest rates. Nor could officials in the executive branch make policy on their own. Secretary of the Treasury Andrew Mellon asked Congress for the flexibility to renegotiate war debt settlements but was rebuffed. Legislators—responding to their constituents—assigned priority to tax relief and veterans’ bonuses. Legislators also wanted to rein in presidential power after feeling infuriated and belittled by Woodrow Wilson’s use of executive authority. Enhancing the power of the legislative branch was sufficient motivation for congressmen and senators to circumscribe Mellon’s initial request for flexibility.

Studying the origins of war debt legislation in a microscopic way helped me to see the complexity of the policymaking process and to understand the diversity of motives bearing on decision-makers. My fascination with the role of business and economics in the making of U.S. foreign policy grew, but I also saw the pluralism within the business community, the messiness of the legislative process, and the salience of organizational pressures within executive branch departments. I was still impressed with the insights offered by the Wisconsin school, yet was wrestling with the conflicting evidence I was uncovering within business journals, trade associations, and archival collections.

This article was originally published in the Journal of American History 59 (December 1972), 585–601.

The open door interpretation of American diplomatic history, now widely disseminated by reputable scholars and articulate spokesmen, demands rigorous analysis. The appeal of the interpretation rests in its simplicity. According to this thesis, American diplomacy is a function of domestic policy. Unable to find internal solutions to the chronic problems of overproduction and unemployment, American policymakers have looked abroad to reconcile the dilemmas of the American capitalist system. This externalization of internal difficulties has compelled the American establishment to search for foreign markets to absorb the unparalleled quantity of goods produced in American factories and on American farms.¹

This article will examine the origins of Republican war debt policy and will evaluate the utility of the open door thesis as a guide to this analysis. It will contend that American debt policy was the result of uneasy compromises between hostile branches of government, which themselves were wracked by a multitude of conflicting pressures and irreconcilable goals. In this complex and changing situation the search for markets was an important consideration. Nevertheless, among economic interest groups and government officials, the quest for foreign outlets was counterbalanced by fiscal and political considerations.

At first thought, American war debt policy hardly seems susceptible to the open door interpretation. The standard work on the subject denounces the economic ignorance of American policymakers.² Historians generally have castigated American debt policy as economically unwise and illustrative of American insularity and provincialism in the early post–World War I era.³ Until recently, they have agreed that American insistence on debt repayment reflected a widespread ignorance of the unity of international economic and financial processes.⁴ They have claimed that the public’s antipathy to debt cancellation as well as its obsession with the sanctity of contracts compelled American policymakers to disregard economic criteria.⁵

In the years immediately following the Versailles conference, however, a wide and representative spectrum of the American banking, business, and agricultural community did recognize the interdependence of European and American prosperity. These groups—the Chamber of Commerce of the United States (CCUS), the National Association of Manufacturers (NAM), the National Foreign Trade Council (NFTC), the American Bankers Association (ABA), and the American Farm Bureau Federation (AFBF)—realized that European economic reconstruction and European political tranquility were prerequisites for the healthy functioning of the American economy. These perceptions intensified as the postwar boom collapsed in 1920, as the American economy moved swiftly from recession to depression in 1921, and as the European reparations crisis culminated in the occupation of the Ruhr in 1922–1923. Businessmen and bankers increasingly agreed that “the great outstanding problem of the world today is the restoration of the normal producing and consuming power of Europe and whether she wishes it or not, America is intimately and profoundly concerned in the solution of that problem.”⁶ Since Europe was virtually the exclusive market for American farm products, agricultural leaders were equally aware of the need to resuscitate the European market as a means of solving the problems of overproduction and low prices.⁷

Those elements of the European economic crisis that most affected American exports and that most worried American businessmen were the depreciation of foreign currencies and the fluctuation of foreign exchanges. Depreciation of foreign currencies and the corresponding appreciation of the American dollar contributed to increased competition from European producers throughout the world. The appreciation of the dollar also meant increased difficulty in marketing American goods in European markets. Even greater concern was aroused by the harrowing phenomenon of fluctuating exchange rates. Fluctuation of exchanges eliminated the elements of predictability and stability that were so important to business transactions. Exchange fluctuations made Europeans hesitant to borrow because they were unable to estimate the amount of foreign exchange that would be needed to repay loans. Little wonder that American business leaders believed the stabilization of European currencies and the concomitant increase in European purchasing power would bring a long era of prosperity to the United States.⁸

American economic interest groups generally recognized the interrelationships of American and European prosperity and were well aware of the unity of international financial and economic processes. The real dilemma was the transformation of this understanding into constructive action with regard to the war debts. In fact, many of the nation’s economic leaders and business organizations did realize that one of the connecting links between European and American prosperity was the war debt.⁹ As a result, they made many important suggestions on how to deal with the debts most effectively in order to cushion their harmful effect on international financial and commercial movements.

American economic leaders and economic interest groups most frequently proposed that the United States defer interest payments or cancel part of the debt.¹⁰ These recommendations indicated widespread apprehension over the dual impact of debts on foreign exchanges and on American exports. Numerous American economists and business leaders realized that “everything … that makes an unusually great demand for credits to send to America tends to raise the exchange and to decrease our foreign trade.”¹¹ Consequently, debt payments had to be regulated and moderated in order to increase American exports and to mitigate commercial competition, dumping, and unemployment.¹²

In return for the proposed postponement or partial cancellation of the debt, American proponents of these measures expected that the European debtor nations would agree to undertake action to reduce reparation payments, to balance their budgets, to stabilize their currencies, to liberalize their trade restrictions, and to limit their expenditures on armaments.¹³ Fred Kent, vice president of Bankers Trust Company, became the leading advocate of such a settlement.¹⁴ He believed that “if a portion of the Allied debts [could] be cancelled in exchange for agreements which will promptly place European countries on a sound financial basis, the restoration of the buying power of Europe [would] be greatly accelerated, and the total national income of America [would] be increased.”¹⁵ To drum up domestic support for the plan, Kent discussed the proposal with other prominent bankers, farm leaders, and government officials who were worried about the destruction of European purchasing power.¹⁶

There were numerous other recommendations urging further postponement of debt payments, greater flexibility in the negotiation of debt agreements, and a more comprehensive approach to the settlement of both debts and reparations.¹⁷ One of the more striking characteristics of all these proposals, however, was the lack of a sustained effort to secure unilateral and complete cancellation. Though full cancellation would have contributed to the restoration of European purchasing power and to the stabilization of European currencies, American business leaders and economic interest groups rejected it as a viable policy alternative. This was not the result of their ignorance of the impact of the war debts on the international economy, but because of their preoccupation with high domestic taxation, their concern with reparations, and their fear of a hostile public reaction. Even those who advocated partial cancellation, explicitly or implicitly, excluded the British debt from such treatment.¹⁸ This illustrates the difficulty, even among business groups, of translating open door aspirations into logical and concrete action.

The crushing burden of taxation that manufacturers, export-oriented businessmen, and international bankers felt they were experiencing prompted them to limit their proposals to partial cancellation, usually of the pre-Armistice loans. They understood that, if European governments did not honor their wartime obligations, the burden of paying off the war debt of the United States government would fall upon the American taxpayer.¹⁹ While businessmen might extol the commercial advantages that would flow from a reconstructed Europe, they were equally certain that there was no possibility of economic prosperity “if every business activity continues to be oppressed by a multiplication of taxes.”²⁰ The Commercial and Financial Chronicle put the matter bluntly: “The war has left the country with tax burdens which, unless speedily lightened, must prove crushing. In these circumstances we cannot become an almoner of the world of nations, even if we would.” Though postponement of interest for a few years might be permissible, cancellation and repudiation were unthinkable.²¹

Thus, while acknowledging the intimate link between European economic recovery and American prosperity, many business and farm leaders refrained from advocating outright cancellation of the debt. They were too concerned with the impact of taxation upon the American economy and upon their profit margins.²² Some were apprehensive that cancellation would benefit British industry and commerce at the expense of American business.²³ Most American economic interest groups, although eager to reap the benefits of a reconstructed European market, were not ready to bear the tax burden that would make this possible.²⁴

A few of the nation’s leading bankers may have considered virtual cancellation an unsavory but necessary solution to the unsettling international financial situation, but in the early 1920s they steadfastly refrained from publicly advocating this alternative. Cognizant of the public’s antipathy to cancellation and sensitive to charges of conflict of interest, the bankers generally limited themselves to the advocacy of partial cancellation. Thomas Lamont of J. P. Morgan and Company was particularly sensitive to congressional accusations that financiers sought cancellation only because it would enable European governments to pay their debts to private bankers.²⁵

In addition, there was a widespread belief in the early 1920s that the enormous reparation payments were the crux of the inter...

Table of contents

• Cover Page
• Title Page
• Copyright Page
• Dedication Page
• Contents
• Preface
• Introduction: Embracing Complexity
• 1. The Origins of Republican War Debt Policy, 1921–1923: A Case Study in the Applicability of the Open Door Interpretation
• 2. Herbert Hoover, the “New Era,” and American Foreign Policy, 1921–1929
• 3. Political Isolationism, Economic Expansionism, or Diplomatic Realism: American Policy toward Western Europe, 1921–1933
• 4. The American Conception of National Security and the Beginnings of the Cold War, 1945–1948
• 5. Strategy, Diplomacy, and the Cold War: The United States, Turkey, and NATO, 1945–1952
• 6. Adherence to Agreements: Yalta and the Experiences of the Early Cold War
• 7. Victory: The “State,” the “West,” and the Cold War
• 8. Dreams of Freedom, Temptations of Power
• 9. 9/11 and American Foreign Policy
• 10. Austerity and U.S. Strategy: Lessons of the Past
• 11. National Security
• Index
• A Note on the Type