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2.5 Taft’s Dollar Diplomacy

“The diplomacy of the present administration has sought to respond to modern ideas of commercial intercourse. This policy has been characterized as substituting dollars for bullets.”119


William Howard Taft, State of the Union Address

December 3, 1912


In theory, William Howard Taft was impeccably qualified to continue the Rooseveltian style diplomacy of his predecessor. Having served as Governor-General of the Philippines for almost three years, Secretary of War for over four years and a spell as Governor of Cuba during Roosevelt’s administrations, Taft seemed an ideal fit to provide leadership in foreign affairs. However, as demonstrated in chapter two, he was a rather strict constitutionalist who liked to maintain a sense of institutional regularity and integrity, letting various organs of the Executive branch handle their affairs in an orderly fashion without interference by the White House.120 And despite Taft’s keen interest in foreign affairs, they would occupy a minor part of his tenure in comparison to his predecessor. Domestic affairs such as the control over the trusts, conservation and the Negro question became more prominent during the Taft years.121 Indeed, his acceptance speech of 1908 is notable for its distinct lack of onus on foreign policy matters, with only casual sections pertaining to diplomatic questions, though importantly he did state his predecessor’s support for “the policy of maintaining a strong navy as the best conservator of our peace with other nations.”122 In a further warning against a reduction in armaments he declared:

“In the international controversies that are likely to arise in the Orient growing out of the question of the open door and other issues the United States can maintain her interests intact and can secure respect for her just demands. She will not be able to do so, however, if it is understood that she never intends to back up her assertion of right and her defense of her interest by anything but mere verbal protest and diplomatic note.”123


This declaration of intentions was the first avowal of the policy which, under the Taft administration, would earn the title of ‘Dollar Diplomacy’. Taft’s policy would result in a significant deviation from his predecessor’s diplomatic style, with the emphasis now shifting towards the State Department assisting American investors overseas, essentially employing them as intermediary instruments in achieving foreign policy goals. Shortly after his inauguration, an opportunity to test the policy arose.

In May, 1909, the Chinese government made an agreement with German, British and French bankers for a loan to construct the Hukuang railways. Immediately a group of American bankers was organized to finance any concessions for railroads which American capitalists might obtain from the Chinese government. At once however, they began to struggle for admission into the international group of bankers which was to float the Hukuang loan.124 Their difficulties led Taft and his Secretary of State Knox to aid them in seeking American entrée to the British, French, and German consortium negotiating the loan.125 Knox brought diplomatic pressure to bear upon China, with stern demands to the American Chargé d’Affaires to issue warnings to China.126 Such diplomatic efforts appeared to be futile, with the Chinese government hoping that the Powers would quarrel amongst themselves. 127 It was at this point that Taft intervened. Breaking all diplomatic precedent, he sent a personal message to Prince Chun, regent of the Chinese Empire, in which he stated: “I am disturbed at the reports that there is certain prejudiced opposition to your Government’s arranging for equal participation by American capital in the present railway loan…I have resorted to this somewhat unusually direct communication with your Imperial Highness, because of the high importance that I attach to the successful result of our present negotiations.”128 Partly as a result of this pressure, a quadruple agreement was signed in November 1910 to expand the consortium to include the American bankers, with the loan eventually floated the following June.129

Simultaneously, the State Department would help American financiers to entrench themselves in Nicaragua, Honduras and elsewhere in Latin America. Taft declared that “the Monroe Doctrine is more vital in the neighborhood of the Panama Canal and the zone of the Caribbean than anywhere else…It is therefore essential that the countries within that sphere shall be removed from the jeopardy involved by heavy foreign debt and chaotic national finances and from the ever present danger of international complications due to disorder at home. Hence the United States has been glad to encourage and support American bankers who were willing to lend a helping hand to the financial rehabilitation of such countries….”130

However, the failings of this policy were cruelly exposed in Nicaragua. The Nicaraguan President Zelaya had persistently challenged U.S. policy in the region, with concerns in Washington growing that he was going to give a non-American power the right to build an isthmian canal through Nicaraguan territory, thus challenging American hegemony on the isthmus. Before long, a revolutionary movement appeared on Nicaragua’s east coast, helped along by U.S. diplomatic officials and Marines, who landed to protect the rebels.131 The ensuing conflict saw Zelaya’s forces execute two Americans who had been captured aiding the rebel effort. Under intense diplomatic and domestic pressure, he resigned and was succeeded by José Madriz. Farce and chaos ensued with Washington refusing to recognize Madriz, considering him as no less responsible than Zelaya. The presidency would change hands frequently in the turbulent months following Zelaya’s overthrow, with Washington recognizing Estrada when he agreed to certain conditions such as the holding of free elections and the reconstruction of Nicaraguan finances on the basis of American loans to be secured on customs revenues. However, Estrada was soon succeeded by Adolfo Diaz, once an employee of an American firm doing business in Nicaragua. An agreement was then signed between the new government and the United States for adjudicating all existing loan claims held by Americans, and for establishing a customs receivership.132 When revolt threatened, American troops were sent to control Nicaraguan railroads, allowing only Diaz’s troops to use them.

American military intervention in Nicaragua went a step beyond Rooseveltian policy in that neither the security of the Canal Zone nor alleged intervention by European powers was involved. Rather, Taft took action in order to restore political and financial stability in a country that was apparently falling into the control of reckless and irresponsible men.133 So U.S. intervention was very far from the transforming force that its exponents had claimed. Rather, it meant a symbiosis of local politics with American finance, which was always likely to bring out the worst attributes of both. More grossly perhaps than any of its neighbors, Guatemala exhibited the blighting effects of the protectorate system. After a hopeful era of liberalism and progress the country fell under the regime of Manuel Estrada Cabrera, who ruled from 1898 to 1920. Not fortuitously, it was in these years that the United Fruit Company got its stranglehold on Guatemala and turned it into the ‘Banana Republic’, with control of all railways and ownership of half a million fertile acres.134

A critique of ‘dollar diplomacy’, written in 1912 as a publication addressed to the U.S. Senate, members of the House of Representatives and the American public, exhibits the brutal reputation that the policy earned itself, at the very time it was being carried out. The writer- Juan Leets- makes a number of damning assertions against the policy, most notably that:

“Recently, under the Taft administration, the Secretary of State, Mr. Knox, has seen fit to add to the supposed right of tutelage over the Latin-American Republics, an assumption even more pernicious and objectionable, that of policing these countries, and further, has sought to impose, especially on Central America, a financial protectorate which would deprive these countries of the administration of their own fiscal affairs.”135

He further excoriates the policy by stating that “under the pretext of giving aid to the small Central American republics, the State Department has used ‘Dollar Diplomacy’ to force upon these peoples loan contracts which would give to a coterie of Wall Street bankers not only millions of dollars tainted with illegitimacy, opportunity for immense graft, but an absolute license to exploit the vast resources of the countries and even administer their governmental affairs.”136 Lees then describes the terms of the loan contracts which Secretary Knox has so assiduously sought to fasten upon Nicaragua and Honduras as “vicious” before accusing Mr. Knox as having “adjudged Zelaya a dictator in Nicaragua and drove him from power, setting up a government which has brought poverty instead of prosperity…despotism instead of liberty”137






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