About the Author: Johnny Roy, PhD has been an Advanced Placement US History teacher for the past 9 years at Cuyahoga Heights High School just outside of Cleveland, Ohio. He has actively been involved with the AP Reading as a grader for the past 4 years having scored the DBQ, LEQ, and SAQ sections of the exam. Dr. Roy has recently worked with the Ohio Department of Education to help revise the states Model Curriculum for American History.
Dollar Diplomacy was an economic policy of the United States of America begun during the William Howard Taft Presidency (1909-1913). The policy itself was aimed at furthering the interests of the U.S. abroad by encouraging the investment of U.S. capital in foreign countries, specifically, Latin and South America.
In 1824, President James Monroe issued the Monroe Doctrine attempting to limit any European imperialism in the Western Hemisphere. However, the still relatively young United States lacked the military ability to enforce such a doctrine on a wide scale if the more established European nations had decided to challenge it. Luckily, for the United States, they did not.
Big Stick v. Dollar Diplomacy
The possibility of European influence in the Western Hemisphere was a concern to President Taft as it was to his predecessor, President Theodore Roosevelt. However, Roosevelt preferred the doctrine of Big Stick Diplomacy, which was based on the saying, “speak softly and carry a big stick and you will go far”. In this case the “big stick” was the United States military, specifically, the US Navy.
In this case the “big stick” was the United States military, specifically, the US Navy.
Big Stick Diplomacy added military might and a willingness to use it to the already established policies of the Monroe Doctrine. This new addition became known as the Roosevelt Corollary and was passed in 1904, establishing the United States as an international police power.
Yet, upon the election of Taft to the presidency, the new president wanted to shift the ability of the United States to influence world affairs away from military action and instead use the power of the U.S. dollar and its economy to exert influence abroad.
Taft wanted to shift the ability of the United States to influence world affairs away from military action and instead use the power of the U.S. dollar
Latin and South America
Since the landing of Columbus in the Caribbean in 1492, the European continent had viewed the New World as a land of economic opportunity and imperialistic ventures. However, with the emergence of the United States as a legitimate world power in the second half of the 19th century, European influence in Latin and South America had continually decreased. The United States wanted to solidify its dominant influence in the region by limiting their exposure to European interests. The construction of the Panama Canal solidified a U.S. military presence in the region but President Taft wanted to shift U.S. influence away from military threats and shows of force to economic persuasion.
President Taft wanted to shift U.S. influence away from military threats and shows of force to economic persuasion.
Latin and South America had remained under-industrialized due to its historic position as serving the external interests of European nations as one-time colonies of those nations.
Latin and South America had remained under-industrialized due to its historic position as serving the external interests of European nations as one-time colonies of those nations. This resulted in an over dependence on foreign investments to keep their economies somewhat stable. The increased investment of U.S. capital in the region was seen as an opportunity to increase its own economic interests in the region and at home, while continuing to exclude European nations. This basic premise became the basis of Dollar Diplomacy.
An American Global Economy
Following the end of The Civil War and Reconstruction, the United States had begun to recognize its need to become engaged in the emerging global economy. In 1899, Secretary of State John Hay had begun to gain support for a series of diplomatic notes in regard to trade with Eastern Asia and other regions of the world. These notes would eventually become the Open-Door Policy which was aimed at seeking equal trade and investment opportunities in foreign nations or regions. Resulting in The United States beginning to move towards allowing economic interests to drive foreign policy.
The Open-Door Policy was aimed at seeking equal trade and investment opportunities in foreign nations or regions.
Key Economic Moves
The annexation of Hawaii in 1899 was the byproduct of businessmen looking to avoid paying import taxes on its sugar and pineapple commodities. The usage of Pearl Harbor as a strategic naval and military base in the Pacific was again looking at protecting the ultimate goal of high usage trade routes to Asia. The outbreak and conclusion of the Spanish American War in 1898 and subsequent acquiring of the territories of Guam, Puerto Rico, and the Philippines in the Treaty of Paris in 1898 were driven by the desire to expand economic opportunities for U.S. businesses. The passage of the Platt Amendment in regard to Cuba further displayed not simply presidential support for American economic imperialism but also congressional approval of it. President Taft saw the actions of the previous 30 years and the newly adopted Open Door policy as a way to solidify American economic (and military) influence and provide opportunities for American businesses not just in Latin and South America, but China and Eastern Asia as well.
Through the encouragement and support of the U. S. Government, American businesses and banks began an unprecedented influx of money and investment into those regions.
Through the encouragement and support of the U. S. Government, American businesses and banks began an unprecedented influx of money and investment into those regions. U.S. exports of finished and refined products to these regions increased dramatically and the purchasing of raw materials from these regions also went up. Business loans to struggling governments, sugar from Cuba, bananas from Guatemala, land purchases in Mexico, along with millions of dollars in exports to China solidified the United States as not simply the worlds police officer, but also its business partner and banker. The attempt to take advantage of these world markets was not simply designed or intended to benefit the United States. The overarching goal was to economically grow these regions in order to make them more politically stable thus making them less susceptible to European influence while binding them economically to the United States.
The overarching goal was to economically grow these regions in order to make them more politically stable.
Third, a clear shift from a system of indentured servants (who were expensive and became resentful) to African slave labor (cheaper and controllable) in the South began shortly after Bacon’s Rebellion. This was significant because it united the rich and poor whites of the Tidewater region and the Carolina colonies in the formation and growth of the African slave trade in America. This unification of the social classes in the desire for wealth created a growing support for the slave system in America. Throughout the 1600’s, tobacco still was the most profitable crop in the south. However, crop diversification did begin to take place. Due to the institution and expansion of the slave system, rice and indigo became profitable for planters as well, and by the turn of the century they were main crops in the south eventually giving way to cotton in the early 1800’s in what would ultimately become King Cotton.
Did It Work?
Well, it depends on who you ask and by what measure you use. As stated earlier the goals of Dollar Diplomacy were:
- Furthering U.S interests abroad by encouraging the investment of U.S. capital in foreign nations.
The short answer to this is yes, the United States experienced one of its greatest periods of economic growth between the years of 1890-1929 and a lot of this was due to the ability of U.S. business to use foreign nations as economic marketplaces. While the U.S. economy continued to grow the U.S. consumer also benefited from the influx of cheap raw materials and agricultural products from around the world allowing them excess money to spend on other finished goods being produced in the United States. As business profits continued to grow, American investors poured money into the stock market seeing it as the path to becoming wealthy, which it was, until the crash of 1929 brought the entire system and global economy crumbling down.
- Stabilize foreign nations economically and politically, specifically, Latin America and South America in order to gain further security for the United States.
The answer to this one is no, few of these nations dramatically transformed into anything resembling a stable nation. Economic dependence on the U.S. as well as official trade “partnerships”, which were frequently in favor of the United States businesses, oftentimes created animosity in these countries and possibly created the conditions for dictators to rise to power. These revolutions occurred under the banner of throwing off the oppressive policies of the Untied Stats who became seen as simply using the smaller nations for her own benefit. This turmoil threatened the economic interests of the U.S. which necessitated military intervention into such nations as Nicaragua, the Dominican Republic, and Haiti furthering the image of the U.S as an international bully.
- Block European influence in the Western Hemisphere.
This was successful as European powers remained focused on Eastern Asia and the United States as its main source of global economic trade. However, the outbreak of World War I and World War II also curtailed any real European attempts to become involved in any imperialistic practices in Latin and South America.
The legacy of Dollar Diplomacy was significant as it established a precedent of the United States to specifically use the power of the U.S. economy to influence the world. A dramatic and clear example of this was the deployment of the Marshall Plan following World War II as a means to stabilize Europe and hold back the spread of Communism and minimize the influence of the Soviet Union. The usage of Dollar Diplomacy had provided the United States the unique ability to influence world affairs as a both a military and economic power and solidified its place on the world stage.