How Wall Street Sleaze Led to Roosevelt’s Famed CorollaryCyrus Veeser
Feb. 6 (Bloomberg) -- United Fruit Co. in Guatemala. Aramco in Saudi Arabia. Blackwater in Iraq. We are familiar with a few private American companies that decisively shaped foreign policy. One of the first and ultimately most influential, however, is also the least known.
In December 1892, a group of Wall Street businessmen arrived by ship in the Dominican Republic. Earlier that year, the group had created the San Domingo Improvement Co. and bought all of the country’s foreign debt from a European financial company. Now the men came to Santo Domingo on a delicate mission -- coming to terms with Ulises Heureaux, the Caribbean republic’s fearsome dictator.
Early signs weren’t good. On paper, the company controlled the republic’s custom houses, which were the source of almost all Dominican government revenue and served to guarantee the debt. But the finance minister told the Americans that his government considered their purchase of the foreign debt “null and void.”
After the first meetings with Heureaux, the company’s lawyer, Frederick William Holls, wrote with astonishment that the Dominican president, “a coal black negro,” was “one of the most remarkable men I have ever met.” Heureaux had come to power through “a series of atrocious massacres and revolutions,” but now governed “with a very enlightened purpose.” When it came to bare-knuckled negotiation over the company’s contracts, Holls marveled that not even a “first-class New York lawyer” could have “seen through our own schemes & given us more trouble, than did this remarkable man.” Heureaux soon came to see the Improvement Co. as a useful instrument to borrow money and stay in power.
On the surface, the company’s venture had nothing to do with U.S. foreign policy. But the firm’s president, Smith M. Weed, was a prominent New York Democrat with connections all the way to the White House. Weed and his partners had consulted the State Department before buying the Dominican debt. After a meeting in Washington, the company’s lawyer reported happily that the “Government is now committed to support the claims of our company energetically and promptly.”
The Improvement Co.’s very name trumpeted a commitment to progress, which in Latin America at the time meant the production of cash crops for export. Together, the company and Heureaux completed a railroad that opened some of the republic’s interior to export agriculture, but at an astronomical cost (much of the money found its way into Heureaux’s pocket). The company also pushed the dictator to put his nation on the gold standard. (Silver depreciated rapidly in the 1890s, reducing the company’s revenue.) They even brought to Santo Domingo an economics professor from the newly founded University of Chicago to promote hard money.
Most problematically, Heureaux changed grazing laws to require pig farmers to fence in their animals, which invaded and destroyed sugar and cacao plantations. The law clearly benefited farmers -- both local and foreign -- at the expense of landless peasants, who duly rose up in rebellion. Heureaux suspended the law and put down the uprising.
By 1897, it was clear that genuine modernization had failed to transform the nation’s economy, and Heureaux and the American financiers settled on fraud as a way to stay afloat.
Dominican bonds issued after the arrival of the Improvement Co. had been sold across Europe, but after the country defaulted on interest payments in 1897, blocs of outraged bondholders formed pressure groups in Brussels, Paris, London and elsewhere. To keep the depreciated bonds from losing all their value, the Improvement Co. did everything it could to keep Heureaux in power -- the dictator had assured his Wall Street allies that he would “make sure that no political disturbance damages the confidence that peace brings to the foreign bondholders.”
Heureaux needed money to stay in power, but all sources of new credit had run dry, both at home and abroad. He still had one card to play, however. The New Yorkers owned the National Bank of Santo Domingo, which had an exclusive right to issue currency. Soon worthless bills flooded the country, followed by “silver” coins of dubious value. For the long-suffering Dominican people, this was the last straw. In July 1899, Heureaux was shot and killed by the son of a businessman whom he had executed years earlier.
Heureaux was gone, but the company remained. Now, however, Dominicans could speak out openly. An American naval officer noted that locals referred to the company “as the American Destruction Company.” Even American sugar planters on the island complained that their compatriots had come to the country “simply to finance for profit and increase the national debt.” The company’s vice president was forced to admit that “the people would be glad to be rid of us.”
Nevertheless, U.S. officials stood by the Improvement Co., pressuring the new Dominican government to pay $4.5 million to liquidate the company’s assets -- the railroad, national bank and a quantity of bonds. That sum represented almost a whole year’s revenue for the impoverished nation.
For several years, the U.S. held fast to the idea that the company’s grip on Dominican finances served American interests in the Caribbean. By 1904, however, it was becoming clear that the company created more problems than it solved. The country was bankrupt and in a state of near-constant revolution. Payments to the Improvement Co. spurred protests by European governments, whose citizens had claims that the Dominicans ignored in order to pay the American firm.
By early 1905, President Theodore Roosevelt had finally had enough. He elbowed aside the Improvement Co. and put U.S. officials in charge of Dominican customs houses. American creditors would get paid back by the new U.S. customs receivership, but so would Europeans. And no longer would a private company handle American foreign policy.
The intervention helped give rise to the Roosevelt Corollary to the Monroe Doctrine, which committed the U.S. to intervene wherever “wrongdoing or impotence” kept Latin American nations from fulfilling their international obligations. Few Americans, at the time or since, knew that the disreputable actions of a Wall Street firm had led to a landmark in U.S. foreign policy.
(Cyrus Veeser is an associate professor of history at Bentley University. The opinions expressed are his own.)
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