A World Safe for Capitalism

Dollar Diplomacy and America's Rise to Global Power

Cyrus Veeser

• Publisher: Columbia University Press
• Year: 2002
• eBook ISBN: 9780231500944
• Topic: History
• Subtopic: 20th Century History
• Index: History

This award-winning book provides a unique window on how America began to intervene in world affairs. In exploring what might be called the prehistory of Dollar Diplomacy, Cyrus Veeser brings together developments in New York, Washington, Santo Domingo, Brussels, and London. Theodore Roosevelt plays a leading role in the story as do State Department officials, Caribbean rulers, Democratic party leaders, bankers, economists, international lawyers, sugar planters, and European bondholders, among others.

The book recounts a little-known incident: the takeover by the Santo Domingo Improvement Company (SDIC) of the foreign debt, national railroad, and national bank of the Dominican Republic. The inevitable conflict between private interest and public policy led President Roosevelt to launch a sweeping new policy that became known as the Roosevelt corollary to the Monroe Doctrine. The corollary gave the U. S. the right to intervene anywhere in Latin American that "wrongdoing or impotence" (in T. R.'s words) threatened "civilized society." The "wrongdoer" in this case was the SDIC. Imposing government control over corporations was launched and became a hallmark of domestic policy. By proposing an economic remedy to a political problem, the book anticipates policies embodied in the Marshall Plan, the International Monetary Fund, and the World Bank.

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1 The Gilded Age Goes Abroad

The San Domingo Improvement Company and the Political Economy of the 1890s

One of Santo Domingo’s greatest needs is an influx of industrious and progressive people. With such an increase of productive power and improved means of interior communication, which railroads will afford, Santo Domingo will be able to demonstrate to the world the correctness of the estimate formed by the United States commissioners, who visited the country in 1871, when they said in their report that, taken as a whole, Santo Domingo is one of the richest and most fertile regions on the face of the earth.

—Handbook of Santo Domingo¹

I have had to entrust my fate to different people, because no man, alone and isolated, can do anything…. Only God created out of the void. As a mere man, I have to start with something, I need some particle from which I can build something more.

—Ulises Heureaux²

On the last day of the year 1892, an American steamship chartered in Florida sailed into Puerto Plata, the largest seaport on the north coast of the Dominican Republic. On board was a group of American investors who, a few months earlier, had bought the entire foreign debt of the Caribbean republic. Charles W. Wells, the vice president of the San Domingo Improvement Company (SDIC), Frederick William Holls, a New York lawyer who had helped secure U.S. government support for the company’s entry into Caribbean finance, as well as George Weed, son of SDIC president Smith M. Weed, intimate friend of Grover Cleveland. The New York Times noted that the three businessmen “took a pleasure party of ladies and gentlemen with them, and everybody had a good time.”³ Dominican newspapers, under the thumb of president Ulises Heureaux, did not mention the arrival of the “pleasure party” of Americans.

Wells, Holls, and Weed did not stay in Puerto Plata, but continued by steamer to Samaná Bay, the extraordinary harbor carved into the country’s northeast coast, which American naval strategists had coveted for decades.⁴ There they took advantage of a railroad line built by British capitalists to penetrate some 62 miles into the island’s agricultural heartland. After touring the interior, they sailed on, passing the sugar-growing lowlands along the southern coast to reach the capital, Santo Domingo. “San Domingo seems to be enjoying great prosperity,” Holls noted with enthusiasm. “The sugar and coffee plantations have largely increased and their owners seem to be making money.” Statistics backed the impression: sugar production was growing rapidly, spurred by North American capital.⁵

The American investors had come to Santo Domingo on a ticklish mission. Their corporation, the San Domingo Improvement Company, had bought control of the Dominican foreign debt from a Dutch firm, Westendorp, six months earlier. The New Yorkers had gone to Santo Domingo to see how their imperial venture would play out in practice. They faced the delicate task of coming to terms with Ulises Heureaux, a dictator who ruled the Dominican Republic with an iron fist. Heureaux, who became president for the first time in 1882, used force, bribery, and fraud to stay in power longer than any other Dominican leader until the Trujillo dictatorship, which would begin in 1930.⁶

The first contacts between the New Yorkers and the Dominicans had not been cordial. When the SDIC notified the Dominican government that they had bought the country’s foreign debt, Minister of Finance Juan F. Sánchez replied “with all our habitual courtesy … that the Dominican government considers the transfer null and void.”⁷ Westendorp, Sánchez alleged, had violated its contracts by transferring the company’s rights without the government’s consent. Another overture went sour later in August, when an agent of the SDIC failed to attend a meeting scheduled to take place in Santo Domingo. The company’s apology must have seemed improbable to officials in Santo Domingo. “It may not be unknown to Your Excellencies,” explained the SDIC, “that the summer heat has been extreme in New York this season, and that it has prostrated very many people, and has driven a large portion of our business population to the mountains and the seaside. This extreme heat has affected physically the gentleman who was to go for us to San Domingo.”⁸

It was to overcome the Dominican government’s resistance to the Westendorp buyout that the New Yorkers finally did arrive in Santo Domingo early in 1893.⁹ The men arrived in the Caribbean brimming with confidence. True, Westendorp had sold the Dominican debt because of chronic problems with the Heureaux regime. But those problems were easy to explain, and avoid. “Messrs. Westendorp are understood not to have received the support of their own Government in the enterprise, and hence they were dependent on their own powers to enforce payments as they fell due,” the New York Times noted in its first report on the Improvement Company. The SDIC, on the other hand, had been promised the firm support of Washing-ton, support the men believed would go far beyond the “good offices” that the Department of State routinely provided to American businessmen abroad.¹⁰ “It is intimated,” the Times observed, “that officials of the National Government are interested also, and that eventually the work of the syndicate will be merged into an American protectorate over the island.”¹¹

The organizers of the SDIC no doubt shared the prejudices about race, religion, culture, and class that other elite Americans harbored toward tropical peoples. In this light their first encounter with the Dominican president was all the more remarkable. The company’s lawyer, Frederick William Holls, stayed in touch with Andrew Dickson White, who years earlier had dabbled in another Dominican adventure. White, later president of Cornell University and ambassador to Russia, had studied the feasibility of annexing the Dominican Republic at the request of President Ulysses S. Grant some twenty-three years earlier. Holls consulted with this elder statesman of Dominican annexation and, in one long letter, gave a detailed portrait of the Dominican leader. “The present President, General Ulysses Heureaux,” Holls wrote,

a coal black negro, is one of the most remarkable men I have ever met. He … made himself President by a series of atrocious massacres and revolutions but for six years he has governed the country not only with an iron hand but also with a very enlightened purpose, and with great wisdom. He has never seen European civilization except as it exists in Jamaica and Nassau but he is well educated, and speaks English very well.

After several weeks of negotiating to obtain what, on paper, they already possessed, Holls admitted that not even a “first-class New York lawyer” could have “stated his position more clearly and forcibly, or seen through our own schemes & given us more trouble, than did this remarkable man.”¹² Simply to encounter a black man in a position of both real and symbolic authority must have disoriented the Americans. In the years that followed, Heureaux would demonstrate that SDIC control, distant and abstract, could be frustrated by day-to-day resistance, through local knowledge and resources, and by means of other “weapons of the weak” that lay beyond the power of the New Yorkers to suppress.

Indeed, this first encounter between the new partners hinted at problems that would dog the SDIC throughout its tenure in the Dominican Republic. The U.S. government backed the SDIC in the belief that the private company’s control of Dominican finances would make the republic a virtual protectorate of the United States. In fact, the company never gained full control of the country’s finances, failed to achieve the modernizing goals that its name trumpeted, and in the end turned out to be as much a tool of Ulises Heureaux as it was of Washington or Wall Street. Far from creating a healthy business environment under benign American supervision, the Improvement Company and Heureaux sowed financial, economic, and political chaos. As a prototype of the later policy of Dollar Diplomacy, SDIC control of Dominican finances would prove to be such a resounding failure that it led to a rethinking of the proper role of American investment as an adjunct of U.S. foreign policy.

But these coming disasters could not be glimpsed by the American visitors to Santo Domingo in early 1893. At the time, the company’s biggest worry was reaching an agreement with Heureaux. The SDIC needed to make concrete arrangements to raise money and convert the old loans by issuing new bonds. As a guarantee for the new bonds, the SDIC inherited the right to collect customs at the country’s main ports of entry, the source of nearly all government income. After several weeks of meetings, the Dominican government gave up its objection to the transfer. “We finally succeeded,” Holls reported, “in getting a series of contracts which we hope and think will prove very valuable.”¹³ Perhaps Heureaux gave his approval to the takeover because he found the New Yorkers more malleable than he had dared to hope. The Dominican congress, bullied by Heureaux, approved the contracts in March 1893, but it was less easy to convince ordinary Dominicans that the American takeover did not threaten the country’s sovereignty. Heureaux immediately faced the desertion of one cabinet minister and a popular uprising.¹⁴ The government suppressed the revolutionary outbreak, but the SDIC had been warned that the power of their new ally was not absolute.

With its contracts signed and popular opposition crushed, the SDIC could proceed with its declared mission of “improving” the Dominican Republic. In their six-year collaboration, the SDIC and Heureaux tried to reform Dominican society in basic ways, by building railroads, stabilizing the currency, and moving the mostly peasant nation from subsistence farming to cash-crop production. Theoretically, these changes would turn the Dominican Republic into a prosperous nation able to pay off old loans and the new debt that grew rapidly as the SDIC brokered a series of loans from 1893 to 1897. “The island is rich and fertile, and under proper management should be solvent, and more than that,” a foreigner familiar with the country told the New York Times in 1892. “That is why the better class of people would be glad to see this American syndicate get in there and apply American business methods to the place.”¹⁵

While the SDIC and Heureaux worked to transform the country internally, they also repositioned it in the global financial system. This happened because each time the SDIC sold Dominican bonds in Europe, it created blocs of European bondholders ready to call on their governments to intervene should the Dominicans behave “irresponsibly” and default. Equally important, the SDIC situated the Dominican Republic within a changing geopolitical order. The sixteen years that the company operated (1892–1908) coincided with the American “drive to hegemony” that has long been seen as a turning point in U.S. foreign policy.¹⁶ As the United States defined its global interests in new ways, the SDIC’s relationship with Washington changed significantly. When the Improvement Company faced opposition from the Dominican regimes that succeeded Heureaux, Washington backed the company with the full force of its diplomatic and naval power. A turning point came in 1904, however, when the State Department, the navy, and Theodore Roosevelt himself became fed up with the company’s exploitation of the Dominican Republic for its own narrow ends. The rupture between the SDIC and the American foreign policy establishment led to a new definition of Dollar Diplomacy expressed by the Roosevelt Corollary to the Monroe Doctrine.

In the history of American expansion, the case of the San Domingo Improvement Company is unparalleled. By the 1890s Americans had far more capital invested in Cuba and Mexico than in the Dominican Republic, while corporations like W. R. Grace in Peru wielded considerable power over local governments. Yet the partnership between the SDIC and Heureaux was distinctive, both because an American company became an integral part of a foreign state and because the company, from the start, served as a way for Washington to exercise “control without responsibility” over a nearby and strategically important neighbor. Surprisingly, the story of the company’s close ties to American policymakers and its influence on the formulation of the Roosevelt Corollary have not previously been told.¹⁷ Nor have the consequences of the company’s control of Dominican finances and its promotion of “modernization” in one of the least-developed nations of the Caribbean been seriously addressed.

The SDIC was a peculiar vehicle for direct investment in Latin America. The company bore little resemblance to huge, well-financed multinationals like the United Fruit Company which, in the early 1890s, were still the wave of the future. The SDIC was firmly rooted in old ways of doing business, above all in the cronyism and corruption typical of the 1870s and 1880s. The organizers of the SDIC knew little about the Dominican Republic, but they knew a great deal about using government contacts to gain private wealth. In this sense, the Improvement Company represented the Gilded Age going abroad rather than the cutting edge of a new, aggressive, world-roving finance capitalism. To understand how such a company came to control the finances of a Caribbean republic, it will be helpful to look at the career of the SDIC’s president, Smith M. Weed, in the political economy of the Gilded Age.

In the years following the Civil War, state governments democratized the economy by passing general incorporation and free banking laws, which replaced earlier reliance on special charters and monopolies.¹⁸ As a result, competition invaded new sectors of the economy.¹⁹ Rather than create equilibrium and efficiency, however, the new free-for-all economy led to “market disorganization, ‘wastes of competition,’ business failures, recurrent depressions, strikes and lockouts, social distemper, and political upheaval.”²⁰ Facing this new economic order, some entrepreneurs turned to government to cushion against the harsh demands of bare-knuckled free enterprise.²¹

It was precisely from this milieu that Smith M. Weed, future president of the San Domingo Improvement Company, emerged. A political insider and master of patronage, Weed manipulated the state in order to accumulate capital and evade competition in a dangerously democratized market.²² Weed’s biography provides a resume of the forces that merged private investment and state initiatives into an anticompetitive strategy and illustrates how the SDIC emerged as a foreign venture closely tied to the support of Washington policymakers.

Smith M. Weed was born in 1833 in Belmont, a village in northernmost New York State, the son of a manufacturer. After attending local public schools in Plattsburgh, a town on the edge of Lake Champlain near the Canadian border, he worked as a store clerk while reading l...

Table of contents

• Cover 
• Half title
• Series Page
• Title
• Copyright
• Dedication
• Contents 
• List of Illustrations
• Acknowledgments
• List of Abbreviations
• Introduction: Economic Interests and U.S. Expansion, 1892 to 1907
• 1. The Gilded Age Goes Abroad: The San Domingo Improvement Company and the Political Economy of the 1890s
• 2. Remapping the Caribbean: U.S. Caribbean Interests and the Mission of the SDIC
• 3. Peasants in the World Economy: The Dominican Republic in the Late 1800s
• 4. Dictating Development: Ulises Heureaux and the SDIC Remake the Dominican Republic
• 5. The Cash Nexus: Economic Crisis and the Collapse of the Heureaux-SDIC Regime
• Illustrations
• 6. Old Wine in New Skins: The U.S. Government Champions the SDIC, 1899–1904
• 7. A Reign of Law Among Nations: John Bassett Moore and the Vindication of the SDIC, 1904
• 8. A World Safe for Capitalism: Stabilizing the Dominican Republic, 1901–1905
• 9. From The Gilded Age to Dollar Diplomacy: The SDIC and the Roosevelt Corollary, 1904–1907
• Conclusion
• Notes
• Bibliography
• Index
• Series List