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The Empire TrapThe Rise and Fall of U.S. Intervention to Protect American Property Overseas, 1893-2013$

Noel Maurer

Print publication date: 2013

Print ISBN-13: 9780691155821

Published to Princeton Scholarship Online: October 2017

DOI: 10.23943/princeton/9780691155821.001.0001

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Escaping by Accident

Escaping by Accident

Chapter:
Six Escaping by Accident
Source:
The Empire Trap
Author(s):

Noel Maurer

Publisher:
Princeton University Press
DOI:10.23943/princeton/9780691155821.003.0006

Abstract and Keywords

This chapter demonstrates how the Great Depression allowed Herbert Hoover and Franklin Roosevelt to pull back from Theodore Roosevelt's imperial commitment. The Depression facilitated the end of the first American empire by breaking up the coalition between creditors and direct investors. Under Depression conditions, however, governments faced a painful bind: they could maintain payments on their foreign debt at the cost of austerity measures that undermined political stability; or they could impose tax hikes that directly influenced the profitability of foreign direct investments; or they could default. In the battle between bondholders and direct investors, the direct investors won: the Depression had devastated the domestic influence of the financiers.

Keywords:   Great Depression, Herbert Hoover, Franklin Roosevelt, American empire, creditors, direct investors, foreign debt, political stability

It ought not to be the policy of the United States to intervene by force to secure or maintain contracts between our citizens and foreign states or their citizens.

—President Herbert Hoover

The Great Depression was a breakpoint between two eras, a sharp discontinuity between the global boom of the 1920s and the palsied, stunted economies of the 1930s. The Depression was also a time of rapid political transition. In many countries, political opportunists used the Depression to pursue nationalist, militaristic, and even genocidal goals. Hitler, Stalin, Mussolini, and other demagogues skillfully played on Depression-era fears and anxieties to maximize their own power and garner support for the use of force—against their own populations as well as foreign ones.

In the United States, however, the Depression reorganized politics in such a way as to reduce militarism and interventionism. Protracted economic stagnation allowed the government to escape the pattern it had created for itself over the past generation—the empire trap—by fragmenting the political coalition that had sustained interventionism over the previous quarter century. First, it split the interests of bondholders and direct investors. Second, it greatly weakened the domestic political power of bondholders and financiers. Third, it strengthened domestic producers who began pushing for higher protection (p.189) against foreign competition, which in turn lowered the value of American-owned overseas direct investments.

The chain of events that led the United States to withdraw from its financial protectorates began abroad. In prosperous times, a debtor nation in the American sphere of influence could usually manage to keep up with debt payments while also keeping taxes low with sufficient public spending to provide sufficient public goods. Depression-era scarcity, however, confronted these nations with a hard choice. They could maintain payments on their sovereign debt—but at the cost of austerity that undermined political stability. Alternatively, they could maintain public spending but default on their debts, at the cost of potential American retaliation.

The holders of sovereign debt and the owners of direct investments no longer wanted the same outcomes. Financiers wanted governments to do everything possible to continue servicing their debt. They considered it acceptable—even desirable—to raise tariffs and excises, alter concession terms, suspend tax exemptions, and slash spending. Owners of direct investments, on the other hand, found none of these actions agreeable. Higher taxes and tariffs had a direct impact on the value of their investments. Lower public spending generated political instability, which threatened their property rights.

The Depression ensured that the direct investors would win the resulting political battles. The reason was that (unlike the lesser depression that began in 2007) the Great Depression prompted a sustained political reaction against the banks. In the wake of scandals (and the disappearance of most of the wealth that the financiers claimed to have created) it would have been difficult at best for creditors to wield the influence over foreign policy that they had enjoyed before 1929.

The Depression, however, wasn’t a clear win for American foreign direct investors. Scarcity roused the behemoth of domestic industry. In flush times, when there was enough demand to go around, domestic producers had better things to do than raise barriers against their U.S.-owned overseas competitors. (p.190) There was protectionism, but it was relatively restrained. As consumption dropped, however, domestic producers grimly set about leveraging their political capital in order to eliminate their competitors. American interests abroad didn’t stand a chance. The lowered value of foreign investments, in turn, reduced the power of their owners to lobby Washington to protect them from host governments, creating a vicious—or virtuous—cycle of decreased political influence.

In this way, the political logic of the Depression upset the previous pecking order of commercial interests. With the American domestic lobbies that had promoted the empire trap at odds, Hoover and Roosevelt began to dismantle America’s informal empire. Hoover administration officials signed off on the Bolivian, Dominican, Panamanian, Peruvian, and Salvadoran defaults, and Hoover famously signed the Smoot-Hawley Act, which raised duties on the products produced by American-owned investments abroad. The political shifts had some consequences that can only be called unusual: Franklin Roosevelt went so far as to overthrow the Cuban government when its refusal to default on its foreign debt threatened the security of American direct investments on the island.

Herbert Hoover and America’s Informal Empire

Herbert Hoover did not intend to dismantle America’s informal empire. In fact, as commerce secretary, he proposed that a public corporation be created to assess the viability of all Latin American loans. Hoover also tried to get the Coolidge administration to take up the cause of “currency reform”—meaning fixed exchange rates against the U.S. dollar—in the belief that flexible exchange rates discouraged American trade and investment.1

During his tenure as secretary of state, Hoover’s cabinet colleague, Charles Evans Hughes, reaffirmed the doctrine that the United States had the right to intervene abroad when American (p.191) property came under threat. As the head of the U.S. delegation to the Sixth International Conference of American States, held in Havana in early 1928, Hughes declared, “A government is fully justified in taking action—I would call it interposition of a temporary character—for the purpose of protecting the lives and property of its nationals.” Hughes attempted to soften his statement by adding, “I would say that it does not constitute an intervention.” Needless to say, the Latin American delegations were not particularly pleased with Hughes’s declaration—with the notable exception of Cuba.2

President-elect Hoover made a grand gesture toward respecting Latin American sovereignty when he set off on a symbolic “goodwill tour” in November 1928, shortly after his election. Paying for additional expenses out of pocket, Hoover deadheaded on the American battleship USS Maryland, visiting Honduras, El Salvador, Nicaragua, Costa Rica, Ecuador, Peru, and Chile, where he crossed the Andes to Argentina. From Argentina he boarded the USS Utah and visited Uruguay and Brazil on his return. A recurrent theme in the twenty-five addresses the president-elect made during his travels was the U.S. desire to be a “good neighbor” to Latin America—a phrase more often associated with his successor.

Local reactions to Hoover’s visits could best be characterized as mixed. Factional intrigue nearly wrecked his visit to Nicaragua, where, despite the obviously unsettled circumstances, Hoover pledged to withdraw American troops. In Peru and Brazil, on the other hand, Hoover’s visit sparked acclaim and civic celebration.3

Until 1931, however, Hoover’s actions were rather less magnanimous than his words. His administration threatened the Dominican Republic on three separate occasions, and he failed to withdraw from Haiti after the Haitian legislature unanimously rejected his proposed settlement. Hoover managed to withdraw from Nicaragua, but only by turning over authority to Anastasio Somoza, who later proved one of the more brutal and kleptocratic leaders in Latin America.4 He did resist the (p.192) temptation to intervene when unrest flared up in Costa Rica and Panama, but neither situation posed a serious threat to American interests.

There was, however, some ambivalence in Washington about U.S. policy in Latin America, although the discussion was less critical than is generally believed. In December 1928, Undersecretary of State Reuben Clark produced a long report on the Monroe Doctrine for president-elect Hoover. Many historians came to believe that the Clark Memorandum repudiated intervention.5 In fact, it did nothing of the sort. In oddly legalistic language, Clark’s report held that the Monroe Doctrine did not apply to, well, almost everything: civil wars, wars between Latin American states, wars between a parent country and a former colony (except in the case of an attempted “reannexation by Spain”), or wars between European and Latin American countries.6 The only goal of the Monroe Doctrine, in Clark’s view, was to prevent the “permanent occupation” of Latin American territory by extra-hemispheric powers.7 Clark went so far as to argue that the Monroe Doctrine did not “relieve Latin American states of their responsibilities as independent sovereignties,” and European states could still intervene in the event that Latin governments failed to protect their nationals or property.8 Moreover, Clark argued that the United States had the same right:

The [Monroe] declaration does not apply to purely inter-American relations. Nor does the declaration purport to lay down any principles that are to govern the interrelationship of the states of this Western Hemisphere as among themselves. … Such arrangements as the United States has made, for example, with Cuba, Santo Domingo, Haiti, and Nicaragua, are not within the Doctrine as it was announced by Monroe. They may be accounted for as the expression of a national policy which, like the Doctrine itself, originates in the necessities of security or self-preservation.

(p.193) The so-called “Roosevelt corollary” was to the effect, as generally understood, that in case of financial or other difficulties in weak Latin American countries, the United States should attempt an adjustment thereof lest European governments should intervene, and intervening should occupy territory—an act which would be contrary to the principles of the Monroe Doctrine. … As has already been indicated above, it is not believed that this corollary is justified by the terms of the Monroe Doctrine, however much it may be justified by the application of the doctrine of self-preservation.9

The First Defaults

Our investments and trade relations are such that it is almost impossible to conceive of any conflict anywhere on earth which would not affect us injuriously.

—President Calvin Coolidge, 1928

With so little domestic opposition, why did Hoover wind up dismantling the United States’ economic protectorates in Latin America? The answer was that the Great Depression forced his hand. The first domino to fall was Bolivia. Bolivia’s geographic position ensured that it would never be fully under American protection. Unlike the rest of Latin America (save Paraguay) Bolivia was conspicuously absent from the Army War College’s roster of contingency plans.10 Only the country’s lack of transport links with Argentina, Brazil, and Chile provided the United States with potential leverage.

Bolivia was, however, under American financial supervision, via the Comisión Fiscal Permanente (CFP).11 In 1928, Bolivia contracted new loans over CFP opposition.12 Edwin Kemmerer, who led an American advisory mission to Bolivia, told the State (p.194) Department that he did not believe that Bolivia would be able to repay its debts; in fact, “he doubted whether the country would eventually survive as a nation.” The Commerce Department recommended that the United States reject the loans.13 The State official charged with reviewing policy toward Bolivia added his voice to the chorus. He wrote that new issues only “assured [the bankers] a substantial profit and their clients, purchasers of prior issues … a breathing spell from an inevitable default.”14 Other officials, however, worried about the impact in Bolivia should the loans fall through. The reason was the money was needed to maintain government employment. The State Department decided to avoid vetoing the loans. It did, however, warn the bankers that the United States considered them to be taking their own risks.15 It is questionable whether the doubts and disavowal were believed, however, and the loans went through.

When Bolivian government revenue fell as expected in 1930 (see figure 6.1), U.S. analysts believed that the only ways to avoid default would be to (a) badly damage the mining industry via “confiscatory” taxes, or (b) risk the stability of the government via draconian spending cuts. As a result, the State Department declared default to be “unavoidable.” The CFP concurred, also claiming that tax rates had reached their practical maximum.16

In June 1930, Bolivian president Siles resigned under pressure from the military. The military then forcibly removed his cabinet from office. The new regime tried to maintain payments on the foreign debt, but falling revenues put it in a bind. The government therefore requested refunding loans from a consortium of U.S. banks. The mining industry, fearing higher taxes, declared its opposition. The American bankers asked the State Department to participate in their debt discussions. The Hoover administration sided with the miners against refunding and rebuffed the request.17 With that decision, in January 1931, the U.S.-controlled CFP signed off on a moratorium on debt payments, and Bolivia became the first Latin American nation to default. (p.195)

Escaping by Accident

Figure 6.1 Bolivian central government revenue (left axis) and tin prices (right axis), 1922–32

Source: Figures for 1900–1986 are from Ocampo and Parra, “Los Términos de Intercambio de los Productos Básicos en el Siglo XX,” Revista de la CEPAL 79 (2003), pp. 7–35, with data from the World Bank. Government revenues from tables 3 and 11, Mario Napoleón Pacheco, “The Foundation of the Central Bank of Bolivia (1929–1932),” Revista de Humanidades y Ciencias Sociales (Santa Cruz de la Sierra), vol. 12, nos. 1–2 (June/December 2006), pp. 133–184.

The Default Wave

Bolivia kicked off a wave of default throughout Latin America. The next domino to fall was Peru, in March 1931.18 As in Bolivia, the Depression caused Peru’s revenues and economy to collapse, precipitating the Leguía government’s downfall. Colonel Luis Sánchez Cerro ousted Leguía in August 1930. Sánchez served as president until his assassination in April 1933, save for a brief hiatus in late 1931 when he temporarily stepped down to run in a special presidential election.

The country faced a grim economic situation. Exports and tax revenues fell in dollar terms.19 (See figure 6.2.) The State Department worried that the downturn was strengthening the opposition Alianza Popular Revolucionaria Americana (APRA), led by Victor Haya de la Torre. APRA favored nationalizing American investments.20 Washington was not reassured when, speaking to (p.196)

Escaping by Accident

Figure 6.2 Peruvian central government revenue and oil and cotton prices, 1921–32

Source: Index of cotton market prices from Ocampo and Parra, “Los Términos de Intercambio de los Productos Básicos en el Siglo XX,” Revista de la CEPAL, vol. 79 (2003), pp. 7–35, with data from the World Bank. Government revenue from Oxford Index of Petroleum Market Prices (1970 = 100): Figures for 1920–70 from Baptista, Bases Cuantitativas de la Economía Venezolana, 1830–1989 (1989). (The Venezuelan basket price is used as a proxy for Peruvian oil prices.) Government revenue from the Oxford Latin American Studies Database.

the United States ambassador, Haya de la Torre described APRA as “a pure fascist rather than a communist organization.”21

The Hoover administration badly wanted Sánchez to remain in power. Sánchez therefore reluctantly agreed to host an economic reform mission led by Edwin Kemmerer, the goal being to attract more loans to prop up his government. The Hoover administration recognized that Sánchez accepted Kemmerer’s visit very reluctantly. “I am sure that if there were any way out, other than inviting more Yankee financial assistance,” wrote an American official in Lima, “the present Peruvian government would have found it.”22 The American embassy tried to bolster Sánchez’s political position by ignoring entreaties from the bankers to link recognition of his government to a resolution of the country’s debt issues.23

(p.197) As in Bolivia, Washington’s coolness toward the bankers was helped by the fact that the interests of direct investors in Peru diverged from the interests of creditors. The depreciating sol decreased Peru’s ability to pay, which creditors hated, but increased the competitiveness of Peru’s primary product exports, which direct investors loved. Moreover, much of Peru’s government spending went to infrastructure, particularly export- oriented railroads, which were primarily built by American construction companies. These companies had no more desire to see government spending cut than did Sánchez.24

Kemmerer’s final report proposed that Peru should default on its domestic debt and American bankers should help the country with a short-term loan. The Peruvian government rejected these suggestions. In fact, it did the precise opposite. On May 29, 1931, the Peruvian government suspended foreign debt payments while it “studied” Kemmerer’s recommendations. The government then issued more domestic debt, which it tried to force resident American companies to purchase, warning “that if they do not subscribe he [President Sánchez] cannot guarantee that communism will not break out and cannot guarantee that the government can preserve law and order.”25 That did not go over well with the American companies, who refused to purchase the new issues. The next month the Peruvian government suspended all debt payments. The U.S. government, on Kemmerer’s personal advice, decided to “go slow and let matters ride” given the disastrous shape of the Peruvian treasury and the threats against American mining and agricultural companies.26

American officials signed off on—indeed, vocally supported—the first two Latin American defaults, but the United States had rather less control over the next three countries to suspend payments. Brazil and Chile were outside the American orbit. In Ecuador, it was true that an American official, William Roddy, had run the country’s customs service between 1925 and 1930. Ecuador, however, was already in default on some of its foreign (p.198)

Escaping by Accident

Figure 6.3 Dominican customs revenue and sugar prices, 1921–33

Source: Government revenues from annual reports of the Dominican Customs Receivership (various years). Index of sugar market prices from Ocampo and Parra, “Los Términos de Intercambio de los Productos Básicos en el Siglo XX,” Revista de la CEPAL, vol. 79 (2003), pp. 7–35, with data from the World Bank.

debt and had been for some time. Moreover, the Coolidge and Hoover administrations refused to recognize the military junta that deposed the elected government in 1925, despite the appointment of an American to head the customs service. Under those circumstances, few were surprised when the Ecuadorean government suspended convertibility and defaulted on its remaining debts.

The United States, however, did have control over the sixth country to default: the Dominican Republic. The republic faced a trifecta of economic woes. First, collapsing sugar prices eviscerated government revenues (see figure 6.3). Second, in March 1930 amortization began on a 1926 loan taken out by the American occupation authorities. Annual loan service jumped from $1.1 million to $2.9 million.27 Third, on September 3, 1930, Hurricane San Zenón made landfall. A U.S. Weather Service report estimated four thousand dead and $50 million ($555 million in 2011 dollars) in property damage.28 The triple crisis threatened Trujillo’s government, according to a 1930 report (p.199) from the Brookings Institution.29 The U.S.-run Dominican customs receivership was a bit more understated, but in its own way just as dire: “65.24% or practically two-thirds of the entire customs revenue [went to debt service]. The foregoing, on account of the notable reduction in volume of collections, left a comparatively small amount for the government after deduction of cost of operation. In fact, the total was $848,870.76, the lowest amount the government has received in a single year, with the exception of 1921” (italics added).30

In order to ameliorate the impending fiscal catastrophe, President Trujillo tried to raise revenue by leasing Samaná Bay to the U.S. Navy. Although a naval commission reported that Samaná “possessed superior advantages over any other position as a main base for the defense of the Caribbean,” the Hoover administration had no intention of increasing the United States’ military presence. He rejected Trujillo’s offer.31

Under the circumstances, the U.S. government decided that the Dominican Republic had little choice but to default. William Pullium, the head of the customs receivership, recommended a “moratorium.” Pullium had run the Dominican receivership since 1907, and he was probably more familiar with the country’s finances than anyone else on the planet. Nevertheless, the American ambassador to Santo Domingo, Charles Boyd Curtis (not to be confused with the vice president of the same last name), disagreed with Pullium’s recommendation. Curtis feared that default would damage the Dominican Republic’s credit rating.32 Facing conflicting recommendations from his men in Santo Domingo, Herbert Hoover, in his own words, “asked Mr. Eliot Wadsworth, of Boston, to go to Santo Domingo on a special mission for the Government. After consultation with the Santo Domingan [sic] government we thought it desirable to send someone to discuss the whole question of Santo Domingan treaties, with view to development of some financial assistance to Santo Domingo in their reconstruction.”33 Wadsworth recommended a two-year moratorium, combined with new loans for hurricane relief.34

(p.200) An unexpected obstacle emerged in the form of Rafael Trujillo. Trujillo rejected default. Rather, he proposed $30 million in new private loans, plus an additional $5 million from the U.S. government.35 Trujillo’s proposal was, of course, a fantasy. Undersecretary of State Joseph Cotton rejected it in January 1931 on the grounds that the future debt service would require “too great a proportion of the government’s income.”36 Secretary of State Stimson had confidence in Trujillo’s ability to prevent “vultures” and “politicos” from stealing the money—for reasons that are less than clear—but he also opposed an increase the Dominican Republic’s debt burden.37

Trujillo was not so easily deterred: he negotiated a $5 million, thirty-year loan with the J. G. White Company, a construction and engineering firm, at an effective interest rate of 6.1%.38 Secretary Stimson was skeptical, believing the interest rate was too good to be true.39 Stimson asked the Dominican minister to the United States, Rafael Brache, if it was a “straight loan proposal” or required that public works contracts be steered to J. G. White. Brache told Stimson that it was a straight loan, although J. G. White “naturally hoped that they would be given preference on all public works to be undertaken in the future” at “cost plus 12%.” Stimson then told Brache that the U.S. government had been “very much chagrined to hear some months ago, in connection with another loan in another country, that a commission had been paid by the bankers to an intermediary—in this case, to a relative of a high officer of the government.” Brache reassured the secretary of state that nothing untoward was involved.40

Stimson was not convinced by Brache’s assurances that the loan was on the up- and-up. On February 12, the United States refused to grant the $5 million loan a priority lien on the customs revenues. The project died.41 The banking firm of Lee, Higginson and Company then offered to lend the Dominican Republic $5 million, but only if the United States guaranteed the debt. This was more protection than enjoyed by the existing Dominican debt issues. Stimson again refused.42

(p.201) Creditors now believed that the Dominican Republic would have to default. “[Sinking fund] payments now aggregate $1,851,667 annually,” wrote Lee, Higginson and Company. “As the total revenues of the Dominican government for 1931 are tentatively estimated at $8,300,000, it appears that the sinking funds alone absorb about 22% of the government’s income. This is a tremendous drain on the government’s current resources, and unless there is an immediate return to prosperity … and no such return of prosperity seems to be in immediate prospect, we feel that no marked improvement in the position of the Dominican treasury can be expected.”43

U.S. opposition left the Dominican government with no option. On August 25, 1931, Trujillo sent a two-year moratorium proposal to President Hoover, “to request Your Excellency’s approval of the plan of the Dominican government as an emergency measure.”44 Hoover cabled approval on September 5. Hoover’s wording is amusingly mealymouthed, as if he did not want to admit that he was allowing el Generalísimo to break a contractual obligation that the United States had enforced for a quarter century:

Great and good friend: I take great pleasure in acknowledging the receipt of Your Excellency’s important communication under date of August 25, 1931, outlining the efforts which the Dominican government has successfully made to maintain its financial credit through the prompt payment of the service on its foreign debt, despite the burdens imposed upon it by the present world depression and by the disastrous hurricane which visited Santo Domingo in September of 1930.

Your Excellency also set forth in that letter the impossibility of maintaining an adequate public administration in the Dominican Republic and at the same time of satisfying the amortization payments on its debt, and requested the cooperation of the government of the United States in obtaining some solution for the financial problem.

(p.202) The present financial problem confronting Your Excellency’s government will have the sympathetic and prompt consideration of my government.45

The State Department requested and received some minor revisions to the plan. On October 22 the revised plan passed both houses of the Dominican legislature.46 It suspended all amortization payments for two years. Revenues above and beyond those needed for interest on the 1922 loan would go into an “Emergency Fund” administered by an American citizen. The Emergency Fund would pay, in order: interest on the 1926 loan, the operating expenses of the U.S.-run customs service and Emergency Fund, government salaries, monies owed to the Red Cross on account of the hurricane, remaining current expenses, salary arrears—government salaries had been unpaid for several months leading to October—and finally principal.47 When U.S. creditors complained, the State Department responded that the United States had received advance notice of the Dominican government’s intention to default and agreed with the decision.48

Trujillo himself appears to have regarded the entire operation as a bit of political Kabuki designed to distract the bondholders from the fact that the United States had, in essence, hung them out to dry.49 In fact, Washington had two good reasons not to simply order the Dominican Republic to default. First, it was politically costly for the Hoover administration to renege on the U.S. government’s twenty-five-year-old promise to protect American creditors. The Dominican regime may have run out of options—other than allowing the country to collapse—but it was better for Hoover that it seem as though Trujillo was taking the initiative. Stimson could then take a “tone of grudging acquiescence in a regrettable turn of events,” even as he reminded the bankers that the collapse of the Dominican state would be bad for their interests.50 Second, the appearance of a Dominican initiative allowed Hoover to maintain the image of a “Good Neighbor.” Instead of ordering its Dominican satrap to (p.203) carry out a policy made in Washington, the United States could pretend to be watching a sovereign state carry out its own economic policy.51

More Dominoes Fall

America’s other formal and informal economic protectorates quickly followed the Dominican Republic into default. The American fiscal agent approved default on three-quarters of Panama’s foreign loans in January 1932. Colombia defaulted in February. Costa Rica began to issue bonds to cover the interest on its debt in November 1932; it defaulted on those bonds in 1935. The United States declined to impose a customs receivership, in contravention of the loan agreements. El Salvador defaulted in January 1933, and Guatemala stopped making amortization payments on its outstanding debts in February. In all these cases, U.S. agents stood ready to take over the fiscal administration in the event of default; in none did the United States take action.

The United States signed off on most of these defaults owing to fears of political instability. El Salvador provides an example: save for the need to increase the military budget in order to put down a putatively communist revolt, the country’s ability to pay was never in question (see figure 6.4). In addition, the Salvadoran default marked the moment when the United States officially abandoned its promotion of “constitutional government” in favor of strongman regimes that could preserve internal order. The rise to power of men like Sánchez and Trujillo elsewhere in America’s informal empire had already placed the U.S. commitment to constitutional democracy in doubt, but it was the Salvadoran experience that finally killed it.

Americans owned $29 million in direct investments in El Salvador in 1929 ($310 million in 2011 dollars). This was a large but not overwhelming amount: as a proportion of U.S. GDP, it was the 2011 equivalent of $4.2 billion. The largest (p.204)

Escaping by Accident

Figure 6.4 Salvadoran external debt, customs revenue, and sugar prices, 1921–35

Source: Oxford Latin American Studies Database.

investment was the United Fruit railway line that crossed the country from the Guatemalan border to the port of La Unión.52 In addition, the Salvadoran government owed $21 million to American creditors. An American agent supervised revenue collection. The American, however, did not have full control: under the 1926 agreement that would come only in the event of default.53

As the Depression settled in, President Pío Romero Bosque unexpectedly began to open the Salvadoran political process. The American minister, Warren Robbins, believed this to be a substantial error. In June 1929, Robbins reported that President Romero “disapproved of the custom of succession,” in which Salvadoran presidents effectively appointed their successors, and that Romero planned on holding free elections in 1931.54 Robbins worried that this decision could trigger unrest. (Romero, conversely, appears to have believed that free elections were the best way to prevent instability.)55 The first reports of political violence aimed at the landed elite reached Washington in March 1930. More seriously, from Washington’s point of view, the (p.205) Communist Party organized a series of mass demonstrations on May Day.56 President Romero nonetheless maintained his determination to hold free elections in 1931, although he did detain 1,200 political activists in the run-up to the vote.57 Turnout was very high: 86% of the adult male population voted on January 11, 1931. Arturo Araujo, who had a reputation as a radical despite being a prominent landowner, won 47%.58 His platform included a compensated land reform, minimum wage laws, and the legalization of rural labor unions.

President Araujo soon found himself trapped between wealthy landowners hostile to his intended reforms and the rising expectations of his poor constituency. The oligarchy of the “Fourteen Families” (actually there were more than fourteen) refused to allow any of their supporters to take jobs under his administration. The election for the Salvadoran legislature occurred two days after the presidential poll; conservative representatives took control and blocked Araujo’s land and tax reform bills. A series of rural strikes broke out in April 1931 and had to be repressed by the military. Agustín Farabundo Martí—one of the founders of the Communist Party of Central America and an active participant in the Soviet-backed Socorro Rojo Internacional alternative to the Red Cross—declared a hunger strike.59 Martí’s arrest prompted further demonstrations. Later in April, the military fired upon protestors in the rural town of Sonsonate and the following day killed more peasants during a demonstration against the Sonsonate massacre in Zaragoza.

The Depression worsened the unrest. The price of coffee, El Salvador’s primary export crop, fell by half in 1931. Real GDP in El Salvador fell 11% in 1931, while nominal GDP collapsed by an astonishing 37%. Emergency tax increases held the fall in nominal government revenues to 29% ($21 million to $15 million). On July 11, the legislature approved a $1 million loan from American banks. The loan vote, however, prompted a student demonstration the next day, which clashed with the military and forced Araujo to declare a state of siege. On October 7, the government banned gold exports, losing the remainder of its (p.206) elite supporters.60 American officials in San Salvador were less than sympathetic, blaming the unrest on the idea that Araujo “led many farmers and laborers to think that the millennium was likely.”61

As government revenues fell, the Araujo administration fell behind in paying the military, thereby sealing Araujo’s political fate.62 The military deposed him on December 2, 1931. General Maximiliano “El Brujo” Hernández Martínez took control. The coup put the United States in a difficult position. On the one hand, Martínez prevented Communist candidates from taking office when they won the January 1932 municipal elections and promised the American minister that the government would pay its debts.63 On the other hand, the United States had pledged to refuse recognition to unconstitutional governments in Latin America. In 1923, for example, the United States called a conference among all five Central American states (sans Panama) in order to sign a general peace treaty. Article 2 of the resulting General Treaty of Peace and Amity read as follows:

The governments of the contracting parties will not recognize any other government which may come into power in any of the five republics through a coup d’état or a revolution against a recognized government, so long as the freely elected representatives of the people thereof have not constitutionally reorganized the country.64

The United States did not sign the treaty, but as a party to the negotiations, the Harding administration promised to uphold its stipulations.65 When a right-wing coup ousted the Ecuadorean government in 1925, President Coolidge refused recognition, the Republican Party proudly accepting the mantle of democracy promotion in Latin America.

President Hoover upheld the tradition set by his predecessors, and refused to recognize the Martínez regime. Secretary of (p.207) State Stimson angrily chastised the American minister, Charles Curtis, for failing to inform the coup planners that the United States would not support them. Stimson was particularly angered by Curtis’s insistence that the coup was constitutional, a position Stimson considered specious.66 Hoover sent a special representative, Jefferson Caffrey, to try to persuade Martínez to step aside. Martínez refused, and Caffrey wrote Stimson that “unfortunately the better elements here are now supporting General Martínez, because he offers for the moment a stable government.” Caffrey returned to Washington on January 8, 1932.67

El Salvador erupted into chaos days after Caffrey’s departure. On January 10, 1932, a group of “Communists” attacked government offices in Ahuachapán. Thirty people died in the fighting. The Ahuachapán attack was followed on January 19 by the arrest of several army NCOs for suspicion of “communistic activities.” The same day, “several hundred Communists including students well-armed and with dynamite bombs” attacked a cavalry barracks.68 On January 22 organized peasant groups seized control of several towns. The next day, the American chargé d’affaires, Frank McCafferty, wrote, “If the [State] Department can help in any way it might prevent the threatened establishment of a communistic state here accompanied by much bloodshed. I and the principal Americans here believe that there is really serious danger to American and foreign lives and property.”69

Now facing a generalized (and apparently Communist) insurgency, the Salvadoran government requested $250,000 from the American embassy ($2.8 million in 2011 dollars) to pay for military supplies and salaries. President Hoover refused to provide the cash directly, but the administration interceded with Manufacturer’s Chatham Bank to advance the funds.70 The United States also dispatched from Panama three warships carrying a battalion of Marines; two destroyers from the Royal Canadian Navy joined them.71

(p.208) The Salvadoran government put down the rebellion in the most brutal fashion. On January 25, the New York Times reported 600 dead.72 Four days later, the Salvadoran government reported that “4,800 Bolshevists have been accounted for.”73 Over the next month, the Martínez regime killed around 30,000 people, roughly 2% of El Salvador’s population. In one vivid description, “Roadways and drainage ditches were littered with bodies, gnawed at by buzzards and pigs. Hotels were raided; individuals with blond hair were dragged out and killed as suspected Russians. Men were tied thumb to thumb, then executed, tumbling into mass graves they had first been forced to dig.”74

Faced with what it believed to be the spectre of an openly Communist state in the Americas the United States abandoned both its promotion of democracy in El Salvador and the last vestiges of its commitment to financial stability. On January 29, 1932, Martínez notified the American chargé d’affaires that he wished to abolish the office of the American fiscal agent and suspend service on the foreign debt. The chargé reported favorably on the proposal. “The danger is by no means past. The continual maintenance of order during the next few months seems [to] depend largely on the ability of the authorities to obtain sufficient funds to pay the armed forces,” he wrote. “At the present time the revenues from all sources except the customs are negligible. Therefore, the government has issued a decree providing for the temporary collection from January 25 of 100% of the import and export revenues directly by the government,” leaving nothing for debt service. “The decree states that it has been absolutely necessary to take this measure because the serious communist movement threatens the very life of the state, emphasizes its temporary nature and reiterates the government’s intention of complying with contracted obligations as soon as circumstances permit.”75

With American acquiescence in hand, El Salvador discontinued payments on all of its foreign debts and went into technical default on February 27.76 The 1926 loan agreement called for the U.S. government to step in and establish a fiscal receivership (p.209) in the event of default, which the United States now categorically refused to do.77 In fact, not only did the United States refrain from punishing Martínez; it arranged for a new $400,000 loan to purchase ammunition. The American legation reported that the loan was actually “for the purpose of maintaining himself [Martínez] in office,” but from Washington’s point of view, faced with the specter of a Communist victory, keeping Martínez in office was better than the alternative.78

The Hoover administration was not yet ready to completely abandon democracy promotion. Once the immediate crisis passed, it therefore attempted to ease Martínez out of office with promises of new loans to a civilian government from private or U.S. government sources. The offer appeared attractive. Martínez told the American legation in San Salvador that he would step down from the presidency and become secretary of war.79

Martínez lied. On June 8, 1932, he announced that he intended to remain in office until 1935. The American chargé d’affaires reported that the reason for Martínez’s decision was that he had become convinced that the Depression meant that no new foreign loans would be forthcoming regardless of his decision.80 The Guatemalan government told the American representative that “Martínez has put something over on the United States” and suggested that “an economic boycott would bring Martínez to heel in short order.”81 The other Central American governments, however, did not agree with the Guatemalan position.82 Secretary of State Stimson considered recalling the American legation from San Salvador but decided that the risk of destabilization was too high.83

The recognition issue continued after the election of Franklin Delano Roosevelt. On December 5, 1932, El Salvador announced a program of debt restructuring with a private bondholders’ protective committee, chaired by the American banker J. Lawrence Gilson. Under this program, El Salvador would resume full interest payments on its A and B series of preferred debt—having missed two coupons—and pay interest on the remaining C series bonds, half in cash and half in new debt (p.210) yielding a 4% nominal coupon starting in 1935.84 On June 28, 1933, El Salvador became the first Latin American country to resume interest payments.85

The American diplomat Sumner Welles then presented a plan under which Nicaragua, Guatemala, and Honduras would continue to respect the 1923 General Treaty between themselves (in which they pledged not to recognize any government that came to power through a coup d’état), while nevertheless recognizing the Salvadoran government. Roosevelt gave the plan a thumbs-up. On January 24, 1934, the Central American governments recognized Martínez, and the United States followed two days later.86 With that, democracy promotion within the American sphere of influence was dead. Save for a brief flicker during the Carter administration, it would not revive in any serious way until the 1990s.

Cuba in the American Empire

Cuba provides the canonical case of how the Depression broke open the fault lines in the first American empire, destroying the political coalitions that sustained interventionism. These conflicts of interest combined to produce the ultimate absurdity: overthrowing the government of Cuba because it insisted on repaying its foreign loans.

The Depression weakened Cuba’s preferential access to the U.S. market. The United States employed a three-tiered tariff system for sugar imports. Sugar from the insular possessions of Hawaii, Puerto Rico, and the Philippines paid no tariffs. Countries under the American informal empire received the full tariff on their sugar, which was set prohibitively high.87 The third tier consisted of Cuba. Cuba faced a tariff, but a preferential one. This policy guaranteed that very little sugar would come from outside the American customs area. Over time, American investors in Cuba captured the returns from preferential access to the U.S. market.

(p.211) As commodity price declines set in during the 1920s, the domestic political cost of providing benefits to the mostly American owners of Cuban sugar plantations and mills rose ever higher. The Hoover administration proved unable to resist pressures to increase tariffs on Cuban sugar. In fact, it proved almost utterly uninterested in resisting them. Higher tariffs, in turn, gravely wounded an already ailing Cuban economy. The ailing Cuban economy, in turn, split the alliance between the American holders of Cuban government debt and the American owners of Cuban sugar mills. With government revenue falling, creditors wanted the debt paid by any means necessary. Direct investors, conversely, wanted Cuban taxes to remain low and Cuban public services to remain high. This circle could not be squared.

In an ironic twist, the split between bondholders and direct investors did not allow the United States to forgo intervention. The Cuban government, for its own reasons, decided that no matter how hard the Cuban economy was squeezed, it was going to repay. As salaries went unpaid and antigovernment violence ratcheted up—including unrest among sugar workers—Cuba’s insistence on paying debts increasingly looked to be a cause of instability. The Roosevelt administration was therefore forced to choose between protecting bondholders and protecting American sugar interests. The end result was the deliciously confusing sight of the government of one sovereign state covertly conspiring to overthrow the government of another because the latter refused to default on its debts to the citizens of the former.

American Beets versus Cuban Cane

That the United States is fundamentally interested in Latin America requires no reiteration. In the upbuilding of our relations there is nothing more important than our common interest in trade. The mutual objects must be to increase the standard of living of all (p.212) our peoples. … [The] more we can amplify this interchange of goods, the more we can contribute to our joint advance in civilization and the more our inter-commerce expands, the more certain is the development of our long established friendships.

—Commerce Secretary Herbert Hoover, March 1921

The dominant product of the Cuban economy in the early twentieth century was sugar. As Alan Dye and Richard Sicotte have pointed out, this had important consequences for the relationship between the two nations. The First World War prompted a boom in sugar prices (see figure 6.5). The boom ended in a precipitous bust, and the resulting bankruptcies caused much of the Cuban sugar industry to fall into North American hands. American- and Canadian-owned operations controlled 38% of Cuba’s sugar capacity in 1914; by 1924, they controlled 65%.88

Cuban raw sugar fed refineries in a few northeastern states, which also happened to be the home of most of the corporate and individual American owners of Cuban sugar lands. In 1903, when the reciprocity treaty giving Cuba preferential access was first negotiated, U.S. sugar production was concentrated in only six states. Florida and Louisiana grew cane sugar. An additional eleven states grew beet sugar, but California, Colorado, Michigan, and Utah accounted for 87% of beet production.89 As a result, the pro-Cuban and anti-Cuban sugar lobbies were relatively evenly matched. The sugar interests were powerful enough to keep Cuba from receiving tariff-free access but not powerful enough to shut it out completely.

The First World War, however, changed the geography of beet sugar. In order to convince beet sugar growers to expand production during the war, the U.S. government had to provide assurances that the sugar tariff would not be reduced in the future.90 The policy succeeded quite well: by 1920, no fewer than twenty-one states were producing beet sugar. Domestic (p.213)

Escaping by Accident

Figure 6.5 Nominal Cuban sugar prices (cents per lb.) annual averages, 1900–1933

Source: Alan Dye and Richard Sicotte, “The Political Economy of Exporting Economic Instability: The US Sugar Tariff and the Cuban Revolution of 1933,” Barnard College Working Paper Series #99-05, November 1998, p. 40.

beet sugar had an additional advantage in that it went directly to consumers in a single production stage: there was no need to ship it to the Northeast to be refined.91

Politically, therefore, by the mid-1920s beet sugar producers had gained an advantage in congressional debates over the refiners of Cuban sugar and the owners of Cuban sugar lands.92 The combination of Republican victories in the 1920 election and the recession of 1921 made tariff increases inevitable. In 1921, the Emergency Tariff Act took the tariff on Cuban sugar up to 1.3 cents per pound.93 A bill passed the House that would make the emergency permanent and take the tariff on Cuban sugar up to 1.6 cents.94

What the Cuban sugar interests couldn’t win in the legislature, however, they hoped to gain in the executive. The sugar interests were major donors to the Republican Party, and Secretary of Commerce Herbert Hoover came under pressure from the “Cuba lobby” to keep tariffs low.95 In conjunction with Senator Reed Smoot (R-Utah), he proposed a compromise: in return for holding the tariff at 1.4 cents, Cuban producers (p.214) would “voluntarily” restrict sales to the United States.96 Hoover’s proposal did not spring fully formed from his forehead. Rather, the idea was based on a Cuban precedent. Between February 11 and December 21, 1921, the Cuban government operated the Cuba Sugar Finance Commission.97 President Menocal created the commission in order to “take in their charge the sale and shipment of the 1920–21 crop,” in order to maintain prices.98

The experience of the Sugar Finance Commission, however, had not been a happy one. First, the commission charged a commission of 0.5 cents per pound, which came to 17% of the average free-on-board price of sugar in Cuban ports. Second, the creation of the commission paralyzed credit markets, as it became impossible to know how long sugar would be stored before the government would issue export permits. Finally, the commission was a failure on its own terms, since it failed to stem the price decline. In fact, the commission almost completely withdrew Cuban sugar from the market between late May and early August 1921, to little effect.99 The Harding administration tried to prevent Cuba from abolishing the commission, because “if the Commission were disbanded and the sugar now held in Cuba thrown on the market great losses for these banking interests [lenders to Cuban mills] would result.”100 Nonetheless, by November 1921, the commission’s failure was apparent. National City Bank informed the State Department that it no longer supported the activities of the Sugar Finance Commission, and it soon became moribund.101

Given its bad experience with the Sugar Finance Commission, it should not be surprising that the Cuban government rejected the Hoover-Smoot initiative. In response, Smoot “ripped into” the bankers and eastern refiners, accusing them of fomenting a “Wall Street Plot” to destroy the beet sugar industry.102 The final version of the Fordney-McCumber Tariff Act raised tariffs on Cuban sugar to 1.6 cents in 1922 and 1.76 cents in 1923.103 High sugar prices relieved the pressure on Cuba in 1923 and (p.215) 1924, but the record Cuban crop of 1925 sent prices falling to a postwar low. By the end of 1925, unsold stocks of Cuban sugar had doubled to 1.8 million tons. A contemporary observer wrote that “sugar producers of the world were stunned with surprise.”104

The Cuban economy contracted with the fall in sugar prices and sales. President Gerardo Machado pled with the American government to cut the tariff.105 In a strange case of ostrich-like behavior, the State Department—realizing that there was no chance of congressional approval but not wanting to disappoint the Cubans—ordered Ambassador Crowder not to reply to Machado.106 The Cuban ambassador to the United States, Orestes Ferrara, then raised the matter directly with Secretary of State Frank Kellogg.107 Kellogg bluntly told Ferrara that the Senate would never approve a cut in the tariff. When Ferrara continued to press the issue, Kellogg curtly informed him that Ferrara’s analysis was based on the erroneous assumption that the current tariff benefited the United States and hurt Cuba.108 As a narrow point of economic theory, Kellogg’s assertion was of course correct: the tariff damaged the overall economies of both nations. As a point of practical politics, however, the tariff greatly benefited the domestic beet sugar industry, and from the point of view of politicians inside the United States, that is what mattered.

With no help from American trade policy, President Machado tried to reintroduce crop limitation to boost the prices of Cuban sugar. In 1926, he mandated that Cuban producers cut their production 10%. The strategy created two problems. The first was that while Cuba was a major producer, it was simply not large enough to raise prices with a 10% production cut. The second was that Cuban crop restriction provided American beet sugar producers with rhetorical ammunition to lobby for even more protection. American beet lobbyists accused Cuba of trying to “eliminate the domestic sugar industry.” This accusation made no economic sense, but it provided the beet sugar lobby (p.216) a threat that they could take to the Cuban government in order to demand—paradoxically—even further crop restrictions. In 1927, the Cuban government tried to negotiate an agreement with the island’s major sugar exporters to further curb production. Unfortunately, sugar prices continued to decline. Internal opposition to the production limits rose sharply, and Machado abandoned them on December 27, 1928.109

The Smoot-Hawley Act and Its Discontents

In his 1928 presidential campaign, Herbert Hoover pledged to increase agricultural tariffs. Upon taking office in March 1929, President Hoover called for tariff reform. Senator Smoot chaired the Senate Finance Committee. Unsurprisingly, the resulting Tariff Act of 1930—the infamous “Smoot-Hawley” Act—raised the duty on Cuban sugar from 1.76 cents to 2.0 cents per pound.

Senator Smoot encountered strong opposition in his attempt to raise the tariff on Cuban imports. Two groups mobilized to defend Cuban interests in the halls of Congress. The first was a coalition of the American Chamber of Commerce of Cuba and the United States Sugar Association.110 The second was an alliance of the American Bottlers of Carbonated Beverages, the Hershey Foods Corporation, and an association of sugar brokers led by H. H. Pike.111 The first coalition represented the American owners of Cuban sugar producers, while the second one represented intermediate consumers of Cuban sugar. Hershey Foods cut across both groups: the company was not only a consumer of sugar but also owned sixty-five thousand acres of Cuban sugar land and employed twelve thousand people on the island.112

The two Cuba lobbies put on a full-court press to protect their investments. They raised $95,000, the equivalent of $1.0 million in 2011 dollars, to lobby Congress and President Hoover. (In terms of national income, the coalition raised the 2011 equivalent of $15 million.) With this money, the Cuba lobbies (p.217) hired Edwin Shattuck, a New York lawyer with close personal ties to Hoover. In the words of Herbert Lakin, the president of the Cuba Company and a major principal in the U.S. Sugar Association, “By great and good fortune I find that Shattuck is perhaps Hoover’s closest legal friend. He is the personal attorney for Hoover and all his family. I think I have persuaded him to undertake a confidential mission first to convince Hoover, and secondly to work on the committees and members of Congress, on behalf of Cuba.”113 In addition, Shattuck had served with Hoover on the Sugar Equalization Board, the American Relief administration, and the European Children’s Fund.

In his capacity as a lobbyist, Shattuck met with President Hoover in Miami after Hoover’s return from his 1928 goodwill tour of Latin America. Hoover assured Shattuck that whatever resulted from the new tariff bill under consideration would not “embarrass” him.114 In discussions, Shattuck tried to convince Hoover and Senator Smoot to support a plan that would evict the Philippine Islands from the American tariff wall. Unfortunately for Shattuck, devoted opposition from Secretary of State Henry Stimson, who had just finished his term as governor-general of the Philippines, put paid to that idea.115

Two congressional representatives were particularly important in leading the fight against the tariff hike on Cuban sugar. Representative Ruth Pratt (R–New York) served as the public face against the tariff hike. Pratt was the first woman to serve in Congress from the state of New York. She was also a Republican, serving the Seventeenth Congressional District on Manhattan’s Upper East Side, then the wealthiest district in the state.116 The head of the Cuban lobby’s publicity bureau gave Representative Pratt information for her floor speeches.117 On the other side of the aisle, the Cuba lobby planned to hire Cordell Hull (D-Tennessee) as a lobbyist if he left Congress. When Hull decided not to retire, he became the de facto leader of the behind-the-scenes effort against the tariff.118

On May 7, 1929, the House Ways and Means Committee reported to the floor a tariff bill that included a tariff on Cuban (p.218) sugar of 2.4 cents. Hull believed that the sugar tariff hike was unpopular and would fail in the House if his faction could force a separate floor vote. For this, however, the Cuban lobby required a strong wedge issue. On May 21, Pratt assailed the beet sugar industry for its terrible labor conditions. Brandishing a letter from the president of the American Federation of Labor, she proclaimed, “This testimony is final on the matter of the employment of women and children and Mexican labor in the beet fields. My reason for standing against an increase in the tariff on sugar is the obvious impossibility of an expansion of the sugar industry in this country to a point where it can even begin to supply our needs. The domestic industry is not only bound by its labor problems; it is limited by our climate.”119

Unfortunately for the Cuba lobby—and by extension, the Cuban economy—the Republican leadership in the House outmaneuvered the sugar tariff opponents. On May 25, 1929, the New York Times reported that “the Republican steamroller, well-oiled and in high gear, ran over the Democratic minority in the House of Representatives. … By a vote of 234 to 138, the House, in accordance with the dictates of the Republican caucus held [on May 24] adopted a rule … under which all amendments to the bill, except those approved by the Republican majority of the Ways and Means Committee, would be scrapped without debate or consideration of any character.”120 Party discipline among the Republicans was so high that Representative Pratt voted for the gag rule, despite her opposition to the sugar tariff.121 Pratt’s decision led to the following odd exchange between her and Representative John Nance Garner (D-Texas), the minority leader:

GARNER:

  • When you go back to your constituency and you have not offered an amendment striking out that clause on sugar, I want you to tell them you deliberately took away from yourself the right to offer such an amendment because the exigencies of your party appealed more to you than patriotism to your country.
  • (p.219) PRATT:

  • New York is the one state that understands that perfectly.
  • GARNER:

  • Then I understand you to say that in New York it is already understood that party allegiance is worth more than your patriotism.122
  • The House bill then went to the Senate. On January 16, 1930, Senator Pat Harrison (D-Mississippi) pushed through an amendment from the floor that overturned the 2.4 cents tariff provision with a 50 to 40 vote. A group of Cuban automobile dealers and the island’s Metro-Goldwyn-Mayer film distributor cabled their congratulations to the sugar lobby.123 They spoke too soon. As chair of the Senate Finance Committee, Smoot countered Harrison’s amendment with a second amendment that raised the tariff to a “compromise” 2.0 cents rate. Smoot then used his control over the committee agenda to block a second attempt to hold the rate at 1.76 cents.124 Given the House vote and Smoot’s well-known preference for a high tariff, this would have ensured an adoption of the 2.4 cents rate when the House and Senate bills were merged in conference. In a procedural tactic, however, opponents of the bill managed to peel off sufficient Republicans in the House to refuse to give the conference committee control over the sugar tariff. As a result, the conference committee accepted the 2.0 cents rate. The eleventh-hour Democratic maneuver prevented the rate from rising to 2.4 cents but could not prevent the rise to 2.0 cents.125 President Herbert Hoover signed the Tariff Act on June 17, 1930.

    Despite a concerted lobbying effort, high-level contacts up to the president himself, mass public expenditures, and a strong legislative strategy, the American advocates for Cuban sugar failed to preserve Cuba’s access to the American market. At best, they managed to prevent a bad outcome from becoming much worse. The Tariff Act of 1930 marked the triumph of domestic producers over the owners of foreign investments.

    (p.220) Keynesianism on One Island

    The U.S. government was not blind to the troubles of the Cuban economy. It had no interest in taking on the domestic sugar interests for the benefit of Cuba, but it could sign off on Cuban attempts to resuscitate its economy in a crude proto-Keynesian way, since the United States controlled Cuban finances. The legal justification for its control was Article 2 of the Platt Amendment: “[The Cuban] government shall not assume or contract any public debt, to pay the interest upon which, and to make reasonable sinking fund provision for the ultimate discharge of which, the ordinary revenues of the island, after defraying the current expenses of government shall be inadequate.”

    The United States interpreted this article broadly to mean that Washington retained a veto over any borrowing by the Cuban government. Neither Washington nor Havana, however, wanted to delegitimize the Cuban state by requiring its president to ask the resident ambassador for permission every time it wanted to take out a debt. Rather, a subtle convention emerged in which American banks would, after completing negotiations with Cuba, ask the State Department for its opinion. The State Department in Washington would then ask the American ambassador in Havana his opinion of the proposed loan. The Secretary of State would then pass along its opinion, with the implicit understanding that disapproval would obviate the contract.126

    In practice, the United States allowed loans it might otherwise have rejected, provided the monies would go to projects that maintained Cuban employment. In late 1926, for example, President Gerardo Machado requested a $10 million loan ($108 million in 2011 dollars) from Chase National Bank in order to accelerate a public works program started in 1925. Following the convention, Chase asked if the State Department had any objections to the loan—which President Machado claimed was not really a loan but rather an “advance” against future tax revenues. The State Department responded that it could not parse (p.221)

    Escaping by Accident

    Figure 6.6 Cuban government debt, net borrowing, and nominal GDP growth, 1926–37

    Source: Global Financial Database and Foreign Relations of the United States.

    the difference between an advance and a loan but nonetheless had no reason to object.127 In June 1927 the Cuban government requested $9 million ($98 million in 2011 dollars) from J. P. Morgan, in order to finance accounts payable related to public works projects. The loan was not small: it would boost the total Cuban budget deficit for the year to $19 million, around 3% of Cuba’s GDP (see figure 6.6). Secretary Kellogg worried about the deteriorating state of Cuban finances, but with unemployment rising on the island he had no desire to force Havana to cut back.128

    Despite the relative fiscal profligacy, Cuba’s economy continued to shrink. President Machado responded by borrowing more to avoid austerity. The United States reluctantly continued to accommodate Machado. On March 31, 1928, he began to negotiate for a $20 million credit line ($214 million in 2011 dollars) with Chase National Bank. Two weeks later, he upped the request to $25 million. A week after that, it was up to $32 million. By the beginning of May, the Cuban government was in negotiations for $50 million.129 The American chargé d’affaires (p.222) in Cuba, Charles Boyd Curtis, was annoyed by the fact that Machado did not consult with the American embassy as the size of the loan spiraled upward. “I am, however, considerably surprised that he should have permitted that step to have been taken at all when one considers his repeated assurances that no further financing would be undertaken.” Curtis went on to warn Washington that “government revenues are falling off seriously and give promise of declining further before improving. With a continuation of the economic crisis a deficit of considerable size looms.”130

    The United States ultimately approved the loan, despite knowledge that Cuba was lying about its uses and intended to use it to meet current expenditures. Secretary of State Kellogg instructed Curtis to “discuss” the loan with the Cuban government. He also told Curtis to remind the Cuban government that American banks would ask the State Department its opinion. “It is not desired that you base your remarks on the Platt Amendment or the Treaty of 1903, but there should be no appearance of avoiding discussion thereof.”131 When asked a second time, the Machado administration clarified that the loan was for the completion of the Central Highway project, a twenty-two-foot wide paved road running 707 miles between Pinar del Río in the west and Santiago in the east.132 The American embassy, however, knew full well that Machado was lying: the Cuban Congress had already passed legislation to allow the loan proceeds to be used to meet current expenditures. Nevertheless, fearing the consequences of sudden cuts in public spending, the State Department gave Chase National the go-ahead on June 20, 1928.133

    Hoover took office in March 1929. In February 1930, Chase National purchased fifteen-year Cuban bonds with a face value of $40 million at 95% of par and an effective interest rate of 5.8%. The Cuban government deposited an additional $40 million in unissued bonds at the bank to be used as security on a $20 million credit line.134 Cuba exhausted the credit line by August 1930. The Cuban government then entered negotiations (p.223) with the two prime contractors on the Central Highway project (Warren Brothers and the Compañía Cubana de Contratistas) to issue $19 million in five-year bearer bonds, also at 5.8%.135 Total government borrowing in 1930 came to $77 million ($853 million in 2011 dollars), a whopping 13% of Cuba’s GDP. Washington, fearing the impact on employment of cutting spending, approved the loans.136

    Political Instability and Government Debts

    The State Department continued to approve the loans to Cuba for fear that further economic contraction would destabilize the island. In 1931, Cuba’s ambassador to the United States bluntly told the State Department, “The root of the whole matter is economic. Cuba has gone from great riches to poverty. It is not the fact of being poor that has affected the people so much as the change from affluence to poverty.”137

    In November 1928, after securing passage of a set of constitutional reforms, President Machado won reelection. In fact, Machado, notionally a member of the Liberal Party, won the nomination of all three political parties. The American embassy believed that he had used government funds to bribe the leaders of the Conservatives and the Cuban People’s Party.138 The center-left opposition, led by Carlos Mendieta, regrouped under the rubric of the “Nationalist Union,” only to find themselves harassed by police and excluded from 1928 ballot.139

    Rural and urban violence increased in the run-up to the 1930 congressional elections.140 President Machado characterized the outbreaks as “the logical concomitant of Cuba’s economic depression.”141 When police broke up a demonstration at the University of Havana, gunfire wounded three students and one policeman.142 One of the wounded students died the next day.143 In response, Machado pushed through a congressional vote temporarily suspending all constitutional guarantees.144 He also used the police to close opposition newspapers.145 Nearly (p.224) all newspapers suspended publication.146 In May, several police officers and civilians were killed in an attempt to break up a Nationalist Union meeting in Artemisa.147

    In the wake of escalating violence, opposition leaders asked the United States to invoke the Platt Amendment.148 The United States refused. In a press conference, Secretary of State Stimson stated, “American forces have never landed in Cuba when there was any regime to maintain. The only times we have gone in to Cuba was when there was no government.”149 Cuba’s November congressional election came off with, in the words of a former State Department official, “no more violence than was customary.”150

    Disorder worsened after the elections. In December 1930, President Machado closed the university, high schools, and normal schools. They remained closed for the rest of his time in power.151 In January the entire university student directorate was arrested, including several female students. The American embassy reported “hardly a night passes without the explosion of one or more small bombs,” with political meetings disrupted by tear gas and “stink bombs.”152 Ambassador Guggenheim warned President Machado that “nearly everyone was opposed to the government except those being paid by it.” Guggenheim advised the president that he should reconcile with the opposition, lest his regime go the way of the recently deposed Peruvian government. The president agreed, and in return asked Guggenheim for help in postponing a $20 million payment due Chase Bank.153 A week later the president introduced a bill allowing him to indefinitely suspend constitutional guarantees.154

    The litany of bombings and violence grew worse, and the number of political prisoners in Cuban jails spiraled upward. A bomb was placed in the Presidential Palace on February 23, 1931.155 By April, Secretary Stimson had become worried by the number of people Machado had placed in detention.156 Stimson’s attempts to broker a political settlement failed. Machado (p.225) agreed to step down in 1933 instead of 1935 but refused to call new elections. He also refused to shorten congressional terms. When Guggenheim pressed him, Machado threatened to resign without designating a successor. As both men knew, this was a recipe for throwing Cuba into chaos. Guggenheim wrote that he suspected Machado was unwilling to step down until he had been able to “recoup the large sum which he had allegedly paid Zayas [the previous president] for the presidency.”157

    In August 1931, the Cuban opposition launched an organized rebellion. Troops fought rebels in Havana, Matanzas, Pinar del Río, and Santa Clara, with most of the fighting in Santa Clara.158 The revolt collapsed within a week, but reprisals continued. Not all reprisals were carried out by the police: by the end of 1931 Machado had granted 489 pardons to his supporters, 400 of them for violent offenses.159 Bombs continued to explode in the capital.160

    Violence worsened in 1932. On January 1, bombings resumed with an attack on the Tobacco Selectors’ Union in Santa Clara.161 A wave of bombings then hit Havana, mostly organized by two groups: the ABC and the Organización Celular Radical Revolucionaria. (The name of the ABC derived from its cell structure: an “A” cell and a “B” cell and so forth.)162 Both organizations espoused remarkably moderate political platforms, even by the standards of the time—they called for consumer protection, progressive taxation, nationalized utilities, protective labor legislation, and in the case of the ABC, a narrowing of the franchise to exclude illiterates—but their tactics consisted of bomb attacks against government offices and officials.163 On January 12, twelve separate bombs exploded in Havana. On January 25, the police discovered a dynamite-laden automobile packed full with glass and nails.164 That same month, the ABC mined a house on Flores Street. An anonymous tip sent two policemen to the house, who were killed when they triggered the bombs by using the phone.165 On February 19, a bomb thrown onto a bus injured three passengers.166 Nine (p.226) days later, one man was shot and one woman died in a bomb attack during primary elections; two more bombs exploded in Santiago with no injuries.167 On April 19, following another wave of bomb attacks, the police raided the home of Antonio Chivas, an engineering professor at the University of Havana, where they discovered “an infernal machine which was in reality an automobile made into a monster bomb.” According to the police report, some “youths planned to abandon the car close to police headquarters so that when the handbrake was released to remove the car from the streets, the circuit would be closed, exploding the huge [350-pound] TNT charge, thus wrecking the headquarters building and killing the majority of police reserves quartered there.”168

    On May 20, another bombing campaign began in Havana, and mail bombs sent to police officers became a regular occurrence.169 Several were killed in coordinated attacks.170 On May 31, three bombs exploded at Havana’s foremost private schools.171 On June 9, a bomb exploded at a concert in Santa Clara, killing two and wounding twelve.172 The next day, a bomb was discovered minutes before President Machado was scheduled to drive past it.173 Hundreds of arrests followed.174 Bombings increased in July. That month an opposition leader, Estebán Delgado, died in a gun battle with the police. (Delgado’s driver had been gunned down the day before.) Two days later, a bomb planted in a house that was being searched killed one policeman and wounded four. The trigger had been disguised as a book left on a table.175 The Cuban government posted extra guards around the American embassy.176 On July 10, gunmen pulled up next to a car carrying Miguel Calvo, the head of the Cuban security services, and killed everyone in the car with shotguns.177 On September 28, the ABC killed the president of the Senate, Clemente Vazquez Bello, on the heels of a bomb attack that killed two policemen.178 The ABC then attempted to bomb Bello’s funeral, wiring the cemetery with three hundred pounds of dynamite in twenty-three separate mines. The plot failed because (p.227) a gardener discovered the explosives.179 Machado reacted with another wave of violent repression.180 Gunmen then killed two opposition members of Congress, and their siblings died in what the American embassy believed to be reprisals.181 In October, Machado floated a plan that would mandate the death penalty for illegal possession of guns or explosives.182

    By the end of 1932, the State Department had lost faith in Machado’s ability to restore order. The American diplomatic staff in Havana, moreover, was finding it difficult to maintain its neutrality in Cuban internal affairs. Secretary Stimson sternly warned Guggenheim that he alone would express public disapproval of President Machado. In a tight-lipped letter, he chastised Guggenheim for getting too close to the opposition:

    I feel that any indication, such as you suggest, of lack of sympathy with President Machado … would be tantamount to taking sides on a purely internal political question. … In view of the foregoing I trust that you will refrain from taking any attitude or position with respect to Cuban internal political questions. … Your dispatch under reference terminates with the following sentence regarding your recommended change of policy: “This would at least tend to relieve our government from responsibility for the inevitable consequences of Machado’s persistence in his present course.” The Department cannot acquiesce in the view that the continuance of its policy of non-interference in Cuba’s internal affairs involves our government in any responsibility for the policies of the Cuban executive.183

    The difficulty, from the State Department’s point of view, was that Machado retained the support of American bankers. Stimson told Guggenheim in a personal meeting why the United States had to refrain from criticizing or weakening Machado: “The bankers, (p.228) who had [sic] a big stake in Cuba, are working hard on a scheme which they hope will work out satisfactorily.”184 The scheme in question was a renegotiation of the debt, in which Cuba would suspend amortization but continue to pay interest.185

    Machado had three reasons to avoid default. The first, of course, was the worry that default might cut off Cuba’s access to foreign capital markets. The second was the fear of American intervention, although this should have been (but apparently was not) reduced in light of the American approval of defaults elsewhere.186 The third reason, however, was the key: Cuba’s lenders provided Machado and his supporters with personal incentives to continue the government’s debt payments. Chase Bank granted Machado personal loans worth $130,000 ($2.15 million in 2011 dollars), “with little prospect of immediate payment” in the words of a later Senate investigatory committee. Chase also made loans to enterprises owned by the Cuban president: it gave $45,000 ($745,000 in 2011 dollars) to a construction company and $89,000 ($1.48 million in 2011 dollars) to a shoe factory. In addition, Chase hired Machado’s son-in-law, José Emilio Obregón, even though, as Chase officials themselves wrote, “As we know, from any business standpoint he is perfectly useless.”187 Although Obregón was perfectly useless to Chase’s business, he nevertheless received a starting salary of $12,000 (which rapidly rose to $19,000, for a rise from $202,000 to $319,000 in 2011 dollars) and an additional $500,000 commission ($8.5 million in 2011 dollars) for his role in securing the 1928 public works loan.188 In addition, Cuban families close to Machado were invested in the Cuban public debt. The State Department reported that at least $1.5 million of the Cuban public works bonds ($26.3 million in 2011 dollars) was held by “individuals close to the President,” with an additional $5.5 million ($96.8 million in 2011 dollars) belonging to the Compañía Cubana de Contratistas, “in which those chiefly interested are Augustus Alvárez and Rodolfo Arrelano, both of them intimately connected with the President.”189

    (p.229) Default for Stability

    The United States finally withdrew its support for Machado when it became convinced that his policies would lead to the collapse of the Cuban state. In one of the supreme ironies of the first American empire, Machado’s policies were neither radical nor, in the conventional sense, irresponsible. After all, Cuba was paying its debts. The problem was that paying its debts meant shutting down the school system, allowing government salaries to go unpaid, and raising taxes to confiscatory levels. Those actions prompted the sugar lobby to turn on Machado. Once it did so, the U.S. government followed. In a previous decade, the banks that owned Cuban debt might have pushed back successfully—but in the context of the early 1930s, they lacked the influence.

    The State Department realized that a debt renegotiation would be in the U.S. interest as early as mid-1931.190 Machado, however, remained dead set against any action that might undermine the value of Cuban debt. He therefore continued to service the debt, even when his efforts became unpopular. In December 1931, for example, Machado asked the banks to keep the scheduled $2.25 million debt payment a secret, because the government had missed several paychecks and he feared the public outcry.191 The next month, in January 1932, the American ambassador reported, “Default on the public debt cannot be postponed much longer.”192

    Ambassador Guggenheim was wrong in his prediction about Cuban default. Machado took increasingly “heroic” measures to continue payments. In March, he authorized the coinage of silver with a face value of $6 million at a cost of $2 million—the seigniorage went to debt payments.193 In December the Machado administration cobbled together a combination of new loans and tax hikes. Chase National agreed to advance $1.65 million and allow the government to postpone principal payments on 30% to 40% of the public works debt.194 In addition, (p.230) the three largest oil companies operating in Cuba agreed to advance $1.84 million ($26.4 million in 2011 dollars) against their 1933 tax payments.195 Cuba, in turn, imposed a 1 cent per pound excise tax on refined sugar at a time when sugar (net of U.S. tariffs) traded at 0.9 cents in New York. In other words, Machado was willing to impose a tax on sugar over 100% of its market price. Considering that the American sugar market was competitive, it was unlikely that the growers would be able to pass along much of the burden to consumers. Not surprisingly, the tax ignited a furious response from the sugar growers.196 Once again, Ambassador Guggenheim wrote Washington in favor of default, bluntly stating that it would be better than the plan proposed by the bankers and the oil companies.197

    Machado’s government also cut expenses—but in a haphazard and politically explosive manner. In December 1931, it postponed government paychecks for several weeks. In June 1932 it again began to fall behind on wages, paying only the judiciary, high officials, and military.198 In September 1932 it stopped paying the judiciary. In January 1933 it stopped paying the heads of executive departments. By May, salary arrears had reached $19 million, out of a total government budget for the year of $40 million.199

    The newly appointed U.S. ambassador to Cuba, Sumner Welles, recommended that Cuba declare a moratorium on all principal payments in light of the onerous tax burden on American enterprises on the island. The State Department agreed in principle, mentioning specifically the “dangers inherent in the situation growing out of the alarming salary arrears to Cuban government personnel.” The incoming Roosevelt administration also agreed with this assessment, but it was not yet ready to order the Cuban government to default on American bankers. “[The administration] cannot take the initiative with the bankers in suggesting a suspension of payments,” wrote Acting Secretary of State Cordell Hull in June 1933.200 The problem, from Roosevelt’s point of view, was not the bankers’ political power at home. The Great Depression had already greatly reduced (p.231) their influence. Rather, the problem lay in Cuban politics. Ambassador Guggenheim summed it up succinctly: “Any effort by our government to induce the bankers to relieve the financial strain on the Machado administration will be generally condemned as United States support of the unpopular Machado administration.”201

    Machado, of course, faced his own catch-22: he could not default on the debt without alienating his political base, but he could not continue to pay the debt without eviscerating the Cuban state. In March 1933, he tried to relieve the burden of new taxes by declaring a two-year suspension of all private debt payments by railroad companies, sugar mills, and farms. He also capped interest on urban mortgages at 5%.202 This move, not surprisingly, did little for either Cuba’s economy or Machado’s popularity.

    Machado’s determination to pay the foreign debt—much like Nicolae Ceauçescu’s in a later era—provoked increasing opposition. By March 1933, Ambassador Guggenheim reported a “wide campaign of responsible criticism against further payments on principal of foreign debt.”203 Machado refused to budge. “President Machado himself will not take the initiative in the matter,” wrote Ambassador Welles two months later. “He feels that the strongest support which he has in his present position is the support given him by the American banking groups and he has further the conviction, which nothing will shake, that any default of obligations by his administration will make more likely the possibility of American intervention.”204

    Machado’s conviction was in fact the opposite of the American position. The United States preferred default. Two American ambassadors from two different administrations told Machado he was mistaken, to no avail. Nor was Machado swayed by Washington’s support for defaults in South America and in the Dominican Republic. Even when American bankers offered Machado a two-year holiday on principal payments on the $20 million public works credit (something the U.S. government considered inadequate) he refused.205

    (p.232) The United States therefore made the decision to remove Machado. A general strike on August 4, 1933, provided the pretext. Government employees walked out, stores closed, and Welles worried that “there will be a state of near starvation within the next 24 hours.” Welles went to Machado, warning him that unless he appointed an impartial secretary of state to run the government, followed by the reinstatement of the office of vice president and Machado’s own resignation, Cuba would fall into anarchy.206 The general strike turned violent on August 7, when the police fired on demonstrators. On August 8, Machado declared that he would not be “pushed out by the United States.”207 Later that day, he personally told Welles that he would “prefer armed intervention to the acceptance of any such proposal.” Welles thought Machado “was in a state of mental disturbance bordering on hysteria.”208

    On August 9, Machado’s time ran out. In a meeting in Washington, President Roosevelt gently suggested to the Cuban ambassador that Machado step down “to prove to the world his high purpose in this crisis” and perform “a noble act” suitable for “a great man, a great leader, and a great patriot.” Roosevelt even offered to provide unspecified political cover so that Machado would not lose face. Roosevelt also implied the United States would withdraw recognition of the Machado government if he did not step down, as “recommended by the representatives of all the Cuban political parties.” Moreover, although Roosevelt said that he had “no desire to intervene,” he ominously added that he felt a “duty to do what we could so that there should be no starvation and chaos among the Cuban people.”209

    The following day, the Mexican foreign minister, José María Puig, confided to the U.S. ambassador in Mexico City that while Mexico could not countenance a unilateral American intervention, even with the support of the Cuban population, it would support a move against Cuba if it was taken “in cooperation with other countries on this continent.” Puig backed up his private statements with public support for the United States (p.233) when the Japanese ambassador to Mexico accused the United States of doing in Cuba what it “condemned Japan for doing in Manchuria.”210

    With presidential approval and Mexican support in hand, Ambassador Welles held meetings with the leaders of Cuba’s three major parties and the military. Welles’ meeting was followed by a mutiny by the First Artillery Battalion and proliferating rumors of a coup. Machado then anticlimactically stepped down on August 13, 1933. Carlos Manuel de Céspedes took over as provisional president. Machado left by plane for the Bahamas. He would die in 1939 in the traditional land of Cuban exile: Miami.

    With Machado gone, the United States immediately implemented a plan for orchestrating a Cuban default. Bureaucratic conflicts between State and Treasury led to a less smooth roll-out than Ambassador Welles hoped, but it nonetheless worked. On August 20, Welles reiterated his support for a moratorium on debt payments, covering “both sinking fund and interest charges.” He then suggested that the United States immediately lend Cuba the cash it needed to meet current expenses.211 Dean Acheson, the new undersecretary of the treasury, was sympathetic to the moratorium, but he worried that Article 1, Section 9, Clause 7 of the U.S. Constitution prevented the department from issuing Treasury bills or notes on behalf of a foreign government without congressional authorization. As a workaround, however, Acheson ordered the Philadelphia Mint to speed up the coinage of Cuban silver, and he sent Adolf Berle, the special counsel to the Reconstruction Finance Corporation (RFC), to Havana to establish a commission to work out an orderly default.212

    As expected, Berle’s commission concluded that Cuba needed to prioritize general expenses and salary arrears ahead of debt payments. “We do not believe that the ordinary budget now in force can be decreased; on the contrary, government salaries should be partially restored. They have been cut below the (p.234) danger point now. [Paying back salaries] is necessary for the stability of the government. It would have the advantage of giving some slight impetus to economic activity within the island.” Nor did Berle believe that Cuba could increase government revenues. “Tax rates,” he wrote, “have reached if not yet passed the point of diminishing returns.” The commission proposed a conditional default on all debt payments as long as general expenses and back salaries were unmet. It also suggested a legal way for the United States to aid Cuba without the need for congressional approval: the minting of $14 million ($201 million in 2011 dollars) in silver coin, financed by a $4 million loan from the RFC to the seller of the raw silver.213

    One More Coup

    The new government will have large public support. The communistic element will, of course, make every effort to stir up trouble for it.

    —Jefferson Caffery, personal representative of the president in Cuba, 1934

    The Cuban saga was not quite over. Two days before the Berle commission published its report, Sergeant Fulgencio Batista led a mutiny of noncommissioned officers. The proximate cause of the mutiny was a [false] rumor that the government intended to cut enlisted pay from $22 a month to $13.214 (This was the equivalent of a cut from $375 to $221 a month in 2011 dollars, although this calculation does not account for the fact that the cost of living was lower in Cuba than on the mainland.) Radical student leaders quickly arrived at the mutineers’ headquarters. The mutineers agreed to support the students and declared a new government on September 4 under a five-man executive commission composed of Ramón Grau, Porfirio Franca, Guillermo Portela, Jose Irizarri, and Sergio Carbó.215 Five days later, Grau assumed the presidency.216 Recalcitrant Cuban Army (p.235) officers held out in the National Hotel in Havana—home to much of Havana’s American community, including Ambassador Welles. On October 2, 1933, Grau’s soldiers stormed the hotel and captured or killed the holdouts.217

    Grau’s regime rapidly lost support after the hotel attack. Ambassador Welles used his offices to coordinate Grau’s opponents and assure them of American support. By September 11, 1933, all the parties that had formed part of the original power-sharing deal declared their opposition to the Grau government, including both the ABC and Organización Celular Radical Revolucionaria.218 By October 7, Grau had lost Batista’s support: the sergeant-turned-general told Welles that he “realized now fully that the present regime was a complete failure.”219

    Welles believed the Grau administration to be under “ultra-radical control,” and reported “that Communistic elements are having an unfortunate influence.”220 This view was reinforced by seizures of sugar properties by striking workers, including two American-owned mills, and decrees intervening directly in the management of the American-owned Cuban Electric and Cuban Telephone companies.221 The United States took the interference in the utilities in stride, but responded strongly to Grau’s failure to protect American property: hurricane relief funds ceased and Cuban silver coins that had already been minted sat in Philadelphia under embargo.222

    Terrorism soon reemerged after the imposition of sanctions, including bombings and assassinations in Havana. The most dramatic incident occurred on November 8, 1933, when anti- Grau troops from Camp Columbia “flying stolen fighter planes, swooped low over the city of Havana, spraying 50-caliber machine gun bullets into the streets, across the roof tops, and into the streets again.”223

    Once again, the Roosevelt administration came under pressure to intervene. The U.S. Chamber of Commerce and Standard Oil asked for intervention. Bethlehem Steel requested protection for the iron mines at Daiquiri. United Fruit asked that U.S. Marines be sent to its plantations near Antilla, on the coast; (p.236) President Roosevelt dispatched a destroyer.224 He then ordered twenty-nine naval vessels to proceed to Cuba and Key West. The Marine Corps put its air squadrons on alert, with pilots at Quantico, Virginia, ordered to be packed and ready to fly to Cuba “on a moment’s notice.” Five marine battalions were activated and prepared for deployment at Quantico, Virginia, and Port Everglades in Fort Lauderdale, Florida.225

    Fortunately, President Roosevelt did not need to pull the trigger. The U.S. embassy forwarded reports to Batista that the United Kingdom might recognize Grau. Batista then contacted Carlos Mendieta, the head of the opposition Nationalist Union, and asked him if he would support a coup. Mendieta agreed, but only if Batista could guarantee American support. Jefferson Caffery, President Roosevelt’s personal representative in Cuba, readily gave that support.226 Roosevelt refused to give Batista an official guarantee that the United States would recognize a new government, but Batista considered Caffery’s word sufficient. The Cuban Army ousted Grau on January 15, 1934.227 Carlos Hevia became provisional president. Within days he turned that office over to Mendieta. On January 19, Caffery reported that the new government met the Roosevelt administration’s requirements, and on January 23, 1934, the United States extended “formal and cordial recognition.”228 Within four months, the two countries signed an agreement formally abrogating the Platt Amendment.

    The Depression and the Withdrawal from Formal Empire

    The same Depression-induced logic of withdrawal held for America’s formal empire. As with Cuba, the driving forces were domestic lobbies roused by economic scarcity. In the case of the Philippines, however, it was the entry of foreign persons rather than foreign products that provoked resistance. Philippine independence was the price of ending Filipino immigration.

    (p.237) The Democratic Party supported Philippine independence since the 1900 presidential election, but it had never followed through. In large part, this was because there was no serious constituency for independence in the Philippines itself. Major Filipino leaders claimed to support independence in public, but what they wanted in private discussions with American officials was in fact autonomy.

    Most Filipino leaders appeared to be essentially satisfied with the status quo established by the Philippine Autonomy Act of 1916, save for a brief episode in the 1920s when the confrontational Leonard Wood attempted to actually exercise the powers reserved to the governor-general. (In fact, the first draft of the Autonomy Act had been written by the Philippines’ nonvoting representative in the U.S. Congress, Manuel Quezon.)229 When Filipino leaders made specific demands on Washington, they were for the formalization of some sort of final status that would give the Philippines de jure as well as de facto domestic autonomy, while retaining the islands’ commercial, defense, and judicial links with the United States. No Filipino leader wanted to see an unelected foreigner exercising executive power the way Governor-General Wood had done, but neither did any wish to lose the benefits of association with the United States. Manuel Quezon, who became leader of the Philippine Senate in the 1920s and 1930s, quietly tabled independence bills. In 1927, Quezon explicitly told Secretary Kellogg, “We will take dominion status,” if only the Americans would codify the islands’ autonomy.230 Not even the sheer obnoxiousness of Leonard Wood could upset the imperial applecart; his successors were more respectful of Filipino sensibilities.

    The onset of the Great Depression did what Leonard Wood could not; it broke the political balance maintaining the Philippines’ links with the United States. Simply put, the political cost to American politicians of retaining the Philippines rose precipitously as the domestic economy declined. The first danger sign appeared in an unlikely place: Watsonville, California.

    (p.238) Unlike the residents of Hawaii (who became American citizens under the Hawaiian Organic Act of 1900) or the residents of Puerto Rico (who became American citizens under the Jones Act of 1917), Filipinos had an intermediate status in the United States. The Philippine Organic Act of 1902 created a special category of “citizens of the Philippine Islands … entitled to the protection of the United States.” (Their status was loosely akin to that of the modern-day inhabitants of American Samoa, who are nationals of the United States but not American citizens.) There were no legal restrictions on Philippine migration to the United States.

    Few Filipinos migrated to the United States until 1908, when Japan agreed to limit Japanese emigration to the United States. This so-called Gentlemen’s Agreement had a loophole: it did not apply to the Territory of Hawaii, to which Japanese continued to migrate.231 Nevertheless, Hawaiian plantations, which were heavily dependent on Japanese labor, feared that the Japanese loophole would soon close. They therefore began to actively recruit Filipinos. Their fear proved accurate in 1917, when anti-Asian hysteria prompted Congress to pass the Asiatic Barred Zone Act, which prohibited all migration from the Asian mainland and “persons who are natives of islands not possessed by the United States adjacent to the continent of Asia.”232 The Japanese were thus excluded even from Hawaii. Filipinos, of course, were natives of islands possessed by the United States. Filipino migration to Hawaii accelerated, and many of those migrants moved on to the United States, particularly California (see figure 6.7). By 1930, California was home to slightly over thirty thousand Filipinos.233

    The number of Filipinos in California was small, but unemployment caused by the Depression provoked a wave of violence aimed against them. On January 20, 1930, after a series of small incidents in the Central Valley, mobs of white people in the coastal town of Watsonville descended upon Filipino shops and homes, killing one Filipino immigrant, Fermin Tobera, and wounding several others. Within a week, the anti-Filipino rioting (p.239)

    Escaping by Accident

    Figure 6.7 Filipino residents of the United States, 1910–40

    Source: U.S. Census Bureau.

    spread to Stockton—where nativists dynamited a Filipino community center—San Jose, and Los Angeles. In Watsonville itself, a second mob estimated by law enforcement at roughly seven hundred people began indiscriminately attacking Filipinos in the streets, killing several and forcing the police to round up most of the Filipinos in the town “for their own protection.”234 The California legislature then voted in support of granting the Philippines immediate independence—not out of political idealism, but in order to include the Philippines in the Asiatic Barred Zone. Soon thereafter, the American Federation of Labor and the Congress of Industrial Organizations added their voices to the call for Philippine independence, not because of a principled stance in favor of decolonization, but so that Filipino labor would not compete against American union members.235

    Sugar producers and the dairy industry also jumped into the surge of anti-Filipino sentiment to push for immediate decolonization. The beet sugar industry had obvious reasons to want to expel the Philippines from the American customs area. The opportunity partnered the beet sugar industry with the formidable lobbying machine constructed by the Cuban sugar lobby—Philippine independence being perhaps the one policy position (p.240) on which the two groups could agree. The sugar interests were soon joined by a coalition of Midwestern dairy farmers—under the less-than-euphonious “Tariff Defense Committee of American Producers of Oils and Fats”—who worried about the competition to domestic margarine posed by Philippine coconut oil. As a result, there was not a lot of pushback in 1930 when Republican congressmen like Harold Knutson (R-Minnesota) broke with the GOP’s long-standing anti-independence platform. “It is generally agreed,” said Knutson, “that the Philippine Islands today constitute the greatest single menace to our dairy industry.”236

    There was little domestic opposition to Philippine independence. No “Philippine lobby” ever emerged to match the Cuba lobby. The reason, of course, was that the opponents of annexation had written restrictions on the ability of American citizens to invest in the Philippine Islands into the Philippine Organic Act of 1902. The restrictions prevented the emergence of groups with a vested interest in the retention of the Philippines. In other words, the restrictions kept the empire trap from closing in America’s easternmost possession. Of course, the Democratic anti-imperialists could not completely prevent the creation of economic links between the “incorporated” United States and its “unincorporated” Pacific possession. The 1909 and 1912 Tariff Acts brought the Philippines into the American customs area. Nonetheless, the investment restrictions ensured that it would be mostly Filipino landowners and entrepreneurs who benefited from access to the American market, not residents of the United States. (The Philippine Autonomy Act of 1916 gave the newly created Philippine legislature the power to extend Philippine citizenship to resident American citizens. No legislation was written to enable this, however, and rather few Americans pressed the issue once the courts ruled that they would be subjected to double income taxation if they did.)

    It took three decades, but the Democratic anti-imperialist strategy paid off once Californian race riots put the issue of Philippine independence back on the table. After the 1930 (p.241) election, Congress passed several independence bills. President Hoover vetoed all of them, at the private urging of Manuel Roxas and Sergio Osmeña, two of the Philippines’ most important political leaders. In his memoirs, Hoover expressed some dismay at the difference between Roxas and Osmeña’s public pro-independence statements and their private opposition.237 The Philippine leaders, conversely, saw no contradiction in their stance, since from their point of view previous Republican administrations had been mysteriously unwilling to make an offer that they could accept—for example, full executive autonomy combined with perpetual commercial and defense links.

    Congress passed the Hare-Hawes-Cutting Act in December 1932, during President Hoover’s final months in office. Hoover, as he had done to all previous legislation mandating Philippine independence, vetoed it. Congress overturned Hoover’s veto on January 17, 1933. This time the Philippine Senate rejected the bill, but the new, overwhelmingly Democratic Congress under the incoming Democratic president was not to be deterred. The bill was slightly revised to eliminate the retention of non-naval bases in the Philippines. With this cosmetic change, Congress passed a new bill, the Tydings-McDuffie Philippine Independence Act of 1934. The Philippine legislature had little choice but to accept.

    The Philippine Independence Act imposed an immigration quota of fifty visas per year and phased out free trade in stages between 1940 and 1946. In 1935, the United States would impose quotas on the Philippines of 850,000 long tons of sugar, 200,000 tons of coconut oil, and 3 million pounds of cordage. Even this proved insufficient for the domestic farm lobby, which lived in mortal fear of the threat of cheap margarine. The Revenue Act of 1934 added a 3 cents tax on every pound of coconut oil coming into the United State from the Philippines. (Although the exigencies of American constitutional law required that the tax revenues go to the Philippine treasury, this was hardly enough to compensate the Philippines for its lost access to American markets.)238 In the middle of the Great Depression, (p.242) and in the midst of an escalating arms race in the Pacific, the newly formed Commonwealth of the Philippines was economically on its own.

    It is worth noting that President Manuel Quezon of the Philippines attempted to forestall full independence. In 1938, the U.S. high commissioner, Paul McNutt, began to publicly advocate that the two nations retain permanent trade and defense links. Quezon stated that McNutt’s logic was “inassailable.” In the absence of an official U.S. proposal, however, Quezon kept his bargaining options open, contradictorily stating that he could not agree to U.S. control over “foreign affairs, tariff, immigration, currency and public debt” while simultaneously declaring that he was open to “any economic relationship … based on mutual advantages to the two countries.” He also declared that he would be willing to submit “indefinite postponement” of independence to a plebiscite.239 Unsurprisingly, the U.S. Congress refused to take up Quezon’s offer. After raising a few more trial balloons to no response from Washington, Quezon finally shut the door on “dominion status” on December 9, 1939, when he declared, “I prefer a government run like hell by Filipinos to a government run like heaven by the Americans.”

    Conclusion

    Just as Wilson and Harding preferred to dismantle America’s informal empire, Herbert Hoover—a mining engineer who made his pre-presidential fortune extracting precious metals and minerals from China and Australia—was more inclined to promote it. Presidential preferences, however, meant little in the face of global economic changes. The Great Depression set in less than a year after Hoover’s inauguration, fundamentally altering the political conditions that had drawn the United States into its economic protectorates. The politics of scarcity revealed a distinct hierarchy among American economic interests: in times of (p.243) limited resources, domestic producers trumped American producers exploiting foreign resources and facilities, who in turn trumped the holders of foreign debt.

    In the absence of a united coalition lobbying for action, the U.S. government relinquished a number of its overseas commitments. In Bolivia, the United States ignored the desires of bankers because the austerity measures needed to maintain debt payments would have disadvantaged American-owned mining companies. A similar chain of events followed in Peru, Ecuador, and El Salvador. The Americans needed to appear sympathetic to creditors injured by the Dominican default, but there, too, the United States ultimately sided with direct investors rather than financiers.

    The Depression also eroded the formal parts of the American empire. Domestic sugar producers lost patience for preferential tariffs on Cuban sugar, and they successfully lobbied for the Smoot-Hawley Act to raise those duties. The domestic forces that raised barriers to the entry of foreign products also successfully raised barriers to the entry of foreign persons. Unemployment and anti-Asian hysteria in California led to hostility against Filipino immigrants. Bowing to pressure from organized labor (joined by sugar and dairy interests), the United States mandated Philippine independence. None of these interests cared much in the abstract about ending imperial (or quasi-imperial) rule in Cuba or the Philippines—it was simply a by-product of their protectionist goals.

    A curious sequence of events in Cuba, however, made it clear that American overseas interests were not rendered entirely powerless. As the Cuban economy declined, the United States heeded the plaints of investors who feared that President Machado’s economic policies—which mainly involved maintaining the government’s ability to borrow at all costs—would lead to the complete collapse of the Cuban state. Under pressure from Bethlehem Steel, United Fruit, and the U.S. Chamber of Commerce, the United States lent its support to regime change in Cuba not once but twice in 1933–34.

    (p.244) The Cuban episode illustrated the fact that the United States’ escape from the empire trap was only partial. Neither Hoover nor Roosevelt disengaged the United States from the defense of its citizens’ economic interests abroad. The Roosevelt administration may have overthrown a government because it refused to default on its debt to American creditors, but it did so precisely because doing so created “chaos,” which threatened the investments of prominent American citizens. After Machado’s successor fell to a left-wing coup, the Roosevelt administration came very close to invading the island—only the success of an American-abetted countercoup short-circuited military intervention. In short, while the Depression allowed the United States to escape the empire trap in part, the pressures that had originally caused the trap still existed—and would resume once global economic conditions improved.

    Notes:

    (1.) William Walker, “Crucible for Peace: Herbert Hoover, Modernization, and Economic Growth in Latin America,” Diplomatic History, vol. 30, no. 1 (January 2006), pp. 87–117: 98.

    (2.) C. Neale Ronning, “Intervention, International Law, and the Inter-American System,” Journal of Inter-American Studies, vol. 3, no. 2 (April 1961), pp. 249–71: 252–53.

    (3.) Alexander DeConde, Herbert Hoover’s Latin-American Policy (New York: Octagon Books, 1970), pp. 13–24.

    (4.) William Leuchtenburg, Herbert Hoover (New York: Macmillan, 2009), pp. 120–21.

    (5.) Gordon Connell-Smith, “Latin America in the Foreign Relations of the United States,” Journal of Latin American Studies, vol. 8, no. 1 (May 1976), pp. 137–50: 141.

    (10.) “For each South American country, the basic purpose of [Intervention Plan] Purple was to seize an important strategic area, generally the capital, and ‘hold it pending the outcome of a naval blockade.’ Because of the long distances from the United States and the size of most South American countries, there was no provision for occupation or for establishing long-term U.S.-controlled native constabularies as had been the case in the ‘Color’ plans for Mexico, Central America, and the Caribbean.” John Child, “From ‘Color’ to ‘Rainbow’: U.S. Strategic Planning for Latin America, 1919–1945,” Journal of Interamerican Studies and World Affairs, vol. 21, no. 2 (May 1979), pp. 233–59: 244.

    (11.) A 1922 loan for $33 million ($350 million in 2009 dollars) mandated that Bolivia place its finances under the control of the Comisión Fiscal Permanente (CFP). Only $29 million in bonds were actually issued; the remaining $4 million for a railroad between Sucre and Potosí was left pending until Bolivia balanced its current budget. Contreras, “Debt,” pp. 265–87: 269.

    (p.482) (12.) Dillon, Read & Co. of New York arranged a $14 million loan in 1927 and a second one a year later for $23 million ($147 and $239 million in 2009 dollars). Drake, Money Doctor, p. 202.

    (16.) CFP report, 1930, p. 2. (See previous chapter, note 136.)

    (19.) While the sol lost nearly half its dollar value between the middle of 1930 and March 1931.

    (27.) Charge d’affaires Thomas Stafford to Stimson, September 14, 1931, 839.51/3487, Record Group 59, NA.

    (28.) F. Eugene Hartwell, “The Santo Domingo Hurricane of September 1 to 5, 1930,” Monthly Weather Review (September 1930), pp. 362–63.

    (29.) Eric Roorda, The Dictator Next Door: The Good Neighbor Policy and the Trujillo Regime in the Dominican Republic, 1930–45 (Durham, N.C.: Duke University Press, 1998), p. 67.

    (30.) Dominican Customs Receivership, Report of the 24th Fiscal Period (Washington, D.C.: GPO, 1931), p. 2.

    (33.) Herbert Hoover, News Conference, September 23, 1930, http://www.presidency.ucsb.edu/ws/index.php?pid=22356, accessed August 9, 2010.

    (34.) Wadsworth Report, October 13, 1930, 839.51 Economic Mission/13, Record Group 59, NA.

    (35.) Dominican economic mission to President Hoover, December 31, 1930, 839.51 Economic Mission/5, Record Group 59, NA.

    (36.) Memorandum of the Assistant Secretary of State, FRUS, 1931, vol. 2, p. 84.

    (p.483) (38.) The coupon rate would be 5.5% at 90% of par. Memorandum of the Assistant Sec. of State, FRUS, 1931, vol. 2, p. 86.

    (39.) Memorandum of the Assistant Secretary of State, FRUS, 1931, vol. 2, pp. 86–87.

    (40.) Memorandum of the Assistant Secretary of State, FRUS, 1931, vol. 2, pp. 86–87.

    (41.) Memorandum of conversation, Rafael Brache with Secretary of State, February 12, 1931, FRUS, 1931, vol. 2, pp. 88–90.

    (42.) Lee, Higginson and Company to the Assistant Secretary of State, July 23, 1931 FRUS, 1931, vol. 2, p. 108.

    (43.) Lee, Higginson and Company to the Assistant Secretary of State, June 20, 1931, FRUS, 1931, vol. 2, pp. 104–6.

    (44.) President of the Dominican Republic to President Hoover, August 25, 1931, FRUS, 1931, vol. 2, p. 114.

    (45.) President Hoover to the President of the Dominican Republic, September 5, 1931, FRUS, 1931, vol. 2, pp. 117–18.

    (46.) Schoenfield to Secretary of State, October 24, 1931, FRUS, 1931, vol. 2, p. 132.

    (47.) Dominican Minister to Secretary of State, October 20, 1931, FRUS, 1931, vol. 2, pp. 124–30.

    (48.) Lee, Higginson and Company to Secretary of State, November 9, 1931, and Secretary of State to Lee, Higginson and Company, November 10, 1931, FRUS, 1931, vol. 2, pp. 134–35.

    (49.) Schoenfeld to Bundy, November 14, 1931, 839.51/3607, Record Group 59, NA.

    (52.) U.S. Department of Commerce, U.S. Business Investments in Foreign Countries (Washington, D.C.: GPO, 1960), p. 92.

    (53.) In the event of default, the American fiscal agent would nominate two people to take over the customs services. The Salvadorean government would then ratify one of them after running the decision “through the office of the Secretary of State of the United States … any disagreement, question or difference of any nature whatever” would be referred to the binding authority of the U.S. Chief Justice. Juan Francisco Paredes to Charles Evans Hughes, Oct. 20, 1921, 816.51/176, Record Group 59, NA.

    (54.) Robbins to Stimson, June 7, 1929, 816.00/748, Record Group 59, NA.

    (p.484) (55.) Robbins to Stimson, 4 October 1929, 816.00/754, Record Group 59, NA.

    (56.) Schott to Stimson, 30 March 1930, 816.00B/11, Record Group 59, NA.

    (57.) David Schmitz, Thank God They’re on Our Side: The United States and Right-Wing Dictatorships, 1921–65 (Chapel Hill: University of North Carolina Press, 1999), p. 63.

    (58.) Calculated from data in Schmitz, Thank God, p. 63, and Dirección General de Estadística y Censos, Censo de Población de El Salvador 1930, p. 8, http://www.ccp.ucr.ac.cr/bvp/censos/El_Salvador/1930/index.htm, accessed July 4, 2010.

    (59.) The author’s maternal grandfather served in the Socorro Rojo during the 1930s.

    (60.) Jeffery Paige, Coffee and Power: Revolution and the Rise of Democracy in Central America (Cambridge, Mass: Harvard University Press, 1998), p. 112.

    (61.) Robbins to Stimson, March 27, 1931, 816.00/801, Record Group 59, NA.

    (62.) Curtis to Secretary of State, December 5, 1931, FRUS, 1931, vol. 2, p. 177.

    (63.) The general was known by his maternal last name in El Salvador.

    (64.) “General Treaty of Peace and Amity,” The American Journal of International Law, vol. 17, no. 2, Supplement: Official Documents (April 1923), pp. 117–22.

    (65.) See Chandler Anderson, “Our Policy of Non-Recognition in Central America,” American Journal of International Law, vol. 25, no. 2 (April 1931), pp. 298–301.

    (66.) Secretary of State to Curtis, December 7, 1931, FRUS, 1931, vol. 2, p. 187.

    (68.) McCafferty to Secretary of State, January 20, 1932, FRUS, 1932, vol. 5, p. 613.

    (69.) McCafferty to Secretary of State, January 23, 1932, FRUS, 1932, vol. 5, p. 614–15.

    (70.) McCafferty to Secretary of State, January 23, 1932, FRUS, 1932, vol. 5, p. 614–15.

    (71.) “115 Marines on Three Warships,” New York Times, January 25, 1932, p. 10.

    (72.) “600 Dead Reported in Salvador Revolt,” New York Times, January 26, 1932, p. 1.

    (p.485) (73.) “El Salvador Reds Routed,” New York Times, January 30, 1932, p. 8.

    (74.) Raymond Bonner, cited in Schmitz, Thank God, p. 67.

    (75.) McCafferty to Secretary of State, January 29, 1932, pp. 619–20.

    (76.) “Reports Salvador Able to Pay Debts,” New York Times, Mar 20, 1932; p. 9.

    (77.) “Doubts Contract on Salvador Loan,” New York Times; Aug 16, 1932, p. 25.

    (78.) McCafferty to Secretary of State, FRUS, 1932, vol. 5, p. 603.

    (80.) McCafferty to Secretary of State, FRUS, 1932, vol. 5, p. 603.

    (81.) Donald to Secretary of State, June 18, 1932, FRUS, 1932, vol. 5, p. 604.

    (82.) Eberhardt to Sec. of State, FRUS, 1932, vol. 5, p. 604; Higgins to Sec. of State, p. 604; Hanna to Sec. of State, p. 605; and Finley to Sec. of State, p. 605.

    (84.) “El Salvador Plan Offers Adjustment,” Wall Street Journal, December 5, 1932, p. 9, and “Salvador Bond Interest,” Wall Street Journal, June 17, 1933, p. 8.

    (85.) “First Nation to Resume,” Wall Street Journal, June 28, 1933, p. 6.

    (87.) This led to such oddities as the American-owned and American-protected Dominican sugar industry exporting most of its production to the United Kingdom.

    (88.) Alan Dye and Richard Sicotte, “The Interwar Turning Point in U.S.-Cuban Trade Relations: A View through Sugar-Company Stock Prices,” paper for “The Origins and Development of Financial Markets and Institutions” conference, April 28–29, 2006, p. 5.

    (89.) Alan Dye and Richard Sicotte, “The Political Economy of Exporting Economic Instability: The U.S. Sugar Tariff and the Cuban Revolution of 1933,” Barnard College Working Paper Series #99-05, p. 18.

    (90.) Richard Sicotte and Alan Dye, “The Origins and Development of the U.S. Sugar Program, 1934–59,” paper prepared for the 14th International Economic History Conference, 2006, p. 5.

    (93.) Alan Dye and Richard Sicotte, “U.S.-Cuban Trade Cooperation and Its Unraveling,” Business and Economic History, vol. 28, no. 2 (Winter 1999), p. 24.

    (p.486) (94.) H. O. Neville, “Looking Backward over the Past Year in Cuba’s Sugar Industry,” Cuba Review, vol. 21, no. 4 (March 1923), pp. 18–19.

    (95.) “The U.S. Department of Commerce in Cuba,” Cuba Review, vol. 21, no. 2 (January 1923), pp. 17.

    (97.) “Cuba Cane Sugar Corporation, Seventh Annual Report, for the Fiscal Year Ended September 30, 1922,” The Cuba Review, vol. 21, no. 2 (January 1923), p. 19.

    (98.) “The Sugar Industry,” Cuba Review, vol. 20, no. 2 (January 1922), p. 31.

    (99.) H.O. Neville, “Some Sugar History,” Cuba Review, vol. 20, no. 4 (March 1922), pp. 11–14. Data on the fob price of Cuban sugar calculated from data on p. 14 of the article.

    (100.) Secretary of State to Cable, September 17, 1921, FRUS, 1921, vol. 1, p. 803.

    (101.) Crowder to Secretary of State, December 21, FRUS, 1921, vol. 1, p. 805.

    (105.) Crowder to Secretary of State, April 8, 1926, referencing a letter dated October 30, 1925, FRUS, 1926, vol. 2, pp. 10–11.

    (106.) Secretary of State to Crowder, April 30, 1926, FRUS, 1926, vol. 2, p. 12.

    (107.) Cespedes to Secretary of State, May 5, 1926, FRUS, 1926, vol. 2, pp. 12–16, and Ferrara to Secretary of State, April 11, 1927, FRUS, 1927, pp. 503–4.

    (108.) Memorandum of the Secretary of State of a conversation with the Cuban Ambassador, December 2, 1927, FRUS, 1927, vol. 2, pp. 506–8; Ferrara to Secretary of State, December 15, 1927, FRUS, 1927, vol. 2, pp. 508–16; and Dana Munro, The United States and the Caribbean Republics, 1921–1933 (Princeton, N.J.: Princeton University Press, 1974), pp. 343–44.

    (110.) Robert Smith, The United States and Cuba: Business and Diplomacy, 1917–1960 (Bookman Associates: New York, 1960), p. 54.

    (111.) Hugh Thomas, Cuba, or, the Pursuit of Freedom (New York: Da Capo Press, 1998), p. 561.

    (112.) In fact, Hershey built a henequen plant and peanut oil mill in addition to sugar mills, sugar refineries, railroad systems, and the entire town (p.487) of Central Hershey, Cuba, located about 40 miles east of Havana. Christina Hostetter, “Sugar Allies: How Hershey and Coca-Cola used Government Contracts and Sugar Exemptions to Elude Sugar Rationing Regulations,” Ph.D. dissertation, University of Maryland, College Park, 2004, pp. 3–4. Central Hershey is now officially called Camilo Cienfuegos, but the populace and signage within the town still use the old name.

    (113.) Lakin to Crowder, January 29, 1929, Senate, Subcommittee of the Committee on the Judiciary, Hearings, The Lobby Investigation, Part 4, 71st Congress, 1st session, 1930 p. 1671.

    (114.) Lakin to Crowder, February 1, 1929, Lakin to Aballi, February 27, 1929, and Lakin to Tarafa, February 1, 1929, Senate, Subcommittee of the Committee on the Judiciary, Hearings, The Lobby Investigation, Part 4, pp. 1552, 1566, and 1540–41.

    (116.) Gerrymandering has caused the 17th District to migrate north and west from Manhattan’s Upper East Side, where it was located when Pratt was first elected in 1928. The district currently starts in the North Bronx (including the Bronx neighborhoods of Kingsbridge and Riverdale, the entire city of Mount Vernon, and the southern half of Yonkers), then runs north in a thinly populated strip along the Hudson River, then jumps west over the river to include the blue-collar towns around Spring Valley in southern Rockland County along the New Jersey border. Not only has the district moved its geographic boundaries, but it’s also moved socially far from its WASP silk-stocking roots. Its population is about 34% African-American, 22% Latino (predominantly of second- and third-generation Puerto Rican descent), and 14% Jewish. One-fifth of the labor force works for the government, mostly in local police and fire departments. See the American Community Survey, 2003 Population and Housing Profile: Congressional District 17, New York, www.census.gov, and David Paul, “Jewish Population Survey of Congressional Districts: 2000 and 2006,” Mandell L. Berman Institute and North American Jewish Data Bank, mimeo, June 2009.

    (118.) Lakin to Shattuck, February 7, 1929, Senate, Subcommittee of the Committee on the Judiciary. Hearings, The Lobby Investigation, Part 4, p. 1685.

    (119.) “Conferees in Clash on Debenture Plan,” New York Times, May 21, 1929, p. 1.

    (120.) “House Adopts Rule to Rush Tariff Bill; Democrats Cry ‘Gag,’” New York Times, May 25, 1929, p. 1.

    (124.) Alan Dye and Richard Sicotte, ““The Institutional Determinants of the Hawley-Smoot Tariff,” Barnard Working Paper Series #02 (April 2001), pp. 27–28.

    (126.) In 1930, President Machado and Ambassador Guggenheim explicitly discussed this procedure in a private conversation. Guggenheim to Acting Secretary of State, January 29, 1930, FRUS, 1930, vol. 2, pp. 686–88.

    (127.) Kellogg to Crowder, December 11, 1926, 837.154/59, Record Group 59, NA.

    (128.) Kellogg to Ferrara, June 25, 1927, FRUS, 1927, vol. 2, pp. 530–31.

    (129.) Memorandum by the Acting Economic Advisor, May 3, 1928, FRUS, 1928, vol. 2, p. 643–46.

    (130.) Curtis to Secretary of State, May 3, 1928, FRUS, 1928, vol. 2, p. 643.

    (131.) Secretary of State to Curtis, May 5, 1928, FRUS, 1928, vol. 2, p. 647.

    (132.) Edwin Foscue, “The Central Highway of Cuba,” Economic Geography, vol. 9, no. 4 (October 1933), pp. 406–12.

    (133.) Secretary of State to the Chase National Bank, FRUS, 1928, vol. 2, pp. 652–53.

    (134.) Guggenheim to Secretary of State, October 23, 1930, FRUS, 1930, vol. 2, pp. 691–92.

    (135.) Guggenheim to Secretary of State, October 23, 1930, FRUS, 1930, vol. 2, pp. 692–95.

    (136.) Guggenheim to Secretary of State, June 15, 1931, FRUS, 1933, vol. 5, pp. 546–48.

    (137.) Memorandum by the Assistant Secretary of State, April 10, 1931, FRUS, 1931, vol. 2, p. 51.

    (138.) Curtis to Secretary of State, October 29, 1928, 839.00/2714, Record Group 59, NA.

    (141.) Reed to Secretary of State, September 23, 1930, FRUS, 1930, vol. 2, pp. 657–59.

    (142.) Reed to Secretary of State, September 30, 1930 and October 3, 1930, FRUS, 1930, vol. 2, pp. 660–61 and 666.

    (p.489) (144.) Reed to Secretary of State, September 30, 1930 and October 3, 1930, FRUS, 1930, vol. 2, pp. 660–61 and 666.

    (145.) Reed to Secretary of State, September 23, 1930, FRUS, 1930, vol. 2, pp. 657–59.

    (147.) Guggenheim to Secretary of State, July 25, 1932, FRUS, 1932, vol. 5, p. 553.

    (148.) Guggenheim to Secretary of State, October 23, 1930, FRUS, 1930, vol. 2, pp. 667–68.

    (149.) Memorandum of conference by the Secretary of State with the press, October 2, 1930, FRUS, 1930, vol. 2, pp. 662–65.

    (151.) Commission on Cuban Affairs, Problems of the New Cuba (New York: Foreign Policy Association, 1935), p. 10.

    (152.) Guggenheim to Secretary of State, January 8, 1931, FRUS, 1931, vol. 2, pp. 41–42.

    (153.) Guggenheim to Secretary of State, January 20, 1931, FRUS, 1931, vol. 2, pp. 44–46.

    (154.) Guggenheim to Secretary of State, January 27, 1931, FRUS, 1931, vol. 2, pp. 46.

    (155.) Guggenheim to Secretary of State, April 8, 1931, FRUS, 1931, vol. 2, pp. 50.

    (156.) Memorandum by the Assistant Secretary of State, April 10, 1931, FRUS, 1931, vol. 2, p. 51.

    (157.) Enclosure to the dispatch of May 29, 1931, 837.00/3075 Record Group 59, NA.

    (158.) Guggenheim to Acting Secretary of State, August 12, 1931, FRUS, 1931, vol. 2, p. 69.

    (159.) Harry Guggenheim, The United States and Cuba: A Study in International Relations (New York: Macmillan Co., 1934), p. 165.

    (160.) Guggenheim to Secretary of State, December 24, 1931, FRUS, 1931, vol. 2, p. 80.

    (161.) “Cuban Bombings Resumed,” New York Times, January 2, 1932, p. 2.

    (162.) Mike Davis, Buda’s Wagon: A Brief History of the Car Bomb (Brooklyn: Verso, 2007), p. 16.

    (163.) Jules Benjamin, “The Machadato and Cuban Nationalism, 1928–32,” Hispanic American Historical Review, vol. 55, no. 1 (February 1975), pp. 66–91: 79–80.

    (166.) “3 Hurt by Bomb in Havana,” New York Times, February 20, 1932, p. 9.

    (167.) “Two Dead in Cuba in Bitter Election,” New York Times, February 29, 1932, p. 36, and “Many Hurt in Disorders,” New York Times, February 29, 1932, p. 36.

    (169.) “Cuba Seizes Chiefs of 1931 Rebellion,” New York Times, May 24, 1932, p. 9.

    (170.) Thomas, Cuba, p. 595, and “Other Officers Get Bombs,” New York Times, May 23, 1932, p. 5.

    (171.) “Three Bombs Explode at Havana Schools: Beginning of New Terroristic Campaign,” New York Times, June 1, 1932, p. 4.

    (172.) “Bomb Kills Two in Cuba,” New York Times, June 9, 1932, p. 5.

    (173.) “Secret Police Head Is Slain in Havana,” New York Times, July 10, 1932, p. 1.

    (174.) “Cuba Starts Drive on Foes of Regime: Hundreds Are Seized or Sought on Charges,” New York Times, June 15, 1932, p. 4.

    (175.) Guggenheim to Secretary of State, July 25, 1932, FRUS, 1932, vol. 5, pp. 553–54.

    (176.) “Cuba Guards Our Embassy against Bombing by Reds,” New York Times, August 1, 1932, p. 15.

    (177.) “Secret Police Head,” p. 1.

    (178.) “Bomb Blast in Cuba Kills Two Officials,” New York Times, September 7, 1932, p. 10.

    (179.) “Cuba Thwarts Plot to Murder Leaders,” New York Times, September 29, 1932, p. 8.

    (180.) Fritz Berggren, “Machado: An Historical Reinterpretation,” Ph.D. dissertation (University of Miami, 2001), p. 103.

    (181.) Reed to Secretary of State, September 29, 1932, FRUS, 1932, vol. 5, p. 557.

    (182.) “Cubans Plan Death for Arms Owners,” New York Times, October 20, 1932, p. 6.

    (183.) Secretary of State to Guggenheim, April 26, 1932, FRUS, 1932, vol. 5, pp. 543–47.

    (184.) Memorandum: Conversation between Harry Guggenheim and Secretary Stimson, November 13, 1931, 837.00/3207, NA. See also Perkins, Empire, p. 96.

    (185.) Memorandum, conversation between Shepard Morgan and L. S. Rosenthall (both of Chase Bank) and the Assistant Secretary of State, November 6, 1931, 837.51/1484, NA.

    (p.491) (186.) Welles to Secretary of State, May 22, 1933, FRUS, 1933, vol. 5, pp. 570–71.

    (187.) James Bruce to Joseph Rovensky, February 23, 1931, reproduced in Senate Committee on Banking and Currency, Hearings on Stock Exchange Practices, 73rd Congress, 2nd session, 1933 and 1934, part 5, pp. 2631–33.

    (188.) “Fee of Half Million Paid on Cuba Loan,” New York Times, January 28, 1932, p. 13.

    (189.) Welles to Secretary of State, May 25, 1933, FRUS, 1933, vol. 5, pp. 571–72.

    (190.) Memorandum: “Republic of Cuba-Debt Situation,” by Adam Geiger (Chase Bank), October 27, 1931, in Senate, Stock Exchange Practices, part 5, pp. 2674–78. Memorandum, conversation between Shepard Morgan and L. S. Rosenthall (both of Chase Bank) and the Assistant Secretary of State, November 6, 1931, 837.51/1484, NA.

    (191.) “L. S. Rosenthall to Shepard Morgan,” December 12, 1931, in Senate, Stock Exchange Practices, part 6, 2774–75.

    (192.) Guggenheim to Secretary of State, January 25, 1932, FRUS, 1932, vol. 5, p. 536.

    (193.) L. S. Rosenthall to Adam Geiger, March 22, 1932, in Senate, Stock Exchange Practices, part 6, p. 2777. See also Welles to Secretary of State, May 22, 1933, FRUS, 1933, vol. 5, pp. 570–71.

    (194.) Guggenheim to Secretary of State, December 3, 1932 and December 19, 1932, FRUS, 1933, vol. 5, pp. 561–63.

    (195.) The tax payments were principally customs duties on petroleum imports; Cuba produced no oil itself. Shell lent $200,000, Sinclair $500,000 (including $100,000 to cover current tax liabilities), and Jersey Standard $750,000 (with $200,000 going to pay off the company’s current liabilities). Guggenheim to Secretary of State, November 29, 1932, FRUS, 1933, vol. 5, pp. 559–60. See also Guggenheim to Secretary of State, December 19, 1932, FRUS, 1933, vol. 5, p. 563.

    (196.) Guggenheim to Secretary of State, December 19, 1932, FRUS, 1933, vol. 5, p. 563.

    (197.) Guggenheim to Secretary of State, November 29, 1932, FRUS, 1933, vol. 5, pp. 559–61.

    (198.) “Cuba Faces Ordeal of Cutting Budget,” New York Times, September 25, 1932, p. 5.

    (199.) Welles to Secretary of State, May 22, 1933, FRUS, 1933, vol. 5, pp. 570–71.

    (200.) Acting Secretary of State to Welles, June 2, 1933, FRUS, 1933, vol. 5, p. 573.

    (p.492) (201.) Guggenheim to Secretary of State, March 15, 1933, FRUS, 1933, vol. 5, p. 565.

    (202.) Guggenheim to Secretary of State, March 23, 1933, FRUS, 1933, vol. 5, p. 566.

    (203.) Guggenheim to Secretary of State, March 15, 1933, FRUS, 1933, vol. 5, p. 565.

    (204.) Welles to Secretary of State, May 22, 1933, FRUS, 1933, vol. 5, pp. 570–71.

    (205.) Welles to Secretary of State, June 9, 1933, FRUS, 1933, vol. 5, p. 574.

    (206.) Welles to Secretary of State, August 7, 1933, FRUS, 1933, vol. 5, pp. 336–37.

    (207.) Memorandum by the Undersecretary of State (Phillips), August 8, 1933, FRUS, 1933, vol. 5, p. 339.

    (208.) Welles to Secretary of State, August 7, 1933, FRUS, 1933, vol. 5, pp. 340.

    (209.) Secretary of State to Welles, August 9, 1933, FRUS, 1933, vol. 5, pp. 347–48.

    (210.) Daniels to Secretary of State, August 10, 1933, FRUS, 1933, vol. 5, pp. 350.

    (211.) Welles to Secretary of State, August 20, 1933, FRUS, 1933, vol. 5, pp. 578–79.

    (212.) Undersecretary of the Treasury (Acheson) to Assis. Secretary of State (Caffrey), August 26, 1933, FRUS, 1933, vol. 5, pp. 582–83.

    (213.) Preliminary Report on Cuban Finances, September 5, 1933, FRUS, 1933, vol. 5, pp. 583–88.

    (214.) Welles to Secretary of State, October 16, 1933, FRUS, 1933, vol. 5, p. 488.

    (215.) Louis Pérez, “Army Politics, Diplomacy and the Collapse of the Cuban Officer Corps: The ‘Sergeants’ Revolt’ of 1933,” Journal of Latin American Studies, vol. 6, no. 1 (May 1974), pp. 59–76: 66.

    (217.) Welles to Secretary of State, September 8, 1933, FRUS, 1933, vol. 5, p. 407. Pérez, “Army Politics,” p. 75.

    (218.) Welles to Secretary of State, September 11, 1933, FRUS, 1933, vol. 5, pp. 419–20 and 422.

    (219.) Welles to Secretary of State, October 7, 1933, FRUS, 1933, vol. 5, p. 477.

    (220.) Pérez, “Army Politics,” p. 69, and Memorandum by the Assis. Sec. of State (Caffrey), September 8, 1933, FRUS, 1933, vol. 5, pp. 408–9.

    (p.493) (221.) Welles to Secretary of State, December 7, 1933 and December 8, 1933, FRUS, 1933, vol. 5, pp. 533–36.

    (222.) Jules Benjamin, “The New Deal, Cuba, and the Rise of a Global Foreign Economic Policy,” Business History Review (Spring 1977), pp. 57–78: 73.

    (223.) Edmund Chester, A Sergeant Named Batista (New York: Henry Holt and Company, 1954), chap. 15.

    (225.) See Pérez, “Army Politics,” p. 73; Memorandum of Telephone Conversations between the Secretary of State and the Ambassador in Cuba on September 5, 1933 and between the Assistant Secretary of State (Caffery) and the Ambassador in Cuba, FRUS, 1933, vol. 5, pp. 385–87); “Marines Prepare Air Unit for Cuba,” New York Times, September 8, 1933, p. 3; and “Intervention Is Put Off; Officials Hope Display of Naval Force Will Calm Island,” New York Times, September 8, 1933, p. 1.

    (226.) Jefferson Caffery to the Acting Secretary of State, January 14, 1934, FRUS, 1934, vol. 5, p. 98.

    (227.) Acting Secretary of State to Jefferson Caffery, January 14, 1934, FRUS, 1934, vol. 5, p. 100.

    (229.) Peter Stanley, A Nation in the Making: The Philippines and the United States, 1913–1921 (Cambridge, Mass.: Harvard University Press, 1974), pp. 214–15.

    (230.) Stanley Karnow, In Our Image: America’s Empire in the Philippines (New York: Random House, 1989), p. 252.

    (231.) For details, see Kiyo Sue Inui, “The Gentlemen’s Agreement: How It Has Functioned,” Annals of the American Academy of Political and Social Science, vol. 122, The Far East (November 1925), pp. 188–98.

    (232.) 1917 Immigration Act (39 Stat. 874), February 5, 1917, sec. 3.

    (233.) 1930 U.S. Census.

    (234.) Kevin Starr, Golden Dreams: California in an Age of Abundance, 1950–1963 (New York: Oxford University Press, 2009), pp. 450–51, and “Racial Hate Once Flared on Central Coast,” Gilroy Pinnacle, October 27, 2006.

    (235.) There were no similar calls to expel Puerto Rico. Puerto Ricans were American citizens, and the Fourteenth Amendment prohibited Congress from involuntarily stripping Americans of their citizenship. Moreover, the AFL had a strong presence in Puerto Rico, and a former AFL organizer, Santiago Iglesias, represented the island in the U.S. Congress. (p.494) Finally, Puerto Rican migration was almost exclusively concentrated in New York City (in fact, it was almost exclusively concentrated in the overwhelmingly Italian neighborhood of East Harlem), where it attracted little opposition. When East Harlem’s congressional representative, Vito Marcantonio, introduced a bill for Puerto Rican independence, the bill mandated perpetual free immigration and permanent inclusion in the American customs area.

    (236.) Cong. Rec., 71st Congress, 2nd session, December 14, 1929, p. 690.

    (237.) Herbert Hoover, The Memoirs of Herbert Hoover: The Cabinet and the Presidency, 1920–1933 (New York: Macmillan, 1952), p. 361.

    (238.) American law in fact prohibited the Philippine government from using the proceeds of the remitted coconut oil tax for defense purposes, even as the Independence Act required the Philippines to build up its own defense force in preparation for decolonization. See Garel Grunder and William Livezey, The Philippines and the United States (Norman: University of Oklahoma Press, 1951), pp. 237–38. General Douglas MacArthur (a personal friend of Manuel Quezon) traveled to the islands in 1935 to supervise the creation of a defense force that numbered 130,000 (including reservists) by the end of 1941.

    (239.) See “Quezon Abandons Independence Cry,” New York Times, March 16, 1938, p. 10, and “Quezon to Consider Status of Dominion,” New York Times, March 17, 1938, p. 4.