Wall Street, Banks, and American Foreign Policy


by Murray N. Rothbard


This first appeared in World Market Perspective (1984) and later as a monograph published by the Center for libertarian Studies (1995). Afterword


By Justin Raimondo.


Businessmen or manufacturers can either be genuine free enterprisers or statists; they can either make their way on the free market or seek special government favors and privileges. They choose according to their individual preferences and values. But bankers are inherently inclined toward statism.


Commercial bankers, engaged as they are in unsound fractional reserve credit, are, in the free market, always teetering on the edge of bankruptcy. Hence they are always reaching for government aid and bailout.


Investment bankers do much of their business underwriting government bonds, in the United States and abroad. Therefore, they have a vested interest in promoting deficits and in forcing taxpayers to redeem government debt. Both sets of bankers, then, tend to be tied in with government policy, and try to influence and control government actions in domestic and foreign affairs.


In the early years of the 19th century, the organized capital market in the United States was largely confined to government bonds (then called "stocks"), along with canal companies and banks themselves. Whatever investment banking existed was therefore concentrated in government debt. From the Civil War until the 1890s, there were virtually no manufacturing corporations; manufacturing and other businesses were partnerships and had not yet reached the size where they needed to adopt the corporate form. The only exception was railroads, the biggest industry in the U.S. The first investment banks, therefore, were concentrated in railroad securities and government bonds.


The first major investment-banking house in the United States was a creature of government privilege. Jay Cooke, an Ohio-born business promoter living in Philadelphia, and his brother Henry, editor of the leading Republican newspaper in Ohio, were close friends of Ohio U.S. Senator Salmon P. Chase. When the new Lincoln Administration took over in 1861, the Cookes lobbied hard to secure Chase the appointment of Secretary of the Treasury. That lobbying, plus the then enormous sum of $100,000 that Jay Cooke poured into Chase’s political coffers, induced Chase to return the favor by granting Cooke, newly set up as an investment banker, an enormously lucrative monopoly in underwriting the entire federal debt.


Cooke and Chase then managed to use the virtual Republican monopoly in Congress during the war to transform the American commercial banking system from a relatively free market to a National Banking System centralized by the federal government under Wall Street control. A crucial aspect of that system was that national banks could only expand credit in proportion to the federal bonds they owned – bonds which they were forced to buy from Jay Cooke.


Jay Cooke & Co. proved enormously influential in the post-war Republican administrations, which continued their monopoly in under-writing government bonds. The House of Cooke met its well-deserved fate by going bankrupt in the Panic of 1874, a failure helped along by its great rival, the then Philadelphia-based Drexel, Morgan & Co.


J.P. Morgan


After 1873, Drexel, Morgan and its dominant figure J.P. Morgan became by far the leading investment firm in the U.S. If Cooke had been a "Republican" bank, Morgan, while prudently well connected in both parties, was chiefly influential among the Democrats. The other great financial interest powerful in the Democratic Party was the mighty European investment-banking house of the Rothschilds, whose agent, August Belmont, was treasurer of the national Democratic party for many years.


The enormous influence of the Morgans on the Democratic administrations of Grover Cleveland (1884–88, 1892–96) may be seen by simply glancing at their leading personnel. Grover Cleveland himself spent virtually all his life in the Morgan ambit. He grew up in Buffalo as a railroad lawyer, one of his major clients being the Morgan-dominated New York Central Railroad. In between administrations, he became a partner of the powerful New York City law firm of Bangs, Stetson, Tracey, and MacVeagh. This firm, by the late 1880s, had become the chief legal firm of the House of Morgan, largely because senior partner Charles B. Tracey was J.P. Morgan's brother-in-law. After Tracey died in 1887, Francis Lynde Stetson, an old and close friend of Cleveland's, became the firm's dominant partner, as well as the personal attorney for J.P. Morgan. (This is now the Wall St. firm of Davis, Polk, and Wardwell.)


Grover Cleveland's cabinets were honeycombed with Morgan men, with an occasional bow to other bankers. Considering those officials most concerned with foreign policy, his first Secretary of State, Thomas F. Bayard, was a close ally and disciple of August Belmont; indeed, Belmont's son, Perry, had lived with and worked for Bayard in Congress as his top aide. The dominant Secretary of State in the second Cleveland Administration was the powerful Richard Olney, a leading lawyer for Boston financial interests, who have always been tied in with the Morgans, and in particular was on the Board of the Morgan-run Boston and Maine Railroad, and would later help Morgan organize the General Electric Company.


The War and Navy departments under Cleveland were equally banker-dominated. Boston Brahmin Secretary of War William C. Endicott had married into the wealthy Peabody family. Endicott’s wife’s uncle, George Peabody, had established a banking firm which included J.P. Morgan’s father as a senior partner; and a Peabody had been best man at J.P.’s wedding. Secretary of the Navy was leading New York City financier William C. Whitney, a close friend and top political advisor of Cleveland’s. Whitney was closely allied with the Morgans in running the New York Central Railroad.


Secretary of War in the second Cleveland Administration was an old friend and aide of Cleveland’s, Daniel S. Lamont, previously an employee and protégé of William C. Whitney. Finally, the second Secretary of the Navy was an Alabama Congressman, Hilary A. Herbert, an attorney for and very close friend of Mayer Lehman, a founding partner of the New York mercantile firm of Lehman Brothers, soon to move heavily into investment banking. Indeed, Mayer’s son, Herbert, later to be Governor of New York during the New Deal, was named after Hilary Herbert.


The great turning point of American foreign policy came in the early 1890s, during the second Cleveland Administration. It was then that the U.S. turned sharply and permanently from a foreign policy of peace and non-intervention to an aggressive program of economic and political expansion abroad. At the heart of the new policy were America’s leading bankers, eager to use the country’s growing economic strength to subsidize and force-feed export markets and investment outlets that they would finance, as well as to guarantee Third World government bonds. The major focus of aggressive expansion in the 1890s was Latin America, and the principal Enemy to be dislodged was Great Britain, which had dominated foreign investments in that vast region.


In a notable series of articles in 1894, Bankers' Magazine set the agenda for the remainder of the decade. Its conclusion: if "we could wrest the South American markets from Germany and England and permanently hold them, this would be indeed a conquest worth perhaps a heavy sacrifice."


Long-time Morgan associate Richard Olney heeded the call, as Secretary of State from 1895 to 1897, setting the U.S. on the road to Empire. After leaving the State Department, he publicly summarized the policy he had pursued. The old isolationism heralded by George Washington's Farewell Address is over, he thundered. The time has now arrived, Olney declared, when "it behooves us to accept the commanding position... among the Power of the earth." And, "the present crying need of our commercial interests," he added, "is more markets and larger markets" for American products, especially in Latin America.


Good as their word, Cleveland and Olney proceeded belligerently to use U.S. might to push Great Britain out of its markets and footholds in Latin America. In 1894, the United States Navy illegally used force to break the blockade of Rio de Janeiro by a British-backed rebellion aiming to restore the Brazilian monarchy. To insure that the rebellion was broken, the U.S. Navy stationed war-ships in Rio harbor for several months.


During the same period, the U.S. government faced a complicated situation in Nicaragua, where it was planning to guarantee the bonds of the American Maritime Canal Company, to build a canal across the country. The new regime of General Zelaya was threatening to revoke this canal concession; at the same time, an independent reservation, of Mosquito Indians, protected for decades by Great Britain, sat athwart the eastern end of the proposed canal. In a series of deft maneuvers, using the Navy and landing the Marines, the U.S. managed to bring Zelaya to heel and to oust the British and take over the Mosquito territory.


In Santo Domingo (now the Dominican Republic) France was the recipient of the American big stick. In the Santo Domingo Improvement Company, in 1893, a consortium of New York bankers purchased the entire debt of Santo Domingo from a Dutch company, receiving the right to collect all Dominican customs revenues in payment of the debt. The French became edgy the following year when a French citizen was murdered in that country, and the French government threatened to use force to obtain reparations. Its target for reparations was the Dominican customs revenue, at which point the U.S. sent a warship to the area to intimidate the French.


But the most alarming crisis of this period took place in 1895–96, when the U.S. was at a hair’s breadth from actual war with Great Britain over a territorial dispute between Venezuela and British Guiana. This boundary dispute had been raging for forty years, but Venezuela shrewdly attracted American interest by granting concessions to Americans in gold fields in the disputed area.


Apparently, Cleveland had had enough of the "British threat," and he moved quickly toward war. His close friend Don Dickinson, head of the Michigan Democratic Party, delivered a bellicose speech in May 1895 as a surrogate for the President. Wars are inevitable, Dickinson declared, for they arise out of commercial competition between nations. The United States faces the danger of numerous conflicts, and clearly the enemy was Great Britain. After reviewing the history of the alleged British threat, Dickinson thundered that "we need and must have open markets throughout the world to maintain and increase our prosperity."


In July, Secretary of State Olney sent the British an insulting and tub-thumping note, declaring that "the United States is practically sovereign on this continent, and its fiat is law upon the subjects to which it confines its interposition." President Cleveland, angry at the British rejection of the note, delivered a virtual war message to Congress in December, but Britain, newly occupied in problems with the Boers in South Africa, decided to yield and agree to a compromise boundary settlement. Insultingly, the Venezuelans received not a single seat on the agreed-upon arbitration commission.


In effect, the British, occupied elsewhere, had ceded dominance to the United States in Latin America. It was time for the U.S. to find more enemies to challenge.


The next, and greatest, Latin American intervention was of course in Cuba, where a Republican Administration entered the war goaded by its jingo wing closely allied to the Morgan interests, led by young Assistant Secretary of the Navy Theodore Roosevelt and by his powerful Boston Brahmin mentor, Senator Henry Cabot Lodge. But American intervention in Cuba had begun in the Cleveland-Olney regime.


In February 1895, a rebellion for Cuban independence broke out against Spain. The original U.S. response was to try to end the threat of revolutionary war to American property interests by siding with Spanish rule modified by autonomy to the Cubans to pacify their desires for independence. Here was the harbinger of U.S. foreign policy ever since: to try to maneuver in Third World countries to sponsor "third force" or "moderate" interests which do not really exist. The great proponent of this policy was the millionaire sugar grower in Cuba, Edwin F. Atkins, a close friend of fellow-Bostonian Richard Olney, and a partner of J.P. Morgan and Company.


By the fall of 1895, Olney concluded that Spain could not win, and that, in view of the "large and important commerce between the two countries" and the "large amounts of American capital" in Cuba, the U.S. should execute a 180-degree shift and back the rebels, even unto recognizing Cuban independence. The fact that such recognition would certainly lead to war with Spain did not seem worth noting. The road to war with Spain had begun, a road that would reach its logical conclusion three years later.


Ardently backing the pro-war course was Edwin F. Atkins, and August Belmont, on behalf of the Rothschild banking interests. The House' of Rothschild, which had been long-time financiers to Spain, refused to extend any further credit to Spain, and instead under-wrote Cuban Revolutionary bond issues, and even assumed full obligation for the unsubscribed balance.


During the conquest of Cuba in the Spanish-American War, the United States also took the occasion to expand its power greatly in Asia, seizing first the port of Manila and then all of the Philippines, after which it spent several years crushing the revolutionary forces of the Philippine independence movement.


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