Coolidge_An American Enigma

by Robert Sobel

  One way to help foreign countries pay the debt would have been to lower the tariff to encourage imports. Indeed, some bankers, like J.P. Morgan and other Wall Streeters, favored tariff reduction, at least on a temporary basis, until Europe recovered. But tariff reductions were opposed by manufacturers, farmers, and workers and would have flown in the face of long-time Republican policies. Coolidge’s deeply felt dedication to protecting American workers from foreign competition, and his desire for tariff revenues to help lower the debt—they contributed more than $3.8 billion during his administration—combined to make a high tariff sacrosanct.

  Coolidge was prepared, however, to take steps to help the Europeans repay their debt. Harding had eased the payment burden for the United Kingdom through renegotiation of terms. Coolidge did the same for Italy, France, and Belgium, and was even more generous. He also supported the Dawes Plan, which provided loans so the Germans could pay their reparations to the United Kingdom and France. Thus, a curious triangular system was established: the United States government and its private investors loaned money to Germany, which paid reparations to the UK and France, whereupon these countries then paid portions of their debts to the United States, where this money was used to help reduce the national debt.

  Moreover, Coolidge did want the State and Commerce Departments to expand American foreign trade and investment. With State Department approval, New York investment bank Dillon Read led the way, providing $160 million in investment for German industry during the 1920s. In 1928 Dillon Read banker Ferdinand Eberstadt noted:We have the iron, coal, and steel industry, the United Steel Works, which is approximately the size of Bethlehem Steel, and second only to the United States Steel Corporation…. In the electrical industry we took the Siemens, which recognizes as a rival only the United States General Electric…. In the banking field, we selected the Disconto and Deutsche Banks. Now, what do they correspond to in the United States? The Disconto and the Deutsche Banks correspond to the First National and the National City.

  Dillon Read’s entry into Germany was made possible through an arrangement with J.P. Morgan & Company and done with the State Department’s blessings. When it came time for the United States to ante up its share of the $200 million Dawes Plan loan, the government approached Morgan and persuaded the company to assemble a syndicate for the purpose of selling the securities to American investors. This was the way Washington and Wall Street cooperated in such matters. American investors plunged into foreign markets as never before—to their ultimate sorrow.

  Coolidge himself was not an isolationist, although he had been raised on Washington’s Farewell Address and the Monroe Doctrine. But he also had witnessed the Spanish–American War, the Caribbean diplomacy of Roosevelt and Taft, and Wilson’s Mexican foray and World War I. All of these events influenced him. He supported a version of dollar diplomacy for Latin America, but at the same time worked to improve relations with nations in the region, especially Mexico. He worked energetically for arms reduction, not only because he wanted to avoid war, but also because this would enable him to cut back on military spending, and so provide larger surpluses which would lower the national debt. But when this failed, Coolidge supported increased military spending, especially for army aviation.

  Coolidge continued the policy of supporting the expansion of American big business throughout the globe that had existed under Wilson and continued under Harding, and he endorsed legislation favorable to American commercial interests. The Merchant Marine Act of 1920, passed in the waning days of the Wilson administration, provided for preferential railroad rates for goods exported or imported on American vessels, lower customs on such goods, and low rates on loans used for the construction of ships in American yards. Several of these provisions, such as the preferential rates, were not applied since Wilson and Harding considered them violations of international treaties.

  This changed with the passage of the Jones–White Act of 1928, which affirmed the principles stated in the 1920 legislation, and also provided for a $250 million construction funds for ships built in American yards. It was an indication of Coolidge’s interest in such matters. Support of the merchant marine and foreign trade were often mentioned in Coolidge’s speeches and messages to Congress. In his first annual message, Coolidge said, “The entire well being of our country is dependent upon transportation by sea and land.” The following year he called for joint Canadian–American cooperation on the construction of a St. Lawrence waterway to open the Midwest to European commerce. In his third message he asserted, “The maintenance of a merchant marine is of the utmost importance for national defense and the service of commerce.” Coolidge spoke of the need for attention for “merchant ships as an auxiliary of the navy.” In his final message, in 1928, he proudly noted, “We have established American flag lines in foreign trade where they had never before existed as a means of promoting commerce and as a naval auxiliary.” Coolidge did what he could to create a beneficial atmosphere domestically for business, which he considered the generator of American wealth and progress. He also believed that fostering international commerce was part of this policy. In the 1928 message he asserted:It is desirable that the government continue its helpful attitude toward American business. The activities of the Department of Commerce have contributed largely to the present satisfactory position in our international trade, which has reached $9,000,000,000 annually. There should be no slackening of effort in that direction. It is also important that the department’s assistance to domestic commerce be continued. There is probably no way in which the government can aid sound economic progress more effectively than by cooperating with our business man to reduce wastes in distribution.

  Much of this runs contrary to the image of isolationist America during the 1920s, a nation that wanted to retreat behind the two oceans that had provided so much security throughout the nation’s history, turning in disillusionment and disgust from foreign entanglements after the war. Coolidge may have wanted the United States to remain aloof from Europe politically and concentrate its attention on the western hemisphere, but economically he was inclined toward internationalism. While Coolidge rarely discussed this in public, others in the administration did so. One of the clearest summaries of the forces that animated Coolidge foreign policy came in a speech by Secretary of the Navy Curtis Wilbur before the Connecticut Chamber of Commerce on May 7, 1925: Americans have over twenty million tons of merchant shipping to carry the commerce of the world, worth $3 billion. We have loans and property abroad, exclusive of government loans, of over $10 billion. If we add to this the volume of exports and imports for a single year—almost $10 billion—we have an amount almost equal to the entire property of the United States in 1868 and if we add to this the $8 billion due us from foreign governments, we have a total of $31 billion, being about the total wealth of the nation in 1878…. These vast amounts must be considered when we talk about defending the flag…. We fought not because Germany invaded or threatened to invade America but because she struck at our commerce on the North Sea and denied to our citizens on the high seas the protection of our flag…. To defend America we must be prepared to defend its interests and our flag in every corner of the globe…. An American child crying on the banks of the Yangtze a thousand miles from the coast can summon the ships of the American navy up that river to protect it from unjust assault.

  The reference to the Yangtze was not pulled out of the air. At the time Wilbur spoke, there appeared a chance that this would happen, though intervention in Mexico seemed more probable.

  Mexican–American relations had been quite rocky during the decade prior to Coolidge’s accession to the presidency, and he inherited a thoroughly bad situation, with ill-will on both sides. Complicating the matter was the matter of Mexican petroleum, which at the time was being developed largely by American and British companies.

  In 1914 General Alvaro Obregon captured Mexico City, and installed Venustiano Carranza as president, replacing Victoriano Huerta. At first Presid
ent Wilson withheld recognition. One reason was his belief that the United States should not recognize governments that came to power in this fashion, but in addition there appeared some danger Carranza might nationalize American interests in Mexico, especially petroleum, as permitted under terms of the country’s constitution. When in 1915 Carranza failed to nationalize the holdings, and indicated any move in this direction would be made in such ways as to compensate holders, the United States and other countries recognized his regime. The improved relations were short-lived. Border raids by Mexican forces under the command of Pancho Villa prompted an American incursion into Mexico in 1916.

  The following year German Foreign Minister Arthur Zimmerman instructed the German minister in Mexico to propose an alliance in case the United States entered the World War. Zimmerman suggested Germany would assist Mexico in regaining the “lost provinces” of Texas, New Mexico, and Arizona, and he also urged Mexico to help persuade Japan to join the alliance. The note was intercepted by the British and turned over to Wilson, and was a precipitant in the American decision to enter the war. While Mexico hadn’t accepted the offer, or even appeared to have considered it, Wilson was increasingly wary of the Carranza government.

  Then, in 1918, when the United States was involved in the war, Carranza announced that petroleum was an inalienable national resource, and a tax was levied on oil lands and contracts made prior to 1917. Titles to such properties were to be transformed into concessions, and this masked confiscation prompted American and British protests and an awareness that Carranza’s word was not worth much.

  This was a serious matter. In 1919 Secretary of State Robert Lansing, quoting “the best technical authorities,” had declared the “peak of petroleum production in the United States will be practically exhausted within a measurable period.” A year later, the U.S. Geological Survey said that the country had twelve years’ petroleum reserves and that new discoveries were diminishing. In the last year of the Harding administration, Secretaries Hughes and Hoover recommended supporting American petroleum companies, who were becoming more involved in Latin America, and obtaining concessions before the Europeans took most of them. When he became president, Coolidge organized an Oil Conservation Board to look into the matter. At the time the fear of running out of domestic petroleum that had sparked the Teapot Dome affair intensified interest in Mexico, which at the time was one of the world’s leading petroleum producing countries. Just as in the post–World War II period American government by necessity had to be concerned regarding who controlled the Middle East, so it had the same kind of interest in the nature of the Mexican government in the 1920s. American actions in Mexico have to be interpreted in the light of this situation.

  In September 1920 Obregon was elected president in what was generally considered an honest election, and he announced he would continue the Carranza policy regarding petroleum. Harding refused to recognize the new government. When he became president, Coolidge was besieged by representatives of former American interests there seeking American intervention to restore their rights, which he rejected. Coolidge extended recognition on August 31, in his first significant act in the foreign field.

  In return for recognition, Obregon agreed to a settlement asked for by Wall Street banks, whereby petroleum export taxes would be used to pay off American holders of Mexican bonds. At the time some expropriated oil companies were providing arms for those rebelling against the Mexican government. Coolidge put an end to this practice, and allowed Obregon to purchase American weapons, and even permitted Mexican troops to enter the United States in pursuit of dissidents. Coolidge justified this in a speech before the National Republican Club on February 12, 1924:A situation has arisen in Mexico which has caused some solicitude. We recognize that the people of that country have a perfect right to set up and pull down governments without any interference from us, so long as there is no interference with the lawful rights of our government and our citizens within their territory. We do not harbor the slightest desire to dictate to them in the smallest degree. We have every wish to be friendly and helpful. After a long period of shifting and what appeared to us to be unsubstantial governments in that country, we recently reached the opinion that President Obregon has established a government which is stable and effective, and disposed to observe international obligations. We therefore recognized it.

  If one reads between the lines—or reads even the lines themselves, for that matter—it appears clear that Coolidge was concerned as much with protecting American business’s interests in Mexico as with any other consideration.

  When disorder arose there, President Obregon sought the purchase of a small amount of arms and munitions from our government for the purpose of insuring his own domestic tranquility. We had either to refuse or to comply. To refuse would have appeared to be equivalent to deciding that a friendly government, which we had recognized, ought not to be permitted to protect itself. Stated in another way, it would mean that we had decided that it ought to be overthrown, and that the very agency which we had held out as able to protect the interests of our citizens within its borders ought not to be permitted to have the means to make such protection effective. My decision ran in a counter direction.

  The Mexican situation proved an anomaly. America’s economic foreign policy would not be generated in the White House, but rather in the Commerce Department, to a lesser degree in the State Department, and on Wall Street and in the nation’s corporate headquarters.

  Plutarco Calles was elected president in 1925 and additional American property was seized. Secretary of State Kellogg protested, but in December nationalization began. Some of the companies involved appealed to Washington for assistance. Coolidge and Kellogg wanted to protect American citizens and their property, but there was also the matter of petroleum supplies. Kellogg was obsessed with the thought that the USSR was behind the Mexican moves, which he took as one of the first steps toward the sovietiza-tion of Latin America. He was not alone in thinking this was so. To Americans of this period, nationalization meant Bolshevism. In addition there was a religious factor to consider. Calles had come into conflict with the Catholic Church, which resisted his nationalization efforts. In response Calles ordered the seizure of Church property, and foreign monks, nuns, and priests were deported and others were forced to flee or go underground. Prominent leaders of the Catholic Church in Mexico protested these actions, and American Catholics and others demanded Coolidge act to protect them. When in January 1927 former Soviet leader Leon Trotsky selected Mexico as his country of exile, it appeared he did so because he felt that country was hospitable to his ideas. Kellogg took this as another sign of Soviet penetration in the Americans. In testimony before the Senate Foreign Relations Committee shortly after Trotsky arrived in Mexico, he said:The Bolshevist leaders have had very definite ideas with respect to the role which Mexico and Latin America are to play in their program of world revolution. They have set up as one of their fundamental tasks the destruction of what they term American imperialism as a necessary prerequisite to the successful development of the international movement in the New World. Thus Latin America and Mexico are conceived as a base for activity against the United States.

  Coolidge was besieged by demands that he intervene in some forceful manner. He faced a firestorm of criticism in this period, but he remained calm, and did what he could to put the American people in the same frame of mind while his diplomats attempted to work out a solution to the problem. Coolidge saw nothing to be gained from an armed conflict with Mexico. To Henry Stoddard, editor of the New York Evening Mail who believed in American action against Mexico, he said:Now look at the other side of the picture. Here we are the most powerful nation in the world. At this moment we have special representatives in Europe as well as all our diplomats urging reduction of armaments and preaching peace. The world of today would harshly condemn us if, despite our attitude, we should go to war with a neighbor nation not nearly our equal. What do you suppose people in years to come wo
uld say? Powerful United States crushing powerless Mexico! Don’t you think it better for us to find another way to handle the situation?

  Fearing the situation might escalate into war, Calles asked Coolidge to dispatch a special, personal representative to Mexico City for talks to ease the tensions. Frank Stearns and Secretary Kellogg thought Dwight Morrow, Coolidge’s old friend and a J.P. Morgan banker, would be the ideal person for the task. Coolidge made the offer, but Morrow was reluctant to take the assignment. In the end he relented, and in October left for Mexico. Coolidge told him, “My only instructions are to keep us out of war.” That Morrow, with Coolidge’s complete confidence, managed to pull this off was one of the major foreign policy successes of the Coolidge administration. What was important in the Mexican situation was as much what didn’t happen as what did. During the Coolidge years the United States did not go to war with Mexico, and so avoided a potential disaster, a 1920s version of the Vietnam conflict.

  It was a typical Coolidge move. Find the right man, tell him what has to be done, and then step aside. Morrow accomplished much in bringing the two countries closer together. He helped negotiate compromises between the Church and Calles, and managed to satisfy the businessmen and government officials. He even arranged for Charles Lindbergh to fly to Mexico City, and when Lindbergh and Anne Morrow fell in love and married, it only added to the luster of the mission. Other celebrities on “good will missions” followed, including Will Rogers.

  It took both sides to come to this kind of understanding. The Mexican president realized that he had gone too far in his reforms and his anti-Church crusade. He was losing popularity with the Mexican people, and wanted to move closer to that country’s political center. In November 1927 the Mexican Supreme Court declared unconstitutional two articles of the law regarding petroleum concessions, and this was seen as a favorable sign to the concessionaires. The following month the Mexican Congress enacted a measure to provide for compensation for foreigners. This was followed in 1928 by the Calles–Morrow Agreement, which allowed American firms to retain property acquired prior to 1917, in effect returning to the early Obregon position. By the time Morrow returned to the United States in 1930, Mexican–American relations were in better shape than at any time in the century. Morrow was given a good deal of credit for this accomplishment. There was talk of him as a possible vice presidential running mate for Herbert Hoover in 1928, and Morrow became Coolidge’s and Kellogg’s candidate for Hoover’s secretary of state.