Armaments, U-Boats, Politics, and Banks: Going to War
When the war broke out in Europe during the early days of August 1914, President Wilson immediately proclaimed American neutrality. In mid-August, he called for Americans to be "impartial in thought as well as action." Wilson's Secretary of State, populist Democrat William Jennings Bryan, the Great Commoner, assumed that traditional neutrality would also preclude financial support of one side or the other by American big business and financial interests. "Money," he said, "is the worst of all contrabands because it commands everything else." Bryan tried to keep the United States on good terms with all countries by promoting treaties of friendship and conciliation.
|Berryman Cartoon: Bryan Reading War News|
Yet the ties of perhaps most American Progressives and of much of Wall Street to Britain were many. A vast number of Americans were of German heritage, it is true. And the Midwest, especially, seemed unwilling to go to war. Indeed, if one counts the Midwest, much of the socialist left, anarchists, and populists, and many peace-oriented religious and social groups, opposition to the war was substantial. Yet the influence of the Anglophile tradition was strong on the East coast, and the Wilson Progressives remained firm in their allegiance to Britain, as did the bankers themselves, many of whom had affiliate banks in London and Paris. Moreover, from 1914 onward, British agents offered monetary subventions to newspapers across the United States in exchange for war news and opinion favorable to the Entente.
As for the presence of Bryan in the Cabinet, the Commoner had been appointed by Wilson reluctantly and only as repayment for Bryan's support in the 1912 election. He had little influence on the President, apart from occasions when Colonel House insisted that the President humor the Secretary of State, usually in small matters of prestige and precedent. Certainly, Bryan's populist anti-imperialism had little support from a chief executive who aimed at a new kind of American expansiveness and a revamped, American-led organization of the world. Indeed, since Colonel House had assumed the role of negotiator and fixer-in-chief, with the beginning of House's European travels just before the war, most Washington insiders assumed that Bryan and the State Department had little influence anyway.
These insiders were largely correct. Three months before U-Boat U-20 torpedoed the Lusitania, Wilson's alter ego, Colonel House, had met in London with British cabinet members and, as historian Justus Doenecke has put it recently in his outstanding work on American intervention, "he committed his nation, under certain conditions, to enter the conflict on the Allied side."
Hence, Bryan's denunciation of the British Blockade of Germany had little effect, and in Washington the lonely voices of Bryan and a few anti-war legislators seemed to be completely overwhelmed by the sinking of the Cunard liner Lusitania on May 7, 1915. Among the 1198 dead were 128 United States citizens.
(Note: the British government denied that the ship was carrying armaments, but in the last decade, both archival and underwater archeological research has now shown that the Lusitania carried a very large load of armaments, including gun cotton for shells, shell fuses, and something like four million rounds of U.S.-manufactured .303 Remington bullets.)
But in the United States and throughout the Entente countries the sinking represented, as the Progressive journal The Nation put it, "a deed for which a Hun would blush, a Turk be ashamed, and a Barbary pirate apologize."
At the State Department, Bryan argued that the United States should use the Lusitania as part of a diplomatic offensive to persuade both British and Germans to cease their brutal warfare against civilians, steering the Germans from their ruthless unlimited submarine war, the British from their unrelenting, starvation Blockade.
But with House making increasingly specific promises to Entente leaders, and in his quiet way moving Wilson in the same direction, arguments against the Blockade were a dead letter. Resigning in June 1915, Bryan asked, "why be so shocked by the drowning of a few people, if there is to be no objection to starving a nation?”[
Throughout the circles of Colonel House's non-Presidential intimates, Bryan's departure was a relief from embarrassment. The American Ambassador in London, Walter Hines Page, a sycophantic Wilson loyalist, wrote to House that the London Embassy had hardly noticed. In any case, Page added, Bryan was one of those men who had "talked themselves into greatness and, not knowing when to stop, also talked themselves out of it."
Lansing's nephew was the rising star John Foster Dulles, only 27 in 1915, but a member of the influential international corporate law firm Sullivan & Cromwell--which had worked closely with the J. P. Morgan interests since the early 1880s. Lansing immediately recruited his nephew for negotiations to secure Latin American aid in the coming war--a year and half before the United States entered.
The new Secretary's Wall Street connections are an important part of the decision-making that led to American intervention. Wilson had ridden to power on rhetoric against the "interests." His alter ego was closely associated with these same "interests." How do these dots connect?
Woodrow Wilson is of course the central character in this drama. All those around him recognized his strong opinions, but all recognized that he could be swayed by "expert" advice. Later on, Wilson and House would organize the famous "Inquiry" comprising academic experts on world affairs to accompany him to the Paris Peace Conference, and his charge to this scholars is telling: "Tell me what is right," he told his Inquiry, "and I will fight for it." In the true Positivist mode outlined by Auguste Comte and Edward House, Wilson was the heroic philosopher king, hopeful of using the war and the peace to reform the world system. From 1914 to 1916, although by his own admission Wilson thought a lot about intervening directly, for the moment he saw his role as that of World Mediator--the lonely leader who would bring peace through the systematic and scientific reorganization of the world through knowledgeable bureaucrats. Through the adulation and flattery of House, Charles R. Crane, and other educated, wealthy men of affairs (and intermediaries between Wall Street and the government), he became increasingly willing to accept the indirect suggestions and advice of the financial elite he had thundered against during his early political years. These were men, in any case, who could grasp a bold design and cut through red tape and outmoded bourgeois institutions to achieve their ends.
On the basis a great deal of historical research by a wide range of scholars, journalists, and observers since 1919, it seems to me that the plans and energies of the financial world that Wilson knew he was embracing in 1917 fall into two separate categories. On the one hand, the Morgan financial empire became the conduit of both massive American loans to the Allies in 1915 and of massive Allied purchases of American war matériel thereafter. But on a separate track, the J. P. Morgan Empire and other international financial interests saw the war as an opportunity expand massively the whole pre-war pattern of imperial finance, described earlier in this series of short essays--in close collusion with the state.
To deal with the broader view first, the whole issue of "world power"--discussed previously in this series of essays--had a clear impact on decisions leading to war. One very important stage in this development was the creation of the Federal Reserve System. In the weeks before the United States declared war on the Central Powers in April 1917, Wilson would mourn the fact that America's entry would put the financial interests in the saddle again. But Wilson's Progressive measures had done much to keep high finance intimately involved in foreign policy decisions. After Wilson's election, the international bankers had refined the jargon of the expansionist "dollar diplomacy" of pre-Wilson years, learning to speak Wilson's Progressive language. In particular, they learned to justify measures favorable to them in the name of efficiency and bold leadership.
One perfect example of this process was the Federal Reserve System (1913), which the leading bankers of Wall Street constructed, and for which Wilson initiated the supporting legislative measures. Colonel House and others played vital intermediary roles, selling the Federal Reserve to Wilson as a social reform for efficiency of government. Part of the appeal for Wilson the ease with which the Federal Reserve System would produce a fiscal "flexibility" that would ease administration projects in general. It dawned on the President only slowly just how useful this flexibility would be in wartime. Wilson paid for the 1916 invasion of Mexico by using the other new 1913 boon for Federal finance, the income tax, both by raising taxes and by pushing through the Revenue Act of 1916. The Act was designed to make sudden tax hikes more palatable for voters by introducing what one historian has called a "highly progressive" element. Yet in 1917, Wilson would see the advantages of money manipulation through the Fed for fighting a much larger and more important war. (For an a concise but detailed analysis of exactly how Wilson used the Federal Reserve helped pay for World War I, see the article by John Paul Koning .)
On the Wall Street side, during the period from the outbreak of the war in Europe until American entry, the financial and business circles of J. P. Morgan, the Rockefellers, Jacob Schiff, Kuhn, Loeb & Co, and their affiliates saw in the war the opportunity to replace British and French investments and loans throughout the imperial world. These plans represented a sea change in the distribution of funds within the future "developing world," but they also represented a reliance on close cooperation with the crusading visions of Wilson's administration.
Hence, high finance was forging closer and closer ties with an activist state driven by the visions of Wilson and House for efficient Progressive world management. The result would be top-down leadership with American organizers of the world, both colonial and non-colonial. Fears that Britain might lose the war in early 1917--discussed in an earlier essay--opened up the vista of supplanting Britain as the world's banker, but with more efficiency, coordination, and control by the United States.
Murray Rothbard and others have chronicled the role of Willard Straight and the American International Corporation, founded in late 1915. Coordinating most of the major banking branches and Wall Street factions, the group was designed to take advantage of wartime strains on British and French international capital to invest in areas formerly dominated by those colonial powers. Many other initiatives supplemented and supported this vision, which laid the groundwork for the financial diplomacy of the twenties and thirties.
On this broader strategic track, then, Wall Street was operating in parallel to the program of Wilson, providing ways and means advantageous to both high finance and the administration. Once the war came, it represented both opportunity and intensification of this program for both entities.
On what we might call the tactical side, the story of Wall Street dominance relative to the war during the "neutrality" period is fairly straightforward. The stalemate of the Western Front had hardly set in before France and Britain began to realize the need for more funds. The Shell Crisis following the Western Front Battle of Neuve Chapelle (March 1916), during which the British failed to exploit their victory owing to lack of shells, made the issue of armaments shortages public and acrimonious. The French and British immediately applied for loans from the J. P. Morgan banking group. The United States approved, over the objections of Secretary of States Bryan just before he resigned. The loan structure was worked out between spring and fall, and the result was a loan of half a billion dollars (1915 dollars) with two billion more to follow before the war was over.
Moreover, the anti-Wall Street administration of Wilson okayed the appointment of J. P. Morgan, Jr., as Allied purchasing agent. In fact, the arms manufacturers that formed a central component of New York international banking conglomerates were the first recipients of the flood of orders from Europe. These elements of banking influence were probably more dominant in political considerations than the facts themselves suggest. Trade disruptions during the first months of the war were drastic: the British Blockade of Germany cut American exports to Germany from $169 million to just a million. But business with the Entente powers soon replaced these lost orders many times over.
As for purely political side of this narrative, the election of 1916 forms the backdrop to the declaration of war. Woodrow Wilson had won the election of 1912 comfortably, but against two opponents, one of them Theodore Roosevelt. Democratic prognosticators were much less sure of a shoe-in for 1916. For all the hue and cry of "Americanism" and "preparedness" that emerged in late 1915 and in 1916, Wilson led a country which would most certainly not have supported intervention except in the case of a direct assault by one side on the United States. The President had calmed the Lusitania uproar in his famous "too proud to fight" speech, and the crisis passed when the Germans agreed--under pressure from Wilson--to put a halt to unrestricted submarine warfare. Running on the slogan, "He Kept Us Out of War," Wilson carefully advertised himself as a man of peace (though in March 1916, the United States had invaded Mexico with an army of 10,000).
In the event, every promise and rhetorical advantage counted. Wilson defeated Charles Evans Hughes by only three percentage points. In the Electoral College things could have gone either way: the President won some crucial states by tiny margins. In the end, the Electoral College vote would be 277 to 254. If, for example, Hughes had won Kentucky (where Wilson won with 51.9 percent), the election would have gone to Hughes.
Winning the race, Wilson achieved his own political "New Freedom." Britain seemed in disastrous shape. Wall Street was fully integrated into the Entente cause. Many American elites desired and actively promoted intervention, seeing in the coming war--in Murray Rothbard's brilliant description--fulfillment of their particular cause or goal. And behind it all, as Colonel House wrote in his diary as early as late September 1915, "Much to my surprise, he [Wilson] said he had never been sure that we ought not to take part in the conflict, and, if it seemed evident that Germany and her militaristic ideas were to win, the obligation upon us was greater than ever." By the time the Germans decided to reinstate unlimited submarine war against secretly armed British civilian ships once more, (February 1, 1917) a whole structure of military expenditures, extensive revisions of the definition of "neutrality," and an amazing increase in the level of shipments to the Allied powers were in place. To top it all off, in February 1917, the British handed over an intercepted cable from the State Secretary of the German Foreign Office, Arthur Zimmermann, offering an alliance with Mexico against the United States should the US declare war on Germany. The Germans had already announced that they would resume submarine war on ships carrying supplies to the Entente, including neutral carriers, and in the next weeks, five American ships were torpedoed.
During the next four days, Congress deliberated.
This all seems like the ancient past. But it happened only a hundred years ago.