Type Cases: Samoa; Episodes from Persia, Venezuela, Haiti, Mexico

WE NOW leave the analysis of ways in which private investments of citizens abroad serve the purposes of diplomacy and turn to examine the other side of the shield: namely, How does diplomacy serve the purposes of private investors abroad? What precise and particular benefits are included in the term diplomatic "support?" Why do investors sometimes seek the aid of their government in foreign operations, and just what do they want when they do so? The systematic analysis to be undertaken in the next chapter will throw light on these questions. A few concrete episodes are likely to be illuminating, however, and will provide background. Hence, this chapter sketches the development of an international conflict situation centering about private investments and political rivalries in Samoa, and then picks out for very brief exhibit certain aspects only of other situations that have arisen in Persia, Venezuela, Haiti, and Mexico.



Until the Samoan Islands were divided between Germany and the United States in 1899, with territorial compensation to Great Britain elsewhere, they had been a diplomatic problem for all three powers during nearly three decades. Time after time petty embroilments of their consular agents in Samoa had embarrassed or irritated the home governments and international incidents had raised up antagonistic public opinions. Naval vessels had landed marines and had taken sides in native wars, which foreigners had stirred up; on one occasion the warships of the powers nearly came to battle among themselves. Insults to flags were alleged and avenged. International conferences met in Washington and in Berlin. Back of these tempests in the Samoan teapot and the deliberations of high policy which they called forth were two sorts of interests: the interests of private investors and traders, citizens of these powers, who wanted certain things from their governments; and the interests of naval strategists and political expansionists, who wanted certain things based upon more general considerations than those which related to Samoa only. We wish to examine particularly the bearing of interests of the first sort upon the course of diplomacy in and concerning Samoa.

First of all, how and why was diplomatic attention drawn to Samoa? From the side of the United States, the first political concern---outside of consular representation which, like other powers, it had maintained on the islands since the middle of the century for assistance to whalers and merchant vessels---was shown in 1871. It was stimulated by navy men, whose thoughts ran from the proposed Isthmian canal to Hawaii and Samoa as desirable naval bases along the routes to the North and South Pacific, and by two groups of private interests. The first was a group of land speculators in California, interested in profits to be made on property acquired in exchange for firearms and whisky. The second, and most important, was headed by William H. Webb, a well known shipbuilder of New York, who saw that the age of the commercial steamship was dawning and proposed in 1870 to establish a steamship line between San Francisco and Australia. The New Zealand government offered him a subsidy for that purpose, but he preferred to have it from the United States, and a subsidy bill introduced into Congress was looked upon with favor by the Department of State. When it failed to pass Webb took a subsidy from New Zealand and started the line, via Hawaii. Webb then sent his agent, Captain Wakeman, to find a place in the South Pacific in the direct line between Hawaii and Australia where his ships could stop and take coal, and on July 20, 1871, Wakeman arrived at Pago Pago, Samoa, "the most perfectly land-locked harbor that exists in the Pacific Ocean." His reports, sent to his employer, and to the Navy Department, and by the Navy to the Department of State, did not fail to suggest the possibility of establishing an American protectorate over the islands. There was a note of urgency in Wakeman's comments, for he found that the head of a German firm in Samoa, uneasy over Wakeman's mission, had "written some things since to the German government to establish a naval station with a view to a protectorate." Here, then, were the representatives of two firms, one German and the other American, almost simultaneously suggesting protectorates over Samoa by their respective governments. "Without any calculation or deliberation on the part of either government, seeds of future trouble were being sown."(1)

From the German side, interest in Samoa came wholly through activities of this one firm---J. C. Godeffroy and Son, Hamburg. Its operations were in the nature of permanent investments, and on such a scale that throughout the period of controversy the German economic stake far exceeded that of any other power. Indeed, "the firm" dominated the situation in Samoa. The trading house of Godeffroy had been established in 1766 at Hamburg by a family of Huguenot refugees, and in 1857 it selected a base at Apia, in Samoa, and made that the center of its South Sea business. From 1864 the Samoan branch was under the energetic management of Theodor Weber, a young but domineering and clever man "built on Bismarck's lines." He has also been compared to Clive and Rhodes. Under his leadership the Godeffroy firm continued a merciless competition in the South Seas and, according to a French traveler's report in 1869, crushed all competitors in the region. English, Australian, and American traders disputed the market with each other and with the Germans, and not always by gentle means. There are stories of rival agents tempted on board ship, handcuffed, and then robbed of their whole booty of shells and cocoanut oil; other stories of the kidnapping of a competitor's native labor force. It was the policy of the German firm to found plantations, looking to a permanent business. The chief product was copra. In 1872 the firm's settlement in Samoa consisted of one manager, one cashier, eleven clerks, one harbor master, two engineers, ten ships' carpenters, two butchers, four plantation overseers, one surgeon, one surveyor, and many supernumeraries of all nationalities---half-breeds, Portuguese, and Chinese. The firm employed in general about four hundred Polynesians brought from the Savage and Line islands. The layout included a roomy inn, a shipyard for small ships, three plantations of about four hundred acres, and uncultivated land to about twenty-five thousand acres, all very fruitful. This land had been bought for not more than seventy-five cents an acre, paid chiefly in munitions, weapons, or articles of trade loved by primitive peoples: cotton shirtings, tobacco, brandy, gin, wine, flour, sugar, shears, needles, yarn, knives, and the like. The profit on cargoes from Europe was great. According to express regulations no employee was allowed to dispose of any article for less than one hundred per cent above cost, including freight and commissions.(2)

These were the American and German interests. Those of Great Britain came mainly through Australia and New Zealand, which were interested not only in commerce, but in a stopping place on the steamship route which would provide shorter postal communication with England via the newly-finished transcontinental railway in the United States, and in their own security against attack by naval powers. The London Missionary Society also had an establishment in Samoa, which added to English interest and influence. In 1872, and again in 1873-4, New Zealand showed much popular and official concern lest the United States or Germany take Samoa, and there was talk of a New Zealand Monroe Doctrine. Suggestions went to London regarding a British protectorate, but the Foreign Office showed no enthusiasm.(3)

Indeed, the governments of all three powers rejected the notion of assuming responsibilities in Samoa at this time. It was 1884 before Bismarck was ready to reverse his policy of not seeking colonies. In England colonial acquisition was in abeyance. The United States had no precedent for overseas expansion, and Congress and public sentiment opposed such entanglements. Yet all three powers were being invited to act in Samoa: Germany by the Godeffroy firm, England by the New Zealanders, the United States by private shipping and land speculating interests and naval men.

Captain Wakeman, agent of the W. H. Webb shipping line, had proceeded after his exploration of Pago Pago to Hawaii, where he talked with United States naval officers and the United States minister resident. The latter was among those urging a subsidy for Webb, and was readily moved to action on Wakeman's suggestions regarding Samoa. So it was not by accident that Commander Meade appeared in Pago Pago harbor on the Narragansett early in 1872 and negotiated a treaty with the native chief. This document granted "the exclusive privilege of establishing in the said harbor of Pago Pago, island of Tutuila, a naval station, for the use and convenience of the vessels of the United States Government," in return for which the chief and his successors and their people were "to have the friendship and protection of the great Government of the United States of America."(4) The treaty, together with Captain Wakeman's report to W. H. Webb regarding the commercial and strategic value of Pago Pago harbor came to the Department of State through the Navy, Department, and Secretary Fish promptly recommended the ratification of the treaty. President Grant just as promptly sent it to the Senate, recommending favorable consideration "with some modification of the obligation of protection which it seems to imply." Through the whole proceedings, from the actions of minister resident and naval officers in Honolulu, to the President's message enclosing Wakeman's report, "it is clear that the interests which the United States government wished at that moment to support were those of the Webb steamship line."(5) The treaty died in the Committee on Foreign Relations of the Senate.

Also in 1872, a petition from the natives of Samoa arrived in Washington asking the President to annex the islands. The natives now and later seem to have been genuinely desirous of tutelage by some strong state in order to avoid the dissensions which foreign adventurers were continually setting up among them, but such petitions were easily secured from the child-like Samoans, and this one came through a certain J. B. M. Stewart, who forwarded it to the shipbuilder, Webb, to be given to the President. Stewart, interestingly enough, was associated with a group of Californians who had organized the Polynesian Land Company and had acquired many acres on options, chiefly in exchange for arms and ammunition, during the civil war which had kept Samoa in a turmoil for several years. The land company naturally looked with favor upon the Webb proposal to use Pago Pago for a coaling station, since this would enhance the value of its claims, but these investors saw even greater advantage in an American protectorate which would tend to insure their holdings against possible repudiation of contracts by island chiefs and would provide a free market in the United States for the products of the plantations they apparently hoped to establish.(6)

Colonel A. B. Steinberger, a man of education and some means, soon went out to Samoa as a special commissioner of the United States government to survey and report. The arrangements for his going were made by W. H. Webb, who was still interested in a protectorate as well as a subsidy, and by Steinberger himself, through President Grant. The three appear to have been connected by ties of personal friendship. Steinberger served without pay, and the expense allowance from the Department of State must have been supplemented by himself or the Webb line. He made a great impression on the natives by giving them the advice of the Secretary of State not to sell their land(7) and, finding them assembled in a great conclave to settle their dissensions and agree on a form of government, he helped them frame a constitution and laws. There was "no little difficulty" in getting the coöperation of the German consul (Weber, at the same time manager of the Godeffroy firm, who had also protested against Commander Meade's treaty at Pago Pago) and certain other white residents. They wanted all past land sales confirmed, debarring future investigation, but Steinberger refused to accede. He returned to Washington early in 1874, bringing with him petitions from natives and leading foreign residents, among them English missionaries, that the United States should take a protectorate or annex Samoa and send Steinberger back as the first governor.(8)

Steinberger pulled wires for annexation, but the government deemed it inexpedient in the absence of a wide and favorable public sentiment, to take a step so opposed to the. traditions of the United States. He did succeed in getting sent back to Samoa on board a war vessel as special agent of the United States, paying his own expenses, and there he continued to act as though Samoa would sooner or later be an American protectorate. "That the State Department in harmony with the Navy Department would have favored annexation or protection, and was merely waiting for a change in sentiment in Congress is evident from the attitude it assumed toward Steinberger."(9) On the strength of the anticipation that he would soon have real power in the islands, Steinberger had visited Hamburg from the United States and signed an amazing secret agreement with the Godeffroy firm. He was to give it a monopoly of the copra trade in return for a considerable financial consideration in the form of commissions. On purchases by the Samoan government for material from the company he was to receive ten per cent. He was to see that all land titles hitherto acquired by the company from the natives were recognized and confirmed. In Article 2 Steinberger, who, "because of his future position at Samoa and the home endorsement, will evidently exercise a paramount influence in the Samoan Islands," pledged himself to the interests of Godeffroy altogether, promising "to avoid all other business connections in toto in America, Europe and Samoa."(10) Thus he prepared to feather his own nest, and the firm revealed what it really wanted from government in the islands.

Steinberger made himself premier of Samoa in 1875, resigned his United States commission, and ran the native government as a sort of benevolent despot. He soon came into conflict over land claims with the American consul, Foster, who was also agent of the Polynesian Land Company. (These double affiliations, in which the same man represented the private interests of business and the public interests of a great power as its consul were a common thing in Samoa and other out-of-the-way places. Theodor Weber was the outstanding example.) British missionaries and officials, at first favorable to Steinberger because he gave the islands orderly government, turned against him shortly after the annexation of Fiji by Great Britain. This, coming in 1875, made it appear to the annexationists in New Zealand that Downing Street might also be persuaded to take Samoa. Consul Foster seized Steinberger's boat, the Peerless, which had been bought on an advance from the Godeffroy firm. The captain of a British war vessel, the American and British consuls, and fellow conspirators talked the native king over to their side, and British marines arrested Premier Steinberger. He was closely confined on the British warship for two months and then deported to Fiji.(11)

Now the native king, who had been turned against Steinberger, was at outs with the rest of the Samoan government. British consuls, missionaries, and business interests were intriguing hopefully on behalf of a British protectorate. Theodor Weber, the German consul and firm manager, was angry because after Steinberger's departure he found it impossible to make a satisfactory treaty with the Samoans for the protection of the Godeffroy interests and because the native government refused to sell him a quantity of copra it had accumulated. He began movements to overturn this government. The American acting consul hoisted the United States flag over that of the Samoans in order to avert what he regarded as imminent British annexation, and he seems to have been supported in this by Weber. Any two consuls were usually able to unite against an increase of influence by the third. At this time the American consul who had succeeded Foster was in Washington urging the need for a treaty of commerce to protect American interests in Samoa, and incidentally defending himself against attacks that he said were inspired by the Polynesian Land Company because he had opposed their scheme to unload land deeds on the Samoan government in return for government bonds. He referred also to Consul-Manager Weber's failure to bribe him to divert trade from the United States to the Godeffroy company.(12)

These happenings are enough to show the confusion, intrigue, and cross-purposes which characterized the situation in Samoa during the rest of the seventies and eighties. A whole calendar of similar episodes will therefore be passed over in favor of a mere outline of the events of chief political importance.(13) In 1877-8 a Samoan prince was commissioned by the native government, undoubtedly acting under the inspiration of the American consul, to go to Washington and seek annexation or protection from the United States. The Navy Department "warmly" favored the Samoan proposition, as it had long desired outposts in the Pacific, and President Hayes and Secretary of State Evarts were also inclined to be sympathetic, but they saw that Congress and the country were in no mood to consent. So a treaty of commerce and friendship was negotiated instead, and in February, 1878, it received the unanimous approval of the Senate.(14) Germany and Great Britain followed suit with treaties made in 1879. The most favored nation clauses in these treaties prevented the Samoans from offering a protectorate to Great Britain alone when they seemed inclined to do so in August, 1879, so they addressed all three powers, saying that "We are of opinion that we shall have no peace until we give our own authority to some great Government." In 1880 the consuls established what amounted to a joint protectorate over Samoa and the following year, with the aid of foreign warships, stopped the series of civil wars which had broken out afresh on the death of the old king and which had resulted in damage to plantations. They brought the native factions to compromise by recognizing one leader, Malietoa, as king, while making the rival chief, Tamasese, a "vice-king." There followed several years of peace, broken in 1884 when Bismarck's decision to reverse his policy and seek colonies brought on diplomatic difficulties that lasted until the Berlin Conference of 1889.(15)

It is now necessary to return to the Godeffroy firm and its affairs. In the sixties Weber had shown no interest in politics. It was his purpose to attract as little public and private attention as possible and quietly to build up a trade monopoly for his firm. He was a consular agent of the city-state of Hamburg from 1865, of the North German Alliance from 1868, and of the new German Empire after 1872, but the main use he made of his office in the early days was to apply the consular seal to trade treaties with independent tribes, thus making them more impressive. In the seventies, on the contrary, Weber and the Godeffroy House did begin to exert themselves in order to interest the German government and the German public in the South Seas, for now they had an established position, and they wanted to protect their nearly complete monopoly against the counter-attacks of other traders, who were receiving political aid from their governments. The Godeffroy house was in a favorable position to influence public opinion and government in Germany. The long-established firm was one of the best known in Hamburg. Senator César Godeffroy himself, "the South Seas King," was the incarnation of the bourgeois grand-seigneur. His residence was the finest in the region and run in the most luxurious manner. The banquets he gave in winter and the summer hunting dinners on his estate were famous. By his direction the ship captains of his firm brought home South Sea flora and fauna which were elaborately catalogued and described in a richly illustrated journal of the Godeffroy Museum. In April, 1871, a newspaper closely connected with the Godeffroy House, the Norddeutsche Allegmeine Zeitung, carried an article on German enterprises in Polynesia, and thereafter press references to German interest in the South Seas never ceased entirely. All this was practical propaganda for the colonial idea, which won more and more adherents after the unification of Germany in 1871. The fortunes of the Godeffroy firm furnished the first occasion for Bismarck to test the strength of this colonial sentiment.(16)

In 1878 the Godeffroy House ran into financial difficulties. It had expanded too widely, had experienced losses during the civil wars in Samoa, and Godeffroy had made bad speculations in European mines and real estate. There was an attempt to raise additional capital by turning the enterprise into a stock company, but the business public would not risk its money on the shares. So Godeffroy turned to the German government, which he had been attempting for some time to interest actively in South Seas colonization. On January 25, 1879, he wrote to the Secretary for Foreign Affairs, the elder von Bülow, who was a distant relative and acquaintance of the House, that in order to continue its huge task for the honor of Germany the Samoan enterprise must have an operating capital of two or two and one-half million marks. Later he proposed that the Reichsbank or the Prussian state bank be induced to assist him; otherwise he must turn to England. Bülow sounded out the officers of these two institutions, but both rejected emphatically the notion of participating in the South Seas business. On March 18th Godeffroy wrote that a crash was imminent and pleaded for a direct appeal to the highest authorities, who in turn might influence the Reichsbank or the Prussian state bank. Bülow then saw Bismarck on March 8th and discussed everything with him. The director of the Disconto bank, von Hansemann, who was close to Bismarck and also a business friend of the Godeffroy House, here entered the affair and was willing to advance money, but only on condition that the risk be guaranteed by the Foreign Office. This Bismarck rejected, but proposed instead that the government through the Bundesrat and the Reichstag should either buy some of the company's shares or accord it a subsidy.(17)

While preparations for this move were being made, von Hansemann went to work with his son-in-law, von Kusserow, a colonial enthusiast who was in charge of relations with overseas enterprises in the foreign office. They sought to find potent associates of the Godeffroy firm who would keep it afloat until the government could act. The presence of such associates in the affair would also serve to answer the charge that the government was seeking to subsidize a single private firm. But so great was the lack of confidence in the South Seas enterprise that nothing could move either Hamburg or Bremen to assist. Thereupon Godeffroy was forced to mortgage the greater part of his shareholdings to the London house of Baring Brothers, which had advanced a million marks the year before and now loaned another one and one-half million on the assumption that the German government was going to come to the rescue. At the end of November J. C. Godeffroy, Jr., returned from London with the news that Baring Brothers had suddenly refused to prolong the credits previously advanced. Appeals to the government brought no action, and on December 1, 1879, the firm went into bankruptcy.

A distrust of English ambitions in the South Seas had already been awakened among wide circles of the German people. Now the fall of the Godeffroy House was portrayed as the well-planned intention of Baring Brothers and as the English answer to the German-Samoan treaty of the previous year. The matter was so described to Bismarck in a report from one of his advisers on the 5th of December, 1879, On December 8th the missionary Fabri, author of the well-known and extremely effective pamphlet "Does Germany Need Colonies?", addressed a passionate memorandum "The Suspension of the Godeffroy House and Its National Importance" to the Imperial Vice-Chancellor. He could not recall when the young German Empire had suffered a worse humiliation in its international relations. The government must take a hand and remove this shame from the German name. On the 15th the Crown Prince asked for a complete explanation of Samoan affairs, which was furnished him by von Kusserow.

On the 14th and 15th of December, the banker von Hansemann, another banker and personal financial adviser to Bismarck, von Bleichröder, an undersecretary in the foreign office, and the Godeffroy father and son conferred regarding the founding of a new company which should have a capital of ten to twelve million marks for taking over all plantations and other property of the old firm. As the financial support of the Imperial Government was foreseen in a pronouncement by Chancellor Bismarck on the 5th of January, 1880, the capital stock, finally set at eight million marks, was oversubscribed by three million in spite of energetic opposition from the free-trade press. Of these eleven million marks nine million were subscribed by the general public and only two came from the banking consortium. Numerous letters came to the Chancellor and to the foreign office from private persons who wanted information regarding immigration and settlement in the South Seas. The colonial era of the empire seemed to have dawned.(18)

The Samoa question was laid before the Reichstag on April 14, 1880, accompanied by a detailed report.(19) Bismarck, who had come to the view that the transfer of the Samoa enterprise to English hands not only would rob Germany of her possessions in the South Seas but would also injure the dignity of the Reich as a whole, proposed that the government should guarantee four-and-one-half per cent dividends on the eight million marks capital of the new company for twenty years. The Reich would thus accept the risk of having to pay out a maximum of three hundred thousand marks a year. It is an interesting commentary on the ways of nations that without the necessity of parliamentary consent the government had been spending about seven hundred thousand marks every year since 1877 for the maintenance of warships in the South Pacific to protect German enterprises, mainly the Godeffroy firm!(20) The Reichstag refused, by a narrow majority, to vote the guarantee. This convinced Bismarck that the time was not yet ripe to embark on a policy of state-directed colonialism and he waited a few years longer---until 1884. Meanwhile the newly organized company had to be dissolved, but it was found possible despite the lack of government subsidy to obtain enough private capital so that the Baring debts could be paid off and the Godeffroy possessions further exploited.(21) This was done under the name of "Die Deutsche Handels und Plantagen Gesellschaft für Süd-See Inseln zu Hamburg," dubbed by humorists "the long-handle firm."

We now go back to Samoa and jump to 1884, when Bismarck embarked on his colonial policy in Africa and simultaneously stiffened the political backing of German interests elsewhere. Theodor Weber was no longer German consul himself, but the German consuls naturally were his partisans in most things, if not entirely under his control, and German warships came to Samoa "to fetch and carry for the firm." Weber and Dr. Stübel, who was then consul, pressed King Malietoa for a treaty putting the native government practically under German tutelage through a system of German advisers and judges who could see to the protection of the firm's land claims, its native laborers, and the punishment of trespassers on its plantations. Malietoa signed the treaty, complaining to the other consuls that he did so under threat and without being permitted to see its contents. When he remained intractable Dr. Stübel seized the chief town, Apia, as a "reprisal," hoisted the German flag, and proposed to hoist it also over the seat of government (January, 1885). Simultaneously, rebellions broke out against Malietoa, promoted by the Germans. The American and British consuls protested. Diplomatic exchanges passed between Washington and Berlin. Malietoa tried to move his capital to Apia; German marines drove him out and hauled down the Samoan flag. The United States asked Berlin for "fulfillment of solemn assurances heretofore and recently given that Germany seeks no exclusive control in Samoa." Early in 1886 the commander of the German squadron in Samoan waters recognized Weber's rebel leader, Tamasese, as the real ruler. The American consul met this move by hoisting his flag over that of Malietoa and declaring that the Samoan islands were under the protection of the United States (May 14, 1886). His action met disavowal in Washington; Berlin also instructed Dr. Stübel to haul down the German flag in Apia.(22)

The three powers now agreed that each would send a special commissioner to Samoa to obtain fresh and unbiased information. Then a conference took place at Washington (1887), but agreement proved impossible. Germany proposed that a mandate for the preservation of order in Samoa should be given to the power with the greatest interests there---namely, Germany. Great Britain had been won over to this point of view, but the United States refused to consent. Another sticking point was the composition of a court of land claims which everyone agreed must be set up. That proposed by the German conferee hardly seemed designed to function independently, and this is less surprising in view of the fact that the diplomat was ably advised by Theodor Weber, who had come all the way from Apia to Washington to attend this conference.(23)

Meanwhile, troubles multiplied in Samoa. In January, 1887, a Bavarian ex-officer and adventurer, Captain Brandeis, started drilling the followers of the rebel chief, Tamasese. After the failure of the Washington conference a German squadron came to Samoa, waited until the departure of the Sydney mail steamer cut the islands off from the world for three weeks, sent an ultimatum to Malietoa demanding indemnity for an alleged insult to the German emperor and for fruit alleged to have been stolen from German plantations, landed seven hundred marines and six guns, proclaimed martial law, ran up the German flag over the government house, and recognized Tamasese as king. The American and British consuls continued to recognize Malietoa, but the German warships hunted him, he voluntarily surrendered to avoid war on his people, and a German naval vessel took him away from the islands. Now Captain Brandeis stepped forth in his real character and for a year and a half ruled Samoa as adviser to the puppet-king, Tamasese, much in the Steinberger manner. The difference was that Steinberger had no support from the United States government, while Brandeis could depend upon German warships to support and protect him. American property owners in Samoa began to experience difficulties with Weber soon after the Brandeis-Tamasese regime started, and they anticipated that a land court would be set up to engineer through the claims of the German firm and ignore their own. One of them left for the United States in order to bring his case directly to the attention of the American government. Weber also made a bold bid at this time for the monopoly of copra trading. The governors appointed by Tamasese were instructed to forbid the selling of copra or the mortgaging of copra or lands except to the German firm. Furthermore, the new government more than doubled the taxes to be paid by the natives, and as these taxes had to be raised by mortgaging the copra crop to the German firm, and the money could then be spent by the firm-controlled government in building roads to its plantations, the whole system was admirably designed for business ---except that Americans complained when their rights were "placed at the mercy of the government of a rival firm," and British officials forced the release of a Samoan who had been imprisoned for selling copra to a British company, and the natives rebelled.

The American consul, merchants, and property owners importuned Washington for strong action, suggesting a temporary occupation of the islands and a protectorate. American warships, as well as German and English, frequented the harbor at Apia. The American officers were under instructions from the Navy Department to "intervene vigorously, should occasion arise, to protect the persons and property of American citizens" in Samoa.(24) Commander Leary of the United States vessel Adams sent a protest to Captain Fritze of the German Adler against a contemplated bombardment of anti-Tamasese villages and backed it up by clearing his decks for action.(25) Again he intervened on behalf of an American whose property was being damaged by Tamasese warriors. A German landing party attempting to disarm anti-Tamasese natives was repulsed; twenty German sailors and officers were killed and thirty wounded. The Germans said the native resistance had been directed by an American correspondent named Klein. This incident immensely heightened the already great tension in Samoa, and the excitement was reflected in Europe and America. The German consul proclaimed martial law in Samoa, but was rebuked by Bismarck, who is reputed to have remarked that his agent had contracted morbus consularis.(26) Then in March, 1889, a terrific hurricane struck the overcrowded harbor of Apia, destroyed or disabled all the ships of war; and somewhat calmed the political situation.

The more dramatic story is that this "act of God" supervened in the nick of time to prevent a naval battle in Samoa and war among the powers, but. as. a matter of fact Germany, England, and the United States were already far along with preparations for the Berlin conference of 1889 which "settled " the Samoan question. The settlement consisted of a tripartite protectorate, or condominium, ruling through a native government advised and controlled by foreigners whom the powers commissioned for the purpose. This government of wheels within wheels, watched over by jealous rival consuls and supervised by three foreign offices at a distance, did not work well. In 1899 the powers struck a new bargain; Samoa was divided between Germany and the United States (which got Tutuila and the harbor of Pago Pago), while Great Britain received its share in the form of concessions from Germany on colonial issues in Africa and the Pacific. Bearing on the justice of private land claims in Samoa, a court of arbitration set up by the treaty of 1889 found that 56 per cent of the German claims deserved confirmation, 3 per cent of the English and 7 per cent of the American.(27)



In 1872 the Shah of Persia issued a concession to Baron Julius de Reuter which as Lord Curzon said, "literally took away the breath of Europe and handed over the entire resources of Persia to foreign hands for a period of seventy years."(28) It empowered the Baron to build a railway from the Caspian Sea to Teheran and thence to the Persian Gulf, and gave him the exclusive right to establish all branches deemed worthwhile. The Persian government was to guarantee an annual interest of five per cent on all capital employed, plus two per cent annually for amortization. In addition, Reuter received a monopoly of tramway rights, all the land necessary for the railway, and the exclusive privilege for seventy years (the duration of the concession) of exploiting coal, iron, copper, lead, oil, and other mineral products throughout the Persian empire. He was to administer the customs for twenty-four years, to have the exclusive right to exploit the state forests and to build dams, wells, canals, and the like. His company was to be given preference over all others in the construction of various types of public works, and if in the future the Shah decided to grant a concession for the establishment of a bank Reuter was to have preference over all other applicants. The Reuter concession, obtained after the customary generosity had been shown to Shah and courtiers, practically farmed out the economic resources of Persia.(29)

It is instructive to see what assistance the concessionaire thought he might need from his home government. Under date of September 12, 1872, Baron de Reuter---a financier of German-Jewish extraction, but a naturalized Englishman ---addressed a letter to Granville, Secretary of State for Foreign Affairs. In undertaking the gigantic work in Persia, said the Baron, it was his desire not only to improve the social condition of the Persians and to open up their natural resources for the benefit of the world at large, but also (alluding to the possible services of investment to diplomacy) "to render my concession of the highest value to Great Britain." He pointed out that the Russians were making great progress with their railways toward the Caspian Sea. "Under these circumstances, I need not point out to your Lordship the importance of my concession . . . which, as before mentioned, is of an exclusive character . . . I desire to serve this my adopted country, by introducing my enterprise under English auspices alone; and I shall have pleasure in so doing without soliciting a subsidy or other material support from Her Majesty's Government. I nevertheless desire to feel assured that, in the event of differences arising between the Persian government and myself, Her Majesty's Government will recognize the validity of my scheme, and protect my rights, as a British subject, so far as may be in their power." The reply from the Foreign Office was cautious and non-committal. ". . . Whilst Her Majesty's Government would view with satisfaction the efforts of the Shah's Government to increase, by means of railways and roads, the resources of Persia, they cannot bind themselves officially to protect your interests whilst carrying out your engagements with that Government."(30)

At the same time, news of the Reuter concession aroused great indignation in St. Petersburg. The Russian minister at Teheran, who had known nothing of what his English colleague and Reuter had on foot until publication of the text of the Shah's firman, was disgraced by his government for having let the English carry off such a victory. When the Shah visited Europe for the first time in 1873 he found a rather cool reception in Russia. Feeling also arose in Persia against such a surrender of monopoly rights to foreigners. Finally the Shah yielded to the pressure upon him and annulled the concession, alleging that an insufficient amount of work had been carried out by the concessionaire within a stipulated time. The Russians, by the way, had done their best to cause delay by hindering the transport of construction materials across the Caucasus. The British government allowed the matter to drop without serious protest. This was before the days of feverish competition among the powers for control of strategic economic privileges in Asia and Africa. Furthermore, a recent change of government in Great Britain had replaced Lord Beaconsfield, who had looked very favorably on the Reuter concession, by Lord Granville of the Liberal Party. The Liberals, influenced by the doctrines of the Manchester School, opposed governmental intervention in private enterprise abroad and wished to avoid a conflict with Russia.(31)

It was 1889 before Baron de Reuter received any compensation on account of his annulled concession. Then Sir Henry Drummond Wolff took over the legation at Teheran under instructions to try to obtain some grant in his favor as indemnity for the failure of the earlier project, and succeeded in securing him the right to found the Imperial Bank of Persia.(32) Mining rights were also granted to the Bank. These were sold to the Persian Bank Mining Rights Corporation, but in 1894 it "joined the list of unfortunate British gambles in Persia."(33) The Bank itself, however, lived on, gained the exclusive right of note issue, and became the agency through which British politics and finance coöperated in the Middle East.



At the opening of the twentieth century Venezuela was in a tumultuous and bankrupt condition. The country had been torn by civil strife and political corruption; the people and resources alike had been the prey of adventurers and rascals; the ruling class, consisting of only about six per cent of the population, had not only exploited the country and wasted its resources, but had engaged in factional war over the plunder. Self-seeking politicians had borrowed abroad and had bargained concessions to foreigners, thereby introducing an international element into the domestic discord.

From 1898 to 1902 Cipriano Castro, bold cattleman of the western mountain region, was carrying on a bloody civil war to secure the reins of power over the government and conditions were even worse than usual. Foreigners, who suffered along with the Venezuelans, appealed to their home governments for redress. They were unwilling to submit their complaints to the exclusive jurisdiction of the Venezuelan government, as Castro demanded, for they regarded him as a dictator who paid little respect to law or constitution. By the end of 1902, Germany, England, and Italy were ready to undertake joint action to obtain satisfaction for the losses and injuries which had overtaken their citizens in Venezuela.

As usual in such cases, the claims fell into two categories: those based on contractual obligations of the Venezuelan government---bonds in payment for public works, concessions---and those arising out of losses and personal injuries suffered during the disorders. The main German demands, for instance, related to interest seven years in arrears on Venezuelan bonds, dividend payments guaranteed by Venezuela on a German-built railway, and indemnity for damages, injuries, forced loans, and inconveniences suffered during the civil war of 1898-1900. The basis for the demands of England and Italy differed only in detail, while similar claims were being brought forward by citizens of the United States, France, Belgium, Mexico, Spain, the Netherlands, Sweden, and Norway.

When the government of Venezuela stubbornly reiterated that its own courts had exclusive jurisdiction in all such matters and absolutely refused to arbitrate, England and Germany agreed on a course of action and presented an ultimatum. This was in November, 1902. The answer was not satisfactory. On December 9th four Venezuelan gunboats were seized and three of them sunk. Shortly afterwards a blockade of Venezuelan ports began, Italy joined the other two powers, and a German and British cruiser bombarded two forts at Puerto Cabello in retaliation for the seizure of a British steamer and an alleged insult to the British flag. At this point Venezuela submitted an arbitration proposal through the United States, the other governments accepted it in principle, and coercive measures ceased, for the time being.

The international importance of the protective action which the European powers undertook on behalf of their citizens was, of course, tremendously enhanced by the danger that public opinion in the United States, in jealous support of the Monroe Doctrine, might take alarm and demand violent measures against the blockaders. The powers took pains to keep Washington informed, and the American Secretary of State announced that although it was to be regretted that European powers should use force against Central and South American countries, the United States could not object to their taking steps to obtain redress for injuries suffered by their subjects, providing that no acquisition of territory was contemplated. Germany and England now presented detailed memoranda of their claims and continued the blockade. Early in 1903 German guns bombarded Fort San Carlos, arousing much heat in the United States. President Roosevelt sent Admiral Dewey into the Caribbean with a fleet and threatened to use force against Germany in case it showed signs of seizing territory; he was determined not to have a Latin-American Kiaochow. Eventually the crisis passed, the matters in dispute were submitted to arbitration (with the exception of certain "first rank" claims), and the clamor of the yellow press in the United States died down. The Hague Court and mixed commissions set up for the purpose finished their decisions in 1904. "It is interesting to note, as bearing upon the justice of the claims, that barely one-fifth of them were allowed by these mixed commissions."(35)



Contracts made by the Haitian government in 1905-6 with a French stock company, the Compagnie Nationale des Chemins de Fer d'Haiti, were revised in 1910 to include a six per cent guarantee of interest by the government on the railway bonds, up to a maximum of $20,000 per kilometer. The company, which represented American interests, agreed to build the railway within five years, under penalty of foreclosure except in case of force majeure. After twenty years Haiti might repurchase the road, and in no case were differences in interpretation of the contract to give rise to diplomatic action. At the same time, the government granted Mr. J. P. McDonald, who backed the railway project, a fifty-year concession for raising bananas on public lands to a distance of twenty kilometers on each side of the railway. For fifteen years McDonald was to have a monopoly on the export of bananas. It has been charged that these contracts were secured by bribery.(37) At any rate, they were very unpopular in the island and were used by revolutionary leaders to incite the people against the government. Ownership of the railway had passed to the Grace Syndicate, and the National City Bank of New York had loaned $500,000 to the company building the road. Mr. R. L. Farnham, Vice President of the National City Bank, was president of the railway. In 1913 the company completed three sections of the railway, 103 kilometers, but the Haitian government refused to accept them on the ground that the work was ridiculously defective. The management was also charged with extravagance. In spite of the clause in the contract in which the company had agreed not to have recourse to diplomatic action, it then appealed to the Department of State, and the United States government induced Haiti to accept the sections and to guarantee the bonds issued against them.

In August, 1914, the Haitian government declined to make the payment due on these bonds. It contended that the company had not lived up to its contract, especially that only six sections of the road had been delivered instead of the eleven contracted for, and notice was given that Haiti intended to take over the company's property. The company alleged that it had been obstructed by revolution and that its property had been destroyed. In these circumstances the company again appealed to the State Department, and on September 23, 1914, Secretary Bryan informed the American minister that if the Haitian government took possession of the property the United States would take the measures which it might deem necessary to safeguard the rights of the company. Foreclosure proceedings were suspended. Meanwhile the internal situation of Haiti went from bad to worse. In July, 1915, the United States resorted to military intervention, and at that time the railway question was still pending.

Under the influence of the United States occupying authorities, a Haitian loan was issued to liquidate the difficulties of the National Railway, and in 1917 the government agreed to abandon foreclosure proceedings, while the company agreed to adopt a more direct route. The revenues of the road barely equalled operating expenses from 1914 to 1922, so neither the president nor the directors of the company received salaries. In 1920 a New York court granted a request for a receivership. Mr. R. L. Farnham, president of the company, was made receiver. In 1924 the court ordered compensation to the receiver fixed at $100,000, covering back salary from 1911, fixed his compensation for the next year at $18,000 (which was not paid on account of the financial condition of the road), and awarded Sullivan and Cromwell, counsel for the receiver, $80,000 for legal services. In 1923 an arrangement was made whereby the Haitian government agreed to pay off about $2,000,000 of interest arrears on the railway bonds and in addition to exchange railway bonds for government bonds at the rate of 75 per cent. The holder of Haitian National Railway bonds thus received under this settlement $35.25 in the form of back interest since 1914 on each bond of a little over $96, and 75 per cent of the face of the bond in new Haitian government securities. What had been a contingent obligation of the government thus became an absolute obligation, with the annual interest charge reduced by 25 per cent.

The use of United States diplomacy under conditions which amounted to virtual dictation for the purpose of forcing Haiti to honor contracts which appear to have been tainted with fraud and not too scrupulously executed from the company's side, together with the arrangement of a favorable settlement on bonds of the railway company which had probably been purchased by American owners at a great discount, has been much criticized. Our purpose here, however, is simply to note the service which governments may perform to foreign investors in cases of this sort. Political considerations connected with naval strategy in the region of the Panama Canal and with corollaries of the Monroe Doctrine, as well as the direct interests of investors, also entered into the combination of motivations which brought United States diplomacy with military force into action.



A clause which had appeared in the Haitian constitution of 1805 and had survived more than a half-dozen revisions prohibited foreigners from owning land. This was to the Haitians a cherished defense against the possibility of foreign domination, but American corporations and the American government found it irksome. Whether on its own initiative or at the behest of business men, the State Department took the position after the military occupation in 1915 that the prohibition of foreign land ownership prevented the economic development of Haiti and therefore made it impossible to give effect to Article I of the treaty which had just been adopted under pressure from the United States. This article provided that "The government of the United States will, by its good offices, aid the Haitian government in the proper and efficient development of its agricultural, mineral, and commercial resources and in the establishment of the finances of Haiti on a firm and solid basis." In 1917 the President of Haiti, who was almost entirely under the control of American representatives, called a National Assembly to consider revision of the constitution in order to strike out the land-owning clause. But the sentiment of the Assembly was strongly opposed to the elimination of the clause. At this point Brigadier General Cole of the United States Marine Corps, commanding the forces of occupation, wired Washington: "Unless contrary instructions received, if necessary to prevent passage proposed constitution [which still contained the objectionable prohibition of foreign landholding] I intend dissolve National Assembly, through President, if possible; otherwise direct."(39) The Assembly was dissolved, and the next step in the program of eliminating the land restriction was to present a new constitution containing the desired amendment for popular vote. There was no basis in Haitian law for such a procedure, but it was decided to go ahead regardless, and the election was conducted by the Haitian gendarmerie, officered by American marines. The officers waged a campaign for the adoption of the proposed constitution. There was evidence that the election was in no sense free. According to the testimony of an American missionary before the Senatorial committee which later investigated the affair, the Haitians were terrified by the exhibition of armed force at the polling places, and in at least one precinct the negative votes were not untied and only the affirmative lay loose. A light vote carried the new constitution almost unanimously, and since that time a number of American corporations have acquired large holdings in Haiti.(40)



After thirty-five years under the regime of Porfirio Diaz, whose liberal concession policy and dictatorial maintenance of security for life and property had encouraged the introduction of foreign capital, Mexico experienced a revolution. It was more than a mere shift from the ins to the outs. The revolution begun in 1910 was social and economic in character, a reflection of the fact that while commerce and industry had been thriving under the Diaz policies the condition of the native peon, who was 90 per cent of the population, had remained one of poverty and wretchedness. Associated with this revolt against the Diaz system was a constantly growing spirit of nationalism and antagonism to the foreign interests which Diaz had fostered. "As the growth of foreign investment had been contemporaneous with a decline in the economic welfare of the peasant class, it was easy to see more than an accidental connection between them. . . . To the desire of the native Mexican for land there was added the cry of 'Mexico for the Mexicans.'"(41)

Such a social revolution and the nationalistic ambitions that accompanied it were bound to affect the interests of foreign investors in Mexico. The turmoil of the following years, the rebellions and counter-rebellions in which oil companies are supposed to have helped finance rival factions, naturally involved foreign mining, ranching, commercial, banking and other interests in great difficulties and caused them serious losses. There was pressure upon the United States government for forceful intervention to re-establish security and order. "It is a curious thing," President Woodrow Wilson commented in 1914, "that every demand for the establishment of order in Mexico takes into consideration, not order for the benefit of the people of Mexico, the great mass of the population, but order for the benefit of the old-time regime, for the aristocrats, for the vested interests, for the men who are responsible for this very condition of disorder. No one asks for order because order will help the masses of the people to get a portion of their rights and their land; but all demand it so that the great owners of property, the overlords, the hidalgos, the men who have exploited that rich country for their own selfish purposes, shall be able to continue their processes. . . . They want order---the old order; but I say to you that the old order is dead."(42) President Wilson, in resisting powerful pressure upon him to change his policy of friendliness toward the social objectives of the Mexican revolution, felt that most of the pressure originated with those who held property and concessions in Mexico. "I have to pause and remind myself that I am President of the United States and not of a small group of Americans with vested interests in Mexico," his secretary reports him as saying.(43)

We can best see the conflict between Mexican aspirations for social reform and the acquired rights of foreigners in the long and sometimes bitter diplomatic controversy which centered about measures taken under Article 27 of the reform constitution, adopted in 1917. The diplomatic battle occupied the governments of the United States and Mexico for over a decade, with other powers looking on or joining in representations on behalf of their citizens' interests in Mexico. Complicated by other questions, and inflamed by systematic propaganda on the part of American oil and land owners which did not stop short of misrepresentation or even forgery of documents to influence public opinion, this issue more than once threatened to disrupt friendly relations between the United States and Mexico. If we pass over countless interesting details, however, the essential conflict can be stated in a few sentences, and it illuminates an important aspect of the services which a private investor abroad may desire from his government.

The Mexican reformers sought to improve the economic condition of the native peasant by giving him land to cultivate, which meant the breaking up of the large estates that monopolized most of the soil; they sought to bring the exploitation of Mexican national resources, especially petroleum, under the control of the state to be supervised for the benefit of the whole people, and to turn larger benefits from these resources to Mexicans instead of to foreign capitalists; and they sought to guard against the danger of foreign diplomatic claims or political intervention by curtailing foreign property ownership in Mexico. This led them to direct special taxes and condemnation proceedings. against large land holdings; to revive the principle of Spanish law (which had not been followed during the Diaz regime, when foreign companies acquired most of their oil properties) according to which minerals and oil in the sub-soil were not to be regarded as passing to private owners with title to the surface of the land, but were to remain the property of the state to be rented out for exploitation during a term of years; and to demand of aliens that in order to have the privilege of acquiring property and concessions in Mexico they must agree to be considered Mexicans in respect to such property, and accordingly not to invoke the protection of their government in respect to it under penalty of forfeiture. There were other aspects of the Mexican reform program, such as new labor measures, which were also regarded with hostility by foreign owners, but the oil and land laws provided the most contentious material. The issue was clear: the "right" of the large majority of Mexican people to seek to better their economic and social position at the expense of a class of privileged exploiters whose dominance depended upon property, conflicted with the "right" of these property holders to keep what they had acquired in accordance with standards of law hitherto accepted in Mexico and in other countries. The fact that some of the important vested property rights in Mexico were held by foreigners made the conflict an international one, for these owners appealed to their governments in order to secure the application to their interests in Mexico of the same regard for established property rights to which they had been accustomed at home.(44)

Chapter Six

Table of Contents