A Study in the Relations of International
Politics and International Private



Assistant Professor of Economics in the University of Chicago;
Professeur-Adjoint à l'Institut Universitaire de Hautes Etudes Internationales, Geneva



Garden City, New York



THE PRESENT STUDY is part I of a coöperative project for investigating the causes of war initiated by the Social Science Research Committee at the University of Chicago in 1927. While it is planned to publish a general summary of the results of the investigation, those special studies which have an independent interest, of which this is one, are published as they are completed.(1)

The project began with no theory of the causes of war but with a series of approaches suggested at several meetings by members of the departments of political science, economics, history, sociology, anthropology, geography, and psychology at the University of Chicago in the spring of 1926. Certain of these suggestions were selected for detailed study by research assistants working under the direction of members of the University staff or by members of the staff itself, but such unity as the project may eventually acquire will be a result of final synthesis rather than of initial analysis.

The studies planned included several on the influence of economic activities upon international conflict and war. Among such activities the investment of capital across national boundaries has been considered by many writers a leading source of international friction. It has often been argued that capitalists in the developed countries seeking new opportunities for the possible investment of funds turn to the weak and backward areas. They induce their governments to offer diplomatic, naval, and military assistance, frequently leading to hostilities with the local government or even to wars with rival imperial powers.

In this book, Mr. Staley concludes that this theory, while illustrated in some cases, tends to put the cart before the horse, insofar as direct relationships, verifiable by concrete case studies, are concerned. "Foreign investments," he finds, "have been considerably more useful as an aid and protection to navies than navies have been as an aid and protection to foreign investments." (p. 100) "The tendency of the argument has been to substitute expansionism, for the pressure of immediate private investment interests, as the villain of the drama, in so far as investment frictions between capital exporting countries are concerned." (p. 427) Mr. Staley is aware that investment interests may have a part in creating the political atmosphere of "expansionism." He is also aware that international investments have been the immediate source of certain serious international controversies, but an investigation of such cases shows that most frequently a government had induced reluctant capitalists to invest in a foreign area in order that it might have an instrument or a pretext for pushing political objectives. "Private investments seeking purely business advantage have rarely of themselves brought great powers into serious political clashes." (p. 360)

While Mr. Staley deals in detail only with the influence of international private investments, he finds in his study an illustration of a general condition in the modern world---national political objectives and methods are out of harmony with a world the parts of which are made interdependent by modern communications and economic exchanges. For this "tendency of economic change to run ahead of political adjustments" various solutions are possible, but that which Mr. Staley considers both most probable and most desirable is a further development of world political, administrative, and legal controls. He proposes in some detail certain world institutions for better adjusting investment friction, and thus reducing one important, if not major, cause of war.

University of Chicago April, 1935.



IN A WORLD in which there is, and must be, a perpetual conflict of separate human interests and activities, secure peace---the avoidance of physical violence---is only possible as the counterpart of government. The government must be appropriate in character to the conflicting and dangerous activities it has to control, and its scope must be as wide as theirs. Moreover it must be fitted to the double task of repressing violence when it is threatened by actual disputes, and also of so continuously supervising and regulating the activities out of which disputes arise that they do not develop too powerful an explosive force for the machinery of restraint to cope with.

This is equally true when we are looking to what happens within the area of a single country or in the world as a whole. In a single country the avoidance of individual violence or of revolution depends upon the existence of a government which can both repress and punish and also provide a permanent framework of law, etc., within which separate activities can be coördinated and claims adjusted. The second function is as important as the first, which would obviously soon become impossible without it. In most countries a national government exists which performs both functions with varying degrees of success, but sufficient to make both individual violence and revolution a comparatively rare exception.

But it is equally true that so far as dangerous conflicting activities extend beyond national frontiers, a form of government with an equal scope, and capable of performing both these functions, is equally indispensable. Since there are many such activities, since they are increasing in number and also tending to become more dangerous in character, this means that the only ultimate alternative to war is the establishment of a World State.

To make such a statement which, if properly understood, is scarcely disputable by any intelligent person, is merely to pose the problem, not to solve it. What should be the scope and functions of such a World State, as distinct from those which should still remain within the ambit of national or local authorities? And, equally important, what are the practical stages by which the necessary form of united world government can be aimed at?

In each case the answer is difficult, but must in large measure be sought by a close and realistic consideration of the activities which actually need regulation of more than a national scope.

The most numerous, and the most important, of these are economic. The greater part of most men's activities are concerned with earning and spending. They have indeed very many other contacts with their fellows, both within their own country and outside---cultural associations and so on, but these, not being rooted to the same extent in a strong material interest, are not likely to be so provocative of dangerous conflict.

The economic activities of man are thus, among all his normal activities, those which most need attention if we are considering the problem of world government---or (for it is ultimately the same thing) the problem of avoiding war.

We need, however, in studying them, to be especially on our guard against certain fallacies. The first is that economic factors can be carefully studied in isolation as presenting a causal sequence, apart from other factors, in leading to war. They are not a simple chain, but a thread in an intricate pattern. They usually only become dangerous when forming an element in an amalgam which contains many other factors, racial hatreds, conceptions of power politics and so on. It is the interaction of economic with other motives that constitutes the essence of the psychology of war.

The second danger against which we need to be on guard is the bias arising from opinions formed mainly on other grounds as to the respective merits of capitalist enterprise and socialism. The protagonists of each system claim, with some truth, but each with a one-sided truth, that the other's system involves more dangers to peace. The one says, and with truth, that it is the association of governments with economic conflicts that makes them more than the quarrels of individuals and the possible origins of wars. He concludes that completely nationalized economic systems would represent the maximum of danger. He usually, however, fails to develop this argument to the extent of demanding that governments should refrain from assisting their nationals in their competition by tariffs, etc., and he usually ignores the extent to which large private interests control or deflect the policy of governments, so that the most dangerous combination of power without responsibility results. The socialist points with truth to the dangerous forces that arise from the intense conflict of economic interest, made powerful, but not responsible, by combination. Or he becomes doctrinaire and repeats, in one form or another, the particular reading of history which he has learnt from Marx or his interpreters. He rarely proceeds to consider coolly the sources of friction which remain between nationalized economies, and the special dangers that would arise when those who control economic activity also control the armed forces.

The fact is that there will be economic causes of conflict if there is socialism, and if there is not. There are dangers common to both systems; and each system has its own specific and different dangers from which the other is comparatively exempt. Our problem will be somewhat different according to the system, but it will remain in either case until we have a sufficient measure of world government.

Now this limited world government will (short of intervening chaos) be necessarily built up by a process of delegation from, and coöperation between, national governments. We must contemplate alike negotiation on actual controversies, the extended delegation of power to world organs by successive treaties, and also, for whatever at any moment has not reached this stage, an accepted code of principles of conduct which will govern the action of individual states or at least afford a criterion by which it is possible to judge whether they are, in any given action, behaving justifiably or not.

At present the machinery of world government is embryonic; the development. of regulative law by treaty fragmentary; the growth of an international morality or code of conduct very rudimentary.

Advance along the lines suggested requires as its foundation an objective, scientific, and dispassionate inquiry in every main sphere of economic and financial activity, to see what in fact are the dangerous tendencies, and by what methods or agreed principles of conduct the dangers can be averted or mitigated.

Mr. Staley, in this book, has undertaken just such a study, in one particular sphere, that of private foreign investments. He is not dealing with loans between governments (such as the war debts), or loans of private individuals to governments (such as the League of Nations loans), but with the investments of private individuals and corporations whether assisted by governments or not.

In my view, Mr. Staley has, within this necessarily limited but vitally important sphere, performed a public service of very great value. His investigations into actual conflicts are wide in scope and scientific in character. His classification and analysis are careful, balanced, and dispassionate. He has in my view presented the relation between the different factors, and the way in which they are interwoven, more accurately than any previous student in this sphere whose work I have seen. In particular he has graphically, and convincingly, depicted the way in which economic motives proper are converted into something much more dangerous when they are united, in a Minister's mind, with vague ideas of national power and prestige.

In the last part of his book Mr. Staley has proceeded from diagnosis to suggested remedies. In this sphere he necessarily leaves to some extent the rôle: of the scientific investigator, and expresses personally, as a citizen of the world, his own political convictions---though they are enriched and strengthened by his earlier investigations. His proposals are naturally more disputable than his inquiry into facts and his analysis of them. Personally, I am in entire agreement with him, as I have already indicated, in his main conclusion, that there is no ultimate satisfactory solution except in the development of world government. We should all of us have somewhat different views as to the exact methods and processes of the transition, and the exact form of the government which should result. Mr. Staley's suggestions are interesting, and though personally I should like to see them amplified and amended in some respects, his work as a whole entitles him to receive serious consideration for what he proposes.

In any case, whether we agree or not with his final proposals, Mr. Staley's examination of one sphere within which serious conflicts have arisen and are arising is of great value. I sincerely trust that he and others will work in the same way, and in the same spirit, in other spheres of inquiry. Questions of commercial policy, population, migration, loans to governments are among those which imperatively demand scientific and dispassionate inquiry---and (if it is not too much to hope for) some attention by Statesmen to the results.



Author's Preface

The aim of this book is to present an objective, documented study of the relationships between private investments and international politics, particularly in their bearing on international political friction. In few realms, as much of the previous writing on this subject shows, is it more tempting to begin with plausible hypotheses and then to erect them into soul-satisfying theoretical structures without the bother and the infinite labor demanded by constant verification through comparison with concrete data. This study tries hard to stick to what can be verified and proved. While it has no doctrinal axe to grind, its results may well give pause to those with whom it has become almost a fad to assume that private economic interests are the most important immediate causes of international political friction. Perhaps there has been too hearty acceptance of the doctrine that (in the words of George Bernard Shaw) "The wise man looks for the cause of war not in Nietzsche's gospel of the Will to Power, or Lord Roberts's far blunter gospel of the British Will to Conquer, but in the custom house." The case studies analyzed in this volume should be a challenge to some serious rethinking on the complex interrelations of economics and politics.

True enough, private investors abroad have sought to secure diplomatic aid for their projects, and their influence on diplomacy has at times brought conflict between governments. On the other hand, international friction over private investments has been a good deal more frequent and dangerous where private investments have been pressed into service as instruments, tools, of a larger political purpose which the investments themselves did not originate. Investments used in the service of naval and political strategy, colonial expansion, quests for national glory, and the like, have been more productive of international friction in the past than investments actuated solely by private profit motives. Not to be misunderstood, it must be added that these assertions refer only to the immediate, direct relations between investments and diplomacy, and therefore they are not an attack upon the "economic interpretation of history" in its broader form. It may still be true that the larger political purposes in the service of which private investments become most dangerous---expansionism, the strategy of power, etc.---are themselves the product of forces best described as "economic." Whether one prefers to look upon the political ideas of ruling statesmen as ultimately conditioned by their economic environment or not, it is important in any case not to have false notions about the direct interplay of private investment interest and national foreign policy. For example, one who would advocate close supervision by a national government over the private investments of its citizens abroad as a means of avoiding political friction would be acting on the theory (perhaps unstated) that trouble over investments usually arises because private-profit seekers drag their governments into conflict situations that the governments would like to avoid. That theory would be wrong and the policy would be unsuited to its purpose.

Part I of this book endeavors to analyze the relationships between the private foreign investments of citizens and the foreign policy of governments. It sets out to answer two questions: What are the various services which private investments abroad may perform in the interests of governmental policy? and What are the various services which government may perform in the interests of its citizens' private investments abroad? This portion of the work, in other words, explores the mutual services rendered by investment to diplomacy and by diplomacy to investment. The second portion of Part I turns to two questions which follow quite obviously on the first pair, namely: What are the methods whereby government officials and diplomats influence investors to act in ways helpful to national foreign policy? and What are the methods whereby investors influence government officials and diplomats to assist them in their quest for profits? That is, having noticed the reciprocal services which investments may perform for diplomacy and which diplomacy may perform for investments, attention is then devoted to the processes, the connecting links, through which the influence of each on the other is actually exerted.

Throughout Part I the analytical and descriptive passages are interspersed with concrete case material. Indeed, some of the chapters are simply case studies, inserted to illustrate, clarify, and support the conclusions stated in the analytical portions of the text.

Both the problem and the method of presentation are different in Parts II and III. There the questions to be answered are: What is the rôle of international private investment in the origin and development of international political friction and war? If one is interested in lessening the causes of war, what general policy, and what specific measures, can be recommended for dealing with the political problem of international private investments? Some concrete illustrative material appears in this section of the book, especially in the chapters which analyze the types of conflict that may arise between capital-exporting countries or between a capital-exporting and a capital-importing country, but for the most part it builds upon the factual background of Part I. It is dedicated to systematic analysis, presentation of conclusions, and the elaboration of these conclusions into (more or less) practical recommendations as to policy.

This research was begun in the fall of 1928 and has been carried on steadily, along with other occupations, since that time. It originated as a "Causes of War" project under the Social Science Research Committee of the University of Chicago. Much of the investigating was done in Europe from 1929 to 1931 during my two-year tenure of a Social Science Research Council fellowship. The actual writing has been accomplished and the study brought to completion in subsequent summer vacations and while teaching at the University of Chicago, with some delay due to a severe illness.

The original conception of the project is not altogether apparent in the completed work here offered, for a good deal of the methodological scaffolding has been torn away; a few words on this point are therefore appropriate. I began with the idea of discovering and comparing all instances in recent times (roughly, since 1880---the last half-century, that is) in which international private investments have either caused or been involved in political dispute between national states. The method was to go through the literature, good, bad, and indifferent, on causes of war, diplomatic history, economic imperialism, and the like, listing all the cases in which anyone alleged that private investments had been a factor in international political disputes. I also searched for cases which had not been previously mentioned. Then I undertook to study each of these cases, utilizing the results of previous investigations wherever competent research had already been done. In many instances, however, it was necessary to go to the primary sources for answers to at least some of my central questions.

The sources from which information on the political aspects of international private investments must be obtained ---when such information is obtainable at all---cover an extreme range, from any point of view, whether of reliability, form, accessibility, or completeness. I have made use, for example, of official diplomatic documents; memoirs and biographies of statesmen, diplomats, and business men; parliamentary inquiries and congressional hearings; newspaper files, archives of foreign offices and banks; reports of consuls and commercial attachés; reports of corporations to stockholders; court testimony and decisions; propaganda pamphlets and periodicals published by colonial societies, chambers of commerce, anti-imperialist leagues, and the like. Even the more or less casual accounts published in books of travel by explorers and others who happened along in out-of-the-way places where investment friction was brewing have occasionally been useful. In addition, some most illuminating evidence was gathered in personal interviews with statesmen and diplomats, active or retired business men, bankers, engineers, journalists, and others who have had direct knowledge of politico-financial affairs. Obviously, in view of the extremely scattered nature of such material and its immense volume (much chaff has to be threshed for very little wheat) it was impossible to make a thorough, first-hand study of every case where private investments have been related to political friction. My compromise was to learn something, even if at second hand, about every case, and to go deeply into a select group of them. These latter were chosen either because they seemed to have an especially important bearing on the problem of this research, or because they had never been studied before, making it necessary to investigate them from the bottom up.

The method, then, was that of historical case study, but not for the purpose of writing history or reporting case studies. Instead, all the individual investigations, which sometimes became quite detailed, were directed constantly toward finding the answers to general questions of the type stated above. Had the material been written up in the form in which it was collected, the chapters of this book would have been a series of case studies.---" Manchurian Railways and the Powers," "The United Fruit Company in Central America," "The Rumanian Oil Controversy," "Politics and Investments in Nicaragua," etc., etc. As it is, the actual chapters of this book are organized around a systematic analysis of problems and processes, with fragments of the case studies inserted at appropriate points to illustrate and substantiate the analysis, and with occasional complete case studies presented in condensed form for the same purpose. The whole argument, in short, is based on case studies and illustrated by them, but its form and purpose is systematic and analytical rather than historical.

Some of the more original and detailed individual studies made in preparation for this book have been published as separate articles. Thus it was possible to give a more adequate statement than would be permissible in a general work of the sources of the data, interesting circumstances connected with the cases, and reasons for interpreting conflicting evidence in certain ways. These studies, of which summaries are included at various points in Part I, are as follows:

"Mannesmann Mining Interests and the Franco-German Conflict over Morocco," Journal of Political Economy, XL (February, 1932), 52-72.

"Italy's Financial Stake in Albania," Foreign Policy Reports (published by the Foreign Policy Association), VIII, No. 7, (June 8, 1932), 80-86.

"Business and Politics in the Persian Gulf: The Story of the Wönckhaus Firm," Political Science Quarterly, XLVIII (September, 1933), 367-385.

"Private Investments and International Politics in the Saar, 1919-20: A Study of Politico-Economic 'Penetration' in a Post-War Plebiscite Area," Journal of Political Economy, XLI (October, 1933).

"Private Investments and the Conquest of Tunis," manuscript as yet unpublished.

"Chartered Companies," manuscript as yet unpublished.

It is a pleasure to acknowledge here the great obligation which this work, and its author personally, owes to Professor Jacob Viner of the University of Chicago, who provided the original stimulus to this research and contributed valuable suggestions and criticisms during the course of its prosecution. First as a teacher of economic theory and international economic relations, later as a colleague and friend, Professor Viner's counsel in this field has been invaluable. Professor Quincy Wright, chairman of the committee in charge of causes of war research at the University of Chicago, has aided from the first in many ways, and has been most kind in reading and criticizing large sections of the manuscript. Other members of the Division of the Social Sciences at the University of Chicago who have obligingly read parts of the manuscript and given the benefit of their reactions are Professors Harold D. Lasswell, Melchior Palyi, and Harry D. Gideonse. Mr. W. B. Harvey has assisted skillfully in collecting and checking material.

To the many other people in Europe and the United States who have facilitated this work by information supplied in personal interviews, by putting me in contact with persons and sources of information, by advice, discussion, criticism, and by friendliness and hospitality during my sojourn in different localities, I offer a general word of thanks. Their helpfulness is sincerely appreciated, though the very great amount of such aid received over a period of more than five years renders individual acknowledgement impossible here. For courteous service to a reader whose topic demanded that he turn over masses of the most miscellaneous books and documents, I am grateful to librarians and their staffs at the University of Chicago, the Library of Congress (Washington), the League of Nations Secrétariat (Geneva), the Bibliothèque Nationale, and the libraries of the Ministry of Colonies and the Ministry of Commerce (Paris), the Staatsbibliothek and the library of the Foreign Office (Berlin), the British Museum and the library of the London School of Economics (London), and the Institut für Weltwirtschaft und Seeverkehr (Kiel). The pleasant working facilities at the latter institution, the high caliber of the staff (before the National Socialist revolution), and the splendidly organized library and archives devoted to the special field of international economic questions rendered my stay of seven months there particularly productive.

This project received financial support from the Social Science Research Council, in the form of a traveling fellowship which enabled its author to work in Europe, and from the Social Science Research Committee at the University of Chicago.




Foreword by Professor Quincy Wright

Introduction by Sir Arthur Salter

Author's Preface


Chapter 1. Amounts and Types of International Investment

Chapter 2. Investments Entangled in Politics: The German Private Debts; The Story of the Wönckhaus Firm




Chapter 3. Type Cases: Yalu, Tripoli

Chapter 4. How Investments Serve Diplomacy


Chapter 5. Type Cases: Samoa, Episodes from Persia. Venezuela, Haiti, Mexico

Chapter 6. How Diplomacy Serves Investments


Chapter 7. Type Cases: Mannesmanns and Morocco; Rhodes and the Jameson Raid

Chapter 8. How Investors Influence Their Governments


Chapter 9. Type Cases: Albania, The Saar

Chapter 10. How Governments Influence Their Investors


Chapter 11. Modern Chartered Companies

Chapter 12. The Conquest of Tunis




Chapter 13. Conditions Under Which Investments Are Most Frequently Involved in Political Friction

Chapter 14. Potential Conflicts Between Capital-Importing and Capital-Exporting Countries

Chapter 15. Potential Conflicts Between Capital-Exporting Countries


Chapter 16. The Failure of Diplomatic Protection

Chapter 17. Underlying Causes of Investment Friction



Chapter 18. Alternative Courses of Action

Chapter 19. Specific Suggestions


A. Numerical Data and Sources for the Charts of Chapter 1

B. Legal Aspects of Certain Proposals in Chapter 19

Chapter One