From boom to bust

While Americans rejected permanent foreign entanglements in the form of the League of Nations, the United States continued to expand its economic influence throughout the globe. Statistics tell much of the story.

Perhaps most impressive was the fact that this economic expansion was not restricted to any one region in the world. Rubber plantations in Malaya, copper mines in Chile, electric and car companies in Germany, oil companies in the

Middle East and financial investment in England were all part of the American economic expansion of the 1920s. Indeed, the prosperity that characterized the popular image of the ‘roaring twenties' in the United States was in part made possible by this unprecedented economic thrust abroad.

Such economic influence did not come without its problems. For example, throughout the 1920s the United States found itself facing external resentment against its own selective use of the ‘open door' policy. Effectively it meant that the United States was able to practise a ‘closed door' policy in Latin America while preaching an ‘open door' principle in Asia (where American companies faced stiff competition). Other countries retaliated by imposing higher tariffs on American products in the late 1920s and early 1930s. They could not have come at a worse time.

Because of its dominant position in the world economy in the 1920s, the Great Depression that hit the United States in 1929 wreaked havoc throughout the world. One often-cited barometer is the mere fact that between 1929 and 1933 the value of world trade declined by about 40 per cent. American exports alone went down from $5.4 billion to $2.1 billion in the same period, while annual external investment slumped by a quarter. This, as well as the political problems that the Depression caused or exacerbated in Europe and Asia, played a major role on the road towards the Second World War. In the United States itself, the Great Depression destroyed the credibility of the Republicans, and allowed Franklin Roosevelt to defeat Herbert Hoover in the 1932 presidential election.

see Chapters 3 and 7

During this boom-and-bust period Latin America was the region in which the economic influence of the United States was most apparent. In Honduras, for example, the United Fruit Company and Standard Fruit Company controlled most of the country's revenue. In Cuba, American companies accounted for approximately two-thirds of sugar production and hence held a stranglehold over the island's economic life, while in Venezuela they produced about half of the country's oil. Moreover, American firms could effectively shape the health of the Chilean economy as a result of their ability to determine the price of copper, Chile's chief export.

Such dominance was, in fact, commonplace throughout Latin America where American private investment almost tripled in the 1920s. In the same period Latin America accounted for about 20 per cent of the total of American exports, while Latin American export markets were far less diversified; Nicaragua, for example, shipped more than 90 per cent of its exports to the United States. In short, Latin America became increasingly dependent on the United States as a source of investment and markets. Unfortunately the profits from this economic activity rarely reached more than a small number of Latin Americans, causing heightened complaints about American domination and imperialism in the 1920s and 1930s. Indeed, with anti-Americanism on the rise, there was a need in Washington to reassess American policy in the Western Hemisphere. Yet there seemed to be no easy replacement for gunboat diplomacy and strict application of the Monroe Doctrine and its various amendments and corollaries.