Back To CourseSocial Studies: Lesson Plans & Games
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Chris has a master's degree in history and teaches at the University of Northern Colorado.
What defines the international power of a nation? The size of its empire? The strength of its military? How about the reach of its banks? In foreign policy, there are many forms of diplomacy. One of these, in which a nation attempts to increase its international influence through its large economy, is called dollar diplomacy. You may have heard people say that a dollar used to go a lot further back in the day. Dollar diplomacy was all about seeing just how far that dollar could go, and bringing American influence with it.
To understand dollar diplomacy in American history, we need a little background. In the very early 20th century, a man named Theodore Roosevelt became president of the United States. You may have heard of him. Roosevelt believed that the United States needed a stronger international presence. Eighty years earlier, the U.S. had issued the Monroe Doctrine, stating that it would not tolerate European invasion of any nation in the Western Hemisphere. In 1904, Roosevelt amended this with the Roosevelt Corollary, stating that the U.S. had the right to directly interfere in any Western Hemispheric nation in order to protect it from the threat of European invasion.
Basically, what this meant was that the United States would justify sending its military across Latin America any time we became concerned that nations were becoming unstable. An unstable nation was prone to invasion, so our military could go stabilize it. At the same time, American business owners and investors could pour money into those economies, keeping the nations strong and very much connected to American economic interests.
Roosevelt advocated a strong foreign presence that was closely tied to American overseas business interests. However, this wasn't true dollar diplomacy. That next step came with Roosevelt's successor, William Howard Taft (1909-1913). Taft built upon Roosevelt's foreign policy, but took it a little further. Along with his Secretary of State, Philander Knox, he actively encouraged private American businesses and banks to put their money into foreign markets as a way to increase America's international presence. Our foreign policy, our statement of our place in the world, would not come from the government or the military, but from private businesses.
This was a very different approach to American foreign policy. Private businesses are not elected by the people, and are not therefore accountable to the people. They do not need permission from Congress or the Supreme Court to conduct their business. This was an indirect way for America to increase its foreign influence without ever directly stating as a governmental policy that we were going to take over markets in places of strategic value, such as Latin America, China, or Panama.
So was this a purely manipulative venture? No. Taft believed that creating American-controlled foreign markets protected those markets from European empires, which could attempt to colonize smaller nations. Additionally, American-controlled markets could then be used to open up friendlier and more cooperative diplomatic relationships between the United States and foreign governments. At the end of the day, dollar diplomacy was focused on just that: diplomacy.
The main focus of both Roosevelt's and Taft's foreign policies were on the Western Hemisphere, particularly Latin America and the Caribbean. The Caribbean in particular was an area of great attention. A lot of the world trade went through the Caribbean, but it was politically and economically unstable. American officials spread throughout the Caribbean to advise them on economic reforms. In a few cases, as in the Dominican Republic, the American government actually seized customs houses of foreign nations and controlled the money coming in and leaving the nation. At the same time, private American business investors poured money into poor nations like Haiti, trying to stabilize the local economy and government while also securing their place in Caribbean markets. While these policies helped stabilize some parts of the Caribbean, the policies also built up lots of resentment amongst Caribbean peoples who had not asked for help nor expressly given America permission to interfere in their economies.
Another place that dollar diplomacy was put into action was in China. China's Manchuria region was developing a large railroad, primarily controlled by Japanese and Russian investors. Taft worried that America would lose its economic relationship with China once the railroad was completed. He and Knox tried to broker a deal between private American investors and the Russian and Japanese governments, offering to buy the railroads. It's important to note Taft's goal was not for the U.S. government to buy the railroad. He was trying to get private American industrialists to do it with the ultimate goal of eventually having them transfer it back to the Chinese government, prevent Japan and Russia from taking over the Chinese economy, and building diplomatic ties with China. This sale would eventually fall apart, but Taft still managed to get a hold in Chinese markets by offering China a massive loan to help stimulate its economy.
When Taft was replaced by president Woodrow Wilson, America started to back away from dollar diplomacy. Wilson felt that this policy was potentially manipulative and hurt America's international reputation. He pursued different means of diplomacy, but the legacies of Taft's dollar diplomacy lived on and the American government and military stayed heavily involved in places like Panama, Haiti, and Nicaragua. The dollar ended up stretching pretty far across the hemisphere, forcing American involvement for years to come.
Dollar diplomacy was a tool of U.S. president William Howard Taft (1909-1913) and his secretary of state, Philander Knox. The idea was that American economic strength could be a diplomatic tool by influencing foreign markets. This idea built upon the Monroe Doctrine and the Roosevelt Corollary, both of which justified American intervention across the Western Hemisphere in terms of stabilizing other nations. Dollar diplomacy also required close cooperation between the federal government and private businesses, industrialists, and investors. While it was mostly focused on Latin America and the Caribbean, dollar diplomacy was used to expand American influence in China as well. If American influence could come from economic strength, then Taft's goal was to see just how far the American dollar could go.
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Back To CourseSocial Studies: Lesson Plans & Games
11 chapters | 239 lessons
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