Conant, Monetary Imperialism and the Gold Exchange Standard
The leap into political imperialism by the United States in the late 1890s was accompanied
by economic imperialism, and one key to economic imperialism was monetary imperialism.
In brief, the developed Western countries by this time were on the gold standard, while
While most of the third world nations were on the silver standard, for the past several
decades the value of silver in relation to gold had been steadily falling due to one,
an increasing world supply of silver relative to gold, and two, the subsequent shift of
many western nations from silver or bimetallism to gold, thereby lowering the world's demand
for silver as a monetary metal.
The fall of silver value meant monetary depreciation and inflation in the third world, and it would
have been a reasonable policy to shift from a silver coin to a gold coin standard.
But the new imperialists among U.S. bankers, economists and politicians were far less interested
in the welfare of third world countries than in foisting a monetary imperialism upon them.
For not only would the economies of the imperial center and the client states then be tied
together, but they would be tied in such a way that these economies could pyramid their
own monetary and bank credit inflation on top of inflation in the United States.
Hence, what the new imperialists set out to do was to pressure or coerce third world countries
countries to adopt not a genuine gold coin standard, but a newly conceived gold exchange
or dollar standard.
Instead of silver currency fluctuating freely in terms of gold, the silver gold rate would
then be fixed by arbitrary government price fixing.
The silver countries would be silver in name only, a country's monetary reserve would
In that way, if U.S. banks inflated their credits, there would be no danger of losing
gold abroad, as would happen under a genuine gold standard.
For under a true gold standard, no one and no country would be interested in piling up
Bankers and economists were all too aware, after many decades of experience of the fallacies
and evils of bimetalism, they were willing to impose a form of bimetalism upon client
states in order to tie them into U.S. economic imperialism and to pressure them into inflating
The United States first confronted the problem of silver currencies in a third world country
when it seized control of Puerto Rico from Spain in 1898 and occupied it as a permanent
colony.
Fortunately for the imperialists, Puerto Rico was already ripe for currency manipulation.
Only three years earlier, in 1895, Spain had destroyed the full-bodied Mexican silver currency
that its colony had previously enjoyed and replaced it with a heavily debased silver
dollar, worth only 41 cents in U.S. currency.
The Spanish government had pocketed the large senior-age profits from that debasement.
The United States was therefore easily able to substitute its own debased silver dollar,
Worth only 45.6 cents in gold.
Thus, the United States silver currency replaced an even more debased one and also the Puerto
Ricans had no tradition of loyalty to a currency only recently imposed by the Spaniards.
There was therefore little or no opposition in Puerto Rico to the US monetary takeover.
The major controversial question was what exchange rate the American authorities would
would fix between the two debased coins, the old Puerto Rican silver peso and the U.S.
silver dollar.
This was the rate at which the U.S. authorities would compel the Puerto Ricans to exchange
their existing coinage for the new American coins.
The treasurer in charge of the currency reform for the U.S. government was the prominent
Johns Hopkins economist Jacob H. Hollander, who had been special commissioner to revise
as Puerto Rican Tax Laws and who is one of the new breed of academic economists repudiating
laissez-faire for comprehensive statism.
The heavy debtors in Puerto Rico, mainly the large sugar planters, naturally wanted to
pay their peso obligations at as cheap a rate as possible.
They lobbied for a peso worth 50 cents American.
In contrast, the Puerto Rican banker creditors wanted the rate fixed at 75 cents.
Since the exchange rate was arbitrary anyway, Hollander and the other American officials
decided in the time-honored way of governments, more or less splitting the difference and
fixing a peso equal to 60 cents.
The Philippines, the other Spanish colony grabbed by the United States, posed a far
more difficult problem.
As in most of the Far East, the Philippines was happily using a perfectly sound silver
currency, the Mexican silver dollar.
But the United States was anxious for a rapid reform because its large armed forces establishment
suppressing Filipino nationalism required heavy expenses in US dollars, which it of
course declared to be legal tender for payments.
Since the Mexican silver coin was also legal tender and was cheaper than the US gold dollar,
The U.S. military occupation found its revenues being paid in unwanted and cheaper Mexican
coins.
Delicacy was required and in 1901, for the task of currency takeover, the Bureau of Insular
Affairs, or BIA, of the War Department, the agency running the U.S. occupation of the
Philippines, hired Charles A. Conant.
Secretary of War Elihu Root was a redoubtable Wall Street lawyer in the Morgan ambit who
sometimes served as JP Morgan's personal attorney.
Root took a personal hand in sending Conant to the Philippines.
Conant, fresh from the Indianapolis Monetary Commission and before going to New York as
a leading investment banker, was, as might be expected, an ardent gold exchange standard
Imperialist, as well as the leading theoretician of economic imperialism.
Realizing that the Filipino people loved their silver coins, Conant devised a way to impose
a gold U.S. dollar currency upon the country.
Under his cunning plan, the Filipinos would continue to have a silver currency, but replacing
the full-bodied Mexican silver coin would be an American silver coin tied to gold at
at a debased value far less than the market exchange value of silver in terms of gold.
In this imposed, debased bimetallism, since the silver coin was deliberately overvalued
in relation to gold by the US government, Gresham's law inexorably went into effect.
The overvalued silver would keep circulating in the Philippines, and undervalued gold would
be kept sharply out of circulation.
The seniorage profit that the Treasury would reap from the debasement would be happily
deposited at a New York bank, which would then function as a, quote, reserve for the
U.S. silver currency in the Philippines.
Thus, the New York funds would be used for payment outside the Philippines instead of
as coin or specie.
Moreover, the U.S. government could issue paper dollars based on its new reserve fund.
It should be noted that Conant originated the gold exchange scheme as a way of exploiting
and controlling third world economies based on silver.
At the same time, Great Britain was introducing similar schemes in its colonial areas in Egypt,
in strait settlements in Asia, and particularly in India.
Congress, however, pressured by the silver lobby, balked at the BIA's plan.
And so the BIA again turned to the seasoned public relations and lobbying skills of Charles
A. Conant.
Conant swung into action.
Meeting with editors of the top financial journals, he secured their promises to write
editorials pushing for the Conant plan, many of which he obligingly wrote himself.
He was already backed by the American banks of Manila.
Recalcitrant U.S. bankers were warned by Conant that they could no longer expect large government
Deposits from the War Departments if they continue to oppose the plan.
Furthermore, Conant won the support of the major enemies of his plan, the American silver
companies and pro-silver bankers, promising them that if the Philippine currency reform
went through, the federal government would buy silver for the new U.S. coinage in the
Philippines from these same companies.
Finally, the tireless lobbying and the mixture of bribery and threats by Conant paid off.
Congress passed the Philippine Currency Bill in March 1903.
In the Philippines, however, the United States could not simply duplicate the Puerto Rican
example and coerce the conversion of the old for the new silver coinage.
The Mexican silver coin was a dominant coin not only in the Far East but throughout the
world and the coerced conversion would have been endless.
The U.S. tried, it removed the legal tender privilege from the Mexican coins and decreed
the new U.S. coins be used for taxes, government salaries and other government payments.
But this time the Filipinos happily used the old Mexican coins as money while the U.S.
silver coins disappeared from circulation into payment of taxes and transactions to
the United States.
The War Department was beside itself.
How could it drive Mexican silver coinage out of the Philippines?
In desperation, it turned to the indefatigable Conant.
But Conant couldn't join the colonial government in the Philippines because he had just been
appointed to a more far-flung presidential commission on international exchange for
pressuring Mexico and China to go on a similar gold exchange standard.
Hollander, fresh from his Puerto Rican triumph, was ill.
Who else?
Conant, Hollander, and several leading bankers told the War Department they could recommend
no one for the job, so new was the profession of technical expertise in monetary imperialism.
But there was one more hope, the other pro-cartalist and financial imperialist, Cornell's Jeremiah
W. Jenks, a fellow member with Conant of President Roosevelt's new Commission on International
General Exchange, or CIE.
Jencks had already paved the way for Conant by visiting English and Dutch colonies in
the Far East in 1901 to gain information about running the Philippines.
Jencks finally came up with a name, his former graduate student at Cornell, Edwin W. Kemmerer.
Young Kemmerer went to the Philippines from 1903 to 1906 to implement the Conant Plan.
Based on the theories of Jencks and Conant and on his own experience in the Philippines,
Kemmerer went on to teach at Cornell and then at Princeton and gained fame throughout the
1920s as the quote, money doctor, busily imposing the gold exchange standard on country after
country abroad.
Relying on Conant's behind the scenes advice, Kemmerer and his associates finally came out
with a successful scheme to drive out the Mexican silver coins.
It was a plan that relied heavily on government coercion.
The United States imposed a legal prohibition on the importation of the Mexican coins, followed
by severe taxes on any private Philippine transactions daring to use the Mexican currency.
Luckily for the planners, their scheme was aided by a large-scale demand at the time
for Mexican silver in northern China, which absorbed silver from the Philippines or that
that would have been smuggled into the islands.
The US success was aided by the fact that the new US silver coins, perceptively called
quote, conants, by the Filipinos, were made up to look very much like the cherished old
Mexican coins.
By 1905, force, luck and trickery had prevailed and the conants, worth 50 cents in US money,
were the dominant currency in the Philippines.
Soon, the U.S. authorities were confident enough to add token copper coins and paper
conants as well.
By 1903, the currency reformers felt emboldened enough to move against the Mexican silver
dollar throughout the world.
In Mexico itself, U.S. industrialists, who wanted to invest there, pressured the Mexicans
to shift from silver to gold, and they found an ally in Mexico's powerful finance minister,
José Le Montour.
But tackling the Mexican silver peso at home would not be an easy task, for the coin was
known and used throughout the world, particularly in China, where it formed the bulk of the
circulating coinage.
Finally, after three-way talks between United States, Mexican and Chinese officials, the
Mexicans and Chinese were induced to send identical notes to the U.S. Secretary of State,
urging the United States to appoint financial advisors to bring about currency reform and
stabilized exchange rates with the gold countries.
These requests gave President Roosevelt, upon securing congressional approval, the excuse
to appoint, in March 1903, a three-man commission on international exchange to bring about currency
reform in Mexico, China and the rest of the silver-using world.
The aim was to bring about a fixed relationship between the monies of the gold standard countries
and the present silver-using countries, in order to foster export trade and investment
opportunities in the gold countries and economic development in the silver countries.
The three members of the CIE were old friends and like-minded colleagues.
Chairman was Hugh H. Hanna of the Indianapolis Monetary Commission.
The others were his former chief aide at that commission, Charles A. Conantz, and Professor
Jeremiah W. Jenks.
Conantz, as usual, was the major theoretician and finagler.
He realized that major opposition to Mexico's and China's going off silver would come from
the important Mexican silver industry, and he devised the scheme to get European countries
to purchase large amounts of Mexican silver to ease the pain of the shift.
In a trip to European nations in the summer of 1903, however, Conant and the CIE found
the Europeans less than enthusiastic about making Mexican silver purchases as well as
subsidizing US exports and investments in China, a land whose market they too were coveting.
In the United States, on the other hand, major newspapers and financial periodicals, prodded
by Conan's Public Relations work warmly endorsed the new currency scheme.
In the meanwhile, however, the United States faced similar currency problems in its two
new Caribbean protectorates, Cuba and Panama.
Panama was easy.
The United States occupied the canal zone and would be importing vast amounts of equipment
to build the canal, so it decided to impose the American gold dollar as the currency in
and the nominally independent Republic of Panama.
While the gold dollar was the official currency of Panama, the United States imposed as the
actual medium of exchange a new debased silver peso worth 50 cents.
Fortunately, the new peso was almost the same in value as the old Colombian silver coin
it forcibly displaced, and so, like Puerto Rico, the takeover could go without a hitch.
During the U.S. colonies or protectorates, Cuba proved the toughest nut to crack.
Despite all of Conant's administrations, Cuba's currency remained unreformed.
Spanish gold and silver coins, French coins and U.S. currency all circulated side by side,
freely fluctuating in response to supply and demand.
Furthermore, similar to the pre-reformed Philippines, a fixed bimetallic exchange rate between
in the cheaper U.S. and the more valuable Spanish and French coins led the Cubans to
return cheaper U.S. coins to the U.S. customs authorities in fees and revenues.
Why then did Conant fail in Cuba?
In the first place, strong Cuban nationalism resented U.S. plans for seizing control of
their currency.
Conant's repeated request in 1903 for a Cuban invitation for the CIE to visit the island
met stern rejections from the Cuban government.
Moreover, the characteristic US military commander in Cuba, Leonard Wood, wanted to avoid giving
the Cubans the impression that plans were afoot to reduce Cuba to colonial status.
The second objection was economic.
The powerful sugar industry in Cuba depended on exports to the United States, and a shift
A shift from depreciated silver to higher valued gold money would increase the cost of sugar
exports by an amount Leonard Wood estimated to be about 20%.
While the same problem had existed for the sugar planters in Puerto Rico, American economic
interests in Puerto Rico and in other countries such as the Philippines favored forcing formerly
In Cuba, on the other hand, there was increasing U.S. investment capital pouring into the Cuban
sugar plantations, so that powerful and even dominant U.S. economic interests existed on
the other side of the currency reform question.
Indeed, by World War I, American investments in Cuban sugar reached the sum of $95 million.
Thus, when Charles Conant resumed his pressure for a Cuban gold exchange standard in 1907,
he was strongly opposed by the U.S. governor of Cuba, Charles Magoon, who raised the problem
of a gold-based standard crippling the sugar planters.
The CIE never managed to visit Cuba and, ironically, Charles Conant died in Cuba in 1915 trying
in vain to convince the Cubans of the virtues of the gold exchange standard.
The Mexican shift from silver to gold was more gratifying to Conant, but here the reform
was affected by Foreign Minister LeMonteur and his indigenous technicians, with the CIE
taking a back seat.
However, the success of this shift in the Mexican Currency Reform Act of 1905 was assured
by a world rise in the price of silver starting the following year, which made gold coins
cheaper than silver, with Gresham's Law bringing about a successful gold coin currency in Mexico.
But the U.S. silver coinage in the Philippines ran into trouble because of the rise in the
world silver price.
Here, the U.S. silver currency in the Philippines was bailed out by coordinated action by the
Mexican government, which sold silver in the Philippines to lower the value of silver sufficiently
so that the Conants could be brought back into circulation.
The big failure of Conant's CIE monetary imperialism was in China.
In 1900, Britain, Japan and the United States intervened in China to put down the Boxer
Rebellion.
The three countries thereupon forced defeated China to agree to pay them, and all major
European powers, an indemnity of $333 million.
The United States interpreted the treaty as an obligation to pay in gold, but China, on
a depreciated silver standard, began to pay in silver in 1903, an action that enraged
the three treaty powers.
The US minister to China reported that Britain might declare China's payment in silver
a violation of the treaty, which would presage military intervention.
Emboldened by United States success in the Philippines, Panama, and Mexico, Secretary
of War Ruth sent Jeremiah W. Jenks on a mission to China in early 1904 to try to transform
China from a silver to a gold exchange standard.
Jencks also wrote to President Roosevelt from China, urging that the Chinese indemnity to
the United States from the Boxer Rebellion be used to fund exchange professorships for
30 years.
Jencks' mission, however, was a total failure.
The Chinese understood the CIE currency scheme all too well.
They saw and denounced the seniorage of the gold exchange standard as an irresponsible
and immoral debasement of Chinese currency, an act that would impoverish China while adding
to the profits of U.S. banks where seniorage reserve funds would be deposited.
Moreover, the Chinese officials saw that shifting the indemnity from silver to gold would enrich
the European governments at the expense of the Chinese economy.
They also noted that the CIE scheme would establish a foreign controller of the Chinese
Chinese currency to impose banking regulations and economic reforms on the Chinese economy.
We need not wonder at the Chinese outrage.
China's reaction was its own nationalistic currency reform in 1905 to replace the Mexican
silver coin with a new Chinese silver coin, the tail.
Jenks' ignominious failure in China put an end to any formal role for the Commission
on International Exchange.
An immediately following fiasco blocked the US government's use of economic and financial
advisors to spread the gold exchange standard abroad.
In 1905, the State Department hired Jacob Hollander to move another of its Latin American
client states, the Dominican Republic, onto the gold exchange standard.
When Hollander accomplished this task by the end of the year, the State Department asked
The Dominican government to hire Hollander to work out a plan for financial reform, including
a U.S. loan and a custom service run by the United States to collect taxes for repayments
of the loan.
Hollander, son-in-law of prominent Baltimore merchant Abraham Hutzler, used his connection
with Kuhn-Lebb & Company to place Dominican bonds with that investment bank.
Hollander also engaged happily in double-dipping for the same work, collecting fees for the
same job from the State Department and from the Dominican government.
When this Picadillo was discovered in 1911, the scandal made it impossible for the U.S.
government to use its own employees and its own funds to push for gold exchange experts
abroad.
From then on, there was more of a public-private partnership between the U.S. government and
and the investment bankers, with the bankers supplying their own funds and the State Department
supplying goodwill and more concrete resources.
Thus, in 1911 and 1912, the United States, over great opposition, imposed a gold exchange
standard on Nicaragua.
The State Department formally stepped aside but approved Charles Conant's hiring by
the powerful investment banking firm of Brown Brothers to bring about a loan and the currency
Reform.
The State Department lent not only its approval to the project, but also its official wires
for Conant and Brown Brothers to conduct the negotiations with the Nicaraguan government.
By the time he died in Cuba in 1915, Charles Conant had made himself the chief theoretician
and practitioner of the gold exchange and the economic imperialist movements.
Aside from his successes in the Philippines, Panama and Mexico, and his failures in Cuba
and China, Conant led in pushing for gold exchange reform and gold dollar imperialism
in Liberia, Bolivia, Guatemala and Honduras.
His magnum opus in favor of the gold exchange standard, the two volume, The Principles of
of Money and Banking in 1905 as well as his path-breaking success in the Philippines was
followed by a myriad of books, articles, pamphlets and editorials always backed up by his personal
propaganda efforts.
Particularly interesting were Conan's arguments in favor of a gold exchange standard rather
than a genuine gold coin standard.
A straight gold coin standard, Conant believed, did not provide a sufficient amount of gold
to provide for the world's monetary needs.
Hence, by tying the existing silver standard in the undeveloped countries to gold, the
quote, shortage of gold could be overcome, and also the economies of the undeveloped
countries could be integrated into those of the dominant imperial power.
All this could only be done if the gold exchange standard were, quote, designed and implemented
by careful government policy, end quote.
But of course, Conan himself and his friends and disciples always stood ready to advise
and provide such implementation.
In addition, adopting a government-managed gold exchange standard was superior to either
genuine gold or bimetallism because it left each state the flexibility of adapting its
Currency to Local Needs As Conan asserted, It leaves each state free
to choose the means of exchange which conform best to its local conditions.
Rich nations are free to choose gold, nations less rich silver, and those whose financial
methods are most advanced are free to choose paper.
It is interesting that for Conant, paper was the most, quote, advanced form of money.
It is clear that the devotion to the gold standard of Conant and his colleagues was
only to a debased and inflationary standard, controlled and manipulated by the US government,
with gold really serving as a facade of allegedly hard money.
And one of the critical forms of government manipulation and control in Conant's proposed
System was the existence and active functioning of a central bank.
As a founder of the quote, science of financial advising to governments, Conant, followed
by his colleagues and disciples, not only pushed a gold exchange standard wherever he
could do so, but also advocated a central bank to manage and control that standard.
As Emily Rosenberg points out,
Conant thus did not neglect one of the major revolutionary changes implicit in his system,
a new important role for a central bank as a currency stabilizer.
Conant strongly supported the American banking reform that culminated in the Federal Reserve
system and American financial advisors who followed Conant would spread central banking
Banking Systems, along with gold standard currency reforms to the countries they advised.
Along with a managed gold exchange standard would come, as replacement for the old free
trade non-managed gold coin standard, a world of imperial currency blocks, which would necessarily
come into being as lesser countries deposited their gold stabilization funds in the banking
New York and London banks, in particular, shaped up as the major reserve fund holders
in the developing new world monetary order.
It is no accident that the United States' major financial and imperial rival, Great
Britain, which was pioneering in imposing gold exchange standards in its own colonial
and the Federal Area at this time built upon this experience to impose a gold exchange standard marked by all European currencies
pyramiding on top of British inflation during the 1920s.
That disastrous inflationary experiment led straight to the worldwide banking crash and the general shift to fiat paper monies in the early 1930s.
After World War II, the United States took up the torch of a world gold exchange standard at Bretton Woods, with the dollar replacing the pound sterling in a worldwide inflationary system that lasted approximately 25 years.
Nor should it be thought that Charles A. Conant was the purely disinterested scientist he claimed to be. His currency reforms directly benefited his investment banker employers.
Thus, Conant was treasurer, from 1902 to 1906, of the Morgan-run Morton Trust Company of
New York, and it was surely no coincidence that Morton Trust was the bank that held the
reserve funds for the governments of the Philippines, Panama, and the Dominican Republic, after
their respective currency reforms.
In the Nicaragua negotiations, Conant was employed by the investment bank of Brown Brothers,
and in pressuring other countries he was working for Spire & Company and other investment bankers.
After Conan died in 1915, there were few to pick up the mantle of foreign financial advising.
Hollander was in disgrace after the Dominican debacle.
Jenks was aging and lived in the shadow of his China failure, but the State Department
did appoint Jenks to serve as a director of the Nicaraguan National Bank in 1917 and also
Also hired him to study the Nicaraguan financial picture in 1925.
But the true successor of Conant was Edwin W. Kemmerer, the, quote, money doctor.
After his Philippine experience, Kemmerer joined his old professor Jenks at Cornell
and then moved to Princeton in 1912, publishing his book, Modern Currency Reforms, in 1916.
As the leading foreign financial advisor of the 1920s, Kammerer not only imposed central
banks and a gold exchange standard on third world countries, but he also got them to levy
higher taxes.
Kammerer, too, combined his public employment with service to leading international bankers.
During the 1920s, Kammerer worked as banking expert for the U.S. Government's Dawes Commission,
headed special financial advisory missions to more than a dozen countries, and was kept
on a handsome retainer by the distinguished investment banking firm of Dylan Reed from
1922 to 1929.
In that era, Kemmerer and his mentor Jencks were the only foreign currency reform experts
available for advising.
In the late 1920s, Kemmerer helped establish a chair of international economics at Princeton,
which he occupied, and from which he could train students like Arthur N. Young and William
W. Cumberland.
In the mid-1920s, the Money Doctor served as president of the American Economic Association.