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NOTE 36. Conant, Monetary Imperialism, and the Gold-Exchange Standard

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Conant, Monetary Imperialism and the Gold Exchange Standard

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The leap into political imperialism by the United States in the late 1890s was accompanied

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by economic imperialism, and one key to economic imperialism was monetary imperialism.

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In brief, the developed Western countries by this time were on the gold standard, while

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While most of the third world nations were on the silver standard, for the past several

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decades the value of silver in relation to gold had been steadily falling due to one,

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an increasing world supply of silver relative to gold, and two, the subsequent shift of

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many western nations from silver or bimetallism to gold, thereby lowering the world's demand

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for silver as a monetary metal.

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The fall of silver value meant monetary depreciation and inflation in the third world, and it would

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have been a reasonable policy to shift from a silver coin to a gold coin standard.

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But the new imperialists among U.S. bankers, economists and politicians were far less interested

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in the welfare of third world countries than in foisting a monetary imperialism upon them.

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For not only would the economies of the imperial center and the client states then be tied

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together, but they would be tied in such a way that these economies could pyramid their

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own monetary and bank credit inflation on top of inflation in the United States.

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Hence, what the new imperialists set out to do was to pressure or coerce third world countries

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countries to adopt not a genuine gold coin standard, but a newly conceived gold exchange

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or dollar standard.

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Instead of silver currency fluctuating freely in terms of gold, the silver gold rate would

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then be fixed by arbitrary government price fixing.

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The silver countries would be silver in name only, a country's monetary reserve would

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In that way, if U.S. banks inflated their credits, there would be no danger of losing

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gold abroad, as would happen under a genuine gold standard.

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For under a true gold standard, no one and no country would be interested in piling up

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Bankers and economists were all too aware, after many decades of experience of the fallacies

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and evils of bimetalism, they were willing to impose a form of bimetalism upon client

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states in order to tie them into U.S. economic imperialism and to pressure them into inflating

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The United States first confronted the problem of silver currencies in a third world country

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when it seized control of Puerto Rico from Spain in 1898 and occupied it as a permanent

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colony.

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Fortunately for the imperialists, Puerto Rico was already ripe for currency manipulation.

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Only three years earlier, in 1895, Spain had destroyed the full-bodied Mexican silver currency

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that its colony had previously enjoyed and replaced it with a heavily debased silver

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dollar, worth only 41 cents in U.S. currency.

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The Spanish government had pocketed the large senior-age profits from that debasement.

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The United States was therefore easily able to substitute its own debased silver dollar,

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Worth only 45.6 cents in gold.

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Thus, the United States silver currency replaced an even more debased one and also the Puerto

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Ricans had no tradition of loyalty to a currency only recently imposed by the Spaniards.

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There was therefore little or no opposition in Puerto Rico to the US monetary takeover.

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The major controversial question was what exchange rate the American authorities would

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would fix between the two debased coins, the old Puerto Rican silver peso and the U.S.

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silver dollar.

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This was the rate at which the U.S. authorities would compel the Puerto Ricans to exchange

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their existing coinage for the new American coins.

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The treasurer in charge of the currency reform for the U.S. government was the prominent

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Johns Hopkins economist Jacob H. Hollander, who had been special commissioner to revise

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as Puerto Rican Tax Laws and who is one of the new breed of academic economists repudiating

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laissez-faire for comprehensive statism.

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The heavy debtors in Puerto Rico, mainly the large sugar planters, naturally wanted to

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pay their peso obligations at as cheap a rate as possible.

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They lobbied for a peso worth 50 cents American.

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In contrast, the Puerto Rican banker creditors wanted the rate fixed at 75 cents.

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Since the exchange rate was arbitrary anyway, Hollander and the other American officials

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decided in the time-honored way of governments, more or less splitting the difference and

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fixing a peso equal to 60 cents.

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The Philippines, the other Spanish colony grabbed by the United States, posed a far

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more difficult problem.

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As in most of the Far East, the Philippines was happily using a perfectly sound silver

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currency, the Mexican silver dollar.

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But the United States was anxious for a rapid reform because its large armed forces establishment

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suppressing Filipino nationalism required heavy expenses in US dollars, which it of

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course declared to be legal tender for payments.

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Since the Mexican silver coin was also legal tender and was cheaper than the US gold dollar,

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The U.S. military occupation found its revenues being paid in unwanted and cheaper Mexican

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coins.

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Delicacy was required and in 1901, for the task of currency takeover, the Bureau of Insular

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Affairs, or BIA, of the War Department, the agency running the U.S. occupation of the

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Philippines, hired Charles A. Conant.

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Secretary of War Elihu Root was a redoubtable Wall Street lawyer in the Morgan ambit who

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sometimes served as JP Morgan's personal attorney.

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Root took a personal hand in sending Conant to the Philippines.

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Conant, fresh from the Indianapolis Monetary Commission and before going to New York as

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a leading investment banker, was, as might be expected, an ardent gold exchange standard

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Imperialist, as well as the leading theoretician of economic imperialism.

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Realizing that the Filipino people loved their silver coins, Conant devised a way to impose

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a gold U.S. dollar currency upon the country.

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Under his cunning plan, the Filipinos would continue to have a silver currency, but replacing

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the full-bodied Mexican silver coin would be an American silver coin tied to gold at

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at a debased value far less than the market exchange value of silver in terms of gold.

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In this imposed, debased bimetallism, since the silver coin was deliberately overvalued

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in relation to gold by the US government, Gresham's law inexorably went into effect.

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The overvalued silver would keep circulating in the Philippines, and undervalued gold would

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be kept sharply out of circulation.

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The seniorage profit that the Treasury would reap from the debasement would be happily

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deposited at a New York bank, which would then function as a, quote, reserve for the

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U.S. silver currency in the Philippines.

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Thus, the New York funds would be used for payment outside the Philippines instead of

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as coin or specie.

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Moreover, the U.S. government could issue paper dollars based on its new reserve fund.

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It should be noted that Conant originated the gold exchange scheme as a way of exploiting

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and controlling third world economies based on silver.

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At the same time, Great Britain was introducing similar schemes in its colonial areas in Egypt,

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in strait settlements in Asia, and particularly in India.

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Congress, however, pressured by the silver lobby, balked at the BIA's plan.

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And so the BIA again turned to the seasoned public relations and lobbying skills of Charles

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A. Conant.

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Conant swung into action.

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Meeting with editors of the top financial journals, he secured their promises to write

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editorials pushing for the Conant plan, many of which he obligingly wrote himself.

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He was already backed by the American banks of Manila.

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Recalcitrant U.S. bankers were warned by Conant that they could no longer expect large government

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Deposits from the War Departments if they continue to oppose the plan.

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Furthermore, Conant won the support of the major enemies of his plan, the American silver

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companies and pro-silver bankers, promising them that if the Philippine currency reform

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went through, the federal government would buy silver for the new U.S. coinage in the

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Philippines from these same companies.

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Finally, the tireless lobbying and the mixture of bribery and threats by Conant paid off.

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Congress passed the Philippine Currency Bill in March 1903.

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In the Philippines, however, the United States could not simply duplicate the Puerto Rican

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example and coerce the conversion of the old for the new silver coinage.

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The Mexican silver coin was a dominant coin not only in the Far East but throughout the

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world and the coerced conversion would have been endless.

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The U.S. tried, it removed the legal tender privilege from the Mexican coins and decreed

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the new U.S. coins be used for taxes, government salaries and other government payments.

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But this time the Filipinos happily used the old Mexican coins as money while the U.S.

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silver coins disappeared from circulation into payment of taxes and transactions to

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the United States.

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The War Department was beside itself.

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How could it drive Mexican silver coinage out of the Philippines?

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In desperation, it turned to the indefatigable Conant.

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But Conant couldn't join the colonial government in the Philippines because he had just been

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appointed to a more far-flung presidential commission on international exchange for

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pressuring Mexico and China to go on a similar gold exchange standard.

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Hollander, fresh from his Puerto Rican triumph, was ill.

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Who else?

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Conant, Hollander, and several leading bankers told the War Department they could recommend

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no one for the job, so new was the profession of technical expertise in monetary imperialism.

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But there was one more hope, the other pro-cartalist and financial imperialist, Cornell's Jeremiah

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W. Jenks, a fellow member with Conant of President Roosevelt's new Commission on International

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General Exchange, or CIE.

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Jencks had already paved the way for Conant by visiting English and Dutch colonies in

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the Far East in 1901 to gain information about running the Philippines.

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Jencks finally came up with a name, his former graduate student at Cornell, Edwin W. Kemmerer.

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Young Kemmerer went to the Philippines from 1903 to 1906 to implement the Conant Plan.

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Based on the theories of Jencks and Conant and on his own experience in the Philippines,

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Kemmerer went on to teach at Cornell and then at Princeton and gained fame throughout the

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1920s as the quote, money doctor, busily imposing the gold exchange standard on country after

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country abroad.

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Relying on Conant's behind the scenes advice, Kemmerer and his associates finally came out

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with a successful scheme to drive out the Mexican silver coins.

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It was a plan that relied heavily on government coercion.

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The United States imposed a legal prohibition on the importation of the Mexican coins, followed

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by severe taxes on any private Philippine transactions daring to use the Mexican currency.

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Luckily for the planners, their scheme was aided by a large-scale demand at the time

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for Mexican silver in northern China, which absorbed silver from the Philippines or that

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that would have been smuggled into the islands.

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The US success was aided by the fact that the new US silver coins, perceptively called

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quote, conants, by the Filipinos, were made up to look very much like the cherished old

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Mexican coins.

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By 1905, force, luck and trickery had prevailed and the conants, worth 50 cents in US money,

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were the dominant currency in the Philippines.

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Soon, the U.S. authorities were confident enough to add token copper coins and paper

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conants as well.

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By 1903, the currency reformers felt emboldened enough to move against the Mexican silver

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dollar throughout the world.

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In Mexico itself, U.S. industrialists, who wanted to invest there, pressured the Mexicans

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to shift from silver to gold, and they found an ally in Mexico's powerful finance minister,

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José Le Montour.

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But tackling the Mexican silver peso at home would not be an easy task, for the coin was

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known and used throughout the world, particularly in China, where it formed the bulk of the

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circulating coinage.

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Finally, after three-way talks between United States, Mexican and Chinese officials, the

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Mexicans and Chinese were induced to send identical notes to the U.S. Secretary of State,

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urging the United States to appoint financial advisors to bring about currency reform and

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stabilized exchange rates with the gold countries.

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These requests gave President Roosevelt, upon securing congressional approval, the excuse

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to appoint, in March 1903, a three-man commission on international exchange to bring about currency

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reform in Mexico, China and the rest of the silver-using world.

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The aim was to bring about a fixed relationship between the monies of the gold standard countries

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and the present silver-using countries, in order to foster export trade and investment

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opportunities in the gold countries and economic development in the silver countries.

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The three members of the CIE were old friends and like-minded colleagues.

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Chairman was Hugh H. Hanna of the Indianapolis Monetary Commission.

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The others were his former chief aide at that commission, Charles A. Conantz, and Professor

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Jeremiah W. Jenks.

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Conantz, as usual, was the major theoretician and finagler.

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He realized that major opposition to Mexico's and China's going off silver would come from

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the important Mexican silver industry, and he devised the scheme to get European countries

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to purchase large amounts of Mexican silver to ease the pain of the shift.

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In a trip to European nations in the summer of 1903, however, Conant and the CIE found

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the Europeans less than enthusiastic about making Mexican silver purchases as well as

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subsidizing US exports and investments in China, a land whose market they too were coveting.

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In the United States, on the other hand, major newspapers and financial periodicals, prodded

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by Conan's Public Relations work warmly endorsed the new currency scheme.

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In the meanwhile, however, the United States faced similar currency problems in its two

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new Caribbean protectorates, Cuba and Panama.

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Panama was easy.

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The United States occupied the canal zone and would be importing vast amounts of equipment

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to build the canal, so it decided to impose the American gold dollar as the currency in

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and the nominally independent Republic of Panama.

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While the gold dollar was the official currency of Panama, the United States imposed as the

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actual medium of exchange a new debased silver peso worth 50 cents.

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Fortunately, the new peso was almost the same in value as the old Colombian silver coin

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it forcibly displaced, and so, like Puerto Rico, the takeover could go without a hitch.

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During the U.S. colonies or protectorates, Cuba proved the toughest nut to crack.

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Despite all of Conant's administrations, Cuba's currency remained unreformed.

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Spanish gold and silver coins, French coins and U.S. currency all circulated side by side,

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freely fluctuating in response to supply and demand.

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Furthermore, similar to the pre-reformed Philippines, a fixed bimetallic exchange rate between

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in the cheaper U.S. and the more valuable Spanish and French coins led the Cubans to

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return cheaper U.S. coins to the U.S. customs authorities in fees and revenues.

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Why then did Conant fail in Cuba?

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In the first place, strong Cuban nationalism resented U.S. plans for seizing control of

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their currency.

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Conant's repeated request in 1903 for a Cuban invitation for the CIE to visit the island

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met stern rejections from the Cuban government.

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Moreover, the characteristic US military commander in Cuba, Leonard Wood, wanted to avoid giving

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the Cubans the impression that plans were afoot to reduce Cuba to colonial status.

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The second objection was economic.

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The powerful sugar industry in Cuba depended on exports to the United States, and a shift

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A shift from depreciated silver to higher valued gold money would increase the cost of sugar

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exports by an amount Leonard Wood estimated to be about 20%.

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While the same problem had existed for the sugar planters in Puerto Rico, American economic

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interests in Puerto Rico and in other countries such as the Philippines favored forcing formerly

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In Cuba, on the other hand, there was increasing U.S. investment capital pouring into the Cuban

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sugar plantations, so that powerful and even dominant U.S. economic interests existed on

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the other side of the currency reform question.

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Indeed, by World War I, American investments in Cuban sugar reached the sum of $95 million.

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Thus, when Charles Conant resumed his pressure for a Cuban gold exchange standard in 1907,

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he was strongly opposed by the U.S. governor of Cuba, Charles Magoon, who raised the problem

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of a gold-based standard crippling the sugar planters.

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The CIE never managed to visit Cuba and, ironically, Charles Conant died in Cuba in 1915 trying

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in vain to convince the Cubans of the virtues of the gold exchange standard.

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The Mexican shift from silver to gold was more gratifying to Conant, but here the reform

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was affected by Foreign Minister LeMonteur and his indigenous technicians, with the CIE

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taking a back seat.

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However, the success of this shift in the Mexican Currency Reform Act of 1905 was assured

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by a world rise in the price of silver starting the following year, which made gold coins

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cheaper than silver, with Gresham's Law bringing about a successful gold coin currency in Mexico.

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But the U.S. silver coinage in the Philippines ran into trouble because of the rise in the

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world silver price.

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Here, the U.S. silver currency in the Philippines was bailed out by coordinated action by the

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Mexican government, which sold silver in the Philippines to lower the value of silver sufficiently

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so that the Conants could be brought back into circulation.

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The big failure of Conant's CIE monetary imperialism was in China.

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In 1900, Britain, Japan and the United States intervened in China to put down the Boxer

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Rebellion.

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The three countries thereupon forced defeated China to agree to pay them, and all major

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European powers, an indemnity of $333 million.

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The United States interpreted the treaty as an obligation to pay in gold, but China, on

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a depreciated silver standard, began to pay in silver in 1903, an action that enraged

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the three treaty powers.

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The US minister to China reported that Britain might declare China's payment in silver

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a violation of the treaty, which would presage military intervention.

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Emboldened by United States success in the Philippines, Panama, and Mexico, Secretary

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of War Ruth sent Jeremiah W. Jenks on a mission to China in early 1904 to try to transform

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China from a silver to a gold exchange standard.

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Jencks also wrote to President Roosevelt from China, urging that the Chinese indemnity to

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the United States from the Boxer Rebellion be used to fund exchange professorships for

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30 years.

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Jencks' mission, however, was a total failure.

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The Chinese understood the CIE currency scheme all too well.

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They saw and denounced the seniorage of the gold exchange standard as an irresponsible

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and immoral debasement of Chinese currency, an act that would impoverish China while adding

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to the profits of U.S. banks where seniorage reserve funds would be deposited.

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Moreover, the Chinese officials saw that shifting the indemnity from silver to gold would enrich

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the European governments at the expense of the Chinese economy.

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They also noted that the CIE scheme would establish a foreign controller of the Chinese

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Chinese currency to impose banking regulations and economic reforms on the Chinese economy.

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We need not wonder at the Chinese outrage.

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China's reaction was its own nationalistic currency reform in 1905 to replace the Mexican

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silver coin with a new Chinese silver coin, the tail.

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Jenks' ignominious failure in China put an end to any formal role for the Commission

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on International Exchange.

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An immediately following fiasco blocked the US government's use of economic and financial

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advisors to spread the gold exchange standard abroad.

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In 1905, the State Department hired Jacob Hollander to move another of its Latin American

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client states, the Dominican Republic, onto the gold exchange standard.

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When Hollander accomplished this task by the end of the year, the State Department asked

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The Dominican government to hire Hollander to work out a plan for financial reform, including

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a U.S. loan and a custom service run by the United States to collect taxes for repayments

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of the loan.

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Hollander, son-in-law of prominent Baltimore merchant Abraham Hutzler, used his connection

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with Kuhn-Lebb & Company to place Dominican bonds with that investment bank.

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Hollander also engaged happily in double-dipping for the same work, collecting fees for the

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same job from the State Department and from the Dominican government.

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When this Picadillo was discovered in 1911, the scandal made it impossible for the U.S.

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government to use its own employees and its own funds to push for gold exchange experts

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abroad.

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From then on, there was more of a public-private partnership between the U.S. government and

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and the investment bankers, with the bankers supplying their own funds and the State Department

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supplying goodwill and more concrete resources.

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Thus, in 1911 and 1912, the United States, over great opposition, imposed a gold exchange

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standard on Nicaragua.

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The State Department formally stepped aside but approved Charles Conant's hiring by

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the powerful investment banking firm of Brown Brothers to bring about a loan and the currency

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Reform.

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The State Department lent not only its approval to the project, but also its official wires

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for Conant and Brown Brothers to conduct the negotiations with the Nicaraguan government.

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By the time he died in Cuba in 1915, Charles Conant had made himself the chief theoretician

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and practitioner of the gold exchange and the economic imperialist movements.

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Aside from his successes in the Philippines, Panama and Mexico, and his failures in Cuba

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and China, Conant led in pushing for gold exchange reform and gold dollar imperialism

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in Liberia, Bolivia, Guatemala and Honduras.

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His magnum opus in favor of the gold exchange standard, the two volume, The Principles of

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of Money and Banking in 1905 as well as his path-breaking success in the Philippines was

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followed by a myriad of books, articles, pamphlets and editorials always backed up by his personal

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propaganda efforts.

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Particularly interesting were Conan's arguments in favor of a gold exchange standard rather

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than a genuine gold coin standard.

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A straight gold coin standard, Conant believed, did not provide a sufficient amount of gold

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to provide for the world's monetary needs.

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Hence, by tying the existing silver standard in the undeveloped countries to gold, the

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quote, shortage of gold could be overcome, and also the economies of the undeveloped

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countries could be integrated into those of the dominant imperial power.

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All this could only be done if the gold exchange standard were, quote, designed and implemented

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by careful government policy, end quote.

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But of course, Conan himself and his friends and disciples always stood ready to advise

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and provide such implementation.

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In addition, adopting a government-managed gold exchange standard was superior to either

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genuine gold or bimetallism because it left each state the flexibility of adapting its

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Currency to Local Needs As Conan asserted, It leaves each state free

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to choose the means of exchange which conform best to its local conditions.

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Rich nations are free to choose gold, nations less rich silver, and those whose financial

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methods are most advanced are free to choose paper.

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It is interesting that for Conant, paper was the most, quote, advanced form of money.

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It is clear that the devotion to the gold standard of Conant and his colleagues was

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only to a debased and inflationary standard, controlled and manipulated by the US government,

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with gold really serving as a facade of allegedly hard money.

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And one of the critical forms of government manipulation and control in Conant's proposed

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System was the existence and active functioning of a central bank.

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As a founder of the quote, science of financial advising to governments, Conant, followed

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by his colleagues and disciples, not only pushed a gold exchange standard wherever he

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could do so, but also advocated a central bank to manage and control that standard.

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As Emily Rosenberg points out,

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Conant thus did not neglect one of the major revolutionary changes implicit in his system,

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a new important role for a central bank as a currency stabilizer.

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Conant strongly supported the American banking reform that culminated in the Federal Reserve

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system and American financial advisors who followed Conant would spread central banking

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Banking Systems, along with gold standard currency reforms to the countries they advised.

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Along with a managed gold exchange standard would come, as replacement for the old free

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trade non-managed gold coin standard, a world of imperial currency blocks, which would necessarily

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come into being as lesser countries deposited their gold stabilization funds in the banking

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New York and London banks, in particular, shaped up as the major reserve fund holders

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in the developing new world monetary order.

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It is no accident that the United States' major financial and imperial rival, Great

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Britain, which was pioneering in imposing gold exchange standards in its own colonial

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and the Federal Area at this time built upon this experience to impose a gold exchange standard marked by all European currencies

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pyramiding on top of British inflation during the 1920s.

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That disastrous inflationary experiment led straight to the worldwide banking crash and the general shift to fiat paper monies in the early 1930s.

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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.

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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.

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Thus, Conant was treasurer, from 1902 to 1906, of the Morgan-run Morton Trust Company of

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New York, and it was surely no coincidence that Morton Trust was the bank that held the

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reserve funds for the governments of the Philippines, Panama, and the Dominican Republic, after

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their respective currency reforms.

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In the Nicaragua negotiations, Conant was employed by the investment bank of Brown Brothers,

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and in pressuring other countries he was working for Spire & Company and other investment bankers.

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After Conan died in 1915, there were few to pick up the mantle of foreign financial advising.

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Hollander was in disgrace after the Dominican debacle.

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Jenks was aging and lived in the shadow of his China failure, but the State Department

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did appoint Jenks to serve as a director of the Nicaraguan National Bank in 1917 and also

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Also hired him to study the Nicaraguan financial picture in 1925.

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But the true successor of Conant was Edwin W. Kemmerer, the, quote, money doctor.

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After his Philippine experience, Kemmerer joined his old professor Jenks at Cornell

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and then moved to Princeton in 1912, publishing his book, Modern Currency Reforms, in 1916.

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As the leading foreign financial advisor of the 1920s, Kammerer not only imposed central

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banks and a gold exchange standard on third world countries, but he also got them to levy

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higher taxes.

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Kammerer, too, combined his public employment with service to leading international bankers.

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During the 1920s, Kammerer worked as banking expert for the U.S. Government's Dawes Commission,

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headed special financial advisory missions to more than a dozen countries, and was kept

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00:32:42.300 --> 00:32:47.500
on a handsome retainer by the distinguished investment banking firm of Dylan Reed from

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00:32:47.500 --> 00:32:51.060
1922 to 1929.

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In that era, Kemmerer and his mentor Jencks were the only foreign currency reform experts

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00:32:56.700 --> 00:32:58.980
available for advising.

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In the late 1920s, Kemmerer helped establish a chair of international economics at Princeton,

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which he occupied, and from which he could train students like Arthur N. Young and William

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W. Cumberland.

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In the mid-1920s, the Money Doctor served as president of the American Economic Association.