*The Empire Trap*

That is the new book by Noel Maurer and the subtitle is The Rise and Fall of U.S. Intervention to Protect American Property Overseas, 1893-2013.  This is an excellent book and somehow the title, while descriptively accurate, does not do justice to its interest and contents.

My favorite part of the book is about the fiscal receiverships applied to various Latin American countries in the early twentieth century.  They were much more extensive than I had realized, and virtually all of them failed.

Here is an interesting sentence in a slightly different direction:

At the turn of the twentieth century, the leaders of American foreign policy believed they had identified poor fiscal conditions as the key factor destabilizing the nations of Latin America.

Do you want your Scott Sumner fact of the day?  In 1931, nominal gdp in El Salvador fell by 37%.

I recommend this book to anyone interested in Latin America, 20th century American foreign policy, extra-territorial relationships, or the history of public finance.

Comments

Oh man, this book is definitely getting bumped toward the top of my reading list.

On another note, I have a hypothesis (given my brushes with narratives about US imperialism in the Middle East and Latin America) that the postwar prosperity of America, and in general the relative prosperity of America in the 20th century, was dependent on the kind of imperial relations described in this book, and a net flow of cheap raw materials (agricultural products from Latin America and oil from the Middle East) enforced through military prowess. Of course, this seems like the kind of hypothesis that has a definitive "yes" or "no" answer, so it'd be cool to see some actual econometric analysis done to examine capital flows and the net benefit to the American economy that empire-building had in the 20th century.

This is pretty obviously facile thinking. Did we pay less than the global market price for oil? No. Did we pay money for the supposed empire that others didn't just so we could pay the same price as everyone else? Yes.

I don't even know what to say about the idea that agricultural imports from Latin America were anything but a trivial part of the US economy over the relevant time line.

Good point on the market price for oil. I can think of two other immediate advantages of US control over oil-based regimes, though: 1) block the USSR from accessing Middle Eastern oil, and 2) ensure that oil is sold as a dollar-backed commodity. I definitely don't think 2) is something to be trivialized.

As for agricultural imports from Latin America, my lack of data is the reason why I conditioned my original comment as a "hypothesis"--I am definitely interested in seeing the actual data on the effects of Latin American agro-imports on the US economy (as well as the impact of US businesses having control over Latin American agricultural resources).

'I don’t even know what to say about the idea that agricultural imports from Latin America were anything but a trivial part of the US economy over the relevant time line'

The United Fruit Company, and its general contractor at another organization also referred to as the 'Company,' would beg to differ -

'The United Fruit Company (UFCO) owned vast tracts of land in the Caribbean lowlands. It also dominated regional transportation networks through its International Railways of Central America and its Great White Fleet of steamships. In addition, UFCO branched out in 1913 by creating the Tropical Radio and Telegraph Company. UFCO's policies of acquiring tax breaks and other benefits from host governments led to it building enclave economies in the regions, in which a company's investment is largely self-contained for its employees and overseas investors and the benefits of the export earnings are not shared with the host country.[9]

One of the company's primary tactics for maintaining market dominance was to control the distribution of banana lands. UFCO claimed that hurricanes, blight and other natural threats required them to hold extra land or reserve land. In practice, what this meant was that UFCO was able to prevent the government from distributing banana lands to peasants who wanted a share of the banana trade. The fact that the UFCO relied so heavily on manipulation of land use rights in order to maintain their market dominance had a number of long-term consequences for the region. For the company to maintain its unequal land holdings it often required government concessions. And this in turn meant that the company had to be politically involved in the region even though it was an American company. In fact, the heavy-handed involvement of the company in governments which often were or became corrupt created the term "Banana republic" representing a "servile dictatorship".[10] The term "Banana Republic" was coined by American writer O. Henry'

Whoops - sorry, that was pre 'Company' history. Here is the more relevant information (and do note just how entwined the United Fruit Company just happened to be back in those halycon days of pro-business Republicanism) -

'In 1954, the democratically elected Guatemalan government of Colonel Jacobo Arbenz Guzmán was toppled by U.S.-backed forces led by Colonel Carlos Castillo Armas[13] who invaded from Honduras. Assigned by the Eisenhower administration, this military opposition was armed, trained and organized by the U.S. Central Intelligence Agency[14] (see Operation PBSUCCESS). The directors of United Fruit Company (UFCO) had lobbied to convince the Truman and Eisenhower administrations that Colonel Arbenz intended to align Guatemala with the Soviet Bloc. Besides the disputed issue of Arbenz's allegiance to Communism, UFCO was being threatened by the Arbenz government’s agrarian reform legislation and new Labor Code.[15] UFCO was the largest Guatemalan landowner and employer, and the Arbenz government’s land reform included the expropriation of 40% of UFCO land.[15] U.S. officials had little proof to back their claims of a growing communist threat in Guatemala,[16] however the relationship between the Eisenhower administration and UFCO demonstrated the influence of corporate interest on U.S. foreign policy.[14] United States Secretary of State John Foster Dulles was an avowed opponent of Communism, whose law firm Sullivan and Cromwell had represented United Fruit.[17] His brother Allen Dulles was the director of the CIA, and a board member of United Fruit. United Fruit Company is the only company known to have a CIA cryptonym. The brother of the Assistant Secretary of State for InterAmerican Affairs John Moors Cabot had once been president of United Fruit. Ed Whitman, who was United Fruit’s principal lobbyist, was married to President Eisenhower's personal secretary, Ann C. Whitman.[17] Many individuals who directly influenced U.S. policy towards Guatemala in the 1950s also had direct ties to UFCO' http://en.wikipedia.org/wiki/United_Fruit_Company#History_in_Central_America

Of course, it isn't as if those Central Americans don't remember the last time some American organization decided to organize land holdings for the greater good.

Makes one wonder what sort of history Prof. Cowen is aware of whenever this website touts the economic benefits of Americans setting up enclaves beyond the reach of the local government - because it has been done before, of course.

Blah, blah, blah. You manage to shoe-horn your pet obsession into a different discussion but of course you miss the point entirely.

Perhaps you are right that the banana trade was important to Guatamala. That does not prove it was important to the US. Was the banana trade anything but trivial to the American economy?

Perhaps if you were not so fixated on your sub-Chomskyian bullsh!t you might have attempted to answer the question.

Today the international banana trade is worth some US$4.5 to 5 billion a year. While the US economy is over $15 trillion. It is unlikely to have been much different in the 1950s when Eisenhower saved Guatamala from Communism.

Trivial does not begin to describe it.

You really missed the political entwining in all that ever so detailed text, it seems - so here is that section again, highlighting just how the central the United Fruit Company's importance was at the time the 'Company' became a contractor for it - 'United States Secretary of State John Foster Dulles was an avowed opponent of Communism, whose law firm Sullivan and Cromwell had represented United Fruit.[17] His brother Allen Dulles was the director of the CIA, and a board member of United Fruit. United Fruit Company is the only company known to have a CIA cryptonym. The brother of the Assistant Secretary of State for InterAmerican Affairs John Moors Cabot had once been president of United Fruit. Ed Whitman, who was United Fruit’s principal lobbyist, was married to President Eisenhower’s personal secretary, Ann C. Whitman.'

The point was Arjun's original comment that the prosperity of the postwar USA was dependent on extracting cheap raw materials from other countries. Discussion of the United Fruit Company still doesn't prove that. Obviously it was an important US company at the time and Dulles direct involvement in company hads a bearing on events in 1954, and its impact on Central American economies was important, but that does not mean that getting cheap bananas was the basis of American wealth.

The basis of American wealth in the postwar world was based on the increased value Americans could create. That was based on having a large literate, highly trained workforce; superior management techniques; a stellar scientific system that benefited from the collapse of European science during the war years; a stable political system that encouraged investment; and a large internal market that encouraged economies of scale.

That is what created wealth in America. It is what allowed Americans to build cars, rockets, jets, computers, and chemicals from the raw materials found in other countries. The idea that the wealth was somehow inherent in those raw materials was pretty much proved false when Third World expropriation of those raw materials still resulted in those countries being poor. The wealth wasn't in those raw materials, it was in the value add done in America. (Another point can be made that when those countries attempted to duplicate the American wealth creation by making their own manufactures, they failed spectacularly. America's wealth wasn't the result of stealing it from other people, it was created by Americans.)

Even if one considers that certain commodities were strategic, limited, and valuable (like oil or uranium) and therefore important to the economy, the banana isn't one of them.

The United Fruit Company was certainly an important company that produced a lot of wealth, but the idea that a major consideration of the events in 1954 is that "the bananas must flow" is absurd. This isn't Frank Herbert's Dune.

The question is not whether you paid less than the global market price for the oil, the question is whether your countrymen received the oil revenue in the form of Standard Oil holdings overseas, or whether the local nationalists did - and the extent to which these claims were made through military prowess.

Why is that a question? Much less the question?

What is oil worth to the Saudis? Well it has some limited use in caulking the hulls of fishing boats and those dhows that go to India regularly. None other appears to me just off hand.

What is it worth to the US? Well in the US economy, the Americans turn it into fuel and chemicals and plastics. Things of huge value. That is where the money comes in to it.

So the issue of who ends up with the cash depends entirely on political power. The Saudis hold the sands that hold the oil. The US has to pay whatever they want for their oil. Unless they ask too much and then Canadian tar sands become economically viable. There is no Medieval-style Just Price that the Saudis deserve because they happen to be sitting on a rich piece of desert.

The fact is the US very nicely gave the Saudis trillions of dollars that they did nothing to deserve, contributed nothing to at all and did not earn in anyway whatsoever. In exchange the US got some oil which was immensely valuable in the US but which the Saudis could do nothing with otherwise. They should thank their God five-times a day that the US discovered this abundance and did not simply take the oil.

General Smedley Butler's view in "War Is a Racket" seemed to be that the military interventions in Latin America that he served benefited American special interests (United Fruit Company, Brown Brothers, etc.) rather than the general welfare of the American public. It would be interesting to see an economic historian evaluate this question.

Noel Maurer is a good chap and a careful scholar, but his book is poorly titled. It sounds like a Star Wars movie. Admiral Ackbar, call your office.

I'm struck by readers' lack of interest in the question of how important military might and an assertive foreign policy have been to American prosperity. If they aren't, we could save a lot of money we lavish on the Pentagon. If they are, well, that's pretty interesting to know.

Instead, the mainstream view seems to be that we should spend a lot on the Pentagon and have an intrusive foreign policy, but we aren't getting anything tangible from our expenditures.

Noel's blog is well worth reading: http://noelmaurer.typepad.com/

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