to China for the proposed Hankow-Szechuen Railway, which later became known as the Hukuang Railway Loan. Secretary of State Knox immediately applied by cable to the Chinese Government for the admission of American capital to participation in the loan,3 and the State Department requested certain American bankers to take a share in the loan. The diplomatic efforts of the State Department at Peking proved unsuccessful, whereupon President Taft sent a direct communication to Prince Chun, Regent of the Chinese Empire, in which the President stated that he had "an intense personal interest in making the use of American capital in the development of China an instrument for the promotion of the welfare of China, and an increase in her material prosperity without entanglements or creating embarrassments affecting the growth of her independent political power and the preservation of her territorial integrity." The personal interposition of President Taft in the negotiations resulted in the admission of America's equal participation in the loan. To Congress President Taft justified this unique and vigorous exercise of diplomatic pressure upon China in his annual message of December 7, 1909, on the ground that "this railroad loan represented a practical and real application of the open door policy" as well as because of its relation to the currency reform which China undertook in certain treaties of 1903.

In pursuance of the same policy the State Department in 1910 and 1911 assisted in the negotiation of a loan to China with which to inaugurate the new currency system, which, because of the inclusion of Russia and Belgium, became known as the Six Power Loan or Sextuple Consortium. This loan, the President explained, was originally to be solely an American enterprise, but upon the urging of the American Government, the Chinese Government admitted to participation in it the associates of the American group in the Hukuang loan.

At the end of his administration, President Taft thus defended and appraised the foregoing policy in China:

In China the policy of encouraging financial investment to enable that country to help itself has had the result of giving new life and prac

3 Foreign Relations of the United States, 1909, p. 144.

4''The American group, consisting of J. P. Morgan and Company, Kuhn, Loeb and Company, the First National Bank, and the National City Bank, was formed in the spring of 1909 upon the expressed desire of the Department of State that a financial group be organized to take up the participation to which American capital was entitled in the Hukuang Railway loan agreement then under negotiation by the British, French and German banking groups. (Statement by the American group, March 19,

1913, this JOURNAL, Vol. 7, p. 340.)

5 The loan had been in course of negotiation for several years and was on the point of being finally concluded when the State Department applied for admission of American capital. The foreign bankers and the Chinese director-general of the railway objected to the delay which would be involved in reopening the negotiations to admit American participation. (Foreign Relations, 1909, pp. 144-178.)

6 Foreign Relations, 1909, p. 178.

tical application to the open-door policy. The consistent purpose of the present administration has been to encourage the use of American capital in the development of China by the promotion of those essential reforms to which China is pledged by treaties with the United States and other powers. The hypothecation to foreign bankers in connection with certain industrial enterprises, such as the Hukuang railways, of the national revenues upon which these reforms depended, led the Department of State early in the administration to demand for American citizens participation in such enterprises, in order that the United States might have equal rights and an equal voice in all questions pertaining to the disposition of the public revenues concerned. The same policy of promoting international accord among the powers having similar treaty rights as ourselves in the matters of reform, which could not be put into practical effect without the common consent of all, was likewise adopted in the case of the loan desired by China for the reform of its currency. The principle of international cooperation in matters of common interest upon which our policy had already been based in all of the above instances has admittedly been a great factor in that concert of the powers which has been so happily conspicuous during the perilous period of transition through which the great Chinese nation has been passing."

It will be well at this point to go back and consider what had been the attitude of the American Government towards assisting and protecting American investors in China previous to the so-called "dollar diplomacy." In an instruction to Mr. Denby on December 19, 1896, Secretary of State Olney stated, "You should not assume directly or impliedly in the name of this government any responsibility for, or guaranty of, any American commercial or industrial enterprise trying to establish itself in China," but that Mr. Denby should use his "personal and official influence and lend all proper countenance to secure to reputable representatives of such concerns the same facilities for submitting proposals, tendering bids, or obtaining contracts as are enjoyed by any other foreign commercial enterprise in the country. Broadly speaking, you should employ all proper methods for the extension of American commercial interests in China, while refraining from advocating the projects of any one firm to the exclusion of others.''8

A case in point was presented to the Department of State in August 1898. On the 19th of that month a copy of a contract between the Chinese Minister at Washington, acting on behalf of his Government, and the American-China Development Company was sent to the Department with the request that the Department give notice to the United States legation and consulates in China that the representatives of the company charged with carrying out the provisions of the contract "shall have recognition and protection in the performance of their duties" and that the charge of the revenues and property assigned to the loan under contract "will be

'Annual message, Dec. 3, 1912, Congressional Record, Vol. 49, Part I, p. 9. Foreign Relations, 1897, p. 56.

noted by this government, which will uphold the contract as a binding engagement upon the Imperial Chinese Government." In his reply of August 24, 1898, Secretary of State Day informed the company "that the Department is unable to give you such a letter as you request. While the Government of the United States is always ready to enforce the just rights of its citizens abroad, it has always declined to become the guarantors of their contracts with foreign governments. As a rule, it has declined, where such a contract was alleged to have been violated by the foreign government, to interfere beyond the exercise of good offices. This being so, still less can it assume beforehand to guarantee the execution of the contract." In its application the company had stated that the English investors will have "the usual recognition" from the British Foreign Office substantially in the form requested by the company from the Department of State. In answer to this statement, Mr. Day said: "The British Crown, which exercises the executive power in that country, possesses both the warmaking power and the treaty-making power, and is therefore authorized, in matters involving relations with foreign countries, to give guarantees and to enter into engagements which the executive of the United States would not alone be competent to assume.

On October 21, 1905, the Department instructed the Legation at Peking that it might forward without comment to the Chinese Foreign Office the applications of reputable American citizens for privileges and concessions.10

The actions of the Department in the period from 1909 to 1912 went far beyond, and indeed contravened the foregoing expressions of previous policy. The official representations made by Secretary of State Knox and the personal appeal of President Taft made the Government of the United States virtually a party to the application for the Hukuang Railway Loan. The initiative of the State Department in the formation of the American group to participate in the loan made the Government practically a sponsor for the actions of that group in China. Although nothing is directly contained in the published correspondence regarding the amount and kind of protection which the Department was to give to the American investors in case of a default on the part of China, the implication is unavoidable that the maximum amount of protection of which the executive was capable would be extended in the case of both the Hukuang Railway Loan and the Currency Reform Loan. Any other inference would not be fair to President Taft and Secretary Knox who were officially responsible for American participation in both transactions. Such a guarantee of the execution of a contract was expressly refused, as above pointed Moore, International Law Digest, Vol. VI, p. 288.

10 See despatch of July 11, 1913, from Mr. Williams, Chargé at Peking, printed in Foreign Relations, 1913, p. 186.

out, by Secretary of State Day in his reply to the American-China Development Company in 1898. He was unwilling to assure protection beyond the exercise of good offices. Citing a long list of Secretaries of State from Secretary Forsyth in 1834 to Secretary Hay in 1899, Dr. John Bassett Moore states: "It is not usual for the Government of the United States to interfere, except by its good offices, for the prosecution of claims founded on contracts with foreign governments.'" Lack of authority on the part of the Executive was given by Secretary of State Marcy as the reason for the rule in an instruction to the American Minister to Peru on May 24, 1855. He said: "It does not comport with the dignity of any Government to make a demand upon another which might not ultimately, on its face, warrant a resort to force for the purpose of compelling a compliance with it. Such a course can not, under this Government, be adopted without authority from Congress, and it is almost impossible to imagine any contract or any circumstances attending the infraction of one by a foreign government which would induce Congress to confer such an authority upon the President."'12 Other reasons in justification of the rule were given by Mr. Taft's predecessor in office. President Roosevelt, in a message to the Senate, February 15, 1905, made the following statement:

Except for arbitrary wrong, done or sanctioned by superior authority, to persons or to vested property rights, the United States Government, following its traditional usage in such cases, aims to go no further than the mere use of its good offices, a measure which frequently proves ineffective. On the other hand, there are governments which do sometimes take energetic action for the protection of their subjects in the enforcement of merely contractual claims, and thereupon American concessionaires, supported by powerful influences, make loud appeal to the United States Government in similar cases for similar action. They complain that in the actual posture of affairs their valuable properties are practically confiscated, that American enterprise is paralyzed, and that unless they are fully protected, even by enforcement of their merely contractual rights, it means the abandonment to the subjects of other governments of the interests of American trade and commerce through the sacrifice of their investments. Thus the attempted solution of the complex problem by the ordinary methods of diplomacy reacts injuriously upon the United States Government itself, and in a measure paralyzes the action of the Executive in the direction of a sound and consistent policy.13

It is evident, however, that the Hukuang Railway Loan and the Currency Reform Loan to China were not regarded as ordinary contracts between private American citizens and a foreign government. President Taft regarded the group of American bankers as "the indispensable instrumentality" for carrying out a broad policy of great national interest,11 11 Moore, International Law Digest, Vol. VI, p. 705. 12 Moore, International Law Digest, Vol. VI, p. 709.

13 Moore, International Law Digest, Vol. VI, p. 289.

14 Annual message, Dec. 7, 1909, Congressional Record, Vol. 45, Part I, p. 28.

and throughout his official utterances on the subject he stressed the political importance of these loans in China. This phase of the transactions was also duly appreciated by America's European partners and unfortunately the political aspects became the chief object of the negotiations between the interested governments. After an unedifying exchange of diplomatic correspondence, the Hukuang railway was divided into sections between officials and markets of the nationalities of the respective lenders for construction purposes and the furnishing of materials. The Currency Reform Loan negotiations developed into a sharp diplomatic struggle over the appointment by the lending powers on the basis of nationality of inspectors in the salt gabelle, advisers in the Bureau of Audits and a Director of Foreign Loans, after they had vetoed the Chinese appointment of "neutral" officials to these positions on the basis of ability irrespective of nationality. Telegraphing on this subject to the Department of State on February 21, 1913, Minister Calhoun said: "To my mind it is no longer a question of friendly international cooperation to help China but a combination of big powers with common interests to accomplish their own selfish political aims." Secretary of State Knox replied on February 27, 1913, deprecating the introduction of political issues into the loan negotiations. "Experience has shown," he said, "the wisdom of surrounding such loans to China with adequate safeguards of supervision, not only as a reasonable measure of protection for the interests of the lenders and of the ultimate bondholders but also as a necessary means of upholding China's credit and avoiding the possible consequences of default in her financial obligations, which are already pressing. The Department has, however, consistently held that the Chinese Government must be left free to accept or decline a loan on the conditions proposed, and the American group of bankers interested in the loan negotiations have likewise held the same views. ''15

Such was the status of the negotiations when President Wilson assumed office on March 4, 1913. Under the working of the American political system, all national policies, including foreign policy, are dependent upon the views of the administration for the time being in power, and the American group very naturally desired to know whether the new administration would continue to regard them as an indispensable instrumentality of governmental policy in the Far East or whether they would be relegated to the non-preferred position of ordinary private citizens holding a contract with a foreign government. The fact that their contract had been negotiated at the suggestion of the government and through its diplomatic support could not raise it to the solemnity and legal effect of a treaty binding upon the government regardless of the administration in power, as in the case of the loan to Santo Domingo under the Receivership Convention with the United States Government.

15 Foreign Relations, 1913, pp. 164, 166.