[Global Financial History] Roosevelt, the Panama Canal, and JP Morgan

26th U.S. President Roosevelt
When Panama Canal construction became urgent
Repartnered with JP Morgan, once sued as a monopoly
Early 20th century Panama Canal construction
U.S. technology and productivity proven worldwide
Now a leading offshore financial center

After the assassination of the 25th President of the United States, William McKinley (1843?1901), in 1901, then Vice President Theodore Roosevelt (1858?1919) assumed the presidency at the age of 42. Roosevelt, the 26th President of the United States, was both reformist and imperialistic. Because no one knew what he would do, big businesses and financiers at the time were on edge. John Pierpont Morgan (J.P. Morgan, 1837?1913) became the first target. Representing Wall Street, J.P. Morgan was creating corporate trusts, and Roosevelt opposed corporate monopolization. In 1901, Roosevelt indicted Northern Securities, a massive coal and railroad conglomerate centered around Morgan, and in 1904, the U.S. Supreme Court ordered its dissolution. Roosevelt subsequently filed lawsuits against 43 monopolistic companies.

Even Roosevelt needed J.P. Morgan because of the Panama Canal. The dream of building a canal crossing the Isthmus of Panama to connect the Atlantic and Pacific Oceans dates back at least to the 1500s. However, no one believed it was actually possible to build a canal through mountainous and tropical regions.

Throughout the 1800s, the United States desired a canal connecting the Atlantic and Pacific for economic and military reasons. France was the first to attempt canal construction. The construction team led by Ferdinand de Lesseps (1805?1894), the builder of Egypt’s Suez Canal, held a groundbreaking ceremony in 1880 for a sea-level canal. However, France’s monumental challenge failed. Constant tropical rains caused landslides, and above all, thousands of construction workers died from yellow fever and malaria. De Lesseps belatedly realized that a sea-level canal was too difficult. Efforts to restart construction for a lock canal were made but came too late. The canal construction company, which included Gustave Eiffel, the builder of the Eiffel Tower, went bankrupt in 1889. At that time, France had invested over $260 million and excavated more than 70 million cubic yards of earth in the canal project.

Despite all the anticipated difficulties from France’s failure, President Roosevelt wanted to develop the Panama Canal. He had once been Assistant Secretary of the Navy and had written a book on the impact of naval power on history. Roosevelt firmly believed that to have dominance at sea, military capability as well as commerce was essential. Therefore, he could never give up a canal controlled by the United States connecting the Atlantic and Pacific.

In 1902, the United States purchased French assets in the canal zone for $40 million. To build the canal, the U.S. needed to lease land, but Colombia refused. Consequently, the U.S. intervened militarily and recognized the newly independent Republic of Panama in November 1903. The U.S. then signed a treaty with Panama guaranteeing exclusive and permanent ownership of the canal zone. In return, Panama received $10 million and an annual pension of $250,000.

A down payment was immediately needed to start construction. The U.S. required $40 million to purchase the French assets and $10 million as compensation for using Panama’s territory. The only person capable of executing international financial transactions was J.P. Morgan, who was involved in various deals within the international financial network. President Roosevelt appointed him as a special disbursing agent. In 1904, J.P. Morgan paid each country, and after the payments were completed, the U.S. Treasury issued checks payable to Morgan.

After many twists and turns, construction of the Panama Canal began in May 1904 and was completed in August 1914. In November 1906, during construction, President Roosevelt embarked on a 17-day tour of Panama, Puerto Rico, and other parts of South America. Roosevelt showed his genuine commitment to the canal by taking photos of himself operating heavy machinery at the construction site.

The construction of the Panama Canal in the early 20th century was a concentrated event demonstrating the process of American imperialism. The Panama Canal showcased the superiority of American technology and the scale of its productive capacity to the world. It was a unique engineering achievement and the beginning of empire-building that placed South America under U.S. influence. Through the Panama Canal, the United States established the foundation of its empire at the most important economic and strategic crossroads of the American continent.

Today, Panama is a center for offshore finance. J.P. Morgan, who financed the Panama project, is behind this history. In 1927, when the American oil company Standard Oil sought ways to avoid taxes, Panama rose as an offshore financial center. While the world suffered from the Great Depression, Panama attempted another transformation. With Wall Street’s help, it established a maze of tax-exempt corporations, especially related to ship registration. American banks led the effort to turn Panama into a financial hub, a haven for tax evasion and money laundering, and a shipping channel.

J.P. Morgan raised capital in Europe, reorganized bankrupt railroads, stabilized markets during crises, and established many corporate and financial structures now taken for granted. Roosevelt combined political savvy with a comprehensive vision to build an America moving toward imperialism. Over the next 30 years, under what Roosevelt called the “exercise of world police power,” the United States intervened militarily more than 30 times in the Caribbean basin. Roosevelt and J.P. Morgan were directly connected in the process of establishing the new nation of Panama. Although their relationship was one of love and hate, they were goal-oriented partners.

When Russia went to war with Japan in 1904, Roosevelt acted as a mediator. Negotiations took place in New Hampshire in 1905, and Roosevelt received the Nobel Peace Prize for his efforts. When Germany and France nearly went to war over Morocco, Roosevelt intervened again to mediate an agreement. Some historians believe the 1906 negotiations delayed the outbreak of World War I by ten years.

The official poster for the 1915 Panama-Pacific International Exposition held in San Francisco depicted the recently opened Panama Canal a year earlier as the hero Hercules. The true hero this poster intended to convey was the United States. It was American power and technology that completed this long-cherished and pursued human endeavor, which had once seemed impossible.

Baek Youngran, Representative of History Journal