Viewpoint: The Panama Canal Caper

Ronald Reagan has been making a great deal of hay in the primaries with a demagogic and jingoistic campaign on behalf of maintaining the alleged sovereignty of the United States over the Panama Canal and the Canal Zone. The Ford Administration reply that the treaty with Panama retained ultimate sovereignty in the hands of Panama is correct but only scratches the surface of the problem. One neglected point is that the Canal Zone is an egregious example of socialism in action, since the U.S. government owns not only the Canal but the entire Zone territory, and every Zonian resident is a U.S. government employee. How can an alleged opponent of Big Government devote so much energy to a persistent defense of an enclave of U.S. socialism?

A second neglected point—neglected by Americans, of course, not the Panamanians—is how the United States came to exercise total occupation and control of a slice of Latin America that is clearly not part of the United States. The answer is a naked imperialist power grab, in which our first openly imperialist President, Theodore Roosevelt, engineered a phony "revolution" in northern Colombia, a coup directed by officials of the American-built Panama Railroad Co., and then quickly defended by U.S. troops against attempts of the Colombians to land troops to put down the coup.

The U.S.-organized coup was justified by Roosevelt as a protection of American tax-payers against the desire of the Colombian government to "hold up" the United States for an extra $10 million for the right to build a canal across the isthmus of Panama in northern Colombia. The actual facts, however, were very different. The United States had agreed to pay $40 million to the virtually bankrupt French-owned Panama Canal Co., for the right to build a canal, and what the Colombian government wanted was not an extra $10 million from the U.S., but $10 million to come out of the agreed-upon $40 million. In other words, President Roosevelt organized the power-grab, engineered a coup in Colombia, and quickly recognized the "rebels," not to save American taxpayers any money, but to save $10 million for the French Panama Canal Co.

Why was the U.S. government so tender to a bankrupt French canal company? The answer is that the company's stock had all been quietly purchased in advance by a syndicate of powerful Wall Street financiers, close to Roosevelt, including J.P. Morgan and Co., George W. Perkins, Morgan partner, Herbert Saterlee (a Morgan son-in-law), H.H. Rogers and James Stillman, close to the Rockefellers, Paul M. Warburg and Jacob H. Schiff of Kuhn-Loeb, Nelson P. Cromwell, a founder of the Wall Street law firm of Sullivan & Cromwell, and Douglas Robinson, brother-in-law of Teddy Roosevelt. The syndicate purchased the shares at two-thirds of par, and, after the coup, were able to sell their shares to the U.S. government, now in charge of the prospective canal, for 130 percent of par, thus doubling their investment.

After purchasing the shares, the syndicate hired William Nelson Cromwell, of the Cromwell family, for $830,000 to lobby for an American takeover of the canal. It was Cromwell who literally sat in an office of the White House and who wrote the orders for Roosevelt by which the President engineered the imperialist grab of the isthmus of Panama. Later, after the coup was accomplished, Cromwell, as fiscal agent. of the syndicate, invested $6 million of their ill-gotten gains in New York City real estate mortgages through the real-estate firm of Roosevelt's brother-in-law, Douglas Robinson.

When these ugly facts were brought to light several years later by the New York World and the Indianapolis News, President Roosevelt attempted to bring indictments against these newspapers for "criminal libel" against himself. Fortunately, in a notable victory for freedom of the press against attempted suppression, the Supreme Court quashed the indictments. (The full story of the Panama Canal caper can be found in a book by one of the New York World journalists, the highly conservative Earl Harding, in The Untold Story of Panama, New York: Athene Press, 1959.)

Thus, the Panama Canal case demonstrates, with shining clarity, how behind the typical nationalist demagogy and vainglory of every imperialist power grab, there lurks the use of the State apparatus to gain special privileges and subsidies for powerful financial interests.

Murray Rothbard is professor of economics at the Polytechnic Institute of New York. Dr. Rothbard's Viewpoint appears in this column every third month, alternating with those of Tibor Machan and David Brudnoy.