heavily in debt; the European powers, competing for economic conces-
sions, backed their own bankers. Since the American government had not
joined the mad scramble, its support was uncertain. In 1895 a group of
bankers organized the American China Development Company for the
purpose of securing concessions and industrial privileges in China, and
both Schiff and Morgan participated. The plans for a railroad failed, and
despite pleas from Roosevelt, who promised official backing, the bankers
dissolved the company in 1905. After the Boxer Rebellion and the stiff in-
demnity that the European powers exacted of China, Schiff believed that a
large loan was possible only if the country overhauled its taxation and rev-
enue systems and agreed to an international commission to supervise re-
payment. Since the loan would necessitate American participation, it
would also increase American influence in the region.^103
Two stimuli reactivated Schiff’s interest in China. The first came in the
person of Willard Straight, a young man who had served short terms with
the American diplomatic staff in Korea and Manchuria and who was
brought to the State Department in 1908. Straight urged large-scale capi-
tal investments by the United States in China and Manchuria. He claimed
that railroad building and development of Chinese natural resources were
to serve a dual purpose: the enhancement of American economic strength
and the protection of Chinese territorial integrity. Straight met Harriman
when the latter traveled to the Far East to push his plan for acquiring a half
interest in the South Manchuria Railway. He impressed Harriman, and
Harriman passed him on to Schiff. The banker spoke several times with
Straight and was similarly taken with his point of view. To be sure,
Straight’s design was poised against an aggressive Japan, but Schiff believed
that he could successfully juggle investments in China with his friendship
for Japan. Indeed, in 1908, Schiff tried once more to gain consent from
Japan for Harriman’s designs on the South Manchuria Railway. This time
he described the proposition in terms of Japanese self-interest—that is, it
would lift the burden of financing the railroad from Japan’s shoulders. A
few months later he told Straight that Kuhn, Loeb was prepared to con-
sider a major loan to China.^104
The second stimulus came from the American government. Both Presi-
dent Taft and his secretary of state, Philander Knox, supported the policy
of dollar diplomacy. Preaching “dollars not bullets,” the administration
was bent on directing American capital abroad. Investments in underdevel-
oped countries would ensure America’s influence over those countries at
the same time that they contributed to the economic and political stability
of the targeted nations and of the world at large. Not too different from
Straight’s point of view, it meant, in the case of China, procuring an equal
share for Americans in ventures of the rival nations. The policy called for a
close alliance between the government and the bankers and, if necessary,
36 Jacob H. Schiff