“IF YOU DON’T HAVE STEEL, YOU DON’T HAVE A COUNTRY!”^{Footnote 1}

In 1943, at the inauguration of his country’s new national steel works, Brazilian President Getúlio Vargas declared that the works, “planted in cement and iron,” were “challenging the mentality of a section of public opinion that persists in favor of a semicolonial solution, [and] the pressure of those industrial countries interested in keeping us on the level of mere suppliers of raw materials and consumers of manufactured goods!” To the eyes of Brazilians, “dazzled by an approaching future,” the steel works represented nothing less than “the definitive mark of the economic emancipation of our country.” Indeed, the state-of-the-art industrial installation emblazoned a new sign under which “the basic problem of our economy” would appear: “The semicolonial agrarian country…will [now] be able to meet the exigencies of an autonomous industrial life.”^{Footnote 2}

Vargas’s triumphalist account of the new position of his country in the international economic order has a familiar ring to it. This is the stuff of the strident developmental economic nationalism that swept across the Global South after World War II. But look closer and things are not quite as they seem. The Presidente Vargas steel works at Volta Redonda was built by American engineers, using American equipment, financed by a low-interest official loan from the U.S. government. This aid was given over the objections of American bankers, bondholders, exporters, and members of Congress. Past scholars have attributed the U.S. government’s willingness to disregard these angry, formerly influential voices to the rise of a new, more powerful bloc of internationally minded firms.^{Footnote 3} Others have viewed it as part of a whiggish progression from “isolationism” to “internationalism.”^{Footnote 4} In fact, the United States overruled powerful domestic interests because officials in the State and Treasury departments feared a growing German threat to America’s economic and national security interests in Latin America; and because Vargas, propelled by nationalist forces within his ruling coalition, had defined economic cooperation in the development of a Brazilian steel industry as the field on which Brazil’s alignment in international politics would be decided.

Volta Redonda marks a distinct moment in the long history of what early twentieth-century observers called “the export of capital.”^{Footnote 5} While the politics of international lending were sometimes contentious when the borrowers were relatively rich and their governing arrangements stable, in the large parts of the world where such favorable conditions did not pertain, this basic aspect of international economic life had explosive consequences. In the decades before 1914, many countries found themselves in the paradoxical position of needing to borrow capital from the advanced capitalist countries for state-building projects—including steel mills—designed to safeguard them from political subordination to those very same powerful countries. “In order to throw off the yoke of European imperialism,” one perspicacious analyst wrote, these countries “had to consent temporarily to be victimized by it.”^{Footnote 6} This strategy frequently failed. Nevertheless, by the end of the 1930s, Brazil and some countries that were similarly situated politically and economically, in alliance with certain business and governmental actors within the capitalist military powers, found ways to attract the requisite capital for their projects, and to do so on terms that bulwarked their sovereignty, rather than imperiling it. Indeed, the Brazilian case was not an anomaly. It partook of a generic, emergent logic internal to global capitalism and interstate relations, whose opportunities nevertheless could only be grasped with the right arrangement of forces, domestically and internationally.

If the logic was generic, it did not play out identically across the world. The geography of capitalist development was marked by the spatial reach of each of the capitalist military powers. For the United States, the capitalist military power that would exercise the greatest influence on the contours of capitalist development globally in the twentieth century, Brazil had a central, if largely unheralded significance. It was Brazil that, more than any other country, quickened a rethinking of American policy, away from the defense of old interests and a commitment to separating politics and economics in international life and toward a new, highly politicized conception of the use of dollars as instruments of foreign policy. The American decision during World War II to underwrite global monetary and financial stability was the crucial new departure of a reconstituted “dollar diplomacy.”^{Footnote 7} It became a central pillar of the U.S.-led postwar international order, when American political power finally matched its economic throw-weight. However, the origins of 1940s financial diplomacy, and therefore of postwar world order, are poorly understood. Arriving at a clearer picture of those origins requires dislodging the United States from its default position at their center.^{Footnote 8}

U.S. official objectives for the postwar world were nothing less than to eradicate once and for all the disturbances in economic and political life that had twice in the space of a single generation thrown the world into the most violent convulsions in history. American world orderers believed that nationalism was the fundamental cause of modern war. And yet there is no coherent body of scholarship that sizes up how the United States negotiated its relationship to nationalism around the globe on its way to becoming the dominant force in world affairs. In this dissertation, I lay out a genealogy of American-led international order that places nationalism at the center. The deeply unsettling finding from this repositioning is that, of all the major powers, National Socialist Germany was the most available, sometimes eager ally of nationalist governments seeking to fortify national sovereignty through industrialization.^{Footnote 9} In contrast, American policy as late as 1941 appears fumbling, reactive, and hidebound. Some key elements of the United States’ much celebrated designs for a postwar international economic and political order were anything but translations of its own exceptional political culture to a global scale.^{Footnote 10} Nor were these designs merely functional to an inexorably expansionist liberal capitalism.^{Footnote 11} Instead, they were post hoc rationalizations for a policy of limited concessions to nationalist demands across many of the weak states, which the United States stumbled into in response to German successes that it was exceedingly late to register.

“Steel and Sovereignty” is a history of American financial power between the turn of the twentieth century, when the United States asserted its claim to be counted among the world’s major powers, and 1941, when its entry into World War II rendered certain that the American state would play a profound role in shaping relations among all states. The primary technique for exercising financial power was to attach conditions to requests from other governments to borrow funds in the United States, whether through Wall Street banks or through the Export-Import Bank, a new state-owned quasi-bank founded in the 1930s. Most of the borrowers who came seeking loans, especially if they came from so-called “weak” states, had objectives similar to Vargas’s. Therefore, the empirical focus of this dissertation is on the attempts of borrowers to fortify national sovereignty through steel by borrowing from abroad. Concretely, it focuses on private international bankers, government officials, steel engineers, and steel equipment builders in Britain, Germany, and the United States, and officials in the borrowing countries who sought to play national groups against each other to secure the best terms.

Over the length of the dissertation, I discuss steel and related projects in a dozen countries, making “Steel and Sovereignty” the first history of the spread of steelmaking across the globe in the twentieth century. I take advantage in particular of extraordinary materials available in the archives of Germany’s leading iron and steel firms. Long prized as a resource for scholars of European business history and political economy, here I use them, for the first time, to write global history by documenting these firms’ early participation in industrialization programs in South America, Eastern and Southeastern Europe, the Middle East, and East Asia. These pursuits entwined these firms in matters of foreign policy, ultimately eliciting political responses from Germany’s rivals, including the United States. Combining these German materials with official archives and those of private banks and bankers in the United States and Britain, as well as in Brazil, I show how Americans first tried to put their own impress on the export of capital when they suddenly had a virtual monopoly on it after World War I; then tried to unceremoniously extricate themselves from the political tangle of capital exports after the Great Depression; only to lunge back into the field in response to the actions of other states in a fashion that many of its statesmen and its capitalists did not find amenable and on terms set by others.

The emergent logic to which both the United States and its rivals responded is neatly summarized in the following passage.

Written in 1937, the author was Max Ilgner, a rising star within IG Farben, Europe’s largest corporation and the leading chemical producer in the world. It was written for top economic policy officials in Hitler’s government, arguing for a comprehensive new strategic concept in its foreign economic policy. Despite being one of nine IG Farben executives convicted at the Nuremburg Industrialists Trials in 1948 of “plunder and spoliation” for his role in orchestrating Farben’s takeover of private property in German-occupied territories, Ilgner’s conspectus of some of the most fundamental tendencies in the politics of the modern world provides the outlines of a conceptual scheme that guides this dissertation.

“It is evident that in the long run all countries and colonies strive for independence”: Before the communications and transportation revolutions of the mid-nineteenth century, according to Michael Geyer and Charles Bright, societies around the world possessed the capacities “to produce autonomous histories—that is, to shape the articulations of power, production and social reproduction…within their own terms, largely from their own resources.” After those revolutions, those capacities “imploded.” Now, all peoples “were forced…to secure and maintain control over their futures by means of a greater more sustained engagement with all others.” Geyer and Bright describe this new state of affairs as “globality” or “the global condition.” Societies around the world experienced globality as a “crisis of survival,” and for good reason.^{Footnote 13} Outright rejection of the West’s methods was tried but failed as a technique of self-defense. By the turn of the twentieth century, the only hope was to be like the Japanese, for whom it had ceased to be a question of whether they should enter the world system. Instead, the questions were, “how, on what terms and under whose power.”^{Footnote 14} For those that would stave off social extinction, “one could only remain the same by transforming oneself.”^{Footnote 15}

An “imperative for self-transformation” is the point of departure for this study. This transformation took many forms, but all depended on wrenching changes to the legal and institutional frameworks of economic life. Sociological labels—“modernization,” “Westernization”—found their physical correlative in industrial development. Sovereignty required steel, the production of which—central to everything from railways to urban construction to armaments—preoccupied nation-builders everywhere.^{Footnote 16}

“That is, the mother country must be an ally and not an exploiter”: Ilgner’s remarks show that the efforts of “young, independent countries” to transform themselves implicated the more powerful countries in the international system. Ilgner identified “nationalization and industrialization” as the politico-economic crucible in which a new relationship between imperialist and imperialized countries would be forged. Under the classic nineteenth-century international division of labor, some countries specialized in producing food and raw materials, which they exported to the countries that specialized in producing manufactured goods. Some of the primary producers were relatively rich, but many were economically underdeveloped and politically weak yet possessed valuable resources. In the 1930s, Ilgner detected a new determination on the part of these countries to lever their potential wealth into political strength. The rich countries could either retrench or adapt. Contrary to widespread belief, adaptation was not zero sum. Weak countries could only transform the nature of their economic organism by borrowing from abroad. In nearly all instances, the capital, equipment, and expertise required to install and develop modern transportation, mining, processing, and manufacturing industries had to be procured from those same strong countries, one way or another. Because their assistance would be needed, the powerful countries stood to gain from the weaker countries’ projects of self-transformation. There were grounds for a mutually beneficial relationship.

All aspects of modernization or Westernization required borrowing from the West. Unlike Latin script, say, the borrowing necessary for industrialization came as literal bank loans, which had to be repaid. Such borrowing was perilous. For a century up to 1914, failure to repay international loans had served as pretext for aggressive incursions against the sovereignty and independence of borrowing state.^{Footnote 17} Thus, industrialization as a technique of defense against imperialism was inherently paradoxical: international loans for capital and technology could accelerate the economic transformation that was necessary for defense against the incursions of the West, or they could render the borrower even more exposed. This was the Scylla and Charybdis of financial diplomacy across the first half of the twentieth century.

“Carrying the analogy to the young independent countries…, the country that has been most active as an ally in the development of existing opportunities will be the one that most secures its political and economic influence”: One of the structuring conditions of the modern world was the existence of multiple capitalist military powers, by and large in a state of rivalry with one another.^{Footnote 18} When it came to the “young, independent countries,” this meant a rivalry for markets, for access to valuable raw materials, for influence or control, and—at the limit—for alignment or even alliance in the event of great power war. From his conversations abroad, Ilgner concluded that the newly industrializing countries would decide their economic and political alignment based on which country was most willing and able to supply them with the inputs for industrialization. Ilgner, like many observers in the interwar period, implicitly conceived the international system as organized along two axes, or what Bright and Geyer have called a “vertical” axis of relations between the strong and the weak, and a “lateral” axis of relations among the strong.^{Footnote 19} Far from being independent of each other, changes in relations along one axis had real-time consequences for relations along the other. National strategy required steering a path through this cross-cutting and globe-spanning field of force.

Ilgner’s relatively serene foreign policy maxim—that the great powers should secure their advantage over their rivals by allying themselves with the nationalist ambitions of the weak—belied a radical novelty of world politics at the moment he wrote. Rivalry between the capitalist military powers of the late nineteenth and early twentieth centuries was a paramount factor in the loss of independence that the weaker countries were now trying to recover by way of nationalization and industrialization. Explaining how that changed—how rivalry could have gone from a standing threat to the independence of weak countries before 1914, to the wedge with which some were able to reclaim it—is one of the principal burdens of this dissertation.

An imperative for the weak powers to transform themselves in order to defend against the strong, requiring borrowing on exploitative or favorable terms from at least one of the same, whose shifting and rivalrous relations with each other were determining factors in the success or failure of those same projects of self-transformation. These three terms form the conceptual grid that organizes the material presented in this study. The argument follows logically from it.

This dissertation argues that challenges to the international system in the 1930s along both its vertical and lateral axes succeeded in transforming it from a standing threat to the sovereignty of weaker countries, to an order that institutionalized the defense of that sovereignty as one of its explicit purposes. Before 1914 international lending was riven by intense great power rivalry, but that rivalry was amenable to at least temporary stabilization through cooperation between the great powers in the form of creditor cartels and spoils-sharing agreements. Nationalism was the challenge along the vertical axis.^{Footnote 20} Its goal was to strip away the compromises and threats to sovereignty that borrowing had obdurately entailed, and its strategy was to play one power off another while avoiding provoking any power that was in a position to intervene coercively. Beginning before World War I, but with greater intensity afterward, nationalist resistance rendered the benefits of inter-imperialist agreements at the expense of borrowers’ sovereignty increasingly illusory, leaving coercion, noncoercive defense of existing interests, or active cooperation with nationalists’ bids for autonomy as the remaining policy options for the creditor powers.

Along the lateral axis, the challenge came in the form of Nazi Germany’s own radical pursuit of autonomy by way of full-tilt rearmament, especially between 1934 and 1938. This policy led Germany to refuse cooperation with the other capitalist military powers in its commercial and financial dealings with poor, independent countries. Germany’s need for raw materials to fuel its dramatic military-industrial buildup under radical balance of payments constraints led it to enter into bilateral relationships with some of those countries. The particulars of those relationships, in some cases, corresponded to certain nationalist desiderata.^{Footnote 21} These included, in particular, medium-term financing for capital goods crucial for industrialization, with fewer compromises to sovereignty than borrowers had suffered when the creditor powers found it easier to cooperate. In response to the success of German policy in economically and strategically valuable countries—first Britain, then the United States—reluctantly abandoned the defense of old interests in order to meet the nationalist demand for industrialization. It was a striking reversal. “Steel and Sovereignty” shows how it came about.