Once both Central Powers and Triple Entente nations were well along the path to economic recovery, thanks largely to the Dawes Plan, US investors came to be awash in debt. J.P. Morgan—the same investment house that had handled England’s huge wartime debt—also masterminded the huge debt relief package that brought Germany’s debt under control and enabled Germany to begin paying off its debt to France and England; which, in turn, enabled France and England to repay its war debts to US investors, with interest.
This made US the largest creditor nation and explains how the US came to succeed Great Britain as the world’s fourth hegemon (after Italy, Holland, and Great Britain); i.e., the primus inter pares without whose agreement international trade and commerce could not take place and whose laws and holdings therefore shape the global economy.
But, of course, US investors needed to find places to invest their riches and this, more than anything else helps to account for the seemingly contradictory turn inward by US politicians and turn outward by investors. Political Economy students will need to reflect more carefully on this potentially toxic combination. For it suggests that defense policy will increasingly follow instead of lead. American investors buy up huge chunks of territory and resources whose export, trade, exchange, or processing into finished goods fuels the health of the markets and and well-being of American citizens. But the protection and securing of these foreign investments in turn therefore come to be of interest to the Department of War (subsequently the Defense Department) which then has a vested interest in protecting these private investments.
How might free markets foster this unintended consequence?