The peace proved particularly onerous for Germany. Reparations totaled $33 billion—less than one-fifth what France demanded but more than double what Germany had expected, at a time when its ability to pay was severely compromised by its loss of colonies and Polish-speaking territories. Germany also surrendered the port of Danzig and the Saar coal region. And the German people were embittered by the “war guilt clause.”
The House of Morgan’s fingerprints were all over the treaty’s economic clauses. As award-winning Morgan biographer Ron Chernow noted, “Morgan men were so ubiquitous at the Paris Peace Conference in 1919 that Bernard Baruch grumbled that J. P. Morgan and Company was running the show.” The most prominent among the Morgan men was Thomas Lamont, the House of Morgan’s leading partner, upon whom Wilson relied. Another Morgan partner, George Whitney, observed that Wilson appeared to trust Lamont’s financial views more than anyone else’s. Lamont advocated setting German reparations at $40 billion and later held to the belief that, if anything, the Germans had gotten off easy. At Paris, he and the other bankers made sure that Morgan’s interests were well protected.131
Although the reparations and the “war guilt clause” created a hostile and unstable environment in postwar Germany, their impact has sometimes been exaggerated. The reparations were more onerous on paper than in practice. Beginning in 1921, the actual payments were repeatedly revised downward based on Germany’s ability to pay. And the “war guilt clause”—Article 231—does not actually mention “guilt.” It holds Germany accountable for reparations for “all the loss and damage” resulting from “a war imposed upon them by the aggression of Germany and her allies.”132 It is certainly true, however, that Hitler and other right-wing Germans exploited the postwar sense of victimization that came with defeat and Allied retribution. The fact that little of the fighting took place on German soil and that wartime government propaganda had led most Germans to believe that victory was imminent made the settlement even more difficult to swallow and lent credibility to Hitler’s allegations.
Economic, social, and political instability also rocked postwar Italy, where armed fascisti—followers of Benito Mussolini—repeatedly clashed with leftist demonstrators and strikers. U.S. Ambassador Robert Johnson warned of the dangers of a takeover by Mussolini’s extreme right-wing forces. The U.S. Embassy reported in June 1921: “the fascisti seem to be the aggressors, while the communists… have… shift[ed] the imputation of lawlessness and violence from the party of ‘Red’ revolution to the self-constituted party of ‘law and order.’” Later, when Richard Child, Warren G. Harding’s ambassador to Italy, replaced Johnson, he did an about-face, praising Mussolini and castigating the Communists. Child and other embassy officials downplayed Mussolini’s right-wing extremism, extolling instead his anti-Bolshevism and willingness to use strong-arm methods to defeat labor. U.S. support continued even after Mussolini’s imposition of a Fascist dictatorship. Mussolini’s defenders included American business leaders like Secretary of the Treasury Andrew Mellon, Thomas Lamont of J. P. Morgan, and Ralph Easley of the National Civic Federation.133
Historians have long since discredited the myth that revulsion caused by the war and European entanglements plunged the United States into isolationism in the 1920s. In fact, World War I marked the end of European dominance and the ascendancy of the United States and Japan, the war’s two real victors. The twenties saw a rapid expansion of American business and finance around the globe. New York replaced London as the center of world finance. The era of U.S. domination of the world economy had now begun. Among the leaders in this effort were the oil companies.
The war proved that controlling oil supplies was central to projecting and exercising power. Great Britain and Germany tried to cut off each other’s oil supplies during the war. Great Britain, hurt by German attacks on its oil supply ships, first expressed concern about an oil shortage in early 1916. The Allies also blockaded Germany’s access to oil resources, and British Colonel John Norton-Griffiths attempted to lay oil supplies in Romania to waste when Germany moved to seize them in late 1916. Underscoring the importance of these developments, Britain’s Lord Curzon pronounced soon after the armistice that “the Allied cause had floated to victory upon a wave of oil.” The United States was key to that victory, having met 80 percent of the Allies’ wartime petroleum needs.134 But once the war ended, oil companies were poised to grab whatever new oil-rich territories they could. As Royal Dutch Shell asserted in its 1920 annual report, “We must not be outstripped in this struggle to obtain new territory… our geologists are everywhere where any chance of success exists.”135
Royal Dutch Shell trained its sights on Venezuela, where General Juan Vicente Gómez’s government offered friendly, stable conditions that seemed much more hospitable than the ongoing volatility and declining production in Mexico.136 Concerned about Great Britain’s predominance in Venezuela and believing that production during World War I had largely depleted U.S. domestic supplies, U.S. companies soon joined the competition for Venezuelan oil.137 In The Prize, Daniel Yergin’s pioneering book on the oil industry, the author describes Gómez as a “cruel, cunning, and avaricious dictator who, for twenty-seven years, ruled Venezuela for his personal enrichment.”138 Indeed, according to historian Steven Rabe, Gómez essentially made the country “his private hacienda” as he “amassed a personal fortune estimated at $200 million and landholdings of 20 million acres.” Tellingly, the dictator’s passing in 1935 would be greeted in Venezuela with a weeklong “spontaneous popular outburst” in which demonstrators vented their rage by ravaging “his portraits, statues, and buildings,” and even “massacred” some of his “sycophants.”139
Gómez’s power rested upon local caudillos (strongmen), an army staffed by his loyalists, and a network of domestic spies. Detractors faced harsh persecution. U.S. Chargé d’Affaires John Campbell White reported that prisoners in Venezuela were treated with “medieval severity.” The United States was always ready to step in if needed. In 1923, the United States sent a Special Service squadron to the country as a show of support in response to what turned out to be unfounded rumors of an impending revolution.140
With an economy increasingly dependent on petroleum revenues, Gómez enlisted the oil companies to write parts of Venezuela’s business-friendly 1922 Petroleum Law. The companies reaped massive profits. Oil company workers and the environment fared less well. Spills and accidents occurred frequently. One oil well blowout in 1922 spread twenty-two miles, releasing nearly a million barrels of oil into Lake Maracaibo.141
While Gómez was busy enjoying his wealth and fathering his alleged ninety-seven illegitimate children, his family and hangers-on, known as Gomecistas, bought up the choice properties and then sold them to foreign companies, accumulating vast fortunes for themselves and their leader, while their countrymen remained mired in poverty. In the process, Venezuelan oil production jumped from 1.4 million barrels in 1921 to 137 million in 1929, trailing only the United States in total output and first worldwide in exports. Of the three companies dominating the Venezuelan market, two were American-owned—Gulf and Pan American, which had been purchased in 1925 by Standard Oil of Indiana.142 Combined, the two companies replaced Great Britain’s Royal Dutch Shell as Venezuela’s majority oil producers in 1928 and were responsible for 60 percent of production in the country by the time of Gómez’s death.143