The following book review will appear in the September 2002 issue of Ideas on Liberty, the monthly journal of the Foundation for Economic Education in Irvington, New York.

How Wall Street Created a Nation: J.P. Morgan, Teddy Roosevelt, and the Panama Canal
By Ovidio Diaz Espino
New York: Four Walls Eight Windows, 2001
254 pages

When traveling from the Atlantic Ocean entrance of the Panama Canal to the canal’s exit into the Pacific Ocean at its other end, what direction are you going?

Most Americans would undoubtedly respond, “That’s easy. It’s east to west.” But they would be dead wrong. Check a map. The peculiar shape of the isthmus of Panama and the cut of the canal across it clearly make the journey a west to east one or, to be more precise, a 51-mile trip from the northwest to the southeast.

If the author of a new and revisionist history of the Panama Canal is correct, geography isn’t the only thing about the Big Ditch that Americans typically don’t know. Ovidio Diaz Espino’s account of the political intrigue and treachery that made a few people a lot of money certainly isn’t standard fare in the history books. Instead, we’re taught that the swashbuckling visionary Teddy Roosevelt rushed to the aid of freedom-fighters in Panama, helped them secure their independence from Colombia, and then led the building of the Canal in just the right spot. How smart and magnanimous of him!

To be sure, history texts often offer a quick reference to TR playing fast and loose with the Colombians but they also usually wink at it and move on. What’s wrong with a little gunboat diplomacy if that’s what it takes to get those selfish, backward Latin Americans to get in line? Great ventures for the good of all require a little bending of the rules now and then, so we’re told.

Like other schoolchildren growing up in Panama in the 1960s, Espino was told the struggle of Panamanian patriots that TR helped. But it was years later as a lawyer for J.P. Morgan in New York City that he first learned of a very different perspective. At a Christmas party, he was introduced to a screenwriter named Webster Stone who asked a startling question, “Did you know that your country was conceived in Room 1162 of the Waldorf Astoria?” Stone’s revelation would plunge Espino into a four-year investigation that culminated in this book.

The French, of course, were the first to attempt a Panamanian canal in an ill-fated venture that collapsed in failure in 1889. Shares of Ferdinand de Lesseps’ company languished nearly worthless as its equipment rusted in the Panamanian jungle, but the rights to build a canal there were another matter. Won from Colombia (Panama was just a Colombian province back then), they could be worth a fortune—but only if the United States entered the picture and took up where the French left off.

The U.S. government had long favored the idea of a canal somewhere in Central America. Ships headed to California from East Coast ports had to make the long and dangerous voyage around Cape Horn. Or, shippers steamed to Caribbean ports in Central America, unloaded their cargo for transport overland, and then re-loaded them on different vessels on the Pacific side—still a costly endeavor. When the French adventure collapsed, it was only a matter of time before the U.S. got involved. But while a consortium of Wall Street financiers schemed to buy the rights to a Panamanian canal for a song and sell them to the U.S. at a huge profit, a roadblock called Nicaragua stood in their way.

By the turn of the century, it had become widely accepted that the best route for a successful canal would be across Nicaragua. That country was offering the land for free, whereas the Wall Street crowd that had bought up de Lesseps’ rights in Panama were holding out for $40 million. Moreover, the route through Nicaragua was closer to the U.S., provided upwards of a hundred miles of navigable lakes and rivers, and offered the easiest-to-cross pass through the Central American highlands. To top it off, Nicaragua was a more stable country than strife-ridden Panama.

Espino’s story of how the New York financiers swung both TR and the Congress over to the Panama side of the debate is an extraordinary account of double-dealing, deception, and dollar diplomacy. The pro-Panama forces even swayed some votes by claiming that Nicaragua was too risky and offering up samples of that country’s postage stamps, depicting live volcanoes spewing ash and lava, to prove it.

When the votes were counted, the bill that passed on June 19, 1902 gave preference to Panama on the condition that a satisfactory treaty be negotiated with Colombia; otherwise, the president was ordered to proceed with construction through Nicaragua.

What happened next is too juicy a read to betray here. Read it and judge for yourself. Suffice it to say that if Espino is right, both the Panamanians and the Colombians were double-crossed by Uncle Sam, while well-heeled and well-connected men like J.P. Morgan, Philippe Bunau-Varilla, and William Nelson Cromwell cleaned up. The author doesn’t claim that TR pocketed anything for his work on behalf of the Wall Street syndicate, but does point out that he took extraordinary measures to make sure the trail went cold short of him. The president’s famous remark sometime later (“I took the Isthmus”) rankled our neighbors to the south for decades. Several prestigious newspapers of the day published evidence of high-level shenanigans (The New York Times even ran a story under the title, “Isthmus Coup D’Etat Planned in New York”) but once the Canal was built, the matter was dropped until Espino did his digging for this book (though David McCullough's book "The Path Between the Seas," brought some of it to light in recent years).

The author’s work is only slightly marred by a tinge of class warfare rhetoric. More by inference than explicit language, he seems to buy into the “robber baron” canard that rich men are inherently mischievous, if not corrupt and exploitative. He would benefit from reading Burton Folsom’s classic "The Myth of the Robber Barons," which explains that as long as entrepreneurs confine themselves to the free market, they can satisfy their appetite for riches only by serving others; it’s when they use government that the potential for harm or artificial gain is realized.

In other, nonpolitical or marketplace ventures, scions like J.P. Morgan accomplished much that was good. If Espino’s case is accurate—and he does present a good deal of strong evidence—it was clearly political power and incompetent or corrupt government officials that made possible any undue gain from the Canal affair.

"How Wall Street Created a Nation" is revisionist history in the best sense of the term. It puts conventional wisdom to the test of rigorous research. It follows the money. And in the end, it lends still more credence to those famous words of another American president, Harry Truman: “The only thing new in the world is the history you don’t know.”