Much has been written about Woodrow Wilson and Latin America, but little attention has been paid to his policy with Nicaragua. What attention it has gathered amounts to a footnote among most scholars who dismiss Wilson and Nicaragua as more of a big stick and dollar diplomacy. Could a man who referred to foreign interests in Latin America as "predatory interests" really practice dollar diplomacy? What scholars have ignored is the attitude toward businessmen not only by a deeply religious Woodrow Wilson but also by a strongly skeptical public in the Progressive Era. After all, progressive reform was largely in response to the economic corruption and greedy opportunism of the previous Gilded Age. It would be the 1920s before the business community regained the respect of the general public. What the Wilson administration did with Nicaragua is much more complicated than simply a case of another politician being a tool of Wall Street's. Wilson did inherit a situation in Nicaragua that left little room for change, but alternatives were considered to limit economic exploitation. The irony is that Wilson's dream of promoting democracy and fair economic investment abroad never materialized in Nicaragua.
President William Howard Taft left Wilson a minority government in Nicaragua that was economically irresponsible but placed in power mainly by the United States. The Taft administration negotiated a loan arrangement to keep this pro-American, but unpopular, government in Nicaragua in power. Wilson could scuttle the arrangement and throw Nicaragua into chaos and instability or fulfill the commitments and preserve stability. Order and stability were major themes of progressive reformers. William Jennings Bryan, Wilson's secretary of State, shared the president's hatred of foreign economic exploitation of Latin American countries. But, like Wilson, he would find few options for United States-Nicaragua relations. Other options were pursued and the agenda of promoting democracy was sought without the desired outcome. Good intentions do not necessarily produce good results. As the preeminent Wilson scholar, Arthur Link, expressed it long ago, "the formation of the Wilson administration's Nicaragua policy reveals the way in which a complexity of factors utterly frustrated Bryan's good intentions." More recent scholars have lost sight of that simple reality and tried to portray Wilson as an apostle of capitalist greed.5 Woodrow Wilson was far too complicated to be described in such simple terms.
American intervention in Nicaragua has its origins in the Theodore Roosevelt presidency. Nicaragua's long-term dictator, Jose Zelaya, incurred the wrath of Theodore Roosevelt because he tried to replace the United States as the dominant force in Central American politics and also because he sought European investors for a rival to the Panama Canal to be located in Nicaragua. By the time of the Taft administration, Zelaya had become persona non grata in the United States and rebel factions were supported by this government in order to overthrow his regime. The problem was that the revolution did not immediately bring to power a government in Nicaragua acceptable to the United States. Therefore Taft supported a second revolution which brought to power a former bookkeeper in an American mining company by the name of Adolfo Diaz and he was more to the liking of the United States. Diaz may have been pro-American but be was supported by a small minority of Nicaraguans and therefore political unrest continued. By the time Wilson arrived in the American presidency, the only thing that kept Diaz in power was American economic and military support. The new president had to make some tough decisions if he was going to "teach Latin Americans to elect good men" as Wilson was fond of saying. The "good men" Nicaraguans wanted to elect to power were not so pro-American.
The Taft administration had worked out a classic dollar diplomacy arrangement with Diaz that would keep him in power regardless of his lack of popular support and, even with his squandering funds from the national treasury. …