Business ideology and U.S. foreign policy: Michael P. Grace and the Grace Contract in Peru, 1880-1890

This dissertation examines the negotiations that led the Grace Contract in 1890. It studies how a U.S. corporation, W. R. Grace and Company, shaped the politics and economy of Peru and reflected the ideals of U.S. foreign policy. This work is the result of multiarchival research conducted in the collections of W. R. Grace and Company; the Peruvian Corporation, Baring Brothers, and the Council of Foreign Bondholders; and the records of the U.S. State Department and British Foreign Office.;W. R. Grace and Company began operations in Peru around 1850 and, after William R. Grace moved its offices to New York City in 1868, the company rapidly became the most important U.S. business operating on the West Coast of South America. This study focuses on Michael Grace, for he is responsible for suggesting and maneuvering the contract through a complicated series of negotiations.;The reason for the contract was Peru's deplorable financial condition. During the 1860s and 1870s Peru borrowed heavily to finance its railroad building program. Peru defaulted on its loans in 1876 and in 1879 entered the War of the Pacific against Chile and was soundly defeated. After the war ended in 1883 Peru owed its creditors, mostly British bondholders, ;In 1885 Michael Grace suggested that Peru turn over to its creditors control of its railroads and customs revenues in return for cancellation of half of the debt. Over the next four years Grace negotiated from this plan. He was forced to contend with continued instability in Peru, divisions among Peru's creditors in Europe, powerful objections from Chile, and an unsympathetic U.S. minister in Peru. Nevertheless, Grace succeeded when, in January 1890, Peru, Chile, and the bondholders agreed to the contract.;Michael Grace exhibited many of the ideas that also lay behind U.S. foreign policy. He wanted to eliminate political dissent in Peru because that brought instability, which in turn threatened his substantial business interests. Removing Peruvian control of its own economy exposes his racism and arrogance. Suggesting that Peru follow the example of the United States by establishing democratic institutions mirrors an idea deeply ingrained in U.S. foreign policy ideology. That Grace represented an early multinational corporation based in the United States and conducting business in Latin America makes the Contract important both for understanding subsequent U.S.-Latin American relations and showing the consistency of business ideology and foreign policy ideology.