Britain, France, and the Financing of the First World War 9780773569805

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Britain, France, and the Financing of the First World War

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Britain, France, and the Financing of the First World War Martin Horn

McGill-Queen’s University Press Montreal & Kingston • London • Ithaca

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© McGill-Queen’s University Press 2002 isbn 0-7735-2293-x Legal deposit first quarter 2002 Bibliothèque nationale du Québec Printed in Canada on acid-free paper This book has been published with the help of a grant from the Humanities and Social Sciences Federation of Canada, using funds provided by the Social Sciences and Humanities Research Council of Canada. McGill-Queen’s University Press acknowledges the financial support of the Government of Canada through the Book Publishing Industry Development Program (bdidp) for its activities. It also acknowledges the support of the Canada Council for the Arts for its publishing program.

National Library of Canada Cataloguing in Publication Data Horn, Martin, 1959Britain, France and the financing of the First World War Includes bibliographical references and index. isbn 0-7735-2293-x (bound) 1. World War, 1914-1918 – Finance – Great Britain. 2. World War, 1914-1918 – Finance – France. I. Title. hj1023.h67 2 0 0 2940.3 ′1 c2001-901459-7

This book was typeset by Dynagram Inc. in 10/12 Baskerville.

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To my mother Jean Mary Horn

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Contents

Tables

viii

Acknowledgments Introduction

ix

3

1 Finance, War, and Foreign Policy before 1914 7 2 A Short War, 1914–1915

28

3 Relations with the United States, 1914–1915 4 A Long War, 1915–1918

57

76

5 The Debate over Finance and Resources in 1915 93 6 The Collapse of France 7 The Dollar Problem 8 A New World Conclusion Notes

Index

142

166 183

187

Bibliography

117

225

239

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Tables

1 Bank of France: Holdings of Discounted Bills, 1914 2 French Government Revenue and Expenditure 3 National Defence Bonds Issued(France

32 80

)81

4 British Government Revenue and Expenditure

83

5 French Trade with Britain, 1914–1918 85 6 French Trade with the United States, 1914–1918

86

7 British Trade with the United States, 1914–1918

87

8 Selected Exchange Rates on New York, 1914–1918

88

9 Gold Reserves of the Bank of England and Bank of France, 1914–1918 90 10 Ratio of Paper Currency to the Gold Reserve in France, 1913–1918 91 11 New Capital Issues in Britain, 1913–1918 12 1916 Treasury Estimate of Subsidies to Allies

92 121

13 Bank of France Advances to the Ministry of Finance and Notes in Circulation, 1914–1918 170

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Acknowledgments

Historical research invariably involves a great deal of solitary activity, reading books and articles, and perusing documents often widely scattered geographically. But the end product of the labour is never a solitary venture; along the way others have helped. In Britain, I would like to thank the Bank of England, the Public Record Office, and the House of Lords Record Office, as well as the Baring Archive, N.M. Rothschild & Sons, the Bodleian Library, the British Library, the Guildhall Library, the India Office Library, Birmingham University Library, King’s College and, Churchill College, Cambridge, and the British Library of Political and Economic Science for permission to examine the material in their collections and to quote from them. In France, I would like to thank the Bibliothèque nationale, the Archives nationale, the Banque de France, the Ministère des affaires étrangères, and the Ministère des finances for also opening their papers. In the United States, I would like to acknowledge the Library of Congress, Yale University Library, the Baker Library at Harvard University, Amherst College, Cornell University, the Federal Reserve Bank of New York, and the Pierpont Morgan Library in New York City. I am especially grateful to Mr David Wright, formerly archivist at the Pierpont Morgan Library, whose assistance in unearthing the papers of the House of Morgan was invaluable. This book has been published with the help of a grant from the Humanities and Social Sciences Federation of Canada, using funds provided by the Social Sciences and Humanities Research Council of Canada. At various points Diane Kunz, Ken Mouré, Denis Smyth, and the late Ian Drummond all made comments on chapters, and to them I am grateful. But this book would not have been possible without the

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Acknowledgments

support of my wife, Lisa Pasternak, who read everything and whose comments strengthened the work immeasurably. Any errors that remain are mine. Finally, my daughters, Madelaine and Miranda, helped too, by providing me with wonderful, and necessary, distractions. Martin Horn

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Britain, France, and the Financing of the First World War

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Introduction

Before 1914, Britain and France had a long history of rivalry. Save for the brief Crimean experience in the mid-nineteenth century, European conflicts since 1648 had repeatedly found Britain and France on opposing sides. The War of the Spanish Succession of 1701–14, the Seven Years’ War of 1756–63, and the French Revolutionary and Napoleonic Wars from 1793 to 1815 are the best known of these struggles. In each, Britain had orchestrated the formation of coalitions dedicated to preventing French hegemony on the continent. The Crimean War was an aberration, the Anglo-French partnership being motivated by the greater British fear of Russia and the desire of Napoleon III to reassert France as the arbiter of Europe. More typical was British neutrality during the Franco-Prussian war of 1870–71 and the subsequent coolness between the Third Republic and Britain. The Anglo-French entente cordiale of 1904 followed a period of considerable tension between the two powers. At Fashoda in 1898 the two had come close to war. Although France’s fear of Germany, and Britain’s need to reduce the range of possible enemies had fostered the entente, Anglo-French comity was atypical. Yet Anglo-French comity is one of the most important themes in twentieth-century European history. It was Britain and France and their allies that fought and won the First World War; it was Britain and France along with the United States that made the peace and then failed to keep it; it was Britain and France that grappled with the challenge of a resurgent Germany in the 1930s; and it was Britain and France that began the Second World War as allies. 1 After the war, with Europe in ruins, and before the West German economic miracle occurred in the 1950s, it was Britain and France that played leading roles once again in the reconstruction of Europe. And then, of course, they collaborated in the Suez adventure. But as scholars have

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Britain, France, and Financing the First World War

acknowledged, the relationship between the two states has been a complex one, fraught with tension, divided by language, and burdened by the past. Mutual incomprehension and mutual suspicion have been widespread in both countries. There have been Britons who loved France and there have been Frenchmen who were anglophiles – but they were always in the minority. For much of the century, the two powers were “troubled neighbours.”2 To some extent the fractiousness arose from the incompatibility of British and French concerns. Although both states were world powers in 1914, their anxieties were quite different. French policy was Eurocentric; despite the presence of empire in Africa, Indochina, and elsewhere, it was Europe that preoccupied France. Security from Germany and the search for friends animated French statesmen. French foreign policy before 1914 – and again after 1918 – looked for allies to contain Germany. The watch on the Rhine never flagged and was always at the heart of French thinking. Britain, on the other hand, was a world power in a way that France was not; its global reach was underpinned not only by the possession of a far-flung empire but also by the fact that it was the world’s leading shipper, trader, and financier. Worries about India and the Russian threat, fears of American designs in South America, and numerous other anxieties were present simultaneously with the tensions that arose from the direction of German policy in the years before 1914. Consequently, British foreign policy, more than French, was never purely focused on continental developments, not even in 1914 and 1939. The weight of Britain’s global position always intruded. These disparate strategic concerns were part of the reality that Britain and France had little in common before 1914. Waging the First World War together was a novelty, breaking the pattern of centuries. Sustained interaction at the governmental level had never occurred before, though of course there had been some contact: there was the occasional state visit, notable as much for its exceptionalism as for any other reason; infrequently, there was discussion between prime ministers and premiers; and after 1906 there were the surreptitious talks between the military men. But the war gradually forced the creation of joint committees to deal with wheat, shipping, and coal, and of regular conferences to discuss grand strategy or manpower. More prosaically, few Britons or Frenchmen had ever met; the war was to see millions of British soldiers living, fighting, and dying in France. Although the mass of Frenchmen never saw a Tommy, many more did during the war than had done so before. The war represented a new, more intense phase of the Anglo-French relationship. Yet the old verities persisted. The war did not inaugurate a new era in Anglo-French dealings.

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Introduction

5

Familiarity did not quite breed contempt after the war (except in such cases as Lord Curzon, the postwar British foreign secretary), but neither did the wartime experience result in any appreciable reduction in the divisions between Britain and France. There were many reasons for this, one of which was the financing of the war. Britain and France were the two leading financial powers in the world in 1914. But just as they differed with respect to strategy and empire, they also had differing conceptions of the importance of finance. For the British, financial power was an integral component of their status as a great power. Dominance of international finance conferred on Britain recognizable advantages of which British policy makers were well aware. The money earned by London’s financial centre, the City, offset growing weaknesses in trade, contributed massively to capital flows abroad, and reinforced the empire. Britain was not prepared to surrender this position, and throughout the war the preservation of Britain’s international financial supremacy was a given.3 In France the issue was not the preservation of Paris as a financial marketplace; it was France’s survival, with its monetary system intact and the republic still in being. A sound franc was seen as the key to these goals, and a sound franc rested on the French people’s confidence in it, in the republic, and in the gold contained in the vaults of the Bank of France. The result was conflict between Britain and France. This took several forms. There was dissension on financing the alliance. Loans to the allies, borrowing in the United States, and the degree to which the London capital market should be open to France were all contentious matters. Gold in particular fostered acrimony. Once war came, the British wanted French gold, but the French were loath to release it. The gold was required to ensure that Britain remained on the gold standard, to finance the alliance, and to preserve the leading role of the City after the war. Naturally the French were not interested in shipping gold for the last of these objectives. These issues were connected with internal conflicts that had their own dynamic. Thus, in Britain, the question of maintaining the postwar international financial supremacy of London was linked to the question of what kind of war Britain should fight. Throughout 1915 and 1916 the debate over finance and resources ran through British politics and at length allowed David Lloyd George to displace H.H. Asquith as prime minister. Despite the disputatiousness of the relationship between France and Britain, ultimately the allied coalition was triumphant. An account of its dealings must keep this reality in mind, even if there was much division along the way. The allied success in financing a war of unprecedented breadth, duration, and cost was partly responsible for the victory of 1918. Conversely, the ending of the war did not mean that the wartime

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financial experience faded away. Some of the antecedents of the angry dealings between the two states in the 1920s are to be found in their wartime financial affairs and the reassertion of the older tradition of animosity. In 1914 diplomats and foreign offices were ill suited to discuss financial matters, while treasuries and central banks lacked the experience of negotiations abroad that might have imparted confidence to challenge the foreign offices. When war came, the belligerents groped towards solutions to financial problems. There was a hesitancy to create new bureaucratic structures because of a combination of factors: the strength of prewar liberalism in Britain and France; the assumption that the war would be short; and the lack of technical expertise. Slowly governments demonstrated that they were willing to take tentative steps towards the imposition of controls on finance – the precursor to much more sweeping changes in the run-up to the Second World War. But finance remained an area in which the extension of governmental authority was incomplete. The respective central banks – private organizations – played a leading role in wartime finance, as did private banks. The continuity between the interaction of central authorities, central banks, and private bankers during the war and the 1920s is marked. I begin, however, with prewar thinking about the importance of gold, about the role of finance in international relations, and about planning for the financing of future wars. Chapter 1 canvasses the government departments and central banks that were charged with the oversight of financial affairs, as well as assessing the relative financial strengths of Britain and France in 1914. Succeeding chapters deal with the British and French efforts to pay for the war. The short war is the subject of chapters 2 and 3, which analyse the initial responses of Britain and France from the onset of the conflict until early 1915. Chapter 2 deals with the development of their relationship, and chapter 3 examines the British and French dealings with the most important neutral country, the United States. The long war is the subject of chapter 4, which surveys the financial contours of the war from 1915 onwards by assessing the efforts made in Britain and France to pay for a war of indeterminate length. Chapters 5 and 6 examine two themes: first, the debate over finance and resources in 1915, during which the issue of how far Britain was prepared to go to pay for the war was argued; secondly, the ramifications of the collapse of French external finance. Chapter 7 discusses the growing importance of the United States as an arsenal for the allies and considers the worries in Britain and France that a shortage of dollars might imperil the war effort. Chapter 8 concerns a changed world – altered inasmuch as the United States entered the war as an associated power in April 1917.

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chapter one

Finance, War, and Foreign Policy before 1914

Herbert Feis, in a classic text, labelled Europe in 1914 the “world’s banker.”1 European capital flowed abroad to finance countless ventures. The banks that handled international trade were predominantly European, the bankers likewise, and the assumptions that guided their actions were those of a confident, expansive society. Not all European states were meaningful actors in international finance. The various Balkan nations were poor, with backward economies. Others that were accounted great powers, such as Austria-Hungary, Italy, and Russia either were net importers of capital or were characterized by relatively unsophisticated financial systems. Germany, France, and Britain, in ascending order, were the leading financial powers in Europe.2 Although Germany possessed the largest population of the three, the most vibrant economy, and a strong financial system, internal demands absorbed the bulk of German capital, while the relatively late formation of the German Empire meant that both France and Britain enjoyed significant advantages in terms of capital invested abroad. The relative weakness of German financial power was a source of concern for the directors of German foreign policy. Although efforts were made before the war to enlarge the scope of German lending abroad, the results were mixed. The Baghdad railway project, though German controlled, contained substantial French capital because German financiers proved unwilling, or unable, to finance the railway in its entirety. German activity in China was matched by the British. The Second Moroccan Crisis demonstrated in 1911 that France could exert considerable pressure on German financial markets. France was a clear second to Britain as a financial power in 1914. An acute British commentator thought that only France rivalled Britain and that as a “creditor nation and in importance as a money market,” France was “at any rate not far behind this country.”3 French industry

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might have failed to keep pace with its competitors, but French finance remained robust. The savings of the French bourgeoisie were harvested by French banks, making the Paris stock exchange, the bourse, an important market. French capital flowed to Egypt, Eastern Europe, and above all Russia.4 Furthering French eminence was the Bank of France, whose substantial gold reserves allowed it to play a leading role in international finance. But the hub of international finance and international commerce was Britain. It has been estimated that 60 per cent of global trade in 1914 was financed through the medium of sterling bills of exchange.5 Through bills of exchange, London funded its own commerce as well as third-party trade, such as the shipment of American goods to Japan, or German machinery to Canada. Although these examples are commercial, there also existed a large business in finance bills that functioned in much the same manner, providing credit to various institutions around the world. The London money market, composed of the acceptance houses, discount houses, joint-stock banks, bill brokers, and the Bank of England, provided the capital and expertise to allow thousands of transactions to occur daily. The banker Sir Felix Schuster put it succinctly if immodestly in 1912: “We are the centre of all things.”6 The functioning of this system was made possible by the existence of the gold standard. In 1914 most European states, as well as the United States and Japan, were on the gold standard. Currencies were pegged to gold at a fixed figure. Individuals could present the currency notes of the Bank of England or the Bank of France to their tellers and redeem them in gold. In practice, as A.G. Ford has remarked, the gold standard was a “sterling standard.”7 International commerce flowed smoothly in the knowledge that sterling fluctuations would be minimal and that gold could always be obtained for sterling if necessary. A great deal has been written about the operation of the classical gold standard.8 One question that has attracted considerable discussion is the role played by the central banks. The traditional view is that at the heart of the international gold standard was the Bank of England, but it has been argued that this portrayal of the Bank of England as the dominant actor in the system is mistaken. Instead, Barry Eichengreen has suggested that European central banks collectively responded to crises.9 The near collapse of Baring Brothers in 1890 and the 1907 financial panic required the Bank of England to rely extensively upon other central banks. This interpretation has in its turn attracted criticism. Far from detecting the kind of international cooperation that Eichengreen stressed, close study of the dealings between the Bank of England and the Bank of France before

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Finance before 1914

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1914 convinced Marc Flandreau that the dominant characteristics of central bank attitudes towards one another were “hatred, neglect, and indifference.” The result was sporadic cooperation motivated chiefly by “self-interest.” This leads him to posit that the central banks played less of a role in maintaining exchange rate stability than is commonly realized.10 Although central banks did collaboratively move to resolve crises before 1914, there was no pattern of sustained engagement between the Bank of England and the Bank of France. This meant that when war came in 1914 the respective central banks had no tradition of working together in harness, and indeed they found collaboration to be difficult. Central bank cooperation that was systematic in nature was a feature of the postwar world, and even then it was half-hearted.11 There is no doubt that both banks wanted international financial stability and the maintenance of the gold standard and that the two objectives were regarded as connected. In seeking to ensure that these ends were met, the Bank of France and the Bank of England pursued different courses. Technically, France was not fully on the gold standard – the Bank of France had the option of paying out silver rather than gold, but after 1900 its policy emphasized the importance of the gold connection.12 The Bank of France amassed gold in steadily increasing quantities, with the twin aims of preserving a stable discount rate in France and acting, if need be, as a lender to other banks. The first of these objectives meshed with the preoccupations of Third Republic France. It assured harmony at home, and it served the additional purpose of guaranteeing the continued attractiveness of longterm government borrowings, the so-called rentes, which were widely held in France. A stable, low discount rate increased the popularity of the rentes, as they offered a higher rate. The second aim was apparent in times of crisis such as 1890 and 1907, when the Bank of France either advanced gold directly to the Bank of England or discounted English bills to furnish gold. As for the Bank of England, its gold reserves were always much smaller than those of the Bank of France. To quell disturbances, successive governors of the Bank of England relied on the mechanism of the bank rate, increasing it when they deemed necessary to ensure that gold flowed into the coffers of the bank and to stem the outflow of specie.13 Both the Bank of France and the Bank of England were private organizations in 1914. This characteristic meant that they served as intermediaries between finance and the state.14 Their relationships with their states were complex. The Bank of France was founded in 1800. Napoleon, desiring to bend the bank to his own purposes, intervened in its affairs early in its life. Throughout the remainder of

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the nineteenth century, supporters and critics of the bank alternately praised or attacked its policies, but generally subscribed to the idea that it was independent. In practice, this was far from being the case.15 The political importance of such issues as the discount rate meant that it was unlikely that politicians would refrain from interfering with the bank. Several means of exerting pressure existed. A governor, two subgovernors, and fifteen regents oversaw the operations of the Bank of France. The regents were drawn from the ranks of bankers, industrialists, and civil servants. Ordinarily, bankers would account for six to eight seats, of which the representatives of famous French banking families – Mallet, Rothschild, Hottinguer, and others – appear regularly. According to Alain Plessis, a further six seats owed their positions to the minister of finance, a proportion that ensured that the voice of the state would be heard.16 The career of Georges Pallain, the governor of the Bank of France from 1897 to 1920, provides a good example of the ties between the bank and the state. Pallain began his administrative career as a départemental subprefect and managed to attract the attention of Adolph Thiers. The latter patronized him, and in 1872 Pallain became the chef de cabinet of Léon Say, the minister of finance. After an interlude at foreign affairs under Léon Gambetta, Pallain returned to finance as directeur de l’inspection générale des finances, subsequently becoming director general of customs. He was then appointed governor of the Bank of France. It was a career made in the service of the state, in proximity to leading politicians.17 The minister of finance possessed another means of influencing the Bank of France. The bank’s privileges were not irrevocable; periodically they came up for renewal. In 1897 the Ministry of Finance used the occasion of the renewal of the bank’s privileges to wrest a series of concessions from the bank.18 This agreement expired in 1918, and it is evident from the deliberations of the Conseil général of the bank during the war years that worries about a failure to obtain its renewal weighed heavily.19 On the other hand, the Bank of France was not the puppet of the state to the extent that some in Britain thought.20 The regents of the Bank of France were capable of resisting government pressure if they believed the course of action proposed by the minister of finance was unwise or contrary to their interests. In 1915 the regents, fortified by the backing of private bankers, rejected a plan advanced by the minister of finance, Alexandre Ribot, which would have centralized all exchange operations, thus stripping the bank of its role in handling foreign exchange.21 Such episodes demonstrated that while the bank usually listened carefully to requests from the ministry of finance, its compliance was not automatic.

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Finance before 1914

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As might be expected, the Bank of France also had an influence on, and was influenced by, French foreign policy. The bank did what it could to support French diplomacy, through assisting Russian loans on Paris, extending concessions to holders of Russian treasury bonds, and quietly supporting the entente cordiale with Britain.22 Shortly before the war, Maurice Patron, in a study written for the American National Monetary Commission, argued that the gold reserve allowed the directors of French policy to forestall war by intimidating foes: “It is not going too far to state that the formidable cost which a war would involve has more than once caused our possible enemies to recoil, and that in the settlement of political or diplomatic questions the nation which is richest in gold is always the one which commands the most respect.”23 Whether Pallain or the regents of the bank subscribed to this view is uncertain, though a summary of the bank’s preparations for war, written in January 1918 and entitled “The Bank was Ready,” claimed that the bank had been aware for many years that possessing large reserves of gold was “not only a stabilising economic and financial factor” but also a “political factor of the first order.”24 While the bank was acutely aware of the importance of financial strength to France, there was no regular involvement in foreign policy. Invariably, Pallain took the lead when it did occur, a pattern that continued during the war years. The Bank of England shared some structural similarities with the Bank of France. A governor, assisted by a deputy governor, oversaw the prewar bank. A Court of Directors, consisting of twenty-four men, formed the equivalent to the Bank of France’s regents. Several permanent committees existed within the bank, the most influential being the Committee of Treasury, consisting of former governors. Like the Bank of France, the Bank of England was a private organization, responsible to its shareholders to produce profits. Like any private business it had customers, the most important of whom was the state. The Bank of England performed several functions for the state before the war. It oversaw the management of the national debt, handled the issue of government stock such as treasury bills, and was charged with attempting to regulate, however imperfectly, the workings of the London money market. All governors regarded the maintenance of the gold standard as an integral part of their duty.25 The powers of the governor were considerable. On at least one occasion a governor increased the bank rate without bothering to inform the Court of Directors, the Treasury, or anyone else.26 Walter Cunliffe, governor from 1913 to 1918, ran the bank as a personal fief, ignoring the Court and the Committee of Treasury as much as possible. Dealings between the Bank of England and the Treasury – outside of the

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routine – were handled exclusively, or nearly so, by the governor. The governor would visit the Treasury chambers to discuss business, sometimes with the chancellor of the exchequer, sometimes with the permanent undersecretary of the treasury. Occasionally a deputy governor would be in attendance as well. Necessarily, the Bank of England kept a keen watch on international developments. This followed from the bank’s involvement in international finance but was also due to its portfolio of foreign securities. Successive governors, seeking to boost the bank’s income, added to its stock of foreign investments. This did not mean that the bank had any direct role in the formulation of British foreign policy. As far as the evidence permits, the most that can be said is that the Bank of England sometimes responded to the prompting of governments by purchasing foreign securities.27 Contact between the Bank of England and the Foreign Office seems to have been the exception rather than the rule, while contact with other central banks, even the Bank of France, was a rarity.28 The respective treasuries – the Ministry of Finance in France and the Treasury in Britain – were quite different in their size and structure. The Ministry of Finance was an enormous organization. Its staff numbered more than 40,000 before the war.29 This total encompassed everyone from finance inspectors to the tax collectors in the départements. The ministry was divided into ten divisions (each headed by a director), three of which constituted the central administration. Amongst these three, the Mouvement général des fonds was the most important. It supervised relations between the treasury and the Bank of France, as well as the banks, the bourse, and credit companies. It was also responsible for overseeing the creation of additional revenue in the event of a shortfall, as well as other duties.30 Between 1870 and 1924 there were twenty directors of the Mouvement général des fonds, with an average tenure of two years and eight months.31 There was no one official within the Ministry of Finance who had overall responsibility, unlike the permanent undersecretary in the British Treasury; instead, all directors were of equivalent rank. Below the directors were the deputy directors, bureau chiefs, assistant bureau chiefs, and chief clerks. To these must be added the minister’s personal secretariat, the Cabinet de ministre, and his chef de cabinet, his chief political adviser.32 The proliferation of civil servants and advisers, the blurred lines of authority, and the relative neglect by historians of the Ministry of Finance makes assessment of policy formulation difficult. Outside the ministry, the budget committee of the Chamber of Deputies and the finance committee of the Senate wielded considerable power in the making of financial legislation – often more than the

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13

minister.33 The rapporteur of the budget committee of the Chamber was especially a figure to be reckoned with. In 1911 the British ambassador, Francis Bertie, claimed that “the President of the Commission of the Budget is, or can make himself, the most powerful man in the House outside the Ministry.”34 This influence was less marked in questions of external finance. The reluctance of deputies in the Chamber to involve themselves in questions of foreign affairs was one reason for this. Another was that by virtue of a series of decrees, the Ministry of Finance enjoyed the discretion of permitting or denying applications for foreign loans made on the Paris stock exchange, but this power was exercised at the behest of the Ministry of Foreign Affairs, the Quai d’Orsay. The degree to which the Ministry of Finance and the Quai d’Orsay collaborated varied. The power to sanction foreign loans occasionally gave rise to disputes between ministers, as in the years 1911–13 when Joseph Caillaux and Raymond Poincaré vied for authority.35 The mechanisms of interdepartmental coordination were weak at the bureaucratic level, while within the Council of Ministers several factors worked against it. Ministers tended to regard the work of other departments as outside their purview, even within the confines of the Council of Ministers. Finance, with its technical intricacies, and foreign affairs, with its specialized rules, knowledge, and history, were beyond the pale for most ministers. Ministerial instability in the Third Republic is well known. As governments rose and fell, ministers were shuffled in and out of portfolios. This has perhaps been overstated by the inclusion of short-lived or stillborn ministries in the tally, and to some degree these fluxes were offset by the tendency to draw ministers from the same pool of politicians.36 From the Rouvier ministry that took office in January 1905 until the advent of war in August 1914, France experienced fifteen different governments. Nine politicians held the finance portfolio, with Caillaux and L.L. Klotz serving three and five times, respectively. Caillaux claimed in his memoirs that between 1899 and 1914 “I dominated financial policy … and imposed my ideas.”37 Insofar as any one individual was able to give direction to financial policy in these years, Caillaux’s hand was on the tiller. But Caillaux’s efforts to force through income tax reform – the measure he is most identified with – against the opposition of first the Chamber and then the Senate were only partially successful. Ten politicians occupied the Quai d’Orsay over the same period. Stephen Pichon, who held the office on four occasions, was ineffectual.38 It was Poincaré who dominated foreign policy formulation before the war in his various capacities as premier, minister of foreign

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affairs, and, after January 1913, president. In the latter position he wielded his constitutional authority in foreign policy with gusto.39 Although Poincaré had more experience and knowledge of finance than most ministers, the president had virtually no powers in financial matters other than chairing the Council of Ministers. By comparison with the Ministry of Finance, the prewar British Treasury was a small organization. It consisted of six divisions, the first of which handled all questions of importance. The total complement of the Treasury in 1914 stood at 144, of whom 37 were at the administrative grade and thus involved in policy formulation. Before the war the Treasury did not make any distinction in its administrative organization between questions of domestic and external finance, reflecting the relative lack of importance of the latter. The calibre of Treasury officials was high, but their training left them unfamiliar with the intricacies of international finance. Interaction with the Foreign Office was rare, despite the City’s function as the leading marketplace of international finance. It was not until 1917 that a new subdivision – a Division, charged with handling external finance and headed by John Maynard Keynes – was created within the first division. During the war the overall numbers of the Treasury remained virtually constant.40 Within the Treasury, Sir John Bradbury, one of the two joint permanent undersecretaries in 1914, was particularly influential.41 Bradbury had made his way through the ranks of the Treasury, in the process becoming well acquainted with David Lloyd George, the chancellor of the exchequer from 1908 onwards. Bradbury was deeply involved not only in the preparation of the famous budget of 1909 but also in Lloyd George’s health-insurance schemes. His experience was thus in the domestic arena – as was the training of virtually every figure of importance in the prewar Treasury. Bradbury was given to a pessimism that became more acute as the war progressed. His relationship with Lloyd George degenerated after August 1914, so much so that he wrote to Asquith in May 1915 asking to be relieved of his post owing to intolerable friction with Lloyd George.42 With the appointment of Reginald McKenna as chancellor in May 1915, Bradbury’s influence revived. Bradbury was not well suited to conduct discussions with the French; his French was poor, and he harboured an antipathy for those who were not so fortunate as to be British. Andrew McFadyen, then a young Treasury clerk, recalled, “I do not think he liked foreigners; they were all ‘foreign bodies’ to him, though I must hasten to add that he never allowed that to deflect his judgement.” 43 At a lower level, Basil Blackett, a first-class clerk in 1914, was a figure of note. It was he who penned the Treasury response before the war to agitation carried on by the joint-stock banks to increase the gold

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reserves, and he steadily rose in the estimation of successive chancellors after the outbreak of the war. Along with Keynes, he was the major author of the British position adopted at the Paris financial conference in February 1915 and thereafter served as a member of the AngloFrench loan mission. He returned to the United States in the later years of the war to serve on the British financial mission to that country. Clear headed, with an admirable grasp of the issues, Blackett was gifted with the ability to draw attention to the most salient points of a problem.44 The prewar Treasury was imbued with a Gladstonian ethos. The sanctity of liberal principles, adherence to free markets, and a dedication to sound, thrifty national finances were hallmarks of Treasury thinking. Balanced budgets, adequate provisions for the national debt, rigorous control over spending – such were its tenets.45 The transformation of the Treasury “mind” from a parochial, insular outlook to a more expansive, internationalist vision was a product of the war.46 The prewar Treasury was firmly oriented towards domestic policy. Its contacts with the Ministry of Finance in France were rare, as indeed were contacts with any other finance ministry. This trait was not unique to the Treasury – the Ministry of Finance in Paris also shared this insularity. The political weight the Treasury enjoyed depended in part on the stature of the chancellor. Within the Liberal Party, Lloyd George was firmly identified as one of the leaders of the Radical wing. He had made his way through British politics by virtue of his quick, agile mind, his personal charm, radical passions, and an unerring sense of the politically opportune. As chancellor, he was responsible for much of the legislative agenda of Asquith’s governments. Entangled in the political thickets of Ireland and the confrontation with the House of Lords, Lloyd George had little appreciation of Britain as the heart of the global financial system. This was matched by his lack of interest in Britain’s foreign obligations. Although on occasion he dabbled in foreign affairs, most notably in his Mansion House speech in 1911, he was content to leave the guidance of British foreign policy to Sir Edward Grey, the foreign secretary.47 The attitude of the British Foreign Office concerning finance was one of unease. Not only was it reluctant to intervene in such matters, unless they were urgent, but there existed within its ranks a profound ignorance and even animus towards finance. Financial matters smacked of money grubbing, an activity that clashed with the dominant aristocratic ethos of the Foreign Office.48 The Foreign Office was not accustomed to dealing with economic or commercial affairs. Neither its recruitment policies nor its training equipped its personnel to deal effectively with areas outside the traditional diplomatic preserves.49 In

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1914 Arthur Ponsonby told the Royal Commission on the Civil Service, which was investigating the state of the Foreign Office, Consular, and Diplomatic services: “I think you would find a tendency in the Diplomatic Service today to really restrict their vision very much to a narrow area and intercourse with commercial classes, or political movements, is certainly not encouraged.”50 Robert Vansittart, who for much of the 1930s was the permanent undersecretary in the Foreign Office, stated, when musing on his prewar preparation: “The great flaw in the system was that economics had no place in it … Many never wholly recovered from the omission.”51 Francis Bertie is a splendid example of the Foreign Office’s uncertainty in financial matters. Bertie was the dean of the diplomatic corps in Paris, having been posted in 1905, and was scheduled for retirement in 1914. With the coming of the war his replacement was postponed, and he remained at the Paris embassy until 1918. Bertie was regal, tyrannical, old-fashioned, and possessed an abrasive, blunt tongue that was given free rein in his tart dispatches. He was in many ways the epitome of the “Old Diplomacy.” His influence on policy formulation was limited, and some of the fulminations in his letters and diary reflected his frustration at being little more than a conduit.52 Bertie’s ability to convey information regarding the French financial situation was suspect; after the initial French moratoria designed to stabilize the economic situation in August 1914, he confessed, “The financial system here is incomprehensible.”53 At home, doubts were occasionally raised regarding his thoroughness; Edwin Montagu, the financial secretary to the treasury from 1914 to 1916, voiced his belief that Bertie was not always au fait.54 Bertie did have his contacts in the world of French finance, principally the Russian-born financier Baron de Gunzberg, as well as Edouard de Rothschild of the Paris Rothschilds, who was a regent of the Bank of France. Judged from his own papers, Bertie’s contacts with the Ministry of Finance itself were infrequent, though he did have more regular contact with Pallain. Bertie’s problems in dealing with matters of finance were those of the Foreign Office as a whole: technical expertise was lacking. While the Foreign Office was aware that British interests – political and strategic – were interwoven with the health and prosperity of British commerce, this did not mean that it adopted an activist role in support of overseas trade. Eyre Crowe’s famous 1907 memorandum, best known for its appreciation of Anglo-German relations, forcefully reiterated the importance of “the right of free intercourse and trade” as “second only to the ideal of independence.”55 The depth of free trade sentiment, the prevalent laissez-faire attitudes of the time, and a preference for the higher forms of diplomatic activity led to the adoption

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of a cautious stance in commercial matters.56 Grey reaffirmed to the House of Commons in 1914 that Britain’s financial might would only be judiciously employed and not routinely exercised.57 At times his disingenuousness could be extreme. In May 1914, commenting on a request from the French and Russians that Britain assist in preventing the Bulgarians from floating a loan in Germany, Grey remarked, “We really cannot do anything,” and concluded: “The Bulgarians will ask us to get them money in London and we cannot do that as British finance is not influenced by political motives.”58 Such qualms had not prevented Lord Lansdowne, when foreign secretary in 1903, from pressuring the financier Sir Ernest Cassel to float a loan for Turkey. Cassel’s negotiations with Deutsche Bank were aborted, much to his annoyance, when Lansdowne abruptly withdrew his backing from the project as a result of the unfavourable public reception of the idea.59 Despite its reluctance to involve itself in financial matters, the Foreign Office was willing to intervene when it deemed them sufficiently important. Intervention was graduated according to the diplomatic and strategic importance of the matter at hand. When something was assessed as sufficiently weighty, the Foreign Office abandoned any scruples it might have. In contrast, French international financial relations before 1914 did not maintain any distinction between investment and foreign policy objectives. The governments of the Third Republic were intimately involved in directing where French capital should be invested. Loans were understood to contain a political component, and few French investments of any consequence were made without the approval of the government of the day. The Quai d’Orsay, much more than its British counterpart, was involved in the selection and distribution of French capital abroad. The reorganization of the Quai d’Orsay, undertaken in 1907, uniting the political and commercial affairs sections in one department, was a tangible indication of the relationship between the two in French foreign policy.60 The Quai d’Orsay did not find the practice of dealing in international finance entirely congenial, despite its benefits to France. The Comte de Saint-Aulaire, who placed last in his class because of his inability to deal with commercial matters, regretted that he could not follow his classmates into the political affairs stream within the Quai d’Orsay.61 While Saint-Aulaire was referring to the last decade of the nineteenth century, M.B. Hayne has concluded that the 1907 reorganization was not entirely successful and that an antipathy towards the intrusion of commerce into diplomacy remained.62 This did not prevent French financial might from being wielded in a variety of ways in the years before the war – to buttress allies, destabilize enemies, or entice the uncommitted – all with the objective of aiding

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and abetting French foreign policy.63 Francis Oppenheimer, the astute British consul at Hamburg, when commenting on reports in the Times that French capital had moved out of Germany in September 1911 as the powers were embroiled in the Second Moroccan Crisis and as storm clouds loomed in the Balkans, stated: These withdrawals began long before the fateful days early in September; they were prompted by political, not by financial reasons … There is a very strong suspicion in Germany that this withdrawal of French capital was effected as the result of broad hints thrown out by the French government. French finance is always to a certain extent dependent upon the Government of the day because the French bourse is at the latter’s mercy: no issue could there be effected against the wishes of the Cabinet. The Haute finance no doubt deemed it advisable to follow official suggestions which were intended to embarrass Germany financially at a time of some political difficulty. 64

In the Balkans alone, from August to December 1913, discussions were underway to lend French capital to Bulgaria, Greece, Serbia, Rumania, and Montenegro. Bulgaria sought a renewal of treasury bonds, while elsewhere the range of projects under consideration varied from a commercial loan for Greece to pleas for French financial assistance in building railways in Serbia and Greece.65 The chequered history of successive French loans to Russia is the most dramatic example of the twinning of French foreign policy goals with capital.66 According to René Girault, Russian state loans placed in France rose from Fr 1,240 million in 1888 to Fr 10,123 million in 1914, by which date there were eighteen such loans trading on the Paris bourse.67 Inasmuch as the Russian alliance was the cornerstone of French foreign policy, politicians of all complexions accepted that French funds should be employed to strengthen it. French capital allowed the Quai d’Orsay to insist on Russian measures that directly bolstered the French strategic position. The most notable example of this occurred in the lengthy negotiations conducted in 1913 over the question of additional French funding for the Russian railways. The Russian government was anxious to raise money in Paris, to the tune of Fr 400–500 million. The French government, though willing, laid down two crucial stipulations: that the strategic railway lines envisaged by the French and Russian general staffs in the west of Russia be begun immediately; and that the peacetime strength of the Russian army be augmented.68 Initially, the Russians balked; prospective investors would expect a decent return, an expectation the strategic lines could not satisfy, since they were not commercially viable. At the crucial meeting held in Paris in

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November 1913, the Russians grudgingly gave way and, once the deed was done, pressed for the immediate consummation of the loan.69 Of course, it could be argued that French financial power was being used at Russia’s behest. The French ambassador at Constantinople warned in 1911 that French financial power was being misused to support Russian designs in China and the Balkans. He wondered if the alliance was not slowly undermining the “financial independence” of France, and he feared that it was “abusive to place the French market at the service of interests other than those of French interests.” 70 Early in 1912 the embassy in St Petersburg reported that the Russians were unhappy about rumours of an Austro-Hungarian loan on the Paris market, since they opposed such a loan.71 The loan did not take place. The strengthening of Russia through infusions of capital was aimed at improving France’s chances in a war with Germany. It was also evidence of the financial demands imposed by the imperative to keep up with one’s military rivals.72 The years before 1914 were characterized by heavy expenditures on the armed forces. This was because of wars – in the case of Britain, Russia, and Italy – and rising international tensions.73 There was a marked climb in defence outlays after 1908; from 1908 to 1913 total defence spending of the European great powers rose by more than 50 per cent.74 The critical issue is the degree to which this spending was straining the capacity of the powers to pay. Here the evidence seems unambiguous. Although there were widespread fears in the opening years of the century that British financial strength was in decline, Britain was spending considerably less on defence than its competitors.75 Budgets and taxation continued to be contentious politically, but the overall trend was a steady improvement in British public finances.76 This was possible in large part because of the structure of the taxation system. As the economy expanded, revenues grew apace, and tax rates could be changed to increase revenues as needed.77 In contrast to France, the direction in British taxation was towards greater dependence on direct taxes, such as the income tax, rather than indirect taxation of the kind imposed on tobacco, alcohol, or other consumables. The national debt, which had stood at £798 million in the aftermath of the Boer War, had progressively been whittled down to £651 million by March 1914, despite dramatically higher outlays on army and especially naval expenditure.78 The last financial year before the war illustrates the favourable position of the government; while outlays totalled £197.5 million, revenues were £198.2 million.79 The French situation was quite different. While in absolute terms France was not spending as much as Britain on defence, the real defence burden was significantly higher, a reflection of the smaller French

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economy. John Hobson has calculated that the burden on Britain due to defence spending was roughly half that on France from 1870 to 1913, a conclusion supported by David Stevenson.80 French governments from 1870 onwards were faced with the difficult task of generating surpluses to pay down the national debt while at the same time meeting the needs of the army and navy. Of the budgets between 1871 and 1913, twenty-three generated surpluses and twenty produced deficits.81 At the close of 1913 the national debt stood at Fr 33.6 billion, a figure equal to £1.34 billion, or slightly more than double the British national debt in the same year. A contemporary critic, glumly noting the forecast deficit for 1914 of Fr 794 million, blamed the rise in military outlays, in particular spending on the Ministry of War and the Ministry of Marine.82 Seen from another perspective, the failure to reform the taxation system in favour of direct taxes – in particular, an income tax, which was a central theme in French politics after 1870 – meant that revenues were constrained. As D.E. Schremmer has observed, resistance to the income tax was grounded on the basis that it conflicted with the revolutionary principles of liberty and equality. Taxation represented an incursion into private rights that conflicted with liberty, while the principle of progressivity was allegedly at variance with equality.83 The strength of the rentier in French society – economically, socially, and politically – meant that hostility to an income tax was deeply ingrained. Leading politicians were themselves frequently from the rentier class.84 Various plans for an income tax had been aired since the founding of the Third Republic, but these all came to naught before Caillaux introduced his income tax proposal as minister of finance in Clemenceau’s government in February 1907.85 After extensive debate by the Chamber of Deputies, it was passed in 1909. The proposal was then blocked in the Senate until 1914, when the advent of the war further delayed its implementation. As a consequence, France entered the war with its taxation system unreformed. It was telling that the direction of French taxation policy throughout the nineteenth century had been towards increasing the proportion of revenues from indirect taxation, to the point where in 1913 direct taxation furnished only 14 per cent of government revenues.86 On the eve of war, the difficult situation of public finance was worsened by the failure of the July 1914 internal funding loan. It had been designed to give the government manoeuvring room, but it signally failed to do so because it was too small, with a large proportion of the issue being taken up by speculators. With the outbreak of the war the price of the loan fell from 91 to 82.5; and, even worse, large chunks that were

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nominally subscribed were not in fact paid up.87 Ribot later described French public finances in 1914 as “singularly embarrassing.”88 Given the strain that higher peacetime military expenditure was generating, the question arises to what extent financial considerations affected planning for war in France. The creation in 1906 of the Conseil supérieur de la défense nationale theoretically provided a forum in which issues of this kind could be addressed. Membership of this council included not only the premier but also the ministers of foreign affairs, finance, war, navy, and the colonies. The chiefs of staff of the army and the navy had a voice in its deliberations. Supporting the council was a comité d’études and a nonpermanent secretariat. The terms of reference establishing the Conseil supérieur had made clear that its mandate was to look at France’s resources in their entirety when considering a future conflict. Between 1906 and 1911 the council met four times; it was reorganized in the latter year with an increased membership and with the stipulation that it meet at least twice a year, in April and October.89 Despite the existence of this body, there is limited evidence of detailed French financial planning for war. The Conseil supérieur was primarily a political body, and as has already been noted, few Third Republic politicians were comfortable dealing with financial questions, let alone with the complex relationship between money and war. The infrequency of meetings – four in its first five years of existence – worked against anything more than general commitments. After 1911, when meetings were held more regularly, finance retreated from the agenda because arrangements had already been reached with the Bank of France, as will be discussed below. Beyond these factors, certain assumptions undoubtedly worked against a thorough examination of financing a future conflict. R.D. Challener has pointed out that the prevalent beliefs in the offensive and the short war prevented detailed economic or financial planning in France.90 The French general staff, preoccupied with the defeat of 1870, came to the conclusion that the crucial element in warfare was élan. Ferdinand Foch, later the supreme allied commander, was a convert to the doctrine of the offensive spirit, as was General Joseph Joffre, the man who directed the French army in 1914. Foch’s influence on the French general staff before the war was considerable. In his two books, Des principes de la guerre and De la conduite de la guerre, published in 1903–4, Foch insisted that the next war would be short, violent, and would favour the offensive.91 Plan xvii, the French strategy in the event of war with Germany, rested on the notion of a powerful, decisive strike through Lorraine.92

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Klotz, minister of finance in 1910–11 and again in 1911–12, recalled that the General Staff was insistent that the war would be over in three months.93 As has often been pointed out, this belief transcended national borders. Evidence for it is strewn throughout the prewar correspondence concerning the plans and hopes of Europeans.94 It was certainly as well entrenched in Britain as in France. A typical statement was that of Archibald Murray, the chief of staff to Sir John French, the commander of the British Expeditionary Force, who told Lord Esher on 13 August 1914 that he expected a war of three months’ duration, but that if it went badly it might last for eight months. 95 It is incorrect, however, to conclude that no financial preparations for war had been undertaken in France. The conventions of 1896 and 1899 had outlined the assistance which the Bank of France was required to provide to the state in the event of war. These were superseded in November 1911 by an agreement reached between Klotz in his capacity as minister of finance and Pallain in his role as the governor of the bank. Under this agreement the bank was to provide the government with an advance of Fr 2.9 billion in the event of general mobilization. Of this sum, Fr 500 million was earmarked for distribution to the bank’s branches and auxiliary offices for the government to draw upon. It was intended that these monies should be sufficient to last the government through the first three months of the war – ample leeway, given the assurances of the general staff. The bank had amassed a reserve of Fr 1.5 billion in twenty- and five-franc notes. Secret instructions from Pallain to the directors of the branches and auxiliary offices of the Bank of France, which were to be opened upon general mobilization, detailed their responsibilities. Each branch and office was to distribute the notes as required. Discount operations were to continue, but priority was to be given to industrial and commercial enterprises. Advances on securities were to be reduced to a minimum. If a branch or office found itself in a zone of military operations, a strict order of evacuation was listed. The first priority was to move the gold; then notes, then coin, then portfolio holdings, then securities, and finally files.96 The priority accorded the evacuation of gold might be thought curious, given the understanding that, as in 1870, convertibility would be suspended immediately on the outbreak of war. The gold reserve of the Bank of France fulfilled several purposes. Maurice Patron argued that warfare had become so expensive that “not only is there no financial organisation strong enough to warrant undertaking a long war, but the inevitable expenses of all sorts are so great that they rigorously limit armaments.” Consequently, “it is therefore true to state that nowadays

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the fighting power of a nation seems to be strictly limited by the financial effort it can endure.” This was a common enough argument in the Europe of the day; echoes of it were to be found in virtually every major power. But few paid heed to it as diligently as Pallain. Amassing a war chest was a central aim of his tenure. When he became governor at the end of December 1897, the gold reserve stood at Fr 1.9455 billion; eight years later, in 1905, it totalled Fr 2.8643 billion, a figure that reached Fr 3.5077 billion at the beginning of 1914.97 Thus there existed a set of linked propositions – doctrine is perhaps too strong a word – concerning the next war. The Bank of France was to play the lead role, with the Ministry of Finance subordinate to it. Suspension of convertibility at the onset of war, advances to the state, and the deployment, if necessary, of the gold reserve would allow France to prosecute the war effectively. The Bank of France was ready to fight a war in 1914, but a war like that of 1870–71. Across the Channel markedly different conclusions had been reached concerning the utility of large gold reserves in the event of war. Discussions on the desirability of bolstering the Bank of England’s reserves had been ongoing since at least 1875, reaching a crest in the wake of the Barings crisis in the early 1890s, and then receding before swelling anew in the years after 1900. Fears about the inadequacy of the size of the gold reserve flowed not simply from worries about the Bank of England’s ability to meet calls on it, but also from the rivalry between the joint-stock banks and the Bank of England. The former were becoming increasingly powerful as concentration in the British banking system, coupled with their steady encroachment into new areas such as acceptances, meant that they had a greater role in the City. The joint-stock banks resented having to maintain gold balances at the Bank of England, as this diminished their ability to lend; if larger gold reserves were required – and the bankers believed they were – they preferred to have control over the gold in their own vaults. The issue of the gold reserves was, as R.S. Sayers has remarked, “a claim for a voice – perhaps many voices – in decisions hitherto the prerogative of the Bank of England.”98 There was also a legitimate strategic fear: Could a run on the bank’s reserves disable the British banking system and thus destroy British credit, or could an external foe withdraw sufficient sums of gold with the object of destroying British credit? 99 Beginning in January 1911 a subcommittee of the Committee of Imperial Defence (cid), headed by Viscount Desart, dealt with these issues. The cid, created in 1902, was the fulcrum of prewar British planning for war. Like the Conseil supérieur de la défense nationale, it

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drew together government departments and military opinion to consider the difficulties that the empire would face in the event of war. Unlike the Conseil supérieur, the cid was very active before 1914, meeting regularly and generating studies on various questions. Its accomplishments included the creation of the War Book, which laid down the responses that individual government departments were to take on the outbreak of war. Despite this, the cid never treated the financing of a future conflict with any thoroughness. The Desart Committee had been established to explore the question of trading with the enemy. Finance happened to be one of its preoccupations.100 Sir Robert Chalmers, then permanent undersecretary to the Treasury, was a member of the committee. Those who testified included Frederick Huth Jackson, of the eponymous banking firm; A.C. Cole, governor of the Bank of England; Sir Felix Schuster, head of the Union of London and Smiths Bank; and Lord Revelstoke of Barings. Jackson and Revelstoke were members of the Court of Directors of the Bank of England. Pressed on the likelihood of a raid on the Bank of England’s gold reserves at German behest, all allowed that it was a possibility, but they differed as to its effects. Cole, supported by Huth Jackson, dismissed it as a menace, while Schuster argued that Germany could, by discounting sufficient bills at the bank, weaken the bank’s reserves and thus threaten British credit. This division reflected Schuster’s long-established position that the bank’s gold holdings were insufficient. There was agreement that there would be a “critical period” at the beginning of a war when the danger of gold flight would be most acute. At some point thereafter – opinion varied whether this would be several weeks or several months – the traditional recourse to stem the outflow of gold in times of crisis or war – raising the bank rate – would have its effect, and gold would flow back into the bank’s coffers. Accordingly, the committee canvassed the possibilities of preventing a withdrawal of gold in the critical period. Several suggestions were made, among them the obvious expedient of buttressing the size of the bank’s gold reserves; requiring the jointstock banks to maintain gold reserves; creating a war chest analogous to the German example; and amassing a hidden reserve within the Bank of England.101 The committee demurred from expressing its view on these choices, but it was clear on one other possibility. The easiest resolution of the problem would be to prohibit the export of gold – in other words, to suspend convertibility and abandon the gold standard. This option, as David French has noted, was rejected by all on the grounds that “a simple embargo on gold exports would do more harm than good.”102 Huth Jackson commented: “To suspend the export of gold even for twenty-four hours might be to jeopardise

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our position as the principal bankers of the world, and the results might be so disastrous in the long run that it cannot be contemplated.”103 When the Cabinet considered the Desart Committee’s report in December 1912, there was no dissent from the proposition that the gold standard should be maintained in the event of war. The Desart Committee did not end discussion of the gold reserves, for the underlying tension between the joint-stock banks and the Bank of England remained. Early in 1914, Sir Edward Holden, chairman of the London City and Midland Bank, took up the cudgels in a speech designed to gather support for a larger reserve.104 Holden’s stated desire for a royal commission to investigate the matter forced Cunliffe to seek an interview with Lloyd George in March 1914. At length, Blackett was deputed to write a memorandum on the whole question. His memorandum pointed out that should all the European powers be involved, and the United States remain neutral, “a general collapse of credit is far from inconceivable … but in that case no Gold Reserves, not even the Bank of France, would suffice to prevent immediate suspension of cash payments.” From this he concluded that “regarded as a preparation for war, our Gold Reserves are either adequate in amount or else are incapable of being raised to a figure which would make them any more adequate.” Blackett argued: “The disadvantages of a forced currency in so rich a country as ours are often exaggerated … The real danger is that the currency will be depreciated and that the Treasury would not be strong enough to insist on the measures needed to prevent this and restore specie payments after the war.”105 This cautious statement understandably failed to breach the walls of gold standard orthodoxy. One of the pillars of British power was dominance of international finance, which in turn rested on the maintenance of a free market in gold. Huth Jackson had made this connection explicit in his testimony to the Desart Committee: “So long as foreign nations pursued the policy of placing difficulties in the way of exports of gold, they could never seriously challenge our supremacy in banking.”106 Austen Chamberlain phrased it somewhat differently in 1903 when he was chancellor of the exchequer: “Our defensive strength rests upon our financial not less than our military and naval resources.”107 Abandoning the gold standard would weaken Britain’s ability to prosecute a war, not strengthen it – or so it was believed. Blackett recommended, however, that plans for emergency measures be drafted before another war occurred. This recommendation was ignored – as, apparently, was his memorandum.108 In suggesting that an emergency measures plan was needed, Blackett had touched on a matter that the Desart Committee had visited at some length. In

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their discussions, the committee members had canvassed the likely scenarios consequent upon the outbreak of war with Germany. They were especially interested in the ramifications that this would have for the City of London and the money market. The heart of the matter was that Germany was Britain’s second biggest export market and “our principal debtor.” A great deal of German trade was financed through London, and German banks kept substantial balances in the City. Should war occur between Britain and Germany, remittances from Germany to acceptors – whether accepting houses or the joint-stock banks – would cease. This raised the spectre of wider failures within London’s financial community, since the acceptors would then be unable to meet their obligations. This crisis would, the committee reckoned, be most serious in the first ten days of the war. At its darkest, in Revelstoke’s view, it “would result in the ruin of most people engaged in business. It certainly would lead to a disastrous run and to the shutting of the doors of most of the joint-stock banks.”109 How to combat this apocalyptic vision was unclear. Both Revelstoke and Schuster suggested in their testimony that a moratorium was the only practical means of doing so; but the latter retreated from this position, for reasons unexplained, in a note subsequently presented to the committee. The result was that the committee, despite acknowledging the likely turmoil from a major war, and indeed furnishing a prescient assessment of what was to transpire in August 1914, demurred from offering solutions. Lamely, it concluded that it was “unable to devise any protective or retaliatory measure to meet this danger.”110 The Desart Committee and Blackett’s 1914 memorandum represent the most thorough official considerations of financing a great-power conflict before 1914. While it is incorrect to say that financial considerations were entirely neglected in Britain before the First World War, no systematic attention was given to them. The confidence expressed by the 1905 Royal Commission on the Supply of Food and of Raw Materials in Time of War that finance would not be a problem should war come, was typical.111 Economic blockade, the provision of a small continental force, along with assistance in money and supplies, would constitute Britain’s participation.112 The Bank of England, unlike the Bank of France, made no preparations for war.113 As for the Treasury, nineteenth-century political economists conditioned its thinking about war; this married with the belief that Britain’s role in any major conflict would be akin to what it had been in the past.114 Received wisdom was not necessarily helpful for the conduct of Anglo-French financial relations during the First World War. A tendency to infer “lessons” from the past, especially the Napoleonic Wars, permeated British

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policy. In the mind of the Treasury of 1914, the suspension of gold payments in 1797 and the subsequent travails of British finance were indelibly connected, and the great mistake of a century earlier should not to be repeated. In France and Britain the administrative mechanisms to plan for the financing of war were weak or absent. Neither the Conseil supérieur nor the cid, both of which might have fulfilled this task, actually did so, and individual government departments, even the respective treasuries, did not regard the matter as pressing. Arguably, only the Bank of France – a private bank – had a clear sense of what to do when war came. But even the Bank of France was expecting a short war, a war in which cooperation with allies to determine financial policy would be unnecessary. And if the internal structures to deal with the complications arising from the financing of a war were insubstantial before 1914 in Britain and France, no thought had been given to consultation with one another. There existed no cross-channel ties between the Ministry of Finance and the Treasury – only sporadic concourse between the central banks at moments of crisis. Even the foreign offices, ill suited for anything more than dispensing capital in financial affairs, had trouble talking to one another. A great deal of energy and effort was expended on resolving the complex question of transporting, supplying, and debouching the British Expeditionary Force.115 This was not matched in the financial domain. The sensitivity of the tie with France, its ambiguity, and British politicians’ reluctance to define it prohibited financial discussions that might have implied a definite British commitment to war. Such talks were never contemplated. The notion of cooperation to pay for war was alien to the pre-1914 world. The result was that when war came in 1914, those responsible for financial policy in Britain and France were forced to improvise policy under the pressures of a conflict far greater than had been anticipated. And, even worse, they had fundamentally differing notions of how to pay for a conflict.

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chapter two

A Short War, 1914–1915

While the chancelleries of Europe manoeuvred in the last days of July and the opening days of August 1914, the international financial order was experiencing a crisis of massive proportions brought on by the threat of war. The Vienna stock exchange had been troubled since the assassination of Franz Ferdinand, but it was not until the Austrian ultimatum to Serbia on 23 July that anxieties spread to other European bourses. On that day the Paris and Berlin exchanges suffered serious declines. As the diplomatic situation worsened, and AustriaHungary declared war on Serbia on 28 July, panicky investors sought to liquidate their holdings. The Vienna exchange had already closed on 27 July; Berlin followed suit on 29 July. St Petersburg and Paris were shuttered on 30 July and the London and New York exchanges on 31 July.1 Chaos followed. Through August 1914 those responsible for financial policy in Britain and France not only had to stabilize economies shocked by the onset of war, but also had to grapple with a set of problems that had not been addressed before the war – such as cooperative purchasing and joint financial arrangements. The lack of an “economic general staff ” was acutely felt as ad hoc responses were crafted.2 Few had the foresight of Montagu Norman, then a member of the Court of Directors of the Bank of England, who wrote to his partner James Brown, “This country is perhaps at the beginning of a long war.”3 The dissolution of the French parliament on 4–5 August 1914, with its tendering of powers to the Council of Ministers, was perhaps the most striking example of an abiding faith in a short war. Once the immediate effects of the war on the financial systems had been overcome, other problems loomed, the most notable being the question of inter-allied borrowing. Arranging loans to the allies was incompatible with belief in a short war. The British considered that France should have the financial

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wherewithal to pay for its own purchases, given the gold reserves of the Bank of France. Russia was a more doubtful case, but it too possessed substantial gold reserves. Deployment of gold would allow the allies to pay for a short war. The necessity of allied borrowing in London was not easily recognized in the Cabinet or the Treasury, but gradually a coherent British policy emerged: financial assistance to the allies was granted in return for the provision of gold, while access to the London money market was rigorously controlled. The aim was to secure British control over allied finances. The August crisis in Britain bore a marked resemblance to what the Desart Committee had foreseen. The acceptance houses, which depended on receiving remittances in order to meet the bills they had coming due, found that the flow of payments was cut off by the war. Lacking the resources to pay off their bills, they faced ruin. This threatened to have a cascade effect in the London money market, bringing down other institutions that were linked to the acceptance houses. What had not been foreseen in 1911–12 was the response of the London joint-stock banks. The banks furnished much of the capital that allowed the London money market to function. They provided short-term loans to the discount houses and bill brokers which permitted both to purchase bills. Fearing that their depositors would demand gold, the banks called in their loans and refused to discount or rediscount bills. The discount houses and bill brokers were immediately placed in a difficult position; the discount market had collapsed, meaning that their assets could not be realized, and the banks were demanding payment. As the banks themselves were also acceptors on a large scale, they were animated by a fear that they would have to meet these obligations. The repercussions from these developments were international. London houses with obligations outstanding rushed to ensure that debtors paid. New York was affected particularly strongly, for European investors had already been dumping securities on the New York Stock Exchange prior to its closure. American borrowings were seasonal, with large sums drawn on European (chiefly British) sources in the months before the harvest of the cotton and wheat crops. These debts were liquidated once the crops were marketed. Additionally, there were considerable American short-term debts outstanding, notably New York City municipal bonds held by a consortium of French and British houses. The demand for sterling reached such heights that the dollar, which had traded at a prewar parity of $4.86 to the pound, briefly touched $7.00. By 1 August the London money market had ceased to function, foreign exchange was unobtainable, and international trade and finance were paralyzed.4 As a contemporary

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commentator observed, “The trouble was that other countries not only could not pay us fast enough what they owed, but could not pay us at all.”5 Internally, the chief concerns were to furnish additional liquidity and to staunch any flow of gold away from the Bank of England. The latter problem was addressed through manipulation of the bank rate. From 3 per cent it was increased to 4 per cent on 30 July, to 8 per cent on 31 July, and to 10 per cent on 1 August. The purpose was twofold: it was intended to dissuade borrowers from seeking to remove gold from the Bank of England; and it adhered to prewar orthodoxy, which held that gold would be attracted to London by a high bank rate. The jump in the bank rate, however, was recognized as ineffective, and on 5 August it was announced that the rate would drop to 5 per cent, which occurred on 8 August. Injecting liquidity was traditionally accomplished by suspending the Bank Act, which governed the amount of notes the Bank of England was legally entitled to issue. Fortunately for the government, 2 August 1914 was a Sunday, and 3 August was a bank holiday. By extending the bank holiday for the rest of the week, Lloyd George purchased additional time. On 6 August the Bank Act was suspended and currency notes in denominations of one pound and ten shillings were issued. These were special Treasury notes, distinct from the usual Bank of England notes. The one-pound notes became colloquially known as “Bradburys,” because they bore Bradbury’s signature. The banks absorbed approximately £13 million of these notes.6 This method was adopted because the Bank of England was unable to arrange for the printing of notes expeditiously enough. Moreover, Scottish bankers had made it known that they did not view Bank of England notes as legal tender.7 This step soothed fears of a run on the banks but did little to resuscitate the money market. Addressing these financial difficulties meant removing the obstacles hindering the functioning of the London money market. A proclamation of 3 August announced a thirty-day postponement on payments of bills of exchange. This was intended to provide some relief for debtors to meet remittances due to acceptors, though it had to be extended until 4 October. Once it became evident that the normal mechanisms of international finance remained frozen, more far-reaching measures were introduced. On 13 August, with the cooperation of Cunliffe, Lloyd George declared that the Bank of England would discount at the bank rate (which had settled at 5 per cent) all bills dated before 4 August, and that the government would indemnify the bank against any losses. While this eased the troubles of the discount houses, and to a lesser degree the joint-stock banks that also held bills, the acceptance

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houses still faced ruin. On 5 September it was proclaimed that the Bank of England would advance the acceptance houses funds at 2 per cent above bank rate in order to allow them to pay off pre-moratorium bills. Repayment would not be required until a year after the end of the war. Coupled with the fading of the initial panic, these initiatives made possible a slow resumption of the traditional activities of the City.8 In France restrictions were introduced to quiet a nervous money market. A moratorium on all bourse and coulisse transactions, subsequently extended to commercial paper and other debt, was enacted.9 This moratorium was extended repeatedly as the war progressed. The moratorium allowed the private banks to augment their cash positions through the disposal of their discountable assets with the Bank of France.10 This response was conditioned by another fear that predated July-August 1914. For several years before the war the largest French banks – Crédit lyonnais, Société générale, Comptoir national d’escompte de Paris, Crédit industriel et commercial, Crédit commercial de France, and Banque nationale de crédit – had been marketing foreign obligations to their customers. In many instances, these offerings had performed poorly, leaving the banks with unsold securities. The Société générale in particular was subjected to rumours about its creditworthiness. These were sufficiently acute that in June 1914 the Ministry of Finance and the Bank of France were forced to intervene, issuing a public statement reaffirming that the Société générale was sound. Octave Homberg, soon to become a leading figure in French wartime finance, claimed that the decision to implement a moratorium was designed to rescue the Société générale, which was on the brink of suspending payments, a judgment supported by Eleanor Dulles, who suggests the bank survived only through the assistance of the Bank of France.11 The Société générale had suffered embarrassments before the war, notably through its involvement in sugar refining in Egypt, but the records of the Bank of France do not show whether the moratorium was aimed specifically at its stabilization.12 There is no doubt that the Société générale was aided by the decision to discount the paper of the leading banks. The Bank of France’s holdings of discounted bills rose markedly (see table 1). To prevent depositors from withdrawing funds, restrictions governing allowable withdrawals were announced, a step that further assisted the banks. The Bank of France raised its discount rate on 1 August from 4½ to 6 per cent and concurrently boosted its rate on advances from 5½ to 7 per cent, with borrowers restricted to a maximum of Fr 5,000 backed by acceptable securities.13

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Table 1 Bank of France: Holdings of Discounted Bills, 1914 (billions of francs) 25 July

1.554

27 July

1.583

28 July

1.682

29 July

1.937

30 July

2.444

31 July

2.890

1 August

3.041

3 August

3.430

Source: bf/dcg/101/10 January 1918

Once war came, the Bank of France moved with alacrity to implement its prewar plans. The sealed instructions to the branches and offices were opened, and the Fr 1.5 billion in five- and twenty-franc notes were mobilized. The 1911 agreement was activated, with the bank advancing Fr 2.9 billion to the government. And on 5 August 1914 France abandoned the gold standard. The external problems which so preoccupied Lloyd George and Cunliffe were largely absent in France because the Paris money market did not play the same kind of role as the City of London did in international finance and commerce. The political and financial crisis of August 1914 had a number of farreaching consequences in France. The decision of the French parliament on 4 August to give the executive the power to raise money by decree while Parliament was not sitting, and the subsequent adjournment of Parliament, overturned the prewar basis of French financial practice. The Chamber of Deputies did not meet again until 22 December 1914, at which time the members retroactively ratified the decisions made by the minister of finance. The deputies were also asked to approve a budget of six months, which they did. It was soon apparent, however, that six months was looking too far ahead, so a system of tabling provisional twelfths was adopted. The financial exigency of the war was such that the first formal budget report by the budget committee of the Chamber of Deputies (conforming to prewar practice) did not appear until December 1917.14 In short, the prewar influence of the Chamber and Senate on financial policy was greatly reduced. Contemporaries noted the effort mounted by Parliament to regain its traditional prerogatives in the face of the minister of finance’s reluctance to surrender ground.15 In June 1915

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the rapporteur of the budget committee, Emile Métin, charged that relative to England, France had no financial plan.16 While the budget committee recovered some authority, the achievement was limited. Shortly after the war, Jacques Piou, a wartime member of the budget committee, emphasized its role in military matters rather than its financial activities.17 Perhaps this followed from a desire to associate itself with the triumph of French arms, however tangentially, but it also reflected the frustration of the committee when faced with the intransigence of successive ministers. The budget committee did not dictate wartime financial policy; it was the ministers of finance who did so. Pierre Renouvin was surely correct when he remarked: “The armistice supervened without the financial powers of the Chambers having been exercised in the normal way during any of the war years.”18 The beneficiary of these developments was the minister of finance. On 26 August 1914 Alexandre Ribot was appointed minister of finance in the Union Sacrée government. This government was the political outcome both of the convulsions attendant on the coming of the war and of the widespread belief in France that this conflict required a national government to wage it. Ribot remained minister of finance until 20 March 1917, when he became premier. He thus benefited from the wave of patriotic sentiment attached to the outbreak of war, which reduced political criticism, as well as profiting from the unusual latitude he was afforded by the decision of the Chamber on 4 August. More than any other individual, it was Ribot who was responsible for wartime French financial policy. Seventy-two years old when asked by René Viviani to serve, Ribot was a veteran of the Third Republic and had been in the Senate since 1909. He had a reputation as a financial expert, though his career scarcely bears this out. Before the war, he had already served as minister of finance on one occasion and had also briefly acted as the rapporteur for the budget committee. Perhaps his most noteworthy contribution to French finances had been as a staunch opponent of income tax reform before 1914. Ribot was an anglophile, imbued with a deep admiration for British society, in particular its administration of justice, which as a lawyer he found especially congenial. His liberalism in economic matters rested on a firm conviction of the sanctity of private property, the superiority of the free market, and the belief that French national strength was served best by a continuation of the traditional methods of French taxation. He enjoyed good relations with the Bank of France, having before the war been identified as a defender of the renewal of its privileges.19 Notwithstanding Ribot’s admiration for Britain, he remained a fierce partisan of French interests, especially French financial independence. He was driven by a need to maintain

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and promote harmonious inter-allied relations of the kind France had so conspicuously lacked in 1870. Georges Suarez once characterized him as a man of the 1870 generation whose experience in that defeat was decisive.20 There is considerable insight in this assessment; Ribot did strive throughout the war to bind the British closer to the French in financial affairs, conscious as he was of France’s weakened financial state. This conflicted with his desire to pursue an independent policy, one that would allow France autonomy from Britain. The tensions between these two impulses account for much of the prevarication in French policy. In Britain the crisis and its resolution concentrated authority over financial matters in the Treasury and the Bank of England at the expense of the City. This is perhaps somewhat surprising, since Lloyd George’s ability to deal with the disturbances assailing the world financial system was questionable. His ignorance of the intricacies of international finance was so profound that Blackett hoped for his replacement. Although Lloyd George soon dispelled these doubts, leading Blackett to lionize him as a “wonder” and a man who “promises now to reach the front rank of financial experts,” not everyone was so quickly converted.21 Walter Long, a leading Unionist politician, charged that Chamberlain was really running the Treasury, while “Lloyd George, who knows very little about finance, has completely lost his head.”22 While this was overstated, Lloyd George did solicit the opinions of others. One such person was Chamberlain, who as a former chancellor was invited to share his views, as was Lord St Aldwyn, another former chancellor.23 More important than either was Rufus Isaacs, Lord Reading, the Lord Chief Justice and a political crony of Lloyd George’s. Reading had made his mark as a barrister, but he had begun his professional life as a jobber in the stock exchange, an occupation from which he was ignominiously “hammered” after failing to meet his obligations. Reserved, intensely private, yet gifted with an ability to act as a mediator between the great and powerful, Reading was the quintessential adviser. Bored by his duties, he welcomed the distractions provided by the outbreak of the war. Frances Stevenson, Lloyd George’s secretary and mistress, believed that Reading was of “invaluable help” to Lloyd George, acting as his “strong right hand.”24 Other observers also noted Lloyd George’s dependence on Reading. Woodrow Wilson’s confidant, Colonel House, after attending a dinner party at which Reading was present, recorded: “Sir Edgar Speyer told me that Lord Reading did practically all of Lloyd George’s … financial work.”25 How much Reading influenced Lloyd George in August 1914 is unclear, but that he did so is undisputed.

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Cunliffe was the most important figure outside the Treasury. Lloyd George and Cunliffe worked together amicably, no mean feat given the latter’s difficult personality. J.C.C. Davidson, Andrew Bonar Law’s private secretary when Bonar Law became chancellor of the exchequer in December 1916, described Cunliffe as “a curious character” who “looked like a farmer, was definitely a bully, and had withal a certain cunning.”26 E.C. Grenfell, of the merchant banking house Morgan Grenfell and a member of the Court of Directors of the Bank of England, was one of Cunliffe’s few confidants: Lord C had an intimate knowledge of banking, bill broking, stock Ex, accepting & though not the greatest expert in all, yet he combined the knowledge of all these spheres of finance to an unique degree … He had no gift of public speaking, was always at a loss for words even in conversation, had very bad manners & suspected everyone, who differed with him, of having ulterior motives. He was rude & abrupt with his colleagues, the bankers & the ministers. He was also self seeking not for money but for honours & power. His worse qualities increased & after being given a title & certain decorations, he would brook no interference & considered he was the only man who could do anything right.27

Cunliffe’s authoritarian tendencies were evident in his implementation of successive rises in the bank rate without consulting the Court of Directors or the Committee of Treasury and in his failure to call a meeting of either until the worst of the crisis was over.28 The successful part he played in mastering the crisis, coupled with his excellent relationship with Lloyd George, allowed him to cement his power at the expense of the Court of Directors and the Committee of the Treasury. Typical was the abandonment of the prewar practice of rotating the governorship of the bank every two years, which should have occurred in 1915. Cunliffe’s authority within the Bank of England was not challenged until 1916, despite mounting evidence that his behaviour was generating growing tensions in the bank, as well as with the Treasury and Britain’s allies.29 Lloyd George and Cunliffe were well aware that the City was fervently anti-war. The Economist, a bastion of British financial and commercial interests, assailed the Times for its “poisonous articles” in favour of intervention.30 Meetings with the bankers convinced Lloyd George that “money was a frightened and trembling thing.” No longer were the bankers unanimous in their belief, expressed in 1911–12 at the Desart Committee hearings, that Britain must remain on the gold standard in the event of war. A number of joint-stock banks had already refused to pay out gold when asked.31 Precisely why the banks did so is uncertain. They may simply have been panicked by events. Alternately, Sayers has

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suggested that it is possible that the joint-stock bankers were attempting to conserve their gold in the belief that their holdings would form part of an emergency gold pool to assist the Bank of England.32 Marcello de Cecco has argued that the joint-stock banks embarked on this course deliberately, in an effort to seize control of “lucrative international business.”33 It is hard to credit either of these explanations, for the evidence suggests that Lloyd George was accurate in his description of the behaviour of the joint-stock bankers – they lost their heads. Certainly, the joint-stock banks were urging Lloyd George to go off gold. Frederick Leith-Ross, then a young Treasury official, recalled in his diary: “I found the rooms full of ‘no specie payments.›34 Sir George Paish, the editor of the Statist, was consulted, though the degree to which his views had any influence is open to question. Paish lacked Reading’s familiarity with Lloyd George, and his influence on the chancellor was weaker.35 Moreover, he was not highly thought of within the Treasury; Keynes later described him as “barely in his right mind.”36 Paish submitted a memorandum on 1 August, arguing that suspension was the best way to preserve the reserves of the Bank of England for the purchase of necessary food and raw materials. The following day he retreated from this view, holding that suspension was only “inevitable” if confidence could not be maintained – a change of heart indicative of the conflicting views in the financial world.37 In his unpublished memoirs, Paish claimed that at a conference attended by Lloyd George, bankers, and industrialists on 31 July, Cunliffe asserted that the Bank of England had ample gold, and this settled the issue of whether or not to remain on gold.38 This is improbable, since Lloyd George continued to solicit advice for several days after the conference. The decisive factor in the debate was the repercussions which suspension of convertibility would have on Britain’s international position. At the invitation of his acquaintance Blackett, Keynes (who was still a Cambridge don at the time) argued strongly that this step would prejudice London’s future ability to function “as a free gold market” and would therefore have negative consequences for “our position and prestige.”39 Cunliffe, too, was against suspension, fearing that it would irreparably damage London’s position as the centre of world finance.40 These arguments echoed those made to the Desart Committee. Regarded as definitive in 1911–12, they were reaffirmed by Lloyd George, who decided to remain on gold and reject the petitions of the jointstock bankers who were in favour of immediate suspension of specie payments. Effectively, the City was discredited; for the remainder of the war, its views were listened to and even solicited, but its spokesmen no longer provided the lead.41 The decision to maintain the gold standard

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signalled that the Treasury and the Bank of England intended that one outcome of the war would be the continuance of the City’s domination of international finance. In Paris the British decision to remain on gold kindled French suspicions that the British were endeavouring to exploit the conflict to cement the City’s position at the expense of prosecuting the war.42 Paul Cambon, the French ambassador, was well aware that turmoil in global financial markets was causing hesitations in the Cabinet; Grey had told him on 31 July, “Our standing aside might be the only means of preventing a complete collapse of European credit … This might be a paramount consideration in deciding our attitude.”43 Lord Morley recorded that Lloyd George, after soliciting the opinion of Cunliffe, the City, and various industrialists, informed the Cabinet that the possibility of domestic strife resulting from economic distress could not be discounted if Britain entered a European war.44 Following another conversation with Grey on 2 August, Cambon wired the then premier and foreign minister, René Viviani, that “extraordinary efforts” were being exerted by “the business world” to forestall any British participation in the war. The best that could be hoped for, he concluded, was that such pressures would not lead the British to abandon their traditional concern for the balance of power, either then or in the future.45 Grey’s speech to the House of Commons on 3 August was intended in part to defuse the financial community’s opposition to war. He argued that British finance and commerce would be affected by the war, irrespective of whether or not Britain participated. British trade, Grey suggested, would be impaired because of the decline in the ability of Britain’s continental trading partners to maintain economic activity. He warned that if Great Britain stood aside and Germany triumphed, it would be foolhardy to believe that Great Britain alone could reverse the outcome. British interests were not served by German hegemony on the continent.46 French fears that an influential body of opinion strenuously opposed participation were not dispelled. Cambon worried that “German Jewish financiers,” who controlled the Liberal papers and were linked to the Cabinet, remained at the helm of British financial policy.47 Although Cambon’s judgment was clouded in this instance by his bitterness over the hesitations in British decision making and the antiSemitism common to the upper classes of the time, he was correct in surmising that the policies adopted in early August followed from a concern with British rather than allied interests. Speculation of the kind indulged in by the Economist sharpened French doubts. “Every British interest,” an editorial declaimed, “points irresistibly to the

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maintenance of strict neutrality. And, of course, by so doing we shall be in a far better position later on – if the worst comes to the worst – to mediate effectively between exhausted combatants.”48 Mollifying French fears somewhat was the conviction that the war would be short, which meant that the divide that existed over gold was subsumed in the press of events. Once the initial shock of the August crisis had been dealt with, other issues arose that were unforeseen. One was the question of purchasing. At the outbreak of war, initiatives had been taken to rationalize British and French purchasing. On 5 August a proposal from Cambon reached the Treasury via the Foreign Office. Cambon suggested that in order to lessen potentially harmful competition, Britain and France should establish some kind of joint purchasing body. Cambon envisaged the British government purchasing goods in London for both governments, with payments to be settled between the Ministry of Finance and the Treasury. Originally Cambon wanted to acquire coal, flour, grains, and the shipping required by France. This plan was seized on with enthusiasm by Gaston Doumergue, then minister of foreign affairs, and by Adolphe Messimy, the minister of war. Doumergue cabled Cambon that Messimy was urging that the scheme “ought to be extended not only to purchases to be made in England but to those to be made in all the producing countries.” Messimy hoped that the British would act as “our general provider or agent” with payment to “be settled afterwards between the Treasuries.”49 The Treasury’s response to this scheme was distinctly lukewarm. George Barstow, then a principal clerk, noted that the scale of spending was “much larger … than has been contemplated.” Even more worrisome, he noted, was the uncertainty surrounding the possibility of recovering any monies extended if France either lost the war or was “reduced to a very low ebb.” He concluded: “The arguments in favour of the proposal are necessarily political; + military, in so far as it wd. contribute to the success of French arms. Possibly a reciprocal arrangement – by which France wd. buy on Great Britain’s account in France wd spring the proposal if accepted.”50 Barstow’s caution reflected the habits of peacetime. At this early stage, Treasury officials had trouble in grasping the concept of an allied war which, if lost, would be lost not solely by France but also by Britain, with the attendant consequences for Britain’s global strategic and economic position. “Political” motives did triumph, and talks began on 13 August with the objective of establishing a joint purchasing body. It was agreed that an Anglo-French commission, the Commission internationale de ravitaillement (cir), headquartered in London and consisting of representatives from the French ministries of War, Marine, and Finance and the British War

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Office, Admiralty, and Board of Trade would endeavour to coordinate purchases in order to alleviate competition. Complementing the creation of the cir was a set of financial arrangements. The Bank of England agreed to open an account in London for the French government which would be funded by the discount of French treasury bills, reimbursements of expenses incurred by the British Expeditionary Force (bef) in France, and any bills drawn on London. To safeguard against temporary insufficiency of funds, the Bank of England agreed to provide the monies necessary to cover an overdraft of up to £400,000. These measures were designed to allow the bef to meet its needs in France, while also providing France with operating funds in London. The agreement represented a clever means of easing foreign exchange difficulties brought on by the paralysis of the formal exchange markets. The British ratified the cir on 20 August, and the French did so a day later.51 Henri DePeyster was appointed the Ministry of Finance’s delegate to the cir and took up his post at the end of August 1914.52 He acted both as delegate to the cir and as the liaison between the Treasury and Ribot, cooperating closely with the French embassy in financial matters.53 The cir, while a step towards better Anglo-French coordination of the war effort, was not a precursor to a more general financial agreement between the two governments. There were several reasons for this. In August 1914 a limited arrangement to overcome temporary problems was deemed sufficient. The financial provisions were specific to the situation at hand and were not envisioned as permanent. The cir was chiefly a purchasing arrangement to which financial clauses were added. The wording establishing the cir reserved the right of the contracting governments to purchase “directly and independently” as they so desired – a loophole which the French Ministry of War exploited liberally. In December 1914 Cambon forwarded an official protest from the British government to Paris concerning French purchasing practices. The most egregious offences were connected with the buying of woollen cloth. The Treasury charged that the French were deliberately avoiding the cir and burdening British contractors with orders while earlier contracts with the War Office were going unfulfilled. The démarche threatened to ban all export licences for cloth if agents acting for the French government continued to act irresponsibly and outside the purview of the cir.54 Problems of this kind were not new. From the outset the Ministry of War had persisted in allowing its agents to circumvent the cir, thus antagonizing the British, in spite of repeated warnings by Cambon of the dangers of this course.55 The ministry’s actions indicated the degree to which it was free of supervisory control from the Ministry of Finance.

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Under the terms of the arrangement worked out between Ribot and Alexandre Millerand, who replaced Messimy as minister of war on 26 August, DePeyster possessed no veto or discretionary powers on orders placed by agents of the Ministry of War.56 Numerous individuals, some accredited, some not, claimed to be working for the latter, leading to chaos despite the cir. While the cir eventually proved to be an effective vehicle for controlling the purchasing of the other allies, especially Russia, it never fulfilled the same role for French purchasing. Indeed, it was not until August 1917 that all French buying in Britain was brought within the purview of the cir. Although the cir was a means of resolving acute foreign exchange difficulties, the pace of orders placed by the new agency was unexpected. With a staff that varied from forty to fifty, the cir had already placed more than three hundred contracts by the end of October 1914, with monthly expenditures running at £2.5 million.57 Such orders could only be expected to increase as the war continued. Joffre, for one, in the aftermath of the battle of the Marne, wrote to the Ministry of War expressing his unhappiness with his stocks of 75mm ammunition, insisting that his forthcoming operations might be jeopardized if stocks were not augmented.58 On 7 September Cambon cabled Paris that if additional funds were not secured soon, the Bank of England account would swiftly be depleted. In his opinion another Fr 200–300 million was urgently required. To meet this need, DePeyster suggested the French try to tap into the London money market through the vehicle of French treasury bonds. After consultation between Ribot and Theophile Delcassé, the minister of foreign affairs, Cambon was authorized to pursue the idea.59 This decision, in conjunction with a similar Russian initiative to raise money, introduced the subject of inter-allied borrowing in Britain. As it happened, financial developments coincided with political ones. Shortly before Cambon’s telegram, Britain, France, and Russia had agreed – on 5 September in the Declaration of London – not to discuss peace terms unilaterally. Allied efforts to borrow confronted the Treasury with a difficult problem: the Declaration of London made it impolitic to reject allied requests, yet the Treasury had not formulated any coherent policy with regard to allied loans. The Russians approached the Bank of England through their ambassador, Count A.K. Benckendorff, and were rebuffed, a setback that forced them to open direct negotiations with the Treasury. Initially they had hopes of securing £15 million to meet their obligations.60 French policy was less straightforward. Ribot was ensconced at Bordeaux, where the government had moved before the battle of the Marne. Perhaps seeking to improve his chances, Ribot pursued negoti-

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ations for a loan through two separate agents – Edouard de Rothschild and Cambon. Acting through Bertie and also through the London branch of his own family, Rothschild sounded out the possibilities. Grey, after consultation with Lloyd George, replied to Bertie that something might be worked out, though “[Lloyd George] informs me it is highly desirable to keep [the] London market for our own requirements and for giving necessity for financing [to] our poorer allies.” Lloyd George agreed that the French should be allowed access to the London money market, with the proviso that any loan raised be spent in Great Britain. Under such conditions the Treasury was prepared to countenance the Rothschild request for a flotation of £2 million in French treasury bills. Meanwhile, Cambon also was exploring the possibilities. Unfortunately, Ribot failed to keep Cambon informed of Rothschild’s activities. Arthur Nicolson, the permanent undersecretary to the Foreign Office, circulated a minute detailing a conversation with Cambon in which the latter had broached the idea of placing French treasury bills in order to defray French purchases in Britain and the United States estimated at £12–15 million. Cambon told Nicolson that the French hoped to issue £5–10 million worth of bills on the London market.61 The Cabinet was not inclined to be generous. Charles Hobhouse, then postmaster general, noted: “As they have £160 millions sterling tucked safely away somewhere [a reference to the French gold reserve], and we have to finance our own expenditure, and that of other countries, we thought we could only agree to the extent of money required to pay for orders placed in this country.”62 As this stipulation had also been attached to the projected Russian borrowing, the outlines of a coherent policy were becoming evident. The Cabinet viewed extension of assistance to France as possible only if it was done under the same terms granted to Russia, a position that Bradbury, Cunliffe, and Reading all backed.63 But the French were unwilling to be lumped in with the Russians, and British efforts to fashion uniformity ran aground on this rock. The British were prepared to lend to Russia if the Russians shipped gold to London in partial payment and if the sums loaned were spent entirely in Britain. Late in September, Cambon cabled Paris that the British had offered the Russians a credit of £20 million if the Russians shipped £8 million in gold to secure the loan, a condition that the Russians were resisting. France, Cambon continued, had been tendered the same offer but he had rejected it.64 Notice of the proposed Rothschild operation had by now reached Cambon, who was scathing in his criticism of the way in which the entire affair had been handled, charging that the operation was poorly timed and ill conceived, throwing

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into doubt France’s ability to tap the London market in future. Personally affronted that he had not been informed of Rothschild’s efforts, Cambon feared that the smallness of the proposed issue and the uncoordinated nature of French efforts would diminish French prestige and leverage in London.65 Delcassé and Ribot continued to believe that French interests had not suffered, the former describing the Rothschild operation as a “special issue” whose conclusion would allow Cambon to press for another, larger operation arranged directly through the auspices of the Treasury. Ribot, while admitting that nothing would help France more than British cooperation in the financial realm, ruled out any scheme that contemplated shipping gold. He attacked the idea as an affront to the credit of France.66 Both he and the Bank of France believed that shipping gold in return for the extension of credits represented an unacceptable demand. At no point was the French government more in thrall to the Bank of France than in the early months of the war, when advances from the bank constituted the single largest source of government revenues. As the bank was vehemently opposed to any suggestion that its gold reserves be exploited, Ribot’s options were limited. Bertie, in a private letter to Grey in late September, indicated that the French government needed to find another £40 million immediately to pay for additional war-related expenditures, but despite pressure from the financial community to withdraw this from the gold reserves of the bank, Pallain was refusing to acquiesce.67 “The only idea of the Banque de France,” Bertie confided to his diary, “is to hoard rigidly their £168,000,000 in gold.”68 It did not help that the British were overly solicitous of the whereabouts, and possible fate, of the French gold reserves. Asquith told the King on 1 September that the Cabinet had discussed transferring the French gold reserves to London. As this subject had not been broached with France, the Cabinet discussion was premature. Although the military situation – which looked black – made consideration of the possibilities prudent, to the French it did not appear so. Bertie, instructed by Grey to explore the matter, soon learned that neither Pallain nor Ribot were willing to transfer the reserves. Pallain assured Bertie that the gold was safe and would be evacuated in time if necessary.69 As Cambon remarked several days later, shipping French gold was an idea that was “obviously dear to English bankers.” 70 In fact, the gold reserve had already been moved from Paris. Between 18 August and 3 September, it had been transported in special trains to the Bank of France’s branches in southeastern France, far from the fighting.71 It was thus unsurprising that DePeyster, in an interview with Bradbury, stressed the differences between France and Russia, hoping to

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secure more lenient terms for France. But his argument was of little avail, for Bradbury replied that the British offer to extend credit to the French on the same terms as the Russian loan was a means of lowering the total cost to France. Rejection of this offer, Cambon pointed out, meant abandoning any hope of direct Treasury intervention to obtain funds on behalf of France, though the French did remain free to explore the chances of procuring a loan from either the Bank of England or the joint-stock banks, in which case the Treasury would indirectly lend its assistance.72 Neither side compromised and all that was garnered was the sum of £2 million through Rothschilds. Despite these talks, the realization that French finances might be weaker than anticipated did not percolate into the consciousness of leading politicians in Britain until Lloyd George, accompanied by Reading, visited France in mid-October 1914. Lloyd George was then unofficially solicited regarding further French borrowing. He returned with the impression that Ribot was “not a la hauteur of the situation,” a belief that was sustained by renewed French efforts to borrow.73 Cambon’s first attempts to secure additional funds bore little fruit. Discouraged, he cabled Ribot that Lloyd George refused to budge without the shipment of gold. Ribot dismissed Lloyd George’s arguments as unconvincing, charging that real financial cooperation between the two nations was being blocked by “certain national interests, natural enough normally, which are much less so in the current circumstances.”74 This was a veiled attack on the British policy of staying on gold, which was increasingly seen in Paris as detrimental to AngloFrench financial relations. In an effort to overcome these difficulties, Ribot dispatched Homberg to London. Opinionated, abrasive, and self-confident, Octave Homberg had begun his career at the Quai d’Orsay but had left the foreign ministry for a career as a banker, acting as secretary general for the Banque d’Indochine and then as vice-president for the Banque de l’union parisienne. Well connected in the Paris financial world, he had offered his services to the Quai d’Orsay at the outbreak of war, and he was attached to the Ministry of Finance following the reshuffle of the Viviani government in August 1914.75 Homberg could be counted on to pursue French interests zealously. He almost always favoured the bold option, a stance that was at odds with that of Ribot, who invariably proceeded with caution. Yves Henri Nouailhat has argued that it was Homberg who provided direction to French external policy throughout the war.76 Homberg and his colleagues DePeyster and Aimé de Fleuriau, the chargé d’affaires at the French embassy, met with Lloyd George and Cunliffe late in November 1914. Lloyd George, evidently aware of

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French dissatisfaction, announced that Britain was willing to extend its cooperation in the financial realm and was prepared to allow the flotation of an issue of treasury bonds. Homberg, while conceding this was a favourable development, reported to Paris that problems remained. The Bank of England was ardently pursuing a policy of amassing as much gold as possible, and Cunliffe had expressed fears regarding the weakness of the pound relative to the franc, worrying that any cessation of French purchasing might result in a depression in Britain. Moreover, the French were competing for funds against the Belgians and Russians.77 The Cabinet was taken aback by France’s latest application for an infusion of money. Asquith told the King: “It is a … singular request, coming as it does from one of the richest countries in the world, the amount suggested being little more than, if as much as, the cost of the war for a single week.” Asquith attributed France’s problems to the “vicious character of their recent finance.”78 Lloyd George was even more pessimistic, telling his confidant, the newspaper owner Lord Riddell, that French finances were “very badly” directed, to the point where it was possible that France might not be able to continue the war beyond the summer of 1915. “C. [Lloyd George] says French finances are in a hopeless muddle,” recorded Frances Stevenson in her diary.79 These forecasts were, as events were to show, wildly incorrect. Nonetheless, with requests from a number of allies facing them, the British were bewildered and were resentful of the apparent French inability to sustain their own purchasing requirements. Homberg telegraphed Ribot on 4 December that the Treasury had agreed to provide a loan of £10 million through the auspices of the Bank of England, the amount to be provided via the discount of oneyear French treasury bonds at 5 per cent. In return, the Treasury demanded that the French refrain from recourse to the London money market until May 1915, that all proceeds be used in Britain, and that certain guarantees be provided to ensure the stability of the pound. With the franc still trading at a premium to sterling, the Treasury was worried that gold might be drawn to Paris. The Treasury’s intent was clear: to control the London money market and thus have a degree of leverage over allies who needed to borrow in London. Homberg, who was well aware of this motivation, believed that Ribot should accept the offer. The restriction regarding access to the London money market was worrisome, as was the failure to achieve British help with French purchases in North America, but the overall package would do much to bolster French credit in London.80 The Treasury had dropped its insistence that any credit be connected to gold transfers. Homberg, frustrated by the delays, acknowledged that

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the London money market was exhibiting signs of strain in its ability to handle new issues, but he believed that other considerations were at work; Reading had confided to him that the British desired to avoid the experience of the Napoleonic Wars, a reference to the suspension of specie payments in 1797 and the postwar troubles before Britain returned to gold. This attitude infuriated Homberg, who railed at what he described as the pursuit of narrow nationalistic interests in the financial realm.81 The negotiations struggled on in a desultory fashion, with the Treasury displaying an increasingly hostile stance. Citing its concern “that large borrowings here on French account might lead to gold exports,” the Treasury claimed that “financial considerations” weighed “very strongly against the proposed operation” – so much so that only the intervention of the Foreign Office succeeded in convincing the Treasury, reluctantly, to acquiesce.82 On 15 January 1915 the long-delayed issue of French treasury bonds was consummated, the Bank of England discounting £10 million worth of bonds at 5 per cent, the proceeds to the French amounting to £9.5 million. Treasury hesitancy was related to the state of Russian finances. George Buchanan, the British ambassador to Russia, had since late November been forwarding warnings from Peter Bark, the Russian finance minister, that Russia’s ability to continue the struggle was imperilled by her weakened finances.83 Confronted with a Russian appeal for a loan of £100 million and well aware that France too was seeking a loan (and believing that French pockets were deeper than they appeared), the Cabinet decided to link the two. “France,” Asquith told the King, “is to be invited to guarantee one-half [of the Russian request], and was at the same time to be informed that we are spending more on the war than either Russia or herself, our monthly expenditure being now about £45 millions while neither of the two allies is estimated to be spending more than £40 millions.”84 As an initiative designed to force French compliance, this was crudely conceived, resting as it did on the belief that France’s resources were much greater than the French were letting on. If the latter was in fact so, then it was improbable that a threat to withhold a £10 million credit would be sufficient to coerce the French to acquiesce to a policy that would expose them to far greater financial burdens in the form of assistance to Russia and the other allies. Politically, militarily, and strategically Britain could not run the risk of alienating her French ally – not when Joffre’s armies occupied the overwhelming majority of the Western Front and when French blood was being spilled at a far greater rate than British. Kitchener’s armies might redress the balance and allow Britain to insist on the implementation of

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its financial policies, but that was well in the future. For the moment, financial aid to France acted to reassure the French of a continued British commitment to the war.85 Although emphasizing the extent of the British financial commitment to the war deflected French criticisms of Kitchener’s adamant refusal to jeopardize his New Armies until they were ready, it reduced British ability to win concessions. Lloyd George, worried by the lack of progress on the Western Front, was loath to pursue a policy that might antagonize the Russians unduly. Frances Stevenson’s diary entry for 17 January 1915 discloses his thoughts: “There is a feeling that we are not doing enough, & are ‘on the make’ … C. [Lloyd George] says we did attempt to drive too much of a bargain with them [Russia] over the financial transactions. Pals and partners do not lend each other money at 5%! But he will try to remove that feeling, & bring them to a more friendly basis.”86 Lloyd George was already contemplating the strategic options elsewhere. In a letter to Asquith dated 31 December 1914, he remarked: “I am uneasy about the prospects of the war unless the Government take some decisive means to grip the situation.” He criticized the military for possessing “so little foresight” and also for lacking initiative: “I can see no signs anywhere that our military leaders are considering any plans for extricating us from our present unsatisfactory position.”87 A policy of financial leniency with regard to the Russians made a great deal of sense, as their cooperation would be needed in any venture that might occur on the Eastern Front. But if France was to be “invited” to share the burden of financing Russia, there were limits to the amount of pressure London could put on Paris. Invitations to a financial conference were extended by the Foreign Office to France and Russia on 12 January 1915. It was decided that the site would be Paris and that the opening session would be held on 3 February. From Lloyd George’s perspective, the proposed conference would be an excellent venue to display not only allied solidarity but also to thrash out potentially embarrassing matters, such as the Russian loan request, in a forum in which the French would share some of the blame if Russian demands were not met.88 Part of the original impetus for the scheme came to naught, inasmuch as Russian needs were so acute that the British were forced to grant a credit of £40 million in early January 1915 without French assistance. Nonetheless, the basic principle enunciated by Asquith – encompassing French participation in subsidizing Russia – remained. By the time the conference opened, a number of ideas were already circulating regarding allied financing of the war. Homberg had reported to Paris late in November 1914 that the Russians were promot-

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ing central bank cooperation. The idea proposed would see each of the central banks issue, in equal amounts, “special bills labelled in roubles, francs and pounds at the pre-war parity,” which would be accepted by the three central banks at face value. At the end of the war, any anomalies would be sorted out through the shipment of gold.89 While the British would undoubtedly have rejected such a plan out of hand, others were touting similar schemes. Henry P. Davison, a senior partner in the American banking firm of J.P. Morgan & Co., who was engaged in talks with British officials in London from November 1914 to January 1915, was a proponent of an “allied loan.” Early in 1915, Bertie wrote Grey that Etienne Clémentel, a leading figure on the budget committee of the Chamber of Deputies and subsequently minister of commerce from 1915 to 1919, was proposing the flotation of a massive £800 million loan to cover all the expenses of the belligerents. Clémentel apparently envisaged the loan as the first step in a wider scheme of economic cooperation amongst the allies that would extend into the postwar world. He hoped the loan could be floated on the London market.90 Ribot was soon swayed by these arguments, seeing in the idea of an allied loan not only a solution to France’s financial difficulties but also a means to draw Britain closer to France. As pressure mounted on the Treasury, a series of studies were undertaken at the behest of Lloyd George. These were largely founded on the work and opinions of Blackett and Keynes rather than the more senior officials in the department. Lloyd George had lost confidence in Bradbury, complaining to Montagu that he had a “swelled head,” as was evident from his behaviour: “He talked to me yesterday – at least he started to talk to me – as if I were the booots [sic] and he were scolding me for deflowering his ‘tweeny maid’ without his consent.” George Ramsay, head of the Treasury department directly concerned with external finance, was also the target of Lloyd George’s displeasure. He was a “slow minded person,” according to Lloyd George, who added: “I seek neither his counsel nor his company.” Lloyd George’s comment on both of them was that they “can go to hell – the only fit abode for men who nurse grievances in a great crisis.” Instead of them, he was proposing to take Blackett to the upcoming Paris conference, a choice Asquith agreed with.91 In the event, it was Keynes, not Blackett, who accompanied Lloyd George to Paris. Bradbury and Ramsay were left in London. Keynes had entered the Treasury officially in January 1915. He was not a success at the conference, where he antagonized the French, sowing the seeds of what would gradually grow into intense French suspicion of him. Although gifted with the capacity for sustained hard work, Keynes was no diplomat; he had greater regard for the French

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than the other allies, but he was inclined to treat all of the allies as beggars scrambling for crumbs at the British table.92 At the request of Lloyd George, Keynes prepared a paper discussing the state of French finances. Its most important points concerned the ability of the French to finance their war effort. Keynes reached the following conclusion: “The above summary suggests that internal expenses ought, and can be, financed by France herself, and that, in the matter of expenses abroad, whatever may be the case shortly, she is in no obvious difficulties at present so far as appearances go. It has only to be conceded that in present circumstances appearances are deceptive, and do not preclude the possibility of her being somewhat near the end of her foreign resources.”93 Although Keynes did not believe it would be necessary to provide credits, he was much less sanguine about the chances of extracting gold. He considered that the “extreme conservatism” of the Bank of France – so marked that by contrast the Bank of England was “almost skittish” – rendered any chances of acquiring French gold doubtful. “I do not suppose,” he remarked, “that the authorities of the Bank of France … have any clear idea why it is important for them to get or keep all the gold they can, or of what good they hope it will do them. They seem to adhere to maxims, the observance of wh is recommended as a means of maintaining specie payment, after the end in question had been abandoned.”94 Blackett echoed this verdict in an assessment of the relationship between gold reserves and loans to the allies, commenting on the idée fixe in France and Russia of a large gold reserve. Blackett was more sympathetic than Keynes, acknowledging that the negative influences of the past, such as the assignats of the French Revolutionary era, were deeply ingrained. Despite this, the crux of the matter was that gold must be forwarded to London in order to buttress “the financial position of London over the whole period of the war however long that may prove to be,” for it was upon British credit that allied credit rested.95 Blackett argued that France and Russia were quite capable of financing their internal needs, and therefore no British credit should be extended for that purpose. But British aid might be necessary to help France and Russia purchase in Britain and the United States. Blackett suggested: “There is much to be said in favour of this country’s taking the whole responsibility for providing credits for France and Russia in New York as well as in London, as the exchange is bound to be worked through London and if we take the responsibility we secure the control.” The best way to do so, he suggested, was to extend credits which were partially secured by shipments of French and Russian gold, though he insisted that Britain did not want the gold for its own sake,

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but rather to prop up the exchange position. He admitted that if it was purely a matter of economic considerations, the sensible course would be to have Britain do all the borrowing in New York and dole out credits to her allies accordingly. However, politically this was likely to be unattainable.96 Keynes agreed with Blackett that allied attempts to borrow money in the United States “independently … ought to be encouraged.” Britain should also consider opening up the London money market to the allies, on the grounds that it was possible that the higher rate of interest which the allies would have to offer might tap sources of capital, principally speculative, of a kind that existing British government offerings did not attract. The necessity of increasing the range and flexibility of the allies’ ability to raise funds, whether in the United States or Britain, was paramount.97 On gold, Keynes concurred with Blackett: the Russians, and by extension the French, must transfer gold to London, regardless of their protestations. If it proved necessary to the smooth passage of such transactions, the gold would not even have to appear on the Bank of England’s balance sheet; preferably, it could be listed as overseas assets of the banks concerned. Having the gold in London was essential to meet any contingencies that might arise in terms of the exchange position.98 Blackett and Keynes were not always in agreement. Keynes’s advocacy of allowing the allies to borrow at higher rates in the London market ran counter to Blackett’s desire to control lending; it was also contrary to the policy pursued from the outset of the war by the Treasury. Fostering independent allied borrowing in the United States would have the benefit of alleviating the strain on exchange, but only at the price of even less control over chaotic allied purchasing, which was already generating tensions among the allies. But Treasury opinion was unanimous that either access to or acquisition of French and Russian gold was a sine qua non of any British extension of additional credits. Cunliffe was adamant that the Bank of England must increase its gold stocks. Notable by its absence was any discussion of a joint allied loan in the submissions by Blackett and Keynes. Although they were aware that various ideas were circulating, the Treasury apparently did not consider the merits of any joint inter-allied loan until it was proposed at Paris. The French too were staking out their position in anticipation of the conference. Ribot’s assessment of Lloyd George was influenced by the reports emanating from Homberg in London. Homberg characterized Lloyd George as a man “who appears to know nothing of financial matters and is above all else a politician.”99 In Homberg’s judgment, Lloyd George and Reading were the architects of a British financial policy

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whose origins could be traced to those financial and commercial circles that had been opposed to British participation in the war. Reading had remarked that his objective was to pay for the war “without resorting to a forced currency, without putting gold under lock and key.” Lloyd George, backed by Cunliffe, could be counted on to be hostile to any French effort to push the British towards abandoning gold. Homberg identified the exclusion of foreign borrowers from the London money market as a second strand in this policy. This had two purposes: to preserve the discount rate at a moderate level, and to retain control of the pool of available capital to ensure that British needs were fulfilled. Homberg concluded that British financial policy was narrowly conceived and was designed to keep London inviolate from the afflictions on the continent.100 Ribot was also accumulating information concerning the Russian financial condition. Maurice Paléologue, the French ambassador to Russia, cabled Paris on 18 January with an overview of the Russian position. According to Paléologue, the question of the depreciation of the ruble was at the forefront of Russian worries. Russian balances in Paris and London were entirely devoted to servicing the debt and the needs of the war. Paléologue forecast that the Russians would have to raise approximately one and a half billion francs to meet war-related expenditure. Bark’s freedom of action was also constrained by his unwillingness to dip into the gold reserve, while the drop in Russian exports had exacerbated the depreciation of the ruble.101 If Paléologue’s judgment of Bark is any guide, Paléologue did not believe that the measures contemplated had much of a chance. While Bark was “easygoing, straightforward and honest,” he lacked respect in the wider financial community and did not possess the skill to resolve complex financial problems. Paléologue believed that Bark was uneasy about the conference and was intimidated by the prospect of dealing with Ribot and Lloyd George. This had its advantages, because “he would follow their lead, asking only to be guided by them.”102 For his part, Ribot thought that these weaknesses in the Russian financial position afforded him the ability to drive a tougher bargain with Russia. On the eve of the conference, French and British expectations were disparate. Ribot was confident in his ability to deal with the Russians, believing that Anglo-French comity would prevail. The broader question was what the British attitude would be towards a more expansive conception of allied financing. The allied loan scheme was a useful instrument for Ribot. It tested London’s commitment to the war; it was an opportunity to gauge the accuracy of the counsel provided by Homberg and Cambon, which stressed London’s pursuit of postwar financial dominance; and it offered the possibility of forging an Anglo-

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French partnership in the financial realm. Concrete British commitment to an allied loan would go far to dampen French suspicion. Open access to the London money market was viewed as a further indicator of British willingness to forgo national goals. France was not Russia, whose infirmity in financial matters had been confirmed by the prewar French financial experience with the Russians; France deserved to be an equal partner with Britain. The Treasury was not as impressed with French strength as by evidence of frailty; there was a deep scepticism that France was as destitute as it professed to be. The Treasury delegation that proceeded to Paris was not interested in the issue of an allied loan. Instead, the Treasury was intent upon three goals: controlling the pace and size of allied borrowing; securing access to the French and Russian gold reserves; and curtailing corrupt, inefficient allied purchasing. In the Treasury view, if credits were to be granted, then gold should be shipped in return. Allied financial cooperation would best be demonstrated by letting the Treasury supervise allied efforts. The allied financial conference in Paris was held from 3 to 5 February 1915. Present at the opening session were Lloyd George, Cunliffe, and Montagu for Britain; Ribot, Viviani, Homberg, and two regents of the Bank of France, Charles Lem and Charles Sergent, represented France; and the Russians were represented by Bark and by Artur Germanovich Raffelovich, the financial counsellor to the Russian embassy in Paris. The conference opened with a discussion concerning the statement the allies should make regarding the purpose of the meeting. Lloyd George had proposed an anodyne and vague declaration, which Ribot argued was insufficiently concrete. In his estimation, the resiliency of their credit depended on an announcement demonstrating the allied resolve to fight the war in the financial realm as well as in the military. Failure to do so, Ribot warned, would act to the detriment of allied credit, particularly in the neutral nations. The “most natural corollary” to a general declaration reaffirming allied solidarity would be the flotation of a joint loan. Lloyd George immediately threw cold water on this idea, acknowledging its moral force but claiming that it was impractical at the moment for a number of reasons. It would, he suggested, prohibit individual allies having recourse to the market by virtue of its size. At the same time, any truly large operation, say of £700 million, would be so massive as to require a number of offerings, thus reflecting poorly on allied credit. Even more damning, at least in British eyes, was the prospect that such a loan would necessarily carry a higher interest rate than the first British war loan; this would be of concern to the Bank of England, which was pledged to support the existing loan for the next three years. Cunliffe, seconding Lloyd George,

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doubted that a joint loan would attract British investors, and he advised that a British loan would be more enticing. 103 At this juncture Bark interceded on Britain’s behalf, condemning the idea of a joint loan as “premature” and as something best left until after the war. This represented nothing less than a volte-face in the Russian position, for the idea had originated with the Russians. Bark’s change of heart derived from the weakness of the Russian position and a realization of the way the wind was blowing: only Britain could meet Russian needs, so if Britain was opposed to a joint loan, Bark had to support Lloyd George. It is worth noting that before the beginning of the conference, Lloyd George had met secretly with Bark in Paris at the latter’s request, and it is possible that a bargain had been reached.104 Seizing his opportunity, Bark promptly asked his allies for Fr 2 billion to pay for Russia’s outstanding debts and orders incurred, claiming that this would represent a more efficacious demonstration of allied solidarity than a joint loan. An infuriated Ribot rejoined that he believed it reflected poorly on Russia’s prestige to request assistance immediately after a declaration of mutual cooperation. Instead, Ribot argued, a better policy would be to issue a smaller loan, say of £100 million, which would aid the smaller allies and would allow Britain and France to recoup indirectly some of their advances to those countries. An operation of this kind would not affect the British war loan at all, would reaffirm the alliance, and might serve to bring some of the undecided states in the Balkans to the allied side. Without some movement in this direction, Ribot stated, he would not sign any communiqué. Taken aback, Lloyd George promised to discuss the matter with Cunliffe and Montagu.105 Having shelved this issue, at least temporarily, Lloyd George turned to the question of gold, a subject as uncomfortable to his allies as the joint loan was to him. Allied gold stocks, according to Lloyd George, amounted to the following: the Bank of France £168 million, the Russian State Bank £150 million, and the Bank of England £90 million. Lloyd George argued that it was essential that this ratio be maintained and not diluted any further to the detriment of the Bank of England. To ensure that this was the case, he proposed the creation of a joint gold pool into which all new gold would accrue during the war. Here Lloyd George was trying to get his hands on the gold the Bank of France and the Russian State Bank were acquiring from their citizenry. In the case of the Bank of France, its gold reserves had been rising steadily from the outset of the war as the bank appealed to the populace to surrender gold in the national interest. At the end of December 1915 the Bank of France’s gold reserve stood at £201 million.106 Lloyd George wanted to use the pool to supplement payments for purchases,

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thereby providing access to French and Russian gold. If inflows into the pool were insufficient and one of the three had to draw down on its own holdings to meet payments, the other two would be obliged to reimburse the pool out of their reserves to maintain the ratio. This scheme was transparent, being little more than a means of guaranteeing that the Bank of England’s gold reserve would not fall below a level deemed safe by the British. Ribot, well aware of the motive behind this plan, protested that it was unworkable because the three countries had different monetary policies. He argued that, for France, the connection between gold reserves and money in circulation was such as to rule out any notion of adopting “an international convention able to influence the gold reserve by unknown amounts and with no fixed limits.” As minister of finance, he pointed out, he was not in a position to order the Bank of France, a private organization, to adopt a specific course.107 Ribot’s expostulations were only partially grounded in legitimate fears. He told Poincaré that the British had pressed for gold to be transferred and that he was not opposed to that if he could extract a concession from the British that the London capital markets would be opened to French issues.108 When the conference resumed on 4 February, the allies swiftly agreed that any advances already made, or forthcoming, to the minor allies would be divided and that the funds would come in part from existing resources and in part from the flotation of a joint loan earmarked specifically for this purpose (though the terms and timing of the loan were left vague). This met French demands for action without conceding anything of substance. Lloyd George then returned, more forcefully, to the gold pool plan, and Ribot again raised the point of dissimilar monetary regimes. Lloyd George brushed this objection aside, declining to debate the correctness of British policy and firmly insisted that the allies must share more equally the cost of the war.109 According to a Treasury memorandum, expenditure had reached £1.5 million a day and was rising.110 Lem and Sergent, speaking for the Bank of France, sought to reassure Lloyd George that the Bank of England could count on the future assistance of the Bank of France. But Lloyd George was not to be fobbed off. He tabled a detailed plan. If the gold reserve of the Bank of England fell more than £10 million in the next six months, the Bank of France and the Russian State Bank would each be obligated to provide gold to a maximum of £12 million. The Bank of England would repay the gold no later than one year after the cessation of hostilities. Bark acquiesced, while Ribot reluctantly agreed to recommend it.111 Ribot’s compliance was tactical. He had secured what he wanted elsewhere – the ability to float French loans in London, as clause 4 of

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the secret protocol signed on 5 February made clear. The French were authorized to issue short-term obligations, denominated in francs, on the London market if they could. Ribot considered that this concession made it worth giving way on the question of gold exports, for he believed that it represented the cherished open access. The Treasury, though, had a very different view of what they had yielded. Keynes, in a commentary on the decisions made at Paris circulated to the Cabinet, pointed out that while the French were granted the right to issue instruments in francs, permission was not given for them to raise money in sterling: “This restriction must have the effect of keeping their borrowings here within comparatively narrow limits.”112 Regulation of the London money market had, in the Treasury view, not been compromised. The different interpretations of this clause were a constant source of resentment to the French, who believed the British had gulled them. With the gold pool tentatively agreed upon, Bark seized his opportunity to press his demands for assistance. Perhaps hoping to capitalize on his role as a loyal supporter of Britain, Bark placed Russian expenses for the upcoming year at £100 million. If this was too large for the British and French to provide, he requested permission to float loans in Paris and London. Ribot hastily back-pedalled, citing the invasion of France by the Germans as making any long-term loan impossible. France, was, he reiterated, dependent on the Bank of France, which was preoccupied with the precariousness of the money supply. At most he could offer Bark Fr 500 million (£20 million), but he was confident that money was abundant in London; after all, Britain was not, like France, “bearing the heavy weight of the war.” Thus, he concluded, Bark would find greater solace from Lloyd George. This pointed reminder of the military realities irritated Lloyd George, who retorted that Britain would provide the same amount as France. Bark, alarmed, protested that Fr 1 billion was not enough; after further wrangling, it was agreed that Britain and France would each provide Russia with Fr 625 million.113 The Russians were also granted the right to raise £50 million by means of public loans on each of the Paris and London markets. This stipulation, as Keynes noted with satisfaction, meant that the high interest rate necessary for a Russian instrument to succeed would attract funds that the British government could not tap on its own.114 The conference was inconclusive. No real inter-allied financial cooperation emerged, if by that is understood the pooling of resources and the adoption of a common policy. The most visible symbol of such an approach, the project for a joint loan, fell victim to British intransigence. It was doomed by worries about its impact on existing loans and its lack of appeal to British investors; by concerns that it would conceal

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the inability of the French and Russians to tap the resources of their own populace; and, above all, by the issue of control. As Keynes remarked after the conference, “The issue of such a loan would make it very much more difficult for us to control the extent to which Russia and France are to have access to our market for the purpose of borrowing. While showing ourselves willing to assist them in this way to the utmost extent compatible with safety, it is of very great importance that we should not relax the completeness of our control over such entries of the Allies into our market.”115 At heart, the British vision of what constituted allied financial cooperation was a policy dictated by London. The full implications of this stance had not yet permeated Treasury thinking. Any effort to control allied finances was bound to be resisted by Ribot, particularly as he suspected that part of the Treasury’s motivation was furthering long-term British financial interests, which he believed were not necessarily congruent with winning the war. The idea of Treasury supremacy over allied finance meant extending British control not only to the provision of credit but also to expenditure. Purchasing had to be supervised. At Paris, this side of the equation was not addressed. Other factors weighed against any shift towards Britain assuming control of allied finances. One was the military situation; as long as Britain’s allies bore the brunt of the war on land, it was inexpedient to press too far. A second problem was that France, at least, retained the ability to raise its own funds, which made it less susceptible to British desires. Russia, on the other hand, could be manipulated through the weakness of its financial position. Yet the British could feel optimistic. Lloyd George believed he had secured his “gold pool.” Bertie attributed much of the British success to the fortuitous absence of Pallain, who was injured in a car crash en route to the opening session.116 Lloyd George evidently came away with a strong impression of French irresolution. Asquith told Venetia Stanley: “Lloyd George & Montagu have come back from Paris, where they saw all the people who count, much impressed by the weakness & timidity of the present French ministry … Throughout these financial negotiations, as I told you yesterday, the Russians have shown far more backbone.” Lloyd George had “found the French far more close-fisted & difficile than the Russians.”117 The creation in London of a negative assessment of French financial policy, its underpinnings, and its directors, flowed from the experience of these opening months. Incomprehension concerning the French reluctance to ship gold reigned in London. Things were viewed very differently in Paris, where the earlier warnings of Cambon and Homberg were given added credence. French expectations of inter-allied financial relations envisaged France and

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Britain dealing in tandem with their more impecunious allies, as Ribot’s determined effort to distance himself from Russian requests revealed. Ribot’s cherished hope of France as an equal partner, not a “brilliant second,” in the financial realm was dashed. According to Homberg, Ribot was not enthralled by Lloyd George, calling him a second-rank figure.118 The persistent British attempt to extract gold from France was resented, in that the British failed to appreciate the psychological benefits to the French people of a large gold reserve. With no sign that the war would end imminently, the question was whether these frictions, natural enough in a coalition, would intensify in a long war.

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chapter three

Relations with the United States, 1914–1915

Belief in a short war presumed that there would be no serious obstacles in dealings with neutral states. The war would end before disputes might arise that would pose difficulties. Happily this perspective, shared in Paris and London alike, married with the views of Woodrow Wilson, the president of the United States, who was determined to avoid participation in a European squabble. Notwithstanding this detachment, Wilson hankered after the role of mediator, imagining that his intervention could produce peace. Inasmuch as neither Britain nor France wanted American mediation, the possibility of friction existed. For both countries, the political problem was to keep Wilson well disposed while not encouraging his peacemaking tendencies. In these circumstances, British and French financial relations with the United States were delicate. Both Britain and France wanted to purchase goods in the United States and thus had a common interest in seeing that the Wilson administration did not broaden the definition of contraband, and also that allied blockade policies did not occasion a dispute with the United States. Beyond this, British and French financial interests vis-à-vis the United States were dissimilar in the opening months of the war. In September 1914 William G. McAdoo, the U.S. secretary of the treasury, appealed for British assistance in resolving the problems created in the United States by the August financial crisis. For the British this request was awkward. The Cabinet recognized that it needed to maintain the goodwill of the United States but feared that the Americans would seek to take advantage of the war to displace Britain as the leading global financial power. The Cabinet, Treasury, Bank of England, and City were not about to let this happen. How to preserve the hegemony of the City, maintain the gold standard, and practise the politics of neutrality was the British dilemma.

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Ribot had different worries. Historically, France had played a much smaller role in the economic development of the United States. French investments in America were limited. For Ribot, raising funds to pay for contracts in the United States was the main preoccupation. This brought the French into conflict with William Jennings Bryan, the secretary of state in the Wilson administration. On 3 August 1914 the Rothschild bank cabled Morgans in New York inquiring whether it was possible for it to undertake a loan for the French government. Rothschild hoped that it might be possible to raise $100 million. Without specifying the exact proportions, it proposed leaving some of the proceeds in the United States and extracting the rest in gold.1 Unintentionally, the effect of the Rothschild initiative was to convey an impression of French desperation, which damaged France’s credit. Belatedly, the French realized this; months later Pierre de Margerie, the political director of the Quai d’Orsay, disavowed Rothschild, telling Willard Straight of J.P. Morgan & Co. that the request had never been authorized by the French government.2 It is difficult to believe that Rothschild would have made such a démarche independently. Regardless, this feeler was poorly timed, for the exchange markets had broken down and the United States government was unlikely to permit the export of gold when American indebtedness to Europe was causing discomfort. The Rothschild proposal badly misread the extent of the dislocation in American capital markets due to the August financial crisis and suggested a consuming preoccupation with European worries that did not sit well in the United States. In approaching J.P. Morgan & Co., Rothschild took into account its history, its stature in the United States, and its structure. Memories of 1870 were influential; the international loan floated for the French government in the wake of the overthrow of Napoleon III was not only J.P. Morgan & Co.’s first big international success but also earned the bank a substantial share of French government business. Paris hoped that this previous experience would sway the leading Morgans partners. Morgans’ standing as the pre-eminent bank on Wall Street had been confirmed during the financial panic of 1907 when Pierpont Morgan orchestrated measures which rescued the situation. Although his death in 1913 robbed the firm of the dominant American banker of the age, his son, John Pierpont Morgan, Jr, (hereafter Jack Morgan) was capable, and the firm boasted a cadre of talented partners – Henry P. Davison, Thomas W. Lamont, and Dwight Morrow. Unlike many American banks of the day, Morgans offered the attraction of associated houses in both Paris and London. The Paris branch was the firm Morgan, Harjes, which had been in business since 1868, originally as a branch of the Philadelphia firm Drexel & Co.3 From 1908 onwards,

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the firm was run by Herman Harjes. Harjes enjoyed good connections within the world of French finance and, as time passed, was to become an intimate of Ribot. Morgans’ rejection of the Rothschild request on 4 August reflected the turmoil in New York; citing the closing of the stock market, the lack of exchange, and the impossibility of shipping gold, the partners demurred. Under pressure from Paris, Morgans did test the waters, approaching the State Department about its attitude towards a loan to belligerents. Although the relationship between the Morgan bank and the Wilson administration was poor, the August crisis lessened the antipathy between the Democratic administration and the Republican bank. Morrow remarked: “Our relations with the Administration and with the public generally have tremendously improved.”4 The bank did not wish to imperil this newfound harmony. The partners may also have calculated that an expression of disapproval from Washington would allow them to refuse without unduly antagonizing the French government. The prospects for any foreign loan in the American market in August 1914 were dismal. As Jack Morgan put it, “This whole country at the moment is involved in a desperate struggle to pay its debts abroad and to finance its own undertakings, and therefore has no money to spare to loan to other people.”5 Bryan did not disappoint Morgans. Writing to Wilson on 10 August, he made it clear that he was opposed to loans or credits to the belligerents; he argued that the United States ought to set an example for other neutrals by abstaining from any such loans. Bryan worried that allowing foreign loans would have divisive internal consequences. Not only would it foster discontent amongst certain segments of the population, but powerful financial interests associated with the belligerents might manipulate the press.6 This position, though high minded, was undermined by the Wilson administration’s decision to allow the belligerents to purchase war material freely in the United States. The American economy had been depressed, and while Wilson sought to avoid entanglement in the conflict, he did not wish to alienate commercial interests that coveted the profits which trading with the combatants would generate. The Bryan ruling was a setback for French hopes when a shortage of money was already creating problems. The consul general in New York, G.B. D’Anglade, complained to Paris in mid-August of delays in providing sufficient funds for ongoing purchases.7 A tart cable from the Ministry of Finance at the end of the month suggested that D’Anglade cease protesting about inadequate funds and concentrate on ensuring that all purchases made in North America by the consulates be centralized through his office. D’Anglade was undeterred. On

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11 October he warned Paris that his funds were nearly exhausted and that obligations of nearly Fr 100 million were coming due, which if not met would deal French credit a “mortal blow.” This cable sparked another row between the consul and Paris, the latter dismissing D’Anglade’s worries as “appearing excessive,” which he hotly denied.8 Confronted with the failure of their initial efforts to acquire money in the United States, the French took a new tack. The French ambassador, Jean-Jules Jusserand, was entrusted with placing treasury bills in the United States.9 Initial soundings were not encouraging because the banks were afraid of violating the government ban. As for Morgans, Jusserand was dismissive: “Morgan have shown themselves to be very reserved and even intimidated.” He believed it was more likely that the bills could be placed through National City Bank, especially if they were denominated in dollars rather than in francs to make them more attractive.10 When Paris was consulted, Ribot granted the request for dollar denomination and extended a further carrot: if the amount issued was Fr 250 million (approximately $10 million), he would pay an additional commission of 0.5 per cent.11 As long as the Bryan ruling remained in force, these schemes were little more than wishful thinking. Jusserand met with Frank Vanderlip and Samuel McRoberts of National City on 5 October in Washington to explore the chances of a loan. He was assisted by Maurice Léon, an international lawyer who had represented French financial interests in New York before the war and who functioned as Jusserand’s representative to Wall Street. The bankers were reluctant to proceed, and it was only with difficulty that Jusserand prevailed upon them to entertain the idea. Yet five days later, Jusserand cabled Paris that National City was willing to float $10 million worth of treasury bonds, priced at 94.12 What had changed? Arthur Link, the doyen of Wilson scholars, has argued that Bryan instigated the policy change. According to Link, Bryan “almost certainly informed the President and Counsellor Lansing of his action just before he left Washington for the hustings in early October.” Wilson, not wishing to threaten the incipient American recovery, acquiesced. 13 The principal weakness with this interpretation is that the evidence for it is scant. Link based his account on the testimony of Vanderlip at the Nye Committee hearings in the 1930s. At those hearings, Vanderlip testified that some time following a meeting between himself, McRoberts, Jusserand, and Léon on 5 October, he dispatched an emissary to Bryan. But Link admits that “the documentary record does not reveal what ensued immediately” and that “the facts were never embodied in the American documentary record.”14 Other scholars have suggested that while political and financial interests had been united in opposing foreign loans in August, by October

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the situation had changed. American exports were growing, the exchange rate had stabilized, and the threat now was that a ban on foreign credit might shut off an export-led boom.15 Worried that the allies had “quickly depleted their liquid assets,” the financial community exerted pressure on Lansing, who was known to be sympathetic. Lansing’s account of his conversation with Wilson on 23 October is regarded as providing definitive evidence. In this conversation, Wilson agreed that a distinction should be drawn between credits, which were a legitimate means of facilitating trade, and loans, which violated the principles of neutrality.16 This interpretation is more compelling but still incomplete. The certainty with which the National City Bank committed itself to Jusserand on 10–11 October and the subsequent press reports in both the New York World and the New York Times on 15–16 October suggest that lobbying had already yielded dividends. Straight, who was actively involved in efforts to overturn the prohibition, noted on 20 October: “I have been in Washington once or twice lately and am going down again this afternoon [regarding] the French Government Loan, which I trust we may be able to pull off.”17 Lansing himself acknowledged that he had been in contact with members of the New York financial community. It seems likely that Lansing’s approval had in fact been secured early on but that a stumbling block appeared when Straight ill-advisedly sought Bryan’s opinion. Jusserand cabled Paris on the twenty-second that he had learned of a conversation between Straight and Bryan that took place “several days ago,” during which Straight had asked Bryan if he was prepared to change his position regarding loans. It was Bryan’s refusal, and Jusserand’s fears that this might sabotage the projected French credit, that led Jusserand to inform McRoberts of National City of his concerns. McRoberts’s letter to Lansing on the twenty-third was prompted by Jusserand and was an attempt to overcome Bryan’s opposition.18 Wilson, who had no desire to see the economic upswing curtailed, was willing to remove the ban but was astute enough to keep the change in policy secret. The State Department did not publicly announce the modification until 31 March 1915. On 30 October 1914 National City and Morgans jointly purchased $10 million in French treasury bills.19 The operation had consequences beyond securing a modification of American policy. The nature of French financial relations in the United States changed once the ban was suspended, the emphasis shifting away from dealing with the Wilson administration and towards dealing with the private sector. This meant closer interaction with the Wall Street firms. French thinking about the relative merits of National City and Morgans was influenced by the treasury bill episode. Jusserand and

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Léon emerged from the negotiations with a marked distrust of the Morgan Bank. Jusserand contrasted the hesitations of Morgans unfavourably with the willingness of National City.20 This view was shared in Paris. Herman Harjes cabled New York on 3 November urging that Jack Morgan visit Paris to eradicate the “impression that Morgans in view of reasons political and otherwise are more difficult to deal with than others.”21 Morgans was well aware that the loan discussions had damaged its standing with Paris even before National City had completed the offering. Straight, in correspondence with Maurice Casenave of the Quai d’Orsay, pleaded that the firm’s actions were driven by anxiety concerning the negative consequences of launching a French loan. Such a loan, he warned, might lead to a German loan, unwisely betray Morgans’ pro-allied sympathies, and embarrass the Wilson administration.22 Morgans’ subscription to half of the French treasury bill operation was an effort to correct the negative impression created in Washington and Paris. Nonetheless, the political credit benefited National City, not Morgans, and suspicion regarding Morgans’ sympathies lingered. While the French government was preoccupied with raising money in the United States, the British were confronted with a different set of problems. Unlike France, the Foreign Office had received the Bryan ruling on belligerent loans with complacency. C.J.B. Hurst, the assistant legal adviser to the Foreign Office, noted on the cable relaying the ruling: “From a practical point of view I imagine that the rule now laid down will, if enforced, be to our advantage, because it will be less necessary for us to resort to the neutral money markets for loans, than for our opponents.” This comment was understandable in light of the short-war assumption, but it ignored the potential effect on Britain’s allies.23 British anxieties focused on the difficulties occasioned by the August financial and commercial crisis; short-term obligations owed by New York City were the cause of special anxiety. In a letter to McAdoo, Jack Morgan placed the outstanding American debt at approximately $84 million.24 Shipping gold to meet these obligations was not an option that either McAdoo or the New York financial community relished. Matters were worsened by the peculiarities of the American financial system. Internally, the American financial system was ill suited to deal with crises. American banks were numerous, often small, and frequently weakly capitalized. The amalgamation boom that transformed British banking in the decades before 1914, producing larger, more stable institutions, had no American counterpart.25 There existed no acceptance or discount market of the kind that enabled the City to exercise financial influence internationally. The Federal Reserve System,

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intended to remedy the defect of a lack of a central bank, was not yet in operation. The Federal Reserve Board had been appointed on 10 August 1914, and the Federal Reserve banks were scheduled to open on 16 November 1914. Paul Warburg, a member of the nascent Federal Reserve Board – and widely regarded as the American banker most knowledgeable on central bank theory – was worried until well into November that heavy dumping of securities would undermine the Federal Reserve.26 Worse, the prospect of a haemorrhage of gold threatened to wreck any chance the Federal Reserve had of functioning as its creators hoped, because the decline of the dollar meant that the United States faced the possibility that gold would be exported in large amounts to Europe at precisely the time when internal needs were greatest.27 Faced with a drain of gold, worried about cotton, and casting about for ways in which to reassure the financial and commercial markets, McAdoo appealed to the British.28 His plea was received with unease. This was because the British were suspicious about American ambitions; London was worried that the United States would seize the opportunity provided by the war to displace the City as the centre of international finance. Speculation that this was the American objective had poisoned the discussions conducted before McAdoo’s missive. Jack Morgan, in a letter to Grenfell, endeavoured to dispel British fears. He characterized talk of “conducting the trade of the world in New York” as “perfectly absurd,” citing the unreadiness of the Federal Reserve to play such a role; much of the blame for this situation, which had “simply put the European back up without getting us ahead at all,” was due to Vanderlip and his rash comments to the press, stated Morgan.29 Despite such reassurances, the City’s fears were not groundless. Henry Lee Higginson, a prominent Boston banker, wrote to Wilson in August 1914: “England has been the exchange place of the world, because of living up to every engagement, and because the power grew with the business. Today we can take this place if we choose; but courage, willingness to part with what we don’t need at once, real character, and the living up to all our debts promptly will give us this power; and nothing else will. I repeat that it is our chance to take the first place.”30 In Higginson’s eyes the solution was a simple one: the federal government should provide the private bankers with gold to discharge American debts overseas. Higginson was not the only figure who regarded the war as an opportunity for the United States to attain financial dominance. The American ambassador to the Court of Saint James, Walter Hines Page, despite his deep conviction in the strength of the AngloAmerican bond, peppered Wilson with notes stressing that “relatively we shall be immensely stronger financially and politically” than Britain.31

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The British response to McAdoo’s invitation was cautious. It was decided to send Paish and Blackett to the United States. Georges-Henri Soutou has argued that the Paish-Blackett mission “played a critical role in the establishment of Anglo-American financial collaboration,” whereas Kathleen Burk has suggested that the mission itself was valueless “in immediate terms” but served the purpose of quieting the anxious fears of American bankers.32 The evidence indicates that the latter interpretation is closer to the mark, but it was British fears regarding American ambitions that were really at work. Shortly before his departure, Paish gave a talk to Bank of England and City figures. In his unpublished memoirs he remarked: “After stating the situation in America and [noting] that they owed us a substantial sum, I stressed the necessity which we should be under of borrowing from the United States, during the war.” Cunliffe objected, pointing out that the United States had always borrowed from Britain and would continue to do so. Alarmed, Cunliffe took his case directly to Lloyd George and demanded a meeting to determine precisely what the powers and purpose of the mission were.33 A conference was duly held at the Treasury on 5 October. Indicative of the sensitivity of the issue, the meeting was attended by many of the leading lights in the British financial world. Among those present were Lloyd George, Montagu, Bradbury, and Cunliffe; Walter Runciman, president of the Board of Trade; Lord Emmot, first commissioner of works; and assorted bankers: Revelstoke, Grenfell, Huth Jackson, W. Middleton Campbell, Lord Hambro of C.J. Hambro & Sons, and Robert Kindersley of Lazard Bros & Co. Notable by their absence were Paish and Blackett. The bankers were vehemently opposed to the mission. They feared it would send a misleading and possibly dangerous signal to the Americans that Britain could no longer maintain its accustomed role in the world. Should Britain borrow in the United States, Wall Street would benefit to the detriment of the City. In reply, Lloyd George pointed out that Grey had already telegraphed the British ambassador, Sir Cecil Spring-Rice, that someone would be coming. For Lloyd George, the crux of the matter did not relate to finance. As he told the gathering, I want you to consider something which is a little more than finance at the present moment. We have got very good friends in America, but we have others who are not equally good friends there; and I do not want to do anything which will strengthen the one and weaken the other. I am perfectly certain the head of the State there is very well disposed to us, and if he says

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through our Ambassador “It would be very useful to us if you could send someone over here to discuss this thing; it is a great nuisance to us, and it might lead to a panic,” I should be disposed to meet his wishes for diplomatic rather than for financial reasons.

To soothe lingering concerns, Lloyd George made it clear that Paish and Blackett were to be little more than observers: “He [Paish] has no powers – absolutely no powers. We refused absolutely to give any powers to either him or to Mr. Blackett. They are simply to go there and report upon the position, and send us a full and complete telegram.”34 Lloyd George pledged that any substantive measures that might be deemed necessary would be taken in concert with Cunliffe and representatives of the City. The Paish-Blackett mission was envisioned more as a goodwill gesture to the Wilson administration than as an attempt at Anglo-American financial cooperation. The British believed that Wilson’s policy inclinations, though favourable to the allies, were driven principally by public opinion and thus could be manipulated.35 This could not be said, however, of McAdoo. McAdoo was President Wilson’s son-in-law and a man whose presidential ambitions were well known.36 Spring-Rice swiftly became convinced that McAdoo was nothing more than a pawn for German interests in the United States. He detected a far-flung German conspiracy in which German Jewish bankers headed by the firm of Kuhn, Loeb & Co. had schemed to bring on the financial chaos of 1914. To a correspondent he wrote of “German Jewish Bankers … toiling in a solid phalanx to compass our destruction,” adding that Warburg “practically controls the financial policy of the administration.”37 The McAdoo invitation was part of a grand design intended to embarrass London, argued Spring-Rice. The monetary crisis had been deliberately engineered to cast the British in a bad light by placing them in the position of demanding gold from the United States.38 These fanciful speculations were taken seriously. At the meeting on 5 October both Lloyd George and Cunliffe voiced doubts about McAdoo.39 Paish and Blackett were enjoined to exercise caution. Certainly the economic realities of early October 1914 no longer justified their departure. An upturn in American exports, brought on by the first surge of war orders, had altered the outlook.40 The American banking community, prodded by McAdoo and spearheaded by Morgans and Kuhn, Loeb, established a committee, chaired by James Forgan of the First National Bank of Chicago, that was given the task of raising $100 million in gold. This figure was easily reached, and only $10 million of the gold was ever shipped. 41 The cotton situation

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remained uncertain, but the overall picture was much improved, with exports rising, the sterling-dollar exchange rate nearly normal, and the bankers’ committee’s gold pool in being to meet maturing obligations. On 30 and 31 October Paish and Blackett held meetings with officials of the bankers’ committee and the Federal Reserve. A number of proposals were tabled, but the American side was hesitant, insisting that it had to consult McAdoo before it could proceed any further. McAdoo was already backing away from the discussions. When contacted in New York, he informed the participants that electoral considerations were so pressing that they required all of his attention – hardly the reaction of a man distressed by a commercial crisis.42 Nevertheless, by 5 November all parties had agreed on a proposal. The core of the plan was a revolving £20 million credit to be extended either by the Bank of England or by a group of British banks to a new committee of American banks or to the existing bankers’ committee.43 Should pressure resume on the dollar, the American group would draw upon this credit. The intent was that announcement of this arrangement would reassure the markets and stabilize the exchange. Privately the Americans were jubilant. Warburg, writing to McAdoo, characterized the scheme as “so very favourable to us that I would have been glad to have him cable it over before he might change his mind.”44 As the talks had progressed, it had become apparent that the Americans, notably Warburg and Benjamin Strong – the governor of the Federal Reserve Bank of New York and a Morgans ally – were chiefly interested in minimizing any difficulties that might endanger the Federal Reserve System. They worried that once the New York Stock Exchange reopened, large-scale dumping of American securities would occur, draining gold from the United States. 45 Avoiding such an event was crucial, inasmuch as the architects of the Federal Reserve hoped to attract gold from the national banks in order to ensure the Federal Reserve’s pre-eminence.46 Its establishment on a firm footing was the chief objective of both the New York financial community and McAdoo, for whom the Federal Reserve was a cherished project in which a great deal of political capital had been invested.47 McAdoo had already decided that a formal arrangement would be unwise. The announcement of the opening of the Federal Reserve Board on 16 November removed much of his motivation. While striving to see that the Federal Reserve was placed on a firm footing, McAdoo had no intention of allowing the board to become an overmighty subject, for he believed its proper role was as a subdepartment of the Treasury.48 He did not want the Federal Reserve Board to reap the prestige attached to an agreement with the Bank of England.

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Charles S. Hamlin, a member of the board, recorded in his diary on 20 November that McAdoo “would be glad to have all negotiations lapse.”49 As the prospect of economic calamity receded, the dangers of an explicit connection to a belligerent power loomed larger. Since Wilson’s stance of neutrality in thought as well as action was the public credo of the administration, the agreement threatened to create domestic political difficulties. The problem remained of disposing of the Paish-Blackett mission in a satisfactory manner. Mindful of the opposition of the Bank of England and the City, Lloyd George was determined to abandon this unwanted foundling. He resolved the problem by recalling the mission on the grounds that consultation was needed. To give this more verisimilitude and to paper over the absence of results, it was announced that a delegation of American bankers would accompany Paish and Blackett on their return journey in order to continue discussions in Britain. Davison of Morgans and James Brown of Brown Brothers and Company were appointed.50 As Blackett commented, the Davison-Brown mission provided “an opportunity of escape from the unrealities of the existing position.”51 More perceptive than Paish, Blackett had realized that their “presence in America for the ostensible purpose of discussing special measures to meet a situation that had disappeared was becoming an embarrassment to everyone.”52 Scholars who have emphasized Anglo-American competition, rather than Anglo-American cooperation, are on sounder ground with relation to the early months of the war.53 Until late October 1914 British and French activities in the United States had proceeded along separate tracks. However, allied purchasing arrangements soon became a shared worry. Articles like that which appeared in the New York Times on 26 October 1914 under the heading “Girl Just Wants to Buy Loads of Guns” exposed the allies to ridicule. According to the story, a Miss Lewis, based at the Hotel Lucerne in New York City, was attempting to purchase guns for the allies. When contacted about the matter by a reporter, Miss Lewis’s mother “said that if Miss Lewis was buying artillery it was only a matter of business.” The next day the Times ran a follow-up entitled “Girl Gun Agent a Hoax.” Forwarding these clippings, Jusserand grimly noted that they were typical of allied purchasing, which was plagued by embarrassments. Three major problems were identified: corruption in the awarding of contracts; confused, uncoordinated purchasing among the allies; and inflated prices as a result of competition for scarce goods.54 Jusserand criticized Paris for dispatching buying missions to the United States without regard to their competence or qualifications. Frequently the officers staffing these delegations spoke

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no English and knew nothing about the United States.55 Echoing British concerns about price gouging and possible corruption, Jusserand forwarded to Paris, in early November, a letter from an informant who alleged that the French government was paying a commission of at least Fr 1 million on the purchase of 25,000 horses for the French army.56 Centralizing government purchases with one agent offered a means of remedying the more damaging of these abuses. Soundings in Paris revealed that this was not an opportune time to implement the measure. Harjes, after an interview with Ribot, cabled New York that Ribot and Millerand were opposed to the centralization of purchases – but that if Morgans arranged a credit for $50–100 million in the United States, the government would “centralise in your hands orders for that amount and pay you a fair commission to be determined.”57 It suited Ribot’s purposes to maintain a hard line, for he was well aware that Millerand was resistant to the idea of compromising the Ministry of War’s authority over contracts.58 Since Millerand, backed by the army, was firmly in the ascendant politically, a large American loan was necessary for Ribot to overcome opposition. For the moment, there was nothing to be gained by squandering political capital for the benefit of an American banking house whose efforts on behalf of France were questionable. Harjes informed Jack Morgan that Ribot was upset with Morgans and “disappointed” with its efforts in the treasury bill affair.59 What Ribot did not realize was the degree to which Morgans was ambivalent about securing this business. Harjes had either misrepresented or, more likely, misunderstood the degree to which his New York associates were interested in handling French government purchases. During the voyage to Britain, Davison and Straight had discussed with Paish and Blackett the problems of allied, not French, finance and purchasing. The consensus they reached was that some coordination of allied finances and buying was desirable. Blackett, at Davison’s recommendation, backed the candidacy of the American Supply Corporation as the best choice for an American purchasing agent.60 A natural corollary was the flotation of a British government war loan “to provide for all the American purchases of the Allies,” though an “Allies War Loan” was also a possibility. Davison’s advice was not disinterested; he hoped to secure the appointment of Morgans as the British financial agent. Arranging a loan, either for the British or for the allies was at the forefront of his thoughts. Dealing with France was understood to be part of a wider scheme for the allies. Davison wanted financial, rather than purchasing, business.61 Two factors altered matters: growing worries regarding the state of British purchasing, and the presence of Davison in London. Burk has

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ably analysed the decisions that led to the appointment of J.P. Morgan & Co. as the British government purchasing agent.62 To her account two points should be added. The suggestion of centralizing purchases struck a responsive chord at the Treasury, where dissatisfaction regarding the War Office’s handling of contracts intermingled with unhappiness with the loss of supervisory power over expenditures. Writing to Asquith, Montagu harshly criticized the War Office as a “most awful morass” under the leadership of Lord Kitchener, whose ability he frankly doubted. Given this, he though it intolerable that the Treasury had “completely lost financial control of the War Office.”63 Montagu deprecated the choice of Sir George Gibb as director general, responsible for contracts in the War Office, believing that he was not “very energetic or resourceful.” Gibb exhibited a tendency to “do anything for a quiet life, seeking at all times a satisfactory compromise to everything,” asserted Montagu.64 These doubts found a receptive audience in Lloyd George, whose misgivings regarding Kitchener and the War Office needed little encouragement. In fairness, Lloyd George and Montagu were not alone. Hobhouse recorded in his diary in December 1914: “My own belief is that K. himself is a most over-rated man, very conceited, and though hard-working, much over-weighted by the character of his labours. He is a pessimist and a bad soldier.”65 In these circumstances, the Treasury was prepared to welcome schemes that concentrated purchasing, partly as a means of rectifying inefficiencies but also as a way of regaining ground lost in the bureaucratic struggles of Whitehall – though to speak of a Treasury opinion overstates the degree of unanimity within the department. Lloyd George was animated by a deepening conviction in the incompetence of Kitchener and his subordinates. In a yearend appraisal to Asquith, Lloyd George railed about the War Office’s inability to organize industry. He commented: “Rifles not yet satisfactory owing to Von Donop’s stupidity.”66 For him, it was not a question of reining in expenditures but of spending more efficiently. Montagu, Bradbury, and Blackett, while supporting purchasing centralization, also hoped to curtail spending. The possibility of employing Morgans as an instrument to sway Rumania and control Russia also played a role in the selection of that firm. Jack Carter, the junior partner in Morgan, Harjes, journeyed to London in early December with information that the Rumanian minister in Paris had requested a $10 million loan in the United States, explaining that Rumania would soon enter the war and needed money to purchase supplies. Making the information more tempting was additional news – the minister had indicated that Italy too would be joining the conflict on the allied side.67 The excellent connections possessed

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by Morgan, Grenfell and the strong impression Davison had made in London soon involved him as an accomplice in attempting to hasten the Rumanian entry into the war.68 On 9 December – during a dinner with Lloyd George, Montagu, and Brown – Davison relayed Carter’s information about Rumania. Lloyd George was enthusiastic, commenting that Rumania could raise 500,000 men but lacked the financial wherewithal to do so. He suggested that the Rumanian delegate in London should be introduced to Davison, who would decline to proceed with a loan. The government would then discreetly intervene to offer its services as a means of persuading a supposedly recalcitrant Morgan Bank.69 Britain would thus earn Rumania’s goodwill, furnish the means to field Rumanian troops, and attract the country to the allied side. The following day, Davison agreed to cooperate. Morgans was to act for the British government, with the understanding that the Bank of England would guarantee the loan behind the scenes.70 In acquiescing to this plan, Davison was stretching the concept of neutrality to the limits and possibly exposing Morgans to the wrath of the Wilson administration if knowledge of the transaction leaked out. Jack Morgan, in a rare instance of displeasure, rebuked Davison for not understanding all the implications of this arrangement. Not only had Davison committed the firm without consulting with his partners in New York, but he had also got them into deep political waters: “We are also staking all we have on the success of England in this war.” Should the war go badly for Britain, the consequences would be unpleasant for Morgans.71 In defence of his actions, Davison argued that a display of Morgans’ fidelity to the British cause could have major benefits. “We are,” he remarked, “serving the British Government to their great satisfaction and in effect assuring to ourselves their future financing.”72 Grenfell seconded this assertion, viewing the operation as a means of “binding [the] British authorities for future large transactions entirely to Morgans.” With the “Jewish Houses and Germans” eliminated, Morgans would enjoy Anglo-American business exclusively. Only National City could possibly have any claim on what would be a Morgans preserve.73 Ultimately, the Rumanian scheme did not come to fruition. After some discussion, the Rumanian government was given a choice: a loan could be arranged either through His Majesty’s Government or through Morgans. “Diplomatic reasons,” Davison cabled, were responsible for this shift in plan. At the end of December, Davison was informed that a loan would not proceed.74 The Rumanians had good reasons for not proceeding. The Rumanian intermediary in London, Banque Marmorosch, was, according to Grenfell, under the control of the German Handelsbank. With German money so instrumental in

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the functioning of the Rumanian economy, a credit of the size suggested would not offset withdrawals of German capital.75 For Rumania to offend Germany, more than a credit in the United States would be necessary; territorial concessions in Transylvania were also mandatory.76 The Rumanian loan question was part and parcel of the rush to acquire the Balkan neutrals as the war stagnated. It also testified to the growing disquiet in British, and especially Lloyd George’s, thinking about the progress of the war. The search for a strategic alternative to the Western Front, which ultimately resulted in the Dardanelles operation, was on. Although British hopes for a new ally went unfulfilled, Davison was vindicated as the relationship between the House of Morgan and the government blossomed. Russian attempts to raise money in the United States demonstrated the new intimacy. When the Russians solicited the New York financial community regarding a possible credit, Cunliffe confided to Davison that he did not believe Russia could raise even £2 million on the London money market.77 New York was amazed. Jack Morgan requested more information, commenting that the financial community was “astonished” to learn there was “any question in minds of our friends as to Russia’s ability [to] meet promptly her three or six months drafts.” Davison, after consultation with Grenfell, replied that he was simply passing along the views of Lloyd George and Cunliffe, but he did believe that Russia could gain more financing in London if it was prepared to ship gold. Credits for Russia in the United States were relatively safe, Davison opined, provided they were secured by gold as collateral.78 The news emanating from London was sufficiently disheartening for Morgans to re-examine a tentative arrangement with the Russians to grant a credit of $30 million. The motives of Lloyd George and Cunliffe are not hard to discern. Although sabotaging independent Russian efforts to raise money meant that the British would be expected to provide larger subsidies to Russia, the strategy offered a number of advantages. Greater leverage over Russian finances and borrowing could be obtained if the London money market was Russia’s only recourse. Linked to this was the desire of the Bank of England and the Treasury to acquire Russian gold. Harsher terms guaranteeing this outcome could be demanded if Russia had nowhere else to turn. This was a risky ploy, for if the Russians learned of British efforts to denigrate their credit, they would be furious. The episode indicates the consolidation of an Anglo-Morgan axis (as distinct from an Anglo-American one) in which Morgans acted as the British financial proxy in New York. The lucrativeness of the purchasing contract was not the chief factor motivating J.P. Morgan & Co. Jack Morgan, Davison, Lamont, and the other New York partners envisaged a partnership – admittedly, one in

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which they were the junior partners – that would afford access to the greater capital, experience, and expertise of the financial community in London.79 As the acknowledged agent of the British government, Morgans would gain stature and the hope of goodwill in the postwar era. In common with most observers, the partners in the Morgan firm did not foresee the profound changes the war would bring. They assumed that Britain would swiftly resume its prewar role. Davison told Jack Morgan, “As Mr. Stillman says, Great Britain is going to emerge from this situation grander and more powerful than ever before, and I feel, therefore, the closer the relations we establish, the better it will be in the long run.”80 A vision of a prosperous transatlantic partnership beckoned. On the British side, the impression created by Davison in London and the influence wielded by Morgan, Grenfell helped secure the contract as purchasing agent for Morgans. Davison’s zeal in the Rumanian affair and the prospect of British control over allied borrowings in the United States through Morgans, as evidenced by the Russian credit, was also important. Undoubtedly, the Treasury backed the contract because centralization of purchases was understood as a necessary step to impose order on British buying practices. Lower costs, less confusion, and enhanced access to the American market were expected to be benefits. On 15 January 1915 a commercial agreement was signed naming J.P. Morgan & Co. as the British government’s purchasing agents in the United States. 81 For a Treasury already casting a sceptical eye on allied requests for loans, extending purchasing coordination in the United States to allied buying was a logical next step. It was widely accepted in London that Russian needs would have to be met through British subsidies, which would, within political limitations, be accompanied by the imposition of discipline upon Russian purchasing. France was not so amenable to British financial pressure, enjoying as it did the ability to raise money in the United States, albeit at cost and with difficulty. On 4 December Carter informed Davison that the French were “dissatisfied” with their purchasing arrangements and were contemplating a change.82 Ribot hoped to entice the interest of Morgans through this gambit. Almost immediately the plan foundered in a squabble over an unrelated issue – French payment practices in the United States. The New York partners cabled Davison in early December that the French were paying for orders in the United States with treasury bills, typically at 5 per cent on six- to twelve-month maturities. Among others, the Ford Motor Corporation had been approached.83 When questioned, Léon had categorically denied any French involvement.84 But at a subsequent interview with Lamont, he conceded

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that “the French Government itself was not pressing any of these bills here, but that probably some of these people obtained a few in Paris and were themselves, ‘off their own bat,’ offering them here.”85 Lamont made it clear to Léon that he thought Morgans had been misled and that the unchecked distribution of treasury bills threatened the prestige of French credit in the United States.86 The objection was straightforward enough – vendors who received bills in payment were tempted to try and realize them immediately, rather than waiting until they matured. The result was a willingness to accept less than the face value of the instruments in order to obtain cash. Should a large enough volume be discounted, the value of French treasury bills would be depreciated. Léon’s explanation was construed as disquieting evidence of France’s inability to keep its house in order. For the Morgans partners, it also raised troubling issues of trustworthiness. If French representatives were unaware of or refused to acknowledge such difficulties, how plausible was a more intimate relationship? On 13 December the London and Paris partners gathered at Boulogne with Davison and Straight. Purchasing, French creditworthiness, and the French political scene were on the agenda. Harjes opened the discussion by admitting that French financial affairs in the United States had been badly handled. Poincaré, Ribot, and Millerand were all proponents of altering the current purchasing arrangements. The sticking point was that Paris wanted additional credits as a precondition. The danger, Harjes argued, was that Paris would be willing to deal with anyone who could provide funds.87 To forestall this possibility, it was agreed that efforts should be made to obtain British and French cooperation in the area of purchasing, and that the plan should be to reach an accord with the British first. With London on board, Paris would follow. There was also a consensus on the handling of French wartime finance; all concurred that France “had shown a lack both of judgment and courage.”88 As for a French loan in the United States, a subject raised by Harjes, Davison threw cold water on the prospect, commenting that the “time was not yet ripe for that business in the U.S.A.”89 Nevertheless, Harjes maintained the pressure following the Boulogne meeting, inquiring about the chances of some kind of acceptance credit.90 Davison’s reply provoked an agitated personal letter from Harjes complaining bitterly that he was not being kept properly informed, to the detriment of French interests. “Sitting on the fence,” he admonished Davison, was resulting in a haemorrhaging of “not only money but prestige and credit.”91 Straight was dispatched to Paris in response to these protestations. Straight was chosen because of his connections in Paris. From 1906 to 1908, he had been the American consul general in Mukden and

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had subsequently been the American Group of Bankers’ representative in China. While there, Straight had become friendly with Casenave, then the French representative on the bankers’ committee, and de Margerie, then minister in Peking.92 Over the course of the Christmas holiday, Straight met with Harjes, de Margerie, and Casenave, and endeavoured to clarify Morgans’ actions in October, in the hope that this would resolve one of the chief sources of French unhappiness with Morgans. In this he was unsuccessful, despite de Margerie blaming much of the confusion on Jusserand who, de Margerie claimed, was largely ignorant of the workings of finance and was far too inclined to be excitable. Jusserand was also the patron of National City, and that firm had recently offered to open another $10 million credit for France; Morgans had not provided any similar token of good faith. Undoubtedly, National City appeared more diligent in fostering French interests, but emphasizing its good works also provided leverage for the French in negotiations with Morgans. Conversely, some of the information garnered by Straight strengthened doubts about French finances. Privately, Casenave informed Straight that “the Ministers of Marine, Interior, and Commerce were all crooks” and thus were opposed to any centralized purchasing scheme. Ribot and Pallain were honest, he said, but were “very timid” and not inclined to pursue a bold course, especially as they viewed British steps to finance the war with suspicion.93 Straight took due notice of these disclosures: “In the War Department Millerand is honest, but his underlings are out for all they can get, and there is the same situation in the Ministry of Finance under old Ribot. French finance has been badly handled, the Government has been too timid, and this policy has impaired the confidence of others.”94 Such views were not confined to Straight. In a letter to Jack Morgan on 5 January, Davison voiced his weariness with Paris: “I must confess that despite Bob’s [Robert Bacon] eloquence, and Herman’s shouts for help, I am unable to stir up much enthusiasm regarding the French business. In this feeling I am not unnaturally largely influenced by opinion here which is largely inclined to take the view that our friends on the other side of the Channel have pretty well messed things up first and last.”95 Partisans of Morgans becoming the French government’s purchasing agent were few within the House of Morgan, in effect consisting only of Harjes. In Paris, Morgans had no strong proponent amongst the Council of Ministers, while in Washington Jusserand was an active opponent. Thus although Harjes presented the French government with a formal proposal on 30 December, the chances of Morgans actually becoming the purchasing agent for France in the United States

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seemed remote. Reluctantly, Davison voyaged to Paris in early January. This visit had long been postponed and was undertaken chiefly to placate Harjes. Davison was aware from his discussions with Cunliffe and Lloyd George that an allied financial conference was forthcoming and that centralization of purchasing would be on the agenda. A breakthrough with Paris might now be possible despite the ill feeling on both sides.96 But four days of talks in Paris, involving Davison, Ribot, and the Quai d’Orsay, yielded little. It quickly became apparent that the French were unwilling to make Morgans their purchasing agent unless some kind of credit accompanied the appointment. Davison refused to meet this condition, and nothing of substance transpired. Ribot, who indirectly informed Davison that he was against awarding Morgans a monopoly at National City’s expense, signalled the French preference for National City.97 Morgans left Paris with existing prejudices reinforced. On 14 January, Harjes cabled New York that discussions regarding purchasing and a possible loan were discontinued for the immediate future, thereby closing the first attempt of Paris and Morgans to reach a modus vivendi. This was reflected in the inter-allied conference held in Paris, ostensibly convened to discuss the coordination of purchasing. At a meeting on 7 February attended by the French, the Russians, and representatives of Morgans, Ribot noted that the British had appointed Morgans as their purchasing agent in the United States. Lloyd George, he commented, had urged that the French and Russians do likewise. Neither France nor Russia was immediately prepared to do so, and thus while it was agreed that centralizing purchases in the United States was essential, the question of whether Morgans should be appointed was deferred.98 The failure to create a coherent inter-allied purchasing structure would have been immaterial if the war had conformed to expectations about its length. But it did not, and thus the allies entered the long war with their financial relations with one another uncertain and their dealings with the United States uncoordinated. Moreover, the involvement of J.P. Morgan & Co. was a wedge between Britain and France, for the Morgans partners identified with Britain rather than France, a state of affairs of which French observers were aware.

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chapter four

A Long War, 1915–1918

With hindsight it is possible to see that the financial patterns of the war had begun to change by 1915. The balance of trade between Britain and France moved steadily against France; imports from the United States to Britain and France grew exponentially; and in the wake of these shifts the foreign exchanges moved against the allies as the franc and sterling came under pressure. Domestically, more money had to be raised, necessitating higher taxation and larger-scale borrowing. Although it is evident to the historian that these changes were roughly synchronous with the new year, it was not so obvious to contemporaries. The short-war assumption died a lingering death, and while it has been suggested that by the spring of 1915 it no longer persisted, the military leadership, regularly – and understandably – forecast that the next offensive or set of offensives would end the war. For others, the expectation of a short war was transmuted into a rolling deadline, six to eight months in the future, at which time the war would end. Aristide Briand, who was then premier and minister of foreign affairs, warned Ribot in August 1916 that it was pointless to think of short-term solutions because the war might last another seven or eight months.1 Those in Britain and France who made the leap from assumption of a short war to a whole-hearted embrace of a long war were fewer than has been acknowledged. The treasuries and central banks were not ready for a long war, organizationally or intellectually. And so the process of adapting to the long war was a laborious one; arguably, it was not completed by the time the war ended. What happened instead was that the long war threw those responsible for British and French finances into a world in which ad hoc solutions became standard, making it all the more difficult to agree upon inter-allied finance. One of the casualties of the long war was the influence of the foreign offices. Throughout the early months of the war, representatives

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of the Quai d’Orsay and the Foreign Office had played a leading role. As it became apparent that the war would be longer than anticipated, the influence of the diplomats declined perceptibly. The radicalization of belligerent war aims, much discussed by scholars, was responsible in part for this development. It became progressively more difficult to accommodate the idea of a negotiated peace, and few serious attempts were made.2 Other factors were also at work. The deficiencies in the training and background of the prewar diplomatic corps were cruelly exposed as economic and financial pressures mounted. Neither Bertie in Paris nor Spring-Rice in Washington was equipped to deal with complex financial questions. And Grey, who had feared that the onset of war would have repercussions on Britain’s financial position and who was sensitive to the importance of Britain’s financial relations, was a politician in decline.3 Roberta Warman and Zara Steiner have pointed out that Grey was given to a pessimistic cast of mind, which deepened as the war continued. His physical debility, in particular his worsening eyesight, reinforced his disinclination to pursue an energetic foreign policy.4 The fiasco of his Balkan diplomacy diminished his credit and that of the Foreign Office, while his own disenchantment was so marked as to encourage speculation that he doubted the outcome of the war. 5 He confessed in his autobiography that “in Europe, diplomacy counted for little.”6 By 1916 Bertie had come around to the view that Grey was a defeatist, without the stomach to aid the allied cause. He told Lord Hardinge, the permanent undersecretary to the Foreign Office, that Grey was “at heart a pacifist,” and added: “I think he is what the Americans term ‘a sick man.›7 Arthur Balfour, who succeeded Grey as foreign secretary in December 1916, fared little better. Control of external finance had passed to the Treasury and the Bank of England, though the months immediately preceding the United States’ entrance into the war saw a modest resurgence of Foreign Office influence. A similar situation existed in France, where the functionaries of the Quai d’Orsay were gradually, though not entirely, excluded from financial matters. Jusserand was shunted to the sidelines in the spring of 1915, to be replaced initially by Homberg and, following America’s entry into the war, by a high commission at Washington, headed by André Tardieu, which had financial experts on staff. Cambon in London fared somewhat better. He worked closely, though not always in harmony, with the Ministry of Finance in Paris. The London embassy tended to criticize Paris, often propounding alternative approaches. Cambon’s stature as ambassador, his long experience in London, and the paramount importance attached to the British connection allowed the embassy to carve out a niche in the policy-making apparatus.8 Cambon

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enjoyed considerable esteem in London. Lloyd George claimed that his ability to weep effectively, or at least more artistically than the German ambassador, had swayed the British position in the crisis of August 1914. Cambon, Lloyd George asserted, was “a great man.”9 Despite such encomiums, the reality was that Cambon functioned more as a messenger than as a policy maker. While the Quai d’Orsay managed to preserve some authority in areas such as the blockade and broader questions of inter-allied economic policy, its influence on finance was limited, a marked change from its prewar role as the conduit through which French capital was channelled.10 As the war consumed ever more resources, French external finance was stretched to the breaking point. The stakes were now higher. It was no longer possible to bribe recalcitrant states to one’s side through loans. Territorial concessions and other inducements were necessary and often dictated the course of negotiations. As the search for new sources of revenue became the central preoccupation, the Quai d’Orsay’s influence on external financial policy shrank correspondingly. The long war meant that in both France and Britain the prop that had underpinned foreign office dominance in external finance – plentiful capital – was removed. In 1914 such an outcome had been inconceivable. It is not sufficiently appreciated how misleading the opening months of the war were. This was the period in which the franc commanded a premium against sterling, and sterling against the American dollar; a period in which external trade diminished and the scale of central government expenditure remained in line with prewar expectations. It was possible for Paish to predict confidently that financing purchases in the United States would cause no complications; for Lloyd George to introduce a budget that in retrospect seems remarkably complacent; and for Ribot to rely on advances from the Bank of France and little else. These were the halcyon days of wartime finance. After 1914, outlays grew so fast that estimates provided by the spending ministries were repeatedly revised, discarded, and resubmitted. Ribot, for example, relayed estimates, provided by the Ministry of War for French expenses in the United States, to the French delegates on the Anglo-French loan mission in September 1915. When doing so, he warned the delegates that the numbers were not credible and would likely be revised upwards to a much greater figure.11 Months later, on 13 March 1916, the Ministry of War placed total external expenditure for 1916 at Fr 5,594,476,769. Seventeen days later, on 1 April, a new estimate of Fr 6,768,000,000 was submitted. In little more than two weeks, there had been a rise of more than Fr 1 billion. By early May, the Ministry of War was forecasting expenditures of Fr 6,127,411,843,

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or Fr 640 million below the 1 April total. As of 1 July, the ministry placed overall expenditure abroad at a new level of Fr 8,347,609,922 – almost Fr 3 billion higher than the original estimate made in March.12 Gyrations of this magnitude made it exceptionally difficult to plan. The central problem was the scale of the war. Beyond this was the related difficulty of the loss of expenditure control in France and Britain.13 The affair of the Roanne Arsenal offers an excellent illustration. In September 1916 Albert Thomas, the undersecretary of state for artillery and munitions, authorized the construction of a new arsenal designed to produce 75mm shells. He did so without bothering to consult the Ministry of Finance, the parliamentary commissions, or the Ministry of War, despite an outlay estimated at Fr 150 million. Construction was plagued with problems. The arsenal was not finished until 1918, long after it should have been in production; few shells were manufactured; and the total cost was estimated in September 1918 at more than Fr 200 million. As John Godfrey has commented, the Roanne Arsenal episode was not unusual during the war in France, for the accepted course was “to spend the money first and receive official approbation from the Treasury afterwards.”14 Unsurprisingly central government revenues did not keep pace with expenditures (see table 2). Funds could be raised by borrowing or by taxation. Government borrowing was the cornerstone of French finance during the war. In 1914 Ribot had relied heavily on advances from the Bank of France. In September 1914 the limit on advances from the bank to the government was raised to Fr 6 billion from Fr 2.9 billion. Subsequent conventions in 1915 and 1917 boosted the ceiling progressively, from Fr 9 billion to Fr 12 billion, and finally to Fr 15 billion. The state agreed to pay 1 per cent in interest on such advances during the war and 3 per cent subsequently.15 Short-term borrowing in the form of national defence bonds and medium-term national defence obligations provided the most revenue through 1915 until a long-term war loan was floated in November 1915. Thereafter, internal needs were met principally through continued sales of national defence bonds and further long-term government loans – a second loan appearing in October 1916, a third in November–December 1917, and the fourth in October–November 1918. The national defence bonds, which were essentially treasury bills modified to ensure they were available to the public, could be purchased in amounts as low as Fr 100, with varying maturities of one, three, six, and twelve months. Initially the interest rate on the bonds was fixed at 5 per cent, though this was subsequently altered to a sliding scale so that shorter maturities paid less; the three-month bonds carried interest of 4 per cent, the one-month bonds 3½ per cent. The

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Table 2 French Government Revenue and Expenditure (millions of francs) 1914

1915

1916

1917

1918

10,371

22,120

36,848

44,661

56,649

Revenue

4,196

4,130

4,932

6,186

6,791

Deficit

6,175

17,990

31,916

38,475

49,858

Expenditure

Source: Jèze and Truchy, The War Finance of France, 334–5

bonds were discountable by the Bank of France, and advances could be secured on them up to 80 per cent of their value. The amounts they yielded from 1914 to 1918 are shown in table 3. The national defence obligations were medium-term notes of ten years that were tax free and paid 5 per cent. They were issued at 96.5, beginning in February 1915. Their appeal proved to be limited; until the first long-term loan in November 1915, they yielded Fr 3,960 million, but thereafter they were superseded by the rentes.16 Rentes were long-term government loans redeemable at the option of the state, on which interest was paid and which were tax exempt. Ribot, who was criticized for the lengthy delay in launching a funded loan – the first rentes did not appear until November 1915 – defended himself in his memoirs as follows: France, he argued, was in no condition in the fall of 1914 to support a long-term loan; bank deposits were frozen, important areas of the country were under German control, and the central administration was in disarray. In such circumstances, the best policy was to wait and begin the operation when conditions were more propitious.17 The administrative difficulties were formidable, but others believed that they were surmountable. Pallain had urged Ribot’s predecessor on 4 August 1914 to launch a long-term loan immediately, on the grounds that it would attract hoarded money and strengthen the Bank of France.18 This advice was ignored. The first rentes were issued at 5 per cent at a price of 88, for a real return of 5.68 per cent. The flotation brought in Fr 13,307,811,576, though a portion of this was debt converted at higher rates, which left a productive total of Fr 11,845,999,123. The second rentes, issued in October 1916, also carried an interest rate of 5 per cent and were priced at 88¾. The yield was Fr 10,082,452,965, with the productive total amounting to Fr 10,074,674,154. The 1915 and 1916 loans were not redeemable before 1931. The third and fourth wartime rentes appeared in November–December 1917 and October–November 1918. These loans were somewhat different in their provisions. They carried

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Table 3 National Defence Bonds Issued (France) (thousands of francs) 1914

1,618,850

1915

7,985,786

1916

12,371,961

1917

12,630,695

1918

16,428,931

Source: Jèze and Truchy, The War Finance of France, 250

a 4 per cent interest rate, which by comparison with their predecessors, and the prevailing rates for money, meant that they would not be attractive unless offered at a steep discount. Adopting this course meant that the French treasury would be paying a far greater amount to redeem these issues than had been procured in subscriptions. To postpone the day of reckoning, it was decided that neither issue would be redeemable for twenty-five years, 1943 and 1944 respectively. The third rentes were sold at a price of 68.60, producing an effective yield of 5.83 per cent, and the fourth rentes were issued at 70.80, for a yield of 5.65 per cent. The Ministry of Finance chose to limit subscriptions to the third rentes to Fr 10 billion. Slightly more than this was raised. The fourth rentes appeared as the Central Powers collapsed, with the result that more than Fr 22 billion were subscribed.19 The other component of revenue was taxation.20 The slow growth of French government taxation revenue during the war reflected not only the loss of a considerable portion of France to the Germans but also the unwillingness of the French authorities to contemplate a harsher regime of taxation. In and of itself, this was powerful testimony of the extent to which the short-war illusion mesmerized policy makers. Less understandable was the failure to move in the direction of increasing revenue via the introduction of new taxation. In March 1916 Raoul Péret, the rapporteur of the budget committee, stated: “One idea must preoccupy us: the necessity of having permanent revenues cover the servicing of loans,” a doctrine similar to that advanced by McKenna in Britain in his September 1915 budget.21 Paul Morand acknowledged that Ribot was aware of this pressure. He recalled Ribot remarking, “One pays for wars with taxes, not with loans.”22 Yet Ribot did little in practice. Confrontation with the budget committee in the Chamber of Deputies in December 1915 forced him to agree to implement the long-delayed income tax as well as a war-profits tax. His stalling derived from his lifelong opposition to the income tax – which he

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seems to have genuinely believed would dilute French strength – and also from a deeper, more pervasive conviction ingrained within the Ministry of Finance: “Finance officials saw their task as raising sufficient revenue to carry on the struggle. They believed that either the enemy would be forced to pay for the cost of the war or that future generations of taxpayers would be asked to share the burden … Financial policy, in short, was designed to meet a crisis. It did not presume to solve the problems generated by the war beyond sustaining the war effort.”23 The consequence of this outlook was that throughout the war France raised less of its revenue from taxation than Britain, and it was forced, accordingly, to rely that much more heavily upon borrowing. The reliance of French internal finance upon short-term financial measures exacerbated the problems caused by spiralling costs associated with the prosecution of the war. France was trapped in a vicious cycle of needing to find ever-larger amounts of money on short notice. French finance never freed itself of the incubus of expediency, a factor that diminished Ribot’s ability to deal on an equal footing with the British.Inflationary pressures, which were part and parcel of the policies adopted, only made matters worse.24 Borrowing was also the mainstay of British wartime finance (see table 4). As in France, advances from the central bank were an important component of government borrowing in 1914. On Cunliffe’s authorization, the Bank of England advanced £77 million to the Treasury by the end of 1914.25 While the Treasury was quicker to resort to long-term loans than the Ministry of Finance, the first war loan appearing in November 1914, it continued to have recourse to shortterm borrowing in the form of treasury bills and exchequer bonds. In 1916 treasury bills provided the bulk of government funds, since the third war loan was not issued until January 1917. The first war loan, which appeared in November 1914, realized £350 million with an interest rate of 3½ per cent issued at 95. The second war loan, in 1915, garnered £900 million. Of this, £587 million was in cash and £313 million in conversions. It was issued at par with an interest rate of 4½ per cent. Exchequer bonds issued in 1915–16 yielded £107 million, while treasury bills outstanding at the end of the financial year totalled £550 million. The treasury bills were available in denominations of three, six, nine, and twelve months, with an interest rate of 5 per cent. The third war loan realized the astronomical figure of £2,127 million, broken down into £2,075 million at 5 per cent and £52 million at 4 per cent tax free. A large portion of this was obtained through the conversion of previous issues. Cash obtained was £867 million, the remainder being conversion of treasury bills, exchequer

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Table 4 British Government Revenue and Expenditure (millions of £) 1913–14

1914–15

1915–16

1916–17

1917–18

Expenditure

189.9

487.0

1,228.9

1,638.5

2,189.4

Revenue

196.6

225.4

333.9

564.7

659.6

Deficit

(+ 6.7)

261.6

895.0

1,073.8

1,529.8

Source: Morgan, Studies in British Financial Policy, 104, table 9

bonds, and the previous 4½ per cent war loan.26 For the remainder of the war, the Treasury eschewed long-term borrowing, instead relying on various short-term expedients, notably the issuance of treasury bills. The lengthy gestation of French long-term borrowing has often been noted, but an equally interesting and less frequently observed development was the British decision to forgo long-term borrowing early in 1917. While it is true the French fiscal regime was not all that might be desired, it is often forgotten that the British government was subjected to similar contemporary criticism. In both nations borrowing was the largest source of government revenue, as it was in Germany and indeed in all of the belligerents.27 Approximately 15 per cent of French government expenditure was met by taxation, while in Britain the figure was 28 per cent.28 Confiscatory levels of direct taxation were not contemplated for fear of reawakening the social and political strife of the years before the war.29 The travails of prewar efforts to introduce an income tax in France have already been mentioned. Only the revenue shortfall brought on by passage of the National Service Law in 1913 induced the Senate to pass the measure in 1914. Even if France had imposed taxation along the lines introduced in Britain, it is unlikely that the succeeding receipts would have offset to a significant degree the costs of the war. Revenues in Britain provide evidence for this contention. While they nearly tripled from the last peacetime financial year to 1916–17, expenditures rose eight and one-half times in the same period. As in France, expenditure control was largely surrendered by the Treasury for the duration of the conflict, despite the political struggles that were waged, notably by McKenna, to reassert a lost supremacy. Britain, like France, paid for the war by borrowing. In a period in which nineteenthcentury notions of government finance remained the orthodoxy, British and French governments were disinclined to dispossess their citizenry of their wealth through punitive levels of taxation.30

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Criticism of the relatively small share of the burden borne by taxes in France and Britain misses the point – both states raised the internal funds necessary to continue the war with relative ease. Neither nation experienced difficulty in generating the funds required to pay for goods and services at home. The methods adopted promoted inflation, but this had some merit, increasing as it did the capital available to subscribe to loans. Some contemporary critics in Britain attacked increases in taxation on the grounds that it was sopping up money that would otherwise be directed towards purchasing government obligations.31 Yet internal finance was more tractable than external finance. Finding the means to provide for goods that were unobtainable in France or Britain or their respective empires soon became the chief difficulty facing policy makers in Paris and London. From August 1914 until January 1915 the franc was at a premium relative to its prewar levels. Ribot was able to finance expenditures in London through exchange sales. Lucien Petit suggests that of the £9.2 million in expenses incurred by the French government in London until the end of December 1914, approximately £4 million were met through the mechanism of purchasing sterling. The Bank of France, taking advantage of the appreciation of the franc, managed to build credits amounting to Fr 400 million in Britain and the United States.32 The flow of trade, though disrupted and much diminished by the onset of the war, did not adversely affect France in 1914. The French trade deficit with Britain over the last seven months of 1914 narrowed. In absolute terms, imports fell.33 The French balance of payments deficit on visible trade dropped from Fr 160 million a month to Fr 80 million a month.34 In what was an inversion of the pattern that was established after December 1914, the Treasury was worried about gold being drained to France to support sterling. Beginning in 1915, the direction of the exchange shifted. In January the franc dipped below its prewar parity of 25.2225 francs per pound sterling, and thereafter it depreciated steadily, falling to 27.78 at the end of December 1915 and reaching a nadir of 28.48 in March 1916. The implementation of an exchange support program in April 1916 stabilized the exchange, and gradually the franc regained strength, recovering to 27.225 at the end of December 1917 and reaching 25.985 at the close of November 1918. 35 The root cause of the depreciation in the franc was a shift in the balance of trade between Britain and France, which worsened markedly for the French after 1914 (see table 5). As early as 1915, the French trade deficit with Britain was almost as much as the total trade between the two nations had been in 1914. The loss of much of France’s coal-, steel-, and iron-producing regions meant that the French were forced

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Table 5 French Trade with Britain, 1914–1918 (millions of francs) 1914

1915

1916

1917

1918

Imports

853

3,038

5,967

6,808

6,394

Exports

1,163

1,099

1,118

1,016

1,082

1,939

4,849

5,792

5,312

Deficit

(310)

Source: Petit, Histoire des finances, 693

to rely on Britain for these products. German troops controlled the heavy industrial heartland of France. The occupied departments had provided 64 per cent of French pig iron, 58 per cent of steel, and 40 per cent of coal production in 1913.36 Coal imports were the largest item on the trade balance, constituting 36 per cent of all imports in 1915 and 1916, and 33 per cent in 1917. Steel and iron imports were the second largest, amounting to 12 per cent in 1915, 16 per cent in 1916, and 15 per cent in 1917.37 Collectively, they accounted for approximately half of all French imports from Britain from 1915 to 1917. French imports of war material, armaments, gunpowder, and munitions were negligible.38 Meanwhile, French exports to Britain stagnated. This was due to wartime circumstances and the traditional character of French exports to Britain. Diverting French energies towards the production of war material at home – cannons, shells, rifles, and the like – meant that the raw materials, labour, and capital available for export production were diminished. French trade before the war had been strongest in luxury and finished goods, items that were less in demand and more heavily taxed as the war progressed. The Bank of France deplored British efforts to impose import restrictions, fearing the effect on French trade. In an internal assessment in 1917, Pallain informed the Conseil général of the bank that if the proposed restrictions had been in force in 1915 and 1916, French exports would have been reduced by 58 and 67 per cent, respectively. Hardest hit would have been the silk industry.39 Unsurprisingly, British pressure generated political tensions between the two countries. France was not specifically targeted by the British measures, but import restrictions made France more dependent on Britain and widened the trade deficit between the two countries, an outcome that was not lost on the French. It did not help that France’s trade deficit with Britain paled before the dimensions of that incurred with the United States. The problem was identical – a massive trade deficit brought on by soaring imports

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Table 6 French Trade with the United States, 1914–1918 (millions of francs) 1914

1915

1916

1917

1918

Imports

795

3,028

6,163

9,771

7,140

Exports

377

446

622

682

419

Deficit

418

2,582

5,541

9,089

6,721

Source: Petit, Histoire des finances, 693, 695

(see table 6). Cereals were the largest category of imports in 1914, and in 1915 cereals and cotton were the two largest. As the war lengthened, the nature of French imports from the United States changed. While imports of goods such as cereals, cotton, copper, zinc, steel, and iron remained substantial, imports of finished products jumped markedly. There was a massive rise in imports of machine tools, and especially of war material: explosive powders, arms, and munitions. In 1917 imports of finished products were twice as large in terms of value as any other single item. The war’s effect on the French economy and the pattern of French purchasing in the United States were responsible. Large-scale cereal imports followed from the mobilization of much of the agricultural workforce and the lack of machinery and fertilizers; French wartime production of grains was well below prewar levels.40 Prewar France had been an importer of cotton, but the surge in demand resulted from the needs of outfitting and maintaining the clothing stock for a large conscript army. The jump in imports of war material, machine tools, and transport reflected the fact that the bulk of French orders were not placed until 1916, when hopes for a short war had faded. Once the reality of an open-ended war was accepted, massive ordering of war material in the United States began. Morgans, which handled the bulk of French contracts, placed the highest number of contracts by value in January, May, and November 1916.41 Deliveries lagged because production bottlenecks were commonplace. The dramatic rise in imports of war material in 1917 was due to the surge of new orders combined with the fulfilment of contracts long overdue. Regarding French exports to the United States, there is little to say. The small increase was likely due to inflation and in any case was overwhelmed by the growth in imports.42 France was not alone in experiencing a rapidly deteriorating trade account with the United States. This was true also of British trade, where exports, if inflation is taken into account, declined during the war years (see table 7). Before the war the United States had been a

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Table 7 British Trade with the United States, 1914–1918 (millions of £) 1914

1915

1916

1917

1918

Imports

138.6

237.8

291.8

376.3

515.4

Exports

64.6

56.5

64.5

60.1

27.8

Deficit

74.0

181.3

227.3

316.2

487.6

Source: Morgan, Studies in British Financial Policy, 307–9, compiled from tables 43, 44, and 45

less and less important market for British exports, and Britain had routinely run substantial trade deficits with it.43 Certainly, by shifting labour, capital, and raw materials from export industries into war production, the war hampered attempts by British exporters to increase their U.S. market share; but the basic problem was that on the eve of war the mainstays of British exports, notably textiles, were not competitive in the United States. The political battles waged in the Cabinet in 1915–16 on the possibility of increasing exports to relieve the foreign exchange situation often failed to recognize this reality. As for imports, they swelled so much that by 1918 American goods represented 39.2 per cent of all British imports, compared with the prewar figure of 18.2 per cent.44 The growth occurred almost entirely in two categories: food, drink, and tobacco; and manufactured articles. Within the former, imports of grain, chiefly wheat, and sugar from the United States rose substantially.45 In the latter, arms and ammunition, chemicals, motor transport, leather, and machinery all grew sharply. The Board of Trade, surveying the extent of British dependence on the United States in October 1916, commented: “To sum up, it is quite evident that any failure to obtain imports from the United States would at once affect this country irremediably from the point of view of our food supplies, of military necessities, and of raw materials for industry. For numerous articles important from one or other of these points of view, America is an absolutely irreplaceable source of supply.”46 Trade imbalances meant troubles with the exchange (see table 8). All of the principal allied belligerents experienced a decline in the strength of their currencies relative to the American dollar, though for Britain and France it was not apparent until 1915. The virtually unchecked drop in the ruble destroyed any hope of Russia financing its purchases in the United States. This had serious consequences for the sterling-dollar rate, in that Russia’s inability to finance its own needs in the United States meant that Britain was forced to provide for its ally. Although the franc did not follow the headlong fall of the ruble, it

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Table 8 Selected Exchange Rates on New York, 1914–1918 (highest rates on New York on month shown, prewar parity = 100) London

Paris

Petrograd

August 1914

114.3

101.6

99.3

December 1914

100.5

101.4

83.5

August 1915

97.9

91.8

71.8

January 1916

98.2

88.9

58.2

November 1916

96.9

88.7

59.7

April 1917

97.8

91.2

56.1

April 1918

97.7

90.6

28.2

November 1918

97.8

96.1

–

Source: W.A. Brown, Jr, The International Gold Standard, 49

depreciated considerably more than sterling, thus making it more difficult for France to pay for American goods. After 1915 the decline in the franc was checked largely through British assistance, and for the remainder of the war the franc traded in a narrow range against the dollar. As for the sterling-dollar rate, the table exaggerates the degree of stability in the exchange. A significant effort was required to maintain the sterling rate, which was pegged in May 1916 at $4.76 5/8 (compared with the prewar parity of $4.86) and which varied only slightly thereafter. Supporting sterling consumed valuable dollars. At times – notably, in the summer of 1915 and late in 1916 – the American exchange was under tremendous strain, raising the spectre of a dramatic fall in the sterling-dollar rate, with possibly disastrous consequences for British credit.47 There were various means of securing dollars. Francs or sterling could be sold to acquire dollars, as was done heavily in 1914. The weakness of this course was that it contributed to a further depreciation of the exchange. Efforts could be made to alter the balance of trade, either by increasing exports or by decreasing imports, or by some combination thereof. The former was wholly unsuccessful during the war, while restrictions on imports, which became more common in the later years of the conflict, were constrained by the reality that much of what the allies were purchasing in the United States was necessary for the war effort, and thus reduction was not feasible. The allies could borrow – which they did. As well, France and Britain could ship gold, about which more is said below.

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Finally, the allies could sell investments in the United States. This appeared the simplest choice. After all, in 1914 France and Britain were the greatest creditors in the world, with immense holdings abroad. But liquidating these assets to pay for war purchases had its difficulties. Doing so meant renunciation of influence and power. This mattered little to the French, whose purpose was to win the conflict and thus survive, but it was of grave concern to many in Britain, especially those in financial circles who regarded the diminution of British holdings overseas as an attack on the supremacy of the City. Secondly, a series of pragmatic obstacles existed. Neither the Treasury nor the Ministry of Finance knew how many foreign securities were in private hands. Mechanisms for persuading investors to surrender marketable securities were non-existent. Initially, voluntary means were employed, and only gradually were coercive measures implemented as the financial situation became more desperate. Governments were reluctant to take these steps because they struck at the basis of a liberal economy ordered on the sanctity of private rights. This was particularly true in France; as Schremmer has remarked, “Probably in no [other] European country was the principle of the inviolability of income maintained for so long.”48 Even so, only certain kinds of securities were desirable on American markets, and this greatly disadvantaged French finance. Out of the total French prewar investment portfolio of Fr40–45 billion, approximately 5 per cent, or Fr 2 billion, were invested in America. Slightly more than 60 per cent of French investments were located in Russia, southeast Europe, and the Near East.49 These investments were almost unmarketable in the United States in the years 1914–16 and were definitely not salable in the last two years of the war. The bulk of prewar British investment abroad, usually reckoned at roughly £4 billion, was located either in the United States or in countries of interest to American investors – Canada, Argentina, Australia, and New Zealand.50 Paish estimated in 1910 that these five constituted 54 per cent of British holdings, with the United States the single largest area of investment at 21.5 per cent.51 The existence of large American holdings was a doubleedged sword. It provided a means of raising dollars, but it tended to breed complacency because it was thought of as a reservoir, without full consideration being given either to realizing these holdings or to what would occur if the flow of securities proved unreliable or inadequate. The necessity of supporting the American exchange was understood as a given in the Treasury and the Bank of England. Staying on the gold standard required it, and the gold standard was viewed as the foundation of British financial participation in the war. Bonar Law told the House of Commons in May 1917: “If we had been compelled to go off a gold standard some method would have been found of doing

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Table 9 Gold Reserves of the Bank of England and Bank of France, 1914–1918 (millions of £)

Bank of France

Bank of England

1914

1915

1916

1917

1918

164.9

201.4

138.4(h)

131.4(h)

136.4(h)

63.1(a)

80.8(a)

80.8(a)

53.3(a)

56.4(a)

77.0(a)

70.5

50.5

Sources: For the Bank of France, Petit, Histoire des finances, 717; for the Bank of England, Morgan, Studies in British Financial Policy, 160–2 Note: Francs converted into pounds sterling at the prewar parity of 25.22; totals are from the end of December of each calendar year. For 1916–18, (h) indicates gold held at home, (a) gold held abroad. For the Bank of England, the totals are monthly averages of each December.

financial transactions, yet I do not think there is anyone who has given any thought to the matter who does not realise that such a result would have been serious, and possibly fatal, to the whole credit of the Empire.”52 Staying on gold had implications both for domestic finance and for financial relations with the allies. The need to prop up sterling was evidenced in the continuation of the bank rate at 5 per cent through 1915. It was hoped this would attract money to London. In July 1916, as pressure on the exchange grew, the bank rate was raised to 6 per cent, which in turn meant that the rate on three-month treasury bills moved to 5½ per cent, thus increasing the Treasury’s cost of financing the war. It was not until 1917 that the effort was made to divorce internal and external rates, the higher rate being maintained for external purposes in the continued hope of attracting capital and gold to the United Kingdom.53 Bonar Law, in his first budget as chancellor of the exchequer, in May 1917, admitted that this was the purpose of higher domestic interest rates.54 In France, the Bank of France maintained a discount rate of 5 per cent throughout the conflict, in keeping with its prewar policy of ensuring stability in the discount rate. Maintenance of the gold standard in Britain was thus possible only through obtaining gold from the allies, for the drain on gold throughout the war was significant and British resources alone were inadequate. French gold reserves were much larger than the Bank of England’s (see table 9). Approximately £230 million of gold was shipped to the United States during the years of American neutrality.55 A significant portion of this total was drawn from the allies. Russian gold shipments to Britain, either as sales or loans, totalled £68 million during the war. Of this amount, £60 million was returnable to the Russians under wartime agreements.56 French gold shipments to London, whether sales or loans, were significantly larger. France

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Table 10 Ratio of Paper Currency to the Gold Reserve in France, 1913–1918 (billions of francs) Paper currency

Gold reserve

%

1913

5.7

3.5077

61.5

1914

7.3

4.1584

57.0

1915

12.2

5.0797

41.6

1916

15.6

3.4896

22.4

1917

20.0

3.3131

16.6

1918

27.0

3.4405

12.7

Sources: Figures for paper currency from Saint-Marc, Histoire monétaire, 28; gold reserve figures at the end of December of each year, from Petit, Histoire des finances, 717 Note: The above calculation does not include gold held abroad that was listed separately in the Bank of France returns from 1916 onward.

provided £112.6 million in gold to Britain. Of this amount, approximately £77 million represented gold loans returnable to France after the war.57 While France furnished more gold to Britain than any other ally, the gold was provided grudgingly. Despite the abandonment of convertibility, the Bank of France continued to act as if it was on the gold standard. There were good reasons for this. The rapid growth of paper currency in France during the war alarmed the Bank of France. Despite the success of its campaign to persuade citizens to tender their gold to the bank – which largely accounts for the dramatic rise in the bank’s reserves from 1914 to 1915 – Pallain strenuously resisted the export of gold. He feared that the ratio between paper currency outstanding and the gold reserve could not be allowed to diminish further if confidence in the franc was to be retained by French citizens (see table 10). Worries about couverture – the ratio – were exacerbated by the relatively greater importance of gold in the French financial system. French finance before the war had been less sophisticated than British in terms of the money supply. Cheques and sight deposits, so dominant in Britain, had only made limited headway in France, where coin was the preferred means of exchange. The fondness of the French citizenry for hoarding gold is legendary, but there is substantial truth in this characterization; a large gold reserve was an integral component of the money supply.

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Table 11 New Capital Issues in Britain, 1913–1918 (millions of £) Domestic

Foreign

Total

1913

44.6

197.5

242.1

1914

40.7

158.9

199.6

1915

8.3

74.7

82.9

1916

8.9

25.9

34.7

1917

8.8

17.6

26.4

1918

40.3

25.0

65.3

Source: Morgan, Studies in British Financial Policy, 264

In French eyes, the gold shipped was not necessarily financing the war; instead, it was devoted to shoring up the position of the City in international finance. As proof, French officials cited not only the British decision to stay on gold but the virtual closing of the London capital markets (see table 11). The patterns of the long war – the growing French trade imbalance with Britain; the burgeoning British and French trade deficit with the United States; the pressures these movements exerted on the franc and sterling; the scramble for gold; and the restriction of the London capital market – all these developments promoted conflict between France and Britain. The French worried that Britain was interested only in preserving the City of London; the British worried that the French had no conception of how to finance the war properly, and they feared that France’s unwillingness to surrender gold was endangering its ability to finance the war.

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chapter five

The Debate over Finance and Resources in 1915

A long war forced the belligerents in directions that few had anticipated before 1914. Massive conscript armies had been established on the continent since the successes of Prussia in the 1860s and, in the case of France, by the Revolutionary period. The major continental powers were accustomed to conscription and understood that it was the means through which the manpower necessary to fight the war would be obtained. The economic implications, however, had not been properly thought through. The disruption wreaked on the French economy in 1914, as a consequence of the indiscriminate mobilization that removed both the skilled and the unskilled from the workplace, is well known. In sharp contrast was the British situation, where the idea of compulsion, though it had adherents before 1914, was resisted by many, especially in the ranks of the Liberal Party.1 Kitchener’s decision to raise the New Armies meant that British manpower would be tapped to a greater extent than ever before. As the war intensified, conscription became an issue around which competing visions of how to prosecute the war in Britain gelled. The broader issue was dealing with the unexpected scale and duration of the conflict. It was evident that manpower and capital would have to be directed towards military purposes, creating the infrastructure to support massive armies. How this was to be accomplished was another matter. Reliance on the private sector conformed to nineteenthcentury liberal tenets, particularly in Britain, and was thus the natural response of governments. The shift towards government control of the economy, a hallmark of the First World War, has perhaps been overstated somewhat, at least in the realm of paying for the war, where private-sector channels remained crucial throughout the conflict in France and Britain. Neither the Bank of France nor the Bank of England was yet the nationalized organization of the post–Second World

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War years. Nor was the reaction to the onset of a long war the same in France and Britain. Because of greater British financial strength, the demands of the conflict took longer to sink in. Once they did, they occasioned a debate within political and financial circles about how to pay for the war and, more saliently, how to preserve British financial dominance after the war. No such controversy occurred in France. Critics assailed government financial practices, but there was no serious dispute akin to that which occurred in Britain in 1915. In the wake of the Paris conference, the attempt to extend the arrangement reached between the British government and the American banking house of J.P. Morgan & Co. to handle purchasing in the United States foundered. The idea of a body sitting in New York to oversee allied buying excited hostility from various sources. Although the Russians had voiced a number of objections, these were soon overcome.2 It was a recrudescence of opposition from the British War Office that doomed the plan. Upon returning from Paris, Grenfell met with U.F. Wintour, the director of army contracts in the War Office, on 10 February. Wintour dismissed the notion of a joint board sitting in New York as “ridiculous.” Kitchener believed that procedures for governing inter-allied purchasing arrangements had not been properly considered.3 Kitchener was ambivalent towards centralization. He was uncomfortable with contracting purchasing beyond recognized, established suppliers, even though he had concluded early in the war that centralized supply through the Board of Trade was the most efficient means of proceeding. He told Runciman that he believed the Board of Trade should centralize the supplies for all the services.4 Yet when the opportunity to centralize American purchases through Morgans presented itself, Kitchener and his officials had been unenthusiastic, believing it threatened their authority over purchasing. Moreover, Kitchener worried about the degree of coordination necessary between the British and French war offices if such a plan was to function effectively.5 As Grenfell pointed out, it was “the difficulty of getting Kitchener and the French and Russians to agree on what was a fair division of orders which contributed to the breakdown” of plans for a joint purchasing organization in the United States.6 Internal dissension was also to blame. Grenfell told Harjes: “I can only explain the hitch by some jealousy between Lloyd George and Kitchener.”7 This was not precisely accurate. Neither Kitchener nor Lloyd George was committed to the scheme. Relations between the two were increasingly poor, as Lloyd George made his displeasure with Kitchener’s role in the war effort evident. Lloyd George now revealed that his support of centralized purchasing at Paris had been a sham,

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for he failed to react when the plan collapsed. Other matters were increasingly distracting him. Enhanced munitions production and the Dardanelles campaign were both higher priorities. It thus suited Lloyd George to forgo the idea, and without his backing the scheme for inter-allied purchasing was abandoned. As a result, the French were left out in the cold. Ribot had been counting on an accommodation to pave the way for an American loan, and this setback came at a time when a declining franc, combined with growing purchases, was placing additional stress on French resources. For the six months from April to September 1915, Ribot was forecasting American expenditures of $122 million.8 Settling current French debts and attracting fresh capital to meet these future needs were essential. The only means of doing so, apart from shipping gold, was to offer greater inducements on any paper issued.9 After prolonged negotiations, a syndicate headed by Morgans agreed late in March 1915 to bring out a French loan.10 The terms of the loan – $50 million’s worth of one-year 5 per cent French treasury bonds to be issued at 99½, with a ¾ per cent commission for the syndicate – indicated Ribot’s need for funds, as the global cost amounted to 6.25 per cent on the issue.11 Not only was the transaction expensive, but it represented a de facto acknowledgment that French credit could no longer command the best rates. Barring a dramatic reversal in the course of the war, future borrowings would have to match or exceed this benchmark. The operation, announced in the American papers on 1 April 1915, was unsuccessful. Despite intensive sales efforts by the Morgans syndicate, only $26.2 million’s worth of bonds were placed, the yield to France being slightly less than $26 million. American investors, unfamiliar with foreign securities, were unenthusiastic when offered those of a power whose chances of winning the war were uncertain.12 Joffre’s offensive in Artois and Champagne had failed to dislodge the Germans, and the British attempt at Neuve Chapelle in March had met a similar fate. On the Eastern Front, the Russian success in repulsing the Austrians in Galicia only partially offset the German victory in the Second Masurian Lakes battle. The dismal reception accorded to the French offering was a mark of Wall Street’s doubts. For Ribot, the debacle impressed upon him the need to bind J.P. Morgan & Co firmly to the French cause; J.P. Morgan & Co., with its dominant Wall Street position, was a necessary ally if future French operations were to have any chance whatsoever. Easing French credit shortages in the United States was imperative, since France also needed additional funds in London, where large-scale purchases were exerting pressure on the franc-sterling rate.

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Ribot had tried to acquire sterling credits through the Rothschild connection in March 1915, but the Treasury had intervened, claiming that the London money market was unable to comply because of competitive pressures.13 The Treasury wanted to ensure that the resources of the London money market were reserved for British issues. To the French, this was a direct affront, contradicting the pledge made by Lloyd George at Paris that France would have open access to the London money market. Ribot suspected that Cunliffe was blocking the opening of French credits with the objective of forcing Paris to ship gold to Britain.14 It has been suggested that Cunliffe made it known that he was opposed to any French credits in order to obtain gold.15 The only course open to Ribot was negotiations through the Bank of France. A straight loan between governments was ruled out on the grounds that it would acknowledge financial weakness; the fiction of the Bank of France borrowing from the Bank of England was much more palatable. The talks between the Bank of France and the Bank of England assumed a familiar form. Cunliffe was willing to provide a credit for the Bank of France if the latter shipped gold. Ribot told Cambon on 30 March that he was willing to encourage the Bank of France to make gold shipments to the Bank of England rather than directly to the United States.16 Why Ribot saw this procedure as more favourable is uncertain. It is possible he calculated that opening credits for France in Britain would reduce the pressure on the franc-dollar exchange and correspondingly, of course, would increase it on the sterling rate. The cost and dangers associated with the transatlantic shipment of gold may have played a role; Ribot was wily enough to appreciate that if gold had to be shipped, it was better to have the British bear the expense. Considerations of prestige may also have been at work – the direct shipment of gold to the United States would have signalled that France was having trouble raising money in any other fashion. Ribot’s volte-face derived not only from the French need but also from a conviction that the time had arrived to further Anglo-French financial cooperation.17 From the beginning, J.P. Morgan & Co. was involved in the negotiations between the central banks. Matters were made easier by the presence of Jack Morgan in London. He employed his talents in two capacities in April 1915. First, as head of the House of Morgan, he pursued negotiations with the French government over purchasing and possible loans; secondly, he was an unofficial intermediary between Ribot and the Bank of England in discussions regarding the opening of a credit for France. Sergent, dispatched by Ribot to handle the talks, met with Grenfell and Jack Morgan in early April. Having spent the

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Easter Holidays with Cunliffe, Morgan was privy to his views and was aware that Cunliffe wished to acquire gold from France.18 Negotiations between the two central banks made slow progress, principally because Ribot was now hoping that it might be possible to obtain a large credit in the United States and thus obviate the need to reach a deal with the Bank of England. Through Harjes, Ribot floated the notion of shipping $40 million in gold to the United States, with another $60 million to follow if Morgans could manage a loan for $200 million. Jack Morgan thought this plan had something to commend it, but the New York partners were strongly opposed.19 They remained unswerving in the conviction that only Britain could raise money in New York. Davison and Lamont suggested that Ribot bolster French credit in New York by shipping $100 million in gold to pay off existing debts. Although Jack Morgan managed to secure agreement from Ribot that he would dispatch $40 million in gold without any conditions attached, Davison and Lamont were unappeased.20 Ribot’s willingness to go this far was evidence of his desire to avoid undue reliance upon Britain. Indeed, Cunliffe expressed surprise that Jack Morgan had found the French so ready to sanction gold shipments. But it was all for naught, since the New York partners were embittered by what they saw as France’s intolerably slow payment practices. Resentful of French debts and mindful of the dismal reception of the most recent French loan, Davison and Lamont had come to believe that only a collateralized loan, a loan secured by securities or gold, stood any chance of realization. Morgans’ attitude in New York baffled Ribot, especially as Jack Morgan had been sympathetic to French problems on his visit to Paris. Ribot did not know that both Morgans and the Bank of England were working towards encouraging the shipment of French gold to Britain. Employing Harjes as a conduit, Jack Morgan forwarded a letter to Ribot which suggested that the Bank of England would provide a credit for £16 million in return for the shipment of £8 million in gold, an offer which Delcassé believed was a good starting point for discussions.21 In a series of subsequent cables, Jack Morgan stressed that the Bank of England operation was the best option for France at that time.22 Throughout he was in contact with Cunliffe, informing the latter of the progress of his talks with Paris. Cunliffe agreed that French gold shipments were essential to save their credit but acknowledged the “very great difficulty in making them see it.” Jack Morgan concluded: “[I think the] logic of events is the only thing that will prove it to them, and believe our attitude in declining advances for the present is the strongest argument.”23 This was sophistry, designed to get the French to conform to Anglo-American prescriptions. But there was no

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doubting the message. And, given Ribot’s desperation, the only avenue open now that the door had firmly been shut in New York was to inject new life into the central bank talks. 24 Ultimately, Ribot had to accept a central bank agreement that was structured to provide France with credits in both Britain and North America. It was signed on 30 April 1915. The Bank of England agreed to lend the Bank of France £42 million; in return, the Bank of France sold the Bank of England £20 million in gold. Of the resulting total of £62 million, £50 million was allocated to French payments in North America, while the remaining £12 million was “to meet the excess of French payments in the United Kingdom over British payments in France.”25 On the same day, Ribot asked Jack Morgan if Morgans was willing to take on the task of French government purchasing agent in the United States.26 The appointment of Morgans as purchasing agent emerged from France’s weakness in March and April 1915. The shortage of French resources in the United States, dramatized by the poor reception of the March flotation and the stubbornness of the Bank of England in insisting on gold in return for credits, had led Ribot to turn to Morgans. The idea was to placate Morgans and, in so doing, to gain a powerful ally in the New York financial markets. Ribot expected future credit to come from this association. Additional monies raised in the United States would help to preserve French freedom of action vis-àvis Britain. This was all the more attractive in that the Bank of France never wavered in insisting that deliveries of gold were a last resort. Paradoxically, Ribot pushed the Morgans appointment through because he believed it would promote a policy of genuine inter-allied cooperation. As Morgans was already closely associated with the British, a similar French agreement would, Ribot hoped, promote greater Anglo-French accord. Ribot realized that even if this objective was attained, controls on the exchange would need to be imposed. On 1 July 1915 a meeting of bankers was held at Edouard de Rothschild’s residence to consider Ribot’s proposal that a bureau de change be created to oversee exchange operations. The hope was that this would curtail currency speculation and reduce capital exports. The gathering included Sergent, Rothschild, de Neuflize, Mallet, Hottinguer, and Davillier – all either regents of the Bank of France or, in Sergent’s case, a deputy governor – as well as representatives of the leading French banks. The bankers argued that the number of institutions and companies involved in exchange operations was so large that it would be impossible to centralize operations in one agency. It was pointed out that such a plan had been tried – and failed – in Russia. Although some argued

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that there was no need for any restrictions, most of the bankers favoured the imposition of voluntary measures, to be orchestrated by Pallain. The bankers thought that an appeal to the patriotism of the banking community was more likely to succeed than the imposition of mandatory controls. Voluntarily, they pledged that they would not provide capital to foreign governments without Ministry of Finance approval, and they also agreed not to provide capital to foreign banks other than those whose requirements were legitimate. Finally, they agreed to refuse to provide exchange to individuals who wanted to purchase foreign securities or export capital. To soften the rebuff, the bankers undertook to raise exchange by any means possible. The regents of the Bank of France approved this response unanimously and forwarded it to Ribot.27 Faced with the collective opposition of the Paris financial community, Ribot abandoned the idea of a bureau de change. From this meeting derived the structure of French exchange operations from 1915 onwards. Under the terms of an agreement reached in February 1915 between Pallain and Ribot, the Bank of France had been given control over the credits arising from its shipment of gold to the British in accordance with the convention of 30 April 1915. In return, the Bank of France was charged with supplying the private sector with exchange, and also with the task of stabilizing the franc, while the Ministry of Finance was responsible for finding the money to handle governmental requirements.28 This division of responsibilities between the bank and the state remained intact throughout the war, producing conflict between the Ministry of Finance and the Bank of France when shortages of sterling or dollars were acute. While Ribot was attempting to halt the slide in the franc, sterling was coming under increasing pressure. By the end of February 1915, it had dropped 1 per cent from its January levels, but this attracted relatively little attention.29 Thereafter, sterling moved lower very slowly, blunting fears. Thus it is perhaps not surprising that politicians and Treasury officials regarded the exchange with some equanimity. Cunliffe and his deputy, Brien Cokayne, were sanguine about the exchange in the spring and early summer of 1915. Cunliffe stated to Keynes: “There are a good many ‘Ifs’ about American Exchange, and it is too speculative for my taste, though I am free to admit there is more room for a rise than a fall. They have put the rate of interest in New York up to 4%, but if that is the worst of it we shall not do so badly.”30 In early May, Norman recorded in his diary Cokayne’s belief that the american exchange “may settle itself alright.”31 More importantly, the exchange question in Britain was neglected for much of 1915 because leading politicians had more pressing matters to

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deal with, especially the reconstruction of the government in May 1915 and its ramifications. The collapse of the Asquith government and its replacement by a coalition is one of the most intensely studied episodes in modern British history. Sir John French’s disingenuous charges of shell shortages, aired in the London press as an explanation for the failure of his offensive at Neuve Chapelle, afforded ample ammunition to those dissatisfied with Asquith’s direction of the war. The powerful proprietor of the Times and Daily Mail, Lord Northcliffe, was in the vanguard of those agitating for a change in government. Faced with the Dardanelles fiasco and Sir John Fisher’s threat to resign, Asquith acquiesced in the formation of a coalition government. The most credible explanation for the political jockeying was that all three of the principals – Asquith, Lloyd George, and Bonar Law – were reluctant to risk a general election.32 In the distribution of ministries that followed, Lloyd George was appointed to head a new Ministry of Munitions. He was given the task of ending the shortages of ammunition, which Sir John French had complained were crippling his operations on the Western Front. Replacing Lloyd George at the Treasury was the former home secretary, McKenna. From the point of view of the financial management of the war, the demise of the last Liberal government had a number of consequences. McKenna’s selection as chancellor was less of a coup than it appeared. Both Asquith and Lloyd George were determined that Bonar Law, the Conservative leader, should not be awarded the Exchequer. At various stages, Asquith entertained the notion of taking over the Treasury himself or allowing Lloyd George to continue as chancellor while also overseeing the Ministry of Munitions. Once it was apparent that either was hopelessly impractical, McKenna was chosen to forestall Bonar Law.33 Lloyd George managed to wring a promise from Asquith that McKenna’s appointment would be temporary, pending his own return from the Ministry of Munitions.34 This stipulation was a bitter pill for McKenna to swallow; he and Lloyd George were grudging colleagues, united only by their loyalty to Asquith. Asquith was repeatedly forced to intercede to settle differences between his two subordinates.35 McKenna could not claim Lloyd George’s familiarity with the duties of chancellor. Grenfell, writing privately to Davison some months after McKenna’s assumption of the office, commented, “He has a lot to learn, and … none of us can afford the time to teach him.” But other observers were pleased that McKenna had become chancellor.36 Northcliffe and Lord Milner, neither of whom cared for McKenna politically or otherwise, both believed that he was significantly better suited to the job than Lloyd George. 37 The latter, most scholars agree,

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was a poor wartime chancellor. His fiery rhetoric was not matched by boldness in the financial realm, nor was he especially interested in finance after the August crisis.38 McKenna had served as financial secretary to the Treasury under Asquith during the Campbell-Bannerman ministry before the war and had impressed Sir George Murray, then the permanent undersecretary to the Treasury, with his aptitude.39 After leaving politics, his career as chairman of the London City and Midland Bank, testified to his financial talents. McKenna has not been well served by historians, who have emphasized his personal failings and have tended to echo Lloyd George, whose enmity towards him was deep.40 This attitude may be changing. Bentley Gilbert has commented on the “transcending importance of the ghostly figure in early Georgian Liberal politics, Reginald McKenna,” while John Turner has labelled McKenna, along with Lloyd George, as “the Cabinet’s most capable members.”41 McKenna’s officials were undoubtedly pleased at the change. Bradbury, who had complained to Asquith in May 1915 that he was being completely ignored by Lloyd George, found McKenna much more receptive.42 Similarly Keynes, and to a lesser extent Blackett, flourished under McKenna. It was either Bradbury or Keynes who wrote virtually every key paper emanating from the Treasury after May 1915.43 There existed a genuine affinity in outlook between McKenna and his subordinates, which had never been the case under Lloyd George. From May 1915 onwards, the Treasury was united in its argument that the financial burdens of the war were rapidly outstripping Britain’s ability to pay for them. Treasury authority had been compromised by Lloyd George’s decision to waive its oversight of new spending. Walter Long, chairman of the Committee on War Office Expenditure, remarked in a letter to Montagu: “It seems to me, to put it briefly, that while the Treasury exercises a very strict control over comparatively small matters of War Office expenditure (e.g. pay and allowance to officers, &c.) they have, during the war, parted, with all control over the wider expenditure which as you know has assumed colossal proportions.”44 It did not help that relations between the Treasury and the Bank of England broke down in the first months of McKenna’s tenure. Since February 1915, the bank had acted in cooperation with J.P. Morgan & Co. in New York to maintain the exchange. Cordial personal relations between Cunliffe and Grenfell underpinned the bank’s activities. Lloyd George, whose own ties with Cunliffe were friendly, was content to let the governor handle the American exchange.45 Lloyd George’s departure from the Treasury disrupted these comfortable relationships. McKenna was

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uneasy about J.P. Morgan & Co. At various times in June he indicated to the French his desire to restructure the purchasing deal with Morgans, believing it was too generous to the American bank. The French, not unexpectedly, were delighted by these sentiments and ardently advocated renegotiation.46 Further, McKenna’s personal relationship with Cunliffe was poor. Cunliffe’s arrogant, authoritarian disposition grated on the new chancellor, particularly since it was plain that Cunliffe possessed a low opinion of the Treasury’s capabilities.47 Cunliffe had successfully demanded that Asquith be present at meetings between himself and McKenna, lessening the chancellor’s control over the governor.48 Matters came to a head late in July 1915. On 22 July McKenna informed the Cabinet that Morgans was unable to obtain enough sterling to pay for a Russian contract that Britain had pledged to meet. McKenna acted with dispatch, arranging a $50 million loan on J.P. Morgan & Co. in New York, which was backed by securities obtained from the Prudential Assurance Company and by gold shipped by the Bank of England.49 Cunliffe seized the moment to assert control of the exchange. At a meeting with Asquith on 24 July, he threatened to resign on the grounds that McKenna had ignored his counsel and had lost confidence in him. Taken aback, Asquith solicited the opinion of Montagu and Reading.50 The following day Asquith wrote to McKenna, expressing his “disquietude” about the exchange and instructing him to seek the “closest and most cordial cooperation” with the Bank of England. As for Morgans, Asquith warned McKenna not to tamper with affairs as they now stood. McKenna immediately wrote to Asquith that he was more than willing to meet with Cunliffe. Asquith now found it necessary to mollify McKenna, replying that he had not intended to question his fitness as chancellor, but admitting that he was “principally disturbed” by Cunliffe’s complaints that McKenna was not consulting him. A relieved McKenna professed, “Your second letter has taken a load off my mind.”51 But while McKenna had kept his job, he had not re-established Treasury control over the exchange. Cunliffe, displeased that little had been done to deal with the exchange problem following his confrontation with the chancellor, acted unilaterally. On instructions from Cunliffe, Morgans withdrew its support of the pound and the Bank of England shipped gold from Ottawa to pay off the J.P. Morgan & Co. overdraft.52 The result was a precipitous drop in sterling in August 1915. At best, the governor’s action might be construed as a valiant effort to dramatize the gravity of a problem that had been neglected for too long by his political masters. Less generously, it might be that Cunliffe’s temperament had got the better of him and his directives were motivated by a desire to embar-

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rass McKenna and buttress his own claim of control over the exchange. Either way, Cunliffe’s actions were foolhardy. While the Treasury and the Bank of England argued over what should be done, the final political obstacles to large-scale allied borrowing in the United States had been overcome as a result of French efforts to raise money through acceptance credits. Spurring on French efforts to arrange alternative modes of financing was the tepid response from American financiers. Consequently, the Bank of France managed to open an acceptance credit with Brown Brothers for a group of French banks headed by the Crédit Lyonnais. The plan was for a $20 million credit, secured by 90-day bills issued by the French group which would be accepted by Brown Brothers and then discounted by the Federal Reserve. Secured by national defence bonds and renewable a maximum of three times, the arrangement represented a clever means of providing additional dollars for French purchases in the United States. Unfortunately, the framers had neglected to take into account the possible opposition of the Federal Reserve Board. It was well known that the board hoped to establish an acceptance market, but opinion within the board was divided on the appropriateness of using belligerent paper to accomplish this objective. The members of the Federal Reserve Board were Warburg, Hamlin, Adolph Miller, W.P.G. Harding, and Frederick A. Delano. McAdoo, as secretary of the treasury, and John Skelton Williams, the comptroller of the currency, were ex officio members. Warburg and Miller were staunch opponents of the Brown Brothers plan, arguing that it would create a precedent that might result in a surfeit of illiquid paper. They feared the National Banks would amass large holdings of belligerent securities that would be renewed over and over again, thus acting as a permanent standing loan. Harding and Delano were in favour of the application, with Hamlin wavering; but it was Strong who ardently promoted the Brown Brothers plan. Strong fervently believed that approval of the credit was essential on two grounds. First, allied demand for American goods was continuing to rise; without some means of issuing paper in the United States, it was doubtful whether the allies would be able to continue to finance their purchases. In the worst case, Strong envisaged a financial crisis brought on by the allies’ inability to meet their obligations.53 Secondly, Strong saw the Brown Brothers plan as the first step towards creating an acceptance market that would enable New York to assume a portion of London’s role in the international financial system. Strong favoured the allies, but at the same time saw the opportunity that beckoned. As he told a British correspondent, he supported the creation of dollar drafts and acceptances. While recognizing that this

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would be opposed by the City, Strong suggested that it was “one of the penalties of war” and warned that the British might have little choice: “Personally, I do not look upon it as a matter which is open to much discussion.”54 Throughout late July and August 1915, debate raged over the appropriateness of the Brown Brothers plan. Warburg and Miller raised another objection: they argued that the Federal Reserve Board did not have the authority to permit National Banks to accept paper of this type. Steadily they were isolated as key figures in the Wilson administration were dragged into the fray. Colonel House, whose sympathies with the allies were well known, backed Strong, Delano, and Harding, writing to Wilson on several occasions to urge a broadening of permissible credits. At one point, House went so far as to “stiffen” the resolve of Hamlin, whose commitment to the Brown Brothers plan was less vocal.55 Of equal importance was the decision of McAdoo to support efforts to widen the basis of allied credit. In a letter to Wilson, he argued that the dangers inherent in refusing to extend additional credits were far greater than allowing borrowing by the belligerents. Domestic prosperity rested upon foreign trade, he argued, and “to preserve that we must do everything we can to assist our customers to buy.”56 Lansing – now the secretary of state after Bryan’s resignation – joined McAdoo in lobbying Wilson. The stumbling block remained the Bryan ruling. Warburg had cited it as support for his view that the Federal Reserve should not rediscount.57 As Lansing made clear to the president, both he and McAdoo were in favour of allowing large loans of any kind to the belligerents.58 Wilson indicated he was not opposed to broadening allied borrowing but was unwilling to reverse the Bryan ruling publicly. In effect, he had come down on the side of those urging unrestricted access to American capital for the allies. Perhaps this was unsurprising, since a formidable array of individuals – McAdoo, Lansing, House, Strong, and Harding, among others – had urged him to do so; but it also suited Wilson politically, for the number of those who now had a stake in an allied triumph was large and increasing. Once the Brown Brothers arrangement was sanctioned, it was followed by a commercial credit arranged for the firm of Creusot in December 1915.59 Ribot had been inspired to pursue the Brown Brothers credit by his shortage of dollars. To rectify this insufficiency, he was willing to explore any avenue possible. This flexibility was one advantage that Paris enjoyed over London. Ribot was not worried about preserving the French capital position in the United States in the postwar world because France had never been a significant player in America. Nor was he particularly concerned if New York supplanted London as

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the heart of the international financial system. As long as the funds were obtainable without the shipment of gold, he was interested in any scheme. No divisive internal debate over the possible long-term implications clouded French financial policy, for the objective was understood: finding the dollars to continue the war. This was not the case in Britain. As David French has demonstrated, fighting a coalition war along the lines of the French Revolutionary and Napoleonic Wars, in which Britain commanded the sea, subsidized its allies, and acted as the economic powerhouse of the alliance, was dealt a grievous blow by Kitchener’s decision to expand the army rapidly. Once the long war was a reality and it was apparent that Britain was committed to fielding a massive army, the question then became how long British finances could sustain the effort. Under Lloyd George, finance had drifted. Attempts had been made to control allied purchasing and allied borrowing and to extract gold from France and Russia, but there was no systematic move to assert a Treasury prescription of how the war should be fought. In the summer and fall of 1915, McKenna attempted to persuade the Cabinet that army expansion must be checked, expenditure (whether British or allied) curtailed, a loan raised in the United States, and a budget imposed that met future needs. As far as the allies were concerned, France was critical. It was understood that Russia would have to be supported financially by Britain. The best that could be hoped for was the shipment of gold in return. The Treasury was less certain of France. Some, like Montagu, thought that France was on the verge of financial collapse. Others, pointing to the gold reserves of the Bank of France and its ability to raise money in the United States, were not so sure. Early in July 1915, Montagu wrote to Asquith airing his anxieties. Montagu had returned to the Treasury as financial secretary after the formation of the Asquith coalition in May 1915, having briefly served as chancellor of the Duchy of Lancashire from January 1915. Montagu feared that the war was becoming one of “endurance” in which finance played a “larger and larger part.” He worried that Britain would not be able to sustain the current pace of expenditure, particularly in the United States, where British options were limited. “Flooding America with gold,” while the best hope, required the complicity of France and Russia, he argued, if Britain was to avoid a “future of inconvertible paper” and the prospect of “permanently diminish[ing] our wealth by parting with all our American investments.” The “key point” was the size of the British army. Montagu argued that Britain could not continue to expand its army and finance its allies at the same time. Men were needed in the export trades to generate the dollars to pay for American imports. Forecasting that French finance was

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on the verge of collapse, Montagu urged Asquith to use his forthcoming visit to France to offer a bargain: Britain would take over French financial needs, and in exchange the growth in the British army would cease. “Let us stop this recruiting of men that we cannot arm” was his exhortation.60 McKenna echoed these remarks at the Cabinet meeting of 22 July. Arguing that it was necessary to maintain a high level of exports to finance British and allied purchases in the United States, he urged that recruitment be slowed in order to preserve the necessary labour in the export industries.61 Kitchener responded on 27 July. Britain, he told the Cabinet, was simply not doing enough to win the war. The war could not be fought on “limited liability principles” but must be prosecuted with the same determination evident in Germany. As he reminded the Cabinet, if victory was not achieved, no “soundness of finance will avail us.” The solution to the financial difficulties, he said, lay in a comprehensive package of import restrictions, reduction of consumption, and the utilization of female labour. 62 McKenna and Montagu were arguing that the continental commitment, on the current scale, was too great for British financial strength. McKenna feared mortgaging the postwar interests of the City for the sake of victory. The Treasury was unwilling to re-examine whether maintaining the gold standard was compatible with a war of attrition. With ministers at loggerheads, Asquith resorted to the familiar device of creating a committee to paper over internal divisions regarding finance, conscription, and the war effort.63 The War Policy Committee heard testimony from Lloyd George, Kitchener, McKenna, and Runciman, as well as various other figures.64 McKenna and Runciman argued that it was no longer possible for Britain to continue expanding the army. The curtailment of recruiting was essential, they said, if industry was to generate additional exports that would earn foreign currency. They advocated informing the French that Britain would not expand its army beyond fifty-four divisions but would bankroll all of France’s external needs. There existed a number of problems with this. It assumed that British exporters could expand their market in the United States, an assumption that was open to question. Certainly, any increase in exports was unlikely to compensate for growing imports. Nor had McKenna and Runciman fully thought through the implications for relations with France. Their approach might be interpreted unfavourably – as meaning that Britain was willing to fight to the last drop of French blood while manoeuvring to establish a strong postwar economic position. Grey, who favoured husbanding British financial resources, failed to point out that Paris was bound to be upset, even though Bertie had been telegraphing news of French disquiet with the British war effort. Kitchener, in talks with

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Joffre and Millerand, had already been warned that British participation in a planned French offensive was necessary to reassure Paris of London’s commitment to the war.65 To approach the French with a proposal limiting Britain’s participation in the continental war was likely to create dissension. The War Policy Committee was not swayed by McKenna’s arguments. Its report commented that the Treasury took “too abstract” a view of the situation and that, far from countering proposals for conscription, the arguments put forth by the chancellor were an endorsement of the concept. With demands so great, the committee argued, conscription was necessary to guarantee that both the army and industry were adequately supplied with manpower. In its conclusions, the committee recommended maintaining a seventy-division army, especially in light of “the expectations existing in the minds of our French Allies since the Calais Conference.”66 The report thus nudged the government towards conscription and away from the Treasury position. More worrying for the Treasury was the existence of a faction that was in favour of a much greater military commitment. In a supplementary memorandum, Churchill, Curzon, Selborne, and Chamberlain pushed for the introduction of conscription and raised the notion of a one-hundreddivision army as militarily desirable.67 Although those debating the war effort could agree on little else, they found common ground on the necessity for a British loan in the United States. It seemed an obvious solution to the troubles afflicting the exchange. Kitchener, for example, had earlier urged that the possibility of a loan in the United States be investigated.68 By the summer of 1915, McKenna and his advisers believed that the best means of securing a loan in the United States was through the shipment of gold. Gold was necessary to coerce American compliance because the timing for a loan was poor. Various observers, including Jack Morgan and SpringRice, were pessimistic about the chances for any loan in August 1915.69 Montagu explained to a French correspondent: “We are very strongly of the opinion that the time has now arrived … when America should be told that the four powers are willing to part with gold and ship to New York anything they require up to say £80,000,000 … I do not believe that America would desire to be able to absorb anything like this quantity but the mere fact that it was available would practically force America to lend to the Allies all the money they required and restore confidence absolutely.”70 McKenna informed the Cabinet on 18 August that in consultation with the Bank of England and the City, the Treasury had decided to proceed with a plan to export £100 million of gold, to which France and Russia would contribute. It seems clear that when he tabled this

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idea, he was envisaging a British government loan in the United States. The Treasury had been opposed to the idea of a joint loan at the Paris conference in February 1915. As late as early August, de Fleuriau was dismissive of the chances of a joint project.71 Although McKenna had indicated that France and Russia were to be approached and Montagu had mentioned “the four powers” – by which he meant Britain, France, Russia, and Italy – negotiations to secure the gold were undertaken only with France. McKenna and Ribot met at Boulogne on 21 August 1915. Also present were Cunliffe and Pallain, as well as Reading, Homberg, and Sergent. It was agreed that Britain and France would each hold in readiness $200 million in gold to be shipped to the United States if and when the course of the loan negotiations dictated that gold be exported. It was decided that Russia would be approached about contributing a like amount. As McKenna needed gold to bring this scheme to fruition, it afforded Ribot an opportunity to extract concessions, and he successfully insisted that the loan be a joint Anglo-French project, with the proceeds of the loan being divided. Should the other allies subscribe through contributions to the gold reserve, then the funds would be apportioned according to a formula based on gold actually shipped. Ribot won a number of other concessions. The unused balances on the existing French credit provided by the Treasury for supplies in North America, now £4 million a month, would be applied to French payments in Britain. The Boulogne provisions superseded the obligation of the Bank of France to ship gold to the Bank of England, as stipulated under the February 1915 accord. 72 Soutou has interpreted the decision to proceed with an AngloFrench loan as demonstrating the existence of two factions in London: hard-liners, consisting of Lloyd George, Reading, Bonar Law, and the Conservatives in the Cabinet, joined after June by Cunliffe; and a Treasury-City axis, fronted in Cabinet by McKenna. The hard-liners were committed to war, regardless of its effect on Britain’s postwar financial position, while the Treasury-City interests had as their primary objective the maintenance of the financial predominance of the City. According to Soutou, McKenna and the Treasury had not wanted to float a loan in the United States. The decision to proceed with the loan was a defeat for McKenna and a triumph for the hard-liners. The selection of Reading to head the mission was a further setback, because Reading was the “eyes and ears” of Lloyd George. In Soutou’s estimation, McKenna still hoped that gold extracted from France and Russia would render the loan project nugatory. Although McKenna had been rebuffed in the decision to go ahead with the loan and in the selection of the mission’s head, not all was lost. The appointment of Holden to the mission was an effort to salvage Treasury-City interests.73

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While this analysis has the virtue of locating the Anglo-French loan in a broader context, it is flawed. Soutou’s factional division is inaccurate. Cunliffe and the City were united against the Treasury and diligently worked to wrestle control over the American exchange from it. Grenfell told Jack Morgan early in September 1915: “The Governor and the Chancellor have not seen eye to eye in some of the measures adopted.”74 The close association of the Bank of England and the City cannot be doubted. E.H.H. Green has recently argued this, labelling the Bank of England “the leading voice of the City.”75 But neither Cunliffe nor Holden nor McKenna was willing to sacrifice Britain’s international financial position to win the war. When it suited his purposes, Lloyd George supported Cunliffe, though his views about the financing of the war were remarkably muddled. Yet all – Cunliffe, McKenna, Lloyd George, Bonar Law, Holden, Reading – shared a conviction in the necessity of maintaining the gold standard. Staying on gold was a given; it was understood to be part and parcel of British financial superiority and intrinsic to British power. In this sense, all of the principal directors of British policy throughout the war accepted that there were limits to the war’s prosecution. Nor is Soutou correct in stipulating that the loan marked an end to internal debate, which continued for months, arguably not ending until the overthrow of the Asquith coalition in December 1916.76 More persuasive is the argument advanced by French, who has set the debate within the Cabinet in the context of two lines of thought concerning economic mobilization and the war. Lloyd George and those of like mind pushed for conscription to provide the resources required to end the war shortly and to reassure the allies. McKenna, Runciman, and their supporters were committed to a long war, one lasting a decade if necessary, during which Britain would deliver money and supplies while tightly controlling labour and capital at home, but not resorting to conscription.77 This analysis acknowledges the centrality of the September 1915 budget to McKenna’s argument. On the other hand, it does not go far enough, inasmuch as the Treasury was attempting simultaneously to win the internal struggle with Lloyd George and his allies and to defeat Cunliffe and the Bank of England in the narrower struggle for control over British external finance. Shortly after the agreement to dispatch an Anglo-French loan mission to the United States, a series of documents were submitted to the Cabinet: “The Limits of Borrowing Abroad and at Home,” drafted by Bradbury; “The Financial Prospects of This Financial Year,” authored by Keynes; McKenna’s cabinet circular on war finance; and, finally, Bradbury’s memorandum on the “Creation of Credits for the Allies.” All were composed between 9 and 16 September 1915.78 Collectively, they had a number of purposes. One was to counter the recent War

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Policy Committee report and thus ensure that the struggle over the disposition of resources continued. A second objective was to prepare the Cabinet for the forthcoming budget. Finally, the Treasury wanted to make it clear that America was central to future allied financial stability. The Treasury argued that if the war continued as it had been going, then restrictions – on army size and civilian consumption – were necessary to ensure continued financial stability. Conversely, if the military situation suggested that one “lavish” burst of spending could ensure victory, then Britain’s financial resources would permit such a course but would be exhausted in the effort. If victory was not achieved, the situation would be very grim. In either scenario, the American situation was becoming critical, because Britain and its allies were relying more and more on American goods to continue the war. With this in mind, Britain could not continue to dispense credits liberally to her allies, especially Russia, without some greater means of control. Not surprisingly, the budget tabled on 22 September 1915 sought to accomplish some of the Treasury objectives through raising taxes and imposing duties on various categories of imports. From the revenue standpoint, the greatest addition to the Treasury flowed from the increase in the income tax and the introduction of the excess profits duty. McKenna inaugurated the idea that fresh borrowing should be covered by sufficient taxation to allow for the payment of interest and the creation of a sinking fund. Increasing the rate of income tax, coupled with the decision to levy tax beginning at an annual income of £130 rather than £160, enjoyed broad support, as did the introduction of an excess profits tax.79 As for the famous McKenna duties that were levied on imports, French has suggested that they were purposely designed to fail, in order to demonstrate the impossibility of tariffs actually checking imports – and thus assisting the exchange – or of bringing in enough money to make any difference in financing the war. The motivation was to dismiss conclusively the agitation for tariff reform.80 Whether or not this was so, it was necessary for the Treasury, and McKenna in particular, to demonstrate its grip on the financial problems facing the country. With an uneasy coalition and with the issues raised by the War Policy Committee not resolved, the budget was calculated to avoid fomenting further perturbation amongst the Cabinet and, by extension, among members of parliament. 81 Together, the budget and the Anglo-French loan were designed to prompt the Cabinet towards acceptance of Treasury prescriptions. To further this design, it was necessary to address the Russians. Pressure to broaden the credits granted to Russia at the Paris conference had been mounting throughout the summer of 1915.82 The deterioration of the military situation on the Eastern Front bestowed even

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greater urgency on Russian pleas for more financial assistance. Tentatively, it had been agreed in June 1915 that the three allied ministers of finance would meet to discuss matters at the beginning of August. This was subsequently postponed to late September by Bark, who maintained that he needed to explain his financial measures to the Duma.83 In the interim, McKenna and Ribot met at Boulogne and agreed to broach the gold shipment plan with the Russians. The first approach to Bark was discouraging. In return for providing £40 million in gold, Bark asked for the creation of £400 million in credits. For a Treasury deeply unhappy about the lack of spending controls over the subsidies provided to Russia, this went too far. Bradbury assailed Bark’s request as an “entire misapprehension of the real situation,” but he admitted that Britain would probably have to advance large credits to Russia. He urged that if Britain did so, tighter supervision should be exercised over Russian spending.84 The scale of the Russian demands reanimated Treasury interest in coordination with France. Ribot had planned to come to London to meet with Bark and McKenna but had demurred, citing the pressure of tabling his program in Parliament. Confronted with the scope of the Russian requests, the Treasury urged Ribot to send a representative to London to discuss Russian needs. As Bradbury informed DePeyster, the Treasury, recognizing that it could not reject the Russian plea, intended to take advantage of Russian weakness to impose stricter limitations upon spending.85 Before Paris could oblige, the Treasury reached agreement with Russia on 30 September 1915, the key features of the arrangement being as follows: Britain agreed to pay a monthly stipend of £25 million; Bark promised to ship £40 million in gold; and Russian orders were to be more strictly supervised through the Commission internationale de ravitaillement (cir).86 Asserting British control over allied financing was the overriding factor, though timing was also important. Anglo-French consultation would likely result in a delay before a Russian credit was approved. With the recent Russian reverses buttressing those in the Cabinet who viewed Russian setbacks as largely the result of inadequate munitions – and, by extension, inadequate credits to purchase supplies – a prompt accommodation was necessary. London’s haste placed Ribot in a difficult situation. In his talks with Bark, Ribot refused to commit himself to anything more than a monthly subsidy of 125 million francs to meet Russian payments in France.87 As London had already taken over the burden of meeting France’s share of Russian external expenses, this was hardly generous.88 Given this, it proved impossible for Ribot to deny McKenna’s request that Britain and France set aside a portion of the Anglo-French loan proceeds for Russian payments in the United States.

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Negotiation of the Anglo-French loan between a delegation headed by Reading and a syndicate of American bankers led by J.P. Morgan & Co. proved unexpectedly arduous. The bankers were less confident of allied success than the allies themselves were; this scepticism increased when, during the negotiations, the German summer offensive on the Eastern Front expelled the Russians from Warsaw, Brest-Litovsk, and Grodno, and then secured the fall of Vilna on 19 September. The allies had no such success to show in the West, where the Anglo-French offensive scheduled at Artois and Loos did not open until after the loan had been concluded. Meanwhile, the outcome of the Second Battle of Champagne was hardly enough to reassure the American bankers. Consequently, hopes for a loan of $1 billion were soon dashed. Instead, the Anglo-French mission had to settle for $500 million, and this on terms that stunned Reading, for one.89 With the Anglo-French loan agreed upon, the Treasury package – the submissions to Cabinet, the budget, the agreement with Russia, and the loan designed to shore up the external position – was complete. Yet it largely failed in its twin aims of providing a convincing prescription for the prosecution of the war and excluding the Bank of England from external finance. Some lost ground was recovered on the expenditure side when the Cabinet agreed in November that all contracts in excess of £500,000 must be referred to the Treasury.90 But this was little solace. The debate over resources, while not over, was moving against the Treasury as the strain of the war mounted. The advocates of compulsion could draw inspiration from the urgings of the military that more men, more firepower, and more resources would permit a conclusive triumph. The budget itself was generally well received in Parliament, but some members urged more sweeping steps. Laming WorthingtonEvans, a Conservative member, argued that the most pressing problem facing Britain was external finance. He suggested that the government acquire privately held foreign securities in exchange for war bonds. “To win,” he remarked, “we have been told, the three important things are men, munitions and money. I have no right to speak of the methods of raising men. With regard to munitions, compulsion has already been applied. Now let us apply it to money and I think we need have no fear that we shall be equal to our colossal financial task.”91 Worthington-Evans was the parliamentary private secretary to the financial secretary to the War Office, and his sentiments echoed those expressed earlier by Kitchener. McKenna, in dismissing this idea, argued that it would cost the Treasury too much to implement. The call for conscription of wealth did not receive the support of the Unionist front bench – unsurprisingly – though Labour mp s were willing to see

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its implementation. But it demonstrated that unhappiness with the Treasury’s handling of British finances had not been appeased. Attacks of this kind were fed by the terms of the Anglo-French loan. Cabinet displeasure about the interest rate, which amounted to nearly 6 per cent, was evident.92 Reaction in Parliament was stronger. Sir Frederick Banbury, the member for the City of London, assailed the outcome, asserting that 4½ per cent could have been obtained. “We have,” he remarked, “injured our credit to a very great extent by borrowing money at 6 per cent in the United States.” Other members were equally forthright in their comments.93 If the Anglo-French loan had been a success, such criticism would have been dismissed as ill informed. But the loan was not well subscribed, despite pressure by the allies on suppliers of goods to Britain and France to purchase the bonds.94 Public interest in the bonds was negligible, and the Morgan syndicate found it necessary to absorb unsold securities. A pricesupport scheme was implemented once it became apparent that the bonds were likely to drop to embarrassing levels.95 The weakness of the loan issue posed a problem. Reading understood that other sources of dollars had to be found. His suggestion that the delegates consider the idea of acceptances denominated in dollars invoked a powerful reaction. As he told Homberg, he had had no success in floating this trial balloon.96 Subsequently, in his statement to the Finance Committee of the Cabinet on 29 October 1915, Reading surveyed the options available for future American credits. Three possibilities existed: another unsecured loan; credits based on collateral; and “any other means.” Given the difficulties attendant upon the Anglo-French loan, Reading was wary about a similar operation. He conceded that $250 million might be attainable in March 1916 if the Anglo-French loan was well received and “the military and political situation of the Allies presented a fairly favourable aspect.” As for a collateral loan, Reading opined that it was feasible, but it would have to be structured so that either the banks or financial institutions were the borrowers, not the government; if the government borrowed on collateral, it was unlikely that it would ever be able to wean the American bankers from this method. Reading reckoned that $300 million might be raised, necessitating collateral of $350 million, though he was doubtful whether this amount was in the possession of British investors. “Any other means” boiled down to bills of exchange, denominated in dollars, and shipments of gold. The former was impossible because of the opposition of the City, while the latter meant further friction with France and Russia. Reading offered no solutions to what he admitted was a “situation that fills me with the greatest alarm.”97 Remaining on gold and upholding the position of the City

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was becoming a trap. McKenna’s testimony to the committee reiterated familiar Treasury views, which were discredited by renewed weakness in the sterling exchange and by Reading’s statement. Instead of the Anglo-French loan acting as the capstone of a successful strategy to cement Treasury control over finance, the problems associated with it afforded Cunliffe his opportunity to challenge the Treasury. St Aldwyn had already expressed his reservations about the Treasury in no uncertain terms to Chamberlain, a member of the Finance Committee: “It seems to me … that there is no one at the Treasury (except young Blackett, who is in America) at all capable of advising the Chancellor on questions such as that of exchange of which he must be largely ignorant; and that McKenna turns for advice to Mr. Keynes of whom you have seen a good deal, and who is held in the City to be a most untrustworthy advisor.” St Aldwyn added: “Bradbury is useless.”98 St Aldwyn’s letter was motivated by the grievances of Cunliffe and the London clearing banks, whose relations with the Treasury remained poor. Holden, in a supplementary to Chamberlain, went further, offering a detailed plan to rectify the exchange.99 In the wake of the interim report of the Finance Committee and the statement by Reading, Chamberlain wrote to Asquith suggesting that the latter intervene to resolve the disputes between the City and the Bank of England on one side and the Treasury on the other. He warned: “As things stand between them, we are heading for disaster.”100 Arthur Balfour, the First Lord of the Admiralty, in a Cabinet paper of 9 November, echoed these sentiments, advising that “the Cabinet have no information” about the general economic situation: “So far as their knowledge goes, we are drifting; and, if we are drifting, we may soon find ourselves among the rocks.”101 Demands for a more effective prosecution of the war had already occasioned a restructuring. Asquith, after some evasion, yielded to his critics and established the War Committee on 11 November 1915. It was intended to be a smaller, executive body that would streamline the administrative processes of Cabinet decision making.102 As for the Treasury, Chalmers was brought back as joint permanent undersecretary. Frances Stevenson noted in her diary on 6 December 1915: “Lord Reading told D. today that things were in such a hopeless muddle that the Governor of the Bank of England was obliged to go to the Prime Minister and demand that Lord Reading should be installed at the Treasury to straighten things out a little, and to advise, and Sir Robert Chalmers recalled from India to replace Sir John Bradbury. It seems as though all the men in whose hands the direction of the war lies – military and otherwise – are absolutely incompetent. Where will it all end?”103 Allowances have to be made for Stevenson’s antipathy towards

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McKenna, Lloyd George’s most bitter Cabinet foe. Still, the selection of Chalmers, who had served as permanent undersecretary to the Treasury from 1911 to 1913 prior to his appointment as governor of Ceylon, did suggest disquiet with the performance of the Treasury. The decision to cede control over the exchange to the American Exchange Committee, soon renamed the London Exchange Committee, was part and parcel of this wider effort. It was hoped that clarification of the lines of authority would reduce the rivalry between the Bank of England and the Treasury and furnish a managerial body that could coordinate long-range planning for the problems of financing American purchases.104 The committee consisted of Cunliffe, Cokayne, Holden, and Schuster, an apparent indication of the triumph of the Bank of England and the City. The powers granted to it were extraordinary. Bradbury, notifying Sir Paul Harvey, the British financial delegate in the United States, of the establishment of the committee, told him that its mandate encompassed “all exchange operations for H.M. Government,” including government payments abroad. Moreover, “during their operations all gold in the possession of the Government, future proceeds of American Loan & any future loans and securities bought by Government for exchange operations, will be at absolute disposal of Committee.”105 Cunliffe soon came to dominate its meetings, to the point where it was little more than an organ for his opinions. But the sweeping powers bequeathed to the committee fell into desuetude. Dealing with all the problems of the exchange was beyond Cunliffe’s grasp. A bureaucracy was required to handle these tasks, which the committee did not possess and the Treasury did. The London Exchange Committee was not the financial equivalent of the Committee for Public Safety, nor was Cunliffe Robespierre.106 The creation of the London Exchange Committee amounted to an unworkable solution. Although it appeared to end the rivalry between the Treasury and the Bank of England, in fact it failed to do so. And although it inaugurated the form of a new approach, little changed in practice.107 The year 1915 was a transitional one in British and French finance. The problems of internal and external finance were acknowledged, though solutions to the external difficulties proved evasive. Steps were taken towards a collaborative effort, notably with the decision to appoint Morgans as purchasing agent, the provision of credits to France in return for gold shipments, and the Anglo-French loan. Collaboration was not necessarily the most efficient means of paying for the war, or so the Treasury and the Bank of England thought, but the political calculus mandated it. The Cabinet reconstruction in May 1915 brought McKenna to the Treasury, bringing with him dynamism and focus. McKenna was determined to end what he saw as a policy of

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drift in financial affairs. Beginning in August and extending into early October, the Treasury attempted to advance a comprehensive package designed to sway the uncommitted to its side. This effort failed, but it did not mean that the struggle over resource allocation and the nature of the war had ended.

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chapter six

The Collapse of France

As the 1916 campaign opened, allied prospects appeared uncertain. There was no visible sign that the Central Powers were on the verge of defeat. Assessments in France and Britain of their financial wherewithal to maintain the war were circumspect. The French were cautiously optimistic. Ribot, announcing the first long-term French war loan to Parliament in November 1915, was warmly received. Even Clemenceau, a fervent critic of the handling of the French war effort, applauded. Surveying French finances at the end of 1915, this optimism is understandable. The war loan was a success. With its absorption of excess liquidity in France, Ribot felt confident that the Bank of France gold reserve, which stood at 38 per cent of total money in circulation, was such as to inspire “every confidence.”1 Abroad, French balances in New York stood at $30 million, with another $115 million to come from the Anglo-French loan. Disbursements were expected to be $30 million a month in the first trimester of 1916. On a conservative accounting, the funds in hand were sufficient to last until March. 2 In London, the French had not fully drawn down the discount facilities that had been arranged at Boulogne in August, with the result that the position at year end was a strong one.3 The renewal of the £10 million Bank of England loan, originally made a year earlier, provided additional funds. There was every reason for confidence in short-term prospects. The long-term outlook was less rosy. Early in December 1915, Ribot informed the Council of Ministers that spending restrictions would be required if France was to continue the war past June 1916.4 Given recent experience, it was unlikely that expenditure controls could be imposed by the Ministry of Finance and accepted by the Ministry of War. As resources had already been sapped by sixteen months of war, Ribot looked to Britain to meet any shortfall. While he assumed that Britain

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would assist France financially, he was worried about the price. The experience of the summer of 1915, when the Treasury had displayed a marked indifference to French concerns about the decline of the franc, was one reason for his anxiety. The French viewed McKenna with suspicion; DePeyster compared McKenna unfavourably with Lloyd George, to whom he attributed greater “breadth of outlook.”5 Here DePeyster was rewriting history; Lloyd George had not been very sympathetic towards France during his tenure as chancellor. Lloyd George’s most attractive characteristic in French eyes was his commitment to a war au bout. McKenna’s efforts to restrict the size of the British army suffered by comparison. Poincaré believed McKenna harboured “pacifist tendencies” that prompted his efforts to restrain military spending, and others hinted at darker explanations, suggesting that McKenna harboured pro-German sympathies.6 Albert Thomas told Lloyd George in late September 1916 that the French were worried about McKenna’s commitment to the war.7 Lloyd George’s speech at Verdun in September 1916 lauding French resistance, and his famous interview at the end of the month pledging that Britain would fight on until there was a “knockout blow,” only boosted his standing in French eyes. McKenna appeared grudging in his financial assistance, reluctant to discuss matters, and perhaps personally pacifist. Although French commentators were cool to McKenna, they were mostly critical of “the spirit” that governed the Treasury. France’s efforts to place a portion of its war loan in London late in 1915 encountered significant resistance from the Treasury. DePeyster was alarmed by what he guardedly described as the pursuit of departmental objectives.8 There is little doubt that he was referring to efforts to restrict access to the London money market, which the French viewed as incompatible with the alliance. French doubts regarding Britain’s commitment to the war, and especially its financial and commercial policies, always lurked beneath the surface. Bertie noted in his diary on 17 September 1916 that some sections of French opinion believed that Britain was “being enriched by the war which we consequently wish to protract, and the longer it lasts the more certain we are to get into our hands, and keep in our hands after the war, all the commerce of the world.”9 Bertie dismissed these rumblings as unrepresentative of the views held by the government itself. However, he warned Grey: “There is an inclination in some Society and commercial quarters to think that we are making use of France against Germany for our own sole benefit.”10 Homberg, writing from New York, observed that the American papers were reporting that France and Russia would be reduced to the

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status of providers of gold to Britain, and that London would take charge of all allied ordering and payments in the neutral countries. Admitting that he did not know whether these reports had any foundation, Homberg darkly noted that they corresponded to the financial policy pursued by Britain since the outset of the war.11 DePeyster considered that the Treasury had adopted a more rigid, less consensual approach as a result of the growing influence of Keynes, who brought to inter-allied discussions a “rather didactic spirit.”12 Klotz, writing after the war, was less circumspect, labelling Keynes a “germanophile” who had “bolshevik” tendencies.13 The corrosive effect of such talk was amplified as the allied financial situation became more pressing. While Ribot and his advisers were evaluating the state of French finances, a similar undertaking was being conducted in Britain. The vehicle for doing so was the Cabinet Committee on the Co-ordination of Military and Financial Effort. The committee was another attempt to prevent the Cabinet from being wrecked on the rock of conscription. The Army Council and some members of the Cabinet, such as Lloyd George and Bonar Law, continued to press for the introduction of conscription. But McKenna and Runciman threatened to resign if universal service was introduced. Resorting to the committee offered a means of forestalling their departure. It was a successful manoeuvre. The Military Service Act of January 1916 conscripted single men at the political price of losing John Simon from the Cabinet, and with considerable Liberal defections on the vote, but the coalition did not fall. The committee, consisting of Asquith, McKenna, and Chamberlain, solicited material throughout January and presented its first report to the Cabinet on 4 February 1916. A second report was presented in April 1916 with numbers drawn chiefly from the first. If Sir Maurice Hankey’s diaries are to be believed, he was the principal author.14 The report fashioned a compromise, agreeing that the financial and manpower resources of the country would permit the Army Council’s plan for sixty-two divisions in the field with a further five at home, but it warned that this effort could only be maintained for a short period. Making this more plausible was the committee’s view that the Army Council could not in fact raise the divisions it wanted by June 1916, thus alleviating some of the strain on finance and manpower.15 In its assessment of the financial problem, the report adhered to the Treasury line. This was unsurprising, because of the presence of McKenna and Asquith. Hankey, a leading prewar “navalist,” had always doubted the wisdom of a large-scale continental commitment, an attitude that hardened as the war dragged on.16 After the triumph of the compulsionists, Hankey bitterly commented: “We are asked by the ‘scientific

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soldier’ to repeat the process, notwithstanding that it may jeopardise the financial stability of this country on which the whole future of the alliance rests.”17 The key to British finances, the report asserted, was the gold standard: “The Chancellor of the Exchequer attaches decisive importance to the maintenance of specie payments as the only possible condition on which we can hope to prolong our participation in the war.” The Treasury reckoned that expenditures for the financial year 1916–17 would amount to £1.985 billion, that revenues would total £1.817 billion, and that the deficit would come to £168 million. On the expenditure side, £600 million had been allotted to the dominions and other allies (see table 12). McKenna arbitrarily reduced this figure to £500 million, because experience had shown that deliveries did not keep pace with orders. The report also noted that the money raised by France through the French war loan in Britain meant that the French payments would not be necessary for three months. 18 The difficulty facing the Treasury and the Bank of England in providing for Russian and Italian needs was not in Britain, where their requirements could be met. The trouble was finding American dollars to subsidize the allies. Britain was responsible for the bulk of allied payments in the United States. Only France was contributing in a significant way. The belief that France would not need further assistance originated in a memorandum composed by Blackett on 10 December 1915. Surveying British finances in the United States, he concluded they would be adequate until the end of February 1916. Insofar as the allies went, Blackett expected that provision for Russia and Italy would amount to £10 million a month. As no figure was allotted to France, Blackett evidently assumed that Britain would not be responsible for providing assistance – not an unreasonable assumption given the recently concluded Anglo-French loan.19 Blackett’s conclusion found its way into the report of the committee. Ignoring his call for “fresh borrowing,” the report advocated a reliance on sales of securities and gold shipments. There were, however, drawbacks in following this course. The Treasury did not know how large British holdings of American securities were. While the report estimated, “Our total remaining holdings of United States dollar securities probably do not exceed 300,000,000l. to 400,000,000l.,” a much lower total had been suggested. The joint-stock banks, after an inquiry into their holdings, could report only £100 million in American securities and a like amount in Canadian securities. The trust and insurance companies reported totals of £40 million American securities and £9 million Canadian securities.20 There is no doubt that this represented only a portion of British holdings, most obviously passing

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Table 12 1916 Treasury Estimate of Subsidies to Allies (millions of £) Dominions

100

Russia

25m/month

300

France

4m/month

48

10m/month

120

Italy Belgium

50

Serbia

10

Total

600

Source: Report of the Cabinet Committee on Co-ordination of Military and Financial Effort, 4 February 1916, pro/cab 17/159

over securities in private hands. Other investments, especially South American securities, were also salable in the United States. Nevertheless, the Treasury had no precise figures. Continuing poor relations between the Treasury and the Bank of England hindered accurate information gathering. Blackett, in compiling his December survey, had confessed he had no information on the operations of the London Exchange Committee even though they were of “material importance.” He assumed that the committee would manage the exchange without having any recourse to government funds. This was a further sign of the dislocation brought on by the rivalry between the Treasury and the Bank of England. The London Exchange Committee had in fact been active. A $50 million credit drawn on a syndicate of American banks had been arranged, but as the loan was earmarked for exchange support, the credit remained unused until the summer of 1916. As for other sources of revenue, attempts to extract more gold from the allies were bound to exacerbate inter-allied differences. The committee report acknowledged: “Some further help might in an extremity be forthcoming from the same quarters [France and Russia], but only at the cost of a high degree of friction, and then not in sufficient quantities appreciably to affect the exchanges.”21 This sensible conclusion was undermined by a ham-fisted approach to the allies. To drive home the point that Britain was the linchpin of allied finances, a detailed list of the financial assistance provided by Britain to France and Russia was prepared and forwarded in March 1916. As Chamberlain remarked, “It should be clearly put to them 1st that this burden is the utmost that we can carry – then only if they help as far as they can,

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and 2nd that any fresh demands for money or credit means so many fewer soldiers.”22 It is unlikely that this accomplished much. It certainly did not stop Russia from regarding British finances as infinite, as Keith Neilson has pointed out.23 Neither the report of the committee nor the analysis made by the Ministry of Finance tallied with allied grand strategy. Meeting at Chantilly from 6 to 8 December 1915, the allied general staffs decided to pursue a dual strategy. First, the allies would undertake coordinated assaults with the objective of wearing down the Central Powers. Once this was accomplished, a second wave of offensives would be launched. More men and material would be necessary to maximize the chances of success. Although the French army had reached its maximum size, the British army continued to grow. The commitment made at Chantilly meshed with Sir Douglas Haig’s conception of an attritional war. Haig, who had replaced French as commander of the British Expeditionary Force, hoped that the New Armies would deliver the warwinning blow after the enemy had been worn down. 24 The divorce between strategy and finance did not go unrecognized. Grey argued that the two needed to be joined, because of the planned offensives. Chamberlain, while agreeing, pointed out that not only Britain was experiencing economic difficulties, but the allies were too; these problems were so severe that the Treasury might not be able to sustain the subsidies that kept the allies in the field. “The inference,” he wrote, “which I draw … is that we must make every effort to bring the war to a decisive stage as early as possible, and I agree with Sir Edward Grey that the only hope of so doing lies in a combined and practically simultaneous offensive by all the Allies.”25 This argument was predicated on certain assumptions. When Chamberlain and Grey corresponded, the former was in the process of compiling the Co-ordination of Military and Financial Effort report. The report was notable for its belief that France would require only minimal assistance; when Chamberlain referred to allied subsidies, he meant Russia and Italy. What, however, would happen if France suddenly needed substantial infusions of dollars? Secondly, if the offensive Chamberlain called for did not end the war or did not bring victory soon enough, what would be the outcome? The price of failure would be British financial exhaustion.26 The consequences for France were likely to be more harrowing, given its weaker financial position. Chantilly also assumed a continuation of the pattern of 1915 – a quiescent German army in the West, with the Central Powers devoting most of their attention to Russia. The Verdun offensive, which began on 21 February 1916, shattered this assumption. The war became a lengthy, ruinous struggle consuming men and material and further straining French finances.

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Early in February 1916 Ribot journeyed to London. His objective was to obtain increased subsidies. In November 1915 Bradbury had counselled DePeyster that Ribot should write directly to McKenna on “delicate subjects” to avoid the interference of Treasury functionaries.27 Why Bradbury would make this curious recommendation is unclear. Perhaps he was seeking to restrict the influence of Keynes and Chalmers. Equally, he may simply have believed that direct contact between the ministers was the most efficacious way to conduct AngloFrench financial relations. His advice had unfortunate consequences. Ribot was inclined to emphasize personal contact as a means of resolving problems, and he bombarded McKenna throughout 1916 with requests for personal discussions. Evasive replies and outright rebuffs by McKenna were construed in Paris as indicating insensitivity. Ribot’s proclivity to request meetings strengthened a tendency in the Treasury to regard him as a man susceptible to panic and overreaction. Nevertheless, as the strain on allied finances intensified in 1916, AngloFrench meetings also increased. Ribot arrived in London on 7 February with a number of objectives in mind. Most pressing was securing additional help with French payments in North America beyond the end of March 1916. Ribot also wanted to strengthen the franc, which had tumbled to new lows against sterling. The two objectives were connected, for if Ribot could extract larger French credits in the United Kingdom, he could employ sterling funds to bolster the franc and acquire more dollars. This course of action was strongly urged by Homberg.28 But Homberg neglected to point out that this was simply transferring the burden for French needs in North America onto the sterling-dollar exchange rate – a contingency the Treasury was unlikely to approve. Ribot met with McKenna and Cunliffe on 7–8 February. The AngloFrench agreement of 8 February 1916 extended existing agreements while making provision for new French needs instead of allotting a lump sum to France. At the time, French payments in the United Kingdom were running at £3 million a month. It was agreed that the residue of the French credits from the April 1915 agreement, combined with the proceeds of the French war loan, would last France until the end of June 1916. Thereafter, McKenna undertook to discount French treasury bills at the rate of £4 million a month for payments in Britain until the end of the year.29 The £4 million allowed for some surplus. What the Treasury did not want was France putting this sum towards French payments in North America, largely out of concern for its potential effect on the sterling-dollar exchange. To meet French requirements in North America, McKenna agreed to discount French treasury bills up to a total of £18 million for the three months, 15 April to 15 July, with no month to exceed a maximum of £6 million. The

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Bank of France obtained another £12 million from the Bank of England in return for the sale of £8 million of gold. In sum, British assistance for French payments in North America would total £10 million a month over the three months covered by the accord. A supplementary agreement stipulated that the Bank of France would sell the Bank of England £1 million in gold in each of February, March, and April 1916.30 Two additional measures were designed as palliatives for the francsterling exchange problem. Cunliffe pledged to ease the arrangement of private credits in London as long as they bore the imprimatur of the Bank of France; and McKenna indicated that he would allow the sale of sterling-denominated securities on the London money market if they had been French owned at the time of the outbreak of the war. These were little more than fresh professions of British willingness to allow France some access to the London money market. Such promises had first been made a year earlier at the Paris financial conference. Very little came of them, as the Treasury was loath to allow its control over the money market to slip. It is doubtful how much stock Ribot placed in these assertions of goodwill. Private commercial credits, though useful, were unlikely to be of sufficient size to offset the continued pressure on the franc. Poincaré, briefed by Ribot on the latter’s return from London, was caustic in his comments, decrying “these small gains they have so parsimoniously accorded us.”31 The 8 February accord said nothing regarding what would happen after 15 July. Neither Ribot nor McKenna believed that France would cease to require British assistance in the United States after this date, but expenditures were growing so rapidly that long-term budgeting was unrealistic. There were also political reasons for a short-term perspective. McKenna was desperately trying to check expenditures. A boost in subsidies to France would call into question all of the Treasury’s numbers. A lingering belief that France was capable of doing more in the financial realm coloured the Treasury attitude. And the Treasury had grounds for feeling this way. French gold reserves remained large; they had peaked in December 1915 at more than £200 millions. The Treasury resented subsidizing France when French gold could have been used to finance imports into France from the United States or from Britain. As no substantive relief had been agreed upon, the franc continued to slide against sterling. Heavy exchange sales by the Bank of France had little effect, and the sale of securities in London yielded only small returns.32 Ribot tried to arrange a meeting with McKenna to discuss the exchange but was rebuffed. On 14 March he told the Council of Ministers that McKenna had not kept any of the promises he had

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made at the 8 February meeting.33 Neither McKenna nor Asquith wished to see him.34 Both were aware that Ribot wanted fresh credits, and neither was inclined to grant them. In an effort to circumvent McKenna, Ribot invited Cunliffe to visit Paris; he hoped that an agreement between the Bank of France and the Bank of England to check the depreciation of the franc might be achievable. Ribot believed the timing was ripe for such an accord, and he pressed Pallain to intercede with Cunliffe. Ribot was under pressure from importers to check the depreciation of the franc. The French railroads in particular had to make payments of more than Fr 600 million in London before year’s end.35 Whatever his policy differences with McKenna, Cunliffe had in the past masked them when discussions with France occurred, a practice he now breached decisively. His motivation is not hard to discern. He regarded the handling of the foreign exchanges as his own bailiwick. His contempt for McKenna and most of the senior Treasury officials made it much easier for him to embark on this initiative. Above all, it was gold that enticed Cunliffe to Paris. Cunliffe’s hunger for gold was apparent during the meeting held on 28 March at the Ministry of Finance. Along with Cunliffe, those present were Ribot, Pallain, Rothschild, and George Heine, a regent of the Bank of France. Lord Revelstoke accompanied Cunliffe to Paris, but it appears that he was not present at this gathering, an absence that would later cause some difficulties, for Cunliffe’s French was so poor that he apparently misunderstood some of the discussion. Cunliffe suggested he was willing to provide the Bank of France with a £120 million credit, good until 31 December 1916, in return for £40 million in gold. French treasury bills would be discounted at 1 per cent above the Bank of England rate and would be renewable until the end of the second year after the war ended. Cunliffe’s intent was to peg the exchange rate at between Fr 26.50 and Fr 27. If the franc fell below the former figure, the arrangement would be suspended; if it rose above Fr 27, the Bank of England would discount an additional £20 million without any corresponding shipment of gold. One other condition was attached – the French were to give up the right to private issues on the London money market. Ribot believed that this was at the root of Cunliffe’s concerns. As he told the Council of Ministers, French loans in London were in direct competition with British offerings, a situation the Bank of England wanted to avoid.36 While the allure of £120 million was powerful, the French reaction was guarded. Pallain stated that he would only agree if the bulk of the funds acquired were placed at his disposal for the use of private industry. Ribot proclaimed £120 million was insufficient in light of rising French payments abroad, and he insisted on £160 million before he would consent to shipping the gold. 37

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On Cunliffe’s return to London, he was received frostily. McKenna believed he had overstepped his authority.38 Cunliffe was forced to write to Pallain on 31 March saying, “The Chancellor was much concerned with the magnitude of your requirements and did not see his way to giving his approval off-hand to such an operation.”39 Unhappiness with Cunliffe’s initiative was not confined to the Treasury. The Court of Directors of the Bank of England was also disturbed, but its displeasure was over the amount of the credit. De Fleuriau reported that the court was unwilling to exceed £80 million. Cunliffe begged Ribot to drop any notion of £160 million, pleading that he was having difficulty swaying the court to accept £120 million, a sum it felt was “altogether excessive and which is at least ten times larger than any credit ever granted by any Bank to an Allied Government or Bank.” 40 Ribot’s intervention with Asquith changed matters. Asquith was returning home from a conference in Rome and passed through Paris en route to London. While his train was in the station, Ribot and Briand boarded and held an impromptu conference with him in which they requested money and also an offensive by Haig.41 This was a dangerous gambit by Ribot, for it made plain his doubts about McKenna. Asquith had little choice but to sanction these requests. The battle of Verdun was in full swing and the French were hard-pressed; it was not the moment to reject French requests for help. Pallain had explicitly made this connection earlier, observing how heartening an exchange accord would be following the “bloody check suffered by the Germans before Verdun.”42 Joffre received his offensive – the Somme – and Ribot was given credits. On 13 April negotiations resumed in London. In the morning Ribot, de Fleuriau, and DePeyster met with Cunliffe, Revelstoke, and Norman. The two sides swiftly agreed that McKenna’s new proposition to open a £10 million-a-month credit was unacceptable. As Cunliffe and Revelstoke put it, “So niggardly a proposal could only have been the work of Keynes.”43 As both sides were clear that the proposed arrangement was to be in addition to the credits granted under the terms of the 8 February accord, it was decided that Ribot would press for £120 million in the afternoon meeting scheduled with Asquith and McKenna. The thorny issue of French private placements was not broached. In all likelihood, this was because the credits Cunliffe was proposing far outweighed the sterling that could be gained by France through private dealings. De Fleuriau estimated that the maximum France could possibly derive from private placements would be £40 million, a figure that paled before the £120 million that Cunliffe was discussing.44 Nonetheless, Cunliffe still faced opposition to the credit from within the bank; Revelstoke and Norman were known for

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their pro-French sentiments, and their support could not be taken as indicative of the Court of Directors as a whole.45 At the afternoon meeting, Ribot, supported by Cunliffe, proposed a sweeping attack on the exchange problem. Cunliffe maintained that the credits under discussion pertained exclusively to resolving this issue and that large sums were necessary if results were to be gained. McKenna was not swayed. In his mind this argument was misleading. The advances being considered amounted to credits to France, and as such they were drawn from the capital pool out of which he had to borrow.46 Nor could the potentially inflationary effect of such a large credit upon prices in Britain be discounted. Ultimately, McKenna’s resistance was overborne by an appeal from Ribot to Asquith. The latter, mindful of the possible political implications of denying France the money, overruled his chancellor; but McKenna had succeeded in lowering the final sum to be advanced to £60 million.47 From the point of view of rectifying the exchange, the accord was a success. The franc was strengthened, and by the fall of 1916 it was comfortably trading in a narrow band from 27.76 to 27.80.48 With stabilization, French rancour was dissipated somewhat. However, the arrangement between the Bank of France and Bank of England did not presage closer relations between the two, despite the creation of an account operating through the London Exchange Committee that was designed to regulate the exchange.49 As a consequence of the talks, Cunliffe “was in a frame of mind to criticize anything and everything the Banque de France did.”50 His disenchantment with the Bank of France stemmed from his inability to pry any more gold from it. Pallain was notoriously protective of the gold reserve, and there is little doubt that he was strongly against shipping gold without receiving large credits in return. It was McKenna who bore the brunt of French displeasure. On 25 April Ribot told the Council of Ministers that McKenna had been the principal obstacle; it was he who had pushed the Bank of England into restricting the London money market to France; he was unfavourably disposed to France, devoting all his efforts to slashing allied military spending.51 Ribot even assured Cunliffe that while he was disappointed the credit was not as large as he would have liked, he realized that this was not the governor’s fault.52 It was, of course, simpler to pillory McKenna than to acknowledge that Cunliffe also wanted to shutter the London money market and acquire French gold. A familiar theme underlay the French critiques: the worry that Britain was manoeuvring for dominance in peacemaking and in the postwar world. Poincaré expressed this fear when he remarked that the forthcoming allied offensive must be delayed to replenish French strength: “If not,

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the English will say that they have saved France; the victory will be an English victory; the peace will be an English peace.”53 This apprehension was real, for the notion of delivering the decisive blow, winning the war, and using the leverage gained to dictate the peace underlay the New Armies.54 Unwittingly, Ribot, for all his carping about McKenna, had strengthened the latter’s hand in the Cabinet discussions about the war effort, which were renewed afresh in April 1916. The Cabinet compromise over compulsion that had been reached in January – conscription of single men – had unravelled because of its failure to produce enough manpower. With the army, the Unionists, much of the press, and Lloyd George in full bay for universal military service, the Cabinet Committee on the Co-ordination of Military and Financial Effort was hastily reconvened to prevent a “smash” of the coalition. Chamberlain, in a memorandum to his Unionist colleagues, groped towards another compromise. He warned, “If British finance breaks down, our Allies will be driven out of the field.” He noted that allied financial demands had “actually increased very seriously within the last few days.” While he was willing to support compulsion, he considered it “more vital to the common cause” to subsidize the allies than to “put a few more Divisions in the field.”55 A reaction of this sort was what de Fleuriau feared. Ribot’s emotional appeal to Asquith in Paris and his subsequent success in extracting the Bank of England credit over the opposition of McKenna had not come cheaply. The price was providing ammunition to those within the Cabinet who wanted a limited military effort.56 On 17 April de Fleuriau cabled Paris that the Cabinet crisis over conscription had reached an acute phase. It was, he commented, a struggle between those who favoured an all-out effort, led by Lloyd George, and those, led by McKenna, who advocated a more restrained military and economic effort. “We support the first,” de Fleuriau remarked, yet “we have involuntarily furnished arguments for the second.”57 McKenna, in an effort to strengthen his case in Cabinet, cited the scale of the original French demands – £160 million. Lloyd George was not so much impressed by French weakness as he was by French unhappiness with Britain. Riddell noted that Lloyd George worried that “the French think they are making all the sacrifices and we are endeavouring to preserve our trade and carry on as usual.” Riddell added: “This he thinks may prejudice the alliance. He feels we should make strong efforts which will dispel this feeling.”58 “Strong efforts” meant a determined push to ensure universal military service. The Cabinet discussions of 17–20 April were inconclusive; neither the conscriptionist nor the anticonscriptionist forces were able

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to prevail. Not until the bad reception of Asquith’s speech at the secret session of the House did it become apparent that anything short of universal conscription was no longer politically tenable. The Cabinet hastily abandoned the field, and on 2 May 1916 Asquith himself introduced the bill containing general compulsion. The debate over conscription in Britain is often seen as a domestic question in which the internal weaknesses of the Liberal Party were cruelly exposed. Yet it also was an international question with ramifications for Anglo-French relations. The decision to embrace universal service was welcomed in France as a sign of Britain’s commitment to the war, defusing somewhat the anti-British sentiment which Bertie and others were reporting. Its consequences were less happy in the financial sphere. The French, aware that McKenna had employed the recent talks as a weapon against conscription, were inclined to doubt him more. From McKenna’s perspective, the alliance of Ribot and Cunliffe had further strained Britain’s resources. The conclusion of the Bank of France–Bank of England affair marked the shattering of Treasury assumptions about French financial strength and the reinforcing of long-standing biases. De Fleuriau blamed Ribot and Pallain for this outcome. Neither, he remarked, wanted to see control over the exchange pass into the more competent hands of a man such as Sergent. Ribot’s “senile mistrust” had resulted in chaos, while Pallain had managed to “offend deeply” Cunliffe. Both resisted any thoroughgoing reform that would impose rigorous controls over exchange.59 The franc-sterling exchange was critical, according to de Fleuriau, because improvement in the rate would signal confidence in French finances. Despite this, he did not believe that French finances were in a terminal condition. “We will,” he asserted, “always find the means to pay.” 60 Cambon was less certain. In a long discourse on the exchange question sent to Briand, he assailed the Bank of France, charging that its handling of exchange questions had been dilatory and its failure to impose exchange controls a glaring error. Cambon urged that Pallain and Ribot be directed to move decisively, perhaps following the British path on exchange control measures. This was necessary, he said, because “it is in our interest to follow the British example and not allow a gap to open between British and French credit which will make our situation more difficult during the peace negotiations.”61 Pallain rejected Cambon’s views with vigour. After noting that Cambon’s letter bore a striking resemblance to an analysis that had appeared in the Echo de Paris, he pointed out that the bank’s ability to defend the franc was limited by the size of the trade deficit and the resources available. Comparisons to Britain were inappropriate because

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the British did not face similar problems – loss of substantial territory, industrial disorganization, and the burden of a huge note circulation – while they benefited from their American securities and from the gold the allies shipped. Pallain was clear where the fault lay. He blamed Cambon and French diplomacy for failing to include financial and economic clauses in the September 1914 Declaration of London.62 This altercation made it evident that worries about the peace and France’s bargaining position were beginning to mount. There was some validity in Cambon’s and Fleuriau’s comments. Private exports of gold from France were not prohibited until July 1915. As noted earlier, discussions between the bankers and the Bank of France had resulted in a voluntary system of exchange controls being erected. In 1917 it was recognized that despite the opposition of the banks, greater controls on foreign exchange were necessary. This was accomplished through the creation in July 1917 of a Commission des changes, headed by Homberg, which was charged with checking currency speculation and monitoring the flow of capital exports. However, its work was hampered by the refusal to provide legislative approval for regulation, which did not take place until April 1918. As for requisitioning securities that might be sold abroad, France never went as far as Britain. French investors were not forced to relinquish their holdings to the government. Henri Truchy, in explaining this, commented that the “French government did not dare adopt this measure of coercion. It was afraid of damaging its credit thereby, and of checking the movement of investment in National Defence Bonds, the principal resource of the Treasury.”63 His explanation ignores the political price of sequestrating investments. The Third Republic’s large class of investment-owning bourgeosie, who were active politically and influential financially, was the foundation of the state. As Martin has observed, “Most accounts of the Third Republic during its four and a half decades are a kind of history of the rentier.”64 Alienating the rentier was to risk fracturing the republic itself. The bankers’ opposition to exchange controls demonstrated that while de Fleuriau and Cambon might chide Ribot and Pallain for faint-heartedness, the latter two were aware that limits existed. Nor was France unique in moving slowly in this direction. It was true of all the belligerents. As Donald Moggridge has observed, “various rudimentary exchange and import controls” were characteristic of the powers at war.65 Despite their appreciation of the political realities of the republic, Ribot and Pallain were unrealistic in believing that France could finance the war without shipping gold on a large scale. The declining ratio of the reserve to notes in circulation prompted fearful memories of the past. The financial turmoil of the French Revolutionary years

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was more than simply a distant episode. As Sergent put it in October 1916, the spectre of the assignat stalked the countryside.66 Third Republic politicians had no wish to share the fate of the Directory toppled by Napoleon; they had had their own experience with a “strong man” in General Georges Boulanger in the 1880s. It was critical that the French people retained their faith in the franc, which rested on the gold reserves. Gold was France’s greatest remaining asset. Properly deployed, shipments of French gold to the United States would not only have eased the payments situation but would have buttressed French credit. French willingness to take this step would have provided greater leverage with the Treasury. The need to borrow from the British would have been reduced, relieving some of the strain on the Treasury. Pallain realized that the gold reserve should function as a war chest; this had been the aim of his pre-1914 policy. While he did not wholly abandon this notion, he gave way only when no other recourse was possible, and he did so with an acute sense of French weakness rather than French strength. The intense negotiations between Britain and France, which lasted from February to April 1916, were the dominant issues in AngloFrench financial relations through the opening months of the year. These discussions overlapped with and eventually gave way to American issues. Three themes in British and French relations with the United States stand out: the rise in American expenditures; the fragile, often hostile, nature of relations between France and Morgans; and the failure of the Treasury to seek long-term measures of relief in the United States. Rising expenditures in America reflected the growth of overall spending. Estimates forwarded to Ribot by the Ministry of War in 1916 provide a good example of this development. Most worrisome to Ribot was the pattern evident in external expenditure, where monthly payments had risen from Fr 282 million in January to Fr 350 million in March, reaching Fr 500 million in June 1916. Taking into account all payments abroad, Ribot calculated that the Ministry of Finance was responsible for finding nearly Fr 1 billion a month. This was too much for him. In a long and bitter letter to General Roques, now minister of war, he complained that the estimates tendered by the ministry did not in any way reflect reality.67 Aside from payments in Britain, French spending in the United States was the largest item. From May to September 1916 it averaged $38 million a month. At the exchange rate of 5.91 francs to the dollar in June, Ribot had to find nearly Fr 225 million a month in the United States.68 Similarly, British outlays in America over the same five-month period amounted to the colossal total of $1 billion, or $200 million a month on average.69 With the French and

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British governments instructing Morgans to “buy, buy and continue to buy” in the spring of 1916, the question was how would the means be found to pay for these contracts?70 For Ribot, the problem of raising funds in the United States was complicated by the strained relationship with Morgans. Since the Anglo-French loan mission, Homberg had been the French financial delegate in New York. He reported directly to Ribot and was assisted by Jean Frédéric-Bloch, who succeeded Homberg when the latter returned to France in August 1916. Homberg was not only contemptuous of Davison and Jack Morgan, but he was sceptical about the firm’s capacity to fulfil allied wants.71 The senior Morgans partners – Jack Morgan, Davison, and Lamont – were aware that Homberg was critical of them, and they sought to circumvent him whenever possible. They accomplished this by corresponding with Ribot through Harjes. Ribot, who had his own doubts about Homberg and who exhibited a penchant for intrigue, played along, concealing information from his New York representative. The result was a complex minuet, with Ribot, Harjes, Homberg, and the Morgans partners in New York as the dancers.72 Testy relations between the Morgans partners in New York and Homberg, and to a lesser degree Ribot, had a negative effect on French borrowing in the United States. The American Foreign Securities Corporation (afsc) loan, first mooted in January 1916 as a means of raising money for France, had a long gestation, in part because of the nature of ties between France and J.P. Morgan & Co. Other factors also made for delay: American doubts about allied strength in the spring of 1916; the possibility of a Mexican war, which would require capital; and pressure from the Wilson administration in the spring and summer of 1916 to tighten the terms of credit to the allies.73 By the time the afsc loan appeared, the proceeds were only sufficient to last France for two months in the United States.74 In contrast to French attempts to raise money in the United States, the Treasury was passive until the summer of 1916. In Blackett’s December 1915 assessment of the state of British finances, he had pointed out that a new loan would be imperative no later than the spring of 1916. No loan appeared, and discussions of new borrowings were sporadic rather than systematic. Homberg cabled Ribot in January 1916 that Treasury inaction followed from a conviction that Britain had enough American securities to meet future needs.75 The Treasury was relying on securities sales and gold shipments to meet American payments after the exhaustion of the Anglo-French loan proceeds. In order to coordinate and expedite the flow of securities, the American Dollar Securities Committee had been established in

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December 1915.76 Prior to the establishment of the committee, which was announced on 31 December 1915, the Bank of England had bought American dollar securities (ads) for the Treasury, and between July 1915 and December 1915 had purchased and resold $233 million. To encourage British investors to tender their holdings to the government, Scheme a was promulgated. Scheme a specified that the Treasury would purchase American dollar securities from investors based on the daily closing figure of the New York Stock Exchange. The Treasury solicited securities for deposit under the terms of Scheme a by offering the normal interest accruing to the holder as well as an incentive of 0.5 per cent of the nominal amount of the security annually. In return, the Treasury would hold the security for a period of two years. The initial list of acceptable securities, published in January 1916, totalled fifty-four and by 17 March stood at 256.77 Until March 1916 all transactions were purchases, but in that month the list of acceptable stocks was further widened to encourage deposits. As the report of the American Dollar Securities Committee makes clear, the overall response to Scheme a was disappointing. Although £40.5 million had been attracted by 17 March 1916, the Treasury was forced to institute a tax of two shillings in late May to augment the flow. Treasury misgivings with regard to the reliability of American securities as a source of dollars, expressed in both the Report on the Coordination of Military and Financial Effort and the internal note of January 1916, were thus borne out. The problem was that ads produced an erratic, unpredictable stream of dollars. The amounts tendered fluctuated, the overall totals of British dollar holdings were unclear, and the course of the New York Stock Exchange dictated the amount that could be realized. Although the Treasury was equivocal about purchasing securities and then reselling them in New York, this was precisely the course that was adopted. It was a half-hearted policy, with both Scheme a and its successor Scheme b (introduced in August 1916) operating on the voluntary principle. It was not until January 1917 that the Treasury took steps to sequestrate securities through the Defence of the Realm Act. Treasury scruples with regard to confiscating investor holdings before 1917 made the chosen policy unlikely to succeed even if the securities were available. The Treasury’s reluctance to discard its laissez-faire principles grounded in the sanctity of private property undermined its efforts to deal with the American problem.78 The Treasury was distracted from a thorough consideration of the exchange by its struggles with the Bank of England. Under the terms establishing the London Exchange Committee, the Treasury had ceded

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authority to Cunliffe over the American exchange. Relations between the Treasury and the bank worsened in the wake of Cunliffe’s foray to Paris at the end of March 1916. Cunliffe’s actions in supporting Ribot against McKenna in the central bank credit affair increased the tensions between the two. As the demands upon British finances rose in May and June 1916, the Treasury and the Bank of England were unable to agree on a course of action. Late in May, when Bradbury raised the possibility of issuing treasury bills in New York, Cunliffe rebuffed him.79 Following a meeting at the Treasury on 30 May, Norman recorded: “They [the Treasury] neither grasp nor seem able to realise the true position.”80 One week later Norman was at his most scathing: “Ch. of Ex seems utterly blind to Exchange position + inevitable dangers ahead being filled with immediate politics. If the war ends in 3 months as he seems to reckon well & good. If not I see every chance of default but for some reason he is sanguine of turning up a trump & refuses to face true position.”81 There is little doubt that by May 1916 the Treasury was under pressure in New York. An internal forecast in early May predicted bankruptcy by 30 June 1916.82 Although this exaggerated the extent of the difficulties faced, it was indicative of the gravity of the situation. Further proof was provided by the Treasury’s inability to meet commitments made to France. According to the 8 February accord, the Treasury was supposed to make transfers to France from 15 April until 15 July. McKenna was forced to request Ribot not to hold him to the letter of the agreements. The payments scheduled for 15 and 22 May, amounting to $16 million, were waived. Henceforth, two weekly allotments of $4 million, rather than one of $8 million, would be made. Presumably this was done to reduce the problems that would ensue should a transfer be missed. Throughout June and July 1916 the strain persisted. On 6 June DePeyster cabled Ribot that the latest shipment of American securities would not arrive in time and that Bradbury was “insisting in the most pressing manner” that the next transfer be postponed. A conversation with Bradbury and Keynes on the following day revealed that the Treasury did not deny that France had a right to the payments – it simply could not make them.83 The earlier French willingness to accept delays ended with a series of cables from Homberg urging that the transfers take place as scheduled. French payments in New York were running well above the transfers from the Treasury and, even more alarmingly, were routinely larger than the weekly forecasts provided by Morgans. By late June they had reached $12 million a week.84 Ribot was aware that, given its difficulties, further assistance from the Treasury was likely to be limited. The afsc negotiations now became more

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important to both the French and the British. Ribot hoped that the afsc loan would allow him to bridge the gap between British subsidies and French payments, while the Treasury hoped that the loan would relieve them of the necessity of providing subsidies. 85 Cabinet discussions late in June and early July revealed that the division between Lloyd George and Bonar Law on the one hand, and McKenna, Asquith, and Balfour on the other, remained. Lloyd George and Bonar Law argued for a continuation of existing subsidies to the allies. Lloyd George told Albert Thomas that he regarded any restriction on Russian buying in the United States as a “fatal step.”86 Meeting the bills would be accomplished by direct negotiation with American contractors, if necessary issuing them treasury bills, and in the last instance perhaps by leaving the gold standard.87 These suggestions were not well received. Balfour offered up the novel idea of mortgaging the Customs. McKenna disparaged the distribution of treasury bills to American manufacturers on the grounds that it would imperil British finance in the United States; contractors who received treasury bills in payment would be tempted to liquidate them immediately, at a discount, rather than waiting until they matured – which would open up the possibility of a mass of discounted British government obligations in the United States. As for gold, McKenna stoutly defended remaining on the gold standard. He argued that having remained on gold for so long, and having made it the cornerstone of British wartime finance, abandoning convertibility would deal a severe blow to British credit. Gold and the prestige of the City were intimately linked, and such an action threatened the City’s postwar prospects. What this boiled down to was an argument for maintaining the sterling-dollar peg in New York, as Keynes pointed out some months later. This, however, had not been the original justification for remaining on gold. Lloyd George’s decision in August 1914 had been made on the understanding that the gold standard was intrinsic to British power. McKenna’s solution to the travails of British finance was simple: the allies, especially France, must be asked to do more. They must furnish more gold and more securities, both of which McKenna believed that France possessed.88 Although this idea attracted the support of Asquith and Balfour – neither of whom wanted to leave the gold standard and both of whom feared that the war would result in the destruction of British financial power – the notion itself was remarkably naïve in the military and political context of the summer of 1916. Lloyd George’s instincts were the more perceptive. The military situation remained much as it had; it was too early to tell whether the Somme offensive would yield the hoped-for gains, and the French were still under pressure at Verdun. Only Brusilov’s successful assault on the

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Austro-Hungarians offered hope, a factor that undoubtedly led Lloyd George strenuously to resist efforts to control Russian expenditures at a time when the Eastern Front looked more promising than it had since 1914. Despite his bluster, McKenna privately realized that this was hardly the moment to threaten the allies financially. Ignoring Cunliffe’s warning that a “paper basis” – that is, a forcible abandonment of the gold standard – loomed if more gold was not forthcoming, McKenna’s talks with Ribot in London on 14–15 July did not feature a new attempt to extract gold.89 Instead, the discussion focused on British and French finances in the United States. With the presidential campaign underway, Ribot and McKenna agreed that discretion was wisest, and they decided to postpone any further borrowing until the election was over. The imminent appearance of the afsc loan, the ending of Treasury transfers to the French in New York, and the continued flow of gold and securities made this possible. Consistent with past practice, McKenna resisted greater cooperation in allied financial operations in the United States. Ribot, undoubtedly aware of the divisions within the Cabinet, suggested paying for goods by issuing treasury bills to the contractors. Alternately, Ribot suggested that Britain and France might borrow jointly so that they could get better terms than the 7½ per cent which Morgans was levying on the afsc loan. Neither of these ideas swayed McKenna. This was partly because of Ribot’s failure to present his case with vigour. He was suffering from exhaustion, was near a state of nervous collapse, and in any case had not anticipated much progress at the London meeting.90 McKenna knew he could rely on advances from Morgans at a cheaper rate to tide him over in the United States if security shipments were late. The two men parted with an undertaking to keep one another abreast of their financial operations in the United States.91 After the London talks it was agreed that a portion of the forthcoming French war loan would be placed in London and that the proceeds would go to meeting French payments in Britain. McKenna also indicated a willingness to help Ribot should his resources in the United States be exhausted before the envisaged November operation. However, he failed to make it clear to Ribot that the operation would not necessarily be a joint loan. Ribot assumed that it would be. He construed clause 2 of the protocol of the London conference – “The Finance Ministers of the Allied Governments will keep one another fully informed of all projects and completed negotiations for the issue of external loans on foreign markets” – to be a commitment to prior consultation. The French therefore saw it as a betrayal when the Treasury announced in mid-August, without consulting Ribot, that the British

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government had issued a $250 million collateral loan through Morgans. The collateral loan contradicted McKenna’s stance in the London talks and signalled a different policy approach to British government financing in the United States. Less than a year earlier, the Anglo-French loan mission had dismissed the calls of American bankers for a collateral loan. More recently, the Treasury had raised the possibility of a collateral loan with Morgans and had been dissuaded; the firm had argued that it would be deleterious for British credit and might “prejudice further financing of [the] British Government.”92 Eight weeks after tendering this advice, the Morgans partners had changed their minds. As Cokayne informed Bradbury on 2 August, Morgans had made a volte-face on the question of a collateral loan and was now strongly urging the Treasury to bring one out. According to Davison, Morgans had been ready to introduce a $100 million loan conforming to the afsc pattern for the Treasury through the American and British Loan Corporation, but the allegedly poor reception of the afsc issue had caused a change in plans. Davison indicated that Morgans and Brown Brothers had intervened in the market to prop up the afsc loan, buying $9 million of the shares at issue price. Consequently, he concluded that only a collateral operation in the name of the British government was feasible.93 The evidence suggests that Davison was not entirely forthright about the afsc loan. James Brown, of Brown Brothers, wrote to Strong on 4 August, one day after the Davison letter: “Confidentially, our subscriptions in the first twenty-four hours were $72,000,000 for the $94,500,000, and although we telegraphed notices all over the country and closed the subscription the next day at noon, the total subscriptions were over $115,000,000 without any subscription from Morgans and ourselves. What pleased me more than anything else was the result of my trip to Chicago and St. Louis. The Illinois Trust & Savings, Continental, Commercial, First Securities Co. all came in handsomely.” Brown was certainly not exaggerating in describing the operation as successful.94 The New York Times reported on 21 July that the afsc loan was oversubscribed four days ahead of the intended closing and only forty-eight hours after the initial public offering. The article commented: “Bankers expressed themselves as being very much pleased at the success of the French offering.”95 Nor did the price of the afsc bonds drop on the New York exchange. Between 21 July and 4 August the bonds never fell below their issue price of 98 and often traded at a slight premium.96 Brown’s letter does not, of course, rule out the possibility that Morgans and Brown Brothers had intervened to purchase afsc bonds. But since Brown wrote after the Davison cable, it seems likely that he would have told Strong of any support. At best, Davison misrepresented the outcome of the Treasury’s afsc loan.

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Without any financial representative of its own in New York – Harvey had long since returned home – the Treasury relied upon Morgans to provide information. Davison exploited this reliance. While Morgans was strongly pro-British, this did not mean a perfect marriage of their interests with British interests. The larger question is why Davison sketched so black an interpretation of the afsc operation. The negotiation and implementation of the afsc loan had been lengthy and fraught with personal tension. The Morgans partners were well aware that Ribot hoped to proceed with another tranche of $100 million. There was little appetite for this within Morgans. The partners were reluctant to deal with France when relations with the Treasury and the Bank of England were more congenial. From their perspective, it was simpler to arrange matters with one borrower – Britain. Davison would later propose that Britain handle all the borrowing for France and Russia.97 Portraying the initial offering as encountering indifferent success provided a plausible reason for delaying another French offering. It did mean that the projected American and British Loan Corporation issue had to be postponed, for Morgans could hardly refuse to proceed with a second slice of the afsc loan and then float the American and British Loan Corporation offering which was similarly structured. The alternative, a British government collateral loan, was acceptable to the Morgans partners despite their warning in June against such a loan. During the AngloFrench loan talks of the previous autumn, Jack Morgan and Davison had pressed for a collateral loan. A British collateral loan was attractive to Morgans for several reasons. It was a form of obligation that was familiar to American investors; it offered the firm an easily marketable instrument; and it could be launched quickly. Once Morgans decided that this was the best option, it exerted pressure on the Treasury to expedite the issue. Following the Treasury’s acquiescence on 4 August, Davison enjoined Grenfell on 9 August to ensure that the matter proceed rapidly, for “we contemplate comparatively easy money for the next four or five weeks.”98 That this characterization of the state of the money market conflicted with his reports on the afsc loan attracted no comment. The following day, Davison requested that the Treasury repose all authority in the matter of the collateral loan with the bank. This request was granted, further distancing the Treasury from the actual conduct of operations and increasing the influence of Morgans in British financial policy.99 The Bank of England’s attitude towards the collateral loan was ambivalent. Cokayne, transmitting the Morgans cable to the Treasury, had been willing to let J.P. Morgan & Co. lead. He commented, “If

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Morgans think they must act at once we shall of course have to be guided by them.” Norman believed the loan was a “mistake,” and he blamed it on “shilly-shallying” at the Treasury.100 Cunliffe, in a letter to Asquith, seized on the collateral loan as an example of incompetent Treasury management of British finances. He urged that Morgans be granted full powers to deal with the loan arrangements as they pleased.101 On balance, opinion in the bank was against the loan, a stance McKenna acknowledged in testimony to the War Committee on 22 August. In the discussion between the Treasury and the Bank of England over the loan, there was little consideration of whether the collateral loan was good for allied financial policy. A Foreign Office clerk, given the task of informing the allies of the loan on 16 August, was caustic: “It is really rather farcical to ask us to notify our Allies conflly. of the following item of to-day’s press news; I have amended the draft tel. acc.ly and if any Ally asks why they were not told of the negotiations earlier, the Treasury must find an answer.”102 McKenna’s subsequent account to the War Committee of the steps leading to the loan was constructed to deflect charges that he had been negligent in keeping the French informed. He told the committee that Morgans had cabled on 9 or 10 August. He had been worried by the reception of the afsc loan, he said, but the cable from Morgans on 10 August, which drew the attention of the Treasury to the burden of supporting the exchange, had been the decisive element in spurring the Treasury to agree.103 Neither the chronology of this nor the explanation is convincing. The crucial cables were exchanged between Davison and the Treasury on 3–4 August, and Davison did not mention the exchange at all in these telegrams. The decision to proceed had been made twelve days before the French were notified. Evidently, McKenna had no interest in informing Ribot. It is possible that his later explanation – that notification was overlooked in the press of work – is truthful. But it seems unlikely in view of the promises of consultation made less than a month earlier and the fact that McKenna’s account to the War Committee had been fabricated. It is hard to avoid the conclusion that McKenna did not inform Ribot because he did not want to run the risk of French interference. Ribot was incensed by the announcement of the collateral loan. In his report to the Council of Ministers, he castigated the British action as a violation of the London protocol. McKenna had failed to keep his pledge to exchange information, charged Ribot, and, more seriously, McKenna had breached the agreement not to resort to the American capital markets until November. As Ribot told the council, the collateral loan ruled out either another joint Anglo-French loan or a second

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slice of the afsc.104 Effectively, the collateral loan led to British financial domination within the alliance. It destroyed, for the near term, the chances of France funding itself independently or in tandem with Britain. Through its inability to appreciate the ramifications for allied finances as a whole, the Treasury had produced a result that it did not want. It was important that France be able to finance itself abroad as much as possible, to assist in relieving the strain on British resources. Aware that Morgans had rebuffed suggestions of another afsc loan, and seeing Morgans’ imprimatur in the British government loan, Ribot had every right to be anxious about Anglo-French financial relations. Ribot proposed that six steps be taken. He recommended that Britain and France take a thorough inventory of their needs and resources, centralize purchases and payments in the United States, ban individual loan operations, and shift some of the financial burden onto the contractors. Ribot also wanted the opening of larger British credits to the allies for coal, iron, and shipping payments in Britain. In return France and Russia would provide the gold necessary for Britain to remain on the gold standard. Finally, Ribot insisted on a meeting of heads of government to discuss the general financial situation.105 Considering this missive on 22 August, the War Committee gave short shrift to the French position. McKenna flatly denied that the collateral loan was contrary to the terms of the aide-memoire, as Ribot alleged. This disingenuous statement passed without challenge, and the discussion turned to Ribot’s suggestions. McKenna refused to compromise his ability to raise money in the United States in any way, remarking that he could not turn to Paris for approval of every operation. Lloyd George and Bonar Law were both of the opinion that only Ribot’s suggestion that France and Russia ship gold was worth discussing. Lloyd George’s thinking was incoherent, for he proceeded to assert that the allies believed the burdens of the war were not being borne equally, and Britain had to counter this belief. Precisely how Britain could do this while draining France and Russia of gold was not apparent. Asquith was swift to dismiss allied resentment, arguing that it was misplaced. Of much greater importance to Asquith was that “our gold standard was in danger, and we must tell them that.” Here was the crux of the matter. The gold standard, the key to postwar British prosperity, was not going to be sacrificed for the sake of Anglo-French amity. Reluctantly, Asquith was persuaded to take part in a conference with the French at Calais, and McKenna and Montagu were deputed to accompany him.106 The Calais conference, held on 24 August 1916, was intended to smooth ruffled feathers. As Hankey put it, Asquith and Briand “kept

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the peace.”107 Following an exposé by Ribot of the state of French finances, the conference returned to familiar themes. Ribot and Homberg attacked Morgans. The British delegates betrayed their impatience with renewed French requests for higher subsidies. Each side emphasized its frailties.108 In deference to Ribot’s displeasure, it was agreed that a financial committee would be established that would meet alternately in London and Paris. More importantly, an agreement was reached to boost the French subsidy to £25 million a month for the next six months in return for the Bank of France shipping £50 million in gold. The subsidy was a lump sum, ending the previous practice wherein subsidies were earmarked for either British or American payments. Perhaps naively, Ribot believed that he had finally attained his goal of closer Anglo-French financial cooperation.109 Instead, Calais marked the formal declaration of French financial dependence upon Britain. Could France have done more? At home, the answer is yes. The reform of the French taxation system could have proceeded more expeditiously and rates could have been higher. But this was not the real problem, for French citizens demonstrated throughout the war their willingness to lend to the government through the purchase of loans of various types. It was the external question that was the source of French troubles. Even here it is necessary to be cautious. France supported the minor allies to some degree – and Russia to a considerable extent – but in ways that were possible, typically by extending foreign governments the right to discount treasury bills in France. As for Britain and the United States, there was no real prospect of offsetting the massive trade deficits, occasioned by the war, with French assets. Such as they were in 1916, these assets consisted of two classes: securities and gold. The former was nearly useless, consisting largely of securities that were deemed undesirable in the United States and Britain – Russian obligations and the like. Gold was desirable, but even paying out the entirety of the Bank of France gold reserve as it existed in 1916 would not have covered the trade deficit with the United States in that year. Such a course was never possible politically in France, so France had to borrow abroad, which it had done. The scale of French borrowing was always constrained in the United States by its relatively less attractive credit than Britain’s, by doubts about the war’s outcome, and by competing British efforts to borrow. France did what it could to finance its external needs – but it was not enough.

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chapter seven

The Dollar Problem

If France was at the end of its tether by August 1916, so too was the Treasury. Pessimism pervaded it. McKenna and his officials had been bloodied regularly in the political struggles over the war effort. Montagu had warned at the beginning of the year that if spending on the war exceeded £5 million per day, American resources would be exhausted and abandonment of gold would soon follow.1 Daily expenditure was now in excess of £5 million, and while the food riots feared by Montagu had not materialized, there was no relief in sight. Bradbury became gloomier. He commented on a draft of the Report on the Coordination of Military and Financial Effort, prepared by Hankey, that it, together with his own emendations, “fairly represents the Chancellor’s point of view. My own, as you know, is far less hopeful.”2 Yet the draft was profoundly negative – and at points apocalyptic. It forecast that once British credit in the United States was ruined and gold reserves were spent, trade would only be possible on the wholly inadequate basis of the exchange generated by British exports. Well before the final collapse of the exchange, “our industries will have been brought to a standstill and our population will be dying of starvation.” After a meeting at the Treasury, Norman noted in his diary: “C. talked hopefully of the freedom of action which default (by Nation) would give him in dealing with public + asking powers from Parliament.”3 Enervated by its struggle with the Bank of England for control of external financial policy and losing the political battle in Cabinet, the Treasury was under tremendous strain. This was apparent when the Anglo-French financial committee met in London on 3 October. The discussions that ensued made it plain that the Treasury had no real idea of how to meet American commitments. The French did, but the counsel of J.P. Morgan & Co. outweighed their recommendations. The committee was charged with two

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objectives: to identify the scale of allied needs over the next six months, and to suggest means of making American payments. The French contingent consisted of Homberg, DePeyster, and Sergent. The British delegates were Reading, Cokayne, and Chalmers, a compromise between the Treasury and the Bank of England that indicated that the struggle for control of external finance had not died. During many of the sessions Davison, Jack Morgan, Harjes, and Grenfell also were present, though assessment of allied requirements was undertaken without participation of the Morgans representatives. Before the Anglo-French committee met, Ribot had warned the Council of Ministers that bankruptcy was possible.4 A large part of the difficulty Ribot found himself in resulted from turning over £10 million out of the £25 million furnished under the Calais agreement to the Bank of France for exchange support. DePeyster believed these sums were larger than the bank’s actual requirements. He pointed out that the bank had only drawn down £35 million of the £60 million credit arranged with the Bank of England in April. As this amounted to £6.65 million a month, DePeyster argued, Ribot could ease his payment difficulties by providing the bank with £30 million over the next six months, rather than the £60 million that was budgeted.5 This argument ran afoul of Pallain. The latter had already complained that £10 million a month was not enough, citing expenditures amounting to £14 million in August. Pallain wanted Ribot to provide £12 million a month.6 Rather than antagonizing Pallain, Ribot appealed to McKenna for a rise in the monthly subsidy to £33 million. Concurrently, Homberg asserted to the Anglo-French committee that French calculations showed a deficit of £6.5 million a month.7 Homberg was fiddling the numbers. The figures cited by him failed to incorporate British payments in France and receipts from French operations in the United States, while they inflated French expenditures. The result was a larger deficit than really existed.8 Reading, the chair of the committee, was sceptical of Homberg’s claims, and McKenna declined Ribot’s request for higher subsidies. With this issue closed, discussion focused on payments in the United States. A preliminary estimate of British needs had already been provided to Davison. Privately he was told that these would be $50 million a week “for a quite indefinite period.” 9 The pattern of expenditure was disquieting. Over the previous five months, British payments in the United States had amounted to slightly more than $1 billion, an average of $207 million a month. French outlays totalled $188 million over the same period, or $38 million a month. British commitments for orders already placed but not paid stood at $812 million. French payments in New York had reached $12 million a week, and Homberg

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was forecasting that $15 million was not that far off. The committee reckoned that a “conservative” estimate of British needs over the next six months would be $250 million a month, a total of $1.5 billion.10 It seems that the $250-million-a-month figure was arrived at by lumping together British and French payments. This projection in turn rested on certain assumptions: that Britain would take over French purchases in the United States; that the rate of growth in military spending would be checked; and that the exchange would remain stable. All three proved erroneous. Although the committee concluded that France was “altogether devoid of external resources,” the British delegates were aware that France was not destitute. Of the $188 million spent by France over the preceding five months the Treasury had provided only $68 million. True, the Treasury could expect to pay a rising share, but Ribot was in the process of completing the City of Paris loan, handled by Kuhn, Loeb, that would provide additional sums.11 The committee’s figure of $1.5 billion, one suspects, was less an accurate number than one chosen for its ease of appreciation at political levels. As an approximation, it did serve the purpose of indicating the scale of forthcoming demands. How this money was to be raised remained uncertain. The allies’ principal sources of revenue in the United States were gold shipments, securities sales, and borrowing. Gold and securities had constituted more than $600 million of the $1 billion paid by the Treasury in the United States during the May– September period when Ribot had relied heavily on borrowing.12 The British delegates were pessimistic about a continued reliance on gold and securities. Their report emphasized that both of these sources were, if not completely exhausted, nearly so. The accuracy of this assertion is debatable. Sales of British-held American securities from May to September 1916 had yielded just over $300 million. The postwar report of the American Dollar Securities Committee placed total American securities garnered from British investors, whether by purchase or deposit, as of 12 August 1916 at £192,842,000. The sequestering of American dollar securities that occurred in 1917 swelled these amounts considerably. By the time the scheme was wound up in 1919, £216,644,000 had been purchased and a further £405,951,000 was on loan to the Treasury.13 These figures do not take into account British holdings of other attractive obligations, particularly South American securities. When the British delegates claimed that the potential revenue generated from securities “must be regarded as negligible for the future,” their statement was conditional. The condition was a continuance of the present policy, which avoided forcible seizure of securities.

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A similar calculus applied to gold, though here the equation was more complex. Debate within the Anglo-French committee on relying more on gold sales revealed that the French and British delegates were united only in their conviction that the Treasury reserve of £100 million in gold was irreplaceable.14 Homberg and Sergent made it plain that no further deliveries of gold would be forthcoming from France. As the gold reserve of the Bank of France was in excess of £125 million, not counting gold held abroad at the end of December 1916, lack of gold was not the obstacle.15 The fear of currency depreciation and rampant inflation was strong. Despite the divorce between the gold reserve and the money supply embodied in the abandonment of convertibility, Ribot and Bank of France officials continued to insist that possession of a large gold reserve was essential for the stability of the franc. It was not so much a matter of the franc’s value abroad; rather, it was the domestic implications that worried men such as Sergent. Reports such as that filed by the subprefect of the département of Deux-Sèvres, noting that civilians were discussing not subscribing to the 1916 rentes “so as not to prolong the war,” may have been atypical, but they revealed that an undercurrent of dissatisfaction existed. JeanJacques Becker’s analysis of French morale during the war suggests that until the end of 1916 it remained fairly good but that there were reasons to worry, as the events of spring 1917, with widespread strikes and social dislocation, were to show.16 The pursuit of a policy of selling gold, which might lead to unrest, was not one that the Ministry of Finance wished to follow. If the Treasury could proclaim that the gold standard was the “sheet anchor” of British credit, the gold reserves of the Bank of France also possessed a value beyond the simply monetary – they symbolized the integrity and solidity of the Third Republic. It was not surprising that at the meeting of 4 October the French representatives were adamant that no further gold would be shipped. Could Britain find more gold internally? Under questioning from Homberg, Reading admitted that the joint-stock banks had not been approached about surrendering their gold. It was, Reading asserted, a necessary element in their creditworthiness and, by implication, that of the British banking system. The discussion rapidly degenerated, with Homberg charging that while the British wanted France to use its gold, they were unwilling to employ theirs. Homberg had a point, for though Britain was still on the gold standard, internal convertibility no longer existed and the justification for the large clearing banks holding gold reserves was not apparent.17 How much gold remained in the hands of the joint-stock banks is uncertain. 18 It was with relief that the delegates agreed that the existing £100 million reserve could not be

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enlarged. Half of this total, or roughly $250 million, would have to be paid out over the coming six months to meet American payments. This still left the allies $1.25 billion short of the $1.5 billion they required. The French advocated unsecured borrowing similar to the AngloFrench loan of 1915. To supplement this they suggested exploiting commercial credits on a more extensive scale. They argued that the timing was propitious for an unsecured borrowing, as the military news was favourable. As proof, Homberg pointed to the positive reception of the City of Paris loan, which was not backed by collateral and was heavily oversubscribed. From this he drew the conclusion that Morgans had misread the market and a joint Anglo-French issue was feasible. Sergent supported him, warning that the securities available to France for another collateral operation were limited. 19 The good news referred to by Homberg was presumably the Brusilov offensive. But although this had destroyed the capacity of the AustroHungarian army to function independently on the Eastern Front, it had not done anything of the sort to the German army in the east. Indeed, the inability of the Russians to exploit Brusilov’s successes indicated that the Russian army was perilously close to exhaustion. Homberg may also have hoped that Rumania’s entry into the war would tilt matters in the allied favour on the Eastern Front – an expectation that was swiftly dashed, for the strength of the Rumanian army had been overrated.20 Homberg was correct that the Paris municipal operation had been well received. But even here special factors were involved. Paris possessed high name recognition, even in the insular American financial community, and the issue itself was attractively priced. Whether this kind of success could be duplicated with a new Anglo-French loan, given that the 1915 Anglo-French bond issue was performing sluggishly, was dubious. The Morgans partners were resolute in their insistence that the American market would not welcome another unsecured loan. Davison made it clear that the syndicate formed to handle the Anglo-French loan of the previous year was in no mood to repeat the experience. Consultation with the New York partners reinforced this opinion, and on 10 October Jack Morgan informed the committee that a loan would have to be secured. The Morgans partners suggested that a noncollateral loan might be possible if the collateral operation was a success and if the military news improved. Jack Morgan and Davison recommended a $250–300 million British government loan.21 Within the committee this recommendation provoked fierce debate. Homberg vehemently denounced the notion that a noncollateral loan could follow a collateral loan. In any case, it was not taken seriously. Cokayne, for one, recognized that the die had been cast in August with the British collateral

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loan, which made a noncollateral loan unlikely.22 Homberg’s idea of an unsecured Anglo-French loan was subject to his own criticism of the Morgans plan – How could a noncollateral loan follow a collateral operation? After the August British collateral loan, there was scant chance of unsecured borrowing in the United States, especially if Morgans was involved. Once it became apparent to Reading and his colleagues that the Morgans partners did not believe such a loan was possible, they backed away from the idea. Homberg’s continued criticism of Morgans mystified and alienated the British; Reading and Chalmers wondered why Homberg could not, however grudgingly, support the firm. Separately, Bradbury, Cokayne, and Cunliffe voiced doubts about Homberg to DePeyster. The British would have preferred Sergent to play a more active role in the French delegation. The latter was seen in London as a thoroughly “sound” man, while Homberg was regarded as partisan, rancorous, and animated by personal hostility towards Morgans. 23 In Reading’s view the allies could not afford even the slightest risk of a setback to their credit in the United States.24 Reading was aware of the dangers that lurked in an unsuccessful loan. It was not so much that a failure in the United States would end the war for the allies, but that it would force Britain and France to depend on gold shipments, securities sales, and such dollars as could be scraped together from other sources. Without the ability to borrow in the United States, with the war dragging on, and with no immediate prospect of the Americans joining the allied side, the liquid reserves that Britain and France commanded would not last indefinitely. While the committee itself was firmly oriented towards short-term considerations – how the allies could pay for the war during the next six months – Reading understood that the war would not be over in six months. Although Ribot showed a lively awareness of the problems of financing a long-term conflict, it was simpler for the French to advocate a bolder course, for they had the luxury of falling back on British assistance in the event of failure. What seems to have eluded Homberg was that if the bold policy came to naught, it would be questionable how much help Britain could extend to France. Keynes, in a memorandum composed on 14 October, pointed out six additional possible means of raising exchange in the United States, ranging from short-term treasury bills to municipal loans to commercial credits.25 Reading was greatly interested in the French success in commercial credit borrowing and questioned Homberg and DePeyster closely. He was forced to admit that the difficulty in obtaining commercial credits lay not in the United States but at home, where resistance to American dollar bills of exchange was entrenched. This was

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demonstrated in November, when the London Exchange Committee rejected a plan to create exchange by drawing dollar bills of exchange on American banks.26 Part of the problem in raising funds was not a failure to recognize alternatives but a willingness to embark upon them. The Bank of England and the Treasury remained shackled to the notion that British postwar financial dominance should not be mortgaged by the present conflict. Following the final session of the Anglo-French committee on 10 October 1916, it was agreed that the next meeting would be held in Paris. When Homberg attempted to arrange this gathering in midNovember, he was rebuffed. In the wake of the Federal Reserve Board announcement of 28 November 1916, warning American investors against short-term allied obligations, Ribot proposed that the committee reconvene. McKenna, citing the political crisis surrounding the Asquith government, demurred.27 No further meetings were held. McKenna’s opposition to the committee effectively doomed it. Without willing participation from the Treasury, it could not fulfil the functions Ribot had hoped for – to act as a joint coordinating committee for allied finance. Ribot informed Harjes that the committee had accomplished little because the British had evinced “no desire” to discuss matters.28 The real question in the wake of the Anglo-French financial committee meetings was the direction allied financing in the United States should take. Davison, having returned to America, became convinced that the best means of resolving allied financial troubles was to issue short-term treasury bills. While the British government collateral loan for $300 million, floated in early November, had provided some leeway, it would soon be exhausted. Davison intended the treasury bills to act as a stopgap until it was possible for another loan to appear. He proposed offering bills with maturities beginning at thirty days. Davison believed that American investors needed to be educated and that this was the best means of familiarizing them with allied obligations. If American investors purchased thirty-day paper, which was then redeemed, they would be more attracted to longer-term issues. Two other considerations were also important. If the allies first brought out ninety-day bills, it would not be until March that the issue could be retired and another brought out. As it would be impossible to raise all the money required in the first offering, how would the deficit in allied needs be met in the interim? Secondly, proceeding with the treasury bill scheme was important, Davison claimed, to improve the morale of the Morgan syndicate, which had been shaken by the French decision to have Kuhn, Loeb & Co. lead the City of Paris loan.29

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Ribot’s fears about the treasury bill scheme were general in nature, while McKenna was concerned more by the details of the planned offering. Ribot complained that he could not see how selling shortterm treasury bills paved the way for longer-term operations. He desperately wanted the allies to repeat the Anglo-French loan of 1915.30 This desire was perhaps not as far-fetched as it might seem. Cunliffe, for one, seems to have had a change of heart regarding future allied financing. He suggested a new Anglo-French loan to Reading in November.31 Ribot insisted that the treasury bills be Anglo-French, which would, he hoped, make an unsecured joint loan more likely. Unfortunately for Ribot, McKenna had no wish to issue Anglo-French bills because to do so would increase the cost to the Treasury. Anglo-French bills would carry a higher interest than straight British government bills. His objections, along with those of Davison, who also regarded joint bills as less attractive to American investors, quashed the idea. The treasury bills would be separate, though issued simultaneously and carrying the same terms. Reluctantly, Ribot acquiesced, fearing that if he did not, the French would be crowded out altogether.32 Neither the Treasury nor the Ministry of Finance was happy with Davison’s plan to issue thirty-day bills. While Keynes had earlier raised the possibility of issuing treasury bonds, he had envisaged three- or six-month maturities. From the perspective of the Treasury and the Ministry of Finance, shorter maturities were highly dangerous, for they would create a mass of short-term bills rolling over with disconcerting frequency. Should the allies be unable to meet the maturing bills because of a temporary liquidity shortage, the outcome would be disastrous for allied credit. A flurry of cables ensued, with the Treasury taking the lead in combatting the idea of thirty-day bills. On 15 November Davison cabled that only $85 million remained of the $300 million British government collateral loan floated at the beginning of the month. It was the weakness of the allied financial position in the United States and the resoluteness of Davison that eventually led to capitulation. As Norman noted, “Our position in n.y. for next 6 weeks at least is critical … & I favour any measure, advised by jpm & Co. wh will tide over & produce balances.”33 McKenna agreed to proceed with thirty-day bills, a course that Ribot reluctantly followed. As a safeguard, the Treasury insisted that limits be placed on the weekly and aggregate totals of these obligations.34 Chalmers would later comment that it was a course of action the Treasury disliked intensely.35 Even that staunchest of Morgans allies, Norman, worried that the treasury bills had “many disadvantages & perhaps dangers.”36 The plan nearly proved the undoing of allied finances in the United States. The events are well known to historians. 37 Davison, in an effort

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to acquaint the Federal Reserve Board with Morgans’ plans for allied financing, met with the board on 18 November. To his chagrin, the board was hostile to the idea of short-term allied paper. Its members interpreted the treasury bill scheme as a threat to American banks. They worried that the bills would be converted into illiquid long-term debt, which would remain on their books. Equally alarming, American banks would have to continue to provide the allies with credit. As Warburg put it, “While you thought you had the bull by the tail … the bull had you by the tail. In this case it is John Bull who would have us by the tail.”38 A subsequent interview with Wilson buoyed Davison’s spirits, and he came away with the belief that the president was not hostile to the idea.39 Davison did not know that the Federal Reserve Board had decided to issue a warning to investors about the proposed treasury bills and that Harding had circulated a draft to Wilson. Wilson, motivated by his desire to further the mediation proposals which he hoped would end the war – and which he was in the process of preparing – not only welcomed the statement but requested it be toughened.40 He still hoped he might be able to bring the belligerents to the peace table, and he was willing to employ whatever means were at hand. Financial pressure seemed a useful lever. When the Federal Reserve Board announcement appeared on 28 November warning investors to regard short-term allied bills with caution, it had a dramatic effect on the overall financial climate and specifically on the sterlingdollar exchange. Analysis of the Federal Reserve Board affair has concentrated on the question of responsibility. Davison, Wilson, and the board have all received careful scrutiny. Davison has been harshly criticized. His arrogance, bluster, and inability to perceive the concerns of the board have drawn the attention of scholars. Davison threatened to flood the United States with allied gold if the board did not concur. Nor was he entirely candid; apparently, he did not indicate that Morgans was planning on issuing thirty-day treasury bills. Instead, the board was informed that maturities of three months to a year were being contemplated.41 There is little doubt that Wilson seized on the announcement as an opportunity to convey to the allies the risks of ignoring his presence on the diplomatic stage. For the board, the crucial elements were resentment of Davison’s heavy-handedness; legitimate fears about the liquidity of the proposed credits; and, in the case of certain members, such as Warburg and Miller, pro-German sentiment. The soundness of this analysis is indisputable, though perhaps not enough attention has been paid to the board’s earlier involvement in reducing the size of a French acceptance credit.

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Prior to the statement issued on 28 November, the board had signalled its unhappiness with short-term allied paper when it intervened to cut in half the size of a French acceptance credit arranged through Guaranty Trust and Bonbright & Co. It was the structure of the credit that disturbed the board. Under the terms of the proposal, the acceptance credit was for ninety days. Five renewals were to be permitted, meaning that the loan was for eighteen months. This was too much for Harding and Warburg, who led the opposition within the board on the grounds that such credits were inappropriate for banks to be promoting. A statement was duly issued to Federal Reserve agents that the Board did not regard the credit as liquid, an action that forced the syndicate to reduce the total from $100 million to $50 million.42 An effort was made to smooth the waters by having Fred Kent, vice-president of Bankers Trust and a member of the syndicate, pay a visit to the Federal Reserve Board. Kent was unsuccessful in persuading the board to recant. These events took place from 22 to 30 October 1916, well before Davison’s visit to the board on 18 November. In Wall Street, news of the board’s intervention was not secret, nor was Kent’s trip. Davison’s advocacy of treasury bills is inexplicable, given the board’s reaction to the French acceptance credit. The parallels between the two episodes are striking. Davison embarked on a course fully knowing what had been the outcome for the acceptance credit. In doing so, his judgment was seriously flawed. The treasury bill scheme, regardless of his personal conduct at the meeting of 18 November, was unlikely to be well received. The tendency within the board to view such credits unfavourably was strengthened by domestic political considerations. Morgans had worked hard to defeat Wilson in the presidential election of November 1916. Wilson’s triumph was a blow to the firm and, as Kathleen Burk has pointed out, certainly did not earn the bank any friends in the White House. Colonel House delivered a blunt message to Morgans through an intermediary: the bank had best refrain from playing political games.43 Harding, a staunch Democrat, was offended by Morgans’ support for the Republicans and was willing to take steps to punish the firm.44 Partisan political calculations and a general antipathy towards J.P. Morgan & Co., not Davison himself, influenced Harding’s support for a strong statement against allied credits. The action of the Federal Reserve Board came as a shock to the Treasury and the Ministry of Finance. The immediate response was to seek explanations. The French and British embassies, largely excluded from financial matters since 1914, cabled their impressions. Jusserand and Spring-Rice arrived at different conclusions. The former believed

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that Wilson had had no part in the affair, while the latter was more perceptive, correctly discerning Wilson’s hand. Jusserand was adamant that the action was directed against J.P. Morgan & Co. and was designed to check Davison.45 This analysis has to be taken with a grain of salt. Previously, Jusserand had had run-ins with Morgans. The real issue, however, was not the acuity of the respective ambassadors but the effect the warning had on British and French financial policy. The treasury bill issue was cancelled, despite Morgans’ desire to go ahead. Ribot was initially inclined to proceed, but McKenna deemed a cautious policy wisest and instructed the firm to announce the postponement on 29 November.46 Unfortunately, this was done in such a manner as to create further tension between Ribot and Morgans. Jusserand denounced Davison’s statement to the press announcing the suspension of the scheme, believing that it conveyed the impression that the allies had knuckled under to threats from the Wilson administration. Ribot, distressed that McKenna had not consulted him before the cable authorizing cancellation was dispatched to New York, was harsh in his criticism of Morgans. An exchange of telegrams between the Morgans partners and Ribot ensued. A threat by Morgans to disassociate itself from French financing was sufficiently ominous to quiet Ribot.47 As news of the Federal Reserve Board announcement spread, Cunliffe advocated a new course. The London Exchange Committee, in response to a paper circulated by Bonar Law recommending a census of all British holdings in the United States, urged the immediate seizure by the government of all British property in the United States, with noncompliance to be a penal offence.48 Cunliffe recommended that Britain abandon specie payments. At the same time, he raised the possibility of turning over exchange management in the United States to Kuhn, Loeb & Co.49 He had an ally in the Treasury. Norman recorded on 30 November that “G. [Cunliffe] has lately become strongly antiMorgan – or rather Davison – & he speaks out agst their monopoly. Sir R.C. [Chalmers] has always been so, & vents it on ecg [Edward Grenfell] – as G now begins to do – I have given ecg … several hints to be careful.”50 Despite Cunliffe’s urgings, the Cabinet decided to remain on gold. Asquith told the King that he was in the majority in believing that leaving the gold standard would be “a rash and precipitate step.”51 There was no gainsaying the fact that withdrawal of the treasury bill scheme left the allies in a bind, for it deprived France and Britain of revenue they sorely needed. To this was added the strain of supporting sterling, which the Cabinet had decided must be continued.52 The Treasury informed Ribot on 10 December that payments in New York on the British government’s account had totalled almost $200 million

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over the previous ten working days. Chalmers, testifying to the newly formed War Cabinet on 9 December, provided a detailed breakdown. Expenditure, without supporting the exchange, was nearly $50 million a week. Propping up sterling was draining enormous amounts: $64 million in the week ending 1 December and $76 million in the week ending 8 December.53 To meet these demands, the Treasury scrambled to increase the flow of gold and securities to the United States. Restrictions were placed on new orders, and the French were approached to see whether they could manage without Treasury transfers. Ribot was in a position to comply with this request, having received funds from the Bordeaux, Lyons, and Marseilles operation, the so-called tri-city loan.54 These efforts could not raise all the sums required. Import restrictions, which were favoured by the Treasury and the Ministry of Finance, would help ease the burden, but it would take time before a program could be implemented. The War Cabinet decided that attempting to enforce this policy might “alarm the Allies unnecessarily.”55 It was largely through borrowing on Morgans and its syndicate partners that Britain and France were able to continue to meet their bills in December 1916. 56 The foregoing makes clear that there was a financial crisis in December 1916. Burk, French, Soutou, and Nouailhat – all of whom have stressed the gravity of events in December 1916 – have a solid case in this regard. Cunliffe’s actions are proof of it. Cunliffe had firmly backed the policy of remaining on gold in August 1914 and consistently thereafter, yet in December 1916 he believed that the situation was so dire that it called for overturning British financial policy. Cunliffe panicked, but this was evidence of the seriousness of matters as he, and the London Exchange Committee, perceived them. The principal reason the financial crisis appears less than it was is because it was subsumed by political crises in Britain and France that took centre stage. Politicians were concentrating on the fate of the Briand government and the Asquith coalition. Briand’s ministry found itself in trouble in November 1916. Radical and Socialist deputies seized on the troubled Salonika expedition to demand a secret session of Parliament. General Maurice Sarrail, the darling of the anticlericalist forces within the Chamber of Deputies, commanded the Eastern Army. He was the epitome of a Third Republic political general and had been given the Salonika command after being sacked by Joffre on the Western Front. To placate Joffre, Sarrail and the Eastern Army were placed under his authority. The left saw the army as Catholic, reactionary, and antirepublican. In the wake of Verdun, the travails of the Salonika expedition were an opportunity to launch a frontal attack on Joffre’s handling of the war. The Briand ministry was naturally implicated.

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The secret sessions, which opened on 28 November, lasted ten days, a period that overlapped with the financial crisis in New York. The outcome was a reconstruction of the Briand government and a shuffling upstairs of Joffre. The new government was constituted on 12 December 1916. To provide better direction to the war effort, a new War Committee was formed, consisting of Briand and the ministers of navy, war, finance, and armaments. Marshal Lyautey, of colonial fame, was appointed to the Ministry of War, while Robert Nivelle was given command in the West and Sarrail in the East. Nivelle and Sarrail were independent of Joffre, who was given the title of technical adviser to the War Committee.57 It is thus no surprise that little attention was paid in France to the Federal Reserve Board’s statement. Although Ribot tabled the matter at the Council of Ministers, Poincaré did not consider it sufficiently important to note in his diaries. Briand did support Ribot in urging that an Anglo-French conference be held, at which the agenda would include raising dollars, closer financial cooperation, and import restrictions, but this was as far as he went until the political crisis in France was resolved.58 Even Ribot’s reaction was muted. To some degree, this was due to a sense of vindication. Ribot and his advisers had been warning the Treasury against overreliance on Morgans for quite some time. Davison’s role in the Federal Reserve Board affair provided support for French concerns about Morgans. As in France, the reception in Britain of the news of the Federal Reserve Board’s statement was overtaken by political events. McKenna had employed the Anglo-French financial committee report as a weapon in the struggle for restraint in Cabinet. Coupled with the results of the interdepartmental survey on dependence on the United States commissioned by the Board of Trade, which had stressed the reliance of Britain upon the American market for goods of all kinds, he was able to make a forceful case. On 24 October McKenna submitted a report to Cabinet entitled “Our Financial Position in America.” Its message was clear – the financial situation in the United States had become so poor that the British war effort rested upon favourable American attitudes. This was, in McKenna’s view, an intolerable situation, threatening not only the war effort but also British postwar financial influence. Ending it was possible if Britain cut expenditures to the army, a policy that McKenna had consistently backed for months.59 He had supporters. On 31 October 1916 Hankey submitted a paper arguing that the allies were vulnerable to a war of attrition because of their precarious financial position. Recruiting shortfalls, labour shortages, and export earnings were all symptoms of the same problem. Hankey suggested importing foreign labour to ease these difficulties. Norman believed that the harsh reality

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facing the allies in the United States was now before the Cabinet and that there was no excuse for not taking action.60 Within the Cabinet, McKenna could count on Runciman and Grey, while Balfour would at least give his arguments a hearing. Lloyd George, of course, whose frustration with the conduct of the war was growing apace, was a known foe, and so was Bonar Law. Through November 1916 the question of finances simmered as Lloyd George assessed his political support. The Cabinet did consider the Federal Reserve Board’s warning on 28 and 29 November. Discussion at the meeting on 28 November was dominated by exchanges between McKenna and Bonar Law. McKenna’s stance was a familiar one. He argued that the Treasury could not maintain current rates of expenditure – now at £6 million a day – indefinitely; Britain could probably purchase supplies for the foreseeable future for its own needs, but meeting allied requirements was another matter. McKenna did not believe that Britain could rely on raising credits in the United States. Bonar Law dismissed McKenna as the boy who cried wolf: the spectre of bankruptcy had been raised before. He suggested retrenchment in purchasing and raised the idea of leaving the gold standard. With most of the Cabinet somewhere between these two positions, little was decided on the twenty-eighth. McKenna was instructed to complete a financial review while further information from Morgans was awaited.61 This was how things stood when Lloyd George staged his successful coup against the bulk of his own party, a triumph that was brought off with substantial Unionist assistance. The machinations of the period from 25 November to the formation of the Lloyd George ministry on 7 December have their own extensive historiography. Weariness with the Asquith style of government, a conviction that the war was going poorly, and his image as a man of “push and go” were Lloyd George’s weapons. Despite the doubts harboured about Lloyd George by many in the Unionist Party, disenchantment with Asquith was even stronger. Once Bonar Law had agreed with Lloyd George and Curzon on 25 November that a ministerial reconstruction was necessary, a fight was unavoidable. That Asquith lost and Lloyd George won was as much a product of Asquith’s miscalculation as anything else. His refusal to be elevated to a largely ceremonial post in a new government was understandable, but it was Asquith’s resignation on 5 December that meant the end of his coalition. Asquith stepped down because he believed that Lloyd George could not form a government. When Lloyd George did so with the aid of a number of Liberal defectors, but largely through Unionist support, the Asquithian era in British politics came to an end.62 Lloyd George instituted an overhaul of the administrative apparatus of government,

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creating new ministries and a new executive, the War Cabinet. The latter originally consisted of Lloyd George, Lord Milner, Bonar Law, the Labour leader Arthur Henderson, and Lord Curzon. Bonar Law took over as chancellor of the exchequer. Did these changes in Britain and France result in a shift in British or French financial policy? It cannot be said that Briand’s War Committee was a success. It lacked independent authority, remained subject to the decisions of the Council of Ministers, and suffered from the widespread impression that the Briand ministry was adrift, without purpose or energy. The increased bellicosity of the Chamber of Deputies made governing more difficult, particularly with critics such as Clemenceau lambasting the ministry. One scholar has gone so far as to suggest that the secret sessions fatally wounded the Briand government and that Briand himself was looking forward to an opportunity to resign.63 Although Ribot was a member of the War Committee, he was only one member; the spending ministries – war, navy, and the newly created munitions ministry – predominated. The reality remained as it had been since August 1914. Ribot could not check expenditures. In January 1917 a clash with Albert Thomas, now the minister of armaments, over the spending program proposed by Thomas revealed that little had changed. Ribot rejected the initial projections from the Ministry of Armaments and requested new, more moderate figures. The estimates Thomas subsequently tendered were higher than those Ribot had dismissed.64 There is no indication that a reappraisal of French policy was undertaken. Domestically the policy of relying on borrowing rather than taxation to finance the war continued. Gold exports from the Bank of France remained a last resort, to be used only as a precondition for British financial assistance. Ribot continued to champion greater Anglo-French financial cooperation, though it is difficult to discern what France had to offer on the revenue side apart from gold, the one item Ribot was reluctant to part with. As before, French efforts in the United States were devoted to raising dollars by any means, an attitude that did allow for greater flexibility in borrowing, though normally at a higher cost, than British operations. As for the British, much of Lloyd George’s reputation as the man who won the war derives from the changes instituted by his government, though scholars have increasingly drawn attention to the continuity between Asquith’s policies and those followed by Lloyd George. Since leaving the Exchequer, Lloyd George had been a consistent critic of the Treasury, and particularly of McKenna. Bonar Law frequently joined him in these attacks. Together the two men had advocated the pursuit of a more flexible policy. It might be expected,

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then, that the Lloyd George government would institute considerable changes in British external finance. The new government did act quickly to sequester American dollar securities that had not yet been surrendered to the Treasury, and this was an important step in providing additional funds. Yet Bonar Law quickly turned his back on his earlier willingness to consider abandoning gold. Once in the Treasury, he had a difficult time adjusting. J.C.C. Davidson, his private secretary, commented that Bonar Law was not happy and was “feeling no doubt like a lost stranger amongst the wolves of a melancholy Treasury.” Davidson thought Bonar Law would “be lost here for the first few days at any rate.”65 Treasury officials believed deeply in the necessity of staying on gold. A memorandum by Keynes in mid-January 1917 put the case clearly. Keynes argued that while convertibility at home was a fiction, it had been replaced by the mechanism of selling sterling for dollars at the fixed exchange in the United States and then using the dollars to purchase gold, since gold exports were still legal in America. According to Keynes, “To abandon the gold standard means to abandon the present policy of selling dollars to all comers at a fixed price not far removed from the parity.” Sterling had been pegged at $4.76 7/16, below the prewar exchange of $4.86. Keynes concluded by commenting that leaving the gold standard would not meet debts coming due, would fail to check expenditures, would mean “the abdication of our position as the world’s banker,” would negatively affect British credit, and would give the enemy a morale boost.66 Two themes are evident in this argument: first, that remaining on gold was intimately linked to the exchange rate; secondly, that the long-term repercussions of abandoning gold were prejudicial to British interests. Undoubtedly, leaving gold would occasion a further slide in the exchange. The questions of how far sterling would fall and where it would stabilize were and are unanswerable. Maintaining the sterling peg was consuming dollars and gold that could have been deployed to pay for American orders.67 It was possible to support sterling in New York and to leave the gold standard. The latter did not automatically mean the cessation of the former. Suspending convertibility offered the advantage of greater flexibility in the employment of gold: gold shipments might have been used as collateral for fresh borrowing instead of supporting the exchange. An additional benefit would have been the reduction of tensions with France. Freer access to French gold reserves might have followed. The second theme forwarded by Keynes was much more in keeping with the original rationale for staying on gold. In August 1914 it had been fears of the effect on Britain’s international stature and postwar

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position that had prompted Lloyd George to resist the calls to leave gold. There is no doubt that abandoning gold would have hurt British credit; it would have diminished Britain’s stature as the world’s banker. But the policy of trying to uphold the gold standard and prosecute the war was having the same effect. The idea that staying on gold could also be detrimental to British interests was not considered. Ultimately, Keynes’s position rested on the assertion that the risks and benefits of abandoning gold were unknown, while those of the present policy were evident. Bonar Law was swayed not by whether Keynes was correct but by the possibility that he might be. Prudence won out. Bonar Law declined to overrule his adviser. It was not simply a matter of Bonar Law acquiescing to Treasury advice. Doubts about Bonar Law and Lloyd George’s aptitude for external finance and willingness to tackle its complexities were common. As chancellor, Lloyd George had rapidly lost interest in finance after the crisis of 1914. His outlook on wartime finance was signalled by the October 1914 decision to give the spending ministries carte blanche through the suspension of the normal Treasury oversight. Lloyd George’s understanding of the British international financial position was poor. Hankey, following a dinner with Lloyd George, Robertson, and Reading at which finance was discussed, noted: “Ll. George talked a lot of froth on latter subject & Lord Reading, who is in charge of the exchange arrangements with America was very eloquent by his silence.”68 We have Keynes’s testimony that Chalmers, speaking to the War Cabinet at its first meeting on 9 December, neglected to inform it fully of the true state of the exchange position, partly because Treasury officials “had no confidence in the understanding of the Ministers.”69 Norman, though scarcely an unbiased observer, could detect no new direction at the Treasury following Bonar Law’s accession to office. Ribot’s first impression of Bonar Law was of “a man inclined to follow nearly blindly the opinion of the Treasury.”70 Hardinge told Bertie in mid-December he believed “that they shirk, as the last Committee did, the difficult and almost insoluble questions of submarines and finance.”71 Nonetheless, the Federal Reserve Board affair prompted Bonar Law to request an Anglo-French conference to discuss financial matters. Unlike McKenna, who had disliked such gatherings, Bonar Law was eager to meet with Ribot and Briand. Due to Lloyd George’s illness, the conference was not held until 28 December 1916 in London.72 The French had high hopes that the change in government would lead to a new attitude. Lloyd George was highly thought of, while an evaluation of Bonar Law prepared by the Bureau d’études of the Quai

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d’Orsay was fulsome in its praise.73 The British request for an AngloFrench conference was an auspicious sign, as previously Ribot had had to plead to meet his British counterpart. With Lloyd George in the chair, the other members of the British team were Bonar Law, Cunliffe, Chalmers, Bradbury, Sir Hardman Lever, the newly appointed financial secretary to the Treasury, and Hankey. The French delegates were Ribot, Homberg, and de Fleuriau. Bonar Law opened by noting that the conference had been called to discuss the recent Federal Reserve Board statement and the exchange crisis that had followed. Almost immediately Bonar Law and Ribot clashed over gold shipments. Citing heavy exports of gold, totalling £25 million, Bonar Law asked Ribot to ship £20 million in gold to help meet American payments. This Ribot refused, saying that it would hurt French confidence at home. Repeated sallies by Bonar Law and Lloyd George failed to move him. Even Bonar Law’s intimation that Wilson might employ a lack of allied gold to enforce his mediation offer failed to sway Ribot. Ribot and Homberg emphasized the delicacy of the French financial position at home, the perfidy of Morgans, and the need to explore other means of financing. For his part, Bonar Law insisted it was necessary to “proceed on more familiar lines,” which meant shipping gold and securities. Nor would Bonar Law agree to postponing the planned $300 million British government collateral loan, slated for January 1917, so as to allow another $100 million of the French afsc loan to proceed. Ribot did manage to extract the concession that interest due to Britain on advances made to France would be postponed for the duration of the conflict. Further, Lloyd George indicated he was amenable to financing French coal purchases in the United Kingdom on credit.74 But the conference disbanded with none of the pressing questions regarding allied financing resolved. The meeting foundered on the same rock – gold – that had doomed so many earlier efforts. Ribot wanted greater cooperation with Britain, but he would not provide the gold that the British regarded as the sine qua non of cooperation. Bonar Law, like McKenna, failed to offer any incentive that might overcome Ribot’s recalcitrance. There was another factor at work that explains the deadlock. Ostensibly the conference had been called to discuss financial matters. Yet relatively little time was actually spent on finance. Most of the discussion concerned three other issues: President Wilson’s mediation offer; Greece; and whether the British would take over a larger portion of the line on the Western Front. There was a great deal other than finance to worry about; and this was even more the case in 1917

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than it had been previously. As Poincaré put it, 1917 was “l’année trouble.”75 Financial matters required regular attention, but in the context of a global conflict this was a condition that was simply not possible for ministers in France or Britain to meet. Some ministers found the complexities of finance bewildering and boring. In his memoirs Homberg recalled a joint Anglo-French financial conference at which Briand slept through the proceedings.76 Lloyd George’s attitude towards finance has been alluded to before. His confidant, Riddell, noted in August 1918 that his views had not changed: “The expense of the war and the measures which he takes never seem to enter into his calculations … Millions mean nothing to him. The object to be achieved is the only thing that matters. This gives him a great advantage over men who count the cost before they act.”77 Only the ministers of finance were adequately briefed at conferences, and even their attention was often drawn elsewhere. This helps to explain not only the unsatisfactory nature of the 28 December conference but also why so little changed in the handling of British and French financial policy in the wake of the political upheavals in both countries in December 1916. As 1917 dawned, French finances were in a more perilous state than ever before. For Ribot there were two pressing problems: the need to secure an extension of the Calais accords, which were due to expire in March 1917; and finding additional dollars in the United States. On 21 February 1917 Ribot requested a meeting with Bonar Law to discuss the expiration of the Calais agreement. Bonar Law demurred, citing the uncertain situation in the United States and the fact that French credits under Calais were not yet exhausted.78 It was not until 13 March, two days before the Calais arrangements were to lapse, that Ribot and Bonar Law met in London. Wrangles over gold dominated the agenda. In return for providing a credit of £50 million, Bonar Law requested shipment of £20 million in gold, half to be sent to New York for the disposal of the Treasury and the other half to London. At the instigation of Keynes and Chalmers, a clause modifying the Calais accords was inserted in a draft presented to Ribot. The thrust of the clause was to remove the obligation the Treasury was under to return gold lent by France. The clause stipulated that gold not repaid could be deducted from outstanding French treasury bills. This was too much for Ribot, who refused. At a meeting the following day, Ribot succeeded in attaining most of his objectives. The Treasury agreed to provide £50 million in return for shipment of £10 million in gold. This was the best deal the Treasury could make. At Ribot’s insistence, the question of the other

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£10 million was confined to an exchange of letters between the Treasury and the Ministry of Finance and was subject to the concurrence of the Bank of France.79 The latter reservation ensured that the gold would not be sent, for Ribot was well aware that Pallain was adamantly opposed to this. The 14 March agreement was stillborn, for the Briand ministry fell and was replaced by a new government headed by Ribot. Now premier and minister of foreign affairs, he declined to authorize the agreement. Changing American circumstances – presumably, information from Jusserand that the United States was on the verge of declaring war – and the resolute opposition of the Bank of France produced Ribot’s volte-face.80 Sergent was dispatched to London to negotiate a one-month extension of the Calais accord. Bonar Law was amenable, and on 27 March a credit of £25 million was provided in return for the shipment of £8,333,000 in gold.81 As for the United States, French negotiations early in 1917 were largely the province of Frédéric-Bloch, who had succeeded Homberg as French financial representative. It was Frédéric-Bloch’s duty to gauge Wall Street’s mood, report on developments in American financial markets, and deal with Morgans. Casenave, now attached to the French embassy in Washington, acted as the conduit to the Wilson administration. He dealt with McAdoo, as well as with Harding and other members of the Federal Reserve Board. There were other French emissaries in the United States, notably Jacques de Neuflize, the delegate of the Bank of France and, more quixotically, Henri Bergson, the philosopher, who had been dispatched by Briand to sound out American opinion. There is little indication that Bergson’s mission accomplished much.82 It was Frédéric-Bloch who delivered the coup de grâce to one of the enduring myths of French financial thinking. Ribot and Homberg had long harboured the belief that the French railways were a strategic reserve upon which France could borrow in the United States. In January 1917 Ribot judged the time had arrived to use this reserve. Discussions with Kuhn, Loeb concerning an option on the tri-city loan were progressing slowly, Morgans was prevaricating over another afsc loan, and Ribot’s ambitious plan to float a loan on the Crédit Foncier was not attracting much interest.83 So he instructed Frédéric-Bloch to explore raising a railway loan. Frédéric-Bloch’s reply was crushing – nobody in the United States, including Morgans, had given any thought to how the French railways were run, organized, or whether borrowing of any kind was possible. A month later, Frédéric-Bloch chose his remarks carefully in discussing “this supreme reserve.” The

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moment, he said, was inauspicious to proceed with a railway operation, especially for the $300–400 million that Ribot deemed the minimum acceptable.84 Frédéric-Bloch stressed that collateral operations of some kind were the only ones feasible. He suggested loans on neutral stocks, or perhaps borrowing on the French colonies. Despite Frédéric-Bloch’s misgivings, when Davison raised the idea of issuing French treasury bonds, Ribot concurred. Ribot feared that Morgans would prefer British bonds to French, and that if France did not actively participate, the proportion of British securities would be much greater than French in the projected $250 million offering.85 Whether or not this plan eventually matured was probably immaterial to Ribot. Publication of the Zimmermann telegram had influenced congressional opinion considerably.86 A more bellicose attitude in Congress was readily apparent. Casenave’s regular talks with Harding and McAdoo were a welcome sign of changing administration priorities. In these circumstances, alternatives to short-term treasury bonds were plausible. It was the improved political climate for the allies that prompted Morgans to reopen discussions with the French on a collateral operation. Some of the animosity that had characterized dealings between Ribot and Morgans dissipated early in 1917. A January 1917 advance from the firm had helped tide Ribot over at a difficult moment. The removal of Homberg from a direct part in discussions excised one source of antagonism, and Davison’s reduced activity within the firm curtailed another. Davison was on vacation for much of the earlier part of the year and was replaced by Lamont, a more diplomatic figure. Lamont and Frédéric-Bloch negotiated the $100 million syndicate issue for France that appeared in late March.87 On the eve of the American declaration of war, it was Ribot, not Bonar Law, who was in a relatively comfortable financial position. For the British, these were difficult months.88 Late in January 1917 a $250 million British government loan led by Morgans, and backed by collateral, temporarily buttressed British finances in the United States and provided a much-needed fillip to the stature of Morgans in Treasury and Bank of England circles. Chalmers, Cunliffe, and others who had been harshly critical of Morgans were forced to acknowledge that the firm had not lost its touch. There were, however, lingering effects from the events of December 1916. Pressure from the Foreign Office and a belief that Davison had mishandled affairs led to the dispatch of Lever to the United States. Lever’s mission had several objectives. The Treasury hoped he would discourage interlopers, particularly Sir Richard Crawford, the commercial attaché in Washington, who was being pushed by Balfour, the foreign secretary, as the logical

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negotiator. Winning the bureaucratic struggle for control of external finance, the Treasury did not now want to see a resurgence of Foreign Office authority. The Lever mission was also a tacit acknowledgment that Homberg’s 1915 recommendation for British and French financial representatives to oversee Morgans had been correct. By the time Lever arrived in February, Crawford had already established himself as an important conduit to McAdoo and Harding. Crawford had made his mark by smoothing passage of the January collateral loan with McAdoo and Harding. It was through Crawford’s efforts that a plan to issue $250 million in exchequer bonds received the backing of McAdoo, Harding, and Wilson. Keynes, while characterizing the scheme as “not brilliant,” thought it was “quite supportable.”89 Its attraction was evident, as Keynes was forecasting that British resources in the United States would only last another four weeks. Lever discovered that Crawford was able to make headway not only because of the shift in administration attitudes and his own competence, but also because he was not associated with Morgans. The hostile personal relations between Davison and McAdoo had coloured dealings between the two. Davison’s blunt approach alienated other important figures. Crawford told Frédéric-Bloch following a meeting between Harding and Davison that the latter spoke to Harding “like Napoleon spoke to his marshals.”90 Despite Lever’s presence and Crawford’s diligent work in Washington, the Treasury was unable to issue any loan after the January collateral operation. The American break in diplomatic relations with Germany unnerved the financial markets. From the middle of March 1917 onwards, McAdoo scotched any loan on the grounds that it might compete with his own efforts to raise money. Throughout the spring of 1917, it was advances from Morgans that kept the Treasury in funds. On 19 February 1917 the demand loan stood at $170 million, on 3 April it was $358 million, and it reached a peak of $437 million on 26 April 1917.91 Without the money provided by Morgans, the Treasury could not have met its obligations in the United States. This much was clear from the forecasts made by Keynes indicating the Treasury was in imminent danger of running out of money.92 Dependency on the Morgans demand loan was a double-edged sword, for it meant that the firm’s say in financial operations was augmented. The resurrection of the treasury bill scheme at the end of February 1917 is an example. The Morgans partners dismissed Crawford’s suggestion for a $250 million exchequer bond operation as impractical, a position which Lever accepted. In its place, Davison returned to the ill-fated plan of short-term bills.93 The reaction in London was not positive. The London Exchange Committee was displeased with

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the reappearance of this idea and recommended that, if adopted, it should be only a temporary expedient. A “really big loan” was the only sensible course, though the committee recognized that this would need the cooperation of the American government. Chalmers was very critical, believing that Lever had “capitulated.” He charged that Morgans was against the Crawford plan “for fear of losing their financial control over us.” The solution was “to press the straight loan diplomatically (without Davison) on the President forthwith.”94 Chalmers was correct: Lever had changed his mind. Earlier, Lever had cabled Bonar Law that Morgans was hinting at a treasury bill plan again, but he hastened to assure the chancellor: “I shall give this project no encouragement.” Bonar Law reluctantly acquiesced in the new treasury bill plan. The alternative suggested by Chalmers and the London Exchange Committee – a diplomatic offensive to produce American government assistance – was unrealizable. Ultimately, the treasury bill plan came to naught because of the desire of Harding and McAdoo to avoid competition with their own offerings.95 Although the Treasury was rescued from a scheme it intensely disliked, no assistance from the Wilson administration was forthcoming. In the interim, the demand loan on Morgans, shipments of gold, and, in desperation, the sale of securities under Scheme b filled the void. By early April, the Treasury was so pressed that it turned to Ribot for funds, borrowing $25 million from the recent French loan to prop up its position in New York.96 As Bonar Law told the Imperial War Cabinet on 3 April, the American entry into the war would relieve what had become an untenable situation. Of what importance were these developments? Niall Ferguson has recently argued: “It is often assumed that foreign lending made a decisive difference to the outcome of the First World War. This is partly because of the histrionics which surrounded British financial negotiations with the United States, especially in the period between November 1916 and April 1917, which may have led some writers to exaggerate the economic importance of American money to the Allied war effort.”97 As his endnotes make clear, Ferguson is referring to the work of Kathleen Burk. But Burk does not argue that foreign lending made a “decisive difference to the outcome of the First World War.” Instead, she suggests that “without American production and financial aid Britain would have been simply unable, after April 1917, to continue fighting on the scale to which it had become accustomed.”98 This is a reasonable assessment. Britain would undoubtedly have been able to keep its own war effort going if the United States had not entered the war in April 1917. In this sense, Ferguson is accurate. However, this is to ignore Britain’s allies. France could not have

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continued the war without ongoing British subsidies for American purchasing, and beyond France there were other allies that were even more impoverished. The loss of France would indeed have meant the loss of the war. Britain sustained France after August 1916. Could it have done so indefinitely? The evidence suggests that this would have been beyond Britain’s means.

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chapter eight

A New World

In mid-April 1917 Hankey submitted a general review of the war to the Cabinet. He commented: “The financial situation is so much alleviated by the entry of the United States as to call for no remarks.”1 Months later, in February 1918, an internal Treasury memorandum noted that finance came behind shipping, food supply, and blockading the enemy as a priority.2 American belligerency removed finance as a pressing question in Britain and France for the rest of the war, a testament to the importance of American lending. The delicate matter of raising money at home without affronting war-weary populations remained. As well, financial arrangements had to be made with the United States. These proved considerably more difficult than British or French policy makers had anticipated, and were the subject of arduous negotiations.3 But these tasks were complementary to the war effort and did not imperil it. There was never any serious apprehension after April 1917 that the money might run out. Consequently, there was a conservative cast to British and French financial policy in the last year and a half of the war. Domestic initiatives were few. Much of the animus that had characterized dealings between Britain and France dissipated as the focus shifted towards the United States. Two days before Hankey wrote, the French army had begun the Nivelle offensive. Persuaded by Nivelle’s arguments that success was assured, and cognisant that Lloyd George supported him, Ribot and Paul Painlevé, the minister of war, reluctantly agreed to let the offensive proceed, despite their belief that with the United States now in the war, the moment was inopportune to proceed rashly.4 Nivelle’s optimism was misplaced. After nearly a month of sanguinary fighting, the offensive was halted on 15 May; Nivelle was sacked and replaced by Philippe Pétain, the hero of Verdun, but not before the advent of widespread disaffection in the French army. The first signs of disobedience

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had occurred on 17 April and quickly spread, reaching a peak in May and June. Of the 110 French divisions on the Western Front, some 68 reported disciplinary problems. The mutinies were the most dramatic indication of the difficulties France faced in the spring and early summer of 1917. Public opinion was uncertain, and the prefects had been cataloguing the war-weariness apparent since late 1916. Reports forwarded to Louis Malvy, the minister of the interior, in June 1917 suggested that, in the cities, morale was mediocre to poor in more than half of all départements. While few in France were defeatist, or indeed willing to settle for less than the return of Alsace-Lorraine, the sentiment was worrying. Renewed class militancy was evident in the strikes that blossomed in May and June. Although the labour unrest was localized and never threatened essential war industries, its existence testified that the long labour peace had frayed. Political life revealed that the days of the Union Sacrée were past. Critics of the Ribot ministry, angered by the failures of the Nivelle offensive, challenged the government in the Senate Commission on the Army. Clemenceau employed his position within the commission to grill Ribot and Painlevé mercilessly in June and July.5 Not satisfied with challenging the government’s handling of military matters, Clemenceau soon exploited the connection between military setbacks and domestic unrest, aided by the propagandists of the Action française. Malvy fell under suspicion for his alleged slowness in dealing with defeatism; the result was a clamour for his resignation. The scandal surrounding the small left-wing journal Bonnet rouge, which was known to be receiving German subsidies (and whose editor, Almereyda, was arrested, and subsequently committed suicide in prison), doomed Malvy, who was forced from office in August 1917. He was not the only target; Caillaux was widely suspected of treasonous activities by the right. Sheltered by his influence among the Radicals, Caillaux remained the most likely candidate for the premiership if France accepted a negotiated peace. The latter possibility, though anathema to most ministers, including Ribot, could not be excluded in the event that public support for the war crumbled. There was thus every reason for a cautious policy towards finance, especially now that the dollar problem had disappeared. With the home front unsettled, Joseph Thierry, Ribot’s successor as minister of finance, proceeded to complete earlier initiatives. Thierry had trained as a lawyer, and in Marseilles had specialized in commercial and financial matters. His political career had begun in 1898 with his election as a deputy. Once in the Chamber, his background and interest in economic matters had stamped him as the rare Third Republic politician

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who was qualified to deal with financial and commercial questions. In 1913 he entered the Cabinet as minister of public works, and from July 1915 to December 1916 he occupied the position of undersecretary of state for purchasing in the Ministry of War. Thierry’s tenure as minister of finance was brief, lasting only until the fall of the Ribot government in September 1917.6 Nonetheless, Thierry managed several notable achievements. It was he who, on 31 July 1917, shepherded through the Chamber the tax program foreseen before the war by Caillaux. The Budget Committee had long since been converted to the belief that France needed a rational system of income tax, and the Senate now abandoned its longstanding opposition to the tax, assisted by Ribot’s advocacy of the step. There was no better signal of the change that the war had wrought than the Senate falling meekly into line with a measure that it had so steadfastly opposed before the war. The result was the establishment of a comprehensive schedule income tax system for France that was to be the backbone of the French taxation system between the wars. Thierry deserves credit as well for the introduction of a luxury tax, a measure that was introduced under his successor, Klotz, but was drafted by Thierry. This tax was widely popular, capitalizing on public resentment towards those who were seen to be profiting from the war and were spending their gains lavishly. Although these measures represented real accomplishments, they failed to cover the yawning divide between government expenditures and revenues. Thierry had no more success than Ribot in checking expenditures. His clashes with Thomas indicated anew that spending control remained illusory. In early April 1917 Thierry lodged a protest with Thomas, noting that the Ministry of Armaments had ordered shells in Portugal, Mills grenades in Britain, and a thousand PierceArrow trucks in the United States without authorization. The total came to Fr 135 million.7 As spending restrictions were out of the question, a serious attempt to address the deficit meant bolstering revenues through the introduction of more comprehensive taxes, coupled with a substantial jump in the rates. This possibility was deemed politically unacceptable in light of the French situation in the spring and summer of 1917. If such an effort could not have been undertaken during the days of patriotism in 1914–15, it was hardly to be implemented in the fatigued France of 1917. Tacit recognition of this reality was provided by the much greater propaganda effort that was orchestrated to convince French citizens to purchase the 1917 rentes. Not only were significantly larger sums devoted to publicizing the offering, but a major campaign promoting the loan was undertaken by the Ministry of the Interior in cooperation with the Ministry of Finance.8 It is thus no

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surprise that following the collapse of the Ribot ministry in September 1917 and the brief Painlevé government, Clemenceau’s administration pursued an uneventful course in French domestic finances. Clemenceau’s government was dominated by him. While Lloyd George had Bonar Law, Clemenceau had no ministerial colleague whose views were similarly influential.9 Having made his ministry on the power of the Senate Commission on the Army and the secret sessions, Clemenceau moved swiftly to curtail the latter, recognizing the danger they posed to his authority. He believed that national unity was a necessity if the war was to be won. National unity was distinct from the political unity represented by the Union Sacrée (which had died with the formal withdrawal of the Socialist deputies). Victory rested on the willingness of the French to continue to contribute blood, not money, to the war effort. The unrest of 1917 needed to be quelled so that the national purpose could be regained. One of the driving forces behind the labour unrest had been unhappiness over wage levels, a situation that was addressed through wage increases which the government prodded industry to offer. The cost of boosting wages was a further spur to inflation, but this was immaterial, for, as Watson has remarked, “Clemenceau had little understanding of financial matters, and, in any case, his priorities were abundantly clear. He was not the man to let financial considerations stand in the way of all-out prosecution of the war effort.” 10 Clemenceau’s choice of Klotz as minister of finance conformed to this: Klotz was regarded by many, including Clemenceau, as a mediocrity.11 Under Klotz, government finance relied heavily on short-term instruments for the provision of funds in 1917–18. Pressure was placed on the Bank of France to furnish the state with advances (see table 13). To make these advances, the Bank of France issued notes and there was a corresponding rise in the note circulation, a development that fed inflationary pressures. Neither Pallain nor the regents of the bank were happy about this policy. It increased the bank’s exposure to the state while at the same time dramatically reducing the couverture – the ratio of the gold reserve to the note circulation. As a healthy ratio was regarded as fundamental for currency stability, it was with dismay that the directors of the bank regarded the widening gap between notes outstanding and the size of the reserve. Compliance, however, was a foregone conclusion. The directors of the bank, while they might bemoan the direction of fiscal policy, were not going to stand in the way of steps that were deemed essential to the war effort. Klotz had a powerful weapon to ensure that any hesitations on the part of the bank would be short-lived. The bank’s charter was due for renewal in 1918, and worries that it might not be renewed, or that the

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Table 13 Bank of France Advances to the Ministry of Finance and Notes in Circulation, 1914–1918 (millions of francs, end of month) Advances

Notes in circulation

December 1914

3,900

10,043

December 1915

5,000

13,310

December 1916

7,400

16,677

December 1917

12,500

22,337

December 1918

17,150

30,250

Source: Haig, Public Finances of Post-War France, 206–7

government would demand sweeping concessions, haunted Pallain. His powers of resistance, and those of the Conseil général, were accordingly sapped. There was thus less internal dissension than might have been expected. Compliance did have its rewards: by the law of 20 December 1918 the Bank of France’s privileges were renewed. Supplementing advances from the bank was a greater use of national defence bonds. It was a policy designed for the short term, with little thought given to the long-term effects. Once victory was attained, the hard questions of how it was to be paid for could be addressed. British politics and society were less roiled than French ones in 1917–18. Lloyd George’s government found its footing at length, despite attacks from Asquithian Liberals, as well as grumbling from some Conservatives about the government’s policies, and despite Lloyd George’s running feud with the generals. The most dangerous incident the government faced was the Maurice debate in May 1918, when Major General Frederick Maurice, the former director of military operations, threatened to unite the ministry’s critics with his charges that the government had starved Haig’s army of the manpower it required. Maurice’s accusations drew sustenance from the successes enjoyed by the German spring offensive, which had begun in March. Lloyd George and Bonar Law, however, were up to the challenge, disposing of Maurice’s indictment in the House of Commons debate of 9 May 1918. The outcome left the Lloyd George coalition firmly in control of politics, because the only possible alternative prime minister, Asquith, was discredited by the affair.12 The Maurice affair hardly compared with the upheaval in French politics in 1917. Similarly, while there was a wave of strikes in Britain in 1917 and into 1918, which demonstrated that the war was taking its toll, the government dealt with these distur-

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bances with a mixture of repression and concessions, attacking where possible the leaders of the strikes rather than the rank and file. The mass of the British working class remained firmly committed to the war. Evidence of wavering among other groups in British society was scarce.13 British domestic finance after April 1917 exhibits the same cautiousness as French finance, reflecting both the strain on public finances and the need to avoid damaging civilian morale. The third war loan, issued early in 1917, was the last long-term borrowing during the war. To pay for the war, the Treasury under Bonar Law opted to rely on treasury bills, exchequer bonds (later replaced by national war bonds, introduced in September 1917), and Ways and Means advances. The methods adopted to prompt new subscriptions were imaginative, ranging from a Tank Week, in Leicester, which garnered more than £1 million, to transforming Trafalgar Square into a replica of a ruined French village; but the underlying emphasis on short-term borrowing remained constant.14 The American entry into the war allowed for a gradual easing of interest rates, making it more attractive to offer short- and medium-term instruments. Recourse to these methods was not without its dangers; by the end of the 1918–19 financial year, the floating short-term debt, consisting of treasury bills outstanding and Ways and Means advances, had reached the figure of £1,412 million.15 Tax revenue furnished the government with the remainder of its funds. By 1917 the burden of taxation had become increasingly heavy in Britain. Taxation rates had not only been boosted significantly but the income at which taxation applied had been lowered, ensuring that many more people moved onto the tax rolls. Consequently, the government was faced with the challenge of ensuring that the taxation system was perceived as equitable, in order to minimize tax evasion and, more dangerously, disaffection. From the left, Labour members of parliament argued that the working classes were bearing a disproportionate share of paying for the war and that the appropriate solution was the introduction of a capital levy rather than a further extension of income tax.16 The South Wales miners, many of whom refused to pay the tax in 1917, provided evidence that a militant mood existed among the working classes. Although the German advance in the spring of 1918 fuelled a fresh surge of patriotism that dampened opposition to the income tax, the underlying discontent remained. 17 Resistance to further taxation was evident among Unionists. The excess profits duty, which was raised to a level of 80 per cent in the 1917 budget, remained at this figure in the 1918 budget. In his April 1918 parliamentary address presenting the budget, Bonar Law argued for a taxation policy that extracted as much as possible without undermining

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the financial strength of the nation. He suggested that it was imperative to avoid crippling industry by imposing punitive taxation that would sop up the capital it required. Taxation must be equitable, with no one class bearing undue hardship. Bonar Law rejected taxing farmers or increasing the excess profits duty and instead opted for minor alterations to the rates of existing taxes. The income tax was boosted from five to six shillings in the pound, while the super tax moved up from 3s 6d to 4s 6d, with the level at which it was collected dropping from incomes of £3,000 to those of £2,500. The one new tax that was introduced was a luxury tax modelled on the French example.18 Bonar Law justified his policy in part by referring to how overworked the Inland Revenue staff were, a factor which he said forced a concentration “on the sources from which large revenue is derived,” thus avoiding new taxation, say, on farmers.19 This explanation did not mollify his Liberal critics, many of whom assailed the budget as insufficiently bold. Privately, Bonar Law had come round to the view that taxation was heavy enough, and the fact that important Tory constituencies – farmers and industrialists – were generally opposed to fresh taxation only confirmed his view. Here he was clearly thinking of the postwar world. By this stage of the war, Bonar Law was near to exhaustion, strained as he was in his various capacities as house leader, chancellor of the exchequer, head of the Unionist Party, and member of the War Cabinet – a set of duties which contemporaries recognized as a nearly crippling burden.20 An anodyne budget that would see the country through the war with a minimum of further disruption was one he was mentally and physically prepared to table. As for the idea of a capital levy, the Treasury was adamantly opposed, believing that it would be counterproductive. Any means of realizing funds for such a levy had serious disadvantages, ranging from a sharp reduction in capital values on the London market, to reducing the amount of money that could be obtained through conventional borrowing, to the risk of a loss of confidence in the United States.21 There was little deviation from the course laid down in finance by McKenna, but the long-running dispute between the Treasury and the Bank of England for control of financial policy came to a head under Bonar Law. Throughout 1917 and 1918 there was recurrent tension between the two over the cost of money. The Treasury, mindful of the substantial floating debt, favoured a policy of cheap money with lower interest rates. The bank, fearing the effects on the exchange and the gold standard of such a policy, continued to insist that dearer money was the appropriate course.22 But this division, while real, was not the source of the conflict that occurred in the summer of 1917, which was almost entirely the product of Cunliffe’s actions.

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The clash between Cunliffe and Bonar Law has drawn the attention of historians.23 The occasion was a dispute over payments to Morgans from the British gold reserve in Ottawa. Lever had been granted authority to dispense this reserve as required. Early in July 1917 Morgans requested repayment of a loan that was coming due. Cunliffe, without informing the Committee of Treasury of the Bank of England, authorized the repayment of this loan through the discharge of £17.5 million in gold. He then issued instructions that no further payments were to be made, thus subverting Lever’s authority and, in Bonar Law’s opinion, discrediting the Treasury. As various commentators have observed, this episode was symptomatic of Cunliffe’s belief that the Treasury, specifically Keynes and Chalmers, was systematically attacking his authority. In a private letter to Lloyd George on 3 July, Cunliffe made his views explicit, charging that Keynes and Chalmers had overridden the London Exchange Committee, with soon to be disastrous results.24 Evidently, Cunliffe asked for the resignation of Chalmers, but he had miscalculated. Bonar Law was furious and Lloyd George was not prepared, despite his good personal relations with Cunliffe, to side with the governor. A series of meetings from 9 to 11 July made it clear that Cunliffe must issue a retraction, though he was not forced to resign, as Bonar Law apparently wished him to do. Cokayne drafted the apology in consultation with the Treasury while Cunliffe was dispatched on vacation to Scotland. Upon his return, Cunliffe signed the apology; Stanley Baldwin, the financial secretary to the Treasury, was placed on the London Exchange Committee as its chair, and it was apparent that the Treasury had triumphed. The long struggle between the bank and the Treasury was over, though relations continued to be poor. In December 1917 Chalmers asked Norman whether the bank was prepared to surrender its war profits as had been mooted inside the bank. A startled Norman asked how Chalmers was even aware of the proposal, to which Chalmers replied: “Someone tells a bit of the truth to the Chancellor, a bit to Bradbury and a bit to someone else, and we put the bits together.”25 Cunliffe’s attack on the Treasury gave rise to concerns within the Bank of England about his fitness to continue as governor. His autocratic, independent approach to policy matters had been an irritant for some time to the Committee of Treasury. A number of the directors, among them Norman and Revelstoke, were alarmed at Cunliffe’s waywardness. Cunliffe had already overstayed the traditional two-year term for a governor. In the wake of the clash with Bonar Law, the issue of the governance of the Bank was revisited. A committee headed by Revelstoke was charged with reporting on the matter. The Revelstoke

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report, accepted by the Court of Directors in February 1918, reaffirmed the principle of rotation. The Committee of Treasury had in the interim decided that Cunliffe should be succeeded as governor by Cokayne in April 1918, with Norman becoming deputy governor.26 Throughout this period Cunliffe oscillated between expressions of willingness to retire and professions that only he could lead the bank through the war.27 Norman grew progressively more disenchanted. By the time of Cunliffe’s farewell speech as governor in March 1918, Norman was describing Cunliffe as a “dangerous and insane colleague” who had delivered a “bum-sucking” appeal to the press in the hopes of swelling his reputation.28 Cunliffe’s departure, protracted though it was, did ease the coolness that existed between the Treasury and the Bank of England. Internal quarrels notwithstanding, British financial worries continued to be driven by fears about the external situation. In framing his 1918 budget, Bonar Law was acutely aware that Britain continued to advance money to its allies for their American purchases. Reading, who had been in the United States since February 1918 to oversee the embassy and the British War Mission, received telegrams in late March 1918 and again in April 1918 stressing the urgency of altering the arrangement of allied advances. Bonar Law told Reading: “My budget is imminent. If I could announce on this occasion that the division of financial assistance to France and Italy between ourselves and the United States is to be henceforward on a new basis the political and financial effect here would be exceedingly favourable and I believe the whole world would applaud the justice and wisdom of Mr. MacAdoo’s decision.”29 Little came of this plea; and here in capsule was the British and French dilemma after April 1917 in external finance. For all its flaws before April 1917, France and Britain had cobbled together a set of arrangements that governed allied finance. With the United States a co-belligerent, the structure of Anglo-French financial relations required modification. Complicating matters was the necessity of framing British and French policy in light of American desires. The history of allied finances after April 1917 was thus the attempt, and failure, to arrive at solutions that were agreeable to all three parties. For some time before the United States’ entry into the war, British and French observers had been forwarding assessments of the benefits that American belligerency would bring. It was generally agreed that while actual military assistance, in the form of troops on the Western Front, would not be immediately forthcoming, American intervention would make a dramatic difference in the financial realm. A cable to Ribot on 9 March emphasized that “the financial terrain” was the only

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area in which the United States was prepared for war. 30 Not all were so sanguine; Frédéric-Bloch warned in early March that the Wilson administration had no financial plan in the event of war and that the possibility of the government reserving American capital markets for its own uses in wartime could not be discounted. After all, the Americans had the British example before them; the London capital markets had largely been closed to France. Pallain told Thierry on 12 April 1917 that American belligerency removed the need to ship gold and, moreover, should allow the minister of finance to be “less parsimonious” in the credits he was providing the Bank of France for exchange purposes.31 Lever cabled Bonar Law on 29 March that no financial aid from the American government could be expected for three to four weeks, a forecast that caused consternation in the Treasury.32 Independently, the French and the British scrambled to ensure that they would receive their rightful share of American largesse. Jusserand, with Ribot’s complicity, actively solicited a “gift” from the United States, urging that a press campaign playing on American sentiment for France be instituted. With the help of Frank Cobb of the New York World, Jusserand thought that Fr 1 billion might be obtained. Ribot, though in favour of this scheme, had his sights set higher. Fr 1 billion, he told Jusserand, was not enough. He instructed Jusserand to explore the possibility of future French loans being floated at greatly reduced, or interest-free, rates.33 Promises by McAdoo that France would immediately receive $1 billion were taken at face value by Jusserand and reported faithfully to Ribot. Frédéric-Bloch’s more realistic assessment that neither McAdoo nor Harding could be relied upon was ignored.34 Equally lofty were British expectations. Treasury officials hoped that large sums would be earmarked for British needs. Lever told Harding on 10 April that Britain required $500 million initially and estimated that the same amount would be necessary in thirty days and again in sixty. The Treasury suggested that paying off the British overdraft on Morgans was the best place for the American government to begin in terms of extending financial aid to the allies.35 McAdoo, whose dealings with the bank had been testy, was loath to advance funds that would go immediately to a Republican bank that had in the past opposed the Wilson administration. The provision of $200 million by the U.S. Treasury to the British on 26 April was made with the understanding that Morgans’ financial role would cease. Instead of receiving liberal assistance, monies were doled out, in the allied view, sparingly. In July 1917 sterling came under increasing pressure, so much so that Keynes believed that if additional funds were not secured soon, support for the exchange would have to be abandoned in order to preserve what remained of the gold reserve of the Bank of England. Only

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sustained prodding by the British convinced McAdoo and his advisers that allowing sterling to break was an unwise course.36 As of July 1917, the Treasury had received $585 million in loans, while the Ministry of Finance had been granted $210 million.37 These sums were well below what had been anticipated and reflected the clear intent of the Wilson administration to keep the reins of financial control in its own hands. The Americans found themselves in a difficult situation in the summer of 1917. McAdoo recognized that funds had to be allotted to the allies not only for purchases but also for exchange support. But the U.S. Treasury was unprepared for war, lacked the organization to supervise purchasing in the United States, and was uncertain how to balance its needs against those of the allies. The purchasing issue was pressing for two reasons. First, the U.S. Treasury refused to countenance the continuation of a situation in which J.P. Morgan & Co. handled allied buying in the United States; yet in April 1917 only J.P. Morgan & Co. possessed an effective organization for coordinating purchasing. Secondly, with the United States now in the war, the American government began to order heavily, increasing the strain on American manufacturers and running the risk of price gouging by the contractors. The U.S. Treasury wanted to rationalize allied buying as much as possible to avoid overpaying and wastage. Linked to this, it was important on the domestic political scene to demonstrate that the war effort was being handled in an efficient manner and that taxpayers’ money was not being frittered away. J.P. Morgan & Co. was not oblivious of the circumstances. The partners were well aware that their relations with the Wilson administration were cool, and while they offered their existing organization to the government when America entered the war, the offer was refused. Thereafter it was only a matter of time until J.P. Morgan & Co. withdrew formally, a step that the partners took at the end of May 1917. To replace Morgans, McAdoo advanced the idea of an inter-allied commission sitting in the United States that would coordinate purchasing arrangements and would undertake to notify the U.S. Treasury of the amounts involved. Complementary to this would be an inter-allied body sitting in either Paris or London that would identify allied purchasing needs and the availability of shipping.38 In Britain, the Treasury, Admiralty, and Ministry of Shipping were opposed to this scheme, fearing the loss of authority it involved. The Treasury and the Ministry of Shipping managed to secure modifications to McAdoo’s plan, and by wielding the threat that further credits would not be forthcoming if Britain did not sign, McAdoo wrested agreement from Britain in August 1917.39

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The eventual result was the establishment of the Inter-Allied Council, headquartered in Paris and London. Initially its mandate encompassed only purchasing, though the U.S. Treasury advocated its extension to finance against British Treasury opposition. The Treasury feared this for several reasons. There were practical obstacles because new orders could not be equated with allied needs, for this overlooked contracts previously placed. Secondly, the arrangement would give McAdoo far too much power. Thirdly, it would remove the ability of the chancellor of the exchequer to intercede directly with McAdoo. Finally, it threatened to open British needs to the whims of other delegates.40 In short, the real objection to the idea was that control and power of British finances might pass to others. Throughout the fall of 1917 the Treasury remained opposed to extending the mandate of the Inter-Allied Council, but at length, in December 1917, it was forced to give way as a result of renewed American pressure. Oscar T. Crosby, formerly assistant secretary in the U.S. Treasury, became the president of the Inter-Allied Council on War Purchases and Finance, with headquarters in London and Paris. Despite the fears of the Treasury, the Inter-Allied Council on War Purchases and Finance was a broken reed. Although nominally the locus of inter-allied cooperation, in fact it possessed little real power. Its bylaws made this plain. The U.S. Government reserved the right to determine the order of priority in the event of competing demands between the allies and the United States. Even more crippling, the council possessed no independent authority; it could make recommendations about purchasing matters and financial affairs, but the recommendations were not binding on any government that participated.41 Assessing the functioning of the council after the war, McFadyen was scathing, labelling its value in financial affairs as “chiefly psychological.” In purchasing, he observed, “the Council may be said to have succeeded by failing. The Council’s task, as originally conceived, was grandiose and quite unworkable: could it have been accomplished the Council would have controlled and organised the war to a standstill.” 42 This verdict, while harsh, was borne out by the later fate of the Inter-Allied Council, which appeared to be the logical vehicle for economic and financial reconstruction in the postwar period. Instead, in December 1918 it was agreed to let the council slip quietly into the night, not actually disbanding it but suspending its meetings.43 The brief, unsuccessful existence of the Inter-Allied Council demonstrated that insofar as relations with the United States were concerned, those that mattered were those between governments, not through an ill-defined international body. Nevertheless, the United

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States’ participation in the war did have an effect on Anglo-French financial relations after April 1917. Late in March 1917 the Calais agreement, which was due to expire, was extended for one month. The £25 million a month which Britain furnished France under this agreement was largely devoted to supporting French purchases in the United States. The Treasury was anxious to relieve itself of this obligation, hoping that the Americans would take over the task of providing dollars to the French and the other allies. When negotiations began to extend the Calais agreement – for, clearly, some temporary arrangement was necessary until the extent of American assistance was formalized – the Treasury, short of funds and worried about the pressure on the sterling-dollar exchange rate, demanded concessions. France was asked to assume responsibility for payments in dollars in Britain for American products; to cease purchasing dollars in London or New York with sterling; and to reimburse the British government in dollars for purchases of certain categories of goods, notably steel and iron. Thierry did have some dollar assets at his disposal – the remaining proceeds of the afsc loan and the $200 million that had been granted by the American Treasury to meet French expenses in the United States for May and June – but these were insufficient to meet British demands and pay for all French purchases. Shipping gold was not an option, for the Bank of France continued to be unwilling to part with any more of its reserve; and neither the sale of securities nor buying francs was practical. Given this, it was necessary for the Treasury to continue supporting France for some time, a situation recognized by the accord reached on 29 May 1917. The 29 May accord modified the Calais agreement in several ways. The Treasury undertook to advance France £14 million to meet French expenses in Britain, through the discount of French treasury bills. As before, the French were to open all the credits necessary to provide for the expenses of the British Expeditionary Force in France. New, however, were articles 4 and 5. Article 4 stipulated that France was to meet all of its own dollar expenditures in North America independent of the Treasury, thus relieving the Treasury of the burden of dollar support for France. France, of course, would obtain the dollars from the U.S. Treasury. Article 5 extended this stipulation further, requiring France to reimburse the British Treasury in New York with dollars for all expenses incurred on French government account in Canada and the British Empire. The 29 May accord had a lifetime of one month, at the end of which it proved necessary to reach yet another agreement, signed on 28 June 1917. The June arrangement followed the May accord, though the subsidy to France for payments in Britain was raised to the total of £32 million for the two months of July

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and August. Elsewhere, the June agreement indicated more clearly the mechanics of cash transfers from the French financial agent in New York to the British Treasury.44 The May and June accords delineated a world in which formal Anglo-French financial arrangements were increasingly unnecessary. France had already stopped shipping gold to Britain; the last such transfer occurred on 23 May 1917. The accords also marked a departure in another way – an effort was made by the British government to restrict French imports from Britain. This took two forms. The 29 May agreement called for the French government to exercise greater supervision over British exports to France, with the aim of reducing the French balance of trade deficit. Shipping expenses, as well as coal, were explicitly excluded. The other measure taken brought French purchasing in Britain under the authority of the cir in August 1917.45 From the British perspective, the objective was clear. Lower French imports would allow for a reduction of subsidies to France, thus alleviating the strain on the Treasury. The evidence is mixed as to whether this effort was successful. Certainly, figures compiled by the Treasury suggest that over time these policies had an effect. Although the total of French treasury bills discounted in London peaked in December 1917 at more than £23.6 million, thereafter the figure fell dramatically, averaging £10.73 million from January through September 1918. In October 1918 only £2.1 million of French treasury bills were discounted.46 On the other hand, the French trade deficit with Britain in 1918 was nearly that of 1917 despite the ending of the war in November. At best, British pressure on France to reduce imports resulted in a slowing of the growth of the deficit, rather than its absolute reduction. The explanation for the overall drop in British subsidies to France was that French finances improved vis-à-vis the United States. As the American military commitment to the war grew and as the number of American troops in France burgeoned, the French financial situation benefited correspondingly. The French undertook to provide the American Expeditionary Force with francs for all its needs, thus garnering substantial amounts of dollars. The larger American military presence in France had two interesting consequences. First, American financial assistance to France was larger in 1917 than in 1918, reflecting the shipment of hundreds of thousands of American troops to France. Second, the franc strengthened on the exchanges, rising further with favourable military news after June 1918. With increased dollars at its disposal, the Ministry of Finance and the Bank of France were able to reduce their sterling requirements. Some purchases that had formerly been made with sterling credits were now paid for on the open market with dollars; and the Bank of France found that it was

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able to dispense completely with selling sterling to private industry by August 1918.47 This was a fortunate development, for France had had considerably less success raising money in Britain to offset sterling credits. In November 1917 Klotz journeyed to London in an effort to persuade Bonar Law to allow the French rentes then in progress to be open to subscriptions on the London market. Bonar Law was reluctant to accommodate Klotz but gave way when it was pointed out by the latter that the failure to do so would create negative publicity, given that earlier long-term French loans had been permitted. Nonetheless, Bonar Law extracted a promise from Klotz that no campaign or publicity for the loan would be undertaken to increase subscriptions and that the proceeds would be devoted to reducing the credits Britain provided France.48 His attitude was entirely in keeping with Treasury policy throughout the war – the London capital market was to be controlled for British use. In this case, Bonar Law’s conditions had the desired effect, for the French war loan yielded the paltry total of slightly more than £1.7 million.49 The issue of French borrowing in London resurfaced a year later, in October 1918, when the French were pressing the Treasury to permit the 1918 rentes on the London market. Once again, Bonar Law was reluctant. Meeting with Klotz, he argued that recent public subscriptions to British obligations had been dropping and he feared that a French offering would result in an embarrassing lack of interest. At this juncture another issue intervened. The terms of the 25 April 1916 accord between the Bank of France and the Bank of England, which was designed to support the franc, stipulated that if the franc-sterling rate fell below 27 francs to the pound, the accord would be suspended. As the military situation improved in the summer of 1918, the franc strengthened, and late in September 1918 Cokayne informed the Bank of France that the accord was no longer operative and that the Bank of England was requesting that the Bank of France reimburse it when the French treasury bills which the Bank of England had discounted matured. The Bank of France, however, did not agree with this interpretation of the 25 April 1916 agreement. Moreover, it was not in a position to meet this demand. The two issues – the placement of the 1918 rentes and the disagreement over the April 1916 accord – were resolved through a compromise, under the terms of which Bonar Law permitted subscriptions to the rentes of £20 million, half of which would then be forwarded to the Bank of England to reduce the amounts owed by the Bank of France. This Solomonaic solution failed at the test, for despite the cooperation of the Treasury, the rentes attracted subscriptions of only £10,550,397, leaving the Treasury to advance France more than £14 million, because Bonar Law had guaranteed the £20 million to France.50

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By mid-October 1918, the war had less than a month to run, though those in charge of finances in Britain and France did not know this. Little thought had been devoted to imagining the postwar financial world – in marked contrast to economic issues, which had been aired on an inter-governmental basis on various occasions, most notably at the Paris inter-allied conference in 1916.51 One notable exception, however, occurred in the spring of 1917. During a visit to London that March, Ribot advanced a plan for greater financial collaboration between France and Britain. He envisaged the two powers opening reciprocal credits for purchases made in the French and British empires, and he proposed that these credits last into the postwar period, at least until the end of the first year after the war.52 In some ways, this was a financial version of the ideas of Ribot’s colleague Clémentel, who was urging greater inter-allied economic cooperation extending into the postwar period.53 Perhaps surprisingly, the Treasury did not reject Ribot’s proposal out of hand. Keynes, who had been assigned by Bonar Law to comment on it, felt the idea had some merit. Keynes was particularly attracted by the prospect of credits in France to offset those that Britain was providing. But he wanted the scheme to apply exclusively to the metropolitans and not to the wider empires, and he also recommended that it be restricted to the duration of the war. Discussion of the proposal proceeded no further, overtaken by the preoccupation in both Paris and London with the United States’ entry into the war.54 The principal reason why there was so little discussion of the postwar financial order was that it was assumed in Britain and France that after the war the gold standard would be resurrected in its prewar form. When questioned in July 1918 about postwar Bank of France policy, Pallain defined a “normal monetary situation” as including the discharge by the state of its temporary borrowings from the bank and the resumption of specie payments. Likewise, a Bank of England committee headed by Cokayne reported in 1918 that the “principal aim which we have kept before us is the complete re-establishment as soon as possible of our free market for gold.”55 It was the Committee on Currency and Foreign Exchanges, usually known as the Cunliffe Committee, that issued the defining exposition of this doctrine in its first interim report in August 1918. After urging that an effective gold standard be reestablished as soon as possible after the war, the committee furnished these reasons: After the war our gold holdings will no longer be protected by the submarine danger, and it will not be possible indefinitely to continue to support the exchanges with foreign countries by borrowing abroad. Unless the machinery which long experience has shown to be the only effective remedy for an adverse

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balance of trade and an undue growth of credit is once more brought into play, there will be very grave danger of a credit expansion in this country and a foreign drain of gold which might jeopardise the convertibility of our note issue and the international trade position of the country. The uncertainty of the monetary situation will handicap our industry, our position as an international financial centre will suffer and our general commercial status in the eyes of the world will be lowered. We are glad to find that there was no difference of opinion among the witnesses who appeared before us as to the vital importance of these matters.56

This conviction in Britain and France assumed that international monetary cooperation in the postwar world would not be necessary. After all, the prewar gold standard had not relied on systematic collaboration between Britain and France for its functioning. As W.A. Brown, Jr, put it in a memorable phrase, the “idea of the normal” was unchallenged and the prewar classical gold standard was the normal. After years of war, the future was conceived of in terms of an independent past. In France, the Bank of France hoped that a golden franc would check price inflation, reduce the money supply, and reassure French citizens. In Britain, it was expected that a working gold standard would bring all that the Cunliffe Committee envisaged and, most importantly, would ensure that Britain remained the leading international financial centre. True, some things would be different – the Cunliffe Committee recommended that the Bank of England maintain a postwar gold reserve of £150 million, a sum that would have been inconceivable before 1914, but in its essentials the report was a call for a restoration of a vanished world. As it happened, the events of October and November 1918 caught the allies by surprise; having fought so long, they fully anticipated a campaign in 1919 and thus were provided with the opportunity of recreating the prewar world earlier than had been anticipated.

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Conclusion

At war’s end, France owed Britain £416,720,000.1 France in turn had lent Russia Fr 3,225,000,000, had provided monies to other allies, and expected to receive back the gold loaned to the Bank of England.2 And then there were the debts that Britain and France owed to the United States which, as American policy soon demonstrated, were expected to be repaid. The postwar years proved troubling for Britain and France. In March 1919 Britain was forced to abandon the gold standard formally, withdrawing support for the sterling-dollar exchange rate and imposing an embargo on the export of gold. The same month the franc-sterling rate was unpegged, with the result that the franc depreciated swiftly. So ended, at least temporarily, the hope of recreating the prewar international monetary system. The ongoing discussions at the Paris peace talks had already made it plain that Lloyd George and Clemenceau were divided on a range of issues, not least of which were economic ones.3 The peace that followed was a compromise, but it was a compromise that satisfied few at the time and even fewer as time passed. With the war won, British policy turned perceptibly towards its traditional concern for the balance of power. France was now seen as the most likely threat. British officials in the Treasury and the Bank of England should have known better. The years after 1916 had made it clear that France was in acute financial difficulties and was incapable of exercising its power abroad. This reality was demonstrated in the early 1920s when finance assumed a central role in international relations as a consequence of the French attempt to enforce the peace settlement through economic means, principally reparation. Goaded by German noncompliance, and obstructed by the British, the French occupied the Ruhr in 1923 in an effort to recoup something from the peace.

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The result was a devastating foreign policy reversal as the weakness of the franc forced the French to accept the Dawes Plan in 1924.4 Matters improved somewhat for France in the second half of the decade. After 1926 there was a remarkable recovery in French financial power, based on the gold reserves of the Bank of France and its burgeoning foreign exchange holdings. These allowed the Bank of France to play a central role in international finance and, for a short while, to reassert French strength internationally.5 Arguably, the strength of the franc and the faith in the gold reserve was misleading, for they contributed to French travails after the onset of the Great Depression in the early 1930s, when the currency came under increasing pressure and various French governments proved unwilling to countenance devaluation. The dénouement was the humiliating devaluation of 1936 and the abandonment of the gold standard. This was a road that Britain had earlier travelled. British policy makers were determined to return to gold, believing that only with a functioning gold standard could the international supremacy of the City be maintained. A triumphal return to gold was affected in 1925 with Churchill as chancellor, but the pound was fixed at too high a rate. The preoccupation with preserving the City exacted a toll; while it was certainly not the only factor at work, it contributed to the stubbornly high unemployment and sluggish economic growth that characterized the British economy in the 1920s. Regaining lost ground proved a chimera. As a consequence of the war, New York had emerged as a financial centre to rival London and was intent on expanding the gains it had made.6 This was a development that a restored gold standard could not efface, for it reflected permanent changes in the distribution of financial power. New York had not yet supplanted London fully, as it was to do so after 1945, but there was now a condominium in international finance, a jealously shared rule between the older centre and its younger challenger. If individually Britain and France found peacetime buffeting, their interaction after 1918 was bracing.7 The swift demise of the wartime alliance began soon after the armistice and was exacerbated by the resurfacing of wartime disputes over finance that extended into the 1920s. Disagreements arising from the gold shipped to London under the Calais agreements poisoned relations, filling the Treasury and the Ministry of Finance with volumes of files. But this, while real enough, was less consequential than the deep French resentment over the blunt pressure employed by Britain and a consortium of Anglo-American bankers, in which J.P. Morgan & Co. were prominent, to wrest agreement to the Dawes Plan from Paris in 1924. Central bank cooperation, though certainly more regular than in the prewar world, “seems on

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balance to have achieved little in the inter-war period.”8 Fresh quarrels soon erupted. The Bank of France’s growing strength in the second half of the 1920s placed it in a position to draw gold from the Bank of England, and the fear that it would do so deeply agitated British officials. Surveying the period, one scholar commented recently that for “most of the 1920s relations between the British and French Treasuries and between the Bank of England and the Bank of France were distinctly chilly.”9 The nadir was the 1931 sterling crisis. Perhaps unfairly, British officials partially blamed France for the disastrous events of the summer of 1931 that resulted in the fall of the Labour government in August and the abandonment of the gold standard by the new National government in September. Recalling the desperate days of 1916–17, it was J.P. Morgan & Co. to whom Philip Snowden, the Labour chancellor of the exchequer, turned in August 1931 in the hope of a loan to shore up sterling. Morgans’ reply, interpreted negatively by the Cabinet, brought about the government’s resignation and the departure from gold.10 There is more than an echo in these dismal events of the disputes of the war years. Yet it would be misleading to suggest that confrontation and disharmony were the sole legacy of the 1914–18 experience. On the eve of the Second World War and during the phony war, British and French policy makers drew lessons from the errors that had been made in the First World War. The incomplete and unsatisfactory nature of inter-allied finance from 1914 to 1918 was judged critically. Allied planners recognized that much closer and more formal cooperation was necessary to avoid squandering resources. The centrepiece of these efforts was the accord reached on 4 December 1939 between Paul Reynaud, the French minister of finance, and Sir John Simon, the chancellor of the exchequer. The Simon-Reynaud accord allowed Britain and France to make purchases in the sterling bloc and throughout the French empire without transfers of gold; instead, the official sterlingfranc exchange rate would be employed. This bore a certain resemblance to the scheme suggested by Ribot to Keynes in March 1917. But the Simon-Reynaud accords went much further: the two men agreed to share equitably those expenses incurred in dollars and gold necessary for the prosecution of the conflict; and expenses defined as communal, such as loans to neutrals, were to be divided on a sixty-forty basis, with Britain assuming the larger share. It was also agreed that collective measures would be taken to check inflation and to pursue a policy of floating joint loans. In his address to the Chamber of Deputies on his return from London, Reynaud explicitly drew the parallel with the First World War, pointing out that these steps went much

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further than any undertaken then. The consequence was that planning and coordination in 1939–40 was greatest between Britain and France in the financial realm.11 An effective partnership was required not only because it promised a more efficient prosecution of a perceived long war; there was also the fact, that unlike in 1914, Britain and France were no longer the leading financial powers in the world and could no longer afford to go their own ways. By 1939 the illusions were gone, the days of untrammelled sway over international finance were over, and it was thus possible to forge a partnership. But as with so much else in Anglo-French relations, it had taken a long time and had exacted a heavy toll.

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Notes

a b b r e vi at i o n s ac an be bf bl bn bu cab dcg ddf dlg fo frbny gl hl jo jpm lc lp mae mbp mf mg mgp pml pro t

Austen Chamberlain Papers Archives nationales Bank of England Banque de France British Library Bibliothèque nationale Birmingham University Library Cabinet Office Délibérations du Conseil général Documents diplomatiques français David Lloyd George Papers Foreign Office Federal Reserve Bank of New York Guildhall Library House of Lords Record Office Journal officiel J.P. Morgan, Jr, Papers Library of Congress Lamont Papers Ministère des affaires étrangères Morgan Bank Papers Ministère des finances Ministère de la guerre Morgan Grenfell Papers Pierpont Morgan Library Public Record Office Treasury

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Notes to pages 3–8 introduction

1 Bell, France and Britain 1900–1940, is a good overview. The essays in Sharp and Stone, Anglo-French Relations, cover the century. For 1914–18 proper, the most recent survey is Dutton’s “Britain and France at War” in this collection. 2 The title of the 1971 collection of essays on Anglo-French relations in the twentieth century edited by Neville Waites. 3 Soutou, L’or et le sang, 221–4, has noted the centrality of this aim. chapter one 1 Feis, Europe: The World’s Banker, passim. 2 See Cassis, “Financial Elites,” 54–6, for a short discussion on Berlin, Paris, and London as financial centres. 3 Basil Blackett of the Treasury. Blackett, 22 May 1914, memorandum on gold reserves, pro/t 170/19. 4 On Egypt, see Saul, La France et l’Égypte. More broadly, the patterns of French investment are discussed in Levy-Leboyer, “La capacité financière de la France.” 5 Eichengreen, Golden Fetters, 43. As an example of how bills of exchange worked, imagine that cotton was being shipped from Egypt to London, where it was to be sold. The Egyptian exporter would not want to wait until the cotton was disposed of to receive payment, which might take months. The buyer in Britain would arrange for the opening of a credit on an acceptance house in the name of the Egyptian supplier. The latter drew a bill on the accepting house to the value of the cotton shipment. Typically, the bill would be due to mature in three months. The bill was then sold to an Egyptian bank; or, more likely, its agent in London and the cotton shipper would receive payment from the bank. The bank in turn presented the bill to the accepting house, which wrote its name on the face of the bill, thus “accepting” it. By accepting the bill, the acceptance house undertook to pay the holder the value of the bill in three months’ time. With this guarantee of payment, the Egyptian bank could retain the bill until maturity or could sell it to either a discount house or a bill broker. The bill might be resold, or rediscounted, to a joint-stock bank. Regardless, the final holder of the bill – whether the Egyptian bank, a discount house, a bill broker, or a joint-stock bank – would present it at maturity to the acceptance house for payment. The latter would receive funds to cover the bill from the sale of the cotton that had occurred in the intervening three months. See Brand, War and National Finance, 21–4, 47–8, for a discussion of the workings of bills of exchange.

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Notes to pages 8–12

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6 In testimony to the Desart Committee, 27 February 1912, pro/cab 16/ 18a/28480. 7 Ford, “Notes on the Working of the Gold Standard before 1914,” 141. 8 A good overview is Ford, “International Financial Policy and the Gold Standard,” 197–249. Other pertinent works include the collected essays in Eichengreen, The Gold Standard in Theory and History; Brown, Jr, The International Gold Standard Reinterpreted; and de Cecco, The International Gold Standard. 9 Eichengreen, Golden Fetters, 49–52. 10 Flandreau, “Central Bank Cooperation,” 735–63. 11 Mouré, “The Limits of Central Bank Co-operation,” 259–62. 12 Broz, The International Origins, 118–20. 13 Sayers, Bank of England Operations, 102–25. The bank rate was the Bank of England’s official discount rate, that is, the means through which the bank lent money to the banking system by discounting eligible paper. 14 Plessis, “Bankers in French Society,” 150; Green, “The Influence of the City,” 196–7. Sayers notes that the perception of a conflict of interest preoccupied the Court of Directors of the Bank of England. Consequently, membership on the court was screened to ensure that neither the jointstock banks nor the clearing banks were represented (Sayers, The Bank of England, 2:596–7). 15 Plessis, “Les rapports,” 162, 171–7. 16 Plessis, “Bankers in French Society,” 150; Plessis, “Les rapports,” 176. 17 Details on Pallain can be found in the Bank of France archives, bf/Gouverneurs/Pallain/80, discours de M. Chevrier. See also Dauphin-Meunier, La Banque de France, 129–30. 18 Liesse, Evolution of Credit, 226–7. 19 For examples, see bf/dcg 98/20 April 1916; bf/dcg 98/25 April 1916. 20 See, for example, Lord Revelstoke’s comment that the Bank of France was “a government institution, as distinct from the Bank of England, which is not” (19 December 1911, pro/cab 16/18a/28480). 21 bf/dcg 97/8 July 1915. 22 Plessis, “La Banque de France et les relations monétaires,” 135; Patron, The Bank of France, 79. 23 Patron, The Bank of France, 149–58. 24 bf/dcg 101/8 January 1918. 25 This paragraph is drawn from Sayers, The Bank of England, 1:1–17. 26 Ibid., 1:58. The governor was W.M. Campbell in 1907. 27 Sayers, The Bank of England, 1:25. 28 Ibid., 1:8. 29 Sharp, The French Civil Service, 16. 30 Fisk, French Public Finance, 219.

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Notes to pages 12–16

31 Ibid., 371. 32 Ibid., 39, 355–73. An overview of the organization of French ministries before the war is contained in Noëll, Les ministères, 55–144. 33 Fisk, French Public Finance, 167–79, contains a succinct description of the making of the budget. 34 Quoted in Lauren, Diplomats and Bureaucrats, 49. 35 Baillou, Les affaires étrangères, 2:264. 36 See the comments in Barthélemy, The Government of France, 105–6. 37 Caillaux, Mes mémoires, 1:187. 38 From Bonnefous, Histoire politique, 1:407–14, 2:445–7. 39 See the works of Keiger, France and the Origins of the First World War and Raymond Poincaré, 130–92, where he ably argues for Poincaré’s dominance. 40 In 1918 there were 146 persons on the Treasury establishment, of whom 40 were administrative grade (Hemery, “The Emergence of Treasury Influence,” 4, table 1). 41 The other permanent joint undersecretary was Sir Thomas Heath, whose responsibilities were entirely on the administrative side of the Treasury. 42 Bradbury to Asquith, 20 May 1915, Bodleian Library/Asquith mss, box 14. 43 There is no biography of Bradbury. R.G. Hawtrey wrote his entry in the Dictionary of National Biography. More information can be found in McFadyen, Recollected in Tranquility, 74–5. 44 Regrettably, Blackett’s personal papers have disappeared. I am indebted for this information to Dr Andrew McDonald, late of the Public Record Office in London. The Times obituary of 21 November 1933 and the entry in the Dictionary of National Biography are all that remain of Blackett’s wartime activity, save the evidence found in the official records. 45 Friedberg, The Weary Titan, 92–6; Emy, “The Impact of Financial Policy,” 114–15. 46 This is a major theme in Hemery, “The Emergence of Treasury Influence,” and Burk, “The Treasury from Impotence to Power,” 84–107. 47 On Lloyd George and prewar foreign policy, see Fry, Lloyd George and Foreign Policy, passim. 48 For a recent commentary on the aristocratic composition of the Foreign Office, see Cannadine, The Decline and Fall, 280–95. 49 Steiner, The Foreign Office and Foreign Policy. In particular, see app. 3, 217–21, which details the educational and family background of successful Foreign Office candidates. See also Jones, The British Diplomatic Service, 139–52. 50 Quoted in Steiner, The Foreign Office and Foreign Policy, 168. 51 Vansittart, The Mist Procession, 40. 52 Hamilton, Bertie of Thame; on his character, 1–8. Hamilton is very much of the view that Bertie had outlived his usefulness by the later stages of the war (see 343–87 and 394–5). For another portrait of Bertie, see Gladwyn, The Paris Embassy, 160–78.

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53 Lennox, The Diary of Lord Bertie, 1:14. 54 Waley, Edwin Montagu, 92. 55 Gooch and Tremperly, British Documents on the Origins of the War, vol .3, app. a. 56 These points are made by D.C.M. Platt in his excellent book, Finance, Trade and Politics, which remains the standard on the subject. 57 Grey’s comment is cited by Feis, Europe: The World’s Banker, 85–91. 58 Grey to Bax-Ironside, 9 May 1914, Gooch and Temperly, British Documents on the Origins of the War, vo l .10, p art1. 59 Thane, “Financiers and the British State,” 93. 60 On the organization and structure of the Quai d’Orsay, see Lauren, Diplomats and Bureaucrats, chs. 2, 3, and 5; Schuman, War and Diplomacy, 28–48. Baillou, Les affaires étrangères, 2:23–267, is authoritative. 61 Saint-Aulaire, Confession, 24. 62 Hayne, The French Foreign Office, 144–70. 63 Ibid., 50–3. 64 Oppenheimer to London, 21 October 1911, Gooch and Temperly, British Documents on the Origins of the War, vo l .7, ap p .1, “The German Financial Crisis.” 65 22, 26 August, 1, 10 December 1913, ddf, 8:68, 82, 561, 646. More generally, see section 1, subsection g, “Politique de la Triple Entente dans les États balkaniques. Questions financières.” 66 The two standard works on French investments in this period are Girault, Emprunts russes, and Poidevin, Finances et relations internationales. 67 Girault, Emprunts russes, 24, 83–4. 68 Krumeich, Armaments and Politics, 120–4. For the dispatch laying down these conditions, see 16 June 1913, ddf 8:134. 69 16 November, 13 December 1913, ddf 8:485, 622. 70 2 December 1911, ddf, 1:279; Baillou, Les affaires étrangères, 265. 71 3 January 1912, ddf, 1:425. 72 Stevenson, Armaments and the Coming of War, 1–14; Herrmann, The Arming of Europe, app. b, 236–7; Ferguson, The Pity of War, 105–42. 73 Respectively, the Boer War, the Russo-Japanese War, and the Tripolitanian War. 74 Stevenson, Armaments and the Coming of War, 1–9. For a longer view encompassing the years 1870–1913, see Hobson, “The Military-Extraction Gap,” 464–5. 75 Ibid., 482–3. Friedberg, The Weary Titan, 89–134. 76 An overview can be found in Cronin, The Politics of State Expansion, 49–61; while Emy, “The Impact of Financial Policy,” discusses finance as a party issue. 77 See the discussion in Schremmer, “Taxation and Public Finance,” 347–8. 78 Hirst and Allen, British War Budgets, 14–16.

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Notes to pages 19–25

79 Morgan, Studies in British Financial Policy, 89. 80 Hobson, “The Military-Extraction Gap,” 478–82; Stevenson, Armaments and the Coming of War , 6, table 4. “Real defence burden” is defined as defence expenditure divided by net national product. 81 Calculated from the table in Bonnefous, Histoire politique, 1:415. 82 Landry and Nogaro, La crise des finances, 69–79. Landry wrote the section on France. 83 Schremmer, “Taxation and Public Finance,” 392. 84 Martin, France and the Après Guerre, 20–4. 85 Lachapelle, Les finances, 42–5, 63–8; Marion, Histoire financière, 6:315–21. 86 Schremmer, “Taxation and Public Finance,” 391. 87 On the French loan of July 1914, see Marion, Histoire financière, 6:391–2; Jèze and Truchy, The War Finance, 259–62, and the incisive comments by Keynes to Lloyd George, 6 January 1915, Notes on French Finance, pro/t 171/107. 88 Ribot, Lettres, 11. 89 Guelton, “Les hautes instances,” 53–5. 90 Challener, The French Theory, 92–114. 91 Delmas, “La guerre imaginée,” 3–4. 92 Van Evera, “The Cult of the Offensive,” 58–107; Howard, “Men against Fire,” 519–21. 93 Klotz, De la guerre, 17. 94 Representative samples of what is a substantial literature are Farrar, The Short-War Illusion, on Germany; Joll, 1914: The Unspoken Assumptions, on Europe. 95 Esher, Journals and Letters, 3:177. 96 Dauphin-Meunier, La Banque de France, 135; bf/dcg 96/30 July 1914 for the secret instructions. 97 Petit, Histoires des finances, 717. 98 Clapham, The Bank of England, 2:342–50; Sayers, The Bank of England, 1:60–5; de Cecco, The International Gold Standard, 139–41. 99 French, British Economic and Strategic Planning, 16–7. 100 The Desart Committee has attracted the attention of several scholars. See Kennedy, “Strategy and Finance,” 50; French, British Economic and Strategic Planning, 67–70. 101 pro/cab 16/18a/2840, report of the Desart Committee. 102 French, British Economic and Strategic Planning, 68. 103 pro/cab 16/18a/2840/26 November 1911. 104 The Holden speech and the reaction to it are discussed by French, British Economic and Strategic Planning, 68–70; Sayers, The Bank of England, 1:61–5; Clapham, The Bank of England, 2:412–15. 105 Blackett, 22 May 1914, memorandum on gold reserves, pro/t 170/19. This document is reprinted in Sayers, The Bank of England, vo l .2,

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Notes to pages 25–31

106 107 108 109 110 111 112

113 114 115

193

app. 2, 3–30. It is also discussed by de Cecco, The International Gold Standard, 192–3. pro/cab 16/18a/28480, 26 November 1911. Quoted in Dutton, Austen Chamberlain, 37. Blackett, 22 May 1914, memorandum on gold reserves, pro/t 170/19. So French has concluded, British Economic and Strategic Planning, 70. pro/cab 16/18a/28480, 19 December 1911. pro/cab 2/3, 6 December 1912. Milward, Economic Effects of the Two World Wars, 44. French, British Economic and Strategic Planning, is the standard on these subjects. More recently, Offer, The Agrarian Interpretation, 233–63, 270–99, contains a lengthy discussion of the origins and evolution of the blockade strategy. See the comments by Clapham in Sayers, The Bank of England, vol. 2, app. 3, 32. French, British Economic and Strategic Planning, 7–21. Williamson, The Politics of Grand Strategy, provides a good overview of Anglo-French military planning. For a wider appreciation of European military planning, see the essays in Kennedy, The War Plans. chapter two

1 The Paris bourse did not reopen until 7 December 1914, while the London Stock Exchange remained closed until 4 January 1915. 2 French, British Economic and Strategic Planning, 173. 3 On 29 August 1914, quoted in Clay, Lord Norman, 83. 4 There are a number of discussions of the August 1914 crisis. See the account by Sir John Clapham reprinted in Sayers, The Bank of England, 3:31– 45; Anderson, Effects of the War, 43–55; Morgan, Studies in British Financial Policy, 3–32; Lloyd George, War Memoirs, 1:100–16; Brown, The International Gold Standard Reinterpreted, 1:7–13. 5 Withers, War and Lombard Street, 57. 6 Ibid., 30–3. 7 Sayers, The Bank of England, 1:76. 8 Morgan, Studies in British Financial Policy, 12–18. For a general discussion of the external problem, see Withers, War and Lombard Street, 38–74. 9 The coulisse was the unofficial Paris stock market. 10 Anderson, Effects of the War, 51–2. 11 Homberg, Les coulisses, 113–14; Dulles, The French Franc, 69. 12 On the Société générale’s Egyptian travails, see Saul, La France et l’Égypte, 376–475. 13 bf/dcg 96/1 and 2 August 1914.

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194

Notes to pages 32–7

14 jo, Documents parlementaires, 4133, 22 December 1917. Rapport by M. Louis Marin. 15 Ibid. 16 Klotz, De la guerre, 59. 17 Piou, “La commission du budget,” 791–817. 18 Renouvin, The Forms of War Government, 111. 19 For Ribot’s infatuation with England, see Schmidt, Alexandre Ribot, 6–7, 49; on his liberalism, xii. 20 Suarez, Les accords, 7–9. 21 Quoted in Harrod, The Life of John Maynard Keynes, 196–7. 22 Vincent, The Crawford Papers, 1:341–2. Crawford was not the most dispassionate observer, sharing the aristocratic dislike for Lloyd George, and thus was more than willing to circulate unflattering gossip. Long was a political opponent of Lloyd George and eager to promote his Tory colleague, Chamberlain, at the expense of the Welsh bounder. 23 St Aldwyn was Sir Michael Hicks-Beach, chancellor of the exchequer in the last Salisbury ministry. 24 On Reading, see the Marquess of Reading, Rufus Isaacs, and Hyde, Lord Reading. Despite its claims to the contrary, Judd, Lord Reading, offers little that is new and is heavily dependent upon the earlier biographies. The Stevenson remarks are from her diary, see Taylor, Lloyd George: A Diary, 15. 25 House Diaries, 3 March 1915, Yale University, House mss, series 2, box 6. 26 James, Memoirs of a Conservative, 61. 27 gl/mgp 21799. 28 Clapham in Sayers, Bank of England, vo l .3, app .3, 33. 29 Sayers, The Bank of England, 2:639–44. 30 “The War and the Panic,” Economist, 1 August 1914, 219. 31 Withers, War and Lombard Street, 12–13. 32 Sayers, The Bank of England, 1:72–3. 33 de Cecco, The International Gold Standard, 132. 34 Leith-Ross diary, 5 August 1914, pro/t 188/272. 35 Paish occupied an anomalous position at the Treasury; he was given the title “special adviser” to Lloyd George. However, he was never part of the administrative strength of the Treasury. He tendered his resignation in March 1915. 36 Quoted in Moggridge, Maynard Keynes, 244. 37 Paish to Lloyd George, 1 and 2 August 1914, pro/t 171/92. 38 British Library of Political and Economic Science, Paish Papers, Misc 621/1, 61. 39 Johnson and Moggridge, eds., The Collected Writings, 16:10. 40 Sayers, The Bank of England, 1:83–4. 41 Roseveare, The Treasury, 237. 42 Soutou, L’or et le sang, 222–4.

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Notes to pages 37–42

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43 Grey to Bertie, 31 July 1914, Gooch and Temperly, British Documents on the Origins of the War, 11:367; Cambon to Viviani, 31 July 1914, ddf 11:375. 44 Morley, Memorandum on Resignation, 5. 45 Cambon to Viviani, 2 August 1914, ddf 11:470. 46 Grey’s speech is reprinted as appendix d in vol.2 o f his autobiography, Twenty-Five Years. 47 Cambon, Paul Cambon, 72. Cambon undoubtedly meant the influential financiers, Sir Ernest Cassel and Sir Edgar Speyer, both of whom were German Jews. 48 Economist, 1 August 1914, 219. 49 Cambon to Foreign Office, 5 August 1914, pro/t 1/11754/6154/16026. 50 Barstow, 5 August 1914, pro/t 1/11754/6154/16026. 51 For the discussions surrounding the cir, see 14 and 15 August 1914, mae/Guerre (g) 1914–18/Grande Bretagne/1281, as well as 5 August 1914, pro/t 1/11754/6154/16026. 52 Petit, Histoire des finances, 182. 53 In January 1917 DePeyster was succeeded by Joseph Avenol. 54 Cambon to mae, 8 December 1914, mae/g 1914–18/r 1281/489. 55 Cambon to mae, 29 October 1914, mae/g 1914–18/r 1281/943; Cambon to mae, 3 November 1914, mae/g 1914–18/r 1281/980. 56 MG to mae, 11 October 1914, mae/g 1914–18/r 1223. 57 Petit, Histoire des finances, 182. 58 Joffre, The Personal Memoirs, 1:283–4. 59 Cambon to mae, 7 September 1914, mae/g 1914–18/463/540; Ribot to Cambon, 8 September 1914, mae/g 1914–18/1463; Delcassé to Cambon, 8 September 1914, mae/g 1914–18/1463/32. 60 Herzstein, “The Diplomacy of Allied Credit,” 82. 61 Bertie to Foreign Office, 8 September 1914, pro/fo 800/166; Grey to Bertie, 11 September 1914, bl/Bertie mss, 63033; Nicolson to Grey, 9 September 1914, pro/fo 371/1983/48670; Lloyd George’s comments are on the bottom of the Nicolson minute and are dated 11 September 1914. 62 David, Inside Asquith’s Cabinet, 190. 63 Reading Diary 1914, 22–6 September 1914, India Office Library/Reading Papers, 152. 64 Cambon to mae, 26 September 1914, mae/g 1914–18/1463/704. 65 For Cambon’s criticisms of the manner in which negotiations were being conducted, see Cambon to Ribot, 19 September 1914, mae/g 1914–18/1463/645; Cambon to Ribot, 25 September 1914, mae/g 1914–18/1463/696. 66 Delcassé to Cambon, 29 September 1914, mae/g 1914–18/1463/255, 256, 257. 67 Bertie to Grey, 28 September 1914, bl/Bertie mss, 63034.

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Notes to pages 42–8

68 Lennox, The Diary of Lord Bertie, 1:40. 69 Asquith to King George V, 1 September 1914, pro/cab 41/35/41; Grey to Bertie, 3 September 1914, pro/fo 800/166; Bertie to Grey, 4 September 1914, pro/fo 800/166. 70 Cambon to mae, 12 September 1914, mae/g 1914–18/1463/588. 71 Klotz, De la guerre, 18. 72 Cambon to mae, 4 October 1914, mae/g 1914–18/1463/776. 73 Lee to Bertie, 18 October 1914, pro/fo 800/166. Lee was counsellor in the embassy in Paris, doubled as the commercial attaché, and accompanied Lloyd George on his visit. 74 Cambon to Ribot, 12 November 1914, mae/g 1914–18/1463/1029, 1030, 1031; Ribot to Cambon, 13 November 1914, mae/g 1914–18/ 1463/673, 674. 75 Homberg’s career is described in his autobiography, Les coulisses. 76 Nouailhat, France et États-Unis. See, for example, 295. 77 Homberg to Ribot, 30 November 1914, mae/g 1914–18/1459/1117. 78 Asquith to King George V, 4 December 1914,pro/cab 41/35/62. 79 Riddell, Lord Riddell’s War Diary, 44; Taylor, Lloyd George: A Diary, 16. 80 Homberg to Ribot, 4 December 1914, mae/g 1914–18/1459/1153, 1154. 81 Homberg to Ribot, 18 December 1914, mf/b 31.823, Agence financière de Londres, 1914–21/1227. 82 Treasury to Foreign Office, undated memo, pro/t 170/83. 83 O’Beirne to Foreign Office, 26 November 1914, pro/fo 371/2096/ 55965/81744; Buchanan to Foreign Office, 10 December 1914, pro/fo 371/2096/55965/85222. 84 Asquith to King George V, 18 December 1914, pro/cab 41/35/64. 85 This point, that British manoeuvrability was always constrained by Britain’s situation within the alliance, is a central theme of French, British Strategy and War Aims, as well as of Soutou, L’or et le sang. 86 Taylor, Lloyd George: A Diary, 22–3. 87 Lloyd George to Asquith, 31 December 1914, hl/dlg c/6/11/24. 88 Herzstein, “The Diplomacy of Allied Credit,” 103–4. 89 Homberg to Ribot, 25 November 1914, mae/g 1914–18/1459/1096. 90 Day-to-Day Memorandum, pml/jpm, box 41; Bertie to Grey, 11 January 1915, pro/fo 800/167. 91 Lloyd George to Montagu, 24 January 1915, hl/dlg c/1/2/5. 92 The literature on Keynes is voluminous. Harrod, The Life of John Maynard Keynes, remains useful. Skidelsky, John Maynard Keynes, is informative. See too Moggridge, Maynard Keynes. 93 Keynes to Lloyd George, 6 January 1915, Notes on French Finance, pro/t 171/107.

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94 Ibid. 95 Blackett to Lloyd George, 5 January 1915, The Gold Reserve and Loans to Foreign Governments, pro/t 171/107. 96 Blackett to Lloyd George, 6 January 1915, British Loans to France and Russia, pro/t 171/107. 97 Keynes to Lloyd George, 30 January 1915, Russia, pro/t 171/107. 98 Ibid. 99 Ribot, Journal, 23. 100 Homberg to Ribot, 31 January 1915, mae/g 1914–18/1387. 101 Paléologue to mae, 18 January 1915, mae/g 1914–18/1387/82. 102 Paléologue to mae, 19 January 1915, mae/g 1914–18/1387/85. 103 Procès-verbal, 3 February 1915, mae/g 1914–18/1387. 104 Tyrell to Bertie, 27 January 1915, bl/Bertie mss, 63036 (William Tyrell was private secretary to Grey from 1907 to 1915). 105 Ibid. 106 Petit, Histoire des finances, 717. Conversion into sterling at the prewar parity of 25.22 francs per pound. 107 Petit, Histoire des finances, 717. 108 Notes journalières, 3 February 1915, bn/Papiers Poincaré, 160029. 109 Procès-verbal, 4 February 1915, mae/g 1914–18/1387. 110 Undated, Daily Expenditure of the War, pro/t 171/108. 111 Procès-verbal, 4 February 1915, mae/g 1914–18/1387. 112 Keynes to Cabinet, undated February 1915, Paraphrase and Notes on the Paris Conference, pro/t 172/260. 113 Procès-verbal, 4 February 1915, mae/g 1914–18/1387. 114 Keynes to Cabinet, undated February 1915, Paraphrase and Notes on the Paris Conference, pro/t 172/260. 115 Keynes, undated February 1915, Memorandum on Proposals for a Joint Loan, pro/t 172/260. 116 Bertie to Grey, 7 February 1915, pro/fo 800/167. 117 Brock, H.H. Asquith: Letters to Venetia Stanle y, 422, 418. 118 Homberg, Les coulisses, 144–5. chapter three 1 Rothschild to J.P. Morgan & Co., 3 August 1914, Baker Library/lp/213, folder 8. 2 Day-to-Day Memorandum, 26 December 1914, pml/jpm, box 41. On Straight and his wartime activities, see Roberts, “Willard D. Straight,” 16–47. 3 For the history of J.P. Morgan & Co. before 1914, Carosso, The Morgans, is authoritative. See also Chernow, The House of Morgan, and Strouse, Morgan: American Financier.

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Notes to pages 59–61

4 Morrow to T.W. Lamont, 21 August 1914, Amherst College/Dwight Morrow Papers, series i, J.P. Morgan & Co., Partners folder. 5 J.P. Morgan, Jr (hereafter Jack Morgan), to Aemilius Jarvis, 24 August 1914, pml/jpm, box 11/5. 6 Link, The Papers of Woodrow Wilson, vo l .30, 10 August 1914. 7 The best overview of French purchasing in the United States is Nouailhat, France et États-Unis. D’Anglade to Doumergue, 16 August 1914, mae/g 1914–18/États-Unis/489. D’Anglade was responsible for dispensing the funds to pay for war contracts. 8 mae to Jusserand, 28 August 1914, mae/g 1914–18/1456/246; D’Anglade to mae, 11 October 1914, mae/g 1914–18/1415/136; mae to D’Anglade, 12 October 1914, mae/g 1914–18/1415/117; D’Anglade to mae, 15 October 1914, mae/g 1914–18/1415/152. 9 On Jusserand’s career, see Laboulaye, “J.J. Jusserand,” as well as the capsule biography in Baillou, Les affaires étrangères, 2:280–6. 10 Jusserand to mae, 27 September 1914, mae/g 1914–18/1456/368. 11 Ribot to Jusserand, 28 September 1914, mae/g 1914–18/1456/58. 12 Jusserand to Ribot, 5 October 1914, mae/g 1914–18/1456/387, and 10 October 1914, mae/g 1914–18/1456/404. 13 Link, Wilson: The Struggle, 132–6. Robert Lansing was the counsellor in the State Department. 14 Link, Wilson: The Struggle, 133–4. The Nye Committee was headed by Senator Gerald P. Nye of North Dakota and was established to explore the links between American munitions manufacturers and the decision of the United States to enter the First World War. During hearings in 1936 the committee heard testimony from bankers as well as forcing the leading banks to divulge their records concerning the war. 15 Renouvin, “Les emprunts,” 289–305; Dayer, “Strange Bedfellows,” 128; Nouailhat, France et États-Unis, 105–6. 16 Clements, The Presidency of Woodrow Wilson, 117–18; Link, The Papers of Woodrow Wilson, vol. 31, 23 October 1914. 17 Straight to H.P. Fletcher, 20 October 1914, Cornell University/Willard Straight Papers, reel 5. 18 Jusserand to mae, 22 October 1914, mae/g 1914–18/1456/432. The problem remains of Vanderlip’s testimony, during which he stated that Bryan’s approval had been secured in early October. This contradicts the cable sent by Jusserand to Paris on 22 October detailing Straight’s activities. Given the interval of more than twenty years in Vanderlip’s testimony – as well as the presence of a contemporary document attesting to Bryan’s continued opposition, and Bryan’s own deeply held views on neutrality – it seems unlikely that Bryan’s approval was ever secured. Vanderlip’s emissary, Robert Farnham, probably received Lansing’s approbation, though this assumption is not provable. Other accounts have tended to emphasize the leading role played by Lansing in this matter.

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Notes to pages 61–5

19 20 21 22 23 24 25

26 27 28 29 30 31 32 33

34 35 36 37 38

199

See Smith, Robert Lansing, 34–6. Coletta, Williams Jennings Bryan, 2:264–5, remarks that Bryan was “faced with a fait accompli.” The actual proceeds of the operation amounted to $9.25 million. D’Anglade to mae, 4 November 1914, mae/g 1914–18/1456/303. Jusserand to Delcassé, 29 October 1914, mf/b 31.717/États-Unis 1914/597. Harjes to Jack Morgan, 3 November 1914, pml/jpm, box 33. Straight to Casenave, 5 October 1914, gl/mgp 28261/1. 16 August 1914, pro/fo 382/582/39822/297. Jack Morgan to McAdoo, 21 August 1914, pml/jpm, box 11/5. In 1910 there were 7,138 National Banks with assets of $9,892 million and 18,013 non-National Banks with assets of $13,030 million in the United States. Bagwell and Mingay, Britain and America, 145, table 18. See their comments 126–50. Warburg to McAdoo, 31 October 1914, lc/McAdoo Papers, box12 5. Anderson, Effects of the War, 144–5. Link, “The Cotton Crisis,” passim; Spring-Rice to fo, 19 September 1914, pro/fo 368/1159/51220/53. Jack Morgan to Grenfell, 5 September 1914, pml/jpm, box 11/5. Link, The Papers of Woodrow Wilson, vo l .30, 20 August 1914. Ibid., 2 and 9 August 1914. Soutou, L’or et le sang, 128–40; Burk, Britain, America and the Sinews of War, 55–61. British Library of Political and Economic Science, Paish Papers, Misc. 621/2. The Reading Diary contains corroborative evidence for this reconstruction. In his entry for 5 October, Reading noted that Paish had given a talk to a group of bankers and experts interested in American exchange on the previous Friday, that is, 2 October. The proposal tabled upset the gathering and, according to Reading, Cunliffe went to Grey and Lloyd George and secured a temporary postponement of the mission (Reading Diary, 5 October 1914, India Office Library/Reading Papers, box 152). Minutes of resumed conference with bankers, 5 October 1914, pro/t 172/143. Conyne, Woodrow Wilson, 48–50. On McAdoo, see Broesamle, William Gibbs McAdoo, passim, and Shook, “William G. McAdoo,” passim. Gwynn, The Letters and Friendships of Sir Cecil Spring-Rice, 2:242–3. Spring-Rice to Grey, 5 October 1914, pro/fo 800/84. Spring-Rice urged that Paish not fall into this “trap.” There is no evidence to suggest that this conspiracy was anything more than a product of Spring-Rice’s imagination, though it was typical of information that soon prompted London to consider his replacement. See Kihl, “A Failure of Ambassadorial Diplomacy,” 69–83.

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Notes to pages 65–9

39 Minutes of resumed conference with bankers, 5 October 1914, pro/t 172/143. 40 Spring-Rice to Foreign Office, 4 October 1914, pro/fo 368/1159/ 55929/68. 41 Chandler, Benjamin Strong, 60. 42 Paish to Foreign Office, 1 November 1914, pro/fo 368/1159/65875/99. 43 Paish to Lloyd George, 5 November 1914, pro/fo 368/1159/67748/108. 44 Warburg to McAdoo, 31 October 1914, lc/McAdoo Papers, box12 5. 45 Hamlin Diary, 31 October 1914, lc/Hamlin Papers, box36 8. 46 Warburg to McAdoo, 31 October 1914, lc/McAdoo Papers, box12 5. 47 Broesamle, William Gibbs McAdoo, 94–124; Shook, “William G. McAdoo,” 102–18. 48 Broesamle, William Gibbs McAdoo, 126–37. 49 Hamlin Diary, 20 November 1914, lc/Hamlin Papers, diaries 2. 50 Burk, Britain, America and the Sinews of War, 59–60. 51 Blackett to Bradbury, 27 November 1914, Bodleian Library/Asquith mss, box 27. 52 Blackett to Bradbury, ibid. 53 For a recent overview of Anglo-American relations arguing that the competition versus cooperation theme has been overstated, see Roberts, “Willard Straight,” 16–47, and Roberts, “The Anglo-American Theme,” 333–64. 54 Spring-Rice to Foreign Office, 27 October 1914, pro/fo 371/2224/ 57870/63616. 55 Jusserand to Delcassé, 30 October 1914, mae/g 1914–18/1223/603. 56 Jusserand to Delcassé, 3 November 1914, mae/g 1914–18/1223/613. 57 Harjes to Jack Morgan, 20 November 1914, gl/mgp 28261/1/640. 58 Ribot, Lettres, 87. 59 Harjes to Jack Morgan, 20 November 1914, gl/mgp 28261/1/640. 60 Blackett to Bradbury, 27 November 1914, Bodleian Library/Asquith mss, box 26. 61 Once Morgans was appointed purchasing agent, it proved necessary to establish a new Export Department headed by E.R. Stettinius. See Burk, “A Merchant Bank at War,” 158–9; Forbes, Stettinius, 44–64. 62 Burk, Britain, America and the Sinews of War, 13–27. 63 Montagu to Asquith, 1 October 1914, King’s College, Cambridge/ Montagu mss, box 3/as 1/7. Montagu did not, of course, point out that this had occurred with the active complicity of Lloyd George. 64 Montagu to Asquith, 7 December 1914, Montagu mss, box 29/as 6/9. 65 French, British Economic and Strategic Planning, 151. David, Inside Asquith’s Cabinet, 22 December 1914. The italics are in the original. 66 Lloyd George to Asquith, 31 December 1914, hl/dlg, c/6/11/24. Sir Stanley von Donop was master-general of the ordnance in the War Office and a favourite target of Lloyd George’s venom.

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Notes to pages 69–73

201

67 Day-to-Day Memorandum, 4 December 1914, pml/jpm, box 41. 68 Grenfell to Jack Morgan, 12 December 1914, gl/mgp 28252/1. In this cable Grenfell attributed some of Davison’s success to his powerful impact on Blackett, who had turned in a laudatory report on Davison. Grenfell also remarked that Cunliffe was “greatly impressed” by Davison. 69 Day-to-Day Memorandum, 9 December 1914, pml/jpm, box 41. 70 Davison to Jack Morgan, 10 December 1914, pml/jpm, box 34, private file. 71 Jack Morgan to Davison, 14 December 1914, pml/jpm, box 33/23. 72 Davison to Jack Morgan, 12 December 1914, pml/jpm, box 34, private file. 73 Grenfell to Jack Morgan, 12 December 1914, gl/mgp 28252/1. 74 Davison to Jack Morgan, 31 December 1914, pml/jpm, box 34, private file; 31 December 1914, gl/mgp 28252. 75 Memorandum on conversation with Aristide Blank, 28 January 1915, gl/ mgp 28282. Blank was a director of the Banque Marmorosch and acted for the bank in this affair. 76 The Rumanian premier, Ion Bratianu, was chiefly interested in acquiring Austro-Hungarian territory, notably Transylvania, and thus played a waiting game designed to attract more generous allied concessions (Vinogradov, “Romania in the First World War,” 452–61). 77 Day-to-Day Memorandum, 10 December 1914, pml/jpm, box 41. 78 Jack Morgan to Davison, 12 December 1914, gl/mgp 28251/1; Davison to Jack Morgan, 14 December 1914, gl/mgp 28252/1. 79 See the perceptive comments by Soutou, L’or et le sang, 362–3. 80 James Stillman was president of the National City Bank. Davison to Jack Morgan, 23 December 1914, pml/jpm, box 34, Cables relating to the Establishment of the Purchasing Agency 1914–1915. 81 The contract was between the Army Council and the Admiralty on the British side and Morgans on the other. Under its terms Morgans was to be paid a 2% commission on all purchases up to £10 million and thereafter 1%. As Burk has pointed out, the agreement was not technically binding on the British government, which reserved the right to go outside the Morgan firm (Burk, Britain, America and the Sinews of War, 21–2). 82 Day-to-Day Memorandum, 4 December 1914, pml/jpm, box 41. 83 J.P. Morgan & Co. to Davison, 4 December 1914, pml/jpm, box 34. 84 J.P. Morgan & Co. to Davison, 5 December 1914, pml/jpm, box 34/1,2. Although Jusserand informed Paris, rumours were continuing to circulate that treasury bills were being offered. Jusserand to mae, 4 December 1914, mae/g 1914–18/1456/715. 85 Lamont to Davison, 8 December 1914, Baker Library/lp 136/6. 86 Ibid. 87 Day-to-Day Memorandum, 13 December 1914, pml/jpm, box 41.

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Notes to pages 73–7

88 The phrase was Robert Bacon’s. Bacon was a former Morgans partner and a former ambassador to France. In the early years of the war, 1914–15, he was often a participant in discussions with and concerning France. 89 Davison to Jack Morgan, 14 December 1914, pml/jpm, box 34, Cable Book. 90 Harjes to Davison, 16 December 1914, pml/jpm, box 34, Cable Book, telegrams to and from Paris and London. 91 Harjes to Davison, 17 December 1914, gl/mgp 28261. 92 See Swanberg, Whitney Father, Whitney Heiress, 253–80, for a portrait of Straight, and 273, 288, 317 for his ties with de Margerie and Casenave; see also Roberts, “Willard D. Straight,” 18–19. 93 Day-to-Day Memorandum, 26–8 December 1914, pml/jpm, box 41. 94 Straight to Croly, 29 December 1914, Cornell University/Straight Papers, reel 5. 95 Davison to Jack Morgan, 5 January 1915, gl/mgp 28261/1. On Bacon, see n88 above. 96 Davison to Jack Morgan, 5 January 1914, pml/jpm, box 34, Cables Relating to the Establishment of the Purchasing Agency in 1914–1915, for awareness of the plans for a financial conference; Jusserand to mae, 6 January 1915, mae/g 1914–18/1455/15, in which he rehashed the treasury bill operation and urged that National City be given any share of a putative purchasing deal; J.P. Morgan & Co. to Davison, 6 January 1915, pml/jpm, box 34, Cable Book, in which French replies to Harjes are characterized as a “lot of lies.” 97 Day-to-Day Memorandum, 8 January 1915, pml/jpm, box 41. The discussions took place from 8 to 11 January 1915. 98 Procès-verbal, 7 February 1915, mae/g 1914–18/1387. chapter four 1 bf/Grande-Bretagne, Relations Banque d’Angleterre-Banque de France, viii, accord de Calais, 24 août 1916. 2 The literature on war aims is large. Stevenson, The First World War and International Politics, 87–131, is useful. More specific works dealing with France, Britain, and economic war aims include Stevenson, French War Aims against Germany, Bunselmeyer, The Cost of the War, and Soutou, L’or et le sang. 3 Warman, “The Erosion of Foreign Office Influence,” 133–59; Steiner, “The Foreign Office and the War,” 516–32. 4 Warman, “The Erosion of Foreign Office Influence,” 134–5. 5 Ibid., 134; Steiner, “The Foreign Office and the War,” 517–24. 6 Grey, Twenty-Five Years, 2:160. 7 Bertie to Hardinge, 16 October 1916, bl/Bertie mss, 63044. This comment was made in the context of the American mediation proposal and

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Notes to pages 77–83

8 9 10 11 12

13

14 15 16 17

18 19 20

21 22 23 24 25 26 27 28

29

203

Grey’s unhappiness with Lloyd George’s “knock-out blow” speech in late September 1916. On Cambon’s career, see Eubank, Paul Cambon, and Baillou, Les affaires étrangères, 2:277–80. Riddell, Lord Riddell’s War Diary, 221. Baillou, Les affaires étrangères, 2:323–54. Ribot to Homberg and Mallet, 16 September 1915, mae/g 1914–18/ 1464a/137, 138. These figures are from the Ministère de la guerre (mg) to the Ministère des finances (mf), 15 March 1916, mf/b 32.400/1621a; mg to mf, 17 April 1916, mf/b 32.400; note on estimates provided to Council of Ministers, 3 May 1916, mf/b 32.400; expense table, 1 July 1916, mf/b 32.400. See the comment by Burk: “The Treasury had lost control over the spending departments, especially over the Ministry of Munitions, long before 1916” (Britain, America and the Sinews of War, 77). Godfrey, Capitalism at War, 267; his account of the Roanne affair is at 257–88. jo 4133, 22 December 1917, rapport de M. Louis Marin. Jèze and Truchy, The War Finance of France, 254–8. Two of the most prominent contemporary critics were Jèze and Klotz. Most subsequent commentators have followed them, though Duroselle, in La France, 210–14, offers a spirited defence of Ribot, pointing to Klotz as the real villain of France’s postwar economic woes. He repeated this charge in his newer work, La Grande Guerre des français, 157–8. Ribot, Lettres, 18. bf/dcg 96/4 August 1914. All figures are from Jèze and Truchy, The War Finance of France, 262–82. For an overview of taxation and public finance and their development in Britain and France, see Schremmer, “Taxation and Public Finance,” 315–407. Klotz, De la guerre, 61. Morand was a young official in the Quai d’Orsay at the time – March 1917. Morand, Journal, 209. Kuisel, Capitalism and the State in Modern France, 32. Kemp, The French Economy 1913–1939, 47. Sayers, Bank of England, 1:79. Figures from Morgan, Studies in British Financial Policy, 106–12. Balderston, “War Finance and Inflation,” 224. Hardach, The First World War, 161–6. There is some variance in the figures. Truchy gives a figure of 16.5% as the total met by taxation ( Jèze and Truchy, The War Finance of France, 211). Balderston’s figure for the proportion met by taxation in Britain is 26.2% (Balderston, “War Finance and Inflation,” 226). See Balderston, “War Finance and Inflation,” 231–5; and Whiting, “Taxation and the Working Class,” 916, who concludes: “But in the end the

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30 31

32 33 34

35 36 37 38

39 40 41 42 43

44 45

46

Notes to pages 83–7

balance which impressed tax authorities was the view that the working class should be spared a burden of income tax and treated circumspectly with regard to indirect taxes, a conclusion which depended on the linking of tax opposition with class conflict in industry.” Morgan, Studies in British Financial Policy, 95. See the comments to this effect made by Sir Frederick Banbury, the Unionist member for the City of London, in the debate over McKenna’s September 1915 budget (Parliamentary Debates, Commons, 5th ser., 74 [1915]: 367–9). Petit, Histoire des finances, 183. Ibid., 696. Nouailhat, France et États-Unis, 96. According to Homberg, credit for the realization that this state of affairs, i.e. the favourable exchange rate, was unlikely to last was due to him. This is typical of Homberg, and while it cannot be discounted, it should be treated with a grain of salt (Homberg, Les coulisses, 125–9). Morgan, Studies in British Financial Policy, 345–6. Hardach, The First World War, 87–8. Calculated from Petit, Histoire des finances, 696. Imports in this category peaked in 1917 when they constituted 1.5% of total French imports from the United Kingdom. In both 1915 and 1916 imports in this area were so small as to be nearly non-existent (Petit, Histoire des finances, 696). bf/dcg 100/27 February 1917. Hardach, The First World War, 131–2. The grain harvest was 2.6 million tons below average throughout the war. Weems, America and Munitions, app. 7. Petit, Histoire des finances, 49. Mathias, The First Industrial Nation, 290. Bagwell and Mingay, Britain and America, 93, point out that British exports to North America accounted for 16% of all exports, whereas in 1911–13 they were down to 11.5%. Morgan, Studies in British Financial Policy, 307, table 43. This figure is the prewar average of 1911–13. On wheat imports, see Mitchell, Abstract of British Historical Statistics, 102, agriculture table 11. Wheat imports in 1916 and 1917 were the highest on record from the United States. Weems, America and Munitions, app. 6, contains a summary of purchase contracts placed by J.P. Morgan & Co. which gives some indication of the pattern of purchases by the British government agents. The largest categories by value as actually paid for were artillery ammunition, shells and various components, $509 million; propellants and explosives, $408 million; and complete rounds of artillery ammunition, $348 million. A Brief Note on the Dependence of the United Kingdom on United States Supplies, pro/fo 371/2796/69066.

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Notes to pages 88–95 47 48 49 50

51 52 53 54 55 56

57

205

Burk, Britain, America and the Sinews of War, 62–4, 86–7. Schremmer, “Taxation and Public Finance,” 390. Levy-Leboyer, “La position internationale,” 25, table 5. There is some dispute concerning the estimate of £4 billion. For a recent defence of its accuracy, see Feinstein, “Britain’s Overseas Investments in 1913,” 288–95. Calculated from Morgan, Studies in British Financial Policy, 328, table 50. Parliamentary Debates, Commons, 5th ser., 93 (1917): 377. Sayers, Bank of England, 1:93–5. Parliamentary Debates, Commons, 5th ser., 93 (1917): 377. Brown, The International Gold Standard, 1:65. Gold Returnable by Great Britain under Financial Arrangements with the Allies, 14 December 1917, Baring Archive, 203987.3. This document provides a figure of £60 million for gold to be returned. However, in the fall of 1914 Russia had sold Britain £8 million in gold in return for a credit of £20 million. The precise figures are not clear. The Baring document cited above, drafted by the chief cashier of the Bank of England, gives a total of £77,333,000 to be returned; Petit, in his Histoire des finances, 716, places total gold loans at F r1,955,230,200, which converts to £77,526,970 at the prewar parity of 25.22 francs to the pound. chapter five

1 On this subject, see Adams and Poirier, The Conscription Controversy, and Grieves, The Politics of Manpower. 2 Memorandum Concerning Joint Purchases for Allies, gl/mgp 28251/2. 3 Ibid.; Morgan Grenfell to J.P. Morgan & Co., 12 February 1915, gl/mgp 28249/1. 4 Cassar, Kitchener: The Architect of Victory, 322–3. 5 Esher to Kitchener, 12 February 1915, pro 30/57/59. 6 Grenfell to Harjes, 10 March 1915, gl/mgp 28264. 7 Grenfell to Harjes, 15 February 1915, gl/mgp 28261/2. 8 Jack Morgan to Davison, 8 April 1915, pml/mbp, April 1915 visit to England by J.P. Morgan, folder 4/2762. 9 Attempts had been made to acquire credits through the Rothschild affiliate in New York headed by Augustus Belmont. This was done at the same time as the London branch of Rothschild was solicited, and it too proved fruitless (De Margerie to consul general, 22 March 1915, mae/g 1914–18/1456/46). 10 The negotiations can be traced in Jusserand to mae, 7 March 1915, mae/g 1914–18/1456/190; Jusserand to mae, 13 March 1915, mae/g 1914–18/ 1456/252; Ribot to Jusserand, 17 March 1915, mae/g 1914–18/1456/

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206

11

12 13

14 15 16 17 18 19 20

21 22

23 24

25 26 27 28

Notes to pages 95–9

185; Harjes to Ribot, 17 March 1915, mf/b 31.717/États-Unis 1915; Ribot to Jusserand, 24 March 1915, mae/g 1914–18/1456/207; Jusserand to mae, 24 March 1915, mae/g 1914–18/1456/258; Jusserand to mae, 27 March 1915, mae/g 1914–18/1456/279. This was somewhat of an improvement over earlier proposals. Harjes had told Ribot on 17 March that the total cost to France would be 6.4% (Harjes to Ribot, 17 March 1915, mf/b 31.717/États-Unis 1915). Nouailhat, France et États-Unis, 112–13; Goute, Des principales opérations du trésor français, 211. De Fleuriau to Lord Rothschild, 22 March 1915, N.M. Rothschild & Sons, Papers xi/iii/96, enclosing a request from Edouard de Rothschild in Paris seeking to discount £4 million in French bills. The Treasury replies are in a letter from Lloyd George to the firm on 23 March, holding out some hope; and a refusal of the request dated 26 March. Ribot, Lettres, 92–3. Petit, Histoire des finances, 70, 194. Ribot to Cambon, 30 March 1915, mae/g 1914–18/1459. Ribot to Cambon, 30 March 1915, mae/g 1914–18/1459/1000. Jack Morgan to Davison, 6 April 1915, pml/mbp, April 1915 visit J.P. Morgan to Britain, folder 4. Jack Morgan to Davison, 8 April 1915, pml/mbp, April 1915 visit J.P. Morgan to Britain, folder 4. Jack Morgan to Davison, 16 April 1915, pml/mbp, April 1915 visit to England by J.P. Morgan, folder 3; Davison and Lamont to Jack Morgan, 20 April 1915, pml/mbp, April 1915 visit to England by J.P. Morgan, folder 3. Delcassé to Cambon, undated [but April 1915], mae/g 1914–18/1459/ 1250. Jack Morgan to Harjes, 21 April 1915, pml/mbp, H.H. Harjes file; J.P. Morgan to Harjes, 23 April 1915, pml/mbp, April 1915 visit of J.P. Morgan to England, folder 1. J.P. Morgan to Davison, 20 April 1915, pml/mbp, April 1915 visit of J.P. Morgan to England, folder 2. Harjes to J.P. Morgan, 12 April 1915, pml/mbp, H.H. Harjes file. Harjes to J.P. Morgan & Co., 22 April 1915, pml/mbp, H.H. Harjes file, where Harjes made it clear that the French were pursuing the Bank of England talks with new vigour due to the negative response from New York. Anglo-French agreement, 30 April 1915, pro/t 172/254; 30 April 1915, mf/b 12.677, file a23.5.6, for the French copy. Jack Morgan to Davison, 30 April 1915, pml/mbp, April 1915 visit of J.P. Morgan to England, folder 1. bf/dcg 97/8 July 1915. bf/dcg 98/5 February 1916.

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Notes to pages 99–104

207

29 Despite the efforts of Grenfell. See Burk, Britain, America and the Sinews of War, 62. 30 Cunliffe to Keynes, 27 March 1915, Kings College, Cambridge/John Maynard Keynes mss, l 15. 31 Norman Diary, 5 May 1915, be/adm 20/3. 32 Pugh, “Asquith, Bonar Law and the First Coalition,” 813–36. This assessment has been accepted by Turner, British Politics and the Great War, 61. 33 Jenkins, Asquith, 367–9; Grigg, Lloyd George, 249–55; Pugh, “Asquith, Bonar Law and the First Coalition,” 830–5. 34 Grigg, Lloyd George, 251. 35 Beaverbrook considered the friction between McKenna and Lloyd George to be “one of the principal factors which accounted for its [the ministry’s] fall” (Beaverbrook, Politicians and the War, 146). 36 Quoted in Burk, “The Treasury from Impotence to Power,” 94. 37 McEwen, The Riddell Diaries, 124–5; Barnes and Nicholson, The Leo Amery Diaries, 1:118. 38 Gilbert, David Lloyd George: Organizer of Victory , 139, 171, 201; Roseveare, The Treasury, 240; French, British Strategy and War Aims, 89. 39 McKenna, Reginald McKenna, 44. 40 Frances Stevenson noted, “I think McKenna is the only person whom D. really detests” (Taylor, Lloyd George: A Diary, 120). 41 Gilbert, David Lloyd George: Organizer of Victory , preface; Turner, British Politics and the Great War, 102. 42 Bradbury to Asquith, 20 May 1915, Bodleian Library/Asquith mss, box 14. 43 Neilson has made this point elsewhere and has drawn the inference that McKenna was of little import in the making of policy (Neilson, Strategy and Supply, 36n20). As argued above, this overlooks the degree to which McKenna and his advisers had views in common. 44 Long to Montagu, 28 June 1916, Committee on War Office Expenditure, pro/t 1/11962/22816. 45 Burk, “The Treasury from Impotence to Power,” 94. 46 DePeyster to Ribot, 17 June 1915, mf/b 31.831; Cambon to mae, 19 June 1915, mae/g 1914–18/1459/338; Ribot to Cambon, 21 June 1915, mae/g 1914–18/1390. 47 Taylor, Lloyd George: A Diary, 53; Sayers, The Bank of England, 1:99. 48 Beaverbrook, Men and Power, 93. 49 Burk, Britain, America and the Sinews of War, 63. 50 Beaverbrook, Men and Power, 95. 51 The correspondence is reproduced in McKenna, Reginald McKenna, 236–8. 52 Sayers, The Bank of England, 1:89. 53 House Diaries, 27 July 1917, Yale University/House mss, series 2, box 7. 54 Strong to MacKenzie, 1 July 1915, frbny/Strong Papers, 1112.5.

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Notes to pages 104–8

55 House to Wilson, 28 July 1915, Link, Papers of Woodrow Wilson, vo l .34; House Diaries, 3 August 1915, Yale University/House mss, series 2, box 7. 56 McAdoo to Wilson, 21 August 1915, Link, Papers of Woodrow Wilson, vol. 34. 57 Hamlin Diaries, 10 August 1915, lc/Hamlin Papers, Diaries 3. 58 Lansing to Wilson, 6 September 1915, Link, Papers of Woodrow Wilson, vol. 34. 59 The Creusot negotiations can be followed in Homberg and Mallet to Ribot, 8 October 1915, mf/b 31.692/1883; Homberg to Ribot, 20 October 1915, mf/b 31.692/1999; Homberg to Ribot, 28 October 1915, mf/b 31.692/2081; Homberg to Ribot, 4 November 1915, mf/b 31.692/2137; Ribot to Homberg, 5 November 1915, mf/b 31.692. Petit, Histoire des finances, 368–9, contains a summary. 60 Montagu to Asquith, 3 July 1915, Bodleian Libraey/Asquith mss, box 14. 61 22 July 1915, pro/cab 37/131/37. 62 27 July 1915, pro/cab 37/131/44. 63 Turner, British Politics and the Great War, 63–5. 64 The committee consisted of Lord Crewe as chair, Lord Curzon, Winston Churchill, Lord Selborne, Austen Chamberlain, and Arthur Henderson. Twelve meetings were held between 15 and 27 August 1915. Among those who gave testimony were Kitchener, Lloyd George, Long, McKenna, Runciman, Sir Reginald Brade (permanent undersecretary at the War Office) and a number of military men: Major General K.A. Montgomery, the director of recruiting at the War Office; Lieutenant General Archibald Murray, chief of staff of the bef and soon to become chief of the Imperial General Staff; and Major General Charles Callwell, the director of military operations. 65 Cassar, Kitchener, 380–9; Woodward, Lloyd George and the Generals, 56–8. 66 6 September 1915, pro/cab 24/1/27. 67 Ibid. See 7 September 1915, pro/cab 24/1/27. Churchill was now chancellor of the Duchy of Lancashire, having been sacked from the Admiralty; Curzon was Lord Privy Seal; Selborne, president of the Board of Agriculture; and Chamberlain, secretary of state for India. The last three were all Unionists. 68 See 27 July 1915, pro/cab 37/131/44. 69 Jack Morgan to Grenfell, 16 August 1915, Baker Library/lp 213/8/5955; Spring-Rice to Foreign Office, 17 August 1915, pro/t 170/62/1555. 70 Montagu to “Louis,” 13 August 1915, pro/t 170/62. 71 De Fleuriau to Delcassé, 4 August 1915, mae/g 1914–18/1459/438. 72 For the text of the agreement, see 22 August 1915, mae/g 1914–18/1459. 73 See Soutou, L’or et le sang, 224–8. Balfour, Finance and the War, 17 October 1915, pro/cab 37/136/18; Bonar Law’s response, 25 October 1915, pro/cab 37/136/30; and Balfour’s subsequent reply, 26 October 1915, pro/cab 37/136/31.

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Notes to pages 109–13

209

74 Grenfell to Jack Morgan, 3 September 1915, pml/jpm, box 116, folder 5. 75 Green, “The Influence of the City,” 193–213. 76 A recent overview of the debate is contained in Turner, British Politics and the Great War, 64–100. 77 French, British Strategy and War Aims, 116–35. 78 The first two, dated 9 September 1915, are in pro/cab 37/134/11 and pro/cab 37/134/12. McKenna’s circular to the Cabinet of 13 September 1915 is in pro/cab 37/134/17. Bradbury’s piece of 16 September 1915 is in pro/t 170/73. 79 Whiting, “Taxation and the Working Class,” 896–7. 80 French, British Strategy and War Aims, 126. 81 French contains a fine analysis of the budget (ibid., 124–7). Frances Stevenson noted in her diary on 2 September 1915: “The atmosphere, in fact, has been so unpleasant for some time, and the P.M. so clearly shown to D. that he was not in favour, that D. has said very little at Cabinet meetings, letting the P.M. & his little lap-dogs ‘stew in their own juice’ as D. expressed it” (Taylor, Lloyd George: A Diary, 56). Needless to say, McKenna was one of the “lap-dogs.” 82 Neilson, Strategy and Supply, 104–5. 83 Herzstein, “The Diplomacy of Allied Credit to Russia,” 148–55. 84 Bradbury, Russian Credits, 16 September 1915, pro/t 170/73. 85 DePeyster to Longbois, 25 September 1915, mf/b 31.718/Anglo-French file, 766. 86 Financial Agreement and Annexe of 30 September 1915, pro/t 172/255. 87 6 October 1915, mae/g 1914–18/1390. The arrangement was signed on 4 October 1915. 88 According to Herzstein, the British assumed responsibility for the French half of Russian external payments in May 1915 (“The Diplomacy of Allied Credit,” 148–9). 89 There are substantive accounts of the negotiations in Burk, Britain, America and the Sinews of War, 65–76; and Nouailhat, France et États-Unis, 273–92. 90 French, British Strategy and War Aims, 128. 91 Parliamentary Debates, Commons, 5th ser., 74 (1915): 621–4. 92 Asquith to King George V, 2 October 1915, pro/cab 41/36/46. Burk, Britain, America and the Sinews of War, 71. 93 Parliamentary Debates, Commons, 5th ser., 74 (1915): 1227–8. 94 The French, for example, requested that Lackawanna Steel Company subscribe to the loan, an invitation that was complied with (M. Laurent to Albert Thomas, 7 October 1915, mf/b 31.718/Anglo-French). M. Laurent was director general of the Compagnie des forges et acieries de la Marine, while Albert Thomas was at this time undersecretary for artillery and munitions in the Ministry of War.

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Notes to pages 113–19

95 According to Burk, the syndicate wound up holding $187 million, as the public purchased only $33 million, the balance being taken by corporations (Burk, Britain, America and the Sinews of War, 75). The existence of the price-support plan calls into question the idea advanced by Ferguson, The Pity of War, 333–5, that the price of the bonds reflects accurately American investor sentiment as it was being artificially manipulated. 96 Homberg to Ribot, 23 October 1915, mae/g 1914–18/États-Unis 496/2046. 97 Statement of Lord Reading, 29 October 1915, pro/t 170/84. 98 St Aldwyn to Chamberlain, 15 October 1915, bu/ac 13/4/45. 99 Ibid.; Holden to Chamberlain, 16 October 1915, bu/ac 13/4/22–23. 100 Chamberlain to Asquith, 29 October 1915, Bodleian Library/Asquith mss, box 15. 101 Balfour, The Financial Situation, 9 November 1915, pro/cab 1/14. 102 Turner, “Cabinets, Committees and Secretariats,” 57–83. 103 Taylor, Lloyd George: A Diary, 85–6. 104 Sayers, The Bank of England, 1:90. 105 Bradbury to Harvey, 18 November 1915, pro/t 1/11899/2759/ 27330. 106 Sayers, The Bank of England, 1:90. 107 Burk, “The Treasury from Impotence to Power,” 95. chapter six 1 Ribot to Homberg, 26 December 1915, mf/b 31.716/Anglo-French. 2 Homberg to Ribot, 31 December 1915, mf/b 31.716/Anglo-French, 2829. 3 Statement of Financial Arrangements between the French and British Governments, 26 January 1916, mf/b 12.677/a 23.5.6. France still had £6 million of the £12 million credit agreed upon at Boulogne available at the end of 1915. 4 Poincaré, Au service de la France, 7:294–5. 5 DePeyster to Ribot, 25 November 1915, mf/b 31.824/Emprunt 1915, 1027. 6 Poincaré, Au service de la France, 8:192. Suarez, Les accords, 10, has made this suggestion. 7 Thomas to Lloyd George, 26 September 1916, an/ap 94/162. 8 DePeyster to Ribot, 25 November 1915, mf/b 31.824/Emprunt 1915, Preparation/1027. 9 Lennox, The Diary of Lord Bertie, 2:30. 10 Bertie to Grey, 30 November 1915, pro/fo 800/167/15. 11 Homberg to Berthelot, 6 January 1916, mae/g 1914–18/1458/ 2884.

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Notes to pages 119–25

211

12 DePeyster to Longbois, 13 March 1916, mf/b 12.677/a 4. 13 Klotz, De la guerre, 120. 14 See 6 January 1916, The Financial Situation, pro/t 170/84. Hankey was the secretary of the cid and during the war gradually took on the functions of secretary of the Cabinet. This was an early draft of the financial sections of the Cabinet Committee report (2 February 1916, Churchill College, Cambridge/Hankey mss, 1/1). 15 Report of the Cabinet Committee on Co-ordination of Military and Financial Effort, 4 February 1916, pro/cab 17/159. 16 On Hankey, see Offer, The Agrarian Interpretation, 244–9, 300–17. 17 3 May 1916, Churchill College, Cambridge/Hankey mss, 1/1. 18 Report of the Cabinet Committee on Co-ordination of Military and Financial Effort, 4 February 1916, pro/cab 17/159. 19 Memo by Basil Blackett, 10 December 1915, pro/t 1/11892/135. The memo was circulated to Bradbury, Montagu, Reading, and McKenna. 20 “The Amount of American Securities in This Country,” undated, bu/ac 19/1. 21 Report of the Cabinet Committee on Co-ordination of Military and Financial Effort, 4 February 1916, pro/cab 17/159. 22 Chamberlain to Hankey, 1 February 1916, bu/ac 19/1/22. 23 Neilson, Strategy and Supply, 171. 24 This paragraph follows the argument advanced by French, “The Meaning of Attrition,” 385–405. 25 Chamberlain, “Military Policy,” 17 January 1916, bu/ac 13/3/14; Memorandum by Grey, 14 January 1916, bu/ac 13/3/15. 26 Turner, British Politics and the Great War, 82. 27 DePeyster to Ribot, 25 November 1915, mf/b 31.824/Emprunt 1915, 1027. 28 Homberg to Ribot, 8 February 1916, mae/g 1914–18/1457/66. 29 The net yield of the French war loan in Britain was £19,277,644 (Petit, Histoire des finances, 206). 30 Ribot to Homberg, 10 February 1916, mf/b 31.686. The supplementary clause and the text of the 8 February agreement is in mf/b 12.677/a 4. The supplementary clause superseded the February 1915 Paris arrangement whereby the Bank of France would ship £6 million in gold should the Bank of England’s gold reserves fall below a certain level. 31 Poincaré, Au service de la France, 8:61. 32 bf/dcg 98/14 March 1916. 33 Poincaré, Au service de la France, 8:123. 34 Asquith to McKenna, 25 March 1916, Churchill College, Cambridge/ McKenna Papers, 5/10. 35 Petit, Histoire des finances, 211. 36 Poincaré, Au service de la France, 8:151–2.

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212 37 38 39 40 41 42 43 44 45 46 47

Notes to pages 125–7

28 March 1916, mae/g 1914–18/1388. De Fleuriau to Ribot, 3 April 1916, mae/g 1914–18/1388/377. Cunliffe to Pallain, 31 March 1916, be/c 5/49. De Fleuriau to Ribot, 3 April 1916, mae/g 1914–18/1388/377; Cunliffe to Ribot, 4 April 1916, be/c 5/49. 5 April 1916, Churchill College, Cambridge/Hankey mss, 1/1. Pallain to Cunliffe, 21 March 1916, bf/dcg 98/21. DePeyster to mf, 18 April 1916, mf/b 12.677/a 5/2096. De Fleuriau to Ribot, 3 April 1916, mae/g 1914–18/1388/377. Or so DePeyster thought. DePeyster to mf, 18 April 1916, mf/b 12.677/a 5/2096. De Fleuriau to Briand, 15 April 1916, mae/g 1914–18/1388/376. The precise terms of the arrangement were hammered out on 14 April 1916. It was a £60 million credit advanced solely to improve the exchange through the discounting of French treasury bills by the Bank of England. They were to be discounted at 6% or at 1% above the prevailing Bank of England rate, whichever was higher, and to be repaid six months after the end of the war. In return, the Bank of France was to ship £20 million worth of gold. If the franc strengthened and fell below 27, the accord would be suspended. It was also agreed that two regents of the Bank of France and one undergovernor would compose a French committee that would act in concert with the London Exchange Committee to stabilize the exchange (Accord of 14 April 1916, 14 April 1916, mf/b 12.677/a 5). The agreement was not signed until 25 April 1916 and, as Petit has pointed out, Ribot and Pallain worked strenuously to obtain a revision of two clauses. The clause specifying a six-month repayment period was eventually modified at Calais in August; the other offensive clause to the French, the interest rate, was not altered despite consistent French pressure (Petit, Histoire des finances, 215). Three highly contentious clauses that were present in the original draft and dealt with the question of French placements in London were removed from the final version and became the subject of an exchange of letters between the governors of the central banks. These clauses – 6, 7, and 8 – sought to close the London money market to France. Clause 6 stipulated that neither the Bank of France nor the French government would permit any credits in London through any intermediary; clause 7 forbade the Bank of France to use agents to sell securities in London; and clause 8 specified that the £60 million credit would “cancel and be in substitution for any arrangement that may have been made by either the present Chancellor of the Exchequer under which the French Government or the Bank of France might request the Bank of England to introduce a further loan on the London Market” (Accord of 14 April, 14 April 1916, mf/b 12.677/a 5; Bank of France to Ribot, 18 April 1916, mae/g

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Notes to pages 127–33

48 49

50 51 52 53 54 55 56 57 58 59 60 61 62 63 64 65 66 67 68 69

70 71

72 73 74 75 76

213

1914–18/1388/1326; Cunliffe to de Fleuriau, 19 April 1916, mf/b 12.677/a 5). Morgan, Studies in British Financial Policy, 345–6. Mouré, “The Limits to Central Bank Co-operation,” 261–2. On the exchange account, see Baring Archive, 200024, which contains a memorandum of an agreement between Revelstoke and Pallain establishing an account with an initial balance of £200,000. 30 March 1916, frbny/Strong Papers, 1000.2. Poincaré, Au service de la France, 8:192. Ribot to Cunliffe, 28 April 1916, be/c 5/49. Poincaré, Au service de la France, 8:144. As French has shown (French, British Strategy and War Aims, 25). 15 April 1916, bu/ac 19/1/40. De Fleuriau to de Margerie, 17 April 1916, mae/g 1914–18/538. Ibid. Riddell, Lord Riddell’s War Diary, 168. De Fleuriau to mae, 30 March 1916, mae/g 1914–18/1460. De Fleuriau to de Margerie, 8 April 1916, mae/g 1914–18/538. Cambon to Briand, 25 May 1916, mae/g 1914–18/1460. Pallain to Ribot, 5 July 1916, bf/Grande-Bretagne, Correspondances 1916–23. Jèze and Truchy, The War Finance, 303. Martin, France and the Après Guerre, 21. Moggridge, “The Gold Standard and National Financial Policies,” 252. 4 October 1916, mf/b 12.677/a 1, Procés-verbal de la commission financière franco-anglaise tenues à Londres du 3 Octobre au 10 Octobre 1916. Ribot to Minister of War, 23 July 1916, mf/b 32.400. Petit, Histoire des finances, 705. The French and British totals are from Report to the Chancellor of the Exchequer of the British Members of the Anglo-French Financial Committee, pro/t 170/95. Weems, America and Munitions, 226–7. See the cables from Spring-Rice to Grey, 2 and 5 December 1915, pro/fo 800/85, describing the almost immediate clash between Homberg and the Morgans partners. For more on the relationship between J.P. Morgan & Co. and France, see Horn, “A Private Bank at War,” 85–112. Nouailhat, France et États-Unis, 363–6. A more detailed examination of the afsc loan can be found in Nouailhat, “Un emprunt français,” 356–74. Ribot to McKenna, 23 July 1916, mae/g 1914–18/1389. Homberg to Ribot, 18 January 1916, mae/g 1914–18/1457/17. Report of the American Dollar Securities Committee, 4 June 1919, pro/t 170/130.

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214

Notes to pages 133–40

77 Ibid. 78 Morgan, Studies in British Financial Policy, 95. 79 Bradbury to Cunliffe, 20 May 1916, be/c 91/4; Cunliffe to Bradbury, 22 May 1916, be/c 91/4; Bradbury to Cunliffe, 30 May 1916, be/c 91/4; Cunliffe to Bradbury, 31 May 1916, be/c 91/4. 80 Norman Diary, 30 May 1916, be/adm 20/4. 81 Norman Diary, 7 June 1916, be/adm 20/4. 82 Waley to Bradbury, 3 May 1916, pro/t 170/101. 83 Cambon to mf, 8 May 1916, mf/b 31.686/972; Homberg to mf, 9 May 1916, mf/b 31.686/397; Homberg to mf, 17 May 1916, mf/b 31.686/ 430; DePeyster to mf, 6 June 1916, mf/b 31.686/1302 g; DePeyster to mf, 7 June 1916, mf/b 31.686/2634. 84 Homberg to Ribot, 22 June 1916, mf/b 31.686/56. 85 DePeyster to Ribot, 23 June 1916, mf/b 31.686/2929. 86 Lloyd George to Thomas, 1 July 1916, hl/dlg d/19/6. 87 29 June 1916, pro/cab 42/15/14; Minutes of the Meeting of the Finance Committee of the Cabinet, 3 July 1916, pro/cab 17/145. Present were Asquith, McKenna, Balfour, Montagu, Lloyd George, and Bonar Law, with Hankey as the secretary. 88 Ibid. 89 14 July 1916, be/London Exchange Committee (lec) minutes, c 91/17. 90 De Fleuriau to Kammerer, 24 July 1916, mae/g 1914–18/1389; Schmidt, Alexandre Ribot, 134. 91 Procès-verbal, Conference de Londres 13–15 juillet, an/94 ap/166. 92 J.P. Morgan & Co. to Morgan Grenfell, 17 June 1916, pro/t 1/12022/ 35306/21303. 93 Burk, Britain, America and the Sinews of War, 79. 94 Brown to Strong, 4 August 1916, frbny/Strong Papers, 610.1. 95 New York Times, 21 July 1916. 96 Bond prices from the New York Times, 21 July to 4 August 1916. 97 12 September 1916, be/lec minutes, c 91/17. 98 Davison to Grenfell, 9 August 1916, pro/t 1/12022/35036/23860. 99 Davison to Grenfell, 10 August 1916, pro/t 1/12022/35306/23836. 100 Norman Diary, 15 August 1916, be/adm 20/4. 101 Cunliffe to Asquith, 14 August 1916, India Office Library/Reading Papers, 13; Cunliffe to McKenna, 11 August 1915, be/c 91/5. 102 16 August 1916, pro/fo 371/2852/161500. 103 22 August 1916, pro/cab 42/18/4. 104 Rapport de M. le Ministre des Finances au Conseil de Ministres, 19 August 1916, mae/g 1914–18/1390. 105 Ibid.

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Notes to pages 140–3

215

106 22 August 1916, pro/cab 42/18/4. Of the other points Ribot had raised, it was agreed that an estimate of purchases might be prepared, while Montagu believed that centralization was a good idea. The others were apparently not discussed. 107 Diary, 24 August 1916, Churchill College, Cambridge/Hankey mss, 1/1. Present were Asquith, McKenna, Montagu, McKinnon Wood (financial secretary to the Treasury), Cunliffe, Reading, and Keynes for Britain; Briand, Ribot, Pallain, and Homberg for France. 108 A transcript of the talks kept by Paul Mantoux, the French translator, can be found in Conference financière, 25 August 1916, an/94 ap/167. 109 On 12 September 1916 Ribot wired Paul Cambon that in his view the basic reason for the proposed Anglo-French commission was to act as a permanent liaison. Ribot hoped that he and McKenna would preside alternately (Ribot to Cambon, 12 September 1916, mae/g 1914–18/1389). chapter seven 1 Montagu to Asquith, 30 December 1915, King’s College, Cambridge/ Montagu mss, box 20, as 5/1. 2 Bradbury to Hankey, 6 January 1916, The Financial Situation, pro/ t 170/84. 3 Unfortunately, it is not clear whom Norman meant by “c.” Ordinarily the diary refers to Cunliffe as “g.” but it cannot be ruled out that Cunliffe was “c” inasmuch as the governor made the regular trips to the Treasury. Norman may have been referring to McKenna. In either case, the importance lies in the sentiment expressed (Norman Diary, 30 May 1916,be/adm 20/4). 4 Poincaré, Au service de la France, 8:339. 5 DePeyster to mf, 1 September 1916, mf/b 12.677/a 4/4017; DePeyster to mf, 25 September 1916, mf/b 31.832/4333. 6 Pallain to Ribot, 28 August 1916, mf/b 31.834/Accords franco-anglais. 7 5 October 1916, pro/cab 42/21/2; 4 October 1916, Procès-verbal de la Commission financière franco-anglaise, mf/b 12.677/a 1. 8 A long, undated, first- hand account written by DePeyster, which is an invaluable check on both the official procès-verbal and the report of the British members of the committee, can be found in mae/Papiers d’Agents, de Fleuriau, carton 1. 9 Norman’s diary entry for 19 September reads as follows: “Davison has been told to budget for $50 mills a week payments in N.Y. for a quite indefinite period! – this is the 1st time any indication of future needs … from c. to jpm & Co. who tho’ agents have so far been working in the dark!! (news to me too!)” (Norman Diary, 19 September 1916, be/adm 20/4).

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216

Notes to pages 144–5

10 These figures are drawn from Report to the Chancellor of the Exchequer of the British Members of the Joint Anglo-French Financial Committee, pro/t 170/95. mf/b 12.677/a 1 contains an undated summary of British and French expenses that is filed with the Procès-verbal of the Conference and Procès-verbal, 9 October 1916, mf/b 12.677/a 1. I have used the total of $188 million for France in preference to the approximate total of $190 million used throughout the Procès-verbal. Burk, Britain, America and the Sinews of War, 81–2, contains an account of the Anglo-French financial committee from the British perspective. 11 Undated summary, mf/b 12.677/a 1. The City of Paris loan was a $50 million borrowing. 12 Of total British outlays of $1,038,000,000 from May to September 1916, sales of gold yielded $316,683,000, sales of U.S. securities $301,888,000, loans $400,000,000, and miscellaneous $19,429,000. For France, loans totalled approximately $116 million, miscellaneous operations and sales of U.S. securities $6 million, and Treasury advances $68 million for a global total of £190 million. 13 4 June 1919, Report of the American Dollar Securities Committee, pro/t 170/130. 14 This gold pool had been agreed upon at Calais, and at the time of the committee discussions it did not yet exist in its entirety. While £100 million was discussed, the sums mentioned during the deliberations aggregate £95 million. Italy contributed £10 million, Russia had delivered £8 million with another £20 million to come, and France was responsible for £50 million. Additionally, another £7 million had been purchased from the Bank of England, bringing the total to £95 million. Either an additional £5 million was not accounted for or £100 million was simply a convenient figure (Procès-verbal, 4 October 1916, mf/b 12.677/a 1). 15 Calculated from Petit, Histoire des finances, 717 and 705. Gold held at the Bank of France at the end of December 1916 was Fr3,4 89,600,000. The January 1917 exchange on Paris of 27.79 francs per sterling yields a figure of £125,570,340. 16 Quotation in Becker, The Great War and the French People, 195; more generally, 193–235. 17 In January 1917 Keynes noted the last private exports of gold had occurred in June 1916 (Keynes to Bradbury, 17 January 1917, Memorandum on the Probable Consequences of Abandoning the Gold Standard, pro/t 172/643). 18 Morgan, who has undertaken a survey of the question in Studies in British Financial Policy, 216–27, cited “hopeless statistical confusion,” (218) in trying to derive an answer. His conclusion was that the banks had delivered some of their gold to the Bank of England, but not all.

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Notes to pages 146–50

217

19 Procès-verbal, 3–10 October 1916, mf/b 12.677/a 1; undated, mae/ Papiers d’Agents, de Fleuriau, carton 1. 20 Herwig, The First World War, 208–27; Stone, The Eastern Front, 232–81. 21 Report to the Chancellor of the Exchequer of the British Members of the Joint Anglo-French Financial Committee, pro/t 170/95. 22 Procès-verbal, 4 October 1916, mf/b 12.677/a 1. 23 Undated, mae/Papiers d’Agents, de Fleuriau, carton 1. 24 Procès-verbal, 6 October 1916, mf/b 12.677/a 1. 25 Keynes to Chalmers, 4 October 1916, Suggestions for providing Exchange, pro/t 170/92. A copy was also sent to Cunliffe. 26 Procès-verbal, 9 October 1916, mf/b 12.677/a 1; 9 November 1916, be/lec minutes, c 91/17. 27 Homberg to Reading, 13 November 1916, India Office Library/Reading Papers, 35; Petit, Histoire des finances, 240. 28 Harjes to Davison, 20 October 1916, pml/mbp, box 312. 29 For Davison’s reasoning, see Davison to Treasury, 13 November 1916, pro/t 1/12126/29831/31059; Davison to Treasury, 15 November 1916, pro/t 1/12126/29831/31152. 30 Ribot to Masson, 4 November 1916, mae/g 1914–18/1451/822. 31 Cunliffe to Reading, 9 November 1916, India Office Library/Reading Papers, 13. 32 Ribot to Cambon, 16 November 1916, mf/b 31.622. 33 Norman Diary, 27 November 1916, be/adm 20/4. 34 $100 million was the aggregate limit, while the Treasury stipulated no more than $10 million a week be issued (McKenna to Ribot, 14 November 1916, pro/t 1/12126/1347). 35 Unknown to mf, 30 November 1916, mf/b 12.670. This was a letter from a London embassy official, probably de Fleuriau, detailing a conversation with Chalmers. 36 Norman Diary, 27 November 1916, be/adm 20/4. 37 Burk, Nouailhat, and Soutou all contain accounts of the Federal Reserve Board affair. See Burk, Britain, America and the Sinews of War, 83–90; Nouailhat, France et États-Unis, 374–8; Soutou, L’or et le sang, 375–8. 38 Warburg to Strong, 23 November 1916, frbny/Strong Papers, 211.3/2. 39 The entry in the diary of Charles Hamlin, which is the fullest account of the meeting, is dated 19 November, a date accepted by Burk, Britain, America and the Sinews of War, 83 (19 November 1916, lc/Hamlin Papers, 4). However, 19 November was a Sunday, and a cable from Davison to Ribot on 22 November remarks that he “spent three hours with them Saturday morning” (Davison to Morgan, Harjes, 22 November 1916, pml/mbp, box 312a). This is supported by Warburg, who told Strong that Davison “was here last Saturday” (Warburg to Strong, 23 November 1916, frbny/Strong Papers, 211.3/2).

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Notes to pages 150–4

40 Wilson to W.P.G. Harding, 26 November 1916, Link, The Papers of Woodrow Wilson, vo l .40; Cooper, “The Command of Gold Reversed,” 221–6. 41 Warburg to Strong, 23 November 1916, frbny/Strong Papers, 211.3/2. 42 Strong to Jay, 22 October 1916, frbny/Strong Papers, 320.111/1; Jay to Strong, 23 October 1916, frbny/Strong Papers, 320.111/1; Jay to Strong, 30 October 1916, frbny/Strong Papers, 320.111/1; Warburg to Strong, 30 October 1916, frbny/Strong Papers, 211.3/2. The contract for the Guaranty-Bonbright credit was signed on 11 November 1916 (Petit, Histoire des finances, 403–6). 43 House Diaries, 13 November 1916, Yale University/House Papers, series ii/9. 44 Harding to McAdoo, 4 November 1916, lc/McAdoo Papers, box169; Harding to McAdoo, 12 November 1916, lc/McAdoo Papers, box16 9. 45 Jusserand to Briand, 29 November 1916, mae/g 1914–18/503/878; Jusserand to mf, 19 December 1916, mae/g 1914–18/1451/926. 46 McKenna to J.P. Morgan & Co., 29 November 1916,pro/t 170/122/ 26788; Morgan, Grenfell to J.P. Morgan & Co., 30 November 1916, pro/t 170/122/26827; Frédéric-Bloch to Ribot, 29 November 1916, mf/b 31.622/1402. 47 Jusserand to Ribot, 2 December 1916, mf/b 31.622/882, 886; Homberg to Cambon, 2 December 1916, mae/g 1914–18/1451/4049, 4050; Foreign Office to Spring-Rice, 29 November 1916, pro/t 170/122/3369; Davison to Morgan, Harjes, 4 December 1916, pml/mbp 312a/14.898; Morgan, Harjes to Davison, 4 December 1916, pml/mbp 312a/18.435. 48 18 December 1916, be/lec minutes, c 91/17. 49 29 November 1916, be/lec minutes, c 91/17. 50 Ibid.; Norman Diary, 30 November 1916, be/adm 20/4. 51 Asquith to King George V, 30 November 1916, pro/cab 41/37/42. 52 Ibid. The decision was made on 29 November 1916. 53 Treasury to Ribot, 10 December 1916, mae/g 1914–18/1417; 9 December 1916, pro/cab 23/1/1. 54 This issue, like the City of Paris loan, was led by Kuhn, Loeb & Co. 55 9 December 1916, pro/cab 23/1/1. 56 Morgan, Grenfell pointed out to Bonar Law on 13 December 1916 that daily operating funds were being advanced by J.P. Morgan & Co. on demand loans 1 and 2, and now stood at $200 million (Morgan, Grenfell to Bonar Law, 13 December 1916,pro/t 170/122). 57 For accounts of the political crisis, see Bonnefous, Histoire politique, 2:170–210; Suarez, Briand, 4:16–17; Tannenbaum, General Maurice Sarrail, 133–43; and Horne, The French Army and Politics, 34–9. 58 De Fleuriau to Foreign Office, 4 December 1916, pro/fo 371/2800/ 216137. 59 French, British Strategy and War Aims, 230.

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Notes to pages 155–61

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60 Hankey’s survey of the war, dated 31 October 1916, pro/cab 63/15; Norman Diary, 26 October 1916, be/adm 20/4. 61 28 November 1916, pro/cab 42/26/2. 62 Two recent accounts in what is a large literature can be found in Wilson, The Myriad Faces of War, 418–23, and Bourne, Britain and the Great War, 119–27. Wilson stresses that Asquith had lost the confidence of the country and especially members of parliament, while Bourne suggests the outcome was due more to Asquith’s miscalculations. 63 Tannenbaum, General Maurice Sarrail, 143; also see the comments in Bernard and Dubief, The Decline of the Third Republic, 37–8. Duroselle has argued that Briand sacrificed Joffre to retain his position as head of government (Duroselle, La Grande Guerre, 148–50). 64 See the file in mf/b 32.400 relating to the discussion surrounding the spending program of 15 January 1917. 65 Davidson to Sir George Fiddes, 11 December 1916, hl/Bonar Law Papers, 65/3. 66 Keynes to Bradbury, 17 January 1917, Memorandum on the Probable Consequences of Abandoning the Gold Standard, pro/t 172/643. 67 Ferguson, Pity of War, 328. 68 29 December 1915, Churchill College, Cambridge/Hankey mss, 1/1. 69 Quoted in Harrod, The Life of John Maynard Keynes, 240. 70 Petit, Histoire des finances, 240. 71 Norman Diary, 14 December 1916, be/adm 20/4; Hardinge to Bertie, 12 December 1916, bl/Bertie mss/63034/125–148. 72 Cambon to mae, 16 December 1916, mae/g 1914–18/1387/1660; British Embassy in Paris to mae, 21 December 1916, mae/g 1914–18/992. 73 Notes biographiques sur M. Bonar Law, 5 December 1916, mae/g 1914–18/541. 74 28 December 1916, pro/cab 28/2/14. 75 The subtitle of volume 9 of his Au service de la France. 76 Homberg, Les coulisses, 156. 77 McEwen, The Riddell Diaries, 3 August 1918, 232. 78 Ribot to Cambon, 21 February 1917, mae/g 1914–18/1387/830; Cambon to Ribot, 22 February 1917, mae/g 1914–18/1461/287. 79 13 March 1917, mf/b 12.677/a 8/7285, 7437; 14 March 1917, mf/b 12.677/a 8/7378. 80 Ribot to Cambon, 25 March 1917, mae/g 1914–18/1387/1391–93. 81 Bonar Law to Cambon, 28 March 1917, mf/b 31.834/Accords francoanglais, notes et correspondences diverses, 1916–24. 82 De Neuflize was the son of the Bank of France regent of the same name. Among others, Bergson met Lane, the secretary of the interior, Adolph Miller of the Federal Reserve Board, and Wilson (Bergson to Briand, 3 March 1917, Link, Papers of Woodrow Wilson, vol.41 ).

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Notes to pages 161–6

83 Ribot to Frédéric-Bloch, 5 January 1917, mae/g 1914–18/1402/15; Ribot to Frédéric-Bloch, 15 January 1917, mae/g 1914–18/1402/31; FrédéricBloch to Ribot, 17 January 1917, mae/g 1914–18/1402/72; Ribot to Frédéric-Bloch, 20 January 1917, mae/g 1914–18/1402/40; FrédéricBloch to Ribot, 24 January 1917, mae/g 1914–18/1402/104; FrédéricBloch to Ribot, 3 February 1917, mae/g 1914–18/1402/137. 84 Frédéric-Bloch to Ribot, 20 January 1917, mae/g 1914–18/1451/90; Frédéric-Bloch to Ribot, 26 February 1917, mf/b 31.623. 85 Ribot to Frédéric-Bloch, 5 March 1917,mae/g 1914–18/1457. 86 The telegram was from Arthur Zimmermann, the undersecretary of state in the German foreign office, offering concessions to Mexico if the Mexicans would declare war on the United States. The telegram was intercepted by the British and published in the New York papers. 87 Harding had informed Frédéric-Bloch and Casenave that the government was considering ways of helping the allies in the financial sphere (Ribot to London Embassy, 17 March 1917, mae/g 1914–18/1451/ 1216). 88 Burk, Britain, America and the Sinews of War, 91–5, gives an overview. 89 Crawford to Foreign Office, 19 February 1917, pro/t 172/420; Keynes to Chalmers, 22 February 1917, pro/t 172/140. 90 Frédéric-Bloch to Ribot, 10 March 1917, mf/b 31.623. 91 Lever Diary, 19 February 1917, pro/t 172/249; Bonar Law’s statement to the Imperial War Cabinet, 3 April 1917, pro/cab 1/24/13b; 26 April 1917, be/c 91/18. 92 On 17 March 1917 Keynes estimated that the Treasury had enough funds to carry it through the next five weeks. He based this on expenditure of $65 million a week, even though February had seen a weekly average of $83 million (Keynes to Bonar Law, 7 March 1917, Financial Position in America, pro/t 172/422). 93 Lever to Bonar Law, 26 February 1917, pro/t 172/420. 94 lec to Treasury, 2 March 1917, pro/t 172/421; Chalmers memo, 1 March 1917, pro/t 172/421. 95 Crawford to Treasury, 22 March 1917, pro/t 172/421/775. 96 Bonar Law to Lever, 16 April 1917, pro/t 172/423/1125. 97 Ferguson, Pity of War, 326–7. 98 Burk, Britain, America and the Sinews of War, 10. chapter eight 1 18 April 1917, pro/cab 63/20. 2 8 February 1918, pro/t 1/12138/6969. 3 The best guides to this subject are Burk, Britain, America and the Sinews of War, 99–225; Kaspi, Le Temps, 48–69, 330–4; and Petit, Histoire des finances, 431–538.

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Notes to pages 166–75

221

4 Robert Nivelle had succeeded Joffre as French commander in chief. See Poincaré’s entry for 3 April 1917, Au service de la France, 9:99. 5 Accounts of the crisis of 1917 can be found in Mayer, La vie politique, 242–50; Becker and Berstein, Victoire et frustrations, 104–21; Duroselle, La Grande Guerre, 187–214. The standard work on the mutinies is Pedroncini, Les mutineries. A concise overview of the activities of the Senate Commission on the Army is Duménil, “La commission sénatoriale,” 313–23. 6 Information on Thierry’s career can be found in his entry in Jolly, Dictionnaires des parlementaires, 8:3077. 7 Thierry to Thomas, 6 April 1917, an/94 ap/61. 8 Vatin, “Publicité et politique,” 210–11, 219–24. 9 See the portrait sketched by Duroselle, Clemenceau, 641–6. 10 Watson, Georges Clemenceau, 285. 11 Martin, France and the Après Guerre, 25. 12 Among the accounts of the Maurice debate are Wilson, Myriad Faces of War, 573–5; and French, The Strategy of the Lloyd George Coalition, 234–5. 13 Bourne, Britain and the Great War , 209–13. 14 Wilson, Myriad Faces of War, 646–7. 15 Morgan, Studies in British Financial Policy, 115. 16 Daunton, “How to Pay for the War,” 890. 17 Whiting, “Taxation and the Working Class,” 899–900. 18 Parliamentary Debates, Commons, 5th ser., 105 (1918): 709. 19 Ibid., 711–12. 20 Sir Joseph Walton made this point in the 1918 debate over the budget (ibid., 731–2). See also Adams, Bonar Law, 244–5. 21 Daunton, “How to Pay for the War,” 891. 22 Sayers, Bank of England, 1:96–8. 23 There are accounts in Clay, Lord Norman, 99–105, and Sayers, Bank of England, 1:99–107, among others. 24 Cunliffe to Lloyd George, 3 July 1917, be/c 91/11. 25 17 December 1917, Baring Archive, 200023. 26 Sayers contains a comprehensive account of these developments (Bank of England, 1:108–9). 27 See Norman Diary entry for 10 October 1917, be/adm 20/5. 28 See Norman Diary entry for 22 March 1918, be/adm 20/6. 29 Bonar Law to Reading, 9 April 1918, pro/t 1/12248/49270. 30 Masson to Ribot, 9 March 1917, mf/b 31.623/35. 31 Pallain to Thierry, 12 April 1917, bf/Grande-Bretagne, Relations Banque d’Angleterre–Banque de France, 9. 32 Frédéric-Bloch to Ribot, 3 March 1917, mae/g 1914–18/1451/240; Lever to Bonar Law, 29 March 1917, pro/t 172/421; Bonar Law to Lever, 30 March 1917, pro/t 172/421. 33 Jusserand to mae, 25 March 1917, mae/g 1914–18/1455/307; Ribot to Jusserand, 29 March 1917, mae/g 1914–18/1455/461.

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Notes to pages 175–83

34 Jusserand to Ribot, 2 April 1917, mae/g 1914–18/1455/348; FrédéricBloch to Ribot, 3 March 1917, mae/g 1914–18/1455/240. 35 Bonar Law to Spring-Rice, 5 April 1917, pro/t 172/423/986; Lever to Bonar Law, 10 April 1917, pro/t 172/423/936. 36 See Burk, “J.M. Keynes and the Exchange Rate Crisis,” 405–16. 37 Rapport sur les travaux du Haut-Commissariat pendant les mois de mai et juin, an/94 ap/172. 38 2 June 1917, pro/t 1/12052/18021. 39 Burk, Britain, America and the Sinews of War, 147–51. 40 31 July 1918, pro/t 1/12091/37046/25205. 41 Crosby to Bonar Law, 13 March 1918, pro/t 1/12138/6969, contains the bylaws of the council. 42 McFadyen, pro/t 1/112138/6969/18. This was written by McFadyen in 1927 as part of an entry in the Encyclopaedia Britannica. 43 See the file pro/t 1/12246/49045. 44 The accords are in Petit, Histoire des finances, 773–4. 45 pro/t 1/12101/40955. Godfrey, Capitalism at War , 71–81, is a discussion of British pressure on France to reduce imports. 46 Calculated from the monthly totals in pro/t 1/12087/36211. 47 Petit, Histoire des finances, 304–6; Kaspi, Le Temps, 332. 48 be/g 30/2 contains correspondence between Bonar Law and Cunliffe on 8–9 November 1917, where Bonar Law outlines his discussions with Klotz. 49 Petit, Histoire des finances, 279. 50 Ibid., 315–20. 51 Soutou, L’or et le sang, is the best guide to the Paris conference (233–305) and to the development of allied economic war aims after 1916 (364–412; 446–568; 726–843). 52 14 March 1917, mf/b 12.677/a 8. 53 On Clémentel, see his own work, La France et la politique, and Trachtenberg, “A New Economic Order,” 315–41. 54 Keynes to Hamilton, 15 March 1917, pro/t 1/12043/11560; Sergent to Ribot, 28 March 1917, mae/g 1914–18/1387/505. 55 bf/dcg/102/11 July 1918. Pallain was responding to a question from the rapporteur of the budget commission directed to Klotz, the minister of finance. For Cokayne, see the report in Baring Archive, 200023. 56 Committee on Currency and Foreign Exchanges, First interim report, 15 August 1918, pro/t 185/2. The final report did not differ in any significant way. conclusion 1 2 December 1918, pro/t 208/18. This accounting was prepared by Ramsay of the Treasury. The figure represents outstanding loans to France on 30 November 1918.

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2 The figure is from bf/dcg 101/10 January 1918 and is the total amount of Russian government treasury bills discounted by the Bank of France as of 3 January 1918. 3 On this issue, see the illuminating article by Glaser, “The Making of the Economic Peace.” The collection in which it is found, The Treaty of Versailles, edited by Boemeke, Feldman, and Glaser, is the best recent overview of scholarship on Versailles. 4 The best guide remains Schuker, The End of French Predominance in Europe. Trachtenberg, Reparation in World Politics, and Silverman, Reconstructing Europe, are among the other important works in what is a large literature. 5 Artaud, “Reparations and War Debts,” 89–106. 6 For the debate on this issue, see the essays in McKercher, Anglo-American Relations in the 1920s. 7 Bell, France and Britain, 113–72, provides a good overview. 8 Mouré, “The Limits to Central Bank Co-operation,” 260–1. 9 Turner, “Anglo-French Financial Relations,” 31. 10 Cairncross and Eichengreen, Sterling in Decline, 70–1. The 1931 crisis is analysed on 27–103. 11 See Frankenstein, “Le financement français de la guerre,” 482–6; Pressnell, “Les finances de guerre britanniques,” 503–10.

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Tannenbaum, Jan Karl. General Maurice Sarrail, 1856–1929: The French Army and Left-Wing Politics. Chapel Hill: University of North Carolina Press 1974 Taylor, A.J.P., ed. Lloyd George: A Diary by Frances Stevenson. New York: Harper & Row 1971 Thane, Pat. “Financiers and the British State: The Case of Sir Ernest Cassel.” Business History 27 (1986): 80–99 Trachtenberg, Marc. ‹A New Economic Order’: Étienne Clémentel and French Economic Diplomacy during the First World War.” French Historical Studies 10, no. 2 (1977): 315–41 – Reparation in World Politics. New York: Columbia University Press 1980 Turner, Arthur. “Anglo-French Financial Relations in the 1920s.” European History Quarterly 26 (1996): 31–55 Turner, John. British Politics and the Great War. New Haven: Yale University Press 1992 – “Cabinets, Committees and Secretariats: The Higher Direction of War.” In War and the State, edited by Kathleen Burk. London: George Allen & Unwin 1982 United Kingdom. Parliamentary Debates, Commons, 5th series U.S. Congress. Senate. Hearings before the Special Committee on Investigation of the Munitions Industry. 74th Cong. 1st sess. 1936 Van Evera, Stephen. “The Cult of the Offensive and the Origins of the First World War.” In Military Strategy and the Origins of the First World War, edited by Steven E. Miller. Princeton: Princeton University Press 1985 Vansittart, Robert. The Mist Procession. London: Hutchinson 1958 Vatin, Philippe. “Publicité et politique: La propagande pour l’emprunt en France de 1915 à 1920.” Revue d’histoire moderne et contemporaine 27 (1980): 208–36 Vincent, John, ed. The Crawford Papers. 2 vols. Manchester: Manchester University Press 1984 Vinogradov, V.N. “Romania in the First World War: The Years of Neutrality, 1914–1916.” International History Review 14, no. 3 (1992): 452–61 Waites, Neville, ed. The Troubled Neighbours: Franco-British Relations in the Twentieth Century. London: Weidenfeld 1971 Waley, S.D. Edwin Montagu. New York: Asia Publishing House 1964 Warman, Roberta. “The Erosion of Foreign Office Influence in the Making of Foreign Policy, 1916–1918.” Historical Journal 15 (1972): 133–59 Watson, D.R. Georges Clemenceau: A Political Biography. London: Eyre Methuen 1974 Weems, F. Carrington. America and Munitions: The Work of Messrs. J.P. Morgan & Co. in the World War. New York: Privately printed 1924 Whiting, R.C. “Taxation and the Working Class.” Historical Journal 33 (1990): 895–916

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Williamson, Samuel R. The Politics of Grand Strategy. 2nd ed. London: Ashfield Press 1990 Wilson, K.M. The Policy of the Entente: Essays on the Determinants of British Foreign Policy. Cambridge: Cambridge University Press 1985 Wilson, Trevor. The Myriad Faces of War. Cambridge: Polity Press 1986 – ed. The Political Diaries of C.P. Scott. Ithaca: Cornell University Press 1970 Withers, Hartley. War and Lombard Street. London: Smith, Elder 1915 Woodward, David. Lloyd George and the Generals. Newark: University of Delaware Press 1983

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Index

acceptance credit, 103–4, 151 acceptance houses, 29, 30–1 allied loans, joint, 28–9, 47, 51–2, 53, 54–5, 68, 136–7 Almereyda, Miguel, 167 American and British Loan Corporation, 137, 138 American dollar securities (ads), 133 American Exchange Committee, 115 American Expeditionary Force, 179 American Foreign Securities Corporation (afsc) loans, 132, 134–5, 136, 137–8, 161 American Group of Bankers, 74 American National Monetary Commission, 11 American Supply Corporation, 68 Anglo-French financial committee, 142–8 Anglo-French financial meetings: December 1916, 158–60; February 1916, 123–4 Anglo-French loan (1915), 108–10, 112–13; Bou-

logne meeting on gold shipments, 108, 111, 117 anti-Semitism, 37, 65 Asquith, H.H., 46, 101, 119; collapse of government, 100; establishment of War Committee, 114; establishment of War Policy Committee, 106; fall of coalition, 109, 153, 155, 219 n62; on financial support to France, 44, 55, 126, 140; impromptu conference with Ribot and Briand (1916), 126; and McKenna, 102 Bacon, Robert, 74, 202 n88 Baghdad railway project, 7 Baldwin, Stanley, 173 Balfour, Arthur, 77, 114, 135, 155, 162 Balkan states, 18, 71 Banbury, Sir Frederick, 113 Banker’s Trust, 151 Bank of England: American dollar securities (ads), 133; cir account, 39; Committee of Treasury, 11, 35; Committee on Currency and Foreign Exchanges (Cunliffe Committee), 181–2; control of foreign exchange,

101–2, 125, 134; Court of Directors, 11, 24, 35, 126, 189 n14; Cunliffe’s role in, 11–12, 35, 174; discount rate, 30–1, 189 n13; and gold pool agreement, 53, 211 n30; governorship of, 11–12, 173–4; and international gold standard, 8; relations with joint-stock banks, 23, 25; relations with Treasury, 101–2, 114, 121, 133–4, 172–4; structure and function, 11–12; view of collateral loan through Morgans (1916), 138–9; view of Cunliffe-Ribot agreement (1916), 126. See also Britain Bank of France (Banque de France): acceptance credit with Brown Brothers, 103; advances to government, 32, 78, 79, 169, 170t; Conseil général, 10; control of foreign exchange, 99; discounted bills held by (1914), 31–2, 32t; discount rate, 31; exchange agreement with Bank of England (1916), 180; exchange support

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240 payments to (1916), 143; and gold pool agreement, 53; loan from Bank of England, 96–8; notes in circulation, 170t; plans for war, 22, 27, 32; renewal of charter, 169–70; structure and function, 9–11. See also France “Bank was Ready, The,” 11 Banque de l’union parisienne, 43 Banque d’Indochine, 43 Banque nationale de crédit, 31 Baring Brothers, 8, 23, 24 Bark, Peter, 45, 50, 111; at 1915 Paris conference, 51, 52, 54 Barstow, George, 38 Beaverbrook, Lord, 207 n35 Becker, Jean-Jacques, 145 Belgium: British subsidies to, 121t Belmont, Augustus, 205 n9 Benckendorff, A.K., 40 Bergson, Henri, 161, 219 n82 Berlin stock exchange, 28 Bertie, Francis, 13, 16, 41; on French finances, 42, 47; on French views of Britain, 106, 118, 129; on Grey, 77 bills of exchange, 188 n5 Blackett, Basil, 36, 101, 114; and Lloyd George, 34, 47; memorandum on British finances (1915), 120, 121, 132; memorandum on gold reserves, 25, 48–9; and Paish-Blackett mission to U.S., 64–7; role in Treasury, 14–15 Boer War, 19 Bonar Law, Andrew, 100, 152, 156; at AngloFrench conference (1916), 158–60; budget

Index for 1918, 172, 174; as chancellor, 89–90, 156, 157; in coalition Cabinet, 119, 135, 155; and Cunliffe, 173–4; policy on gold standard, 89–90, 157, 158 Bonbright & Co., 151 Bonnet rouge scandal, 167 Boulanger, Georges, 131 Boulogne: meeting of Morgans associates at (1914), 73; meeting on AngloFrench loan at (1915), 108, 111, 117 Bourne, J.M., 219 n62 Bradbury, Sir John, 30, 41, 42, 109, 114, 134, 147, 159; advice that Ribot contact McKenna directly, 123; on credits to Russia, 111; on financial status in 1916, 142; and Lloyd George, 47, 101; role in Treasury, 14 “Bradburys” (British Treasury notes), 30 Brade, Sir Reginald, 208 n64 Brautianu, Ion, 201 n76 Briand, Aristide, 76, 126, 140–1; fall of government of, 153–4, 161 Britain, 90, 140; Admiralty, 39, 201 n81; alliance with France, 3, 4–5; and Anglo-French loan (1915), 108–10, 112–13; Armies, New, 46, 93, 122, 128; army, size of, 106, 107, 119; Army Council, 201 n81; balance between military and financial support to allies, 105–6, 122; belief in short war, 22; Board of Trade, 39; coalition government (May 1915), 100; collapse of Asquith government, 100; commitment to war effort, 46, 51, 106–7, 108,

118–19, 127–8; concern for global financial dominance, 5, 8, 36, 89, 94, 108–9, 127–8, 140, 148, 182; conscription, 93, 107, 109, 119–20, 128–9; debts in 1918, 183; decision to enter war, 37; defence spending, prewar, 19; effect of German victory on, 37, 38; excess profits duty, 110; expenditures, lack of control over, 69, 83, 101, 105; expenditures in U.S., 131–2, 143–4, 204 n45; failure to meet payments to France (1916), 134–5; financial crisis of 1914, 29–31; financial crisis of 1917, 162–5; financial dominance over allies, 55, 139; financial panic of 1907, 8, 9, 16; financial status, postwar, 183–5; financial status, prewar, 19; financial status in 1916, 119, 120, 134–5, 142, 153, 154–5; financial support from U.S., 164–5, 175–6; foreign exchange, 99, 101, 102, 125, 134; foreign investment, prewar, 89; Foreign Office, 12, 15–17, 77; foreign policy, global, 4; foreign securities held by, 89, 120–1, 133, 144, 157; gold export, 24–5, 183; gold as requisite for financial assistance, 29, 41, 48–9; gold reserves, 9, 23–6, 90t, 182; gold shipments to, French, 90–1, 98, 108, 141, 160–1, 179, 183; gold shipments to, Russian, 90, 105, 111, 140; gold shipment to U.S. (1915), 107; gold standard, importance of,

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Index 24–5, 35–7, 89–90, 109, 120, 135, 152, 157–8, 181–2, 183; government revenue and expenditure, 83t; import restrictions, 85, 88–9, 106, 110, 153, 179; interest rates, 30, 90; and joint allied loans, 51–2, 54–5, 108; Liberal party, 93, 129, 155; loans and subsidies to France, 40–5, 96–8, 123–4, 141; loans and subsidies to Russia, 41, 46, 87, 105, 135, 136; loans as wartime revenue source, 82–3, 171; Morgan’s advances to (1917), 163; Morgan’s collateral loan to, 137–40, 146–7, 162–3; Morgans as purchasing agent for, 68–9, 72, 94, 102, 175, 176, 200 n61, 201 n81; national debt, 19; new capital issues, 92t; Paish-Blackett mission to U.S., 64–7; and 1915 Paris conference, 14, 48–50, 51, 55; plans for war, 24, 26; political crisis of 1916, 155–6; reaction to Bryan ruling on loans to belligerents, 62; reaction to Federal Reserve Board warning on short-term allied bills, 151–2, 155; reaction to U.S. proposal for interallied council, 176; sabotage of Russian loan in U.S., 71; strikes and labour unrest, 170–1; subsidies to dominions (1916), 121t; taxation in, 83–4, 110, 171–2; trade with France, 85t; trade with U.S., 86–7, 87t; Unionist party, 171, 172; view of French finances, 43, 105, 124–5, 129; War Book, 24; War Cabinet,

153, 156, 158; War Office, 38, 69, 101; Ways and Means advances, 171. See also Bank of England – committees and commissions: American Dollar Securities Committee, 132–3, 144; Committee of Imperial Defence (cid, Desart Committee), 23–6, 35, 36, 211 n14; Committee on the Co-ordination of Military and Financial Effort, 119–21, 122, 128, 133; Committee on War Office Expenditure, 101; Royal Commission on the Civil Service, 16; Royal Commission on the Supply of Food and Raw Materials in Time of War, 26; War Committee, 114, 139, 140; War Policy Committee, 106–7, 110 – legislation: Bank Act, suspension of, 30; Defence of the Realm Act, 133; Military Service Act, 119 – Treasury: conference on Paish-Blackett mission, 64–5; Cunliffe’s disputes with, 114, 125, 173; documents submitted to Cabinet (1915), 109–10; estimate of subsidies to allies (1916), 121t; under Mckenna, 101; nineteenth-century outlook, 26–7; relations with Bank of England, 101–2, 114, 121, 133–4, 172–4; structure and function, 12; view of Davison’s short-term treasury bill proposal, 149; view of 1916 financial situation, 142 British Expeditionary Force, 22, 27, 39, 178

241 British War Mission, 174 Brown, James, 28, 67, 70, 137 Brown, W.A., Jr, 182 Brown Brothers & Co., 103–4, 137 Brusilov, Aleksiei, 135–6, 146 Bryan, William Jennings, 58, 59, 60–1, 62, 104, 198 n18 Buchanan, George, 45 Bulgaria, 18 Burk, Kathleen, 151, 153, 201 n81; on 1915 AngloFrench loan, 210 n95; on Britian’s financial status in 1917, 164; on Morgans as British purchasing agent, 68–9, 201 n81; on Paish-Blackett mission, 64 Caillaux, Joseph, 13, 20 Calais conference (1916), 107, 140–1, 143, 181, 215 nn107–8; extension of accords, 160, 161, 178–9; gold pool agreement, 145, 216 n14 Callwell, Charles, 208 n64 Cambon, Paul: antiSemitism, 37; on Britain’s decision to enter war, 37; and British loan for France, 40, 41–2; on exchange controls, 129, 130; joint purchasing proposal, 38; position and influence of, 77–8 Campbell, W. Middleton, 64 Canada: British gold reserves in Ottawa, 102, 173; Canadian securities, 120 Carter, Jack, 69, 72 Casenave, Maurice, 62, 74, 161, 162 Cassell, Sir Ernest, 17, 195 n47 Challener, R.D., 21

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242 Chalmers, Sir Robert, 24, 143, 152, 159, 160, 173; appointment to Treasury, 114–15; on cost of supporting exchange, 153; on Davison’s treasury-bill proposal, 164 Chamberlain, Austen, 107, 194 n22; on British support to allies, 121, 122, 128; and Committee on the Co-ordination of Military and Financial Effort, 119, 122, 128; on gold standard, 25; in Treasury, 34, 114 Chantilly, allied general staffs meeting at (1915), 122 Churchill, Winston, 107, 208 n64, 208 n67 Clemenceau, Georges, 20, 117, 156, 183; government of, 169; on Senate Commission on the Army, 167 Clémentel, Etienne, 47, 181 Cobb, Frank, 175 Cokayne, Brien, 115, 143, 147; appointment to Bank of England, 174; on collateral loan, 137, 138–9, 146; on exchange, 99 Cole, A.C., 24 Commission des changes, 130 Commission internationale de ravitaillement (cir), 38–40, 111, 179 Compagnie des forges et acieries de la Marine, 209 n94 Comptoir national d’escompte de Paris, 31 conscription, 93, 107, 109, 119–20, 128–9 couverture, 91, 169 Crawford, Sir Richard, 162, 163, 192 n22

Index Crédit commercial de France, 31 Crédit Foncier, 161 Crédit industriel et commercial, 31 Crédit lyonnais, 31, 103 Creusot, 104 Crewe, Lord, 208 n64 Crosby, Oscar T., 176 Crowe, Eyre, 16 Cunliffe, Walter, 25, 30, 41, 51, 65, 108, 147, 149, 159; and 1915 AngloFrench loan, 108–9; and Bonar Law, 173–4; career and character, 11–12, 35, 102, 174; on collateral loan (1916), 139; control of exchange, 99, 102, 125, 134; criticism of Bank of France, 127; disputes with Treasury, 114, 125, 173; and loan to France (1916), 126–7; and London Exchange Committee, 115, 152; meetings with Ribot, 123–4, 125–6, 134; and Jack Morgan, 97; objection to Paish-Blackett mission, 64; policy on gold and gold standard, 125, 127, 152, 153; sabotage of Russian loan in U.S., 71 Curzon, Lord, 5, 107, 156, 208 n64, 208 n67 Daily Mail (London), 100 D’Anglade, G.B., 59–60 Dardanelles campaign, 95, 100 Davidson, J.C.C., 35, 157 Davillier (French banker), 98 Davison, Henry P., 58, 72, 132, 143; on afsc loan to France, 137–8; and loan to France (1915), 73, 74, 97; and loan to Rumania, 70; and loan to Russia, 71; and McAdoo,

163; and Paish-Blackett mission, 47, 67, 68; proposals for short-term treasury bills, 148–52, 162, 163–4 Dawes Plan (1924), 183 de Cecco, Marcello, 36 Declaration of London (1914), 40, 130 de Fleuriau, Aimé, 43, 108, 126, 129, 159 De la conduite de la guerre (Foch), 21 Delano, Frederick A., 103 Delcassé, Theophile, 40, 42, 97 de Margerie, Pierre, 58 de Neuflize, Jacques (father), 98 de Neuflize, Jacques (son), 161, 219 n82 DePeyster, Henri, 39, 43, 111, 126, 143; on British Treasury officials, 118, 119; on exchange support payments to Bank of France, 143; on French borrowing in Britain, 40, 42 Desart, Viscount, 23 Des principes de la guerre (Foch), 21 Deutsche Bank, 17 dollar (U.S.): American dollar securities, 133; as means to support allied currency, 88–9; strength of, 29, 87 Doumergue, Gaston, 38 Drexel & Co., 58 Dulles, Eleanor, 31 Duroselle, Jean-Baptiste, 203 n17, 219 n63 Eastern Front, 95, 110–11, 112, 146, 153; Brusilov’s assault, 135–6, 146; Masurian Lakes, second battle of, 95 Echo de Paris, 129–30 Economist, 35, 37–8 Eichengreen, Barry, 8

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Index Emmott, Lord, 64 entente cordiale, 11 Esher, Lord, 22 Europe: collective action of central banks, 8–9, 47; prewar defence spending, 19 exchange, foreign: control in France, 99, 129–30; depreciation of franc, 87–8, 123–5, 183; depreciation of ruble, 50, 87; depreciation of sterling, 99, 102; effect of Federal Reserve Board warning about short-term allied bills, 150; effect of trade imbalance on, 87; francdollar, 96; franc-sterling, 84, 96, 123–5, 127, 129, 180; rates on New York, 88t; Ribot’s proposal for bureau de change, 98–9; as source of revenue for France, 84; sterling depreciation and support of, 88–90, 99, 102, 153, 185; voluntary controls on, 99 Farnham, Robert, 198 n18 Federal Reserve Bank of New York, 66 Federal Reserve Board, 63; and French acceptance credits, 103–4, 151; and Paish-Blackett mission, 66; warning against short-term allied bills, 148, 150, 151–2, 154–5. See also United States of America Federal Reserve System, 62–3 Feis, Herbert, 7 Ferguson, Niall, 164, 210 n95 First National Bank of Chicago, 65 Flandreau, Mark, 9 Foch, Ferdinand, 21 Ford, A.G., 8

Ford Motor Corporation, 72 Forgan, James, 65 France: access to London money market, 40–1, 44, 54, 96, 124, 125, 179, 212 n47; alliance with Britain, 3, 4–5; alliance with Russia, 18–19; and Anglo-French loan (1915), 108–10, 112, 117; attempts to raise money in U.S., 58–62, 95, 103, 132–3, 141, 156, 161–2; bankers meeting (1915), 98–9; banking families, 10; belief in short offensive war, 21–2; Britain’s failure to meet payments to (1916), 134–5; Chamber of Deputies budget committee, 12–13, 32–3; City of Paris loan, 144, 146, 148, 216 n11; Clemenceau’s government, 169; concern about British commitment to war, 106–7, 118–19, 127–8; conscription, 93; Conseil supérieur de la défese nationale (France), 21, 23–4; debts in 1918, 183; defence spending, prewar, 19–20; dissolution of parliament (1914), 28, 32; exchange controls, 99, 129–30; exchange support, 143; expenditures in London, 84; expenditures in U.S., 59–60, 67–8, 72, 78–9, 131–2, 143–4; fall of Briand government, 153–4, 161; fall of Ribot government, 168; financial status, postwar, 183–5; financial status in 1914, 7–8, 43; financial status in 1916, 117–19; financial status in 1917, 160;

243 financial support from Britain, 121t, 123, 165; financial support from U.S., 175; financial support of Russia, 45–6, 111, 141; foreign investment, prewar, 17–19, 89; foreign policy, prewar, 4; German control of territory, 80, 81, 85; gold, importance of, 5, 56, 91–2, 130–1, 145, 159; gold, policy against shipment of, 42, 53, 91–2, 131, 145; gold, ratio of to notes, 91t, 117, 130–1, 145, 169; gold, sale or loan of to Britain, 90–1, 98, 108, 141, 160–1, 179, 183; gold pool agreement, 53, 211 n30, 216 n14; gold reserves, 8, 9, 22–3, 42, 48, 90t, 91t, 117, 124, 145; gold reserves, safety of, 22, 42; gold standard in, 9, 32, 183; government revenue and expenditure, 80t; lack of access to private securities, 89; loan from Bank of England, 96–8, 117; loan negotiations with Britain (1914), 40–5; ministerial instability, 13; Ministry of Finance, 10, 12–14, 27, 32–3, 99; Ministry of Foreign Affairs (Quai d’Orsay), 13, 17–19, 77–8; Ministry of Marine, 38; Ministry of War (control of purchasing), 39–40, 68, 131, 156; Mouvement général des fonds, 12; and National City Bank, 61–2, 75; national debt, prewar, 20; national defence bonds, 79–80, 81t, 130, 170; National Service Law, 83; occupation of Ruhr (1923), 183; at

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244 1915 Paris conference, 50–1; Paris stock exchange closure (1914), 28, 193 n1; plans for war, 21–3, 27, 32; political unrest, 145, 166–70; prewar relations with Germany, 7; proposal for unsecured loan, 146; reaction to Federal Reserve Board warning against short-term allied paper, 151–2; relations and dealings with Morgans, 58, 61–2, 68, 73–4, 75, 97, 98, 131, 132, 137–8, 152, 154, 162, 176; rentes and rentier class, 9, 20, 80–1, 130, 145, 168, 179; Senate Commission on the Army, 167; Senate finance committee, 12; sources of government revenues, 79–82; taxation, 13, 20, 33, 81–2, 83–4, 156, 168; trade with Britain, 84–5, 85t, 141; trade with U.S., 85, 86t, 141; tri-city loan (Bordeau, Lyons, and Marseilles), 153; Union Sacrée government, 33, 169; U.S. military presence in, 179; view of British collateral loan (1916), 139–41; view of British gold standard, 37, 43; view of conscription debate in Britain, 129; view of Federal Reserve Board warning about short-term allied bills, 154; view of postwar financial world, 181; War Committee, 154, 156. See also Bank of France Franco-Prussian war (1870–71), 3 Frédéric-Bloch, Jean, 132, 161–2, 175, 220 n87

Index French, David, 24, 105, 109, 110, 153 French, Sir John, 22, 100 Galacia, 95 Gambetta, Léon, 10 Germany: closure of Berlin stock exchange, 28; control of French territory, 80, 81, 85; financial strength in 1914, 7; as financial threat to Britain, 24, 26, 37–8; spring offensive (1918), 170, 171; taxation, 83 Gibb, Sir George, 69 Gilbert, Bentley, 101 Girault, René, 18 Godfrey, John, 79 gold pool, allied, 52–3, 145, 211 n30, 216 n14 gold standard: argument for abandonment of, 157–8; in Britain, 24–5, 35–7, 89–90, 109, 120, 135, 152, 181–2, 183; in France, 9, 32, 183; international, 8 Greece, 18, 159 Green, E.H.H., 109 Grenfell, E.C., 63, 64, 96, 143; on Cunliffe, 35, 109; on McKenna, 100, 109; and negotiations for centralized purchasing, 94 Grey, Sir Edward, 155, 199 n33, 203 n7; Bertie’s communications to about French finances, 42, 47, 106; financial policy in 1914, 17, 37; as foreign secretary, 15, 77; on French access to London money market, 41; on gap between finance and strategy, 122 Guaranty Trust, 151 Gunzberg, Baron de, 16 Haig, Sir Douglas, 122, 126 Hambro, C.J., & Sons, 64

Hambro, Lord, 64 Hamilton, Keith, 190 n52 Hamlin, Charles S., 67, 103, 217 n39 Handelsbank, 70 Hankey, Sir Maurice, 140, 159, 166; and Committee on the Co-ordination of Military and Financial Effort, 119–20, 142; on Lloyd George and Reading, 158; role in Cabinet, 211 n14; on war of attrition, 154 Harding, W.P.G., 103, 161, 162, 163, 164, 220 n87; and Federal Reserve Board warning against short-term allied bills, 151 Hardinge, Lord Arthur, 77, 158 Harjes, Herman, 62, 68, 74, 97, 143; and French loan through Morgans, 73–4; and Ribot, 59, 132 Harvey, Sir Paul, 115 Hayne, M.B., 17 Heath, Sir Thomas, 190 n41 Heine, George, 125 Henderson, Arthur, 156, 208 n64 Herzstein, Daphne, 209 n88 Hicks-Beach, Sir Michael, 194 n23 Higginson, Henry Lee, 63 Hobhouse, Charles, 41, 69 Hobson, John, 20 Holden, Sir Edward, 25, 108, 114, 115 Homberg, Octave, 51, 108, 159, 204 n34; at 1916 Anglo-French financial committee, 143, 145; on British financial policy, 49–50, 118–19; on British gold reserves, 144–5; British views of, 147; career and character, 43, 77, 130, 132,

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Index 162; as French financial delegate in New York, 132; and French loan in Britain, 43–5; on 1914 moratorium, 31; and Morgans, 132, 147, 163 Hottinguer (French banker), 10, 98 House, Colonel, 34, 104, 151 Hurst, C.J.B., 62 Huth Jackson, Frederick, 24, 25, 64 Illinois Trust and Savings, 137 Inter-Allied Council on War Purchases and Finance, 176–8 Italy, 69, 121t, 216 n14 Jèze, Gaston, 203 n17 Joffre, Joseph, 21, 40, 45, 95, 106, 126; and fall of Briand government, 153–4, 219 n63 Jusserand, Jean-Jules, 60–1, 77, 161, 198 n18; on Federal Reserve Board warning against shortterm bills, 151–2; and French loan through Morgans, 74; on joint purchasing, 67–8; and U.S. financial aid, 175 Kent, Fred, 151 Keynes, John Maynard, 109, 126, 160, 173, 220 n92; on Anglo-French financial collaboration, 181; on British collateral loan (1917), 163; on French finances (1914), 48; on gold standard, 36, 157–8; and McKenna, 101; on Paish, 36; and 1915 Paris conference, 15, 47–8, 54, 55; in Treasury, 14, 15, 114, 119; on treasury bills, 147, 149 Kindersley, Robert, 64

Kitchener, Lord (Horatio Herbert), 106, 107, 112; criticism of, 69; and Lloyd George, 94; and New Armies, 46, 93, 105; on purchasing, 94 Klotz, L.L., 13, 22, 168, 203 n17; on Keynes, 119; as minister of finance, 169 Kuhn, Loeb & Co., 65, 152, 161–2; City of Paris loan, 144, 148 labour: for export industries, 105, 106; and income tax, 83, 204 n29; unrest and strikes, 37, 83, 145, 167, 169, 170–1 Lackawana Steel Company, 209 n94 Lamont, Thomas W., 58, 71, 97, 132 Lane (U.S. secretary of the interior), 219 n82 Lansdowne, Lord (Henry Petty-Fitzmaurice), 17 Lansing, Consellor, 60–1, 104, 198 n18 Laurent, M., 209 n94 Lazard Bros & Co., 64 Leith-Ross, Frederick, 36 Lem, Charles, 51, 53 Léon, Maurice, 60, 72–3 Lever, Sir Hardman, 159, 162–3, 164 Link, Arthur, 60 Lloyd George, David, 47, 65, 70, 106, 166, 194 n22; on Cambon, 78; as chancellor, 15, 34, 100–1, 105; and Clemenceau, 183; on conscription, 109, 119, 128; and Cunliffe, 25, 35; on economic effects of war, 37; on France and British support for allies, 43, 44, 118, 128, 135, 140; on gold pool, 52–3; on gold standard, 35–7,

245 109, 135, 158; government of, 155–8; and Kitchener, 69, 94–5; “knock-out blow” speech, 118, 203 n7; lack of financial expertise, 34, 158, 160; meeting with Bark (1915), 52; on military stalemate, 46, 71; as minister of munitions, 100; and Paish-Blackett mission to U.S., 64–5, 67, 199 n33; at 1915 Paris conference, 46, 51–2, 95; and Reading, 34, 43, 108; on Russia, 51, 71, 136 London City and Midland Bank, 25, 101 London Exchange Committee, 121, 127, 133, 148, 173, 212 n47; members and mandate of, 115; on sequestering British holdings in U.S., 152; on short-term treasury bills, 163–4 London money market (the City): and 1915 Anglo-French loan, 108–9; antiwar sentiments of, 35–6, 37; in 1914 financial crisis, 28, 29–31; foreign access to, 51; French access to, 40–1, 44, 54, 96, 124, 125, 179, 212 n47; importance of gold standard for, 135; joint-stock banks, 29, 35–6, 64, 145, 216 n18; new capital issues on, 92t; New York as threat to, 63, 89, 103–4, 183; subscription to French rentes on, 179 Long, Walter, 34, 101, 194 n22, 208 n64 long war, 77–8, 86–7, 92, 94, 105 Lorraine, 21 Lyautey, Marshal, 154

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246 Mallet (French banker), 10, 98 Malvy, Louis, 167 Marmorosch, Banque, 70 Maurice, Frederick, 170 McAdoo, William G., 65, 103, 161, 162, 163; and 1914 financial crisis, 57, 62, 63, 64; policy on loans and financial aid to allies, 66, 104, 163, 164, 175–6; view of Federal Reserve, 66–7 McDonald, Dr Andrew, 190 n41 McFayden, Andrew, 14, 177 McKenna, Reginald, 118, 127, 135–6, 143, 149, 152; and Anglo-French finance committee, 148; and 1915 Anglo-French loan, 107–11; and April 1916 accord with France, 126–7; as chancellor, 14, 100–1, 115; and Cunliffe, 101, 102, 109, 126; efforts to control war expenditures, 83, 105, 106, 109, 128, 154; on gold shipment to U.S. (1915), 107; on gold standard, 135; meetings with Ribot, 108, 111, 123–4, 136; opposition to conscription, 107, 119, 129; “Our Financial Position in America” (1916), 154; September 1915 budget, 81, 109, 110, 112; testimony for War Policy Committee, 106, 139; view of J.P. Morgan & Co., 101–2 McRoberts, Samuel, 60, 61 Messimy, Adolphe, 38, 40 Métin, Emile, 33 Mexico, 132, 220 n86 Miller, Adolph, 103, 104, 150, 219 n82 Millerand, Alexandre, 40, 68, 74, 107

Index Milner, Lord (Alfred), 100, 156 Moggridge, Donald, 130 Montagu, Edwin, 16, 51, 64, 70, 215 n106; on allied loans in U.S., 107; on war expenditures, 69, 105–6, 142 Montenegro, 18 Montgomery, K.A., 208 n64 Morand, Paul, 81–2, 203 n22 Morgan, E.V., 216 n18 Morgan, Grenfell (banking house), 35, 70, 73, 218 n56 Morgan, Harjes (banking house), 58–9 Morgan, John Pierpont, Jr (Jack), 107, 132, 143; on 1914 financial crisis, 59, 62; as head of J.P. Morgan & Co., 58; and loans to Rumania and Russia, 70–1; objection to unsecured loan, 146; role in British loan to France (1915), 96–8; view of Morgans partnership with Britain, 71–2 Morgan, J.P., & Co. (New York), 47; advances to Britain (1917), 163; and afsc loan to France, 137–8; at Anglo-French financial committee (1916), 142, 143, 146; and 1915 Anglo-French loan, 112; associated houses, 58–9; and August 1914 crisis, 65; and British loan to France (1915), 96–8; as British purchasing agent, 68–9, 72, 94, 102, 175, 176, 200 n61, 201 n81; collateral loan to Britain, 137–40, 146–7, 162–3; Export Department, 200 n61; French contracts with (1916),

86; as French purchasing agent, 68, 75, 98, 176; loans to Rumania and Russia, 70–1; McKenna’s view of, 101–2; and National City Bank loan to France (1914), 61–2; prewar loan to French government, 58; relations with France and French officials, 61–2, 73–4, 97, 131, 132, 138, 152, 154, 162; resistance to unsecured allied loan, 146–7; support of Republican party, 151, 175; view of partnership with Britain, 71–2, 138 Morgan, Pierpont, 58 Morley, Lord, 37 Moroccan Crisis, Second (1911), 7, 18 Morrow, Dwight, 58, 59 Murray, Archibald, 22, 208 n64 Murray, George, 101 National City Bank, 60–2, 70, 74, 75, 201 n80 Neilson, Keith, 122, 207 n43 New York (stock exchange and financial community): exchange rates on, 88t; in 1914 financial crisis, 28, 29, 57, 59, 65–6; lack of confidence in allied victory, 112; lack of confidence in France, 95; lobbying regarding loans to allies, 61; price of afsc bonds in, 137; as rival to London, 63, 89, 103–4, 183. See also United States of America New York Times, 61, 67, 137 New York World, 61, 175 Nicolson, Arthur, 41 Nivelle, Robert, 154, 166 Norman, Montagu, 126–7, 139, 149, 173, 174; on British expenditures in

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Index U.S., 215 n9; on long war, 28 Northcliffe, Lord (A.C.W. Harmsworth), 100 Nouailhat, Yves Henri, 43, 153 Nye, Gerald P., and Nye Committee hearings, 60, 198 n14 offensive war, 21–2 Oppenheimer, Francis, 18 Page, Walter Hines, 63 Painlevé, Paul, 166, 169 Paish, Sir George, 36, 77, 194 n23; Paish-Blackett mission, 64–7, 199 n33 Paléogue, Maurice, 50 Pallain, Georges, 11; and Bank of France plans for war, 22; and Bertie, 16; on British import restrictions, 85; career, 10; on exchange support payments, 143; on long-term loans, 80; policy on gold reserves, 23, 42, 91, 99, 127, 161, 169; role in Anglo-French financial negotiations, 55, 108, 125; role in exchange controls, 129–30 Paris financial conference (1915), 46, 48–56, 124; attendees, 51; British position at, 14, 48–50, 51; French position at, 50–1; gold pool agreement, 53, 211 n30; Russian loan agreement, 54 Patron, Maurice, 11, 22 peace negotiations: France’s potential position in, 129–30; Paris peace talks, 183; unpopularity of negotiated peace, 77; Wilson efforts at mediation, 57, 150, 159 Péret, Raoul, 81

Pétain, Philippe, 166 Petit, Lucien, 84, 212 n47 Pichon, Stephen, 13 Piou, Jacques, 33 Plan xvii, 21 Platt, D.C.M., 190 n52 Plessis, Alain, 10 Poincaré, Raymond, 13–14, 53, 118 Ponsonby, Arthur, 16 Prudential Assurance Company, 102 purchasing: alleviation of competition, 38–9; allied purchasing in U.S., 59–60, 67, 68, 72, 78, 86–7, 174; centralization of, 38, 68, 75, 94–5; Commission internationale de ravitaillement (cir), 40, 111, 179; major problems of, 67–9; Morgans as British agent for, 68–9, 72, 94, 175, 176, 200 n61, 201 n81; Morgans as French agent for, 68, 75, 98, 176; uncontrolled expenditures, 40, 49, 69, 78–9, 101 Raffelovich, Artur Germanovich, 51 Ramsay, George, 47 Reading, Rufus Isaacs, Lord, 41, 43; career of, 34; and Lloyd George, 34, 43, 108; role in Anglo-French financial negotiations, 108, 112, 113, 143; on sources of U.S. credits, 113, 147 real defence burden, 192 n80 reduction of consumption, 106 Renouvin, Pierre, 33 Revelstoke, Lord, 24, 26, 64, 126–7, 189 n20; on governance of Bank of England, 173–4 Reynaud, Paul, 185

247 Ribot, Alexandre: at AngloFrench financial conference (1916), 159; and Bank of England loan to France, 96–8; and British loan to France, 126–7; at Calais conference (1916), 141; career and character of, 33–4; and cir, 40; Duroselle’s view of, 203 n17; expectations of U.S. financial support, 175; flexibility to explore varied sources of funds, 104–5; goal of close Anglo-French cooperation, 56, 141, 156, 181; government of, 161, 168; and Herman Harjes, 59; impromptu conference with Asquith (1916), 126; inability to control war expenditures, 156; interactions with Morgans, 68, 95, 97, 98, 152, 154; meeting with Bonar Law, 160; meetings with Cunliffe, 123–4, 125–6, 134; meetings with McKenna, 108, 111, 123–5, 136; opposition to centralized purchasing, 68; opposition to income tax, 33, 81–2; at 1915 Paris conference, 51; policy on French gold reserves, 53, 96, 99, 159; proposal for bureau de change, 98–9; reaction to British collateral loan in U.S., 136, 139–40; reaction to Davison’s treasury bill scheme, 149; and Russian finances, 50, 111; view of British policy and position, 49–50; view of joint allied loans, 47, 50–1, 136–7; view of Nivelle offensive, 166; warning of French bankruptcy, 143

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248 Riddell, Lord, 44, 160 Roanne Arsenal, 79 Roques, General, 131 Rothschild, Edouard de, 16, 98–9; role in securing loans for France, 41–2, 43, 125, 206 n13 Rothschild & Frères, 10, 58, 96, 205 n9 Rumania, 18, 69–71, 146, 201 n76 Runciman, Walter, 64, 94, 109, 119, 155; testimony for War Policy Committee, 106 Russia: access to London money market, 40, 41, 54; access to Paris money market, 54; alliance with France, 18–19; attempt to raise money in U.S., 71; British financial support for, 41, 45, 105, 110–11, 121t, 135, 136; and cir, 40; debts in 1918, 183; depreciation of ruble, 50, 87; financial weakness of, 29, 45, 50, 87; French financial support for, 45–6, 111, 141; French investment in, 18–19; and gold pool agreement, 53, 216 n14; gold reserves, 29, 48, 53, 71; gold shipments to Britain, 90, 105, 111, 140; military weakness of, 112, 146; at 1915 Paris conference, 52, 110–11; proposal for central bank cooperation, 47; Russian State Bank, 53; stock exchange closure (1914), 28 St Aldwyn, Lord, 34, 114, 194 n23 Saint-Aulaire, Comte de, 17 St Petersburg, 19, 28 Salonika expedition, 153 Sarrail, Maurice, 153 Say, Léon, 10

Index Sayers, R.S., 35, 189 n14 Schremmer, D.E., 20, 89 Schuster, Sir Felix, 8, 24, 26, 115 Scotland, 30 Second World War, 185–6 securities: American dollar (ads), 133; Canadian, 120; private, government sequestering of, 89, 120–1, 130, 133, 144, 157; South American, 121, 144 Selborne, Lord, 107, 208 n64, 208 n67 Serbia, 18, 121t Sergent, Charles, 98, 129; in Anglo-French financial negotiations, 51, 53, 96, 108, 143, 161; on French gold reserves, 131 short war: belief in, 21–2, 27, 38; ease of financing, 77; end of assumption of, 76, 86 Simon, Sir John, 119, 185 Snowden, Philip, 185 Société générale, 31 Soutou, Georges-Henri, 64, 108–9, 153 Speyer, Sir Edgar, 34, 195 n47 Spring-Rice, Sir Cecil, 64, 77, 107, 151–2; antiSemitic speculations of, 65, 199 n38 Stanley, Venetia, 55 Statist, 36 Steiner, Zara, 77 Stettinius, E.R., 200 n61 Stevenson, David, 20 Stevenson, Frances, 34, 44, 114, 207 n40, 209 n81 Stillman, James, 72, 201 n80 Straight, Willard, 58, 61, 62, 73–4 Strong, Benjamin, 66, 103–4, 137 Suarez, George, 34

Tardieu, André, 77 taxation: in Britain, 83–4, 110, 171–2; in France, 13, 20, 33, 81–2, 83–4, 156, 168; link with class conflict, 204 n29; luxury tax, 168, 172; proportion of total war revenues, 83–4; war-profits tax, 81–2 Thierry, Joseph (minister of finance), 167–8 Thiers, Adolph, 10 Thomas, Albert, 79, 118, 135, 156, 209 n94 Times (London), 100 Transylvania, 71, 201 n76 treasury bills: British, 30, 82–3, 134; French, 60–1, 72–3; short-term, Davison’s proposals for, 148–52, 162, 163–4; use for paying U.S. manufacturers, 72–3, 135 Truchy, Henri, 130 Turner, John, 101 Union of London and Smiths Bank, 24 United States of America: allied expenditures in (1916), 131–2; banks and financial system, 62–3; British prewar investment in, 89; debts to Britain and France, 29, 57, 62; Democratic party, 151; doubts about allied success, 112; election of (1916), 136, 151; entrance into war, 77, 161, 162, 198 n14; financial aid to allies, 174–6; in 1914 financial crisis, 57, 62, 65–6; financial panic of 1907, 58; gold reserves, 62–3; Mexico, possible war with, 132, 220 n86; neutrality of, 57, 59, 67, 70; PaishBlackett mission to, 64–7; policy on loans to

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Index belligerents, 59, 60–1, 104, 132, 150; Republican party, 151, 175; as threat to British financial dominance, 57, 63, 64, 103–4, 183; trade with Britain, 87t; trade with France, 85–6, 86t. See also Federal Reserve Board; New York Vanderlip, Frank, 60, 63, 198 n18 Vansittart, Robert, 16 Vienna stock exchange, 28 Vilna, fall of (1915), 112 Viviani, René, 33, 37, 43, 51 Von Dunlop, Sir Stanley, 69, 200 n66

Warburg, Paul, 63, 66, 103, 104, 150, 217 n39 Warman, Roberta, 77 Watson, D.R., 169 Western Front: Artois offensive, 95, 112; British portion of, 159; Champagne offensive, 95, 112; German spring offensive (1918), 170, 171; Loos offensive, 112; Marne, battle of (1914), 40; mutinies on, 167; Neuve Chapelle offensive, 95, 100; Nivelle offensive, 166, 167; Somme offensive, 126, 135; Verdun offensive, 122, 126, 135, 153–4, 166

249 Whiting, R.C., 203 n29 Wilson, Trevor, 219 n62 Wilson, Woodrow: British view of, 65; and 1916 election, 151; policy on loans to belligerents, 59, 60–1, 104, 132, 150; policy of mediation, 57, 150, 159 Wintour, U.F., 94 Wood, McKinnon, 215 n107 Worthington-Evans, Laming, 112 Zimmermann, Arthur, 220 n86 Zimmermann telegram, 162

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copyright.fm Page IV Sunday, December 2, 2001 3:05 PM

© McGill-Queen’s University Press 2002 isbn 0-7735-2293-x isbn 0-7735-2294-8 Legal deposit first quarter 2002 Bibliothèque nationale du Québec Printed in Canada on acid-free paper This book has been published with the help of a grant from the Humanities and Social Sciences Federation of Canada, using funds provided by the Social Sciences and Humanities Research Council of Canada. McGill-Queen’s University Press acknowledges the financial support of the Government of Canada through the Book Publishing Industry Development program (bdidp) for its activities. It also acknowledges the support of the Canada Council for the Arts for its publishing program.

National Library of Canada Cataloguing in Publication Data Horn, Martin, 1959Britain, France and the financing of the First World War Includes bibliographical references and index. isbn 0-7735-2293-x (bound) isbn 0-7735-2294-8 (pbk) 1. World War, 1914-1918 – Finance – Great Britain. 2. World war, 1914-1918 – Finance – France. I. Title. hj1023.h67 2002 940.3′1 c2001-901459-7

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