Horn, Martin - Britain, France, and The Financing of The First World War (2002)

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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, 1959-

Britain, 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 ix
Introduction 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 57
4 A Long War, 1915–1918 76
5 The Debate over Finance and Resources in 1915 93
6 The Collapse of France 117
7 The Dollar Problem 142
8 A New World 166
Conclusion 183
Notes 187
Bibliography 225
Index 239
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Tables
1 Bank of France: Holdings of Discounted Bills, 1914 32

2 French Government Revenue and Expenditure 80
3 National Defence Bonds Issued(France )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 92
12 1916 Treasury Estimate of Subsidies to Allies 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 acti-

vity, 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, Bir-
mingham University Library, King’s College and, Churchill College,
Cambridge, and the British Library of Political and Economic Sci-
ence for permission to examine the material in their collections
and to quote from them. In France, I would like to thank the Biblio-
thèque 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 in-
valuable. This book has been published with the help of a grant
from the Humanities and Social Sciences Federation of Canada, us-
ing 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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x Acknowledgments
support of my wife, Lisa Pasternak, who read everything and whose

comments strengthened the work immeasurably. Any errors that re-
main 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

Introduction
Before 1914, Britain and France had a long history of rivalry. Save for
the brief Crimean experience in the mid-nineteenth century, Euro-
pean 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 Na-
poleonic Wars from 1793 to 1815 are the best known of these strug-
gles. 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 Napo-
leon 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 chal-
lenge 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 oc-
curred 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
4 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 bur-
dened 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 anglo-
philes – 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 Euro-
centric; despite the presence of empire in Africa, Indochina, and else-
where, 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 Brit-
ain 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 minis-
ters and premiers; and after 1906 there were the surreptitious talks be-
tween 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 in-
tense phase of the Anglo-French relationship. Yet the old verities per-
sisted. The war did not inaugurate a new era in Anglo-French dealings.
Introduction 5
Familiarity did not quite breed contempt after the war (except in such
cases as Lord Curzon, the postwar British foreign secretary), but nei-
ther 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 em-
pire, they also had differing conceptions of the importance of finance.
For the British, financial power was an integral component of their sta-
tus 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 Brit-
ish wanted French gold, but the French were loath to release it. The
gold was required to ensure that Britain remained on the gold stan-
dard, 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
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 an-
imosity. In 1914 diplomats and foreign offices were ill suited to discuss
financial matters, while treasuries and central banks lacked the experi-
ence 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 organi-
zations – 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 finan-
cial 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 sub-
ject 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.
Chap_01.fm Page 7 Sunday, December 2, 2001 1:06 PM
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 ven-
tures. 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 Euro-
pean states were meaningful actors in international finance. The vari-
ous Balkan nations were poor, with backward economies. Others that
were accounted great powers, such as Austria-Hungary, Italy, and Rus-
sia either were net importers of capital or were characterized by rela-
tively 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 forma-
tion of the German Empire meant that both France and Britain en-
joyed 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 con-
trolled, contained substantial French capital because German finan-
ciers 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 consid-
erable 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
might have failed to keep pace with its competitors, but French fi-
nance 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 ex-
change.5 Through bills of exchange, London funded its own com-
merce as well as third-party trade, such as the shipment of American
goods to Japan, or German machinery to Canada. Although these ex-
amples 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 discus-
sion 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 collec-
tively 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 interna-
tional cooperation that Eichengreen stressed, close study of the deal-
ings between the Bank of England and the Bank of France before
Finance before 1914 9
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 tra-
dition of working together in harness, and indeed they found collab-
oration 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 ob-
jectives 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 stan-
dard – 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 in-
creasing 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 addi-
tional purpose of guaranteeing the continued attractiveness of long-
term 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 re-
serves 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, in-
tervened in its affairs early in its life. Throughout the remainder of
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 interfer-
ing with the bank. Several means of exerting pressure existed. A gov-
ernor, 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 départe-
mental 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 di-
rector 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; periodi-
cally 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 re-
gents, fortified by the backing of private bankers, rejected a plan ad-
vanced 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.
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 re-
spect.”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 finan-
cial 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 perma-
nent 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, re-
sponsible to its shareholders to produce profits. Like any private busi-
ness 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 Lon-
don 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 occa-
sion 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. Deal-
ings between the Bank of England and the Treasury – outside of the
routine – were handled exclusively, or nearly so, by the governor. The

governor would visit the Treasury chambers to discuss business, some-
times with the chancellor of the exchequer, sometimes with the perma-
nent 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 interna-
tional 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 ev-
idence 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 struc-
ture. The Ministry of Finance was an enormous organization. Its staff
numbered more than 40,000 before the war.29 This total encom-
passed everyone from finance inspectors to the tax collectors in the dé-
partements. 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 re-
sponsibility, unlike the permanent undersecretary in the British Trea-
sury; 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 secretar-
iat, 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 Dep-
uties and the finance committee of the Senate wielded considerable
power in the making of financial legislation – often more than the
minister.33 The rapporteur of the budget committee of the Chamber

was especially a figure to be reckoned with. In 1911 the British ambas-
sador, 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 ques-
tions 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 bu-
reaucratic level, while within the Council of Ministers several factors
worked against it. Ministers tended to regard the work of other depart-
ments 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 gov-
ernments rose and fell, ministers were shuffled in and out of portfo-
lios. 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 politi-
cians.36 From the Rouvier ministry that took office in January 1905
until the advent of war in August 1914, France experienced fifteen dif-
ferent governments. Nine politicians held the finance portfolio, with
Caillaux and L.L. Klotz serving three and five times, respectively. Cail-
laux claimed in his memoirs that between 1899 and 1914 “I domi-
nated 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 ineffec-
tual.38 It was Poincaré who dominated foreign policy formulation be-
fore the war in his various capacities as premier, minister of foreign
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 Trea-
sury 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 administra-
tive grade and thus involved in policy formulation. Before the war the
Treasury did not make any distinction in its administrative organiza-
tion between questions of domestic and external finance, reflecting
the relative lack of importance of the latter. The calibre of Treasury of-
ficials was high, but their training left them unfamiliar with the intrica-
cies of international finance. Interaction with the Foreign Office was
rare, despite the City’s function as the leading marketplace of interna-
tional finance. It was not until 1917 that a new subdivision – a Divi-
sion, 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 perma-
nent undersecretaries in 1914, was particularly influential.41 Bradbury
had made his way through the ranks of the Treasury, in the process be-
coming 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 impor-
tance 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 intoler-
able 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
reserves, and he steadily rose in the estimation of successive chancel-

lors 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 Anglo-
French loan mission. He returned to the United States in the later
years of the war to serve on the British financial mission to that coun-
try. 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 sanc-
tity 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 expan-
sive, internationalist vision was a product of the war.46 The prewar Trea-
sury 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 po-
litically 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 glo-
bal financial system. This was matched by his lack of interest in Britain’s
foreign obligations. Although on occasion he dabbled in foreign af-
fairs, most notably in his Mansion House speech in 1911, he was con-
tent 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 aristo-
cratic ethos of the Foreign Office.48 The Foreign Office was not accus-
tomed 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
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 Diplo-
matic 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 uncer-
tainty in financial matters. Bertie was the dean of the diplomatic corps
in Paris, having been posted in 1905, and was scheduled for retire-
ment in 1914. With the coming of the war his replacement was post-
poned, 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 for-
mulation 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 Roths-
childs, who was a regent of the Bank of France. Judged from his own
papers, Bertie’s contacts with the Ministry of Finance itself were infre-
quent, 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 Brit-
ish commerce, this did not mean that it adopted an activist role in sup-
port of overseas trade. Eyre Crowe’s famous 1907 memorandum, best
known for its appreciation of Anglo-German relations, forcefully reit-
erated 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 pref-
erence for the higher forms of diplomatic activity led to the adoption
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 dis-
ingenuousness could be extreme. In May 1914, commenting on a re-
quest 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 pre-
vented Lord Lansdowne, when foreign secretary in 1903, from pres-
suring the financier Sir Ernest Cassel to float a loan for Turkey. Cassel’s
negotiations with Deutsche Bank were aborted, much to his annoy-
ance, 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 in-
vestments 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 prac-
tice 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
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 advis-
able 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, Ru-
mania, 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 Inas-
much 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 ad-
ditional French funding for the Russian railways. The Russian govern-
ment 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 Ini-
tially, 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
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 sup-
port Russian designs in China and the Balkans. He wondered if the al-
liance 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 evi-
dence 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 ten-
sions.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 wide-
spread fears in the opening years of the century that British financial
strength was in decline, Britain was spending considerably less on de-
fence 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, reve-
nues 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 mil-
lion in the aftermath of the Boer War, had progressively been whittled
down to £651 million by March 1914, despite dramatically higher out-
lays 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 de-
fence burden was significantly higher, a reflection of the smaller French
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 govern-
ments from 1870 onwards were faced with the difficult task of generat-
ing 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 defi-
cits.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 mili-
tary 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 reve-
nues 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 intro-
duced his income tax proposal as minister of finance in Clemenceau’s
government in February 1907.85 After extensive debate by the Cham-
ber 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 tax-
ation 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
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 Con-
seil 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 coun-
cil met four times; it was reorganized in the latter year with an in-
creased 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 de-
tailed French financial planning for war. The Conseil supérieur was pri-
marily 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 influ-
ence 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 strat-
egy in the event of war with Germany, rested on the notion of a power-
ful, decisive strike through Lorraine.92
Klotz, minister of finance in 1910–11 and again in 1911–12, re-

called 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 cor-
respondence 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 re-
quired to provide to the state in the event of war. These were super-
seded in November 1911 by an agreement reached between Klotz in
his capacity as minister of finance and Pallain in his role as the gover-
nor 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 distribu-
tion 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 curi-
ous, 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
the fighting power of a nation seems to be strictly limited by the finan-

cial 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 – con-
cerning the next war. The Bank of France was to play the lead role,
with the Ministry of Finance subordinate to it. Suspension of convert-
ibility 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 suffi-
cient 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
drew together government departments and military opinion to con-

sider 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 ac-
complishments 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 ques-
tion of trading with the enemy. Finance happened to be one of its pre-
occupations.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 Direc-
tors 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 re-
flected Schuster’s long-established position that the bank’s gold hold-
ings 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 tradi-
tional 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 joint-
stock 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
our position as the principal bankers of the world, and the results
might be so disastrous in the long run that it cannot be contem-
plated.”103 When the Cabinet considered the Desart Committee’s re-
port 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, chair-
man 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 imme-
diate suspension of cash payments.” From this he concluded that
“regarded as a preparation for war, our Gold Reserves are either ade-
quate 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 de-
preciated 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 main-
tenance of a free market in gold. Huth Jackson had made this connec-
tion 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 mea-
sures 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
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 re-
sult 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 un-
clear. 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 sub-
sequently presented to the committee. The result was that the commit-
tee, 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 consider-
ations 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 Materi-
als in Time of War that finance would not be a problem should war
come, was typical.111 Economic blockade, the provision of a small con-
tinental 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 “les-
sons” from the past, especially the Napoleonic Wars, permeated British
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 trea-
suries, 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 complica-
tions arising from the financing of a war were insubstantial before
1914 in Britain and France, no thought had been given to consulta-
tion with one another. There existed no cross-channel ties between the
Ministry of Finance and the Treasury – only sporadic concourse be-
tween 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, sup-
plying, 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.
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 Euro-
pean bourses. On that day the Paris and Berlin exchanges suffered
serious declines. As the diplomatic situation worsened, and Austria-
Hungary 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 Brit-
ain 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 Direc-
tors 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 dissolu-
tion of the French parliament on 4–5 August 1914, with its tendering
of powers to the Council of Ministers, was perhaps the most striking ex-
ample 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
A Short War, 1914–1915 29
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 de-
pended 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 capi-
tal that allowed the London money market to function. They provided
short-term loans to the discount houses and bill brokers which permit-
ted both to purchase bills. Fearing that their depositors would de-
mand gold, the banks called in their loans and refused to discount or
rediscount bills. The discount houses and bill brokers were immedi-
ately 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 Euro-
pean investors had already been dumping securities on the New York
Stock Exchange prior to its closure. American borrowings were sea-
sonal, 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, no-
tably 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
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 addi-
tional 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 ab-
sorbed 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 proclama-
tion 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
A Short War, 1914–1915 31
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, subse-
quently 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’es-
compte de Paris, Crédit industriel et commercial, Crédit commercial
de France, and Banque nationale de crédit – had been marketing for-
eign 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 cred-
itworthiness. These were sufficiently acute that in June 1914 the Minis-
try 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 de-
signed to rescue the Société générale, which was on the brink of sus-
pending 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 securi-
ties.13
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 imple-
ment 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 far-
reaching consequences in France. The decision of the French parlia-
ment on 4 August to give the executive the power to raise money by de-
cree while Parliament was not sitting, and the subsequent adjournment
of Parliament, overturned the prewar basis of French financial prac-
tice. 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 bud-
get report by the budget committee of the Chamber of Deputies (con-
forming 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
A Short War, 1914–1915 33
the rapporteur of the budget committee, Emile Métin, charged that rel-
ative 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 fi-
nancial activities.17 Perhaps this followed from a desire to associate it-
self with the triumph of French arms, however tangentially, but it also
reflected the frustration of the committee when faced with the intran-
sigence 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 fi-
nance in the Union Sacrée government. This government was the po-
litical 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 minis-
ter of finance on one occasion and had also briefly acted as the
rapporteur for the budget committee. Perhaps his most noteworthy con-
tribution to French finances had been as a staunch opponent of in-
come 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 pri-
vate property, the superiority of the free market, and the belief that
French national strength was served best by a continuation of the tradi-
tional 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
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 be-
tween 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 ex-
pense 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 re-
placement. Although Lloyd George soon dispelled these doubts, lead-
ing 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 Read-
ing, 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 pro-
fessional life as a jobber in the stock exchange, an occupation from
which he was ignominiously “hammered” after failing to meet his obli-
gations. Reserved, intensely private, yet gifted with an ability to act as a
mediator between the great and powerful, Reading was the quintessen-
tial adviser. Bored by his duties, he welcomed the distractions provided
by the outbreak of the war. Frances Stevenson, Lloyd George’s secre-
tary 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.
A Short War, 1914–1915 35
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, accept-
ing & 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 man-
ners & 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 implementa-

tion 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 rela-
tionship 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 chal-
lenged 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 in-
tervention.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
suggested that it is possible that the joint-stock bankers were attempt-

ing 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 Mar-
cello de Cecco has argued that the joint-stock banks embarked on this
course deliberately, in an effort to seize control of “lucrative interna-
tional 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 de-
gree 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 En-
gland for the purchase of necessary food and raw materials. The follow-
ing 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 unpub-
lished 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 sus-
pension of convertibility would have on Britain’s international posi-
tion. 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. Re-
garded as definitive in 1911–12, they were reaffirmed by Lloyd George,
who decided to remain on gold and reject the petitions of the joint-
stock 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
A Short War, 1914–1915 37
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 suspi-
cions 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 possi-
bility 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 participa-
tion in the war. The best that could be hoped for, he concluded, was
that such pressures would not lead the British to abandon their tradi-
tional 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 ar-
gued 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 op-
posed participation were not dispelled. Cambon worried that “Ger-
man Jewish financiers,” who controlled the Liberal papers and were
linked to the Cabinet, remained at the helm of British financial pol-
icy.47 Although Cambon’s judgment was clouded in this instance by his
bitterness over the hesitations in British decision making and the anti-
Semitism 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
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 For-
eign 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 re-
quired 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 urg-
ing 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 coun-
tries.” Messimy hoped that the British would act as “our general pro-
vider 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 spend-
ing was “much larger … than has been contemplated.” Even more wor-
risome, 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 arrange-
ment – 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 estab-
lishing 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
A Short War, 1914–1915 39
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 dis-
count 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 agree-
ment 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 ex-
ploited liberally. In December 1914 Cambon forwarded an official
protest from the British government to Paris concerning French pur-
chasing 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 un-
fulfilled. The démarche threatened to ban all export licences for cloth
if agents acting for the French government continued to act irrespon-
sibly 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 an-
tagonizing 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.
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 individu-
als, 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 pur-
chasing. 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 unex-
pected. 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 or-
ders 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 jeop-
ardized if stocks were not augmented.58 On 7 September Cambon ca-
bled 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, DePey-
ster suggested the French try to tap into the London money market
through the vehicle of French treasury bonds. After consultation be-
tween Ribot and Theophile Delcassé, the minister of foreign affairs,
Cambon was authorized to pursue the idea.59 This decision, in con-
junction 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 prob-
lem: the Declaration of London made it impolitic to reject allied re-
quests, yet the Treasury had not formulated any coherent policy with
regard to allied loans.
The Russians approached the Bank of England through their am-
bassador, 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 Bor-
deaux, where the government had moved before the battle of the
Marne. Perhaps seeking to improve his chances, Ribot pursued negoti-
A Short War, 1914–1915 41
ations for a loan through two separate agents – Edouard de Roths-

child and Cambon. Acting through Bertie and also through the
London branch of his own family, Rothschild sounded out the possi-
bilities. Grey, after consultation with Lloyd George, replied to Bertie
that something might be worked out, though “[Lloyd George] in-
forms 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 al-
lowed access to the London money market, with the proviso that any
loan raised be spent in Great Britain. Under such conditions the Trea-
sury was prepared to countenance the Rothschild request for a flota-
tion of £2 million in French treasury bills.
Meanwhile, Cambon also was exploring the possibilities. Unfortu-
nately, Ribot failed to keep Cambon informed of Rothschild’s activi-
ties. 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 coher-
ent 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 Read-
ing 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 Rus-
sians were resisting. France, Cambon continued, had been tendered
the same offer but he had rejected it.64 Notice of the proposed Roths-
child operation had by now reached Cambon, who was scathing in his
criticism of the way in which the entire affair had been handled, charg-
ing that the operation was poorly timed and ill conceived, throwing
into doubt France’s ability to tap the London market in future. Person-
ally affronted that he had not been informed of Rothschild’s efforts,
Cambon feared that the smallness of the proposed issue and the unco-
ordinated 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 “spe-
cial issue” whose conclusion would allow Cambon to press for another,
larger operation arranged directly through the auspices of the Trea-
sury. 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 ship-
ping gold in return for the extension of credits represented an unac-
ceptable 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 gov-
ernment revenues. As the bank was vehemently opposed to any sugges-
tion 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 where-
abouts, 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 mili-
tary situation – which looked black – made consideration of the possi-
bilities 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 Septem-
ber, 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 Brad-
bury, stressed the differences between France and Russia, hoping to
A Short War, 1914–1915 43
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 Cam-
bon’s first attempts to secure additional funds bore little fruit. Discour-
aged, he cabled Ribot that Lloyd George refused to budge without the
shipment of gold. Ribot dismissed Lloyd George’s arguments as un-
convincing, 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 circum-
stances.”74 This was a veiled attack on the British policy of staying on
gold, which was increasingly seen in Paris as detrimental to Anglo-
French 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 at-
tached to the Ministry of Finance following the reshuffle of the Viviani
government in August 1914.75 Homberg could be counted on to pur-
sue French interests zealously. He almost always favoured the bold op-
tion, 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 through-
out 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
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. None-
theless, 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 one-
year French treasury bonds at 5 per cent. In return, the Treasury de-
manded 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 Ri-
bot 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
A Short War, 1914–1915 45
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 Trea-
sury 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 in-
tervention 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 dis-
counting £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 No-
vember 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 re-
sources 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 acqui-
esce to a policy that would expose them to far greater financial bur-
dens 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 re-
dress the balance and allow Britain to insist on the implementation of
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 commit-
ment 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 else-
where. 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 mili-
tary 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 “in-
vited” 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 confer-
ence 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 orig-
inal 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. Nonethe-
less, 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 re-
ported to Paris late in November 1914 that the Russians were promot-
A Short War, 1914–1915 47
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 ac-
cepted 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 bud-
get 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 under-
taken 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 displea-
sure. 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 sus-
picion of him. Although gifted with the capacity for sustained hard
work, Keynes was no diplomat; he had greater regard for the French
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 difficul-
ties at present so far as appearances go. It has only to be conceded that
in present circumstances appearances are deceptive, and do not pre-
clude the possibility of her being somewhat near the end of her
foreign resources.”93 Although Keynes did not believe it would be nec-
essary 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 recom-
mended 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 influ-
ences 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 fi-
nancial 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 financ-
ing their internal needs, and therefore no British credit should be ex-
tended 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 con-
trol.” 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,
A Short War, 1914–1915 49
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 cred-
its 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 inter-
est which the allies would have to offer might tap sources of capital,
principally speculative, of a kind that existing British government of-
ferings did not attract. The necessity of increasing the range and flexi-
bility 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 Lon-
don, 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 advo-
cacy of allowing the allies to borrow at higher rates in the London mar-
ket 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 Trea-
sury. 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 opin-
ion 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 mat-
ters and is above all else a politician.”99 In Homberg’s judgment, Lloyd
George and Reading were the architects of a British financial policy
whose origins could be traced to those financial and commercial cir-

cles that had been opposed to British participation in the war. Reading
had remarked that his objective was to pay for the war “without resort-
ing 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 Lon-
don money market as a second strand in this policy. This had two pur-
poses: 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 po-
sition. 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 un-
willingness to dip into the gold reserve, while the drop in Russian ex-
ports 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 “easy-
going, 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 ques-
tion was what the British attitude would be towards a more expansive
conception of allied financing. The allied loan scheme was a useful in-
strument 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-
A Short War, 1914–1915 51
French partnership in the financial realm. Concrete British commit-

ment to an allied loan would go far to dampen French suspicion.
Open access to the London money market was viewed as a further indi-
cator 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 evi-
dence of frailty; there was a deep scepticism that France was as desti-
tute 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 demon-
strated by letting the Treasury supervise allied efforts.
The allied financial conference in Paris was held from 3 to 5 Febru-
ary 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 Ger-
manovich 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 meet-
ing. 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 demonstrat-
ing 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 ex-
isting loan for the next three years. Cunliffe, seconding Lloyd George,
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 Rus-
sian 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 Rus-
sian 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 popu-
lace 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,
A Short War, 1914–1915 53
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 guar-
anteeing 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 con-
nection 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 lim-
its.” 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 legiti-
mate 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 ear-
marked 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
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 conces-
sion 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 in-
struments in francs, permission was not given for them to raise money
in sterling: “This restriction must have the effect of keeping their bor-
rowings here within comparatively narrow limits.”112 Regulation of the
London money market had, in the Treasury view, not been compro-
mised. 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 opportu-
nity to press his demands for assistance. Perhaps hoping to capitalize
on his role as a loyal supporter of Britain, Bark placed Russian ex-
penses 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 inva-
sion of France by the Germans as making any long-term loan impossi-
ble. 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 con-
cluded, 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 coop-
eration 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 intransi-
gence. 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
A Short War, 1914–1915 55
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 re-
marked 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 borrow-
ing. 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 coop-
eration 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 sus-
pected 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 provi-
sion of credit but also to expenditure. Purchasing had to be super-
vised. 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 direc-
tors, flowed from the experience of these opening months. Incompre-
hension concerning the French reluctance to ship gold reigned in
London.
Things were viewed very differently in Paris, where the earlier warn-
ings of Cambon and Homberg were given added credence. French
expectations of inter-allied financial relations envisaged France and
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.
chapter three
Relations with the United States,

1914–1915
Belief in a short war presumed that there would be no serious obsta-

cles 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 de-
tachment, 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 pur-
chase 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 trea-
sury, 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 main-
tain the goodwill of the United States but feared that the Americans
would seek to take advantage of the war to displace Britain as the lead-
ing global financial power. The Cabinet, Treasury, Bank of England,
and City were not about to let this happen. How to preserve the hege-
mony of the City, maintain the gold standard, and practise the politics
of neutrality was the British dilemma.
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 Un-
intentionally, 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, tell-
ing 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 part-
ners. 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 associ-
ated 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,
Relations with United States, 1914–1915 59
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 an-
tipathy 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 mar-
ket 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 bellig-
erents; 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 popu-
lation, 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 bel-
ligerents 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 com-
mercial 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’An-
glade 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
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’An-
glade’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 ambassa-
dor, 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 re-
served 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 re-
mained 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 repre-
sented 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 cer-
tainly 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 tes-
tified 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 inter-
ests had been united in opposing foreign loans in August, by October
the situation had changed. American exports were growing, the ex-
change 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 commu-
nity exerted pressure on Lansing, who was known to be sympathetic.
Lansing’s account of his conversation with Wilson on 23 October is re-
garded 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 Lan-
sing on the twenty-third was prompted by Jusserand and was an at-
tempt 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 De-
partment did not publicly announce the modification until 31 March
1915. On 30 October 1914 National City and Morgans jointly pur-
chased $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
Léon emerged from the negotiations with a marked distrust of the Mor-
gan Bank. Jusserand contrasted the hesitations of Morgans unfavour-
ably 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 oth-
ers.”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 administra-
tion.22 Morgans’ subscription to half of the French treasury bill opera-
tion was an effort to correct the negative impression created in
Washington and Paris. Nonetheless, the political credit benefited Na-
tional 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 assis-
tant 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 nec-
essary 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 op-
tion that either McAdoo or the New York financial community rel-
ished. 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 ac-
ceptance or discount market of the kind that enabled the City to exer-
cise financial influence internationally. The Federal Reserve System,
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 Fed-
eral 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 function-
ing 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 ambi-
tions; 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 Mor-
gan.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, be-
cause of living up to every engagement, and because the power grew
with the business. Today we can take this place if we choose; but cour-
age, 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 govern-
ment should provide the private bankers with gold to discharge Ameri-
can debts overseas. Higginson was not the only figure who regarded the
war as an opportunity for the United States to attain financial domi-
nance. The American ambassador to the Court of Saint James, Walter
Hines Page, despite his deep conviction in the strength of the Anglo-
American bond, peppered Wilson with notes stressing that “relatively we
shall be immensely stronger financially and politically” than Britain.31
The British response to McAdoo’s invitation was cautious. It was de-

cided 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 value-
less “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 re-
garding 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 Kinders-
ley 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 ambassa-
dor, 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 any-
thing which will strengthen the one and weaken the other. I am perfectly cer-
tain the head of the State there is very well disposed to us, and if he says
through our Ambassador “It would be very useful to us if you could send some-
one 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 pow-
ers 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 repre-
sentatives 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 favour-
able 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 presiden-
tial 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 de-
manding 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 Amer-
ican 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
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 offi-
cials 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 con-
tacted in New York, he informed the participants that electoral consid-
erations were so pressing that they required all of his attention –
hardly the reaction of a man distressed by a commercial crisis.42 Never-
theless, 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 striv-
ing to see that the Federal Reserve was placed on a firm footing,
McAdoo had no intention of allowing the board to become an over-
mighty 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.
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 pub-
lic 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 mis-
sion on the grounds that consultation was needed. To give this more
verisimilitude and to paper over the absence of results, it was an-
nounced that a delegation of American bankers would accompany
Paish and Blackett on their return journey in order to continue dis-
cussions 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 every-
one.”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 purchas-
ing 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: corrup-
tion in the awarding of contracts; confused, uncoordinated purchas-
ing among the allies; and inflated prices as a result of competition for
scarce goods.54 Jusserand criticized Paris for dispatching buying mis-
sions to the United States without regard to their competence or
qualifications. Frequently the officers staffing these delegations spoke
no English and knew nothing about the United States.55 Echoing Brit-
ish 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 mil-
lion in the United States, the government would “centralise in your
hands orders for that amount and pay you a fair commission to be de-
termined.”57 It suited Ribot’s purposes to maintain a hard line, for he
was well aware that Millerand was resistant to the idea of compromis-
ing 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 coordina-
tion of allied finances and buying was desirable. Blackett, at Davison’s
recommendation, backed the candidacy of the American Supply Cor-
poration 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 di-
sinterested; 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
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 regard-
ing the War Office’s handling of contracts intermingled with unhappi-
ness 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, respon-
sible 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 every-
thing,” asserted Montagu.64
These doubts found a receptive audience in Lloyd George, whose
misgivings regarding Kitchener and the War Office needed little en-
couragement. 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 regain-
ing 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 convic-
tion in the incompetence of Kitchener and his subordinates. In a year-
end appraisal to Asquith, Lloyd George railed about the War Office’s
inability to organize industry. He commented: “Rifles not yet satisfac-
tory 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 minis-
ter in Paris had requested a $10 million loan in the United States, ex-
plaining that Rumania would soon enter the war and needed money to
purchase supplies. Making the information more tempting was addi-
tional news – the minister had indicated that Italy too would be joining
the conflict on the allied side.67 The excellent connections possessed
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, comment-
ing 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 pro-
ceed 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 acquiesc-
ing 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 Mor-
gan, in a rare instance of displeasure, rebuked Davison for not under-
standing 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 un-
pleasant 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 re-
marked, “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 Mor-
gans.” 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 respon-
sible for this shift in plan. At the end of December, Davison was in-
formed 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
the functioning of the Rumanian economy, a credit of the size sug-

gested 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 manda-
tory.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 unful-
filled, 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 Lon-
don 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 dis-
heartening 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 Rus-
sia 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 furi-
ous. 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
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 as-
sumed 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 con-
tract 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 be-
cause 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 limita-
tions, 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 foun-
dered in a squabble over an unrelated issue – French payment prac-
tices 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 in-
volvement.84 But at a subsequent interview with Lamont, he conceded
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 Lam-
ont 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 evi-
dence 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 diffi-
culties, how plausible was a more intimate relationship?
On 13 December the London and Paris partners gathered at Bou-
logne 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 precondi-
tion. 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 ac-
ceptance 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
had subsequently been the American Group of Bankers’ represen-

tative 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 un-
happiness with Morgans. In this he was unsuccessful, despite de Mar-
gerie 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 fos-
tering 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 suspi-
cion.93 Straight took due notice of these disclosures: “In the War De-
partment Millerand is honest, but his underlings are out for all they
can get, and there is the same situation in the Ministry of Finance un-
der old Ribot. French finance has been badly handled, the Govern-
ment 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 Her-
man’s shouts for help, I am unable to stir up much enthusiasm regard-
ing 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 purchas-
ing 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 actu-
ally becoming the purchasing agent for France in the United States
seemed remote. Reluctantly, Davison voyaged to Paris in early January.

This visit had long been postponed and was undertaken chiefly to pla-
cate 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 break-
through 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 re-
fused 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 preju-
dices reinforced. On 14 January, Harjes cabled New York that discus-
sions 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, osten-
sibly convened to discuss the coordination of purchasing. At a meeting
on 7 February attended by the French, the Russians, and representa-
tives of Morgans, Ribot noted that the British had appointed Morgans
as their purchasing agent in the United States. Lloyd George, he com-
mented, 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 ex-
pectations 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.
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. Al-
though it is evident to the historian that these changes were roughly
synchronous with the new year, it was not so obvious to contemporar-
ies. 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 ex-
pectation 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 solu-
tions 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 adapt-
ing 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 for-
eign offices. Throughout the early months of the war, representatives
A Long War, 1915–1918 77
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 ac-
commodate 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 com-
plex 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 contin-
ued. His physical debility, in particular his worsening eyesight, rein-
forced 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 en-
courage speculation that he doubted the outcome of the war. 5 He con-
fessed in his autobiography that “in Europe, diplomacy counted for
little.”6 By 1916 Bertie had come around to the view that Grey was a de-
featist, without the stomach to aid the allied cause. He told Lord Hard-
inge, 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 finan-
cial matters. Jusserand was shunted to the sidelines in the spring of
1915, to be replaced initially by Homberg and, following America’s en-
try 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 para-
mount importance attached to the British connection allowed the em-
bassy to carve out a niche in the policy-making apparatus.8 Cambon
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 eco-
nomic 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 exter-
nal 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 corre-
spondingly. 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 suffi-
ciently 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 spend-
ing 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,
A Long War, 1915–1918 79
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 Brit-
ain.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 con-
sult the Ministry of Finance, the parliamentary commissions, or the
Ministry of War, despite an outlay estimated at Fr 150 million. Con-
struction was plagued with problems. The arsenal was not finished un-
til 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 ad-
vances during the war and 3 per cent subsequently.15 Short-term bor-
rowing 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 na-
tional defence bonds and further long-term government loans – a sec-
ond 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 pur-
chased 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 slid-
ing 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
Table 2
French Government Revenue and Expenditure (millions of francs)
1914 1915 1916 1917 1918
Expenditure 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
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 condi-
tion 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 formida-
ble, 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
A Long War, 1915–1918 81
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 predeces-

sors, 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 testi-
mony 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 reve-
nues 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 imple-
ment the long-delayed income tax as well as a war-profits tax. His stall-
ing derived from his lifelong opposition to the income tax – which he
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 suffi-
cient 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 … Finan-
cial 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 associ-
ated with the prosecution of the war. France was trapped in a vicious
cycle of needing to find ever-larger amounts of money on short no-
tice. 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 impor-
tant component of government borrowing in 1914. On Cunliffe’s au-
thorization, the Bank of England advanced £77 million to the
Treasury by the end of 1914.25 While the Treasury was quicker to re-
sort to long-term loans than the Ministry of Finance, the first war loan
appearing in November 1914, it continued to have recourse to short-
term 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 sec-
ond 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 mil-
lion, the remainder being conversion of treasury bills, exchequer
A Long War, 1915–1918 83
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 develop-
ment 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 in-
deed 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 reve-
nue 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, ex-
penditures 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 nineteenth-
century 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
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 infla-
tion, but this had some merit, increasing as it did the capital available
to subscribe to loans. Some contemporary critics in Britain attacked in-
creases in taxation on the grounds that it was sopping up money that
would otherwise be directed towards purchasing government obliga-
tions.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 pat-
tern that was established after December 1914, the Treasury was wor-
ried 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 De-
cember 1915 and reaching a nadir of 28.48 in March 1916. The im-
plementation of an exchange support program in April 1916
stabilized the exchange, and gradually the franc regained strength, re-
covering 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 bal-
ance 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
A Long War, 1915–1918 85
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
Deficit (310) 1,939 4,849 5,792 5,312
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 larg-
est 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 ex-
ports 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 produc-
tion 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 de-
plored 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 re-
duced 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 specifi-
cally targeted by the British measures, but import restrictions made
France more dependent on Britain and widened the trade deficit bet-
ween 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
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 length-
ened, 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 mark-
edly. There was a massive rise in imports of machine tools, and espe-
cially 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 num-
ber of contracts by value in January, May, and November 1916.41 Deliv-
eries 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 over-
whelmed 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
A Long War, 1915–1918 87
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 rou-
tinely run substantial trade deficits with it.43 Certainly, by shifting la-
bour, capital, and raw materials from export industries into war
production, the war hampered attempts by British exporters to in-
crease 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 evi-
dent 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 un-
checked 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
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 dif-

ficult 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 main-
tain the sterling rate, which was pegged in May 1916 at $4.76 5/8 (com-
pared 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 ex-
change 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 deprecia-
tion 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 dur-
ing the war, while restrictions on imports, which became more com-
mon 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.
A Long War, 1915–1918 89
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 dif-
ficulties. 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, espe-
cially 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 mar-
ketable securities were non-existent. Initially, voluntary means were em-
ployed, and only gradually were coercive measures implemented as the
financial situation became more desperate. Governments were reluc-
tant to take these steps because they struck at the basis of a liberal econ-
omy ordered on the sanctity of private rights. This was particularly true
in France; as Schremmer has remarked, “Probably in no [other] Euro-
pean 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 bil-
lion, 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 double-
edged 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
Table 9
Gold Reserves of the Bank of England and Bank of France, 1914–1918 (millions of £)
1914 1915 1916 1917 1918
Bank of France 164.9 201.4 138.4(h) 131.4(h) 136.4(h)

63.1(a) 80.8(a) 80.8(a)
Bank of England 70.5 50.5 53.3(a) 56.4(a) 77.0(a)
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 Em-
pire.”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 trea-
sury 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 di-
vorce 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 main-
tained a discount rate of 5 per cent throughout the conflict, in keep-
ing 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 neutral-
ity.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
A Long War, 1915–1918 91
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, approxi-

mately £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 convertibil-
ity, the Bank of France continued to act as if it was on the gold stan-
dard. 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 Brit-
ain, 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.
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 in-
ternational 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 endan-
gering its ability to finance the war.
chapter five
The Debate over Finance and Resources

in 1915
A long war forced the belligerents in directions that few had antici-
pated 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 mo-
bilization 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 man-
power 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 dura-
tion of the conflict. It was evident that manpower and capital would
have to be directed towards military purposes, creating the infrastruc-
ture to support massive armies. How this was to be accomplished was
another matter. Reliance on the private sector conformed to nineteenth-
century 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 over-
stated 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 En-
gland was yet the nationalized organization of the post–Second World
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 de-
mands of the conflict took longer to sink in. Once they did, they occa-
sioned a debate within political and financial circles about how to pay
for the war and, more saliently, how to preserve British financial domi-
nance 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 ar-
rangement reached between the British government and the Ameri-
can 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 over-
come.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 gov-
erning inter-allied purchasing arrangements had not been properly
considered.3 Kitchener was ambivalent towards centralization. He was
uncomfortable with contracting purchasing beyond recognized, estab-
lished 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 pre-
sented itself, Kitchener and his officials had been unenthusiastic,
believing it threatened their authority over purchasing. Moreover,
Kitchener worried about the degree of coordination necessary be-
tween 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 divi-
sion 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,
Finance and Resources in 1915 95
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 forecast-
ing American expenditures of $122 million.8 Settling current French
debts and attracting fresh capital to meet these future needs were es-
sential. 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 mil-
lion’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 com-
mand 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 syndi-
cate, only $26.2 million’s worth of bonds were placed, the yield to
France being slightly less than $26 million. American investors, unfa-
miliar 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 Ger-
mans, 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 Sec-
ond Masurian Lakes battle. The dismal reception accorded to the
French offering was a mark of Wall Street’s doubts. For Ribot, the de-
bacle 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.
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 com-
petitive 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 Lon-
don 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 ex-
pense. 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 negotia-
tions between the central banks. Matters were made easier by the pres-
ence of Jack Morgan in London. He employed his talents in two
capacities in April 1915. First, as head of the House of Morgan, he pur-
sued 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
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 com-
mend 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 reli-
ance upon Britain. Indeed, Cunliffe expressed surprise that Jack Mor-
gan 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 discus-
sions.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 lat-
ter 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 con-
cluded: “[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
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 Mor-
gans. The idea was to placate Morgans and, in so doing, to gain a pow-
erful 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-à-
vis 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 be-
cause he believed it would promote a policy of genuine inter-allied
cooperation. As Morgans was already closely associated with the Brit-
ish, 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 ex-
change operations. The hope was that this would curtail currency
speculation and reduce capital exports. The gathering included Ser-
gent, 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 impossi-
ble to centralize operations in one agency. It was pointed out that such
a plan had been tried – and failed – in Russia. Although some argued
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 pro-
vide capital to foreign governments without Ministry of Finance ap-
proval, 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 re-
gents 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 opera-
tions 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 re-
turn, 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 rela-
tively 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. Cun-
liffe and his deputy, Brien Cokayne, were sanguine about the ex-
change 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
deal with, especially the reconstruction of the government in May 1915

and its ramifications. The collapse of the Asquith government and its re-
placement 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 elec-
tion.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 com-
plained 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 ap-
peared. 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 col-
leagues, united only by their loyalty to Asquith. Asquith was repeatedly
forced to intercede to settle differences between his two subordi-
nates.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 po-
litically or otherwise, both believed that he was significantly better
suited to the job than Lloyd George. 37 The latter, most scholars agree,
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 sec-
retary 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 empha-
sized 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 ex-
isted a genuine affinity in outlook between McKenna and his subordi-
nates, which had never been the case under Lloyd George. From May
1915 onwards, the Treasury was united in its argument that the finan-
cial burdens of the war were rapidly outstripping Britain’s ability to
pay for them.
Treasury authority had been compromised by Lloyd George’s deci-
sion 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
uneasy about J.P. Morgan & Co. At various times in June he indicated
to the French his desire to restructure the purchasing deal with Mor-
gans, 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 Cun-
liffe possessed a low opinion of the Treasury’s capabilities.47 Cunliffe
had successfully demanded that Asquith be present at meetings be-
tween 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 mil-
lion loan on J.P. Morgan & Co. in New York, which was backed by secu-
rities 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 ex-
change and instructing him to seek the “closest and most cordial co-
operation” 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 com-
plaints 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 ex-
change problem following his confrontation with the chancellor, acted
unilaterally. On instructions from Cunliffe, Morgans withdrew its sup-
port 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 precipi-
tous 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-
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 borrow-
ing 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 maxi-
mum 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 appropriate-
ness of using belligerent paper to accomplish this objective. The mem-
bers 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 cur-
rency, were ex officio members. Warburg and Miller were staunch oppo-
nents 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 Broth-
ers 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
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 ap-
propriateness 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 adminis-
tration 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 permis-
sible 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 ar-
gued 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 Lan-
sing – 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 redis-
count.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 Ameri-
can capital for the allies. Perhaps this was unsurprising, since a formi-
dable 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 fol-
lowed by a commercial credit arranged for the firm of Creusot in De-
cember 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 advan-
tage that Paris enjoyed over London. Ribot was not worried about pre-
serving 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
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 impli-
cations clouded French financial policy, for the objective was under-
stood: 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, subsi-
dized 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 prescrip-
tion 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 Brit-
ain. 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. Mon-
tagu 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, particu-
larly in the United States, where British options were limited. “Flood-
ing 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 dol-
lars to pay for American imports. Forecasting that French finance was
on the verge of collapse, Montagu urged Asquith to use his forthcom-

ing visit to France to offer a bargain: Britain would take over French fi-
nancial 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 compre-
hensive 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 Brit-
ain 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 will-
ing to fight to the last drop of French blood while manoeuvring to
establish a strong postwar economic position. Grey, who favoured hus-
banding 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
Joffre and Millerand, had already been warned that British participa-
tion 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 ade-
quately supplied with manpower. In its conclusions, the committee rec-
ommended 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 memoran-
dum, Churchill, Curzon, Selborne, and Chamberlain pushed for the
introduction of conscription and raised the notion of a one-hundred-
division 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 possi-
bility 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 secur-
ing 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 Spring-
Rice, 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 practi-
cally 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
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 under-
taken 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 ex-
ported. It was decided that Russia would be approached about contrib-
uting 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 bal-
ances on the existing French credit provided by the Treasury for sup-
plies 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 Anglo-
French 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 finan-
cial 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 selec-
tion of Reading to head the mission was a further setback, because
Reading was the “eyes and ears” of Lloyd George. In Soutou’s estima-
tion, 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
While this analysis has the virtue of locating the Anglo-French loan
in a broader context, it is flawed. Soutou’s factional division is inaccu-
rate. Cunliffe and the City were united against the Treasury and dili-
gently 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 Cun-
liffe nor Holden nor McKenna was willing to sacrifice Britain’s interna-
tional financial position to win the war. When it suited his purposes,
Lloyd George supported Cunliffe, though his views about the financ-
ing 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 supe-
riority 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 coali-
tion 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 re-
quired to end the war shortly and to reassure the allies. McKenna, Run-
ciman, 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 attempt-
ing 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 mis-
sion 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
Policy Committee report and thus ensure that the struggle over the dis-
position 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 neces-
sary 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 in-
crease 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, cou-
pled 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 Cabi-
net and, by extension, among members of parliament. 81 Together, the
budget and the Anglo-French loan were designed to prompt the Cabi-
net 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 confer-
ence had been mounting throughout the summer of 1915.82 The dete-
rioration of the military situation on the Eastern Front bestowed even
greater urgency on Russian pleas for more financial assistance. Tenta-

tively, 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 mil-
lion 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, in-
tended to take advantage of Russian weakness to impose stricter limita-
tions 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 in-
ternationale de ravitaillement (cir).86 Asserting British control over
allied financing was the overriding factor, though timing was also im-
portant. Anglo-French consultation would likely result in a delay before
a Russian credit was approved. With the recent Russian reverses but-
tressing 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. Lon-
don’s haste placed Ribot in a difficult situation. In his talks with Bark,
Ribot refused to commit himself to anything more than a monthly sub-
sidy 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.
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 com-
plete. Yet it largely failed in its twin aims of providing a convincing pre-
scription 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 ad-
vocates 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 Worthington-
Evans, 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 al-
ready 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 fi-
nancial secretary to the War Office, and his sentiments echoed those
expressed earlier by Kitchener. McKenna, in dismissing this idea, ar-
gued 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
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 bor-
rowing 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 in-
formed. 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 price-
support 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 under-
stood 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 suc-
cess 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 pos-
sibilities 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 Ameri-
can 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 in-
vestors. “Any other means” boiled down to bills of exchange, denomi-
nated 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
was becoming a trap. McKenna’s testimony to the committee reiter-

ated familiar Treasury views, which were discredited by renewed weak-
ness in the sterling exchange and by Reading’s statement.
Instead of the Anglo-French loan acting as the capstone of a success-
ful 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: “Brad-
bury 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 state-
ment 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 Bal-
four, the First Lord of the Admiralty, in a Cabinet paper of 9 Novem-
ber, 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 undersecre-
tary. 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 – mili-
tary and otherwise – are absolutely incompetent. Where will it all
end?”103 Allowances have to be made for Stevenson’s antipathy towards
McKenna, Lloyd George’s most bitter Cabinet foe. Still, the selection of
Chalmers, who had served as permanent undersecretary to the Trea-
sury 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 Ex-
change 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 Ameri-
can 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 extraordi-
nary. 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. Gov-
ernment,” 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 Ex-
change 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. Col-
laboration 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
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.
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 where-
withal to maintain the war were circumspect. The French were cau-
tiously 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 opti-
mism is understandable. The war loan was a success. With its absorp-
tion 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 cir-
culation, 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 conserva-
tive accounting, the funds in hand were sufficient to last until March. 2
In London, the French had not fully drawn down the discount facili-
ties 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 mil-
lion Bank of England loan, originally made a year earlier, provided ad-
ditional 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 re-
cent experience, it was unlikely that expenditure controls could be im-
posed 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
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 commit-
ment to a war au bout. McKenna’s efforts to restrict the size of the
British army suffered by comparison. Poincaré believed McKenna har-
boured “pacifist tendencies” that prompted his efforts to restrain mili-
tary 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 wor-
ried about McKenna’s commitment to the war.7 Lloyd George’s speech
at Verdun in September 1916 lauding French resistance, and his fa-
mous 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 assis-
tance, 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 en-
countered significant resistance from the Treasury. DePeyster was
alarmed by what he guardedly described as the pursuit of departmen-
tal 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
The Collapse of France 119
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 founda-
tion, Homberg darkly noted that they corresponded to the financial
policy pursued by Britain since the outset of the war.11 DePeyster con-
sidered that the Treasury had adopted a more rigid, less consensual ap-
proach 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 conscrip-
tion. 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 consid-
erable 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 man-
power 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 Trea-
sury 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 compul-
sionists, Hankey bitterly commented: “We are asked by the ‘scientific
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 stan-
dard: “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 bil-
lion, and that the deficit would come to £168 million. On the expendi-
ture 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 pro-
viding for Russian and Italian needs was not in Britain, where their re-
quirements could be met. The trouble was finding American dollars to
subsidize the allies. Britain was responsible for the bulk of allied pay-
ments in the United States. Only France was contributing in a signifi-
cant 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 re-
cently 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 reli-
ance 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 secu-
rities 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 Ameri-
can securities and a like amount in Canadian securities. The trust and
insurance companies reported totals of £40 million American securi-
ties and £9 million Canadian securities.20 There is no doubt that this
represented only a portion of British holdings, most obviously passing
Table 12
1916 Treasury Estimate of Subsidies to Allies
(millions of £)
Dominions 100
Russia 25m/month 300
France 4m/month 48
Italy 10m/month 120
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. Neverthe-
less, the Treasury had no precise figures. Continuing poor relations
between the Treasury and the Bank of England hindered accurate in-
formation gathering. Blackett, in compiling his December survey, had
confessed he had no information on the operations of the London Ex-
change 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 sup-
port, 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 com-
mittee report acknowledged: “Some further help might in an extrem-
ity 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 conclu-
sion was undermined by a ham-fisted approach to the allies. To drive
home the point that Britain was the linchpin of allied finances, a de-
tailed 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,
and 2nd that any fresh demands for money or credit means so many
fewer soldiers.”22 It is unlikely that this accomplished much. It cer-
tainly 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 Chan-
tilly 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 Chan-
tilly meshed with Sir Douglas Haig’s conception of an attritional war.
Haig, who had replaced French as commander of the British Expedi-
tionary Force, hoped that the New Armies would deliver the war-
winning blow after the enemy had been worn down. 24
The divorce between strategy and finance did not go unrecog-
nized. 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 Cham-
berlain and Grey corresponded, the former was in the process of com-
piling the Co-ordination of Military and Financial Effort report. The
report was notable for its belief that France would require only mini-
mal assistance; when Chamberlain referred to allied subsidies, he
meant Russia and Italy. What, however, would happen if France sud-
denly 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. Chan-
tilly 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.
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 functionar-
ies.27 Why Bradbury would make this curious recommendation is un-
clear. Perhaps he was seeking to restrict the influence of Keynes and
Chalmers. Equally, he may simply have believed that direct contact be-
tween the ministers was the most efficacious way to conduct Anglo-
French financial relations. His advice had unfortunate consequences.
Ribot was inclined to emphasize personal contact as a means of resolv-
ing 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. Never-
theless, as the strain on allied finances intensified in 1916, Anglo-
French 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 pay-
ments 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 ne-
glected 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 Anglo-
French 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 King-
dom were running at £3 million a month. It was agreed that the resi-
due 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 re-
quirements 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
Bank of France obtained another £12 million from the Bank of En-
gland in return for the sale of £8 million of gold. In sum, British assis-
tance 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 franc-
sterling 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 prom-
ises 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 contin-
ued 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 perspec-
tive. McKenna was desperately trying to check expenditures. A boost in
subsidies to France would call into question all of the Treasury’s num-
bers. 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 Trea-
sury 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
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 agree-
ment 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 prac-
tice he now breached decisively. His motivation is not hard to discern.
He regarded the handling of the foreign exchanges as his own baili-
wick. His contempt for McKenna and most of the senior Treasury offi-
cials 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 sug-
gested 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 cor-
responding 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 di-
rect 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
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 con-
cerned with the magnitude of your requirements and did not see his
way to giving his approval off-hand to such an operation.”39 Unhappi-
ness 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 McK-
enna. Asquith had little choice but to sanction these requests. The bat-
tle 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 ex-
plicitly made this connection earlier, observing how heartening an ex-
change 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 ar-
rangement 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
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 bor-
row.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 every-
thing the Banque de France did.”50 His disenchantment with the Bank
of France stemmed from his inability to pry any more gold from it. Pal-
lain 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 unfavour-
ably disposed to France, devoting all his efforts to slashing allied
military spending.51 Ribot even assured Cunliffe that while he was dis-
appointed the credit was not as large as he would have liked, he real-
ized 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 famil-
iar theme underlay the French critiques: the worry that Britain was ma-
noeuvring 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,
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 apprehen-
sion 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 strength-
ened 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 Commit-
tee 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 emo-
tional appeal to Asquith in Paris and his subsequent success in extract-
ing 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 eco-
nomic 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 mili-
tary service. The Cabinet discussions of 17–20 April were inconclusive;
neither the conscriptionist nor the anticonscriptionist forces were able
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 intro-
duced 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 ramifi-
cations 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 con-
trols 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 be-
tween 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 Cam-
bon’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 re-
sources available. Comparisons to Britain were inappropriate because
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. Pri-
vate 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 cur-
rency speculation and monitoring the flow of capital exports. How-
ever, 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 relin-
quish 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 politi-
cally 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 Alienat-
ing 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
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 top-
pled 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 Brit-
ish would have been reduced, relieving some of the strain on the Trea-
sury. 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 Anglo-
French financial relations through the opening months of the year.
These discussions overlapped with and eventually gave way to Ameri-
can 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 pay-
ments 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 Sep-
tember 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 mil-
lion a month in the United States.68 Similarly, British outlays in Amer-
ica 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
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 re-
turned to France in August 1916. Homberg was not only contemptu-
ous 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 Securi-
ties 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 Janu-
ary 1916 that Treasury inaction followed from a conviction that Brit-
ain 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
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 ac-
ceptable 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 shil-
lings in late May to augment the flow.
Treasury misgivings with regard to the reliability of American securi-
ties as a source of dollars, expressed in both the Report on the Co-
ordination of Military and Financial Effort and the internal note of
January 1916, were thus borne out. The problem was that ads pro-
duced an erratic, unpredictable stream of dollars. The amounts ten-
dered 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 confiscat-
ing investor holdings before 1917 made the chosen policy unlikely to
succeed even if the securities were available. The Treasury’s reluc-
tance 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
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 ten-
sions 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 pres-
sure in New York. An internal forecast in early May predicted bank-
ruptcy 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 com-
mitments 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 allot-
ments 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 Trea-
sury did not deny that France had a right to the payments – it simply
could not make them.83 The earlier French willingness to accept de-
lays ended with a series of cables from Homberg urging that the trans-
fers 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 Trea-
sury was likely to be limited. The afsc negotiations now became more
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 divi-
sion 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 restric-
tion 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 mortgag-
ing the Customs. McKenna disparaged the distribution of treasury bills
to American manufacturers on the grounds that it would imperil Brit-
ish finance in the United States; contractors who received treasury bills
in payment would be tempted to liquidate them immediately, at a dis-
count, 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 remain-
ing 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, how-
ever, had not been the original justification for remaining on gold.
Lloyd George’s decision in August 1914 had been made on the under-
standing 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 stan-
dard and both of whom feared that the war would result in the destruc-
tion 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
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 cam-
paign 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 con-
tinued 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 divi-
sions within the Cabinet, suggested paying for goods by issuing trea-
sury 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 forthcom-
ing French war loan would be placed in London and that the pro-
ceeds 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 opera-
tion. 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 an-
other 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
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 dis-
suaded; the firm had argued that it would be deleterious for British
credit and might “prejudice further financing of [the] British Govern-
ment.”92 Eight weeks after tendering this advice, the Morgans partners
had changed their minds. As Cokayne informed Bradbury on 2 Au-
gust, 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 Ameri-
can 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. Conse-
quently, 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 sub-
scriptions in the first twenty-four hours were $72,000,000 for the
$94,500,000, and although we telegraphed notices all over the coun-
try and closed the subscription the next day at noon, the total subscrip-
tions 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, Conti-
nental, 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 com-
mented: “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 pur-
chase 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.
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 de-
laying another French offering. It did mean that the projected Ameri-
can 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 gov-
ernment collateral loan, was acceptable to the Morgans partners
despite their warning in June against such a loan. During the Anglo-
French 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 rea-
sons. It was a form of obligation that was familiar to American inves-
tors; 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
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 ex-
change, had been the decisive element in spurring the Treasury to
agree.103 Neither the chronology of this nor the explanation is con-
vincing. 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 Com-
mittee 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 collat-
eral loan ruled out either another joint Anglo-French loan or a second
slice of the afsc.104 Effectively, the collateral loan led to British finan-
cial domination within the alliance. It destroyed, for the near term, the
chances of France funding itself independently or in tandem with Brit-
ain. Through its inability to appreciate the ramifications for allied fi-
nances 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 re-
sources. 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 re-
sources, 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 com-
promise his ability to raise money in the United States in any way,
remarking that he could not turn to Paris for approval of every opera-
tion. Lloyd George and Bonar Law were both of the opinion that only
Ribot’s suggestion that France and Russia ship gold was worth discuss-
ing. 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 pros-
perity, 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
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 im-
patience 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 agree-
ment 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 Amer-
ican 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 ex-
peditiously 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 sup-
ported 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 Brit-
ain 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 – Rus-
sian 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 borrow-
ing was always constrained in the United States by its relatively less at-
tractive credit than Britain’s, by doubts about the war’s outcome, and
by competing British efforts to borrow. France did what it could to fi-
nance its external needs – but it was not enough.
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. Mon-
tagu had warned at the beginning of the year that if spending on the
war exceeded £5 million per day, American resources would be ex-
hausted and abandonment of gold would soon follow.1 Daily expendi-
ture 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 Co-
ordination of Military and Financial Effort, prepared by Hankey, that
it, together with his own emendations, “fairly represents the Chancel-
lor’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 re-
serves were spent, trade would only be possible on the wholly inade-
quate 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 En-
ervated 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 commit-
ments. The French did, but the counsel of J.P. Morgan & Co. out-
weighed their recommendations. The committee was charged with two
The Dollar Problem 143
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 com-
promise 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 under-
taken 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 pay-
ment difficulties by providing the bank with £30 million over the next
six months, rather than the £60 million that was budgeted.5 This argu-
ment 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 op-
erations 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 aver-
age 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
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 mili-
tary spending would be checked; and that the exchange would remain
stable. All three proved erroneous. Although the committee con-
cluded 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 Trea-
sury 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 addi-
tional sums.11 The committee’s figure of $1.5 billion, one suspects,
was less an accurate number than one chosen for its ease of apprecia-
tion 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 re-
mained 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 post-
war report of the American Dollar Securities Committee placed total
American securities garnered from British investors, whether by pur-
chase or deposit, as of 12 August 1916 at £192,842,000. The seques-
tering 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 condi-
tion was a continuance of the present policy, which avoided forcible
seizure of securities.
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 depre-
ciation and rampant inflation was strong. Despite the divorce between
the gold reserve and the money supply embodied in the abandon-
ment of convertibility, Ribot and Bank of France officials continued to
insist that possession of a large gold reserve was essential for the stabil-
ity 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. Jean-
Jacques 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 repre-
sentatives 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 hold-
ing 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
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 Anglo-
French 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 recep-
tion 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 Austro-
Hungarian 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 expec-
tation 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 noncollat-
eral 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 collat-
eral loan. In any case, it was not taken seriously. Cokayne, for one, rec-
ognized that the die had been cast in August with the British collateral
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 op-
eration? 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 mysti-
fied 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 De-
Peyster. 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 Ameri-
cans 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 under-
stood that the war would not be over in six months.
Although Ribot showed a lively awareness of the problems of financ-
ing 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 assis-
tance 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 commer-
cial credits.25 Reading was greatly interested in the French success
in commercial credit borrowing and questioned Homberg and De-
Peyster closely. He was forced to admit that the difficulty in obtaining
commercial credits lay not in the United States but at home, where re-
sistance to American dollar bills of exchange was entrenched. This was
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 mid-
November, 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 commit-
tee 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. With-
out willing participation from the Treasury, it could not fulfil the func-
tions 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 com-
mittee meetings was the direction allied financing in the United
States should take. Davison, having returned to America, became con-
vinced 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 ap-
pear. 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 im-
prove 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
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 short-
term treasury bills paved the way for longer-term operations. He des-
perately 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 No-
vember.31 Ribot insisted that the treasury bills be Anglo-French, which
would, he hoped, make an unsecured joint loan more likely. Unfortu-
nately for Ribot, McKenna had no wish to issue Anglo-French bills be-
cause 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 discon-
certing 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 Trea-
sury 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 begin-
ning 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 pro-
ceed 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 com-
ment 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
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 War-
burg 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 spir-
its, 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 trea-
sury 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 prepar-
ing – not only welcomed the statement but requested it be tough-
ened.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 Re-
serve Board announcement appeared on 28 November warning inves-
tors to regard short-term allied bills with caution, it had a dramatic
effect on the overall financial climate and specifically on the sterling-
dollar exchange.
Analysis of the Federal Reserve Board affair has concentrated on the
question of responsibility. Davison, Wilson, and the board have all re-
ceived careful scrutiny. Davison has been harshly criticized. His arro-
gance, 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 contem-
plated.41 There is little doubt that Wilson seized on the announcement
as an opportunity to convey to the allies the risks of ignoring his pres-
ence 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.
Prior to the statement issued on 28 November, the board had sig-

nalled 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 accep-
tance 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 promot-
ing. A statement was duly issued to Federal Reserve agents that the
Board did not regard the credit as liquid, an action that forced the syn-
dicate 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 re-
cant. 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 per-
sonal 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 polit-
ical 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
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 de-
signed 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 is-
sue, 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 post-
ponement 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 adminis-
tration. 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 disas-
sociate itself from French financing was sufficiently ominous to quiet
Ribot.47
As news of the Federal Reserve Board announcement spread, Cun-
liffe advocated a new course. The London Exchange Committee, in re-
sponse 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 pos-
sibility 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 anti-
Morgan – or rather Davison – & he speaks out agst their monopoly. Sir
R.C. [Chalmers] has always been so, & vents it on ecg [Edward Gren-
fell] – 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
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 mil-
lion 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 im-
plemented. 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 Decem-
ber 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 there-
after, 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 epit-
ome 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.
The secret sessions, which opened on 28 November, lasted ten days,

a period that overlapped with the financial crisis in New York. The out-
come was a reconstruction of the Briand government and a shuffling
upstairs of Joffre. The new government was constituted on 12 Decem-
ber 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 com-
mand in the West and Sarrail in the East. Nivelle and Sarrail were inde-
pendent 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 im-
portant to note in his diaries. Briand did support Ribot in urging that
an Anglo-French conference be held, at which the agenda would in-
clude raising dollars, closer financial cooperation, and import restric-
tions, 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 Re-
serve 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 commis-
sioned 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 Octo-
ber 1916 Hankey submitted a paper arguing that the allies were vulner-
able 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
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 expendi-
ture – now at £6 million a day – indefinitely; Britain could probably pur-
chase 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 dis-
missed 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 stron-
ger. 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 coa-
lition. 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,
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 Commit-
tee was a success. It lacked independent authority, remained subject to
the decisions of the Council of Ministers, and suffered from the wide-
spread 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 Janu-
ary 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 esti-
mates Thomas subsequently tendered were higher than those Ribot
had dismissed.64
There is no indication that a reappraisal of French policy was under-
taken. 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 govern-
ment, though scholars have increasingly drawn attention to the conti-
nuity 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,
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 provid-
ing additional funds. Yet Bonar Law quickly turned his back on his
earlier willingness to consider abandoning gold. Once in the Trea-
sury, he had a difficult time adjusting. J.C.C. Davidson, his private sec-
retary, commented that Bonar Law was not happy and was “feeling no
doubt like a lost stranger amongst the wolves of a melancholy Trea-
sury.” 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 pur-
chase 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 pre-
war 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 Brit-
ish 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 de-
ployed 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 auto-
matically 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
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 ex-
ternal 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 Trea-
sury officials “had no confidence in the understanding of the Minis-
ters.”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 Com-
mittee 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
d’Orsay was fulsome in its praise.73 The British request for an Anglo-
French 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 dura-
tion 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 ques-
tions 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 over-
come Ribot’s recalcitrance.
There was another factor at work that explains the deadlock. Osten-
sibly the conference had been called to discuss financial matters. Yet
relatively little time was actually spent on finance. Most of the discus-
sion 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
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 finan-
cial 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 con-
ferences, and even their attention was often drawn elsewhere. This
helps to explain not only the unsatisfactory nature of the 28 Decem-
ber conference but also why so little changed in the handling of Brit-
ish 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 dis-
cuss 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 Trea-
sury could make. At Ribot’s insistence, the question of the other
£10 million was confined to an exchange of letters between the Trea-

sury 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 agree-
ment. 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 finan-
cial markets, and deal with Morgans. Casenave, now attached to the
French embassy in Washington, acted as the conduit to the Wilson ad-
ministration. He dealt with McAdoo, as well as with Harding and other
members of the Federal Reserve Board. There were other French em-
issaries in the United States, notably Jacques de Neuflize, the delegate
of the Bank of France and, more quixotically, Henri Bergson, the phi-
losopher, who had been dispatched by Briand to sound out American
opinion. There is little indication that Bergson’s mission accom-
plished 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 Jan-
uary 1917 Ribot judged the time had arrived to use this reserve. Dis-
cussions 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
moment, he said, was inauspicious to proceed with a railway opera-

tion, especially for the $300–400 million that Ribot deemed the mini-
mum acceptable.84
Frédéric-Bloch stressed that collateral operations of some kind were
the only ones feasible. He suggested loans on neutral stocks, or per-
haps borrowing on the French colonies. Despite Frédéric-Bloch’s mis-
givings, when Davison raised the idea of issuing French treasury
bonds, Ribot concurred. Ribot feared that Morgans would prefer Brit-
ish 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 even-
tually matured was probably immaterial to Ribot. Publication of the
Zimmermann telegram had influenced congressional opinion consid-
erably.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 opera-
tion. 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. La-
mont 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 ob-
jectives. The Treasury hoped he would discourage interlopers, particu-
larly Sir Richard Crawford, the commercial attaché in Washington,
who was being pushed by Balfour, the foreign secretary, as the logical
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 finan-
cial representatives to oversee Morgans had been correct.
By the time Lever arrived in February, Crawford had already estab-
lished himself as an important conduit to McAdoo and Harding.
Crawford had made his mark by smoothing passage of the January col-
lateral 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 charac-
terizing the scheme as “not brilliant,” thought it was “quite support-
able.”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 com-
petence, 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 Washing-
ton, the Treasury was unable to issue any loan after the January collat-
eral 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 mil-
lion, on 3 April it was $358 million, and it reached a peak of $437 mil-
lion 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 aug-
mented. The resurrection of the treasury bill scheme at the end of Feb-
ruary 1917 is an example. The Morgans partners dismissed Crawford’s
suggestion for a $250 million exchequer bond operation as impracti-
cal, 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
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 Mor-
gans was against the Crawford plan “for fear of losing their financial
control over us.” The solution was “to press the straight loan diplomati-
cally (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 has-
tened to assure the chancellor: “I shall give this project no encourage-
ment.”
Bonar Law reluctantly acquiesced in the new treasury bill plan. The
alternative suggested by Chalmers and the London Exchange Com-
mittee – a diplomatic offensive to produce American government as-
sistance – was unrealizable. Ultimately, the treasury bill plan came to
naught because of the desire of Harding and McAdoo to avoid compe-
tition with their own offerings.95 Although the Treasury was rescued
from a scheme it intensely disliked, no assistance from the Wilson ad-
ministration 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 deci-
sive difference to the outcome of the First World War. This is partly
because of the histrionics which surrounded British financial nego-
tiations with the United States, especially in the period between No-
vember 1916 and April 1917, which may have led some writers to
exaggerate the economic importance of American money to the Al-
lied war effort.”97 As his endnotes make clear, Ferguson is referring to
the work of Kathleen Burk. But Burk does not argue that foreign lend-
ing made a “decisive difference to the outcome of the First World
War.” Instead, she suggests that “without American production and fi-
nancial aid Britain would have been simply unable, after April 1917,
to continue fighting on the scale to which it had become accus-
tomed.”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 accu-
rate. However, this is to ignore Britain’s allies. France could not have
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.
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 en-
emy as a priority.2 American belligerency removed finance as a press-
ing 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 negotia-
tions.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 conser-
vative 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 offen-
sive proceed, despite their belief that with the United States now in the
war, the moment was inopportune to proceed rashly.4 Nivelle’s opti-
mism 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 wide-
spread disaffection in the French army. The first signs of disobedience
A New World 167
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 minis-
ter 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 essen-
tial 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, Clem-
enceau 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 de-
featism; the result was a clamour for his resignation. The scandal sur-
rounding the small left-wing journal Bonnet rouge, which was known to
be receiving German subsidies (and whose editor, Almereyda, was ar-
rested, 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. Shel-
tered 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, in-
cluding 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 finan-
cial matters. His political career had begun in 1898 with his election as
a deputy. Once in the Chamber, his background and interest in eco-
nomic matters had stamped him as the rare Third Republic politician
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 minis-
ter of finance was brief, lasting only until the fall of the Ribot govern-
ment 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 ra-
tional system of income tax, and the Senate now abandoned its long-
standing 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 ex-
penditures. 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 Pierce-
Arrow trucks in the United States without authorization. The total
came to Fr 135 million.7 As spending restrictions were out of the ques-
tion, 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 sum-
mer 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 pro-
vided 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 ma-
jor campaign promoting the loan was undertaken by the Ministry of
the Interior in cooperation with the Ministry of Finance.8 It is thus no
A New World 169
surprise that following the collapse of the Ribot ministry in September

1917 and the brief Painlevé government, Clemenceau’s administra-
tion 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 ses-
sions, 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 govern-
ment prodded industry to offer. The cost of boosting wages was a fur-
ther 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 prosecu-
tion 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 medioc-
rity.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 be-
moan 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
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 ac-
cordingly 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, de-
spite 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 inci-
dent the government faced was the Maurice debate in May 1918,
when Major General Frederick Maurice, the former director of mili-
tary operations, threatened to unite the ministry’s critics with his
charges that the government had starved Haig’s army of the man-
power 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 chal-
lenge, 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-
A New World 171
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 cau-
tiousness as French finance, reflecting both the strain on public fi-
nances 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 gov-
ernment was faced with the challenge of ensuring that the taxation sys-
tem was perceived as equitable, in order to minimize tax evasion and,
more dangerously, disaffection. From the left, Labour members of par-
liament argued that the working classes were bearing a disproportion-
ate share of paying for the war and that the appropriate solution was
the introduction of a capital levy rather than a further extension of in-
come 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 ex-
cess 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
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 in-
creasing 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 over-
worked 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 insuffi-
ciently bold. Privately, Bonar Law had come round to the view that
taxation was heavy enough, and the fact that important Tory constitu-
encies – 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 exhaus-
tion, strained as he was in his various capacities as house leader, chan-
cellor 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 cap-
ital 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.
A New World 173
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 au-
thority 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, autho-
rized the repayment of this loan through the discharge of £17.5 mil-
lion 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 ob-
served, this episode was symptomatic of Cunliffe’s belief that the Trea-
sury, 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 pre-
pared, 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 De-
cember 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 auto-
cratic, independent approach to policy matters had been an irritant
for some time to the Committee of Treasury. A number of the direc-
tors, 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
report, accepted by the Court of Directors in February 1918, reaf-

firmed 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 will-
ingness 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, Nor-
man 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 contin-
ued 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 di-
vision of financial assistance to France and Italy between ourselves
and the United States is to be henceforward on a new basis the politi-
cal 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 cap-
sule 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 Ameri-
can 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
A New World 175
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 ad-
ministration had no financial plan in the event of war and that the pos-
sibility 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, more-
over, should allow the minister of finance to be “less parsimonious” in
the credits he was providing the Bank of France for exchange pur-
poses.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 imme-
diately 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 deal-
ings with the bank had been testy, was loath to advance funds that
would go immediately to a Republican bank that had in the past op-
posed the Wilson administration. The provision of $200 million by the
U.S. Treasury to the British on 26 April was made with the understand-
ing that Morgans’ financial role would cease. Instead of receiving lib-
eral 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, sup-
port for the exchange would have to be abandoned in order to pre-
serve what remained of the gold reserve of the Bank of England. Only
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 sum-
mer 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 super-
vise 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. Sec-
ondly, with the United States now in the war, the American government
began to order heavily, increasing the strain on American manufactur-
ers 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 part-
ners were well aware that their relations with the Wilson administra-
tion 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. with-
drew formally, a step that the partners took at the end of May 1917. To
replace Morgans, McAdoo advanced the idea of an inter-allied com-
mission 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
A New World 177
The eventual result was the establishment of the Inter-Allied Coun-

cil, headquartered in Paris and London. Initially its mandate encom-
passed 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 dele-
gates.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 head-
quarters 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 recommen-
dations about purchasing matters and financial affairs, but the recom-
mendations 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 psychologi-
cal.” In purchasing, he observed, “the Council may be said to have suc-
ceeded 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-Al-
lied Council, which appeared to be the logical vehicle for economic
and financial reconstruction in the postwar period. Instead, in Decem-
ber 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 dem-
onstrated that insofar as relations with the United States were con-
cerned, those that mattered were those between governments, not
through an ill-defined international body. Nevertheless, the United
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 obliga-
tion, 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, de-
manded concessions. France was asked to assume responsibility for
payments in dollars in Britain for American products; to cease pur-
chasing 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 mil-
lion that had been granted by the American Treasury to meet French
expenses in the United States for May and June – but these were insuf-
ficient to meet British demands and pay for all French purchases. Ship-
ping 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 situa-
tion 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 inde-
pendent 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
A New World 179
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 depar-
ture 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 su-
pervision 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 allevi-
ating 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 dramati-
cally, averaging £10.73 million from January through September 1918.
In October 1918 only £2.1 million of French treasury bills were dis-
counted.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 Novem-
ber. 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 gar-
nering 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, reflect-
ing the shipment of hundreds of thousands of American troops to
France. Second, the franc strengthened on the exchanges, rising fur-
ther with favourable military news after June 1918. With increased dol-
lars 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
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 Novem-
ber 1917 Klotz journeyed to London in an effort to persuade Bonar
Law to allow the French rentes then in progress to be open to subscrip-
tions 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 re-
luctant. Meeting with Klotz, he argued that recent public subscriptions
to British obligations had been dropping and he feared that a French of-
fering would result in an embarrassing lack of interest. At this juncture
another issue intervened. The terms of the 25 April 1916 accord be-
tween 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 re-
questing 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, un-
der 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 So-
lomonaic 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
A New World 181
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 be-
tween France and Britain. He envisaged the two powers opening recip-
rocal 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 fi-
nancial 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 partic-
ularly 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 recom-
mended 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 dis-
charge by the state of its temporary borrowings from the bank and the
resumption of specie payments. Likewise, a Bank of England commit-
tee headed by Cokayne reported in 1918 that the “principal aim which
we have kept before us is the complete re-establishment as soon as pos-
sible 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 re-
established 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 ex-
changes with foreign countries by borrowing abroad. Unless the machinery
which long experience has shown to be the only effective remedy for an adverse
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 for-
eign 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 opin-
ion 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 collab-
oration between Britain and France for its functioning. As W.A. Brown,
Jr, put it in a memorable phrase, the “idea of the normal” was unchal-
lenged 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 impor-
tantly, 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 post-
war gold reserve of £150 million, a sum that would have been incon-
ceivable 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 pro-
vided with the opportunity of recreating the prewar world earlier than
had been anticipated.
Conclu.fm Page 183 Sunday, December 2, 2001 1:12 PM
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 for-
mally, 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 depreci-
ated 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 tradi-
tional 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.
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 de-
cade. After 1926 there was a remarkable recovery in French financial
power, based on the gold reserves of the Bank of France and its bur-
geoning 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 contrib-
uted 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 devalu-
ation. 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 chi-
mera. As a consequence of the war, New York had emerged as a finan-
cial 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 interna-
tional 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 al-
liance began soon after the armistice and was exacerbated by the resur-
facing 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 Min-
istry 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 agree-
ment to the Dawes Plan from Paris in 1924. Central bank cooperation,
though certainly more regular than in the prewar world, “seems on
Conclusion 185
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 Treasur-
ies and between the Bank of England and the Bank of France were dis-
tinctly 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 Na-
tional government in September. Recalling the desperate days of
1916–17, it was J.P. Morgan & Co. to whom Philip Snowden, the La-
bour 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 dishar-
mony 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-al-
lied finance from 1914 to 1918 was judged critically. Allied planners
recognized that much closer and more formal cooperation was neces-
sary 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 sterling-
franc exchange rate would be employed. This bore a certain resem-
blance 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 neces-
sary for the prosecution of the conflict; and expenses defined as com-
munal, 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 Depu-
ties on his return from London, Reynaud explicitly drew the parallel
with the First World War, pointing out that these steps went much
further than any undertaken then. The consequence was that plan-
ning 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 lead-
ing financial powers in the world and could no longer afford to go
their own ways. By 1939 the illusions were gone, the days of untram-
melled sway over international finance were over, and it was thus possi-
ble 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.
Notes.fm Page 187 Sunday, December 2, 2001 1:13 PM
Notes
a b b r e vi at i o n s
ac Austen Chamberlain Papers

an Archives nationales
be Bank of England
bf Banque de France
bl British Library
bn Bibliothèque nationale
bu Birmingham University Library
cab Cabinet Office
dcg Délibérations du Conseil général
ddf Documents diplomatiques français
dlg David Lloyd George Papers
fo Foreign Office
frbny Federal Reserve Bank of New York
gl Guildhall Library
hl House of Lords Record Office
jo Journal officiel
jpm J.P. Morgan, Jr, Papers
lc Library of Congress
lp Lamont Papers
mae Ministère des affaires étrangères
mbp Morgan Bank Papers
mf Ministère des finances
mg Ministère de la guerre
mgp Morgan Grenfell Papers
pml Pierpont Morgan Library
pro Public Record Office
t Treasury
188 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 ship-
per 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 matu-
rity 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 accep-
tance 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.
Notes to pages 8–12 189
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 Interna-
tional 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 pre-
occupied the Court of Directors of the Bank of England. Consequently,
membership on the court was screened to ensure that neither the joint-
stock 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/Gouv-
erneurs/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.
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.
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, Diplo-
mats 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 gener-
ally, 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 encom-
passing 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.
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.
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,
app. 2, 3–30. It is also discussed by de Cecco, The International Gold

Standard, 192–3.
106 pro/cab 16/18a/28480, 26 November 1911.
107 Quoted in Dutton, Austen Chamberlain, 37.
108 Blackett, 22 May 1914, memorandum on gold reserves, pro/t 170/19.
So French has concluded, British Economic and Strategic Planning, 70.
109 pro/cab 16/18a/28480, 19 December 1911.
110 pro/cab 2/3, 6 December 1912.
111 Milward, Economic Effects of the Two World Wars, 44.
112 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.
113 See the comments by Clapham in Sayers, The Bank of England, vol. 2,
app. 3, 32.
114 French, British Economic and Strategic Planning, 7–21.
115 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 ac-
count 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.
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.
14 jo, Documents parlementaires, 4133, 22 December 1917. Rapport by

M. Louis Marin.
15 Ibid.
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 dispas-
sionate 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.
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.
41 Roseveare, The Treasury, 237.
42 Soutou, L’or et le sang, 222–4.
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; Cam-
bon 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.
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.

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 Septem-
ber 1914, pro/fo 800/166.
70 Cambon to mae, 12 September 1914, mae/g 1914–18/1463/588.
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.
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.
108 Notes journalières, 3 February 1915, bn/Papiers Poincaré, 160029.
110 Undated, Daily Expenditure of the War, pro/t 171/108.
112 Keynes to Cabinet, undated February 1915, Paraphrase and Notes on the
Paris Conference, pro/t 172/260.
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.
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 Sena-
tor 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 testi-
mony – 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 appro-
bation, though this assumption is not provable. Other accounts have
tended to emphasize the leading role played by Lansing in this matter.
See Smith, Robert Lansing, 34–6. Coletta, Williams Jennings Bryan, 2:264–5,
remarks that Bryan was “faced with a fait accompli.”
19 The actual proceeds of the operation amounted to $9.25 million.
D’Anglade to mae, 4 November 1914, mae/g 1914–18/1456/303.
20 Jusserand to Delcassé, 29 October 1914, mf/b 31.717/États-Unis
1914/597.
21 Harjes to Jack Morgan, 3 November 1914, pml/jpm, box 33.
22 Straight to Casenave, 5 October 1914, gl/mgp 28261/1.
23 16 August 1914, pro/fo 382/582/39822/297.
24 Jack Morgan to McAdoo, 21 August 1914, pml/jpm, box 11/5.
25 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.
26 Warburg to McAdoo, 31 October 1914, lc/McAdoo Papers, box12 5.
27 Anderson, Effects of the War, 144–5.
28 Link, “The Cotton Crisis,” passim; Spring-Rice to fo, 19 September 1914,
pro/fo 368/1159/51220/53.
29 Jack Morgan to Grenfell, 5 September 1914, pml/jpm, box 11/5.
30 Link, The Papers of Woodrow Wilson, vo l .30, 20 August 1914.
31 Ibid., 2 and 9 August 1914.
32 Soutou, L’or et le sang, 128–40; Burk, Britain, America and the Sinews of War,
55–61.
33 British Library of Political and Economic Science, Paish Papers, Misc.
621/2. The Reading Diary contains corroborative evidence for this re-
construction. In his entry for 5 October, Reading noted that Paish had
given a talk to a group of bankers and experts interested in American ex-
change on the previous Friday, that is, 2 October. The proposal tabled up-
set 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).
34 Minutes of resumed conference with bankers, 5 October 1914, pro/t
172/143.
35 Conyne, Woodrow Wilson, 48–50.
36 On McAdoo, see Broesamle, William Gibbs McAdoo, passim, and Shook,
“William G. McAdoo,” passim.
37 Gwynn, The Letters and Friendships of Sir Cecil Spring-Rice, 2:242–3.
38 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 imagina-
tion, though it was typical of information that soon prompted London
to consider his replacement. See Kihl, “A Failure of Ambassadorial
Diplomacy,” 69–83.
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.
45 Hamlin Diary, 31 October 1914, lc/Hamlin Papers, box36 8.
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 compe-
tition 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.
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.
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.
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.
file.
73 Grenfell to Jack Morgan, 12 December 1914, gl/mgp 28252/1.
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).
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).
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.
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, tele-
grams 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 char-
acterized as a “lot of lies.”
97 Day-to-Day Memorandum, 8 January 1915, pml/jpm, box 41. The discus-
sions took place from 8 to 11 January 1915.
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 Inter-
national 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 com-
ment was made in the context of the American mediation proposal and
Grey’s unhappiness with Lloyd George’s “knock-out blow” speech in late

September 1916.
8 On Cambon’s career, see Eubank, Paul Cambon, and Baillou, Les affaires
étrangères, 2:277–80.
9 Riddell, Lord Riddell’s War Diary, 221.
10 Baillou, Les affaires étrangères, 2:323–54.
11 Ribot to Homberg and Mallet, 16 September 1915, mae/g 1914–18/
1464a/137, 138.
12 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.
13 See the comment by Burk: “The Treasury had lost control over the spend-
ing departments, especially over the Ministry of Munitions, long before
1916” (Britain, America and the Sinews of War, 77).
14 Godfrey, Capitalism at War, 267; his account of the Roanne affair is at 257–88.
15 jo 4133, 22 December 1917, rapport de M. Louis Marin.
16 Jèze and Truchy, The War Finance of France, 254–8.
17 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.
18 bf/dcg 96/4 August 1914.
19 All figures are from Jèze and Truchy, The War Finance of France, 262–82.
20 For an overview of taxation and public finance and their development in
Britain and France, see Schremmer, “Taxation and Public Finance,”
315–407.
22 Morand was a young official in the Quai d’Orsay at the time – March 1917.
Morand, Journal, 209.
23 Kuisel, Capitalism and the State in Modern France, 32.
24 Kemp, The French Economy 1913–1939, 47.
25 Sayers, Bank of England, 1:79.
26 Figures from Morgan, Studies in British Financial Policy, 106–12.
27 Balderston, “War Finance and Inflation,” 224.
28 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 propor-
tion met by taxation in Britain is 26.2% (Balderston, “War Finance and
Inflation,” 226).
29 See Balderston, “War Finance and Inflation,” 231–5; and Whiting, “Taxa-
tion and the Working Class,” 916, who concludes: “But in the end the
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.”
31 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).
33 Ibid., 696.
34 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).
35 Morgan, Studies in British Financial Policy, 345–6.
36 Hardach, The First World War, 87–8.
37 Calculated from Petit, Histoire des finances, 696.
38 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).
39 bf/dcg 100/27 February 1917.
40 Hardach, The First World War, 131–2. The grain harvest was 2.6 million tons
below average throughout the war.
41 Weems, America and Munitions, app. 7.
43 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%.
44 Morgan, Studies in British Financial Policy, 307, table 43. This figure is the
prewar average of 1911–13.
45 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, con-
tains a summary of purchase contracts placed by J.P. Morgan & Co. which
gives some indication of the pattern of purchases by the British govern-
ment agents. The largest categories by value as actually paid for were artil-
lery ammunition, shells and various components, $509 million; propellants
and explosives, $408 million; and complete rounds of artillery ammuni-
tion, $348 million.
46 A Brief Note on the Dependence of the United Kingdom on United States
Supplies, pro/fo 371/2796/69066.
47 Burk, Britain, America and the Sinews of War, 62–4, 86–7.

49 Levy-Leboyer, “La position internationale,” 25, table 5.
50 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.
51 Calculated from Morgan, Studies in British Financial Policy, 328, table 50.
52 Parliamentary Debates, Commons, 5th ser., 93 (1917): 377.
53 Sayers, Bank of England, 1:93–5.
55 Brown, The International Gold Standard, 1:65.
56 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.
57 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 fruit-
less (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/
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.
11 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).
12 Nouailhat, France et États-Unis, 112–13; Goute, Des principales opérations du
trésor français, 211.
13 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.
14 Ribot, Lettres, 92–3.
15 Petit, Histoire des finances, 70, 194.
16 Ribot to Cambon, 30 March 1915, mae/g 1914–18/1459.
17 Ribot to Cambon, 30 March 1915, mae/g 1914–18/1459/1000.
18 Jack Morgan to Davison, 6 April 1915, pml/mbp, April 1915 visit
J.P. Morgan to Britain, folder 4.
19 Jack Morgan to Davison, 8 April 1915, pml/mbp, April 1915 visit
J.P. Morgan to Britain, folder 4.
20 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.
21 Delcassé to Cambon, undated [but April 1915], mae/g 1914–18/1459/
1250.
22 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.
23 J.P. Morgan to Davison, 20 April 1915, pml/mbp, April 1915 visit of
24 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.
25 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.
26 Jack Morgan to Davison, 30 April 1915, pml/mbp, April 1915 visit of
27 bf/dcg 97/8 July 1915.
28 bf/dcg 98/5 February 1916.
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 assess-
ment 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 Poli-
tics 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.
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.
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, Runci-
man, 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 chan-
cellor of the Duchy of Lancashire, having been sacked from the Admiralty;
Curzon was Lord Privy Seal; Selborne, president of the Board of Agricul-
ture; 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.
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.
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.
95 According to Burk, the syndicate wound up holding $187 million, as the

public purchased only $33 million, the balance being taken by corpora-
tions (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.
105 Bradbury to Harvey, 18 November 1915, pro/t 1/11899/2759/
27330.
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.
Preparation/1027.
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.
12 DePeyster to Longbois, 13 March 1916, mf/b 12.677/a 4.

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.
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.
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.
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 arrange-
ment 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.
34 Asquith to McKenna, 25 March 1916, Churchill College, Cambridge/
McKenna Papers, 5/10.
36 Poincaré, Au service de la France, 8:151–2.
37 28 March 1916, mae/g 1914–18/1388.

38 De Fleuriau to Ribot, 3 April 1916, mae/g 1914–18/1388/377.
39 Cunliffe to Pallain, 31 March 1916, be/c 5/49.
40 De Fleuriau to Ribot, 3 April 1916, mae/g 1914–18/1388/377; Cunliffe
to Ribot, 4 April 1916, be/c 5/49.
41 5 April 1916, Churchill College, Cambridge/Hankey mss, 1/1.
42 Pallain to Cunliffe, 21 March 1916, bf/dcg 98/21.
43 DePeyster to mf, 18 April 1916, mf/b 12.677/a 5/2096.
44 De Fleuriau to Ribot, 3 April 1916, mae/g 1914–18/1388/377.
45 Or so DePeyster thought. DePeyster to mf, 18 April 1916, mf/b
12.677/a 5/2096.
46 De Fleuriau to Briand, 15 April 1916, mae/g 1914–18/1388/376.
47 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 agree-
ment 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 Govern-
ment or the Bank of France might request the Bank of England to intro-
duce 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
1914–18/1388/1326; Cunliffe to de Fleuriau, 19 April 1916, mf/b

12.677/a 5).
48 Morgan, Studies in British Financial Policy, 345–6.
49 Mouré, “The Limits to Central Bank Co-operation,” 261–2. On the ex-
change account, see Baring Archive, 200024, which contains a memoran-
dum of an agreement between Revelstoke and Pallain establishing an
account with an initial balance of £200,000.
50 30 March 1916, frbny/Strong Papers, 1000.2.
52 Ribot to Cunliffe, 28 April 1916, be/c 5/49.
54 As French has shown (French, British Strategy and War Aims, 25).
55 15 April 1916, bu/ac 19/1/40.
56 De Fleuriau to de Margerie, 17 April 1916, mae/g 1914–18/538.
57 Ibid.
58 Riddell, Lord Riddell’s War Diary, 168.
59 De Fleuriau to mae, 30 March 1916, mae/g 1914–18/1460.
60 De Fleuriau to de Margerie, 8 April 1916, mae/g 1914–18/538.
61 Cambon to Briand, 25 May 1916, mae/g 1914–18/1460.
62 Pallain to Ribot, 5 July 1916, bf/Grande-Bretagne, Correspondances
1916–23.
63 Jèze and Truchy, The War Finance, 303.
64 Martin, France and the Après Guerre, 21.
65 Moggridge, “The Gold Standard and National Financial Policies,” 252.
66 4 October 1916, mf/b 12.677/a 1, Procés-verbal de la commission finan-
cière franco-anglaise tenues à Londres du 3 Octobre au 10 Octobre 1916.
67 Ribot to Minister of War, 23 July 1916, mf/b 32.400.
69 The French and British totals are from Report to the Chancellor of the Ex-
chequer of the British Members of the Anglo-French Financial Committee,
pro/t 170/95.
70 Weems, America and Munitions, 226–7.
71 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.
72 For more on the relationship between J.P. Morgan & Co. and France, see
Horn, “A Private Bank at War,” 85–112.
73 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.
74 Ribot to McKenna, 23 July 1916, mae/g 1914–18/1389.
75 Homberg to Ribot, 18 January 1916, mae/g 1914–18/1457/17.
76 Report of the American Dollar Securities Committee, 4 June 1919, pro/t
170/130.
77 Ibid.
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.
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.
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 di-
ary 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).
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).
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 deliv-
ered £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 gener-
ally, 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.
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, Amer-
ica 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).
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 Decem-
ber 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.
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 govern-
ment (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.
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 franco-
anglais, 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 ).
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; Frédéric-
Bloch to Ribot, 17 January 1917, mae/g 1914–18/1402/72; Ribot
to Frédéric-Bloch, 20 January 1917, mae/g 1914–18/1402/40; Frédéric-
Bloch to Ribot, 24 January 1917, mae/g 1914–18/1402/104; Frédéric-
Bloch 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.
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.
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.
16 Daunton, “How to Pay for the War,” 890.
17 Whiting, “Taxation and the Working Class,” 899–900.
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.
34 Jusserand to Ribot, 2 April 1917, mae/g 1914–18/1455/348; Frédéric-

Bloch 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.
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.
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 Ram-

say of the Treasury. The figure represents outstanding loans to France on
30 November 1918.
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.
Biblio.fm Page 225 Sunday, December 2, 2001 1:14 PM
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Index.fm Page 239 Sunday, December 2, 2001 1:15 PM
Index
acceptance credit, 103–4, logne meeting on gold 101–2, 125, 134; Court
151 shipments, 108, 111, 117 of Directors, 11, 24, 35,
acceptance houses, 29, anti-Semitism, 37, 65 126, 189 n14; Cunliffe’s
30–1 Asquith, H.H., 46, 101, role in, 11–12, 35, 174;
allied loans, joint, 28–9, 47, 119; collapse of govern- discount rate, 30–1, 189
51–2, 53, 54–5, 68, ment, 100; establishment n13; and gold pool
136–7 of War Committee, 114; agreement, 53, 211 n30;
Almereyda, Miguel, 167 establishment of War governorship of, 11–12,
American and British Policy Committee, 106; 173–4; and interna-
Loan Corporation, 137, fall of coalition, 109, tional gold standard, 8;
138 153, 155, 219 n62; on relations with joint-stock
American dollar securities financial support to banks, 23, 25; relations
(ads), 133 France, 44, 55, 126, 140; with Treasury, 101–2,
American Exchange Com- impromptu conference 114, 121, 133–4, 172–4;
mittee, 115 with Ribot and Briand structure and function,
American Expeditionary (1916), 126; and 11–12; view of collateral
Force, 179 McKenna, 102 loan through Morgans
American Foreign Securi- (1916), 138–9; view of
ties Corporation (afsc) Bacon, Robert, 74, 202 n88 Cunliffe-Ribot agree-
loans, 132, 134–5, 136, Baghdad railway project, 7 ment (1916), 126. See
137–8, 161 Baldwin, Stanley, 173 also Britain
American Group of Bank- Balfour, Arthur, 77, 114, Bank of France (Banque de
ers, 74 135, 155, 162 France): acceptance
American National Mone- Balkan states, 18, 71 credit with Brown Broth-
tary Commission, 11 Banbury, Sir Frederick, 113 ers, 103; advances to gov-
American Supply Corpora- Banker’s Trust, 151 ernment, 32, 78, 79,
tion, 68 Bank of England: Ameri- 169, 170t; Conseil
Anglo-French financial can dollar securities général, 10; control of
committee, 142–8 (ads), 133; cir account, foreign exchange, 99;
Anglo-French financial 39; Committee of Trea- discounted bills held by
meetings: December sury, 11, 35; Committee (1914), 31–2, 32t; dis-
1916, 158–60; February on Currency and Foreign count rate, 31; exchange
1916, 123–4 Exchanges (Cunliffe agreement with Bank of
Anglo-French loan (1915), Committee), 181–2; con- England (1916), 180;
108–10, 112–13; Bou- trol of foreign exchange, exchange support
240 Index
payments to (1916), for 1918, 172, 174; as 118–19, 127–8; concern

143; and gold pool chancellor, 89–90, 156, for global financial domi-
agreement, 53; loan 157; in coalition Cabi- nance, 5, 8, 36, 89, 94,
from Bank of England, net, 119, 135, 155; and 108–9, 127–8, 140, 148,
96–8; notes in circula- Cunliffe, 173–4; policy 182; conscription, 93,
tion, 170t; plans for war, on gold standard, 89–90, 107, 109, 119–20,
22, 27, 32; renewal of 157, 158 128–9; debts in 1918,
charter, 169–70; struc- Bonbright & Co., 151 183; decision to enter
ture and function, 9–11. Bonnet rouge scandal, 167 war, 37; defence spend-
See also France Boulanger, Georges, 131 ing, prewar, 19; effect of
“Bank was Ready, The,” 11 Boulogne: meeting of Mor- German victory on, 37,
Banque de l’union parisi- gans associates at (1914), 38; excess profits duty,
enne, 43 73; meeting on Anglo- 110; expenditures, lack
Banque d’Indochine, 43 French loan at (1915), of control over, 69, 83,
Banque nationale de 108, 111, 117 101, 105; expenditures
crédit, 31 Bourne, J.M., 219 n62 in U.S., 131–2, 143–4,
Baring Brothers, 8, 23, 24 Bradbury, Sir John, 30, 41, 204 n45; failure to meet
Bark, Peter, 45, 50, 111; at 42, 109, 114, 134, payments to France
1915 Paris conference, 147, 159; advice that (1916), 134–5; financial
51, 52, 54 Ribot contact McKenna crisis of 1914, 29–31;
Barstow, George, 38 directly, 123; on credits financial crisis of 1917,
Beaverbrook, Lord, 207 to Russia, 111; on finan- 162–5; financial domi-
n35 cial status in 1916, 142; nance over allies, 55,
Becker, Jean-Jacques, 145 and Lloyd George, 47, 139; financial panic of
Belgium: British subsidies 101; role in Treasury, 14 1907, 8, 9, 16; financial
to, 121t “Bradburys” (British Trea- status, postwar, 183–5;
Belmont, Augustus, 205 n9 sury notes), 30 financial status, prewar,
Benckendorff, A.K., 40 Brade, Sir Reginald, 208 19; financial status in
Bergson, Henri, 161, 219 n64 1916, 119, 120, 134–5,
n82 Brautianu, Ion, 201 n76 142, 153, 154–5; finan-
Berlin stock exchange, 28 Briand, Aristide, 76, 126, cial support from U.S.,
Bertie, Francis, 13, 16, 41; 140–1; fall of govern- 164–5, 175–6; foreign
on French finances, 42, ment of, 153–4, 161 exchange, 99, 101, 102,
47; on French views of Britain, 90, 140; Admi- 125, 134; foreign invest-
Britain, 106, 118, 129; ralty, 39, 201 n81; alli- ment, prewar, 89; For-
on Grey, 77 ance with France, 3, 4–5; eign Office, 12, 15–17,
bills of exchange, 188 n5 and Anglo-French loan 77; foreign policy, glo-
Blackett, Basil, 36, 101, (1915), 108–10, 112–13; bal, 4; foreign securities
114; and Lloyd George, Armies, New, 46, 93, held by, 89, 120–1, 133,
34, 47; memorandum on 122, 128; army, size of, 144, 157; gold export,
British finances (1915), 106, 107, 119; Army 24–5, 183; gold as requi-
120, 121, 132; memo- Council, 201 n81; bal- site for financial assis-
randum on gold re- ance between military tance, 29, 41, 48–9; gold
serves, 25, 48–9; and and financial support to reserves, 9, 23–6, 90t,
Paish-Blackett mission to allies, 105–6, 122; belief 182; gold shipments to,
U.S., 64–7; role in Trea- in short war, 22; Board of French, 90–1, 98, 108,
sury, 14–15 Trade, 39; coalition gov- 141, 160–1, 179, 183;
Boer War, 19 ernment (May 1915), gold shipments to, Rus-
Bonar Law, Andrew, 100, 100; collapse of Asquith sian, 90, 105, 111, 140;
152, 156; at Anglo- government, 100; com- gold shipment to U.S.
French conference mitment to war effort, (1915), 107; gold stan-
(1916), 158–60; budget 46, 51, 106–7, 108, dard, importance of,
Index 241
24–5, 35–7, 89–90, 109, 153, 156, 158; War British War Mission, 174
120, 135, 152, 157–8, Office, 38, 69, 101; Ways Brown, James, 28, 67, 70,
181–2, 183; government and Means advances, 137
revenue and expendi- 171. See also Bank of Brown, W.A., Jr, 182
ture, 83t; import restric- England Brown Brothers & Co.,
tions, 85, 88–9, 106, 110, – committees and commis- 103–4, 137
153, 179; interest rates, sions: American Dollar Brusilov, Aleksiei, 135–6,
30, 90; and joint allied Securities Committee, 146
loans, 51–2, 54–5, 108; 132–3, 144; Committee Bryan, William Jennings,
Liberal party, 93, 129, of Imperial Defence 58, 59, 60–1, 62, 104,
155; loans and subsidies (cid, Desart Commit- 198 n18
to France, 40–5, 96–8, tee), 23–6, 35, 36, 211 Buchanan, George, 45
123–4, 141; loans and n14; Committee on the Bulgaria, 18
subsidies to Russia, 41, Co-ordination of Mili- Burk, Kathleen, 151, 153,
46, 87, 105, 135, 136; tary and Financial 201 n81; on 1915 Anglo-
loans as wartime reve- Effort, 119–21, 122, 128, French loan, 210 n95;
nue source, 82–3, 171; 133; Committee on War on Britian’s financial
Morgan’s advances to Office Expenditure, 101; status in 1917, 164; on
(1917), 163; Morgan’s Royal Commission on Morgans as British pur-
collateral loan to, the Civil Service, 16; chasing agent, 68–9, 201
137–40, 146–7, 162–3; Royal Commission on n81; on Paish-Blackett
Morgans as purchasing the Supply of Food and mission, 64
agent for, 68–9, 72, 94, Raw Materials in Time of
102, 175, 176, 200 n61, War, 26; War Committee, Caillaux, Joseph, 13, 20
201 n81; national debt, 114, 139, 140; War Pol- Calais conference (1916),
19; new capital issues, icy Committee, 106–7, 107, 140–1, 143, 181,
92t; Paish-Blackett mis- 110 215 nn107–8; extension
sion to U.S., 64–7; and – legislation: Bank Act, sus- of accords, 160, 161,
1915 Paris conference, pension of, 30; Defence 178–9; gold pool agree-
14, 48–50, 51, 55; plans of the Realm Act, 133; ment, 145, 216 n14
for war, 24, 26; political Military Service Act, 119 Callwell, Charles, 208 n64
crisis of 1916, 155–6; – Treasury: conference on Cambon, Paul: anti-
reaction to Bryan ruling Paish-Blackett mission, Semitism, 37; on Brit-
on loans to belligerents, 64–5; Cunliffe’s disputes ain’s decision to enter
62; reaction to Federal with, 114, 125, 173; doc- war, 37; and British loan
Reserve Board warning uments submitted to for France, 40, 41–2; on
on short-term allied bills, Cabinet (1915), 109–10; exchange controls, 129,
151–2, 155; reaction to estimate of subsidies to 130; joint purchasing
U.S. proposal for inter- allies (1916), 121t; proposal, 38; position
allied council, 176; sabo- under Mckenna, 101; and influence of, 77–8
tage of Russian loan in nineteenth-century out- Campbell, W. Middleton,
U.S., 71; strikes and look, 26–7; relations with 64
labour unrest, 170–1; Bank of England, 101–2, Canada: British gold re-
subsidies to dominions 114, 121, 133–4, 172–4; serves in Ottawa, 102,
(1916), 121t; taxation in, structure and function, 173; Canadian securities,
83–4, 110, 171–2; trade 12; view of Davison’s 120
with France, 85t; trade short-term treasury bill Carter, Jack, 69, 72
with U.S., 86–7, 87t; proposal, 149; view of Casenave, Maurice, 62, 74,
Unionist party, 171, 172; 1916 financial situation, 161, 162
view of French finances, 142 Cassell, Sir Ernest, 17,
43, 105, 124–5, 129; War British Expeditionary 195 n47
Book, 24; War Cabinet, Force, 22, 27, 39, 178 Challener, R.D., 21
242 Index
Chalmers, Sir Robert, 24, Crédit commercial de 163; and Paish-Blackett

143, 152, 159, 160, 173; France, 31 mission, 47, 67, 68; pro-
appointment to Treasury, Crédit Foncier, 161 posals for short-term
114–15; on cost of sup- Crédit industriel et com- treasury bills, 148–52,
porting exchange, 153; mercial, 31 162, 163–4
on Davison’s treasury-bill Crédit lyonnais, 31, 103 Dawes Plan (1924), 183
proposal, 164 Creusot, 104 de Cecco, Marcello, 36
Chamberlain, Austen, 107, Crewe, Lord, 208 n64 Declaration of London
194 n22; on British sup- Crosby, Oscar T., 176 (1914), 40, 130
port to allies, 121, 122, Crowe, Eyre, 16 de Fleuriau, Aimé, 43, 108,
128; and Committee on Cunliffe, Walter, 25, 30, 41, 126, 129, 159
the Co-ordination of 51, 65, 108, 147, 149, De la conduite de la guerre
Military and Financial 159; and 1915 Anglo- (Foch), 21
Effort, 119, 122, 128; on French loan, 108–9; and Delano, Frederick A., 103
gold standard, 25; in Bonar Law, 173–4; Delcassé, Theophile, 40,
Treasury, 34, 114 career and character, 42, 97
Chantilly, allied general 11–12, 35, 102, 174; on de Margerie, Pierre, 58
staffs meeting at (1915), collateral loan (1916), de Neuflize, Jacques
122 139; control of ex- (father), 98
Churchill, Winston, 107, change, 99, 102, 125, de Neuflize, Jacques (son),
208 n64, 208 n67 134; criticism of Bank of 161, 219 n82
Clemenceau, Georges, 20, France, 127; disputes DePeyster, Henri, 39, 43,
117, 156, 183; govern- with Treasury, 114, 125, 111, 126, 143; on Brit-
ment of, 169; on Senate 173; and loan to France ish Treasury officials,
Commission on the (1916), 126–7; and Lon- 118, 119; on exchange
Army, 167 don Exchange Commit- support payments to
Clémentel, Etienne, 47, tee, 115, 152; meetings Bank of France, 143; on
181 with Ribot, 123–4, French borrowing in
Cobb, Frank, 175 125–6, 134; and Jack Britain, 40, 42
Cokayne, Brien, 115, 143, Morgan, 97; objection to Desart, Viscount, 23
147; appointment to Paish-Blackett mission, Des principes de la guerre
Bank of England, 174; 64; policy on gold and (Foch), 21
on collateral loan, 137, gold standard, 125, 127, Deutsche Bank, 17
138–9, 146; on ex- 152, 153; sabotage of dollar (U.S.): American
change, 99 Russian loan in U.S., 71 dollar securities, 133; as
Cole, A.C., 24 Curzon, Lord, 5, 107, 156, means to support allied
Commission des changes, 208 n64, 208 n67 currency, 88–9; strength
130 of, 29, 87
Commission internation- Daily Mail (London), 100 Doumergue, Gaston, 38
ale de ravitaillement D’Anglade, G.B., 59–60 Drexel & Co., 58
(cir), 38–40, 111, Dardanelles campaign, 95, Dulles, Eleanor, 31
179 100 Duroselle, Jean-Baptiste,
Compagnie des forges et Davidson, J.C.C., 35, 157 203 n17, 219 n63
acieries de la Marine, Davillier (French banker),
209 n94 98 Eastern Front, 95, 110–11,
Comptoir national Davison, Henry P., 58, 72, 112, 146, 153; Brusilov’s
d’escompte de Paris, 31 132, 143; on afsc loan assault, 135–6, 146;
conscription, 93, 107, 109, to France, 137–8; and Masurian Lakes, second
119–20, 128–9 loan to France (1915), battle of, 95
couverture, 91, 169 73, 74, 97; and loan to Echo de Paris, 129–30
Crawford, Sir Richard, 162, Rumania, 70; and loan to Economist, 35, 37–8
163, 192 n22 Russia, 71; and McAdoo, Eichengreen, Barry, 8
Index 243
Emmott, Lord, 64 Ford Motor Corporation, financial support from

entente cordiale, 11 72 Britain, 121t, 123, 165;
Esher, Lord, 22 Forgan, James, 65 financial support from
Europe: collective action of France: access to London U.S., 175; financial sup-
central banks, 8–9, 47; money market, 40–1, 44, port of Russia, 45–6,
prewar defence spend- 54, 96, 124, 125, 179, 111, 141; foreign invest-
ing, 19 212 n47; alliance with ment, prewar, 17–19, 89;
exchange, foreign: control Britain, 3, 4–5; alliance foreign policy, prewar, 4;
in France, 99, 129–30; with Russia, 18–19; and German control of terri-
depreciation of franc, Anglo-French loan tory, 80, 81, 85; gold, im-
87–8, 123–5, 183; depre- (1915), 108–10, 112, portance of, 5, 56, 91–2,
ciation of ruble, 50, 87; 117; attempts to raise 130–1, 145, 159; gold,
depreciation of sterling, money in U.S., 58–62, policy against shipment
99, 102; effect of Federal 95, 103, 132–3, 141, of, 42, 53, 91–2, 131,
Reserve Board warning 156, 161–2; bankers 145; gold, ratio of to
about short-term allied meeting (1915), 98–9; notes, 91t, 117, 130–1,
bills, 150; effect of trade banking families, 10; 145, 169; gold, sale or
imbalance on, 87; franc- belief in short offensive loan of to Britain, 90–1,
dollar, 96; franc-sterling, war, 21–2; Britain’s fail- 98, 108, 141, 160–1,
84, 96, 123–5, 127, 129, ure to meet payments to 179, 183; gold pool
180; rates on New York, (1916), 134–5; Chamber agreement, 53, 211 n30,
88t; Ribot’s proposal for of Deputies budget com- 216 n14; gold reserves,
bureau de change, 98–9; as mittee, 12–13, 32–3; City 8, 9, 22–3, 42, 48, 90t,
source of revenue for of Paris loan, 144, 146, 91t, 117, 124, 145; gold
France, 84; sterling de- 148, 216 n11; Clem- reserves, safety of, 22, 42;
preciation and support enceau’s government, gold standard in, 9, 32,
of, 88–90, 99, 102, 153, 169; concern about 183; government reve-
185; voluntary controls British commitment to nue and expenditure,
on, 99 war, 106–7, 118–19, 80t; lack of access to pri-
127–8; conscription, 93; vate securities, 89; loan
Farnham, Robert, 198 n18 Conseil supérieur de from Bank of England,
Federal Reserve Bank of la défese nationale 96–8, 117; loan negotia-
New York, 66 (France), 21, 23–4; debts tions with Britain
Federal Reserve Board, 63; in 1918, 183; defence (1914), 40–5; ministerial
and French acceptance spending, prewar, 19–20; instability, 13; Ministry of
credits, 103–4, 151; and dissolution of parlia- Finance, 10, 12–14, 27,
Paish-Blackett mission, ment (1914), 28, 32; 32–3, 99; Ministry of
66; warning against exchange controls, 99, Foreign Affairs (Quai
short-term allied bills, 129–30; exchange sup- d’Orsay), 13, 17–19,
148, 150, 151–2, 154–5. port, 143; expenditures 77–8; Ministry of Marine,
See also United States of in London, 84; expendi- 38; Ministry of War (con-
America tures in U.S., 59–60, trol of purchasing),
Federal Reserve System, 67–8, 72, 78–9, 131–2, 39–40, 68, 131, 156;
62–3 143–4; fall of Briand gov- Mouvement général des
Feis, Herbert, 7 ernment, 153–4, 161; fonds, 12; and National
Ferguson, Niall, 164, 210 fall of Ribot government, City Bank, 61–2, 75;
n95 168; financial status, national debt, prewar,
First National Bank of postwar, 183–5; finan- 20; national defence
Chicago, 65 cial status in 1914, 7–8, bonds, 79–80, 81t, 130,
Flandreau, Mark, 9 43; financial status in 170; National Service
Foch, Ferdinand, 21 1916, 117–19; financial Law, 83; occupation of
Ford, A.G., 8 status in 1917, 160; Ruhr (1923), 183; at
244 Index
1915 Paris conference, French, David, 24, 105, Hambro, Lord, 64

50–1; Paris stock ex- 109, 110, 153 Hamilton, Keith, 190 n52
change closure (1914), French, Sir John, 22, 100 Hamlin, Charles S., 67,
28, 193 n1; plans for war, 103, 217 n39
21–3, 27, 32; political Galacia, 95 Handelsbank, 70
unrest, 145, 166–70; Gambetta, Léon, 10 Hankey, Sir Maurice, 140,
prewar relations with Germany: closure of Berlin 159, 166; and Commit-
Germany, 7; proposal stock exchange, 28; con- tee on the Co-ordination
for unsecured loan, 146; trol of French territory, of Military and Financial
reaction to Federal Re- 80, 81, 85; financial Effort, 119–20, 142; on
serve Board warning strength in 1914, 7; as Lloyd George and Read-
against short-term allied financial threat to Brit- ing, 158; role in Cabinet,
paper, 151–2; relations ain, 24, 26, 37–8; spring 211 n14; on war of attri-
and dealings with Mor- offensive (1918), 170, tion, 154
gans, 58, 61–2, 68, 73–4, 171; taxation, 83 Harding, W.P.G., 103, 161,
75, 97, 98, 131, 132, Gibb, Sir George, 69 162, 163, 164, 220 n87;
137–8, 152, 154, 162, Gilbert, Bentley, 101 and Federal Reserve
176; rentes and rentier Girault, René, 18 Board warning against
class, 9, 20, 80–1, 130, Godfrey, John, 79 short-term allied bills,
145, 168, 179; Senate gold pool, allied, 52–3, 151
Commission on the 145, 211 n30, 216 n14 Hardinge, Lord Arthur, 77,
Army, 167; Senate gold standard: argument 158
finance committee, 12; for abandonment of, Harjes, Herman, 62, 68,
sources of government 157–8; in Britain, 24–5, 74, 97, 143; and French
revenues, 79–82; taxa- 35–7, 89–90, 109, 120, loan through Morgans,
tion, 13, 20, 33, 81–2, 135, 152, 181–2, 183; in 73–4; and Ribot, 59, 132
83–4, 156, 168; trade France, 9, 32, 183; inter- Harvey, Sir Paul, 115
with Britain, 84–5, 85t, national, 8 Hayne, M.B., 17
141; trade with U.S., 85, Greece, 18, 159 Heath, Sir Thomas, 190
86t, 141; tri-city loan Green, E.H.H., 109 n41
(Bordeau, Lyons, and Grenfell, E.C., 63, 64, 96, Heine, George, 125
Marseilles), 153; Union 143; on Cunliffe, 35, Henderson, Arthur, 156,
Sacrée government, 33, 109; on McKenna, 100, 208 n64
169; U.S. military pres- 109; and negotiations for Herzstein, Daphne, 209
ence in, 179; view of centralized purchasing, n88
British collateral loan 94 Hicks-Beach, Sir Michael,
(1916), 139–41; view of Grey, Sir Edward, 155, 199 194 n23
British gold standard, 37, n33, 203 n7; Bertie’s Higginson, Henry Lee, 63
43; view of conscription communications to Hobhouse, Charles, 41, 69
debate in Britain, 129; about French finances, Hobson, John, 20
view of Federal Reserve 42, 47, 106; financial Holden, Sir Edward, 25,
Board warning about policy in 1914, 17, 37; as 108, 114, 115
short-term allied bills, foreign secretary, 15, 77; Homberg, Octave, 51, 108,
154; view of postwar on French access to 159, 204 n34; at 1916
financial world, 181; London money market, Anglo-French financial
War Committee, 154, 41; on gap between committee, 143, 145; on
156. See also Bank of finance and strategy, 122 British financial policy,
France Guaranty Trust, 151 49–50, 118–19; on
Franco-Prussian war Gunzberg, Baron de, 16 British gold reserves,
(1870–71), 3 144–5; British views of,
Frédéric-Bloch, Jean, 132, Haig, Sir Douglas, 122, 126 147; career and charac-
161–2, 175, 220 n87 Hambro, C.J., & Sons, 64 ter, 43, 77, 130, 132,
Index 245
162; as French financial Kitchener, Lord (Horatio 109, 135, 158; govern-
delegate in New York, Herbert), 106, 107, ment of, 155–8; and
132; and French loan in 112; criticism of, 69; Kitchener, 69, 94–5;
Britain, 43–5; on 1914 and Lloyd George, 94; “knock-out blow” speech,
moratorium, 31; and and New Armies, 118, 203 n7; lack of
Morgans, 132, 147, 163 46, 93, 105; on purchas- financial expertise, 34,
Hottinguer (French ing, 94 158, 160; meeting with
banker), 10, 98 Klotz, L.L., 13, 22, 168, Bark (1915), 52; on mili-
House, Colonel, 34, 104, 203 n17; on Keynes, tary stalemate, 46, 71; as
151 119; as minister of fi- minister of munitions,
Hurst, C.J.B., 62 nance, 169 100; and Paish-Blackett
Huth Jackson, Frederick, Kuhn, Loeb & Co., 65, 152, mission to U.S., 64–5, 67,
24, 25, 64 161–2; City of Paris loan, 199 n33; at 1915 Paris
144, 148 conference, 46, 51–2,
Illinois Trust and Savings, 95; and Reading, 34, 43,
137 labour: for export indus- 108; on Russia, 51, 71,
Inter-Allied Council on tries, 105, 106; and in- 136
War Purchases and come tax, 83, 204 n29; London City and Midland
Finance, 176–8 unrest and strikes, 37, Bank, 25, 101
Italy, 69, 121t, 216 n14 83, 145, 167, 169, 170–1 London Exchange Com-
Lackawana Steel Company, mittee, 121, 127, 133,
Jèze, Gaston, 203 n17 209 n94 148, 173, 212 n47;
Joffre, Joseph, 21, 40, 45, Lamont, Thomas W., 58, members and mandate
95, 106, 126; and fall of 71, 97, 132 of, 115; on sequestering
Briand government, Lane (U.S. secretary of the British holdings in
153–4, 219 n63 interior), 219 n82 U.S., 152; on short-term
Jusserand, Jean-Jules, 60–1, Lansdowne, Lord (Henry treasury bills, 163–4
77, 161, 198 n18; on Petty-Fitzmaurice), 17 London money market
Federal Reserve Board Lansing, Consellor, 60–1, (the City): and 1915
warning against short- 104, 198 n18 Anglo-French loan,
term bills, 151–2; and Laurent, M., 209 n94 108–9; antiwar senti-
French loan through Lazard Bros & Co., 64 ments of, 35–6, 37; in
Morgans, 74; on joint Leith-Ross, Frederick, 36 1914 financial crisis, 28,
purchasing, 67–8; and Lem, Charles, 51, 53 29–31; foreign access to,
U.S. financial aid, 175 Léon, Maurice, 60, 72–3 51; French access to,
Lever, Sir Hardman, 159, 40–1, 44, 54, 96, 124,
Kent, Fred, 151 162–3, 164 125, 179, 212 n47;
Keynes, John Maynard, Link, Arthur, 60 importance of gold stan-
109, 126, 160, 173, 220 Lloyd George, David, 47, dard for, 135; joint-stock
n92; on Anglo-French 65, 70, 106, 166, 194 banks, 29, 35–6, 64, 145,
financial collaboration, n22; on Cambon, 78; as 216 n18; new capital
181; on British collateral chancellor, 15, 34, issues on, 92t; New York
loan (1917), 163; on 100–1, 105; and Clem- as threat to, 63, 89,
French finances (1914), enceau, 183; on con- 103–4, 183; subscription
48; on gold standard, 36, scription, 109, 119, 128; to French rentes on,
157–8; and McKenna, and Cunliffe, 25, 35; on 179
101; on Paish, 36; and economic effects of war, Long, Walter, 34, 101, 194
1915 Paris conference, 37; on France and Brit- n22, 208 n64
15, 47–8, 54, 55; in Trea- ish support for allies, 43, long war, 77–8, 86–7, 92,
sury, 14, 15, 114, 119; on 44, 118, 128, 135, 140; 94, 105
treasury bills, 147, 149 on gold pool, 52–3; on Lorraine, 21
Kindersley, Robert, 64 gold standard, 35–7, Lyautey, Marshal, 154
246 Index
Mallet (French banker), Milner, Lord (Alfred), 100, 86; as French purchasing
10, 98 156 agent, 68, 75, 98, 176;
Malvy, Louis, 167 Moggridge, Donald, 130 loans to Rumania and
Marmorosch, Banque, 70 Montagu, Edwin, 16, 51, Russia, 70–1; McKenna’s
Maurice, Frederick, 170 64, 70, 215 n106; on view of, 101–2; and
McAdoo, William G., 65, allied loans in U.S., 107; National City Bank loan
103, 161, 162, 163; and on war expenditures, 69, to France (1914), 61–2;
1914 financial crisis, 57, 105–6, 142 prewar loan to French
62, 63, 64; policy on Montenegro, 18 government, 58; rela-
loans and financial aid to Montgomery, K.A., 208 tions with France and
allies, 66, 104, 163, 164, n64 French officials, 61–2,
175–6; view of Federal Morand, Paul, 81–2, 203 73–4, 97, 131, 132, 138,
Reserve, 66–7 n22 152, 154, 162; resis-
McDonald, Dr Andrew, 190 Morgan, E.V., 216 n18 tance to unsecured allied
n41 Morgan, Grenfell (bank- loan, 146–7; support of
McFayden, Andrew, 14, ing house), 35, 70, 73, Republican party, 151,
177 218 n56 175; view of partnership
McKenna, Reginald, 118, Morgan, Harjes (banking with Britain, 71–2, 138
127, 135–6, 143, 149, house), 58–9 Morgan, Pierpont, 58
152; and Anglo-French Morgan, John Pierpont, Morley, Lord, 37
finance committee, 148; Jr (Jack), 107, 132, 143; Moroccan Crisis, Second
and 1915 Anglo-French on 1914 financial crisis, (1911), 7, 18
loan, 107–11; and April 59, 62; as head of J.P. Morrow, Dwight, 58, 59
1916 accord with France, Morgan & Co., 58; and Murray, Archibald, 22, 208
126–7; as chancellor, 14, loans to Rumania and n64
100–1, 115; and Cun- Russia, 70–1; objection Murray, George, 101
liffe, 101, 102, 109, 126; to unsecured loan, 146;
efforts to control war role in British loan to National City Bank, 60–2,
expenditures, 83, 105, France (1915), 96–8; 70, 74, 75, 201 n80
106, 109, 128, 154; on view of Morgans partner- Neilson, Keith, 122, 207
gold shipment to U.S. ship with Britain, 71–2 n43
(1915), 107; on gold Morgan, J.P., & Co. (New New York (stock exchange
standard, 135; meetings York), 47; advances to and financial commu-
with Ribot, 108, 111, Britain (1917), 163; and nity): exchange rates on,
123–4, 136; opposition afsc loan to France, 88t; in 1914 financial cri-
to conscription, 107, 137–8; at Anglo-French sis, 28, 29, 57, 59, 65–6;
119, 129; “Our Finan- financial committee lack of confidence in
cial Position in America” (1916), 142, 143, 146; allied victory, 112; lack of
(1916), 154; September and 1915 Anglo-French confidence in France,
1915 budget, 81, 109, loan, 112; associated 95; lobbying regarding
110, 112; testimony for houses, 58–9; and loans to allies, 61; price
War Policy Committee, August 1914 crisis, 65; of afsc bonds in, 137; as
106, 139; view of J.P. and British loan to rival to London, 63, 89,
Morgan & Co., 101–2 France (1915), 96–8; as 103–4, 183. See also
McRoberts, Samuel, 60, 61 British purchasing agent, United States of America
Messimy, Adolphe, 38, 40 68–9, 72, 94, 102, 175, New York Times, 61, 67, 137
Métin, Emile, 33 176, 200 n61, 201 n81; New York World, 61, 175
Mexico, 132, 220 n86 collateral loan to Nicolson, Arthur, 41
Miller, Adolph, 103, 104, Britain, 137–40, 146–7, Nivelle, Robert, 154, 166
150, 219 n82 162–3; Export Depart- Norman, Montagu, 126–7,
Millerand, Alexandre, 40, ment, 200 n61; French 139, 149, 173, 174; on
68, 74, 107 contracts with (1916), British expenditures in
Index 247
U.S., 215 n9; on long Pétain, Philippe, 166 Ribot, Alexandre: at Anglo-
war, 28 Petit, Lucien, 84, 212 n47 French financial confer-
Northcliffe, Lord (A.C.W. Pichon, Stephen, 13 ence (1916), 159; and
Harmsworth), 100 Piou, Jacques, 33 Bank of England loan to
Nouailhat, Yves Henri, 43, Plan xvii, 21 France, 96–8; and British
153 Platt, D.C.M., 190 n52 loan to France, 126–7; at
Nye, Gerald P., and Nye Plessis, Alain, 10 Calais conference
Committee hearings, 60, Poincaré, Raymond, 13–14, (1916), 141; career and
198 n14 53, 118 character of, 33–4; and
Ponsonby, Arthur, 16 cir, 40; Duroselle’s view
offensive war, 21–2 Prudential Assurance Com- of, 203 n17; expectations
Oppenheimer, Francis, 18 pany, 102 of U.S. financial sup-
purchasing: alleviation of port, 175; flexibility to
Page, Walter Hines, 63 competition, 38–9; allied explore varied sources of
Painlevé, Paul, 166, 169 purchasing in U.S., funds, 104–5; goal of
Paish, Sir George, 36, 77, 59–60, 67, 68, 72, 78, close Anglo-French coop-
194 n23; Paish-Blackett 86–7, 174; centraliza- eration, 56, 141, 156,
mission, 64–7, 199 n33 tion of, 38, 68, 75, 94–5; 181; government of,
Paléogue, Maurice, 50 Commission internation- 161, 168; and Herman
Pallain, Georges, 11; and ale de ravitaillement Harjes, 59; impromptu
Bank of France plans for (cir), 40, 111, 179; conference with Asquith
war, 22; and Bertie, 16; major problems of, 67–9; (1916), 126; inability to
on British import restric- Morgans as British agent control war expendi-
tions, 85; career, 10; on for, 68–9, 72, 94, 175, tures, 156; interactions
exchange support pay- 176, 200 n61, 201 n81; with Morgans, 68, 95, 97,
ments, 143; on long-term Morgans as French agent 98, 152, 154; meeting
loans, 80; policy on gold for, 68, 75, 98, 176; with Bonar Law, 160;
reserves, 23, 42, 91, 99, uncontrolled expendi- meetings with Cunliffe,
127, 161, 169; role in tures, 40, 49, 69, 78–9, 123–4, 125–6, 134;
Anglo-French financial 101 meetings with McKenna,
negotiations, 55, 108, 108, 111, 123–5, 136;
125; role in exchange Raffelovich, Artur Ger- opposition to central-
controls, 129–30 manovich, 51 ized purchasing, 68;
Paris financial conference Ramsay, George, 47 opposition to income
(1915), 46, 48–56, 124; Reading, Rufus Isaacs, tax, 33, 81–2; at 1915
attendees, 51; British Lord, 41, 43; career of, Paris conference, 51;
position at, 14, 48–50, 34; and Lloyd George, policy on French gold
51; French position at, 34, 43, 108; role in reserves, 53, 96, 99, 159;
50–1; gold pool agree- Anglo-French financial proposal for bureau de
ment, 53, 211 n30; negotiations, 108, 112, change, 98–9; reaction to
Russian loan agreement, 113, 143; on sources of British collateral loan in
54 U.S. credits, 113, 147 U.S., 136, 139–40; reac-
Patron, Maurice, 11, 22 real defence burden, 192 tion to Davison’s treasury
peace negotiations: n80 bill scheme, 149; and
France’s potential posi- reduction of consumption, Russian finances, 50,
tion in, 129–30; Paris 106 111; view of British pol-
peace talks, 183; unpop- Renouvin, Pierre, 33 icy and position, 49–50;
ularity of negotiated Revelstoke, Lord, 24, 26, view of joint allied loans,
peace, 77; Wilson efforts 64, 126–7, 189 n20; on 47, 50–1, 136–7; view of
at mediation, 57, 150, governance of Bank of Nivelle offensive, 166;
159 England, 173–4 warning of French bank-
Péret, Raoul, 81 Reynaud, Paul, 185 ruptcy, 143
248 Index
Riddell, Lord, 44, 160 Sayers, R.S., 35, 189 n14 Tardieu, André, 77
Roanne Arsenal, 79 Schremmer, D.E., 20, 89 taxation: in Britain, 83–4,
Roques, General, 131 Schuster, Sir Felix, 8, 24, 110, 171–2; in France,
Rothschild, Edouard de, 26, 115 13, 20, 33, 81–2, 83–4,
16, 98–9; role in secur- Scotland, 30 156, 168; link with class
ing loans for France, Second World War, 185–6 conflict, 204 n29; luxury
41–2, 43, 125, 206 n13 securities: American dollar tax, 168, 172; propor-
Rothschild & Frères, 10, (ads), 133; Canadian, tion of total war reve-
58, 96, 205 n9 120; private, government nues, 83–4; war-profits
Rumania, 18, 69–71, 146, sequestering of, 89, tax, 81–2
201 n76 120–1, 130, 133, 144, Thierry, Joseph (minister
Runciman, Walter, 64, 94, 157; South American, of finance), 167–8
109, 119, 155; testimony 121, 144 Thiers, Adolph, 10
for War Policy Commit- Selborne, Lord, 107, 208 Thomas, Albert, 79, 118,
tee, 106 n64, 208 n67 135, 156, 209 n94
Russia: access to London Serbia, 18, 121t Times (London), 100
money market, 40, 41, Sergent, Charles, 98, 129; Transylvania, 71, 201 n76
54; access to Paris money in Anglo-French finan- treasury bills: British, 30,
market, 54; alliance with cial negotiations, 51, 53, 82–3, 134; French, 60–1,
France, 18–19; attempt 96, 108, 143, 161; on 72–3; short-term, Davi-
to raise money in U.S., French gold reserves, son’s proposals for,
71; British financial 131 148–52, 162, 163–4; use
support for, 41, 45, 105, short war: belief in, 21–2, for paying U.S. manufac-
110–11, 121t, 135, 136; 27, 38; ease of financing, turers, 72–3, 135
and cir, 40; debts in 77; end of assumption Truchy, Henri, 130
1918, 183; depreciation of, 76, 86 Turner, John, 101
of ruble, 50, 87; financial Simon, Sir John, 119, 185
weakness of, 29, 45, 50, Snowden, Philip, 185 Union of London and
87; French financial Société générale, 31 Smiths Bank, 24
support for, 45–6, 111, Soutou, Georges-Henri, 64, United States of America:
141; French investment 108–9, 153 allied expenditures in
in, 18–19; and gold pool Speyer, Sir Edgar, 34, 195 (1916), 131–2; banks
agreement, 53, 216 n14; n47 and financial system,
gold reserves, 29, 48, 53, Spring-Rice, Sir Cecil, 64, 62–3; British prewar
71; gold shipments to 77, 107, 151–2; anti- investment in, 89; debts
Britain, 90, 105, 111, Semitic speculations of, to Britain and France,
140; military weakness 65, 199 n38 29, 57, 62; Democratic
of, 112, 146; at 1915 Stanley, Venetia, 55 party, 151; doubts about
Paris conference, 52, Statist, 36 allied success, 112; elec-
110–11; proposal for Steiner, Zara, 77 tion of (1916), 136, 151;
central bank coopera- Stettinius, E.R., 200 n61 entrance into war, 77,
tion, 47; Russian State Stevenson, David, 20 161, 162, 198 n14; finan-
Bank, 53; stock exchange Stevenson, Frances, 34, cial aid to allies, 174–6;
closure (1914), 28 44, 114, 207 n40, in 1914 financial crisis,
209 n81 57, 62, 65–6; financial
St Aldwyn, Lord, 34, 114, Stillman, James, 72, 201 panic of 1907, 58; gold
194 n23 n80 reserves, 62–3; Mexico,
Saint-Aulaire, Comte de, 17 Straight, Willard, 58, 61, possible war with, 132,
St Petersburg, 19, 28 62, 73–4 220 n86; neutrality of,
Salonika expedition, 153 Strong, Benjamin, 66, 57, 59, 67, 70; Paish-
Sarrail, Maurice, 153 103–4, 137 Blackett mission to,
Say, Léon, 10 Suarez, George, 34 64–7; policy on loans to
Index 249
belligerents, 59, 60–1, Warburg, Paul, 63, 66, 103, Whiting, R.C., 203 n29
104, 132, 150; Republi- 104, 150, 217 n39 Wilson, Trevor, 219 n62
can party, 151, 175; as Warman, Roberta, 77 Wilson, Woodrow: British
threat to British financial Watson, D.R., 169 view of, 65; and 1916
dominance, 57, 63, 64, Western Front: Artois election, 151; policy on
103–4, 183; trade with offensive, 95, 112; Brit- loans to belligerents, 59,
Britain, 87t; trade with ish portion of, 159; 60–1, 104, 132, 150; pol-
France, 85–6, 86t. See also Champagne offensive, icy of mediation, 57, 150,
Federal Reserve Board; 95, 112; German spring 159
New York offensive (1918), 170, Wintour, U.F., 94
171; Loos offensive, 112; Wood, McKinnon, 215
Vanderlip, Frank, 60, 63, Marne, battle of (1914), n107
198 n18 40; mutinies on, 167; Worthington-Evans,
Vansittart, Robert, 16 Neuve Chapelle offen- Laming, 112
Vienna stock exchange, 28 sive, 95, 100; Nivelle
Vilna, fall of (1915), 112 offensive, 166, 167; Zimmermann, Arthur, 220
Viviani, René, 33, 37, 43, Somme offensive, 126, n86
51 135; Verdun offensive, Zimmermann telegram,
Von Dunlop, Sir Stanley, 122, 126, 135, 153–4, 162
69, 200 n66 166
copyright.fm Page IV Sunday, December 2, 2001 3:05 PM
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Britain, France and the financing
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Britain, France, and the Financing of the First World War

Britain, France, and

McGill-Queen’s University Press

© McGill-Queen’s University Press 2002

Legal deposit first quarter 2002

Printed in Canada on acid-free paper

This book has been published with the help of a

McGill-Queen’s University Press acknowledges

National Library of Canada Cataloguing

Horn, Martin, 1959-

Includes bibliographical references and index.

1. World War, 1914-1918 – Finance – Great

This book was typeset by

1 Bank of France: Holdings of Discounted Bills, 1914 32

Historical research invariably involves a great deal of solitary acti-

support of my wife, Lisa Pasternak, who read everything and whose

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

4 Britain, France, and Financing the First World War

acknowledged, the relationship between the two states has been a

6 Britain, France, and Financing the First World War

financial experience faded away. Some of the antecedents of the angry

Finance, War, and Foreign Policy

Herbert Feis, in a classic text, labelled Europe in 1914 the “world’s

8 Britain, France, and Financing the First World War

Finance before 1914 9

1914 convinced Marc Flandreau that the dominant characteristics of

10 Britain, France, and Financing the First World War

the nineteenth century, supporters and critics of the bank alternately

Finance before 1914 11

As might be expected, the Bank of France also had an influence on,

12 Britain, France, and Financing the First World War

routine – were handled exclusively, or nearly so, by the governor. The

Finance before 1914 13

minister.33 The rapporteur of the budget committee of the Chamber

14 Britain, France, and Financing the First World War

affairs, and, after January 1913, president. In the latter position he

Finance before 1914 15

reserves, and he steadily rose in the estimation of successive chancel-

16 Britain, France, and Financing the First World War

Finance before 1914 17

of a cautious stance in commercial matters.56 Grey reaffirmed to the

18 Britain, France, and Financing the First World War

and abetting French foreign policy.63 Francis Oppenheimer, the astute

In the Balkans alone, from August to December 1913, discussions

Finance before 1914 19

20 Britain, France, and Financing the First World War

Finance before 1914 21

22 Britain, France, and Financing the First World War

Klotz, minister of finance in 1910–11 and again in 1911–12, re-

Finance before 1914 23

the fighting power of a nation seems to be strictly limited by the finan-

24 Britain, France, and Financing the First World War

drew together government departments and military opinion to con-

Finance before 1914 25

26 Britain, France, and Financing the First World War

their discussions, the committee members had canvassed the likely

Finance before 1914 27

policy. In the mind of the Treasury of 1914, the suspension of gold

A Short War, 1914–1915

While the chancelleries of Europe manoeuvred in the last days of July

A Short War, 1914–1915 29