​

In this review
MELLON VS. CHURCHILL
The untold story of treasury titans at war
368pp. Pegasus. £22.
Jill Eicher

The First World War was fought on credit. The British government, as had been its practice since the eighteenth century, organized its alliance with subventions, loaning large amounts to tsarist Russia and France, lesser amounts to the small allies, for a total of $6.7 billion. France, adding its own contribution, passed much of this through to Russia and the other allies. As the war went on, both Britain and France raised funds on the New York market, eventually receiving nearly $4 billion and about $2 billion respectively. Britain acted on the New York market as an agent for the smaller allies – deemed “uncreditworthy” by the bankers on Wall Street and in Washington. By the end of the war, American bankers believed that the US was owed $7 billion, most of it by the British Empire and France.

It is a virtue of Jill Eicher’s book to make all of this (or nearly all) clear. A veteran financial expert who has held positions in commercial investment management and the Department of the Treasury, Eicher has written an account of the efforts between the world wars to find a solution to the problems of inter-allied war loans and German reparations. She has used a wide variety of contemporary newspaper accounts in order to personalize the events as a conflict between Andrew Mellon, prominent banker and long-serving Secretary of the Treasury (1921–32), and Winston Churchill, sometime interwar chancellor of the exchequer (1924–9). The differences between these two prominent personalities exemplified those between their governments. The American government at that time was virtually one of bankers, many associated with the “House of Morgan”, that is, the investment bank founded by J. P. Morgan, the organizer of the great “trusts”. monopolies that dominated the American economy. In contrast, the government of the British Empire was then an oligarchy of the wealthy and the aristocracy.

The second great issue that arose at the end of the war was that of reparations to the allies from Germany for having begun and lost the war. The acting British foreign secretary, Arthur Balfour, issued his eponymous “Note” in 1922, proposing that, because much of the money the British Empire had borrowed from the US had then been loaned to the other members of the Entente, it should be repaid from, and as, payments were made to Britain from its debtors and from German reparations. The American government disagreed. The loans had been made to Britain in the first place because only it (and possibly France) was creditworthy, and therefore repayment could not depend on the willingness, or ability, of the other nations in the chain of indebtedness to pay. As President Coolidge said: “They hired the money, didn’t they?”

There the situation stood when Churchill became chancellor. And there, as Eicher traces through a large number of newspaper accounts and other resources, especially those of the Churchill Archive, it remained in a bitter stalemate. Churchill used his oratorical and literary talents, and the platform offered by his newspaper owner allies, to make the case that the issues of loans and reparations were joined; Mellon, as the author makes clear, insisted that the war loans were only a rather large banking transaction.

All through the 1920s, the formerly allied governments negotiated terms and conditions of the loans: interest rates; length of time allowed for repayment; exceptions. The moralizing American administration proclaimed that it would accept reparation funds only if laundered through the British Treasury as war loan payments. The other victors, especially the French, counted their reparation payments as assets before they were received, although, as John Maynard Keynes pointed out, the German economy could not be simultaneously destroyed and counted on continually to transfer immense sums to the victors.

American bankers from the House of Morgan found what they thought of as a brilliant solution: they sold bonds to investors on Wall Street and lent the proceeds to Germany, which then sent them as reparations to the debtor nations, which used those funds to buy American products and make payments on their war debts to the US. In the end, this was a pyramid scheme resting on the investments of thousands, then millions, of Americans.

Churchill, during one of his spells of personal insolvency, embarked on a North American lecture tour to replenish his finances. Dazzled by the Wall Street boom, he invested his profits in Wall Street the day before the Great Crash, losing the lot. Mellon, still Secretary of the Treasury, welcomed the Crash and the subsequent Depression, saying that they would “wring the rot” from the system. By mid-1933, all European debtor nations except Finland had defaulted on their loans from the US, and Mellon was as wealthy as ever. In Mellon vs. Churchill, Jill Eicher brings to today’s readers mostly forgotten events that were once the stuff of headlines on both sides of the Atlantic, but whose implications still resonate today.