Britain, America and the War Debt Controversy: The Economic Diplomacy of an Unspecial Relationship, 1917-45

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Britain, America and the War Debt Controversy

Even at its zenith during the Second World War, the so-called ‘Special Relationship’ between Britain and the United States meant rather different things to each of its partners. During the interwar period, relations between the two great English-speaking powers were characterised by a far higher level of ambiguity, as sentimental notions of Anglo-Saxon amity were tempered by conflicting commercial, economic, strategic, naval and diplomatic imperatives. Few issues more vividly demonstrate the complex nature of this ambivalent relationship than the vexed question of British war debts to the United States. Robert Self focuses on this crucial – but until now much neglected – aspect of Anglo-American relations. Given the breathtaking scale of these debts and their profoundly damaging implications for diplomatic relations, this issue was inevitably one of particular sensitivity in a world beset by a rising mood of economic and political nationalism. Based upon extensive research in previously unpublished archival material on both sides of the Atlantic, for the first time this book offers a detailed and comprehensive analysis of the war debt problem from its origins at the end of the First World War until its final removal with the launch of Roosevelt’s Lend-Lease programme in 1941. This volume throws important new light upon a pivotal period of transition in the Anglo-American relationship and sets the stage for its equally dramatic transformation during and after the Second World War. As such, this work will be of great interest to diplomats and journalists, as well as to students and scholars of political, diplomatic, economic and international history. Robert Self is Reader in British Politics at London Metropolitan University. He is a specialist in interwar British and international history with extensive experience in historical archives (both private papers and government collections) on both sides of the Atlantic. His most recent publications are his political biography of Neville Chamberlain, an edited volume of The Austen Chamberlain Diary Letters, and four volumes of The Neville Chamberlain Diary Letters.

British politics and society Series Editor: Peter Catterall


ISSN: 1467-1441

Social change impacts not just upon voting behaviour and party identity but also the formulation of policy. But how do social changes and political developments interact? Which shapes which? Reflecting a belief that social and political structures cannot be understood either in isolation from each other or from the historical processes which form them, this series will examine the forces that have shaped British society. Cross-disciplinary approaches will be encouraged. In the process, the series will aim to make a contribution to existing fields, such as politics, sociology and media studies, as well as opening out new and hitherto-neglected fields. The Making of Channel 4 Edited by Peter Catterall Managing Domestic Dissent in First World War Britain Brock Millman Reforming the Constitution Debates in twenty-first century Britain Edited by Peter Catterall, Wolfram Kaiser and Ulrike Walton-Jordan Pessimism and British War Policy, 1916–1918 Brock Millman Amateurs and Professionals in Post-war British Sport Edited by Adrian Smith and Dilwyn Porter A Life of Sir John Eldon Gorst Disraeli’s awkward disciple Archie Hunter Conservative Party Attitudes to Jews, 1900–1950 Harry Defries

Poor Health Social inequality before and after the Black Report Edited by Virginia Berridge and Stuart Blume


Mass Conservatism The Conservatives and the public since the 1880s Edited by Stuart Ball and Ian Holliday Defining British Citizenship Empire, Commonwealth and modern Britain Rieko Karatani Television Policies of the Labour Party, 1951–2001 Des Freedman Creating the National Health Service Aneurin Bevan and the medical Lords Marvin Rintala A Social History of Milton Keynes Middle England/edge city Mark Clapson Scottish Nationalism and the Idea of Europe Atsuko Ichijo The Royal Navy in the Falklands Conflict and the Gulf War Culture and strategy Alastair Finlan The Labour Party in Opposition 1970–1974 Prisoners of history Patrick Bell The Civil Service Commission, 1855–1991 A bureau biography Richard A. Chapman Popular Newspapers, the Labour Party and British Politics James Thomas In the Midst of Events The Foreign Office diaries of Kenneth Younger, February 1950–October 1951 Edited by Geoffrey Warner

Strangers, Aliens and Asians Huguenots, Jews and Bangladeshis in Spitalfields, 1666–2000 Anne J. Kershen


Conscription in Britain 1939–1963 The militarization of a generation Roger Broad An Enemy Embrace German migration to post-war Britain Inge Weber-Newth and Johannes-Dieter Steinert The Labour Governments, 1964–1970 Edited by Peter Dorey Government, the Railways and the Modernisation of Britain Beeching’s last trains Charles Loft Britain, America and the War Debt Controversy The economic diplomacy of an unspecial relationship, 1917–1941 Robert Self

Britain, America and the War Debt Controversy


The economic diplomacy of an unspecial relationship, 1917–1941 Robert Self


First published 2006 by Routledge 2 Park Square, Milton Park, Abingdon, Oxon OX14 4RN Simultaneously published in the USA and Canada by Routledge 270 Madison Ave, New York, NY 10016 This edition published in the Taylor & Francis e-Library, 2006. “To purchase your own copy of this or any of Taylor & Francis or Routledge’s collection of thousands of eBooks please go to www.eBookstore.tandf.co.uk.” Routledge is an imprint of the Taylor & Francis Group, an informa business © 2006 Robert Self All rights reserved. No part of this book may be reprinted or reproduced or utilised in any form or by any electronic, mechanical, or other means, now known or hereafter invented, including photocopying and recording, or in any information storage or retrieval system, without permission in writing from the publishers. British Library Cataloguing in Publication Data A catalogue record for this book is available from the British Library Library of Congress Cataloging in Publication Data A catalog record for this book has been requested ISBN10: 0-415-35022-0 (hbk) ISBN10: 0-203-30983-9 (ebk) ISBN13: 978-0-415-35022-8 (hbk) ISBN13: 978-0-203-30983-4 (ebk)


For Katie – as always



Contents

Acknowledgements 1 Britain, America and the ambivalence of the ‘special relationship’

x

1

2 Origins of the inter-Allied war debt problem

15

3 Britain and the inter-Allied war debt settlements

34

4 Economic depression and revival of the debt question

60

5 The British ‘bombshell’: July–November 1932

90

6 ‘To pay or not to pay, that is the question’: December 1932

112

7 The presidential interregnum: December 1932–March 1933

133

8 Counting on Roosevelt: March–July 1933

161

9 Drifting towards default: August 1933–June 1934

178

10 Epilogue: 1934–1941 Appendices Notes and references A guide to archival sources Index

196 215 220 251 256


Acknowledgements

A large number of debts are incurred during the preparation of a study of this sort. In view of the heavy reliance upon primary sources, the author is particularly indebted to the owners, custodians and archivists of the many collections of private papers and diaries on both sides of the Atlantic used in the preparation of this text. For access and permission to quote from material in privately owned collections I am grateful to the Bank of England, University of Birmingham, Department of Western Manuscript of the Bodleian Library, British Library, the Syndics of Cambridge University Library, the Masters and Fellows of Churchill College, Cambridge, the Earl of Derby, the Clerk of Records of the House of Lords acting on behalf of the Beaverbrook Foundation Trust, Herbert Hoover Presidential Library, House of Lords Record Office, Liverpool City Central Library, National Archives of Scotland, National Library of Scotland, Newcastle University Library, Franklin Delano Roosevelt Presidential Library, Mr John Simon and Yale University. Material from Crown copyright records held at the National Archives at Kew appear by permission of the Controller of H.M. Stationery Office. Every effort has been made to trace the copyright holders of unpublished documents from which quotations have been made. To anyone whose copyright I have unwittingly infringed I offer my sincere apologies. Thanks are also due to the generosity of the British Academy for granting me funds to undertake archival research in the United States. Debts of a more personal kind also exist. I am particularly deeply indebted to Professor Iwan Morgan, Deputy Director of the Institute for the Study of the Americas, for commenting upon the text and for generally sharing his impressive knowledge on this subject with me – although, as always, any errors which remain are entirely my own responsibility. By the same token, Professors John Ramsden, Keith Neilson, Peter Marsh and Dr Stuart Ball all provided valuable advice or practical assistance on various aspects of this work. Finally, there is the vast debt of gratitude I owe to Katie for all she has contributed to this project – and for just being there.


1

Britain, America and the ambivalence of the ‘special relationship’

The idea of a ‘special relationship’ between the British Commonwealth and the United States first came to public prominence in Churchill’s famous ‘Iron Curtain’ speech at Fulton, Missouri, on 5 March 1946. This captivating vision of a ‘fraternal association of the English-speaking peoples’ had always been close to the heart of Britain’s war leader and he propagated it assiduously in his magisterial six volume history of The Second World War published between 1948 and 1954. For Churchill, this wartime alliance with Roosevelt was the political expression of an underlying cultural unity between Britain and America which he sincerely regarded as the foundation for future world peace and order. In reality, this was always a sanitised and highly sentimentalised picture of Anglo-American relations, but when articulated by ‘the greatest living Englishman’, it proved extraordinarily influential in shaping subsequent perceptions.1 Yet there was nothing new in Churchill’s central proposition. Against a background of rising enthusiasm for a semi-racialist notion of pan-Anglo-Saxondom on both sides of the Atlantic at the end of the nineteenth century, US Secretary of State Richard Olney wrote in 1898 that the ‘close community’ between Britain and America, based on a shared ‘origin, speech, thought, literature, institutions, ideals’, would not only prevent future conflict between the two countries but would also encourage them to stand together against common enemies.2 For all subsequent believers in the ‘specialness’ of this relationship, its ‘uniqueness’ always transcended cynical calculations of national interests by focusing upon this far more fundamental sense of unity founded upon these bonds of sentiment and experience; a shared heritage which together created ‘a set of immediately recognizable and axiomatically accepted habits of thought and behaviour – especially in the conduct of public affairs’.3 There was equally little new in Churchill’s belief in an Anglo-Saxon mission to order, lead and civilise the world. For a committed Atlanticist like Ramsay MacDonald, Labour Prime Minister in 1924 and 1929–1931 and then leader of the all-party National Government between 1931–1935, such sentiments fired a fervent conviction that it was the destiny of the two great English-speaking powers to assert their collective moral authority and lead the rest of the world out of both economic crisis and an escalating armaments


2

The ambivalence of the ‘special relationship’

race. In January 1932, MacDonald had written quite sincerely to US Secretary of State Stimson that Britain and America ‘will . . . have to come together somehow, and by mutual help try and save something so big, so deep and so high that we can only call it the civilization of our time’. Equally important, such sentiments apparently struck a responsive chord in Washington. When Stimson read these words to the Anglo-sceptic Herbert Hoover, the President apparently broke in with the instruction to ‘Tell MacDonald that I believe that that civilization which he speaks of can only be saved by the co-operation of Anglo-Saxons; we cannot count on the other races’.4 Nine months later the President’s roving emissary Norman Davis also reported to MacDonald the ‘very friendly’ attitude of both Hoover and Roosevelt towards Britain and their belief that ‘Anglo-American cooperation shd be the foundation of world work’.5 Despite the immense emotional potency of these sentiments and the Churchillian version of Anglo-American alliance during the Second World War, much research in archives opened on both sides of the Atlantic since the late 1960s has revealed a far more ambivalent picture of an ‘ambiguous partnership’ between ‘allies of a kind’. The publication of three volumes of Churchill’s wartime correspondence with Roosevelt also indicated an awareness that this was an increasingly unequal relationship with far more friction, suspicion and deception than Churchill was ever prepared to concede.6 Even at its apogee under Churchill and Roosevelt, therefore, the socalled ‘special relationship’ clearly meant rather different things to each of its partners and accommodated often widely divergent interests, needs and expectations. This was demonstrated by wartime conflict and rivalry over the naval blockade and trade in Latin America, Middle Eastern oil, civil aviation routes, the future of the British Empire and the nature of the entire postwar economic order. There were also fundamental clashes about strategy concerning the reconquest of Europe, Operation OVERLORD and the real nature of Stalin’s expansionist objectives after peace had been restored. On this basis, some sceptics go so far as to argue that ‘Churchillian rhetoric has long camouflaged and distracted attention from the reality that the AngloAmerican alliance, like the wartime partnership with the Soviet Union between 1941 and 1945, was one of convenience, a temporary union of competitors forced to join together against a common enemy’.7 This ‘revisionist’ view of the wartime alliance has provoked a corresponding reappraisal of the period since 1945 during which AngloAmerican relations have fluctuated even more violently between cooperative amity and outright hostility, while the relationship itself has increasingly shifted from one of alliance in a common cause to that of an unequal partnership between a dominant patron and its subordinate client. In this context, some argue that the so-called ‘special relationship’ scarcely survived the death of Roosevelt and the end of the Second World War; a proposition substantiated by reference to America’s abrupt termination of Lend-Lease in August 1945, its damaging insistence on making sterling convertible at the


The ambivalence of the ‘special relationship’ 3 earliest possible moment, the refusal to share nuclear technology, the exclusion of Britain from the ANZUS Pact while refusing to join the Baghdad Pact and the vigorous counter-action to compel British withdrawal from the Suez operation in 1956. Conversely, depending on how it is defined, others have argued that the special relationship had ceased to exist in any meaningful sense by the early 1960s, while another school of thought focusing on specific aspects of policy cooperation (particularly in the military and intelligence sphere) contend that a close functional connection continued to exist into the new century.8 According to one former diplomatic correspondent who travelled with every British Foreign Secretary from Lord Home in the early 1960s to Douglas Hurd 30 years later, the post-1945 era ‘nurtured a partnership of unparalleled trust with the Americans. It was no accident that it was described by successive generations as the special relationship for it was a unique bond. Unlike any other, it was based on kinship not contract’.9 Despite a progressive shift in the balance of influence between its partners in the last half century, if anything, the rhetorical power of this idea of a ‘special relationship’ has been given a new lease of life in recent years by the deferential utterances of successive British Prime Ministers. For Margaret Thatcher, the Anglo-American relationship was not only ‘natural’ but ‘extraordinary’ and ‘very, very special’, describing it in 1991 as ‘the greatest alliance in the defence of liberty and justice the world has ever known’. Although her diplomatic ‘love affair’ with the United States and Ronald Reagan could not conceal occasional policy tensions, during her first official visit to the White House in February 1981 she employed familiar language when she assured the President that ‘we in Britain stand with you . . . Your problems will be our problems and when you look for friends we will be there’.10 More recently still, Tony Blair has employed similar rhetoric and policies to consolidate Britain’s special position with Presidents of both parties. ‘Let’s have a sense of perspective here’, Blair protested to his critics shortly before the Iraq war in 2003, ‘America is our ally, America is a country we have been together with over the last 100 years and we have stood together with in important times’. While he denied this meant that ‘we should do whatever America wants’, neither should Britain treat it as ‘some alien power that operates against our interest’. Or as he put it in his annual Mansion House speech in November 2004, ‘we get an enormous amount out of this relationship because we believe in the same things, we share the same interests’. When asked about the nature of the ‘payback’ for this relationship, Blair declared unapologetically, ‘My payback is the relationship’.11 In the period before the Second World War, the evidence suggests a much clearer picture of an ambivalent and ambiguous relationship between the two great powers of Anglo-Saxondom. Some would argue unequivocally that there was nothing special about the relationship at all and that beneath a discreet patina of a sentimentalised mythology about transatlantic ‘cousinhood’ there was nothing but a realpolitik pursuit of national


4


self-interest.12 Yet for many other historians this association was distinctively different, well-established and highly durable. According to Coral Bell there was already something ‘special’ about the Anglo-American relationship before the close of the nineteenth century. Despite a rapid increase in American naval construction after 1890, in the aftermath of the first Venezuelan crisis in 1895 the British conclusion that war with the United States was ‘unthinkable’ prompted the crucial decision to remove it from defence planning; a new amity progressively reinforced by ‘the Great Rapprochement’ during the early years of the twentieth century as policymakers on both sides of the Atlantic recognised the mutual advantages of cooperation in pursuit of a shared Anglo-Saxon mission to civilize and order the world.13 The existence of this ‘unique partnership’ did not preclude the possibility of serious disagreements or conflicts of interest, either before the Great War or after it. On the contrary, even the most convinced exponents of the idea of a ‘special relationship’ are prepared to concede that ‘the family quarrel can have its own exclusive bitterness’.14 As a result, there were disputes over the boundary between Alaska and Canada, the revision of the Clayton-Bulwer Treaty on the isthmian canal and a second crisis over Venezuela in 1902–1903. In all of these contests Britain was obliged to make concessions to the United States. Before America’s entry to the Great War, British enforcement of its belligerent rights of blockade against neutral American shipping trading directly or indirectly with the Central Powers infuriated the Wilson administration and severely strained relations. Furthermore, although America’s belated entry into the war in April 1917 created a genuine alliance for the first time, it has accurately been described as ‘an odd kind of partnership, intense while it lasted but also curiously remote’.15 This sense of detachment was reflected in the American insistence upon its status not as an ally but as an ‘associate’ power and General Pershing’s determination to maintain the discrete identity of his forces separate from those of Britain and France. More important, as David Woodward points out, the relations between the British Prime Minister, David Lloyd George, and President Woodrow Wilson during the war and at the Paris Peace Conference were poisoned by mutual suspicion and disagreements over both the best method of ending the war and the nature of the new postwar international order for which they had fought.16 Yet notwithstanding all of these differences, many still argue that ‘beneath the clashes of personality and national moods lay deeper long-range similarities of outlook and interests’.17 The same argument is often employed with regard to the period immediately following the war. Despite tensions over the US Senate’s refusal to ratify the Treaty of Versailles or to join the League of Nations, between 1920 and 1923 Anglo-American relations briefly continued to bask in the warming afterglow of wartime Anglo-Saxon cooperation. During this period, the Mesopotamian oil question was resolved, an Irish Free State was created, the Washington Naval Treaty was signed, the Anglo-Japanese alliance of


The ambivalence of the ‘special relationship’ 5 1902 was abrogated and a funding settlement of the British war debt was finally negotiated. In each of these developments, the United States gained rather more direct benefit than Britain, just as it had in their disputes in the two decades before the Great War. Yet as the Foreign Office also conceded, the consequence of all these concessions was ‘to place the name of Great Britain higher in the esteem and regard of the American people than at any previous time within living memory’. And as late as 1926 this improvement in relations resulted in tangible benefits to Britain when it successfully negotiated away a large body of private American claims for compensation for the damage inflicted by its blockade; an agreement which ‘unostentatiously removed a potential source of serious friction [and] showed what can be done with the United States Government when they are approached in the right way’.18 Yet for all that was achieved, it has rightly been claimed that AngloAmerican relations ‘rollercoastered in the inter-war period’. In particular, Brian McKercher argues that during the decade between the negotiation of the Treaty of Versailles in 1919 and the Wall Street crash in 1929 they ‘were distinguished by strain and tension; though masked periodically by outbreaks of goodwill and cooperation, this uneasiness at times threatened rupture’.19 By the end of the 1920s, these tensions were sufficiently severe that the British foreign policy elite were compelled to reappraise attitudes towards not only the supposed cultural foundations of Anglo-American cooperation but also their cardinal assumption that war with America really was ‘unthinkable’. Lloyd George had confidently assured his Cabinet colleagues in 1921 that ‘the people who govern America are our people. They are our kith and kin. The other breeds are not on top’. Six years later, however, relations had deteriorated so dramatically that the Foreign Office were now forced to lament that in the past they had ‘treated them too much as blood relations, not sufficiently as a foreign country’, and more to the point, a foreign country with markedly divergent and conflicting interests which were unconstrained by sentimental talk about the spiritual unity of Anglo-Saxondom.20 In view of this increasingly ‘unsatisfactory’ state of relations, in November 1928 Robert Craigie, the head of the Foreign Office’s American Department, was instructed to compile a comprehensive assessment of the outstanding problems affecting relations. By common consent, Craigie possessed ‘an exceptional knowledge of American politics and personalities’, having served as First Secretary at the Washington Embassy between 1920 and 1923 before joining the American Department in January 1925, rising rapidly to become its deputy head in 1926 and then succeeding Robert Vansittart as its chief in February 1928. Given this wealth of experience, his reflections on the many ‘irremovable and inherent difficulties’ attending relations with America offer a special insight into the perceptions operating within the ‘official mind’ in Whitehall: Mutual jealousy; the clash of differing national characteristics emphasised by the existence of a common language; the growing

6



discrepancies of speech and style within that ‘common language’; intensive trade rivalry; determined competition between the two merchant navies; the uneasy relationship between debtor and creditor – these are some of the permanent factors in Anglo-American relations the effect of which at the best can only be slightly mitigated by tactful handling.21 Or to put it another way, by the late 1920s the very forces of language, culture and commerce which were once commonly supposed to draw Britain and America together now appeared to be forcing them apart. As in the years before the Great War and in the aftermath of the Second World War, therefore, experience suggested that: the underlying basis of the relationship has always been interest and not, in the first place, emotion. Sentiment has indeed flourished in the soil that interest has watered, and has itself borne fruit, but it cannot be relied on to remain a vigorous and fertile plant for more than a limited period when interest on one side or the other is withdrawn.22 This is certainly true of the tensions over naval and maritime issues during the interwar period at a time when the United States increasingly challenged the unfettered right of Britannia to rule the waves. One source of intense conflict related to the long-standing and fundamental incompatibility between the British doctrine of maritime ‘belligerent rights’ to enforce an effective blockade in time of war and the American insistence upon ‘freedom of the seas’ for neutral traders. Although the United States government had experienced few moral scruples about applying their own naval blockade to interfere with neutral shipping carrying supplies to the Confederacy during the American Civil War, this issue had gravely embittered relations with Britain before America’s entry to the Great War and in November 1918 Washington sought assurances that the freedom of the seas would be guaranteed in future conflicts. As such pledges threatened the effectiveness of imperial defence they were not forthcoming, but when confronted by a formidable American naval construction programme, pessimistic British decision-makers became increasingly anxious about their ability to enforce such a blockade in any future war. The underlying battle over the principle of belligerent rights versus the freedom of the seas continued to accelerate the deterioration in Anglo-American relations until the defeat of Baldwin’s second government in May 1929.23 A parallel dispute over relative naval strength related directly to great power status and competition and it also ended with intense bitterness and mistrust on both sides. At the Washington Conference in 1921–1922, Britain had given way to American pressure both for naval parity in capital ships and an end to the Anglo-Japanese alliance of 1902 – at least in part with the hope that such concessions would facilitate a more favourable


The ambivalence of the ‘special relationship’ 7 settlement of Britain’s war debt to the United States.24 When the Geneva Conference convened to consider the limitation of smaller vessels in June 1927, however, British and American negotiators soon found themselves deadlocked over the most advantageous specification for cruisers; conflicting strategic priorities which again reflected the British desire for a large fleet of light cruisers capable of trade protection and the enforcement of its maritime blockade versus an American determination to build heavy cruisers able to uphold by force its demand for neutral trading rights. Amid bitter recriminations on both sides, the conference broke up in August with such bad feeling in the United States that the British Prime Minister was obliged to postpone his official visit to Washington. And worse followed in July 1928 when the revelation of a so-called ‘Anglo-French Compromise on the Limitation of Armaments’ provoked outrage in Washington and plunged Anglo-American relations to their lowest point in the twentieth century; a state of overt hostility aggravated further by disputes over a reparations settlement, the Anglo-American arbitration treaty and Senate objections to British ‘reservations’ to the Kellogg-Briand Treaty for the Renunciation of War. These problems were perceived to be so interconnected, the Foreign Office warned the Cabinet that ‘a failure to solve any of them may result in all being left in a state of suspended animation’.25 By the late 1920s this deterioration in Anglo-American relations had created the gravest alarm within the British foreign policy elite – and with good reason given a widespread recognition of the scale of the American challenge and the degree to which Britain’s former predominance as the senior partner had already been undermined by a substantial shift in power and influence. As Craigie warned gravely: Great Britain is faced in the United States of America with a phenomenon for which there is no parallel in our modern history – a State twenty-five times as large, five times as wealthy, three times as populous, twice as ambitious, almost invulnerable, and at least our equal in prosperity, vital energy, technical equipment and industrial science. This State has risen to its present state of development at a time when Great Britain is still staggering from the effects of the superhuman effort made during the war, is loaded with a great burden of debt and is crippled by the evil of unemployment. This disconcerting consciousness of relative decline in face of an unambiguous American challenge only fuelled the asperity of policy-makers in London towards a country previously regarded more as an errant and wayward quasi-dominion than an independent sovereign state with the rising power of a economic giant. Yet it also prompted the realpolitik conclusion that ‘if ever there is to be a trial of strength between the Empire and the United States, this is not the moment to choose for it’. While recognising that ‘firmness is essential’ and that an ‘unnecessarily yielding attitude would


8


not win American friendship or respect’, Craigie thus counselled that ‘it is to our ultimate interest to approach the settlement of outstanding AngloAmerican differences in a spirit, not of jealous bargaining, but of broad conciliation’. Craigie’s analysis of the many factors which necessitated good relations with the United States provides eloquent testimony to both the perceived scale of the American challenge and the apparently inexorable shift in the balance of advantage to the United States even by the end of the 1920s. Fears that further antagonism would only provoke Washington to construct the largest navy in the world prompted the anxious recognition that this ‘would commit us either to an important confession that our naval supremacy was gone for ever or to an era of competition ruinous to our finances’. It would also alarm domestic public opinion and place a great strain on imperial loyalties, particularly with dominions like Australia and Canada which looked to the American fleet ‘as a “reinsurance” against eventual inundation by the yellow races’. Equally important, British policy-makers were acutely aware that their influence and prestige in the councils of Europe were directly related to the state of AngloAmerican relations. Beyond these diplomatic, security and political considerations, it was also acknowledged that good financial and economic relations with the United States were ‘so valuable as to be almost essential’. Such was the increasing perceived asymmetry in the influence and power of the partners within the Anglo-American relationship that Craigie was already prepared to assert unequivocally that ‘in almost every field, the advantages to be derived from mutual cooperation are greater for us than for them’.26 Economic and financial antagonisms reinforced and mirrored these maritime conflicts, but they were also both a cause and consequence of the seismic reversal of economic strength which occurred between 1880 and 1945. Although America’s rapid retreat into diplomatic ‘isolationism’ had the effect of minimising its official governmental influence on the international stage after 1920, this trend was paralleled by an unprecedented economic engagement with the wider world as private American trade and finance surged ever outwards into an open liberal world economy to challenge Britain’s once established ascendancy. In pursuit of these economic interests, some historians argue that the underlying theme was one of outright conflict over both specific interests and a more general battle for future financial and economic dominance.27 Whatever the links of friendship and sympathy between British and American bankers and foreign policy-makers, they unquestionably perceived themselves to be rivals. More to the point, the latter initially proved far more ruthless and effective in single-mindedly pursuing their interests in the early 1920s. British governments were under no illusions about this challenge. As Sir Auckland Geddes, the British Ambassador reported from Washington in January 1921: The central ambition of this realist school of American politicians is to win for America the position of the leading nation of the world and also

The ambivalence of the ‘special relationship’ 9


of leader among the English-speaking nations. To do this they intend to have the strongest navy and the largest mercantile marine. They intend also to prevent us from paying our debt by sending goods to America and they look for the opportunity to treat us as a vassal State so long as the debt remains unpaid. Some of them hope ultimately to secure our islands in the Caribbean as consideration for the cancellation of the debt. Indeed, Geddes warned ominously that many Americans ‘regard England as crippled and this as their opportunity and they propose to grasp it – not in hatred but in the fulfilment of their country’s destiny’. On this basis, he believed that some nurtured grandiose ideas about ‘a vast Anglo-Saxon or rather Celto-Nordic confederation of some . . . vague sort under the leadership of the U.S. This confederation would of course replace the British Empire as the world power’. As America was ‘not in an idealistic mood’, he also predicted with absolute certainty that it would ‘inevitably “barge into” ’ established British interests. ‘In my eyes the outlook is not pleasant and so far as I can see, if we cannot secure Anglo-American cooperation . . . we must prepare ourselves to think of a future in which we fight out with America the great question “Which is to be the leading English-speaking nation . . .?” ’28 Yet despite gloomy forecasts of this sort, policy-makers in London were still prepared for compromise. In particular, they were willing to accept naval parity in capital ships and the termination of the Anglo-Japanese alliance in 1922 in the hope of a favourable settlement of their war debts, assistance with the economic reconstruction of Europe and cooperation over monetary policy both there and in East Asia. In so doing, they were unofficially encouraged to believe that Europe needed to act first to reduce German reparations before Congress would permit the US administration to reciprocate with action on inter-Allied war debts. As US Secretary of State Charles Hughes told the influential American banker and unofficial diplomatic liaison Thomas Lamont in October 1922, ‘To start with the [war] debts is to begin at the wrong end’.29 Three weeks after the British war debt settlement had been signed in 1923, it was also intimated that ‘if Britain were to cancel debts from [its] Allies in so far as they exceeded our debt to USA the latter might come in to make a settlement’.30 Various sources in Washington repeated the hint on a number of occasions between 1922–1924, 1928–1929 and 1931–1932. Yet in return for all their concessions and goodwill, the British encountered only a lack of assistance with currency regulation, a hoarding of American gold and an adamant refusal to reduce their war debt.31 Not unnaturally, these disappointments engendered intense resentment in London where America appeared to have ‘let the world down’ by having not ‘played the game’.32 When the US State Department raised the question of private American claims for compensation against the British blockade in November 1925, the otherwise supremely conciliatory British Ambassador in Washington ‘went up in the air’, while the Foreign Secretary warned the US Ambassador that if the matter were raised officially ‘it would mean the end

10



of cordial relations between Great Britain and the United States, that England had funded the debt and was paying to the limit, that there were to be, could be no more payments’. After this, amidst renewed denunciations of the American ‘Uncle Shylock’, the US Ambassador agreed with friends in the State Department that to raise the issue at this juncture was likely ‘to invite a tempest of indignation here which will be very deep and sincere’.33 Although this matter was eventually settled amicably, the underlying friction and resentment was far from dispelled. The attitude of the Cabinet Secretary, Sir Maurice Hankey, was typical of this more general feeling of anger in Whitehall by the late 1920s: We have played up to America over the Covenant of the League, abandonment of the Japanese Alliance, Washington Treaties, debt settlement, Irish settlement, liquor treaty . . . always making concessions and always being told that the next step would change their attitude. Yet they are, as the result, more overbearing and suspicious against us that anyone else. Convinced that this policy of appeasement had been ‘a dead failure’, such feelings of disappointment and betrayal encouraged a more effective British resistance to American demands and incursions. ‘We in this country are . . . too prone to assume that the United States Government desire nothing better than to work in cooperation with us’, a senior Foreign Office adviser on America minuted in October 1928. ‘I believe that the State Department look upon us as rivals politically, commercially and economically, and as competitors who may seriously menace the growth of America’s export trade’.34 During the 1920s this ‘struggle for supremacy’ was witnessed in American efforts to undermine Britain’s established economic advantage regarding its Middle Eastern oil concessions, its mining, cable and wireless rights and most notably in the acrimonious storm whipped up by Herbert Hoover, when US Commerce Secretary during 1926, over Britain’s control over three-quarters of the world’s rubber production.35 Even examples of ostensible AngloAmerican cooperation, such as the Dawes Plan to ease Germany’s reparations burden in 1924, contained an important element of rivalry over whether the new German currency should be linked to the dollar or sterling; a battle which reflected a broader struggle to control the postwar financial order. The Foreign Office had further evidence of this American threat in the form of increasingly obvious efforts to use its financial muscle to achieve such an unprecedented level of economic penetration of Canada that it could detach it from the Empire without the cost or opprobrium of outright annexation. After the onset of the slump in 1929, this deteriorating economic relationship effectively disintegrated altogether amidst bitterness against a nation described by Lord Revelstoke as ‘the greatest profiteers that the World had ever seen’.36


The ambivalence of the ‘special relationship’ 11 Despite this evidence of intense economic rivalry in the interwar period, an alternative school of historians emphasises the degree to which AngloAmerican relations were also characterised by discernible ‘patterns of cooperation and compromise’ during the 1920s; a notion of ‘competitive cooperation’ which has been extended to cover other aspects of the economic and diplomatic relationship in the late 1930s and early 1940s when competition allegedly provided ‘the persistent counterpoint to the melody of cooperation’. According to exponents of this school, ‘the Anglo-American political and financial axis forged during the war was still strong’ and the respective governments ‘often had the same ends in view’ even if they differed as to means.37 Craigie’s analysis lends some credence to this view of ‘competitive cooperation’. With regard to trade competition, the rivalry for markets was accepted as inevitable, but the reality was that America was Britain’s best customer and (with the sole exception of Canada) the reverse was also true. Although normal political relations did not directly affect this pattern, the Foreign Office believed that ‘really good relations . . . must have a certain indirect and psychological influence not only on the state of the two markets, but on the banking, shipping and credit facilities which form such an important element of modern trade’. The benefits of ‘competitive cooperation’ were even more evident with regard to finance. ‘The rivalry in the field of commerce and on the seas exists, also in the field of finance’, Craigie noted, ‘but hitherto a wise modification of outlook and a genius for international cooperation have prevented any serious feeling of bitterness in this sphere’. In particular, the ‘friendly attitude’ of the American banks since the war had been of ‘great assistance in the maintenance of British credit’ and it had been absolutely crucial in facilitating Britain’s return to the gold standard at its prewar parity of $4.86 in 1925. At a more general level, this same spirit of ‘friendly cooperation and adjustment’ between the Bank of England and its American counterpart was also deemed to be essential if fluctuations in the exchange rate and British interest rates were to be moderated. On this basis, Craigie warned that any further deterioration in relations over naval matters was likely to have ‘so serious’ an impact upon financial cooperation ‘that strong pressure might be brought to bear on any Government in power, with the result that in the last resort outstanding political differences might have to be settled on terms more onerous for us than those which might have been secured under normal and friendly auspices’. Equally worrying was the fear that strained relations between the United States and Europe would provoke a movement towards ‘financial isolation’, with a consequent cessation of the flow of new American loans upon which the huge annual payments of inter-Allied war debts depended. The most depressing feature of this analysis from a British perspective was the explicit acknowledgement that although both parties would suffer from such an estrangement, ‘whereas the consequences to the United States would be those which result from a superfluity of riches, the consequences to this

12



country would be those which result from an excess of poverty – a very different affair’. When considered as a whole, therefore, the Foreign Office’s principal adviser on America had few doubts that Britain had far more to lose from an end to mutual cooperation than the United States: Politically with their natural tendency to isolation and their relative remoteness from European problems, it can hardly be denied that the United States stand to gain less from our friendship than we do from theirs. Commercially and industrially a slight contraction in our market in the United States would, in view of the unemployment situation here, have more serious results for British trade than a contraction in America’s market in this country would have for American trade. Financially, we are unequivocally more dependent on the United States than the United States are upon us. In the scale of interdependence the balance is tipped in favour of the United States.38 American policy-makers were equally well aware that the Great War had brought in its wake a radical shift in Anglo-American power. ‘England and France have not the same view with regard to peace that we have by any means’, President Wilson confided to one of his diplomatic advisers in July 1917. ‘When the war is over we can force them to our way of thinking, because by that time they will, among other things, be financially in our hands’.39 Like so many other of Wilson’s diplomatic prognostications, he seriously exaggerated the strength of the American position, but British Cabinets after 1918 were still haunted by the recognition of what Churchill described in February 1919 as the ‘complete alteration of our financial position to America’.40 Notwithstanding the pessimism and forebodings of British ministers and their officials, some historians argue persuasively that by the end of the 1920s Britain had still successfully resisted the American challenge to its preeminence.41 In retrospect, there appears to be an abundance of comparative data to suggest, as Paul Kennedy does, that by 1918 the United States was ‘indisputably the strongest power in the world’. Without doubt it had made vast economic, industrial and financial gains as a result of the Great War – particularly at the expense of Great Britain. On this basis, it is often argued that ‘one of the most important long-term results of the First World War for Britain was her exchange of position with the USA as dominant and subordinate financial powers’.42 Yet while this verdict appears to be compelling with hindsight, contemporary perceptions, attitudes and customary modes of behaviour on both sides of the Atlantic often lagged considerably behind the reality. Britain was undoubtedly weaker and more vulnerable than it had been before 1914 and the United States was far stronger, but it can still plausibly be argued that while American power in international affairs during the interwar years was ‘more potential than real’, that of Britain was still a practical and inescapable reality given a strong


The ambivalence of the ‘special relationship’ 13 economy and currency, its overseas wealth and Empire, the strength of the Royal Navy and its diplomatic leverage.43 Whether the American challenge to British naval, economic, commercial and financial pre-eminence was marked by a spirit of ‘competitive cooperation’ or outright hostility during this period, there is no doubt either that a conscious struggle for supremacy did exist or that it generated intense rivalry and mistrust – particularly in London. Few issues more pungently demonstrate the complex nature of this profoundly ambivalent relationship between the wars than the vexed question of British war debts to the United States. Yet, curiously, this issue has attracted astonishingly little scholarly attention from either diplomatic, political or economic historians of the period. Although Patricia Clavin’s valuable study of the failure of economic diplomacy between Britain, France and the United States in the years between 1931 and 1936 touches on the complications created by the unresolved problem of inter-governmental indebtedness, this is by no means the primary focus of a work which grew out of a doctoral thesis on the World Economic Conference and efforts at international cooperation to tackle the Great Depression.44 But, on the other hand, Clavin’s excellent study represents a striking contrast with the almost complete failure of other historians and biographers even to acknowledge the existence of the war debt problem or its profound implications for British relations with France and the United States during a crucial period of transition. The high-powered Cabinet Committee on British War Debts to the United States, which laboured long and hard during the first half of 1933 to find a settlement, consisted of Ramsay MacDonald as Prime Minister, Neville Chamberlain as Chancellor of the Exchequer, Stanley Baldwin as the effective joint head of the all-party National Government, Sir John Simon as Foreign Secretary and Walter Runciman, the President of the Board of Trade. Yet in the often weighty biographies of these figures the subject of so much ministerial and Cabinet time barely figures at all. In fairness, Keith Feiling did reflect some of Neville Chamberlain’s own deep personal concern and involvement with the issue in a brief but accurate outline of his subject’s objectives, but this self-proclaimed ‘provisional’ biography was completed in 1944 without access to either the voluminous official records or the private papers of Chamberlain’s colleagues.45 In contrast, despite extensive discussion of the war debt conundrum in the Prime Minister’s private diaries and papers, David Marquand makes no reference whatsoever to the question in his 900 page biography of MacDonald, even though he personally chaired all ministerial deliberations on debt policy, visited Washington in April 1933 to ease the search for a settlement and was engaged in a secret dialogue with the American administration on the subject which he deliberately concealed from his Cabinet colleagues.46 Similarly, Sir John Simon makes no reference to the subject of war debts in his own memoirs and his principal biographer follows this lead by omitting the issue from an otherwise excellent discussion of Anglo-American relations during Simon’s period as Foreign Secretary.47 By


14


the same token, in their 1,100 page biography of Baldwin, Keith Middlemas and John Barnes devoted little more than half a page to the war debt negotiations in the 1930s, although a decade earlier Baldwin had been the author of the original debt funding agreement. Worse still, their contention that the British token payment of June 1933 ‘was held by Congress to signify default’ and that after this ‘Britain made no further payments’ is not only completely erroneous but also reflects a more fundamental failure to understand the nature of these negotiations and both British and American strategy towards the problem.48 The more recent biography of Sir Warren Fisher, the Permanent Secretary to the Treasury from 1919 to 1938, also devotes just nine lines to a subject capable of filling innumerable denselypacked Treasury files and (like many others) it repeats the misapprehension that the British repudiated their war debt obligations to America in June 1933.49 Scholars of British and American foreign policy between the wars have often displayed an equal lack of interest in the ‘boringly complex’ problems of war debts.50 This remarkable lacuna in our understanding of Anglo-American diplomatic and economic relations in the interwar period cannot easily be explained – particularly given the scope and magnitude of these obligations. Approximately 15 per cent of the total cost of the war was met through interAllied debts contracted during the hostilities or in the immediate postwar period. Yet unlike the burden of reparations imposed upon Germany, which were consistently reduced throughout the 1920s with the Dawes and Young Plans and then effectively abolished altogether by the Lausanne Conference in 1932, the United States adamantly refused to consider readjustment of these obligations after the various funding agreements had been signed. More important, in marked contrast with the considerable scholarly attention devoted to reparations, war debts have received no such comprehensive treatment, despite the critical perceived significance of the problem for British and world economic recovery and the broader implications of such tensions for relations between Britain, France and the United States. Against this background, Anglo-American efforts to resolve the problem clearly represents a subject which deserves far more attention than it has hitherto received.51


2

Origins of the inter-Allied war debt problem

War debts and reparations were one of the most complex and controversial problems blighting international relations between the Armistice in November 1918 and the early 1930s when this unsustainable edifice of inter-governmental indebtedness finally collapsed under its own weight. The reasons for this pivotal significance are not hard to understand. First, there was the vast scope of this web of inter-governmental obligations. Altogether a total of 28 countries (plus a further three self-governing dominions of the British Commonwealth) were ensnared in either war debts or reparations; a list which encompassed all the European belligerents except Turkey, every one of the new ‘successor states’ created by the Treaty of Versailles and all of the European neutrals except Spain. A second factor which both magnified and aggravated the position of these so-called war debts was the labyrinthine complexity of this pattern of financial obligations. Of the 28 countries involved, five were debtors only, ten were creditors only and the remaining 13 were both creditors and debtors. Germany was the largest debtor with 11 creditors, while America was the largest creditor with 16 debtors, and it was owed over half of the total. Yet even smaller nations like Hungary, Bulgaria, Romania and Czechoslovakia had as many as nine or ten creditors each. Beyond its scope and complexity, the war debt problem exercised such a compelling hold over those captured within its web simply because of the breathtaking scale of these financial burdens. In April–May 1921 the Reparations Commission finally fixed the total figure for Germany’s payments at $33 billion (£6.5 billion or 132 billion marks) plus a variable annuity based on a 26 per cent tax on the value of German exports; a burden so unrealistic that it almost immediately opened the way to the first of several readjustments. More important in the context of this study, inter-Allied debts amounted to a staggering $26.5 billion – or $23 billion if the unrecoverable Russian debts repudiated by the Bolsheviks were excluded. Great Britain was a net creditor to the tune of $6.4 billion (or $3.9 billion if the Russian debt is excluded), for while it owed the United States $4.6 billion (£920 million) its 17 debtors owed it some $11.1 billion (£2.2 billion). Of the victorious powers, France was the largest debtor. Although it


16

Origins of the war debt problem

was owed $3.4 billion by ten of its wartime allies, it owed $3.9 billion to America and a further $3 billion to Britain. The final factor which conferred immense significance upon the debt problem related directly to its damaging impact upon international economic and diplomatic relations between the wars. Not only were these figures of gigantic proportions in themselves, but the need to transfer such vast sums in regular instalments had seismic and devastating repercussions for the fiscal, currency, trade and general economic conditions of these countries and the world economy during the 1920s and early 1930s.1 Equally important, always a political problem as much as an economic one, the war debt controversy also effectively poisoned great power relations with endless bickering, mistrust and resentment for two decades. As Frank Costigliola explains, for all those states involved ‘reparations and war debts touched the basic question of who won the war and who would dominate the peace’.2 Almost from the moment the guns fell silent on the battlefronts of Europe in November 1918, therefore, the interrelated problems of war debts and reparations were inevitably going to permeate the entire fabric of international economic and diplomatic relations. The controversy over Anglo-American war debts relates specifically to those inter-governmental financial obligations contracted after the United States entered the First World War in April 1917. Until that moment, the burden of financing the Allied war effort fell largely upon Great Britain as the banker and paymaster of the Entente. Although the initial British expenses were met by a loan of £15,000,000 from the Bank of England, when the money markets recovered from the first shock, Treasury Bills and Exchequer Bonds were soon placed on continuous sale at fixed prices. Increased taxation, that most inevitable concomitant of warfare, also soon played its part. On 17 November 1914 the first war budget doubled income tax and raised duty on beer and tea and further tax increases followed in September 1915 and in May 1916. In addition, on the day after the first war budget, a war loan was launched yielding some £332 million, followed by a second in July 1915 attracting a further £592 million in funds. By this stage, however, the volume of imports from the United States was 68 per cent higher than in 1913 and the growing demand for dollars to pay for essential supplies posed a major problem – particularly as it prompted a deterioration in the exchange value of sterling from a par of $4.86 to a low point of $4.50 in the summer of 1915. Fears that Britain would be unable to meet its obligations without a collapse in the exchange finally galvanised the Cabinet into action in search of new sources of finance. On 18 August 1915 ministers resolved that American securities held by British citizens should be purchased by the government for resale or pledged as collateral for loans on the New York market while £100 million of Allied gold would be shipped to the United States. Four days later, at Boulogne, it was also decided to send a joint Anglo-French mission to New York to raise money on the private market at a time when American neutrality precluded loans and grants from


Origins of the war debt problem 17 the US government. In total, between the declaration of the war in August 1914 and American entry in April 1917, the dollar resources acquired by Britain amounted to $3,241 million (£666 million at par): a figure composed of $926 million (£192 million) from the sale of gold, $835 million (£172 million) from the disposal of British-owned American securities and $1,480 million (£300 million) raised in loans on the American market.3 Despite the scale of this early British borrowing in America, these were all private loans and they were all paid off. Yet as the war progressed, it became increasingly evident that the entire structure of Entente finance depended on the strength of British credit in the largest neutral market in New York.4 This was particularly so after September 1915 when Britain guaranteed purchases made by Russia and Italy in the United States. From May 1916 it also acted as the guarantor for those of France whose economic strength was sapped by the fact that its major industrial areas were in the hands of Germany while the bulk of its foreign investments were in central and eastern Europe and the Near East and were thus useless as a means of raising money in neutral countries. As a result, by April 1917 Britain had advanced $3,323 million to its allies, of which, the lion’s share had gone to Russia, France and Italy (see Appendix I). In nearly every case, these advances were made against the deposit of yearling Treasury Bills, renewable until one, two or three years after the conclusion of the peace. Herein lay the origins of Britain’s own web of inter-Allied debts. By the time that America joined the war, Britain’s financial resources had been virtually exhausted by a combination of the sheer scale of its purchasing in the United States and the rapid inflation in the cost of these vital supplies as the American wholesale price index rose from 100 in 1913 to 172 by April 1917. By this stage of the conflict, the net total of British gold and securities remaining in America were barely sufficient to cover another three weeks’ purchases at the current rate of expenditure. Beyond that, its only visible assets were $114 million in gold held in the Bank of England and the joint stock banks. Britain had come to the end of its resources; the burdens of financing its own war expenditure and those of its allies had virtually bankrupted it in the United States.5 Little wonder that British statesmen greeted the news of American entry to the war with unrestrained jubilation. With America in the war, the British government inevitably assumed that it would take up the financial burden of sustaining the Allied war effort which Britain had carried since August 1914. Initial indications from Washington gave substance to these hopes. In his presidential message to Congress on 2 April 1917, Woodrow Wilson had urged ‘the extension to the Allied Governments of the most liberal credits in order that our resources may in so far as possible be added to theirs’. In response, Congress promptly passed the first Liberty Loan Act without a dissentient vote and the Bill received presidential approval on 24 April. At this juncture, the American tone was distinctly altruistic. As Senator Reed Smoot of Utah declared during the passage of the Act: ‘If not one penny of it


18


is returned, I wish to say that every penny of it will be expended for the defence of principles . . . which we entered the war to uphold . . . [and] will be for the benefit of the United States whether spent by us or by the Allies’. The chairman of the Appropriations Committee was even more forthright: ‘I have little sympathy with the suggestion that possibly we will not get our money back. I care not so much if we do, if American blood and American lives be preserved by the granting of the money’. In this context, Garrard Winston, a US Undersecretary of the Treasury during the 1920s, was being disingenuous when he later contended that ‘examination of these speeches shows at most only that some speakers recognised that we might make bad loans and were willing to take the risk’.6 One of the tragic ironies of the war debt controversy is that for all the bitterness and recrimination it later injected into Anglo-American relations, it was a ‘product of good intentions and inexperience on both sides’ as negotiators hastily improvised a loan policy in April 1917 on the supposedly normal basis that these should be interest-bearing demand obligations.7 With this agreed, the first Liberty Loans Act authorised a bond issue of $5,000 million, of which a maximum of $3,000 million was intended to provide loans to the Allies. With the finance raised by the sale of these bonds to the American public, the US Treasury would buy the obligations of foreign governments bearing the same interest and terms as the Liberty Loan so that (as the Congressional Ways and Means Committee’s report on the Bill noted), the loan ‘will take care of itself and will not contribute an indebtedness that will have to be met by taxation in the future’. Four further Liberty Loan Acts were passed on 24 September 1917, 4 April, 9 July and 24 September 1918. In total, they empowered the Treasury Secretary to purchase the obligations of Allied governments to a total not exceeding $10,000 million. The Allied governments then drew upon these credits with the Federal Reserve Bank of New York to finance the purchase of goods in the United States. In return for these advances, the British government provided the US Treasury with ‘certificates of indebtedness’ on which the Treasury Secretary soon set a rate of interest of 4.5 per cent on the grounds that this was ‘the cost of the money’ to the American government; a principle extended in October 1918 when the US Treasury demanded interest of 5 per cent on all advances – even those under the previously lower rated first Liberty Loans Act.8 By the Armistice on 11 November 1918 the US Treasury had advanced some $7,077,114,750, while a further $2,520 million was lent to seven countries in post-Armistice loans up to 2 July 1921, the date President Harding fixed as the official termination of the war.9 Although these debts formed the bulk of inter-Allied indebtedness to the United States, these figures were increased still further by other obligations. First, under legislation passed on 9 July 1918 a US Liquidation Commission was authorised to sell war surplus accumulated in Europe to various governments, the obligations to be payable within three to ten years at an annual interest rate of 5 per cent. In total these disposals amounted to


Origins of the war debt problem 19 $595,386,104. Second, an Act of 25 February 1919 empowered the American Relief Administration (ARA) under the leadership of Herbert Hoover to distribute food and other urgent supplies on credit to various foreign governments. Of the $100 million appropriation, $95,050,391 was expended, of which some $10.9 million was spent on child feeding and other charitable services for which no obligations were acquired from foreign governments. Finally, through the ARA, the US Grain Corporation also disposed of a further $56,858,802 worth of flour to relieve hunger in Europe. In total, therefore, by 1921 the US Treasury held the obligations of 20 nations payable on demand or within a short period of time. Excluding Cuba, Liberia and Nicaragua who between them accounted for only $10,457,849, as Appendix II illustrates, the total indebtedness to the United States by the official termination of the war on 2 July 1921 amounted to $10,327,854,222, of which 97 per cent had been advanced to the Allies and the remaining $322 million to ‘other’ European states – mostly in central and eastern Europe.10 Britain was the largest debtor with outstanding obligations to the United States of $4,277 million (around £880 million at par) acquired as capital advances between 1 April 1917 and 30 June 1919. In total, between April 1914 and March 1919 the British government had spent £9,593 million, of which some 28.5 per cent had been provided from revenue while the remaining 71.5 per cent was met by borrowing. But as Appendix III demonstrates, Britain in its turn was owed by its Allies the net sum of $6,753 million (around £1,390 million at par). Moreover, despite the hope that America would relieve it completely of the burden of financing the war, half of this sum was advanced after April 1917 – in large part because Washington rejected British pleas to provide the Allies with the money needed to purchase war materials in other countries on the grounds that it could not ensure that they were economically contracted or genuinely intended for war purposes. America thus confined its advances to direct dollar purchases in its own domestic markets – to the very considerable benefit of American producers and the tax revenues received by the US Treasury. As a result, while Britain received over £958 million from the United States as war debts, it still lent over £936 million to its allies even after America’s entry to the war in April 1917.11 Although after April 1917 America and Britain acted as the joint paymasters of the Allied cause, from an early stage London was anxious to simplify this relationship. As Britain was making vast advances to its allies while borrowing approximately equal sums from the United States, on 25 March 1918 the Chancellor of the Exchequer proposed that America should assume responsibility for all the future obligations of France and Italy on the grounds that this entailed no aggregate increase in the level of its advances but merely channelled them directly to the ultimate recipient. Under this arrangement, Britain would remain responsible for the purchase of Allied supplies outside the United States but these were to be paid for by France and Italy in dollars which Britain would then use to cover its own war


20


expenditure in America. Although the idea was initially supported by the US financial representatives in Europe, Washington preferred to lend to the more creditworthy British than to their less solvent allies and the proposal was consequently allowed to lapse. Nevertheless, the fact that it later denied the British claim that it was just a financial ‘conduit-pipe’ between America and the Allies remained a point of serious contention between them – particularly after the allegation appeared in the Balfour Note in August 1922. As the British government repeatedly asserted in the House of Commons and the press, if Britain had not been compelled to lend to the Allies by American intransigence, ‘we should never have incurred a halfpenny of debts to America, for the payments due to us from Europe would have been set against our liabilities to the United States for purchases we made from her, and settled in the ordinary course of business . . . leaving us very much to the good’.12 Although negotiations on the funding of these war debts to the United States dominated a large amount of diplomatic effort during the early 1920s, the American government initially assumed that the Allied ‘certificates of indebtedness’ were mere stop-gap measures and that their debtors would convert these demand obligations into long-term bonds at the earliest opportunity. In fact, Assistant Secretary to the Treasury Oscar T. Crosby first suggested on 28 June 1917 that definitive bonds could be prepared within three weeks and the US Ambassador in London repeated the proposal in a letter to the British Foreign Secretary on 16 August. Similar requests were also made to the French, Italian, Russian and Belgian governments. At this point, the Wilson administration proposed 15/30 year gold bonds payable to the US Treasury carrying a 3.5 per cent rate of interest and which upon request could be converted into marketable bonds of small denominations for sale to the public. In the event, the idea lapsed in November 1917 when complications over the terms led to deadlock at a time when both governments faced more pressing problems with the conduct of the war. In late May 1918, however, the issue was revived when the British suddenly realised for the first time that the second Liberty Loans Act placed them ‘entirely at the mercy of the Secretary of the Treasury, who could determine the terms of the long-term bonds at will’. When Britain’s Special Ambassador in Washington enquired about the US Treasury’s intentions regarding the conversion of these certificates of indebtedness, however, he was informed that, as the matter was not pressing, the best strategy was to leave them in demand form ‘until after the war, when the whole question of interAllied indebtedness would have to be considered broadly from a variety of standpoints’.13 By the time William Gibbs McAdoo left his post as US Treasury Secretary in November 1918, he had effectively established most of the key principles which informed American war debt policy for the next 15 years. Above all, he vigorously rejected any idea of cancelling debts or linking them with any future German indemnities while insisting that any negotiations on their


Origins of the war debt problem 21 funding were to be conducted on a strictly bilateral basis between the creditor and the individual debtor in Washington in order to obviate the risk of a united bloc of debtors.14 Equally in accord with their future position, the British were reluctant to accept this isolation of the debt question from its broader inter-Allied context while France was even more vehement in its resistance on the grounds that it was in a similar, but rather less advantageous, position to that of Britain. Unlike their American allies, for the victorious European powers the intimacy of the connection between German reparations and inter-Allied war debts loomed large in the aftermath of the Armistice. In February 1919, a British Cabinet discussion about the relative priority to be accorded to various claims upon the proceeds from German reparations prompted Winston Churchill to draw attention to ‘the great importance of the British indebtedness to the United States . . . involving, as it did, a complete alteration of our financial position to America’. After restitution for the destruction of France and Belgium, Churchill argued that British claims should be next in priority. ‘We had been hit harder than any other country, in that we had paid these enormous sums for other people. He desired to make the Germans responsible for discharging of our overseas debt, and he thought that the United States should be confronted with that point of view’.15 Fifteen months later, Montagu Norman, the newly-appointed Governor of the Bank of England, outlined his own recommendations for future debt policy in very similar terms. Ideally, he argued that Britain’s share of German reparations should be exactly equal to its war debt to America to prevent any further payment from its own resources.16 At precisely the same time, French claims to priority in the distribution of reparations at the Hythe conference in May 1920 again prompted the Cabinet to agree upon ‘the importance of avoiding any final settlement of our liabilities to the United States independently of the settlement of our loans to France and Italy and the repayment of reparations by Germany’. Any undertaking to forego repayment from France should thus ‘be contingent on the United States granting a similar release to us’. Whatever successive American administrations might repeatedly argue about war debts being wholly unrelated to the question of reparations, the European Allies clearly had other ideas from the outset.17 American visitors to Europe were aware of this sentiment. In July 1919 Benjamin Strong, the Governor of the Federal Reserve Bank of New York, detected a ‘latent, underlying feeling’ that there should be ‘some cancellation of debt all round’ given the vast disparity between the wartime sacrifices of the European Allies and America. Moreover, although he concluded that ‘most of the really level-headed able men that I have met . . . do not expect forgiveness of the debt’, tentative overtures were soon made by various debtors seeking to settle these inter-Allied obligations by pooling the joint burden.18 The first of these proposals came in late 1918 in the form of almost simultaneous overtures from the French Finance Minister and the British


22


Chancellor of the Exchequer proposing a general joint adjustment of all war debts, but Assistant Treasury Secretary Crosby deftly brushed aside this demarche with the claim that he had no authority to discuss the matter.19 Nevertheless, on 15 January 1919, Eduard de Billy, the French Deputy High Commissioner in Washington returned to the subject of the ‘closely interwoven’ nature of inter-Allied financial relations by proposing ‘a general and simultaneous settlement’ of all of these debts at the Paris Peace Conference; an idea justified on grounds of equity and because ‘the possibility of reimbursement by certain Governments may be deeply affected by the conditions of the Treaty of Peace, especially by the indemnity eventually to be received from Germany’. If inter-Allied debts were settled separately and in isolation both from each other and from German reparations, de Billy argued that ‘privileged situations might arise to the prejudice of some of the Governments concerned’. In reply, US Treasury Secretary Carter Glass steadfastly rejected any idea of incorporating the debt discussions into the Paris peace talks, but declared the United States would ‘be willing to postpone discussions until the probable amount, time and form of the recoveries from the enemy can be estimated and the financial position of the receiving Governments considered in the light of this information’.20 President Wilson was ‘much exercised’ by French persistence in pressing these demands for the pooling of war costs with each nation paying according to its ability. Having previous refused to discuss the idea on the grounds that it threatened to tie America into an unstable European financial situation, when an Italian resolution on the subject of ‘inter-allied agreements as to the consolidation, reappointment and reassumption of war debts’ appeared on the preliminary agenda of financial questions for consideration at the Peace Conference with French support, on 8 March Albert Rathbone, Assistant Secretary of the US Treasury, delivered an official protest to France with an ominous warning that ‘the Treasury cannot contemplate continuance of advances to any allied Government which is lending its support to any plan which would create uncertainty as to its due repayment of advances made to it by the United States Treasury’. Coerced by this overt threat, France promptly abandoned its efforts to manipulate the Americans and it was advanced a further $690 million in return.21 While the French took the initiative, the British thought it tactically better to comply with American wishes in the belief that ‘although the French would probably succeed in delaying action . . . the onus of doing so would be on them’. On this basis, on 9 January 1919 the Chancellor informed Sir Hardman Lever, its financial commissioner in the United States, that discussions on a settlement should soon proceed in Washington. During informal preliminary talks in January and February, however, the stringent terms envisaged by the Americans for the definitive bond soon cooled British enthusiasm for an immediate settlement – particularly when it became clear that Washington expected to market the bond as a means for the American people to replace the US Treasury as the ultimate creditor. Now veering


Origins of the war debt problem 23 towards the French position that debts should be discussed at the Paris Peace Conference, London duly resolved that it should not pay anything until the last legal date and even then it would not do so unless it was repaid by its Allies because the entire structure of inter-Allied debt was intertwined. It also made clear to the US Treasury that its own claims should take precedence over those of America on the grounds that these debt obligations had been contracted first. In response, Lever reported ten days later that Washington had agreed to postpone an Anglo-American settlement until after the German indemnity and inter-Allied debts to Britain had been agreed.22 Throughout the Paris Peace Conference, President Wilson doggedly adhered to this refusal to discuss the debt question and as one of the President’s financial advisers from J.P. Morgan recalled, whenever the idea reemerged, it was ‘always “stepped on” by the American delegates’. Wilson was no more enthusiastic about efforts to entangle the United States in the broader structure of German indemnities, such as the plan prepared by John Maynard Keynes who served as a financial adviser to the British delegation and which Lloyd George presented to Wilson in a long explanatory letter on 23 April 1919. In essence, the plan involved Germany and the other enemy states issuing reparation bonds which would then be turned over to the United States as payment for inter-Allied war debts.23 Confronted by the immediate and determined opposition of the US Treasury at this effort to make America the principal collector of European reparations, Wilson replied on 5 May with a stern rejection of what would be the first of many AngloFrench efforts to pay war debts with reparations.24 Despite Wilson’s stiff resistance to these cancellationist overtures, Europe’s grave financial difficulties in the aftermath of the war convinced Russell Leffingwell, the Assistant Secretary of the US Treasury with special responsibility for war debts, that America needed to offer some relief to its hard-pressed Allied debtors. This help eventually materialised in the shape of a deferment of the interest payments on American advances. Until May 1919 the European debtors had met these payments in cash – often provided from further American loans. After this, however, the US Treasury rapidly began to reduce the supply of such money, with the result that it soon became clear that the next British instalments (due in October and November 1919) would need to be found from its own resources at a time of great financial stress and when sterling was under heavy pressure. As Washington recognised that it would be to no one’s benefit to press for collection in these circumstances, on 8 August 1919 Basil Blackett (the British Treasury’s financial representative) telegraphed from America that the Wilson administration was prepared to defer the collection of interest payments amounting to $475 million for a period of three years on condition that Britain resumed negotiations on the conversion of its demand obligations into a long-term funding agreement; an offer announced publicly on 26 September 1919. This offer was welcomed in London, but it was only acceptable on the


24


terms the Chancellor had spelt out to the Americans on 6 February 1919, namely that any settlement must depend on the amount Britain was able to collect from its own debtors and that its own claims should take precedence. On 27 August, Blackett was also instructed to resist American pressure for the definitive bond to be negotiable and that if forced to agree it should only be marketable after ten years. As the Finance Committee of the War Cabinet explained to Blackett a month later, their objective was to write-off the debt, or failing that either to scale down the principal sum substantially and waive the interest or to convert it into German indemnity bonds as part of a general scheme for dealing with inter-Allied indebtedness. In the event, however, little progress was achieved by the time that Blackett returned to London to become Controller of Finance at the Treasury, largely because of the ‘very unsympathetic’ attitude of the US Treasury which had ‘maintained the “business man” attitude’ throughout.25 In an effort to assist the negotiation process, on 1 November 1919 Assistant Secretary Rathbone (then in Paris) delivered to the British the first concrete American proposal for funding the war debt. All advances made under the First Liberty Loan Act were to be covered by a series of bonds to mature on 15 June 1947, while bonds covering advances made under subsequent Acts would mature on 15 October 1938. Interest on all bonds was fixed at 5 per cent and to be paid twice yearly. Although no payments of any kind were to be made in the first three years, total annual instalments were to rise from 5.5 per cent of the principal sum in the fourth year to a maximum of 12.5 per cent in the twelfth year. These sinking fund provisions would thus have extinguished 17.8 per cent of the bonds maturing in 1938 and 55.7 per cent of those maturing in 1947, leaving the remainder to be cleared by a lump sum payment. The British tentatively accepted this as a basis for negotiation (with reservations) and by late January these had reached the stage of preparing a draft agreement.26 Progress towards a settlement was not helped by the intense sensitivity of the issue for the foreign policy elite in either country – particularly given the easily inflamed passions of their respective public opinion and press. Yet most frustrating for Blackett and the British negotiators was the attitude of their American counterparts who combined high-handed intransigence, duplicity and timidity towards the domestic political constraints imposed by a hostile Congress and public opinion. As Blackett complained in a lengthy memorandum on 2 February 1920, although the US Treasury repeatedly proclaimed its wish to frame a joint policy towards their common debtors, ‘hitherto our efforts to cooperate . . . have almost invariably meant that we have had to abandon without even putting on formal record the policies which we have favoured whether in great matters or in small, and accept the views of the United States Treasury’. Worse still, the British position was ‘almost invariably misrepresented in the United States . . . because the United States Treasury’s sole preoccupation is usually to persuade an unwilling Congress to take a small step forward in the direction desired by the United

Origins of the war debt problem 25


States Treasury, and it frequently does the persuading by putting forward arguments which are from our point of view irrelevant and unfair’. As to policy, Blackett recorded: From the first the general policy of the British Government has been to move as far and as fast as possible in the direction of ‘Deflation of the world’s balance sheet’ . . . Our idea has always been that ultimate repayments by the continental Governments of Europe of their debts to the United Kingdom and the United States was . . . out of the question, that the existence of this mass of external indebtedness meanwhile lay like a dead weight upon the credit of continental Europe, and made reconstruction even slower and more painful than it needed to be, and that the statesmanlike thing to be done was for the United Kingdom and the United States . . . to make a ‘beau geste’ by offering to wipe out the whole of such indebtedness by the stroke of a pen. Although this bold proposal had been placed informally before the Americans, Blackett lamented that they had ‘from the first been horrified with even the mention of such a plan’ for fear of a congressional backlash. As a result, the negotiations were confined simply to the postponement of interest and the conversion of demand obligations into long-term bonds. Evidently deeply frustrated, Blackett forced the Cabinet to confront the central issue of strategy. ‘The time has now . . . come when the desirability of continuing this . . . one-sided cooperation should be re-considered’ because if postponement of interest was to be agreed then Britain must submit to the US Treasury’s desire that it ‘should appear in the somewhat undignified attitude of supplicants . . . for relief’. As an alternative, he pleaded for ‘dignified and independent action by the British Treasury’ to propose officially an unconditional and unilateral cancellation of all inter-Allied debts owed to Britain without reference to its debt to America in the hope that Washington would eventually follow London’s lead. Even if they did not do so immediately, Blackett argued that the £850 million to be paid to America would be a heavy but not impossible burden and would have the compensation of opening the American market to British exports by depressing the exchange value of sterling. ‘Ultimately’, he concluded optimistically, ‘in self-defence the United States Government might be driven to beg us to accept as a favour the wiping out of our debt to it’ while Britain would have ‘earned the gratitude of the world’ by ‘restoring reality’ to these discussions and ‘by giving new hope to continental Europe by clearing away . . . the useless obstruction of a vast mass of paper indebtedness between Governments’.27 While Austen Chamberlain as Chancellor referred this matter of high policy to the Cabinet in approving terms, on 4 February Blackett formally communicated to Rathbone the British view that war debts were incurred as a collective contribution to ‘the defence of liberty and democratic


26


institutions’ and that it believed it ‘most undesirable’ that they should obstruct friendly relations between the Allies after victory had been secured. As this vast body of indebtedness represented an ‘almost insuperable obstacle to the recuperation of the world’, Blackett formally noted Britain intended unilaterally to cancel its inter-Allied debts, adding that the Chancellor was convinced that it was ‘not possible for him any longer to subordinate to the wishes of the United States Treasury the views strongly held by the British Government’. Three days later, Chamberlain replied to Assistant Treasury Secretary Leffingwell’s request for his views on the general situation by repeating that the British would ‘welcome a general cancellation of intergovernmental war debts’. To this end, it intended unilaterally to cancel its inter-Allied war debts amounting to £1,600 million without insisting upon a corresponding pledge to cancel the British debt to America of around £850 million. ‘The moral effect’, he concluded ‘would be even greater than the practical change and fresh hope and confidence would spring up everywhere’.28 Or as a Foreign Office official minuted a few days later in more forthright terms, by declaring for unilateral cancellation of its own war debts, Britain ‘want[ed] to shame the U.S. into following our example & writing off our debts to them’.29 Unfortunately, as Blackett despaired, the Wilson administration was painfully aware of public hostility to debt cancellation in an election year and ‘would have none of it’. Even over the proposals to postpone interest and convert the debt to long-term securities, they showed themselves to be ‘impossible people to do business with’ – and as they held Britain’s unconditional promise to pay, they clearly held ‘the whip hand’.30 Worse still, Chamberlain’s note caused the Americans ‘the utmost embarrassment’. In private, senior American officials conceded to Ronald Lindsay, the Chargé d’Affaires at the British Embassy, that ‘speaking abstractly’ they ‘quite see that [these obligations] should be written off’. But they also warned that for some time to come this would not be ‘practical politics’ given intense congressional opposition even to the temporary postponement of the interest and because at the approaching presidential election there was ‘hardly a politician at this moment who cannot be intimidated by ignorant but specious election cries’. Despite the unilateral nature of the British proposal, therefore, Lindsay reported that it would be resented as an effort to force America to adopt the same line with the danger of jeopardising even the postponement of interest payments.31 This gloomy assessment of the situation in America was soon confirmed by events. In reply to these British overtures, on 5 March 1920 Treasury Secretary David F. Houston stiffly observed that the general cancellation of war debts would ‘serve no useful purpose. On the contrary, it would, I fear, mislead people or countries as to the justice and efficiency of such a plan and arouse hopes, the disappointment of which could only have harmful effect’. He was thus confident that neither the American Congress nor people would accept such a proposal, particularly as all-round cancellation ‘does not involve


Origins of the war debt problem 27 mutual sacrifice on the part of the nations concerned; it simply involved a contribution mainly from the United States’. Furthermore, as the debtor governments had neither balanced their budgets, freed their trade, disarmed adequately, nor made ‘a prompt and reasonably definite settlement of the reparations claims against Germany’, the general cancellation of war debts would only serve to ‘throw upon the people of this country the exclusive burden of meeting the interest and of ultimately extinguishing the principal of war loans to the Allied Governments’. Undersecretary of State Norman Davis even suggested to the President at around this time that the British proposal for all-round cancellation was simply a cynical device by which Britain proposed to discharge the provisions of some unspecified secret treaty with its Allies. After this robust rejection of the initial British attempt to wipe clean both sides of the slate, Chamberlain beat a tactful retreat in a conciliatory reply in which he explained that he had no intention of reopening the issue but was merely responding to Leffingwell’s request for his general views.32 The Chancellor’s freedom for manoeuvre in responding to his American counterpart’s rebuff was hampered by the fact that not all the Cabinet supported the Treasury’s policy. The President of the Board of Trade, Sir Auckland Geddes, had vigorously opposed the idea of unilateral cancellation for fear that America would resent the effort ‘to force her hand’, with the result that it might cancel other Allied debts but not those of Britain – with the further undesirable consequence that ‘ten years hence France might be in a stronger economic position than this country’. As he believed it ‘a very bad time’ to approach America, he thus warned that it was ‘a gamble and the position . . . is too serious to be settled in such a way’.33 Churchill also denounced the Treasury proposal as ‘altogether unjustifiable’ and proposed that Britain should only offer to cancel its debts if America agreed to remit their own on the grounds that the Republicans were likely to be more friendly to Britain than Woodrow Wilson’s Democrats and when they won the election better relations would exist.34 In May, Sir Robert Horne, who had replaced Geddes as President of the Board of Trade in March when he was appointed Ambassador in Washington, also shared his predecessor’s doubts about timing and questioned the Treasury’s arguments about the supposed export benefits of the strategy.35 Yet despite these reservations, the Treasury received powerful support from Lord Curzon, the Foreign Secretary, who reinforced its financial and economic case with the view that the British retention of such claims only retarded Europe’s economic recovery, threatened its political stability and created ‘bad feeling’ and friction among impoverished debtors. Conversely, if it renounced its debts, ‘we clear the atmosphere at once. We obtain the moral leadership of the world at a stroke. And we obtain it at a moment when it is a practical necessity for Europe that we should have it’. He was equally optimistic about the effect upon America where there would be initial mistrust but a reaction in Britain’s favour would soon come:

28



For the moment the American conscience as regards Europe seems dead, but conscience does not die in so sentimental and idealistic a people; it is only numb; and if the British action were presented on the loftiest ethical grounds, a revulsion of feeling would quickly follow, which would not merely improve Anglo-American relations but would profoundly affect the whole American attitude towards Europe. The result might well be similar action on the American side before a year was out. Although timing was critical in order to avoid ‘an atmosphere of bargaining’, Curzon believed they should act before both the US presidential election and the meeting of the International Financial Conference assembled under the auspices of the League of Nations in May;36 a view endorsed by WorthingtonEvans who also believed this conference offered an opportunity ‘to educate public opinion both here and in the United States and lessen the difficulties we might otherwise meet within Parliament’.37 When the issue re-emerged on the British Cabinet agenda in late April 1920, therefore, ministers still believed that ‘if the case was properly presented to the world it was bound to secure widespread support in the United States, at any rate after the Presidential Election was over’. As a result, at the two inter-Allied conferences at Hythe in May and June 1920 the British accepted the principle of ‘parallel liquidation’ of war debts and reparations – not least, as a means of exercising direct control over French policy. As the Chancellor explained to the Cabinet on 21 May, ‘one advantage of this arrangement was that if the French showed themselves unreasonable towards the Germans, we should be in a position to adopt a similar attitude towards them, and, consequently, to check them’.38 Unfortunately for the British, the American policy remained as intractable as ever. From Washington, Ambassador Geddes warned that the angry American reaction to French proposals that the Financial Conference should consider the subject ‘merely shows how completely unprepared America now is for any international treatment of war debts’.39 During the first four months of 1920 Blackett also encountered constant difficulties in his negotiations with the Americans given fundamental differences over the status of these debts, while Assistant Secretary Rathbone’s proposals for dealing with the points at issue – particularly the marketability of the definitive bond – appeared to the British to be grotesquely self-interested and ‘preposterous’. When Rathbone presented a tentative draft agreement on 30 April, it was thus found to contain ‘a set of humiliating political and fiscal stipulations’ subordinating British foreign and debt policy to American wishes. Although the most objectionable of these provisions were soon modified, Blackett reported that Rathbone was ‘unwilling and, indeed, unable, to commit the United States Government to make a final settlement without reserving its powers to use its holding of Allied obligations in terrorem’. As a result, he concluded that a joint policy was hopeless and that Britain should adopt his earlier proposal of unilateral cancellation of its own debts while paying off America ‘as quickly as reasonably practicable’.40


Origins of the war debt problem 29 More important than Blackett’s recommendation was the fact that the Chancellor was now outraged by the American attitude and proposals. In a covering note when circulating Blackett’s memorandum to the Cabinet on 12 May, he declared that he had changed his mind on the question because of ‘the intolerable pretension of the United States Government’ and that he had already made it clear to Rathbone privately that ‘I would sooner pay if I could, and default if I could not, than sell my country into bondage by signing any document containing language like that’. As a result, although the text of an agreement was ready for signature, Chamberlain announced his conversion to the policy of unilateral cancellation of European and dominion war debts to Britain while informing the United States of the intention to clear their own debt along the lines proposed by Blackett. When the Cabinet discussed the question on 21 May it was thus agreed to suspend further negotiations on the conversion of Britain’s demand obligations – particularly as it was now clear that Washington wanted the bonds to be marketable after five years. As the whole point of the operation was to enable the Americans to deal generously with Britain after its settlement, the possibility of marketable bonds sold to private investors ‘gravely compromised’ all hope of future remission or cancellation. This factor, combined with the belief that a presidential election campaign was an ‘extremely unfavourable’ moment for negotiation, persuaded the Cabinet to concert strategy with their fellow European debtors and to suspend negotiations. In the interim, the Prime Minister would write a personal letter to President Wilson informing him of the situation.41 In Washington this news was received with polite irritation. Against a background of vigorous propaganda calling upon the US government to demand immediate payment from Britain, Geddes reported that ‘People here regard themselves as groaning under a load of taxes mainly incurred in the interests of foreign people, and are in no mood to be generous. This whole matter is of great importance in view of the forthcoming elections’. As a measure of the frustration simmering within the Wilson administration as the elections approached, Geddes was summoned to meet the Treasury Secretary on 18 June who (like the Secretary of State) declared he was ‘much puzzled’ by the suspension of negotiations on the eve of their completion. Houston also made it abundantly clear that the President resented the failure of the British to stand by him during the election campaign and that he suspected them of playing up to his Republican opponent. He also pointedly asked when he might expect the promised letter from the Prime Minister.42 David Lloyd George, the British Prime Minister, did not approach Wilson on ‘the knotty problem of inter-allied indebtedness’ until 5 August 1920 – a delay explained largely by the fact that the issue was bound up with reparations discussions with the French Premier and Finance Minister at Bologne on 21–22 June and at a subsequent conference at Spa in July. In the course of his long letter to the American President, however, Lloyd George emphasised the urgent need once and for all to fix the scale of Germany’s


30


reparations at a level within its capacity to pay and in a form consistent with Premier Millerand’s insistence that ‘it was impossible for France to agree to accept anything less than it was entitled to under the treaty unless its debts to its Allies and associates in the war were treated in the same way’. As the British government regarded this principle as ‘eminently fair’, it correspondingly declined to remit any part of French indebtedness ‘except as part and parcel of all round settlement of inter-allied indebtedness’. As he warned ‘British public opinion would never support a one-sided arrangement at its sole expense, and that if such a one-sided arrangement were made it could not fail to estrange and eventually embitter the relations between the American and the British people with calamitous results to the future of the world’.43 When this letter received absolutely no response from Washington, on 22 October Geddes resumed his pressure for an immediate settlement (on the lines of the Rathbone draft) before the presidential election on 2 November, warning that the situation might deteriorate if the Republicans won because they would be ‘greatly hampered’ by their campaign pledge to make the Allies pay in negotiable bonds bearing an ‘attractive’ rate of interest – thereby precluding all hope of a satisfactory settlement or future cancellation.44 On the day after Wilson was defeated in the presidential election, the Cabinet agreed to resume negotiations in the absence of a reply from Wilson – or any certainty that he had even seen Lloyd George’s letter. Ironically, on the same day, Wilson despatched his extremely belated reply pointing out with ‘great frankness’ the legal and constitutional obstacles to cancellation. As this power was reserved to Congress alone, it was ‘highly improbable’ that either the Congress or popular opinion would ever permit such an action ‘as an inducement towards a practical settlement of the reparation claims’. While he agreed that fixing Germany’s liabilities was ‘a cardinal necessity for the renewal of the economic life of Europe’, therefore, the President declared that his government could not consent to connect the reparation question with that of inter-Allied indebtedness. Furthermore, he warned that the US Treasury was already embarrassed by European delays in funding their demand obligations and that it might find itself compelled to collect back interest unless speedy progress were made towards a settlement. This exchange of letters exposed the unbridgeable gulf between the two sides and it set the tone for Anglo-American dialogue for the next two decades.45 As the Chancellor angrily expostulated to the Cabinet when circulating the gist of Wilson’s reply, he found the President’s language ‘difficult to stomach. The American Government and people are living in a different continent – I might say in a different world. It is useless and worse than useless to criticise their insularity, blindness and selfishness, and it is not compatible without dignity to appear as suitors pressing for a consideration which is not willingly given’.46 Despite the contradictory statements of Warren Harding on the subject of war debts during his presidential election campaign, after receiving Wilson’s


Origins of the war debt problem 31 firm rebuff the British concluded they should do nothing and await developments on the grounds that there was no reason to assume their claims would be treated any less sympathetically by a Republican administration than by Wilson’s Democrats. On 5 November the Foreign Secretary thus informed his Ambassador in Washington that ‘we think it better to let sleeping dogs lie’, particularly as American insistence upon being able to sell its debtors bonds to private investors represented ‘the most objectionable of all expedients from a British standpoint’.47 Within a few weeks, however, reports from the Washington Embassy dispelled initial hopes that the Harding administration would treat Britain more generously. Indeed, Geddes soon predicted that if economic distress continued in America, ‘clamour to compel England to pay its debts will drown all sensible voices’ and that any final British decision ‘turns on a correct appreciation of American mass psychology: for this is a matter which will be decided by [the] feelings of the American people and not by [the] United States Government’. In another telegram in mid-December, Geddes reinforced this urgent appeal to accept the existing American terms with the warning that the Assistant Secretary of State was now pressing him regarding the domestic difficulties created by British delay.48 By this stage the Chancellor had abandoned his earlier resistance and reached a similar conclusion. Although in theory the Americans could demand immediate payment of the entire debt, this was dismissed as ‘an absurdity of which I think the United States Government incapable, and since it would be universally recognised as an absurdity incapable of fulfilment, non compliance would do us no harm’. But a demand for payment of accrued interest amounting to $314 million was a different and far more serious threat. ‘If we do nothing the United States Treasury will be obliged for its own protection, in face of a hostile Congress, to call upon us to pay up back interest from the 31 May 1919’. In that case, Chamberlain warned that to pay would ‘seriously cripple our resources’ but to refuse to do so would be ‘not only most damaging to our credit but scarcely compatible with our honour’ – far less to good Anglo-American relations. Against this background, he advised the Cabinet on 30 November to resume negotiations on a funding agreement ‘on the general lines proposed by Mr Rathbone’ but with the crucial condition that the bonds should be held by the US Treasury during their currency. Four days later, on 3 December, Chamberlain issued another Cabinet paper repeating his plea for an immediate settlement with America while adopting a policy of unilateral cancellation of its own war debt claims. ‘Europe cannot buy for want of credit. We are suffering because Europe cannot buy’. Only by cancelling these debts could Britain break out of this vicious spiral. Anyway, he argued, as Europe could not and would not pay their debts, they were ‘worth little’ and ‘to maintain the shadow with little or no prospect of receiving the substance . . . within a reasonable time seems to me bad business. Surely it is even worse policy . . . I plead again and most earnestly for a beau geste and without delay’.49 By this juncture, the

32



Foreign Office had also concluded that the debt should be funded ‘if this can be done without producing too violent a financial crisis in this country’ but that concessions to Britain’s own debtors should be held in abeyance until the situation clarified.50 When the Cabinet met to consider these appeals on 17 December, it was clear that ministerial attitudes were hardening. As the usually opaque Cabinet conclusions recorded: Strong views were expressed in regard to the unusual character of this demand on us from a nation which had participated in the general advantage of victory derived by the Allies from the credits given by us, and yet was building a fleet which placed our whole naval position in jeopardy. It was suggested that once we had admitted the principle of our obligation to pay, we would for the future be at their mercy whenever they chose to make a further demand. It would be better to adopt the line that this debt, owing to the peculiar circumstances in which it had been incurred, had no relation to an ordinary commercial debt. Our best course, therefore, would be to refuse to meet the American demand. Although such views would be repeated more vehemently 12 years later, in December 1920 the Cabinet consoled themselves by denouncing the myopic selfishness of the Americans while agreeing that it was ‘out of the question to repudiate our debt, which would be tantamount to filing a petition in bankruptcy’. On this basis, it was agreed that Washington should be informed that Lord Chalmers would soon be sent to negotiate a satisfactory settlement, but with the clear instructions that this ‘should not take a form which may render a future reconsideration of the whole question of InterAllied Debt impracticable’. Above all, America should make no stipulation as to British financial or commercial policy or the treatment to be accorded to its allies. He should also strive to obtain as long a respite as possible before the definitive bond was placed on the market. In the event, however, the US Treasury Secretary accepted a resolution from Senator Walsh designed to prevent any further action on war debts by the outgoing administration. As this removed any purpose for the negotiations, Lord Chalmer’s visit was cancelled on 7 February 1921 pending further consideration of the entire Anglo-American debt question.51 In some ways this cancellation was fortunate given the fury provoked in America by the Chancellor’s speech in Birmingham three days earlier in which he announced publicly for the first time that Britain’s previous proposals for all-round cancellation had been rejected by the US government; a revelation which deeply offended Congress (who had never been informed of these developments) and thus infuriated the White House who were profoundly embarrassed by the unexpected public disclosure. After this, Robert Craigie (the British Chargé d’Affaires) reported from Washington on the ‘universal outcry’ against any suggestion of cancellation sedulously


Origins of the war debt problem 33 promoted by the Hearst press and other Anglophobe factions. Nevertheless, he believed that once the first shock had passed the prominence of the issue would be beneficial in educating public opinion to the fact that the expansion of American trade was intimately bound up with debt revision.52 On 11 March, four days before the Harding administration entered office, the Chancellor urged the Cabinet to send the Chalmers mission without delay.53 Yet despite the urgency of Chamberlain’s tone, the Cabinet did not return to the question until 10 May when the subject prompted a spirited debate. In favour of the commencement of negotiations was the belief that ‘the new American Administration was not likely to take a very different view of the question from that taken by its predecessor, and that further delay was inconsistent with the National dignity, damaging to our credit, and might poison our future relations with the United States’. On the other hand, it was generally agreed that ‘no harm had accrued from the delays in the past’ and that the Americans might be ‘disposed to adopt a more conciliatory attitude towards the whole question of Inter-Allied indebtedness, and, if given time, might well be guided towards the policy of universal cancellation’. On this basis, it was agreed to postpone the resumption of any further negotiations, although Austen Chamberlain, the former Chancellor and now the Conservative leader and Lord Privy Seal, formally insisted the Cabinet conclusions should record his dissent from the decision.54 As Blackett subsequently summed it all up, the policy was ‘to watch events and avoid bringing on a premature discussion of the problem, in the expectation that as time passes conditions may be counted upon to become more favourable to its solution’; a view considered by the Foreign Office to be ‘very sound in our present circumstances’.55 Seven months later, the Cabinet finally recognised that their earlier hopes of debt cancellation ‘would meet with a very hostile reception’ from the United States Congress and its electorate who believed ‘the debts should be paid, and that the failure to pay them was the primary cause of the present distress in the United States’. Above all, the increasing awareness of AngloAmerican commercial rivalry fuelled fears that if Britain began to pay interest on the debt ‘she would have to continue to pay and that the effect of such payments would be to enable the American Government to reduce taxation and so place the American manufacturer in a favourable position as regards his British competitor’. As Britain was already ‘materially assisting’ America both at the Washington Conference and through the Anglo-Irish Treaty, ‘it would be a mistaken policy to initiate any payment of interest except under the greatest pressure’.56


3

Britain and the inter-Allied war debt settlements

When President Harding’s Republican administration took office in March 1921 it was determined to break the impasse over war debts – particularly as it had been warned that some of its debtors were unable to meet their interest payments on obligations about to mature. Although Andrew Mellon, the new Treasury Secretary, believed he possessed sufficient powers to deal with these funding difficulties, his legal advisers disagreed. The President was thus presented with a draft Bill in June 1921 designed to confer blanket powers upon the Treasury Secretary to vary debt repayments and negotiate satisfactory settlements with European debtors experiencing problems. Despite the President’s appeal to Congress, however, these efforts were rejected after lengthy and acrimonious debate because of isolationist suspicions that the new administration intended either to waive these obligations or to accept German reparations bonds in lieu of payment – particularly as they also feared this was ‘the prelude to the return of the Versailles Treaty . . . minus the League of Nations . . . and that . . . in the name of stabilizing Europe [we] will be asked to ratify it’.1 Undeterred by this setback, on 6 December 1921 President Harding used his first State of the Union message to urge Congress to approve amended legislation designed to establish a commission to negotiate satisfactory settlements for these obligations. This Bill comfortably passed the House of Representatives on 25 October before the Senate eventually responded to this appeal by passing the World War Foreign Debt Commission Act on 31 January 1922. This statute established a special panel whose functions was to proceed with the funding or conversion of European war debt obligations ‘in such form and on such terms, conditions and dates of maturity as shall be deemed for the best interests of the United States’. These negotiations were to be conducted subject to the conditions that the principal must be repaid within a maximum of 25 years; that the irreducible minimum rate of interest should not be less than 4.25 per cent (the minimum rate borne by Liberty bonds); that no debtor nation might discharge its debt by tendering any obligations other than its own and that once a settlement had been signed it could not be revised at a later date.2 The five-man World War Foreign Debt Commission (WWFDC) was chaired by Mellon – the key member of the


Britain and the war debt settlements 35 Commission and reputedly one of the richest men in the world. He was supported by four other Republicans – Secretary of State Charles Evans Hughes, Secretary of Commerce Herbert Hoover, Senator Reed Smoot of Utah and Representative Theodore E. Burton of Ohio. In accordance with its remit, at its first meeting on 18 April 1922 the Commission requested the State Department to inform each of the European debtors of its ‘desire to receive any proposals or representations which said Government may wish to make for the settlement or refunding of its obligations under the provisions of the Act’.3 American hopes of a settlement with Britain were undoubtedly raised by a parliamentary statement from the Financial Secretary to the Treasury on 20 February that £35 million from the budget had been set aside to resume the interest payments postponed in September 1919; a commitment repeated a month later by the new Chancellor, Sir Robert Horne, whose budget statement included provision for £50 million for the purpose in the next full year.4 For Britain to do so without bearing the full cost, a diplomatic Note requesting the resumption of their own interest payments was despatched to Britain’s European debtors on 22 March 1922.5 In Washington this action was interpreted as a welcome demonstration of the British desire to fund its entire debt at a time when pressure for a Soldier’s Bonus forced Harding to rely upon America’s future war debt receipts to fund this expensive and controversial measure. Yet despite this commitment to resume the payment of interest, the establishment of the Debt Commission was initially noted with a deafening silence in Britain, despite heavy hints from Secretary of State Hughes to the eager Geddes on 25 April that a debt settlement might open the way to a parallel most-favoured nation agreement. Once more the Ambassador pleaded for a delegation to sail at once because opinion was ‘hardening in favour of treating [the] debt question on strict business lines’, but again his advice was effectively countered by Blackett’s preference for prevarication until after the mid-term elections in November when the administration might pledge itself to sell British war debt bonds to finance the Soldier’s Bonus.6 The Foreign Office were initially equally resistant to the Ambassador’s siren cries, partly because they regarded American demands for payment as ‘incredibly mean and contemptible’ and partly because they believed a premature settlement would discourage America from assisting with European reconstruction and recovery. ‘Their attitude may be shortsighted’, Rowland Sperling of the American Department minuted on 17 May, ‘but the fact remains that they are not yet convinced that the restoration of Europe affords them the best hope of getting their money in full’. A week later, however, key officials at the Foreign Office had all swung round to the Geddes view that ‘procrastination would almost certainly prejudice American opinion against us’. The news that the French Finance Minister was shortly to lead a delegation to Washington to negotiate a debt settlement only confirmed this view.7 Opinion within Whitehall was thus deeply divided


36

Britain and the war debt settlements

when, on 15 June, the US State Department formally instructed its Ambassador in London to inform the British of their desire to begin negotiations ‘at the earliest possible date’.8 Next day, the Cabinet turned its mind to the question in the first of four lengthy debates which culminated in the publication of the Balfour Note on 1 August. ‘The strongest argument against funding’ Horne explained, ‘is that, while we have nothing to gain by it in regard to our own Budget, we are giving up our strongest weapon for forcing the United States . . . to take part in a round table discussion of inter-governmental indebtedness arising out of the war’. As it was ‘hopeless’ to expect any counterbalancing receipts from Germany or their Allied debtors in the near future, he also warned that Britain needed to resign itself to the need to pay America from its own resources or risk ‘driv[ing] European public finance deeper into the slough and increase unemployment in the British Isles’ – a serious prospect when 1,543,000 were already without work. Yet for all that, Horne was convinced they should fund the debt (and soon) on the grounds that they were bound to do so and that for the foreseeable future no President was likely to cancel or remit Britain’s debts. In economic terms, a rapid settlement would help to stabilise sterling at its prewar gold standard parity while the balance of payments was sufficiently robust to stand the strain without severe exchange difficulties; an opinion vigorously endorsed by the Governor of the Bank of England on 22 June. Furthermore, Horne predicted that a settlement would enable Britain to exert a ‘favourable influence’ over new American tariff and shipping subsidy Bills, improve Anglo-American relations generally and finally allow the United States ‘to cooperate effectively in European affairs’. At the same time, Britain would also have regained its freedom to deal with reparations and inter-Allied debts as it saw fit without reference to Washington.9 Although there was the now customary division of ministerial opinion, the Cabinet agreed with the Chancellor that there was ‘nothing to be gained by delaying the opening of negotiations’. On the contrary, as Britain was ‘mainly interested in reaching a settlement in Europe’, they believed this could not be achieved until reparations were settled and France would not agree to this until it knew the position of its debts to Britain and America. Similarly, America would not assist in the settlement of Europe until they had a definite funding agreement with Britain ‘as their only solvent debtor’. On this basis, it was agreed that ‘however unconscionable we thought the attitude of the United States Government to be, yet it would be incompatible with our national honour and credit to refuse to pay, and that it was inconceivable that Great Britain would ever place herself in the humiliating position of being . . . a defaulter to America’. On the other hand, however, it was equally unacceptable for Britain to receive less favourable treatment than other debtors. As such, ‘it was most desirable that . . . Europe should present to America a united front, and that the latter should not be allowed to settle with her debtors individually’. As a result, it was agreed that Britain should


Britain and the war debt settlements 37 publish a ‘very carefully worded’ despatch to its European debtors setting out fully the seriousness of its economic, financial and taxation position and the need for it to exact from its European debtors repayment on the same lines as Washington imposed upon Britain; a choice of language designed to indicate that the American demands represented ‘a wrong policy’. A similar despatch should be sent to the US government reaffirming Britain’s intention to fulfil its obligations but asserting that it would not be able to discuss funding until it had completed its conversations with its own debtors on the subject of their obligations to Britain. In adopting this line, the Cabinet was guided by two objectives. First, it was oppressed by the recognition that domestic public opinion would be outraged by any decision to compel British taxpayers to meet American demands while obtaining little from their own European debtors at a time when unemployment was extremely high and taxation was double the French level. Second, it believed that ‘public opinion in the United States . . . had little or no opportunity of learning the strength of the British case and that it was most important that the United States should realise that by insisting on the payment of debt she would be making herself in effect the tax-gatherer and rent-collector of the civilised world’. Lord Balfour, the much respected former Conservative Prime Minister, was given the responsibility for drafting the necessary despatches.10 Beyond his formal position as Acting Foreign Secretary in Curzon’s absence, Balfour was also a staunch believer in the need for close relations with the United States and he had considerable personal experience in dealing with its foreign policy-makers, having led a mission to America in 1917 and to the Washington conference in 1921. These deliberations took on new significance after a luncheon meeting on 5 July between Lloyd George, Lord Birkenhead, Bonar Law and Churchill on one side and Colonel George Harvey, the US Ambassador, on the other. Lloyd George began by speaking ‘very favourably’ about the need for American engagement in an increasingly perilous European situation, but Harvey pointedly responded by asking why Britain had not sent a delegation to settle its debt in response to the American invitation. Explaining that the American attitude was ‘misunderstood’, Harvey argued that the fact the first invitation had been directed to Britain had ‘not been accidental’. On the contrary, America wanted a debt settlement with Britain to enable them ‘to stand together as the only creditor Powers in the world in dealing with the rest’ and as a prelude to further cooperation in tackling the other problems of Europe. ‘The Administration were tied hand and foot in the matter until the British debt to America was cleared out of the way. When once that was done, however, cooperation would be easy and, he thought, fruitful’. Conversely, the Ambassador warned that Britain’s failure to respond to the American invitation while allowing France to send a delegation to Washington was a ‘disastrous blunder’ as ‘bad feeling and suspicion’ would be created in America, while ‘a great opportunity for Anglo-American cooperation would be lost’. Even more encouraging was Harvey’s hint that


38


the Debt Commission ‘might very well report to the Administration that funding was not practicable without some amendment of the law’ and that the administration might then introduce further legislation relaxing the terms before March. ‘It was really a crucial moment in Anglo-American relations’, Harvey declared, ‘and he could not see why the British Delegation was not sent at once’.11 Encouraging indications of this sort were further reinforced by information from ‘an unofficial but important source’ that a scheme could be devised to ease the interest burden on the debt substantially.12 When the Cabinet met to discuss these developments on 7 July, the British Ambassador in Washington was also present. According to Geddes, ten days earlier Secretary of State Hughes had told him that ‘it was altogether against the interests of the United States that the debt owing by Great Britain and the other Allies should be repaid’; a view apparently echoed by the US Treasury Secretary. In their view, ‘if the matter was discreetly handled American public opinion would eventually come round to the view that it was a mistake to insist on repayment’ – particularly given the active propaganda to this effect being undertaken by certain Anglophile banking and manufacturing interests in the United States. On this basis, Hughes urged the British to send a delegation because he intended to offer ‘the best possible terms he was empowered to make’ and with the further undertaking that if subsequent debt settlements were more favourable these terms would be applied retrospectively to Britain. Once a settlement had been signed, however, he assured the British that ‘the whole atmosphere in America could undergo a change for the better as public opinion would be diverted to other topics while sympathetic propaganda could reconcile it to cancellation’. Despite the expression of many doubts about this course, the Cabinet conceded the advantages of an amicable settlement, the disadvantages of alienating America and the possibility of eventual cancellation. On this basis, ministers agreed that British negotiators would arrive in Washington by the first week in September. In the interim, Balfour and Geddes would review the draft despatch to Britain’s debtors ‘to soften any passages which might be thought to reflect directly on the attitude of the American people’.13 The Cabinet’s decision was far from welcome at the Treasury. According to Blackett, there were only two possible courses of action; to pay America and preserve absolute freedom to deal with Britain’s European debtors or to declare that Britain’s debt to America could not be dealt with separately from the broader network of inter-Allied indebtedness. But as Blackett protested, the Cabinet had apparently opted for an illusory third position of paying America while informing its European debtors that it intended to collect from them what it paid to America; a policy he denounced as ‘fundamentally insincere’ on the grounds that it was ‘impossible of execution’ – not least because the figures simply did not add up to a realistic basis for settlement. Above all, the policy took no proper account of either the likely ramifications for French financial demands on Germany or Germany’s capacity to pay the


Britain and the war debt settlements 39 sort of sums necessary. ‘A sincere policy of funding our debt to the U.S.A. preparatory to a settlement with Europe designed to secure Europe from chaos might well bring the U.S.A. in to our help’ Blackett explained. ‘An insincere policy will have the reverse effect. And if we really mean to try and save Europe and are merely venting our preliminary grumble before doing so, is it worth while to begin by pillorying American selfishness?’14 These doubts were echoed by the Chancellor of the Exchequer. When the Cabinet met to discuss policy on 25 July a lengthy debate revealed the existence of a major rift. As Chancellor of the Exchequer, Horne began by dissociating himself from Balfour’s draft despatch. Although ‘brilliant’ in its draftsmanship, Horne declared the policy was ‘profoundly wrong’ and feared its message that America was ‘a Shylock when they ought to be generous’ would gravely damage Anglo-American relations. These anxieties were echoed by Horne’s predecessor at the Treasury. ‘We would be regarded as gibbeting the United States before the world’ Austen Chamberlain declared. ‘They might deserve that, but it was a mad policy to pursue: it would destroy our good relations with the United States, and would increase the dislike (already considerable) felt for Britain in France and Italy’. Despite these influential doubts, however, Churchill commended the despatch as ‘a righteous and a proper document, enunciating a policy of wisdom, firmness and broad justice’, while Geddes assured the Cabinet that the US administration would ‘look at the question of the debt solely and entirely as Americans and from the American standpoint. They would not be moved by anything we said or did’. In this context, he warned that the Ship Subsidy Bill and other indications ‘pointed to a period of strain between the two countries in the not very distant future’ and that Balfour’s document would help pro-British elements by providing ‘a mirror to show how the world viewed Americans’. This view was crucially endorsed by the Prime Minister who was now displaying an increasingly truculent attitude towards both France and the United States. According to Lloyd George, ‘it was time we asserted ourselves and make clear that this whole trouble ought not to be settled at our expense’ and that there was ‘nothing . . . to be gained by being too apologetic’ with America. They had taken advantage of our complications in War to try to capture our International shipping position . . . They had done their best to wrest our Naval supremacy from us, and we had made the concession of equality to them in that respect. Today, they were trying to wrest our financial and commercial supremacy. They were claiming £850,000,000 for goods that were bought in the States for the Allies and from the sale of which huge profits were made by their manufacturers. They were claiming also £100,000,000 of deferred interest . . . That was a very ignoble attitude, but in spite of it he did not think the British Empire ought to lower its self-respect.

40



Against this background, Lloyd George declared Balfour’s ‘powerful and great statement’ would have a ‘weighty effect’ on the United States government and ‘important educational results on American opinion’. On this basis, the Cabinet approved the draft despatch (with minor amendments) while Horne and Chamberlain recorded their dissent.15 The Balfour Note dated 1 August 1922 was formally addressed to France and Britain’s other European debtors, but its real target was always the United States. While acknowledging the legitimacy of America’s requests for a settlement of war debts, the document explained: His Majesty’s Government cannot treat the repayment of the AngloAmerican loan as if it were an isolated incident in which only the United States of America and Great Britain had any concern. It is but one of a connected series of transactions, in which this country appears sometimes as debtor, sometimes as creditor, and, if our undoubted obligations as a debtor are to be enforced, our not less undoubted rights as a creditor cannot be left wholly in abeyance. Although Britain had hitherto ‘silently abstained from making any demands upon their allies for repayment’, natural justice dictated that this policy was ‘only tolerable so long as it is generally accepted’ because an ‘obviously onesided’ debt settlement would be an unfair imposition on the already hardpressed British taxpayer. On the other hand, Balfour pointed out that the British government would only adopt a change in policy ‘with the greatest reluctance’ given the ‘unhappy effects’ of this great burden of international indebtedness upon the recovery of world credit, exchange, production and trade. Anyway, he argued, these loans ‘were made, not for the separate advantages of particular States, but for a great purpose common to them all’ which transcended mere questions of ‘ordinary commercial dealing between traders who borrow and capitalists who lend’. Convinced that a general settlement ‘would . . . be of more value to mankind than any gains that could accrue even from the most successful enforcement of legal obligations’, Balfour concluded with a radical statement of British policy: they desire to explain that the amount of interest and repayment for which they ask depends not so much on what France and other allies owe to Great Britain as on what Great Britain has to pay America. The policy favoured by His Majesty’s Government is . . . that of surrendering their share of German reparation, and writing off, through one great transaction, the whole body of inter-allied indebtedness. But, if this be found impossible of accomplishment, we wish it to be understood that we do not in any event desire to make a profit out of any less satisfactory arrangement. In no circumstances do we propose to ask more from our debtors than is necessary to pay our creditors. And, while we do not ask for more, all will admit that we can hardly be content with less. For it

Britain and the war debt settlements 41


should not be forgotten, though it sometimes is, that our liabilities were incurred for others, not for ourselves. Or as Stanley Baldwin, the President of the Board of Trade, succinctly encapsulated the substance of the Balfour Note for a City friend: ‘We will pay you if we must, but you will be cads if you ask us to do so!’16 In the short-term, Ambassador Harvey reported to Washington that the disposition in Britain was ‘to consider favourably the contents of the note as a plain statement of fact, though its form was unfortunate’.17 Certainly Balfour defended the Note privately by saying that although it might lose him every American friend he had, he thought it only right that the truth should be expressed. Others were less certain. One such sceptic was Robert Brand, the British banker with many influential American contacts, who warned Balfour two days before publication that the American attitude to debts was almost ‘unbelievable’ but this ‘will certainly not be altered by showing to the world in the most conclusive & brilliant manner what cads they are’. Four days after its publication Brand concluded that while the enunciated policy was correct, ‘if the real object of the Note is to persuade the American nation to forgive us our debts, I do not believe it is likely to be successful’.18 These jeremiads were soon vindicated by American anger at what were generally regarded as British efforts to foist responsibility for European recovery on to the shoulders of the American taxpayer. At the heart of this resentment was the calculation that under the Balfour plan, only debtor nations would gain while ‘America, and America alone loses’. In a furious counterblast in the press on 24 August, Treasury Secretary Mellon angrily challenged Balfour’s claim that the British liability was incurred because of American insistence that it should borrow on its own credit to finance its other allies because America was prepared to lend only on British security. This, he declared, was based upon a ‘misapprehension’ because the United States made advances to each government to cover its own purchases and did not require any government to give obligations to cover the purchases of any other government; a claim regularly repeated thereafter by American spokesmen and equally vigorously rebutted by their British counterparts.19 Bernard Baruch, one of the most enlightened American financiers, was typical of many who complained bitterly that the British were ‘trying to put the Americans into the position of being the offenders, because they are Shylocks . . . but they are not going to get away with making it appear that America is ungenerous’. To prove the point, the Governor of the Federal Reserve Bank of New York sent his counterpart at the Bank of England a bundle of American press cuttings demonstrating the depth of hostility to the Balfour Note. As one American newspaper noted with characteristic resentment towards the implication of Old World superiority, ‘Lord Balfour seems to think he can call us sheep thieves in language so elegant that we shall not understand it’.20


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Whatever the merits of the respective claims, Sir James Grigg, the longserving private secretary to several Chancellors, was undoubtedly correct in his verdict that the effect of the Balfour Note was ‘wholly bad and that it only failed to develop into more active hostility because of the friendly feeling towards Britain engendered by the Irish Treaty and British support for America at the Washington Conference’.21 Despite supposedly authoritative reports that the Assistant Secretary to the Treasury responsible for debt matters had asserted privately that ‘the Administration were in principle in favour of the revision of the Allied debt, but they wanted a year or two to allow public opinion to develop along the proper lines’, the Foreign Office were deeply sceptical – and they had every reason to be doubtful.22 After all, one immediate effect of the Balfour Note was to provoke an angry Congress to pass an amendment to the Soldier’s Bonus Bill making the expenditure ‘a first charge upon the interest received by the United States of America on obligations of foreign Governments’. Although the amendment was vetoed by the President and then eventually sustained by the Senate after the House re-enacted the clause, the episode reflected the inflamed state of opinion on Capitol Hill. But at a more general level, the Balfour Note simply bewildered Britain’s friends in the United States while it outraged and infuriated Anglophobe enemies who were encouraged to new nationalistic excesses.23 Worse still, the entire episode left an enduring scar upon perceptions on both sides of the Atlantic. As the new American Ambassador to London noted in September 1925, ‘we have . . . no friends left in Europe’; a discovery he attributed bitterly to the fact that the ‘Balfour Note opened the flood-gates of anti-American feelings in Europe, and will remain an ever-potent reason for non-payment, now, or in five years time, or twenty. And England reaffirms that note. She never acknowledges its unfairness’.24 The Balfour Note proved even more unfortunate for the state of AngloFrench relations and its counterproductive effects were witnessed immediately. Lloyd George knew that France would be angry at Britain’s request for payment without any guarantee of reparations, but he also believed that France was ‘one of the richest countries in Europe, and he was not sure that we should not obtain something from France’.25 But at precisely the moment when the British were pressing for a moratorium on Germany’s reparation payments, it was (at best) inept to ask France to pay still more to cover British debts to America when it sought to relieve the burden on Germany. As a result, the Balfour Note seriously soured relations at the reparations conference which opened in London on 7 August and which broke down a week later (without agreement) because of the intransigence of Prime Minister Poincaré’s demands on Germany – provoked at least in part by a British policy which appeared to oblige France to pay their war debts while Germany, the cause of all their suffering, would be allowed to pay little or nothing. In this respect, the Balfour Note conferred a massive tactical advantage upon France insofar as it enabled it to refuse to consider British proposals to scale down German reparations without assurances of a

Britain and the war debt settlements 43


corresponding remission of the French debt to Britain.26 In a private letter to his sisters, Austen Chamberlain was even more forthright in declaring that he was ‘wholly & deeply opposed to the policy’. I think that we have permanently alienated Harding’s Administration & strengthened American opinion opposed to doing anything. On the other hand we have disappointed our Allies, abandoned the beau role & given France the best argument she can have for her folly: – ‘Since America presses you, you press us. Since you press us, we must press Germany!’ And it all seems to me so futile. We have said our say &, as we feel, made an irrefutable case, & the only result is that America will be the more exacting, France the more unreasonable & of the money we shall not see a sou.27 Lloyd George took a less pessimistic view. As he told the Cabinet on 12 August (and again two days later): ‘It might be the case that we should not obtain a penny from France or Italy, but if we made it clear to the United States that the action of America was responsible for the continuance of chaos in Europe, it would be a negotiating pawn when our representatives went to Washington’. On the other hand, it was also clear that ‘at the moment neither France nor Italy would entertain any proposals which Great Britain could offer as regards the cancellation of debt’.28 Given all of these complications, it was little wonder that in his comprehensive review of foreign affairs for the incoming Conservative Cabinet on 1 November, Lord Curzon declared that he regarded the Balfour Note as ‘extremely unwise. Nothing could exceed the finish and style of the Note’, the Foreign Secretary declared, ‘but its effects had been deplorable’.29 Similar problems of French mistrust and intransigence arose with regard to the Bonar Law Plan proposed at the inter-Allied reparations conference in January 1923. As Poincaré protested, supported by Belgian and Italian delegates, France would lose any real guarantee of even partial German payment while its debt to the United States would stand in full.30 At the end of September 1922 the British government informed Washington that Horne would sail for America on 18 October accompanied by a small Treasury delegation and a ‘small quantity of alcohol’ to begin negotiations in an America in the grips of the Prohibition.31 In the event, a Conservative backbench revolt at the Carlton Club on 19 October prompted the collapse of the Lloyd George coalition and the resignation of Horne along with the vast majority of his fellow Conservative ministers. The incoming Conservative government under Andrew Bonar Law continued the policy of the outgoing coalition with regard to both the resumption of interest payments in October and the need for a rapid settlement. On 1 November, the Cabinet agreed that Stanley Baldwin, the new Chancellor, should arrive in Washington to negotiate a settlement in January. The same day, Baldwin told the Commons that the American debt would be a ‘heavy burden’ but


44


that ‘we have told America we are responsible for it and to the last penny we are going to pay it’.32 In his own speech on the Appropriations Bill on 14 December, Bonar Law also endorsed the decision, but he bluntly proclaimed that American demands for British payment were fundamentally unjust. The only fair settlement involved one of either complete cancellation or payment all round, but ‘to make that payment [to America] without receiving anything from outside sources would reduce the standard of living in this country for a generation and would be a burden upon us, which no one who talks of it now has any conception of’.33 Although it was not evident at the time, this declaration indicated a fundamental difference of opinion which brought the Law government to the verge of collapse within only a few weeks of taking office. By opting for policy continuity the Conservative government had some reason for optimism. From Washington, Geddes continued to report with facile optimism that the Balfour Note had ‘the expected and desired effect in stimulating discussion and self-examination’; a depressingly misguided judgement the Chancellor’s private secretary later attributed to ‘a rather imaginative interpretation of a talk which he had had with Mr Hughes’.34 Among members of the Debt Commission, Hoover had been ‘annoyed . . . very much’ by the declaration but he was known to be ‘extremely antiBritish’ and ‘inclined . . . to use debts as levers to make European countries do the will of [the] United States’. On the other hand, Mellon and Hughes were reported to be sympathetically anxious to help Britain achieve a fair settlement and ‘much impressed by obvious growth of public sentiment in favour of scaling down debts’. Speeches by the Anglophile Thomas Lamont of J.P. Morgan & Company and Reginald McKenna, a former British Chancellor of the Exchequer, were also vigorously applauded by the 10,000 bankers assembled at the American Bankers’ Association annual convention when they urged a fair debt settlement as a means to restore European prosperity and American trade. Indeed, so enthusiastic was their support that Hoover subsequently feigned illness in order to withdraw his proposed speech from the proceedings altogether. Even more encouragement was derived from the private assurances of the US Ambassador in London that the debt question ‘could easily be settled’. As Britain had already agreed to pay, he opined in late October that ‘America would be prepared . . . to reduce the obligations to a minimum, and this would be accepted by Congress’. Despite warnings from Geddes in Washington that Congress would be unlikely to relax the terms of the Funding Act, on the basis of Harvey’s misleading assurances Bonar Law gave Baldwin ‘verbal authority’ to settle the debt as he saw fit provided the annual payments did not exceed £25 million.35 Baldwin, accompanied by his family, Grigg and Rowe-Dutton from the Treasury plus Montagu Norman, the Governor of the Bank of England, boarded the Majestic on 27 December for an extremely stormy crossing. Two days later, President Harding wrote to the Senate urging it to free the hands of the Debt Commission to negotiate a settlement outside the terms set out


Britain and the war debt settlements 45 in the Funding Act; a theme elaborated by Hughes in a speech at New Haven the same day. Yet despite the portentous language, officials at both the British Treasury and the Foreign Office were acutely aware of the fact that the terms of the Funding Act involved annual payments of between £40 and £60 million while Britain was unable to offer anything above £35 million. As Congress was extremely unlikely to sanction such a settlement, officials concluded it was ‘difficult to see what good the mission will do, but it is quite easy to see that it may do a good deal of harm because it can, and probably will, be represented in the U.S. as having come under false pretences’. Indeed, some even gloomily noted there was no hope of a definite agreement unless the mission remained in Washington for several months – and even then success would only be measured by the degree to which it was possible to persuade the Debt Commission to tackle a recalcitrant Congress about modifications to the Funding Act.36 Despite these problems, the British delegation worked extremely well together and approached the negotiations in a hopeful spirit. Montagu Norman had spent three years in America in the 1890s, during which he had developed an affection for the country and its people. Since 1916 he had also enjoyed a close relationship with Benjamin Strong, the Anglophile Governor of the Federal Reserve Bank of New York. As they crossed the Atlantic, Norman was rather less impressed by Baldwin who was evidently in ‘a holiday mood’ and reluctant to discuss the forthcoming negotiations: ‘He is a quiet, homely sort of country-man who thinks there is no place in the world quite like Worcestershire and who seems to be where he is more from duty or necessity than from real choice’. But as he also conceded, ‘appearances may well be deceivable’. In the event, this proved to be the case. Indeed, Baldwin’s conduct during the negotiations in Washington impressed Norman as much as they did the Americans. It was the beginning of a long and close friendship. As the Chancellor’s private secretary noted, Baldwin and Norman ‘seemed to understand each other and to communicate without having to exchange more than a few monosyllables’. Yet this empathy was scarcely surprising given that both placed an extremely high priority upon good Anglo-American relations as an essential prerequisite for cooperation in settling the problems of a European economy dislocated by war. Given this belief, both the Chancellor and the Governor were determined that Britain should meet its obligations – however harsh and one-sided the argument. Although Baldwin’s biographers largely discount Norman’s influence upon the Chancellor’s conviction that almost any settlement was better than continued uncertainty, there can be little doubt that, at the very least, he acted as a constant reinforcement to Baldwin’s compulsion to settle. Lloyd George was far more critical in his later history of the war debt question when he declared that ‘no worse team could have been chosen’ given Baldwin’s ‘easy-going’ inexperience and Norman’s reputation as ‘the high priest of the golden calf’, anxious only ‘to keep his idol burnished and supreme in the Pantheon of commerce’.37


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On 4 January 1923 the British mission arrived in New York. ‘We British have always paid and will always pay our debts’, Baldwin told waiting journalists. Although he characterised the strict conditions imposed by Congress in the Funding Act as a stone given to Mellon when he had asked for bread, Baldwin explained he was of a ‘hopeful temperament’ and that his objective was ‘to effect a deal that may bring satisfaction to the American people and to the British people’. ‘This settlement is of foremost importance to all the world’, he declared in optimistic tones. ‘It will help establish international trade and be an example to the people of Europe and the world.’38 The US Treasury Secretary warmly endorsed these sentiments when the World War Foreign Debt Commission met Baldwin, Norman and Geddes for the first time on 8 January.39 During this opening session Baldwin laid before the Commission a well-crafted and persuasive outline of the British case. Every cent lent was used for purchases in the United States at inflated wartime prices and the benefits went to American business and the US Treasury. Nevertheless, Baldwin’s general tone was constructive and conciliatory. Britain wanted ‘a square deal, a settlement that will secure for America repayment to the last cent . . . on such terms as will produce the least disturbance in the trade relations of the two countries. Our wish is to approach discussion as business men seeking a business solution of what fundamentally is a business problem’. By the end of the session Baldwin and Norman believed they had advanced toward this goal. On this basis, the Chancellor reported to Law that they had ‘hit upon a very favourable psychological moment for settlement’ and that Geddes believed the commission would propose an annuity of £30 million ($146 million). Although £5 million higher than he was authorised to accept, on 9 January Law acceded to Baldwin’s request to be able to agree to such an offer on condition that it did not exceed a 50-year term. On the same day, the President announced that neither he nor the Debt Commission expected a settlement could be reached within the terms of the Funding Act.40 By 13 January Mellon declared the Commission would unanimously recommend (and Congress would probably accept) a settlement on a 3.5 per cent interest with amortisation over 61 years – representing a total annual payment of $187 million. Baldwin was bitterly disappointed, retorting firmly that his government could neither accept nor afford more than $140 million over a maximum of 50 years and that he personally ‘had considerable apprehensions as to our ability to pay even this amount’. He also made it clear that he had only been able to extract permission to go this far ‘with the utmost difficulty’. In response, the Commission’s chairman offered to reduce the interest for the first five years but this would be added to the principal sum for later repayment. The meeting then adjourned to allow the Chancellor to consult his colleagues. In communicating the offer to London, Baldwin reported that Geddes believed the Commission might be induced to accept 3 per cent in interest plus half a per cent sinking fund provision over 66 years, and if back interest was calculated at 3 per cent, the total annual figure could


Britain and the war debt settlements 47 be reduced to $156 million. Convinced that to break off negotiations at that stage would extinguish all hope of a reasonable settlement, however, he pressed the terms on Law as ‘the most we can hope for’ and far better than the Funding Act allowed. Declaring the whole delegation supported acceptance, Baldwin urged an immediate decision before he met the commission again on the following afternoon.41 Although Law was unable to summon the Cabinet from its Christmas recess until the afternoon of 15 January, he replied immediately that it was ‘quite impossible’ to accept such a proposal. Although inclined to recommend the offer if America agreed to remit the back interest altogether, his reply failed to conceal his doubts: Bear in mind that, as I believe we both think the proposal is most ungenerous, we might easily pay too big a price for a momentary increase of goodwill between the countries. I believe also that time is on our side in this matter. There will also be the strongest possible objection to making such a proposal unless it was certain to be accepted, as it would be impossible to attempt to improve it in the future. For this reason, if you are not to succeed, would it not be better to end discussion on their proposals rather than to commit ourselves to a definite plan.42 The Prime Minister also consulted Reginald McKenna, the banker who had been Asquith’s Chancellor of the Exchequer in 1915–1916 and to whom Law had offered the post in 1922. From this quarter, he found complete endorsement for his doubts. Keynes also agreed, reminding Law that in the end the United States ‘are just as completely at our mercy as we are at France’s, and France at Germany’s; it is the debtor who has the last word in these cases’.43 Bonar Law’s response was predictable. He was already deeply frustrated by the American refusal to concede the existence of a practical connection between reparations and war debts after Hughes rebuffed his desperate lastminute appeal for the United States to join in the financial negotiations on reparations on 18 December; an action which effectively doomed the conference in Paris to acrimonious failure.44 Yet Law’s anger stemmed fundamentally from the belief that Britain had incurred these debts and squandered its own wealth in a great common fight and because America preferred Britain to act as broker for less creditworthy allies. Moreover, even after America’s belated entry to the war, its principal contribution for much of the next year was financial at a time when Britain and France paid in blood as well as treasure in some of the bloodiest battles of a conflict they had already been fighting for over three years. As Baldwin later recalled, Bonar Law ‘saw the blood of his two sons. “We paid in blood: they did not: you can’t equate that with a cash payment” – that was Bonar’s view’. Yet beyond the moral dimension, Law was also outraged that the American terms seemed ‘harsher than in ordinary business would be employed by a bank to a good


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customer’. For all these reasons, he told Baldwin that ‘If a settlement is not obtainable on terms which seem to us reasonable, you have no alternative but to ask for further time for consideration, and to return’.45 When Baldwin received Law’s reply he immediately met the Commission chairman for a ‘confidential conversation’ during which he proposed 3 per cent plus a half per cent sinking fund provision. After consulting the President, at 10pm on 14 January Mellon told Baldwin they would accept 3 per cent for the first ten years, then 3.5 per cent for the next 52 years with a sinking fund of half a per cent throughout. Back interest accrued on the demand obligation was to be scaled down from the original 5 per cent to 4.5 per cent. The total cost would be $161 million per annum for the first ten years and then $184 million for the remainder. Repeating the delegation’s conviction that these were the best terms possible and that they were ‘tied hand and foot by [the] terms of our existing obligations’, Baldwin warned that rejection would open the way for American insistence upon Britain meeting the less favourable terms of its original 5 per cent obligations – particularly if nothing was agreed before Congress adjourned on 4 March. Worse still, when Congress reassembled again in December, there was a very real danger that the existing goodwill would have abated and the issue would be debated in a bitterly partisan spirit. ‘We feel very strongly that a settlement is well-nigh essential, and that without it, we cannot expect improvement in financial conditions. Any such improvement will presumably be preceded by a general economic conference and at this, it is vital that we should not have to take a place amongst the rank of defaulters.’ Notwithstanding the cost, he declared, ‘I have little doubt that Great Britain would not regard 33 million sterling yearly as being too high a price to pay to escape appearing as a defaulter . . . It appears to me in all the circumstances that honesty and expediency for once go hand in hand and I gravely fear lest by trying for [the] shadows we lose the bone’. In making this recommendation, Baldwin was particularly heartened by private assurances from the Debt Commission’s members about the Republican willingness to participate in a future conference on the general subject of intergovernmental debts.46 When the Cabinet assembled on the afternoon of 15 January only six ministers were present and none were heavyweights. The Treasury and the Foreign Office were both represented by their junior ministers. Nevertheless, the meeting agreed unanimously that these terms were equivalent to a rate of 3.42 per cent and ‘intolerably unjust’ over such a long period. Baldwin should thus tell the Americans that they were far above anything contemplated before he left and that he needed to return home to consult. In response to Baldwin’s fears about the adverse effects on Anglo-American friendship, the Cabinet noted that if such an offer was ever presented to Parliament ‘there would certainly be much hostility and at best there would be attacks upon America which would be very bad for the relations between the countries’. Two days later Law also pointed to the very real dangers the


Britain and the war debt settlements 49 French invasion of the German coal and industrial centre of the Ruhr posed to Britain’s hope of receiving any reparations or inter-Allied debt payments, while the large British dollar payments to America might well have serious adverse effects upon its budgetary and exchange stability.47 In accordance with these very definite instructions, Baldwin adjourned negotiations, although not before a final meeting with the Debt Commission on 18 January at which every member emphasised the need for a settlement while the existing Congress was still in session because the next one would be far more uncompromising. As Hughes declared, it was one of the critical turning points of history.48 Baldwin arrived home on 27 January. On the dockside at Southampton, he prudently declined to comment on the details, but his unguarded answers to questions immediately provoked controversy on both sides of the Atlantic. In part this was because hostile sections of the American press suggested that Baldwin had characterised senators from western and middle western states as ignorant bumpkins with little understanding of the debt problem or international affairs. Worse still, the Chancellor left some British journalists with the definite impression that he regarded the terms as the best obtainable from Congress – and that, by implication, the Cabinet should reluctantly accept them. The publication of these unprepared remarks provoked an immediate Cabinet crisis, although as Baldwin later confessed, no doubt sincerely, ‘he would rather that his tongue had been torn out than have talked to the press at Southampton’.49 In reality, Baldwin was as ‘upset’ at Bonar Law’s disappointment at his failure to obtain better terms as he was aggrieved at American rapacity. As one of Baldwin’s closest political friends, J.C.C. Davidson later recalled a passing comment to the effect that he ‘would have liked to send a British cruiser to the United States with a replica of the Golden Calf in the bows just to let the Americans know what he was feeling about their putting money before anything else . . . It was a reflection on what he believed to be the worship of the God-Almighty Dollar in the United States’.50 Yet for all that, Baldwin was never prepared to contemplate default and (like Montagu Norman) he genuinely believed he had obtained the best terms available. Moreover, while reluctant to argue with Law privately, Baldwin was ready to defend the settlement in Cabinet. On the other hand, Law remained intransigent. Despite pleas for acceptance from Lord Burnham and Horne, the Prime Minister confessed to Neville Chamberlain on 23 January that he was ‘very worried over the American mission which had been a failure . . . He considers the American attitude most unreasonable and thinks our people don’t realise that if we accepted their terms it would mean £1 per head extra taxation for 60 years’. After this private talk, Chamberlain concluded Law intended ‘to make only a temporary arrangement, leaving the permanent settlement to be taken up again later’.51 Given this divergence of views between the two most important figures in the Cabinet, the stage was set for a major political crisis.


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According to an account in the Davidson papers, at the Cabinet meeting on the afternoon of 30 January Baldwin advanced a strong financial case for replacing the current uncertainty with a fixed annual payment for a definite period – particularly as these were the best terms upon which such a settlement could be achieved and American partisan politics would soon prejudice future prospects. In political terms, Baldwin argued an equally powerful case for the benefits to Britain’s prestige, credit and relations with America. In reply, Bonar Law launched a powerful counterargument burning with indignation at the unfairness of the American attitude and the burdens it implied for the wealth and economic position of Britain. ‘The effect of payment, if we got nothing from France or Germany would preclude all hope of reducing taxation and the cost of living’ and that ‘we were under no greater obligation to pay than France was to pay us’. After brief challenges from the Lord Chancellor and Leo Amery, Law concluded by saying that he did not know what to recommend to the Cabinet, but ‘he was determined that he could not agree to this settlement . . . So, if it were decided to accept, this would have to be without him’.52 As Lord Derby recorded in his diary, ‘We were all aghast at this, and the Lord Chancellor [Lord Cave] really voiced our opinions when he made in a very tactful way a remonstrance against a pistol being put to our heads’. Law conceded the point but he repeated that he was not proposing complete repudiation but simply to continue paying interest only in the belief that the Americans would eventually come to their senses.53 By this stage, however, it was clear the overwhelming majority supported Baldwin although he remained almost silent throughout the discussion. Only Viscount Novar, the Scottish Secretary, offered unqualified support to the Prime Minister while Sir Philip Lloyd-Greame, the President of the Board of Trade, offered far less robust support to Law’s position than he later recalled in his memoirs.54 Next day, with Law’s approval, the entire Cabinet met without the Prime Minister in the Lord Chancellor’s room and discussed what to do if he carried out his threat. All except Novar now agreed that repudiation was the worst course possible but the Duke of Devonshire, Lord Cave and Baldwin were deputed to see the Prime Minister to implore him to change his mind.55 Fortunately for them, by the time they met him both McKenna and Law’s close friend Lord Beaverbrook had also urged him to accept the settlement and not to resign. Less plausibly, according to American sources, Law’s decision was also influenced by the American ambassador with whom he was allegedly ‘closeted for several hours’.56 Against this background of concerted pressure and imminent crisis, the Prime Minister finally gave way. Although still convinced his colleagues were wrong, he was equally certain that after only a few weeks in power his duty to both his country and his party demanded that he remain in office. As the Cabinet Secretary noted, ‘In the end . . . Bonar Law piped down owing to the extreme difficulties in which his party would be placed if he resigned at this moment’. Hankey’s own impression, however, was ‘that Bonar Law would not have been sorry to get


Britain and the war debt settlements 51 out of it’ given difficulties with the French over the Ruhr, ‘the visible crumbling of the Entente’, difficulties in the Near East, ‘the bleak financial outlook and continued unemployment’.57 In an extraordinarily brief five-minute Cabinet meeting that afternoon, Law announced ‘he had slept on it and come to the conclusion he was asking his colleagues to make too great a sacrifice and although he still held the same opinion he gave way and agreed to the American proposal’. After this, the Cabinet conclusions perfunctorily record the decision to accept the terms ‘in principle’. The Treasury then drafted a telegram of acceptance with the request that the bonds should not be negotiable for ten years.58 According to Lord Beaverbrook, Law was shaken by his complete failure to carry the Cabinet with him and the ‘blow to his prestige and influence struck him hard’. Indeed, after it was all over, Thomas Jones, the Deputy Cabinet Secretary, noted he had ‘never seen him so depressed’.59 Just as the Prime Minister was unable to carry his Cabinet colleagues, Sir Charles Addis as a Director of the Bank of England was equally unsuccessful in his efforts to persuade the Bank’s Committee of Treasury to oppose Norman’s advocacy of the settlement. Meanwhile, at meetings in early February in Washington, Geddes struggled unsuccessfully to win further concessions particularly on the rate of interest and the marketability of the bonds, although American agreement that the bonds would not be marketed to private investors fuelled optimism in London that the settlement would pave the way for eventual cancellation. Yet again, the British had deferred to American pressure in the hope of future rewards – and once more these hopes would be bitterly disappointed.60 When news of the British funding agreement was published, the Debt Commission declared this ‘business settlement’ to be ‘fair and just to both Governments’ and expressed the hope that ‘its prompt adoption will make a most important contribution to international stability’; a view widely echoed in the ‘almost universally favourable’ comment in the American press. As the Philadelphia Ledger put it, ‘We could not demand more nor accept less’. Commending the settlement to a joint session of Congress on 7 February, President Harding also assured legislators that the commission had ‘driven a hard bargain with Great Britain’ but that its capacity to pay was not sufficient to meet the terms of the original Debt Funding Act. Nevertheless, reflecting on the profound dangers of general repudiation if Britain had not settled, he hailed this ‘recommitment of the English-speaking world to the validity of contract’ to be ‘the first clearing of the war-clouded skies in a debtburdened world, and the sincere commitment of one great nation to validate its financial pledges and discharge its obligations in the highest sense of financial honor’. Despite a final flurry of opposition, the Bill passed through the Senate on 16 February by a margin of 70 to 13 and Harding signed it into law on 2 March 1923. A rider to the legislation that no future settlement with the Allies should be on more favourable terms was swept away in the Senate and the administration rejected a subsequent British request for a


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provision which automatically applied more favourable future terms to Britain.61 Over the next few months, the detailed negotiations dragged on and at times came close to collapse, particularly over the question of amortisation and the American insistence upon the ability to market British bonds. On 18 June, however, the Anglo-American debt settlement was finally signed. Under its terms, Britain pledged to repay a total of $4,604,128,085.74 to the United States; the entire amount of the loans made by the US Treasury plus unpaid accrued interest from 15 April 1919 to 15 December 1922. Of this, an initial cash payment of $4,128,085 would be followed by payments in gold on 15 June and 15 December every year for 62 years. Annual instalments on the principal were to increase from $23,000,000 in 1923–1924 to a peak of $175,000,000 in 1983–1984. For the first ten years the rate of interest was established at 3 per cent and thereafter at 3.5 per cent.62 Although the British debt was settled on terms which were equivalent to a remission of 28 per cent of the total on the basis of 5 per cent interest, US Treasury Secretary Mellon later admitted that 3 per cent represented a fairer and more accurate rate to assume for the period covered by the debt settlement. On this basis, the ostensible reduction of the British debt by over one-quarter was actually recalculated by the British Treasury to show that the real value of the payments made by Britain by November 1931 amounted to $4,922,702,000 or 7 per cent more than the total debt. Far from cancelling any of the British debt, therefore, America was actually making a substantial profit. Worse still, when calculated in terms of commodities as opposed to cash, the American profit at 1931 price levels was about 80 per cent given a rise in the purchasing power of the dollar of 44.3 per cent since the debt was funded and by 78 per cent since the debt was incurred. In these circumstances it was scarcely surprising that many later came to believe that Britain had received ‘very shabby treatment’.63 The wisdom of the British decision to settle the American debt on these terms has been much debated by historians, but at the time relatively few voices were raised against the settlement – at least in public. After it was all over, Sir Otto Niemeyer, the Treasury’s new Controller of Finance, encapsulated the department’s general view when he declared it to be ‘an amazing achievement in the circs to have got off so cheap and . . . we shd have been out of our wits to refuse’. As a supporting member of the British delegation, Ernest Rowe-Dutton also spoke for many when he noted that the terms, ‘though not generous, are not impossible’ and, as such, were ‘perhaps less likely to endure than more generous terms in the first place’. Montagu Norman also recorded that ‘everyone at the Treasury and the Bank is really pleased and delighted: I certainly am and I now seem to see a light at the end of the tunnel!’ On this basis, Norman’s biographer argues that though Britain suffered from the settlement, it would have suffered more if it had rejected it.64 Certainly Bonar Law’s jeremiads proved largely unfounded. During the mid-1920s Britain’s allies agreed settlements which provided


Britain and the war debt settlements 53 sufficient money to cover its own debts to the United States, while British prestige and credit increased as a result of the settlement. In political terms too, the settlement led directly to warmer relations with America and helped ‘to place the name of Britain higher in the esteem and regard of the American people than at any previous time within living memory’. It also paved the way for unofficial US cooperation in a new reparations agreement in the form of the Dawes Plan in 1924 and a satisfactory settlement of wartime blockade claims against Britain.65 Its defenders equally frequently made the point that given the difficulties of the American political position and the drift to isolationism in the early 1920s, it was unrealistic to have expected them to adopt a more enlightened position and that given the terms of the Funding Act, ‘the British settlement was reasonable both in terms of the number of years for payment and the annual interest rates’.66 Indeed, L. Ethan Ellis estimates the lower rate of interest reduced the total British debt by approximately 20 per cent while Hoover concluded that American concessions reduced it to nearer 30 per cent.67 On the other hand, Law was correct in the view that although the best terms available at the time, the Americans might soften them if left to ponder – as France and Italy learned to their advantage only a few years later.68 It is also significant that the predicted dramatic improvement in Anglo-American relations did not materialise. While Geddes waxed lyrical about the benefits and the general public approbation for having ‘come across’ with a settlement, senior officials in the Foreign Office’s American Department noted sourly that the Ambassador was recommending ‘the taxpayers’ burden should be increased because “Anglo-American unity of ideals” will have some real value in the future. Unity of ideals presumably implies friendship or at any rate mutual consideration . . . No evidence of such feelings . . . is yet noticeable’. On the contrary, the Ship Subsidy Bill and the FordneyMcCumber tariff were both most definitely hostile to Britain.69 Three months later, a senior official at the US Embassy in London explained the ‘present really bad relations between our country and England’ largely in terms of the Ambassador’s lack of tact and social graces, but he also acknowledged ‘the Debt question has aroused very strong feelings against us in England’.70 In the longer-term, the legacy of these struggles left an enduring scar upon the collective consciousness of the political elite in Britain. Baldwin rose from being Chancellor of the Exchequer to the Premiership in May 1923 in place of the dying Bonar Law. Thereafter he remained leader of the Conservative Party until 1937, but he carried with him a deep and abiding distaste for the Americans.71 Austen Chamberlain had also favoured a speedy settlement while Chancellor and Conservative leader, but as Foreign Secretary during Baldwin’s second ministry between 1924 and 1929 he soon developed a marked anti-American sentiment as he wrestled with the vexed issues of disarmament and belligerent rights. ‘What a difficult people they are to live with!’, he exclaimed in December 1927. ‘It is a really heartbreaking task to try to improve our relations. We were told that the settlement of the Irish

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question & the payment of the debt had produced such a greatly improved feeling & now it seems to be as good business as ever to twist the lion’s tail’.72 In June 1925 a friend in the US Embassy in London warned Bill Castle, then chief of the State Department’s Western European desk, of: a tendency, which many people have, but which is not much spoken of, to regard the United States as a rather harsh and unfeeling creditor. I think many people believed here that once the British Debt was definitely funded, possibly a greater amount of Anglo-American cooperation in the international field, particularly on the Continent, might be counted on, and in spite of the help which we have given in the Dawes Plan and other directions, there seems to be a certain amount of disappointment that more has not materialized.73 The chief legal adviser to the Foreign Office put it rather more forcefully in October 1925: ‘The debt and similar claims on the part of the United States have already made the average Englishman think the Americans are dirty swine’.74 Such was the continuing sensitivity of the war debt issue throughout the 1920s that even the slightest ill-considered word from either side of the Atlantic was capable of reigniting a major diplomatic conflagration. In July 1926 ‘some extraordinary statements’ by Andrew Mellon on the British debt settlement thus incited a formal parliamentary rebuttal from Churchill who criticised the ‘rigour’ meted out to Britain in 1923; a response which provoked a further vitriolic rejoinder from US Treasury Undersecretary Garrard Winston.75 Similarly, following calls for an international conference on war debts from the faculty of Columbia University, in March 1927 the President of Princeton and 116 members of his faculty signed a public statement declaring that ‘enlightened opinion in the country calls for a revision of the debt settlement with our former allies given doubts about their capacity to pay’ and because ‘in economics, as well as in morals, altruism is indistinguishable from true self-interest’. This veiled attack provoked Mellon into another comprehensive but inaccurate defence of official policy along with a public rebuke on the grounds that any effort to reopen the question was ‘a step backwards and not forwards and one calculated to produce discord and confusion rather than to contribute to the economic stability and orderly betterment of world prosperity’.76 Outraged by the ‘blindness’ and ‘sophistry’ of Mellon’s ‘mendacious and misleading statements’, the Treasury insisted upon a caustic riposte and the Foreign Office now agreed. As the head of the American Department noted, Mellon had ‘ “asked for it” in fact . . . I see no reason to let him off the knock-out, and if the Treasury wish to let go with the right we shd not hold their hand’. A stiffly worded and detailed official protest challenging Mellon’s most contentious claims about the nature and purposes of British war indebtedness was presented in Washington on 2 May.77


Britain and the war debt settlements 55 Clearly nettled by this ‘rather irritating note’, the Treasury Secretary retaliated with a draft counterblast which was ‘anything but diplomatic’ in tone. Moreover, this stinging riposte was intended for release to the press until the President was persuaded that any public statement needed to be ‘drawn in such a way that it would be absolutely correct and no more irritating to British public opinion than could be helped’. A brief reply was thus handed to the British Ambassador stating simply that the matter was ‘a purely domestic discussion’ upon which the State Department did not wish to engage in any formal diplomatic exchange. Although perhaps a relatively trivial incident in itself, the vast amount of effort devoted to this diplomatic wrangling highlights the sheer intensity and rawness of feelings regarding the war debt on both sides of the Atlantic even four years after the British settlement. Little wonder that President Coolidge conclusively closed the issue in Washington with a veiled rebuke to Mellon, declaring that ‘he thought the less talk went on about debts, the better it was, that he did not like letters or speeches or anything else on the subject’.78 Calvin Coolidge was not known as ‘the quiet President’ for nothing. In the wake of a British settlement which departed from the rigid terms established by Congress, an Amending Act on 28 February 1923 extended the powers of the Debt Commission to offer ‘such terms as [it] . . . may believe to be just, subject to the approval of Congress’. On this basis, the Debt Commission was free to consider the debtor’s ‘capacity to pay’; a principle which President Harding had emphasised when commending the British debt settlement to Congress in February 1923. As the US Treasury’s Annual Report for 1924–1925 noted, this principle did not: require the foreign debtor to pay to the full limit of his present or future capacity. It must be permitted to preserve and improve its economic position, to bring its budget into balance . . . and to maintain, and if possible to improve, the standard of living of its citizens. No settlement which is oppressive and retards the recovery and development of the foreign debtors is to the best interests of the United States or of Europe. Yet in practice, the fact that the Debt Commission applied the British terms to the next eight settlements without any attempt to establish their relative capacity to pay suggests that this radical new principle had only a limited impact on the determination of policy in the short-term. Even in the Belgian case, where the first important departure from the British model was introduced in June 1925, the principle of ‘capacity to pay’ had only marginal relevance to the eventual terms and it was not until negotiations with France began in September 1925 that it received explicit official recognition as a determining consideration in forging a settlement.79 On this more flexible and lenient basis, settlements were eventually achieved with America’s remaining European debtors, while British negotiations with its Allied debtors proceeded in parallel. Throughout this


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process, Treasury officials in London and Washington watched carefully to ensure that the other did not achieve better terms at their expense. As the US Embassy in London reported in December 1924 amidst press rumours of a lenient Franco-American settlement, ‘there would be a great deal of outcry in this country should France receive more favourable treatment than Great Britain . . . and that a good deal of hard and bitter feeling would be the result’. As another Embassy official wrote a few days later, ‘all of us in the Embassy would regret very much seeing France granted easier terms than England has had. It would do more than anything else to destroy the spirit of cooperative good feeling, which is only now growing up between the two countries, despite the years of “hands across the sea” oratory’.80 The signature of the Yugoslavian funding agreement on 3 May 1926 brought to a close the 13 American debt settlements covering more than 97 per cent of the total outstanding when the Debt Commission had been created. Negotiations with Russia and Armenia were impossible because the governments of neither country were recognised by the United States. Similarly, discussions on the Austrian debt had been adjourned for 20 years by Congress in April 1922, while Greek insistence on a new advance as part of its debt agreement left the whole matter in abeyance. Having completed its work, the World War Foreign Debt Commission was dissolved in February 1927, leaving the US Treasury to agree settlements with Greece and Austria in May 1929 and May 1930.81 Beyond the desire for certainty, these debtors were brought to a settlement by the fact that Washington let it be known that it would object to the flotation in the United States of governmental or private loans to any country which had not funded its war debt; a particularly effective informal threat at a time when Britain’s preparations for a return to the gold standard closed the only other major source of credit so desperately needed by Europe.82 As a result, when the French Finance Ministry failed to mention foreign debts in the ‘balance sheet’ presented to the Chamber of Deputies in December 1924, the US Treasury retaliated with a ban on loans to France until the incoming Briand government agreed to commence debt funding negotiations.83 With the limited exception of Estonia (because of the loss of a cargo of surplus war material sunk by a mine in September 1919), none of these settlements cancelled any of the principal sum of the debt. The only reductions were related to the rate of interest. And despite these concessions, there was never any doubt that an American government deeply committed to the conservative financial policies of retrenchment, tax reduction and the rapid retirement of public debt was determined to collect what it believed it was owed. In total, America advanced to the Allies (excluding Russia who repudiated all its debts in 1917) somewhat under $10,000 million and the debtors undertook to repay some $22,259 million over a 62-year term on a total debt reduced by an average 40 per cent. Britain was scheduled to pay 82 per cent of its total debts; far higher than the 50 per cent scheduled for France and the 32 per cent for Italy.


Britain and the war debt settlements 57 While American negotiated with its debtors, Britain was engaged in a parallel process of concluding funding settlements.84 While subject to the Balfour Note principle that reparation and war debt receipts should be sufficient to cover Britain’s own debt payments to the United States, the proportion of the total original advances actually funded differed considerably (see Appendix IV and V). Thus, while the United States collected an average of 60 per cent of its lending – and 82 per cent from Britain – the British funding settlements cancelled some 63 per cent of the total it was owed in war debts. The French debt was reduced to only 42.6 per cent of the total while Italy’s went down to only 15.5 per cent of the total advanced. As the Chancellor’s private secretary later rightly recalled, Churchill ‘hadn’t the qualities which make a man capable of driving hard bargains. He didn’t like the business and he was impatient to get it over, and he could therefore nearly always be defeated by an antagonist who was prepared to spin out negotiations’.85 Yet as the Americans never tired of pointing out, the different basis for calculation was far more favourable to the presentation of the British case. In particular, the American settlements provided for the liquidation of all sums borrowed during and after the war, while their British (and French) equivalents treated the so-called ‘war debt’ as ‘political’ obligations separate from bank advances for relief and reconstruction which were regarded as ‘commercial’ in character. Similarly, the purchase of British war surplus was regulated by two completely separate agreements in July 1920 and March 1923.86 On this basis, the settlement of advances to the British Dominions as well as postwar relief and reconstruction loans were negotiated without reference to the Balfour principles and were to be paid in full with accrued interest of 6 per cent. Indeed, it was only in Britain’s settlement of its war accounts with France, Italy, Portugal and Greece that the Balfour principle was actually applied, while the agreement with Romania (the first to be signed) contained no reference to the Balfour principle at all.87 By the end of the 1920s, the vexed problem of inter-governmental indebtedness appeared finally about to disappear from the diplomatic agenda. Despite continual prevarication in face of popular and parliamentary protests, France was eventually coaxed and coerced into ratifying its debt settlements with America and Britain in July 1929. Almost in parallel with these developments, a Committee of Experts had been appointed in September 1928 to reach ‘a complete and definitive settlement of the reparations problem’. This independent international body under the chairmanship of the American industrialist Owen D. Young sat from 9 February to 7 June 1929 and as Frank Costigliola argues, their task was truly formidable, given the need ‘to reconcile Allied demands for money with German reluctance to pay, while protecting America’s position on war debts’.88 Certainly the linkage between reparations and inter-Allied debts was never far from the surface, despite the obstinate refusal of Washington to acknowledge any such connection.


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Fears that the Europeans would manipulate the recommendations of the Young Commission had been in the forefront of the US government’s collective mind from the outset and the reports of its observers from Paris gave further substance to these fears.89 Indeed, so alarmed were they by these suspicions that in April 1929 the new Secretary of State, Henry L. Stimson, despatched a stiff message to Young complaining that ‘the American delegates have failed to maintain the position consistently taken by their government’ on the debt question; negligence which could only have ‘unfortunate consequences in the future so far as the presentation of America’s interests are concerned’.90 Bitterly wounded by this reprimand, Young retorted with an angry threat to resign along with an equally stern refusal to bow to such pressure upon American experts acting as private individuals rather than official government representatives. Anyway, as Young pointed out, the connection between reparations and war debts was obvious to both the European and American experts given the fact that over 60 per cent of the reparations payments received by the Allies eventually found their way into the US Treasury. Nevertheless, the dispute illustrates the degree of anxiety the new Hoover administration suffered about Allied proposals which posed a ‘serious peril and injustice to the United States’ by effectively nullifying ‘the entire far-sighted policy under which this Government has successfully for nearly ten years insisted that the Reparations payments sought from Germany should be completely segregated from the debts owed to the United States Government’.91 When the Young report was published on 6 June 1929, President Hoover coolly welcomed it as a contribution to world economic stability while reaffirming that his government denied any connection between this reparations settlement and its own war debt funding agreements.92 In reality, he had very little choice given an increasing awareness that the recent funding agreements had formally settled the question without necessarily finally removing the potential problem. ‘If our debtors do not pay, the American taxpayer must. This is the selfish American view’, Treasury Undersecretary Garrard Winston had explained it in a classic defence of American policy a year earlier. ‘The equally selfish European view is that the debtors want relief from paying for a dead horse. So while we may think that the debts are actually settled, there is no reason to doubt that pressure will be brought on us from abroad somehow to force a reduction of the settlement or a complete cancellation.’93 Despite the new President’s dogged adherence to the established policy, by now it was clear to everyone that the size and number of the German annuities under the Young Plan were to a large extent determined by the payments which its creditors were themselves obligated to make on their war debts rather than by any careful appraisal of Germany’s actual capacity to pay. As a result, at no time during the first 37 years of the Young Plan would Allied out-payments on war debts exceed the conditional portion of the German instalments. The link between reparations and war debts was made even more explicit in the so-called ‘concurrent memorandum’


Britain and the war debt settlements 59 signed simultaneously with the Young Plan which stipulated that any reduction in the war debt payments of Germany’s creditors would automatically result in ‘a corresponding mitigation of the German annuities’.94 In the event, the Young Plan was soon overtaken by far more pressing events. On 29 October 1929, the Wall Street Crash effectively brought the prosperity of the ‘Roaring Twenties’ to a devastating halt. By 1932 the American index of industrial production had fallen from 125 to 58, National Income had plummeted from $81 billion to $41 billion and unemployment stood at over seven million heads of households. When the stock market stopped falling in July 1933 some $74 billions had been wiped off the value of shares and the Dow-Jones index stood at only 15 per cent of its level in October 1929.95 These events triggered a disastrous chain reaction which shattered the cycle of international payments which had sustained the world economy since the early 1920s. The resulting liquidity and financial crisis prompted the collapse of the Austrian banking system in May 1931 before spreading to Germany in the following month and then to London in July. In these circumstances, questions about the ‘capacity to pay’ and the intimacy of the relationship between reparations and war debts inevitably rose once more to the top of the international political agenda.


4

Economic depression and revival of the debt question

By the time that Herbert Hoover was inaugurated as the 31st President of the United States on 4 March 1929, inter-Allied indebtedness had been relegated to the status of a secondary issue in international diplomacy. Beneath the surface, concerns still undoubtedly existed in Washington during the spring and summer of 1929, as the tetchy exchanges with Owen Young over the implications of his plan for the final settlement of German reparations demonstrated. Yet for all that, war debts loomed more as a subterranean source of vague uncertainty than as an actual or immediate threat to the tranquillity of Hoover’s early months in the White House. During this initial honeymoon period, Hoover enjoyed a formidably strong position. By the end of the First World War, he had already acquired the status of ‘an authentic American folk hero’ by virtue of his achievements as a mining engineer turned government administrator and humanitarian. Although as Secretary of Commerce from 1921 to 1929 he won further accolades for his organisational genius and aggressive promotion of American business interests abroad, he only accepted the post after Harding promised him an important voice in economic and international affairs; an increasing influence which soon earned him the informal title of Secretary of Commerce and ‘Undersecretary for everything else’. When he stood for the presidency in November 1928, Hoover emerged from the election with more popular votes than had ever previously been cast for a candidate in American history. With this overwhelming mandate behind him and with the economy still booming, the new President pledged himself to the twin goals of prosperity and freedom in pursuit of what he described in his inaugural address as ‘a new economic system, a new social system, a new political system’. In short, everything seemed set fair for what the press already hailed as ‘the dawn of the Hoover Era’.1 It has been argued that Hoover entered the White House with more prior experience of foreign affairs than any President since John Quincy Adams in 1825. He was certainly America’s ‘single most important foreign policy maker from 1921 to 1933’. Besides his wartime experiences organising relief in Europe and his advisory role at the Paris Peace Conference, as Commerce Secretary Hoover had been deeply involved not only in the conduct of


Depression and the debt question 61 economic diplomacy but also with issues such as the Washington naval conference and the battle over American participation in the World Court.2 Above all, he was well acquainted with the problem of war debts. Having served as a member of the World War Foreign Debt Commission, Hoover had acquired a characteristic mastery of the technical aspects of the problem as well as its political ramifications. As a result, Raymond Moley, a member of Roosevelt’s ‘brain’s trust’, was not exaggerating when he later described Hoover as ‘the best informed individual in the country on the question of the debts’.3 When he was appointed to the Debt Commission in 1922, Hoover was still something of a political novice with strongly developed humanitarian instincts after his relief work in the aftermath of the war. Despite the later claim in his memoirs that European attacks on America for its ‘Uncle Shylock’ attitude and self-interested demands for cancellation always ‘got under [his] economic skin’, Hoover initially thought in radical and liberal terms about the debt problem.4 Indeed, early in the Commission’s deliberations, he proposed the cancellation of all debts incurred before the Armistice and the payment in full only of postwar reconstruction loans; a strategy designed to strengthen American’s moral position while simultaneously increasing the probability of eventual repayment. When persuaded that Congress would never approve such a radical plan, Hoover then proposed the abandonment of all claims to interest payments while spreading the repayment of the principal sum over a reasonable term adjusted to the debtor’s capacity to pay. Again, however, his colleagues argued that America needed to ‘preserve the appearance of repayment of both principal and interest if we were to get it through Congress’.5 Confronted by this blanket disapproval, Hoover rapidly retreated from his early liberal ideas about debt policy. Hoover publicly declared his return to orthodoxy in a carefully prepared address at Toledo, Ohio on 16 October 1922 in which he comprehensively challenged the cancellationist case in tones of economic nationalism which conformed well with the prevailing mood of postwar American disillusionment. Above all, the speech demonstrated Hoover’s definite conviction that Europe possessed the ability to repay American loans if its government stood firm and pressed with sufficient determination. Such a settlement would, he contended, be both financially and morally good for the debtor states while helping to advance American interests.6 After his Toledo speech, Hoover promised privately that he would ‘deliver some more intensive misery’ to the critics of the official policy of collection. ‘If we can get away from the continental propaganda and bunk that this debt cannot be paid, or if it is paid it will have to be paid in goods which will be an injury to us, we will be in a position to talk sense over it.’7 As a result, when the British negotiators met the Debt Commission in January 1923, Hoover appeared to live up to his reputation for being ‘not only extremely antiBritish but also anti-European and disposed to use the Allied debts as a means of enforcing America’s will on other matters upon Europe’.8


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Depression and the debt question

In view of Hoover’s record as Commerce Secretary, it was scarcely surprising that the Foreign Office regarded his election with apprehension on the grounds that ‘Mr Hoover is nothing less than a cold aggressive nationalist – an efficient calculating machine who will push commercial and maritime competition with this country to the utmost’.9 Yet within a fortnight of his inauguration, the new President made it clear that he wanted to restore cordial relations with Britain after two years of intense conflict over maritime matters. Moreover, the appointment of the Anglophile former VicePresident, Charles Dawes, as Ambassador in London (in place of the unsympathetic Alanson Houghton) provided an early indication of this new desire for harmony.10 Similarly, Hoover’s invitation to Ramsay MacDonald, the newly elected Labour Prime Minister, to visit the United States in October 1929 was the first extended to a serving British Premier and it further reinforced this mood of impending reconciliation. ‘He is not sentimentally pro-British’, MacDonald reported after his return, ‘but rather is desirous, as a practical man, to work for the general good of the world with the country which he thinks he understands best, and with whose policies he finds himself more often than not in agreement’.11 Yet for all the goodwill, Hoover’s position as President remained largely unchanged with regard to war debts. What Hoover had always meant by ‘talking sense’ on this subject was to trade American debt reductions for European concessions on economic and disarmament questions to ‘secure the objective of stability for which America was to make sacrifices’.12 Although the Harding and Coolidge administrations did little to implement this policy, it later became a central theme of Hoover’s own presidency. Perhaps with this in mind, during a walk with MacDonald at Hoover’s camp on the Rapidan River in Virginia’s Blue Ridge Mountains on 5 October 1929, the President made the apparently spontaneous proposal that Britain should transfer Bermuda, British Honduras and Trinidad to America in return for some degree of debt remission. When MacDonald ‘did not rise to the idea at all’, it confirmed Hoover’s ‘hunch’ that ‘he did not take the payment of the debt very seriously’.13 But at this stage, Hoover did not take the issue very seriously either – so long as Europe continued to meet its debt funding obligations and the cash kept coming. In the long-term, however, the devastating repercussions of the Wall Street Crash only a week before this conversation inexorably forced both sides fundamentally to reappraise their attitudes on the question. Throughout 1930 reparations and war debts continued to be paid without interruption, in spite of increasing evidence of world economic depression. Yet German public finances were in a precarious position. Its rising prosperity in the late 1920s had been kept afloat by a tidal wave of borrowing from abroad, largely the United States. Indeed, since the Dawes Plan had restructured German reparation payments in 1924, Germany had borrowed almost three times the amount it had paid out to the Allies in reparations. During the early spring of 1931, however, these financial chickens finally


Depression and the debt question 63 came home to roost as the German economy suffered a rapid flight of capital while the flow of foreign loans practically ceased. In this context, the surprise announcement of an Austro-German customs union in a contravention of the Treaty of Versailles on 21 March precipitated an international financial crisis which accelerated the flight of funds from both Germany and Austria while France refused to join international relief efforts unless the customs union was abandoned. In the interim, Creditanstalt, Austria’s oldest and largest commercial bank, collapsed on 11 May as a prelude to the international liquidity crisis spreading to Germany. Confronted by an alarming depletion of the Reichbank’s gold and foreign exchange reserves, on 5 June Germany announced that the financial crisis required an urgent alleviation of its ‘unbearable’ reparations obligations. In response, the Bank of England decided to lend no more money to pay German reparations in the belief that all-round cancellation now represented the only remedy.14 Although the US government had repeatedly refused to acknowledge any connection between German reparations to the Allies and their own war debts to the United States for fear of becoming once more embroiled in European politics, the connection was real enough because the former funded the payment of the latter and (whatever they said for public consumption) American bankers and government officials recognised this connection as clearly as their Old World counterparts.15 With Germany apparently about to default on its private and governmental obligations and the fabric of international credit on the verge of collapse, Hoover was compelled to consider drastic action – if only to protect American bankers holding worthless German paper collateral. Confronted by the unpalatable choice between a moratorium on intergovernmental debt payments and the inevitable collapse of the entire American banking system, Hoover had no choice but to intervene. Six months earlier he had brushed aside proposals for a war debt moratorium from a prominent Republican businessman with the caveat that ‘we must keep our minds open to any eventuality in these times’.16 That eventuality had now arrived. Dining with Ambassador Frederic M. Sackett on leave from Berlin on 6 May 1931, Hoover received grave warnings about the German debt situation but at this stage he claimed to be unable to see what America could do as it was not a party to the reparations issue. Anyway, he argued, European armaments expenditure had continued to increase to a level many times greater than the total debt burden of the entire world. Nevertheless, he undertook to consider the problem and issued instructions for an analysis of each debtor’s obligations in relation to its defence expenditure and its trade patterns with America.17 The resulting Department of Commerce report confirmed that all the major European war debtors exported far more to the United States than they paid in war debt instalments. Even less favourable to the Europeans given Hoover’s concern about disarmament was the fact that Britain’s defence expenditure was 3.3 times greater than its debt payments, in France it was eight times greater and in Italy it was 38.5 times greater.18


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While these data were being tabulated, Hoover discussed with Secretary of State Henry L. Stimson the possibility of relieving the financial pressure on Germany with a statement to the effect that war debt and reparation payments were predicated on the capacity to pay in normal times but that ‘the depression had reached such depths as to make the whole fabric of intergovernment debt beyond the capacity to pay under depression conditions’. During discussions with Ambassadors Sackett and Dawes on 2 June (and with Hugh Gibson two days later) Hoover outlined his thoughts on relief action as a prelude to a White House conference on 5 June with Stimson, Treasury Secretary Mellon and his Undersecretary Ogden Mills. At the heart of Hoover’s ‘rough memo’ was a ‘definite proposal’ to postpone the collection of all inter-Allied debts for one year if America’s European debtors agreed to do the same with German reparations. As Hoover explained, ‘the world needed some strong action which would change the mental point of view and . . . perhaps such action might serve the purpose of [a] general reestablishment of courage and confidence’. In response, Stimson offered his full support but Mellon and Mills expressed ‘unqualified disapproval’ on the grounds that there was no executive authority for action on such a scale. Nevertheless, afraid they were ‘in the presence of a great crisis’ and having ‘always believed in going out to meet a situation rather than let it come’, the President instructed Mills to examine the financial situation in New York while Mellon should do the same in Europe. Three days later, Hoover outlined his plan to the full Cabinet.19 As he told his press secretary, it was ‘perhaps the most daring statement I ever thought of issuing’.20 While Hoover cogitated during the first fortnight of June, the Reichbank lost over $150 million in gold and foreign exchange out of a total reserve of $613 million. By this juncture, Stimson was talking of immediate action to prevent Europe going bankrupt while Mills called for a two-year moratorium on all debt payments.21 On 13 June Stimson discussed the Hoover plan with Mills, Owen D. Young and George Harrison, the President of the Federal Reserve Bank of New York, among many others. In one of the first diplomatic uses of the telephone, he also called MacDonald in London who warned that the German financial situation had got ‘very much worse’. When seeking MacDonald’s ideas on possible action, Stimson began by emphasising that America was not prepared to enter any general conference which tied together war debts and reparations and he specifically excluded any thought of debt cancellation. Yet he did float the idea that one of the Allies should propose a one-year moratorium on all inter-governmental debts and asked whether Britain would reciprocate if the offer was made because ‘there was not the slightest chance of acceptance’ if the American people were required to make all the sacrifices while Europe continued to extract reparations from Germany.22 MacDonald consulted the Treasury, the Foreign Office and Montagu Norman and all supported the general idea although they agreed a year was not sufficient and that France would pose the principal obstacle to such a plan. After this, Stimson appears to have wobbled in his resolve,


Depression and the debt question 65 telling London on 14 and 17 June that ‘the feelers that they had put out showed that public opinion in the United States would not be prepared to contemplate any concessions about debts until the desperateness of the situation in Europe was shown by the actions of the European powers themselves’.23 For all that, however, consultations increased in pace with congressional leaders, American bankers and with key European statesmen. When Hoover returned to Washington from his speaking tour of the midwest on the afternoon of 18 June, he was still vacillating. At this juncture, Mills put the crucial argument – not that Germany was on the verge of collapse, but that Berlin had to be prevented from making a formal application for a moratorium for fear that this would lead to its collapse and throw the whole question of reparations and war debts once more into the melting pot.24 Having secured by telephone the support of 21 Senators and 16 leading Representatives of both parties, Hoover finally decided to act. On 19 June, foreign ambassadors were informed of the plan before Hoover made it public next day after the news leaked to the press. According to Hoover’s full statement on 21 June, the purpose of the moratorium on all reparations and war debts was to assist ‘the economic recovery of the world and to help free the recuperative forces already in motion in the United States from retarding influences from abroad’. Although he urged the American people to be ‘wise creditors in their own interest and be good neighbours’, Hoover carefully reiterated the established American position that reparations were ‘wholly a European problem with which we have no relation’ and that he did ‘not approve in any remote sense of the cancellation of the debts to us’. Finally, while emphasising that the moratorium had no direct bearing on the arms limitation conference at Geneva, he expressed the hope that ‘by this evidence of our desire to assist we shall have contributed to the goodwill which is so necessary in the solution of this major question’. In many ways it was the high point of Hoover’s presidency and news of this decisive leadership was widely acclaimed both at home and abroad.25 Despite Hoover’s efforts to uphold the traditional position that the United States had no direct involvement with reparations, the Allies inevitably highlighted the intimacy of the link between their receipts from German reparations and their own war debt payments to Washington. In a secret conversation on 8 June, MacDonald told Ray Atherton, the influential Counsellor at the US Embassy in London, that during his talks with the German Chancellor he had specifically emphasised that he could not discuss the reparation problem because Britain ‘was but a channel in that the amount of reparations received was paid out to America to satisfy the British debt to the United States’. Similarly, in the aftermath of Hoover’s announcement, the US Embassy in London reported anxiously that the British press had commented ‘with satisfaction on [the] President’s statement as presaging a reconsideration of [the] United States attitude towards reparations and allied debts’.26 Convinced that the announcement was the fulfilment of the dreams nurtured during his visit to Hoover in October 1929, MacDonald also


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recorded in his diary that ‘suspension ought to mean that we shall not make the mistake of resuming’.27 Equally ominous from an American perspective were reports that the French wholeheartedly shared this expectation. In an analysis on the ‘psychological and political background’ in France, US Ambassador Walter Edge warned of strong resistance to any adjustment of reparations except in return for a corresponding reduction in their war debt payments to America and that ‘no government in France could stand twentyfour hours that encouraged any other position’.28 France was always going to be the principal obstacle to Hoover’s proposed moratorium, not least because it threatened the principle of ‘le Boche payera tout’ which it was determined to preserve. As Ambassador Edge reported from Paris as the financial crisis gathered momentum, ‘France will continue to throw monkey wrenches in the gear box until she is forced by some such colossal and general pressure that even she would find difficulty in resisting’. Given their continual evasions, however, he advised that it ‘might be helpful to give France a little of her own medicine’ by applying such pressure. In these deteriorating financial circumstances, Stimson thus welcomed the delay in announcing the Hoover plan on the grounds that it would ‘bring the French Government face to face with its interest and responsibility in the initiation of relief’.29 Hoover’s failure to consult the French government about his moratorium until the eve of its announcement was prompted by a desire to increase the psychological impact of the initiative, but the effect was only to increase the unfounded suspicion of an Anglo-American deal with Germany.30 Indeed, it was not until 18 June that Stimson told Paul Claudel, the French Ambassador to Washington, about the possibility of a general moratorium on all inter-governmental debts and the need for Anglo-French cooperation in proposing it because ‘unless everyone joins, certainly the Great Powers, there will be no possible chance of obtaining the consent of the American Congress’.31 Similar pressure was exerted by the US Ambassador in Paris, while the British Cabinet agreed on 24 June to a parliamentary statement accepting the Hoover proposal on the grounds that ‘nothing was more likely to influence France in the direction we desire than the discovery that this country also loses a very substantial amount from the American proposal’; a loss to the budget of well over £12,000,000 when the extension of the moratorium to Dominion and postwar reconstruction loans was factored into the calculation.32 Despite this concerted pressure, the German Ambassador reported the French reaction to be one of ‘extraordinarily great agitation, ill humour, and nervousness’, particularly in defence of its ‘absolute right’ to the unconditional portion of Germany’s Young annuities.33 This insistence not only jeopardised Hoover’s plan but also threatened to make the British appear ‘absolutely foolish’ if they sacrificed their receipts while France did not – with the result that London urged Washington to exert heavy pressure on Paris.34 Advised by MacDonald ‘to stand stiff against France as yielding would bring

Depression and the debt question 67


[the] whole proposal to collapse, or would render it pretty useless’, on 26 June

Stimson instructed Walter Edge to inform the French that their demands were unacceptable but that they urgently needed to join in the agreement.35 Washington also renewed its request that London ‘should, without the least delay, make representations to Paris in terms as strong as possible in support of the stand taken by the United States Government’.36 Yet despite all of these efforts the haggling continued while the German crisis accelerated, with a ‘very discouraged’ Mellon reporting on 4 July that the French mood was turning ‘very ugly’. After this, Hoover decided on a change of strategy with a joint statement which ‘would be impossible for them to answer before the world’, but designed ‘to finally test their honesty and to force their hands’; a manoeuvre which initially produced ‘consternation and anger’ in Paris but eventually the French ‘caved in’.37 On the afternoon of 6 July Hoover finally announced the completion of the moratorium in principle. The suspension of all inter-governmental debt payments came into force for 12 months from 1 July 1931. Like the Americans, MacDonald was infuriated by the French attitude. ‘France has been playing its usual small minded & selfish game over the Hoover proposal’, he recorded in his diary on 5 July, ‘Its methods are those of the worst Jews. To do a good thing for its own sake is not in accordance with [the] French official nature’. A week later he was convinced that France was ‘solely responsible’ for the failure of the Hoover plan to steady the European situation: ‘Again and again be it said: France is the enemy; we shall pay with all our Honour for that war’.38 Next day the second largest private bank in Germany collapsed as a prelude to a more general European financial crisis. Two weeks later, on 31 July, the international liquidity crisis arrived in London. No sooner had the Hoover moratorium been agreed than its full implications for the United States became apparent. As the US Ambassador in London noted in his diary on 8 July, ‘Hoover’s action, which was unavoidable, has brought [the United States] face to face with prolonged negotiations looking to debt reduction’.39 These forebodings were soon vindicated. The next day Ambassador Claudel told Undersecretary of State William Castle that Hoover should build on the ‘unchallenged position of leadership’ created by his ‘courageous and economically sound’ proposals to suggest ‘the nations get together to settle once and for all the post-war problems’. Above all, this meant the liquidation of all reparation and war debts by translating them into sound commercial obligations. France would be prepared to participate on ‘a very generous basis’, he declared, particularly if ‘liberal discount terms’ from America were accompanied by firm demands for real reductions in European armaments. To defuse domestic opposition in America, Claudel even proposed that some of the receipts could be used to establish a revolving fund under the control of the Farm Board to appease the mid-west or to fund the construction of the St Lawrence waterway.40 Convinced that they would ‘not be able to get very far with the French [over


68


disarmament] unless in some form or other we pay for such concessions’, from Paris Walter Edge also conceded that ‘sooner or later both German reparations and American war debts will not only be materially revised, but probably cancelled if the credit is not transferred into some other channel in the meantime’. Above all he urged the possibility of trading it for arms limitation while the outstanding $12 billion in war debts was ‘still real money’.41 It seemed equally clear to American observers that Britain was eager to exploit the forthcoming Seven Power conference in London, on the measures needed to address the deteriorating position in Germany, as a means to reopen the entire debt question, despite American efforts to limit discussion to the present emergency.42 Against this background of increasing American mistrust and anxiety, the Hoover administration was inevitably suspicious when it learned on 3 September that the French had approached the British Foreign Office about a possible international conference on reparations to be held in January 1932;43 apprehensions soon reinforced when MacDonald made the same proposal to Stimson. ‘I feel in my bones’, MacDonald declared, ‘that the big Governments of the world have a chance, which will soon pass, of doing the greatest piece of constructive work that Governments have ever done in the history of mankind’. Despite the visionary hyperbole, Stimson rebuffed the idea with a chilly reply, although a few days later he proposed to a senior British Embassy official that if the Allies reduced German reparations then America might conceivably revise the ‘onerous’ terms of the British debt settlement which he characterised as ‘a legitimate cause of shameful regret to all right thinking Americans’. At this stage, Stimson had no definite plan to achieve this goal and appeared more ‘sentimentally than practically optimistic’, but it was concluded that he was genuinely ‘ashamed’ by the discrimination against Britain since 1923 and personally eager for cancellation. This apparently hopeful offer was subsequently repeated by Hoover during the visit of the French Premier to Washington five weeks later.44 Hoover’s informal suggestion that Premier Pierre Laval should visit Washington was greeted in France with unanimous enthusiasm in the expectation that these discussions would cover war indebtedness. In conformity with the general thrust of their position during the FrancoAmerican talks in late June and early July, Pierre Flandin (the French Finance Minister) told the American Ambassador on 1 October that France favoured the elimination of conditional reparations (while retaining unconditional payments) ‘provided the United States would grant to France a substantial reduction in the French war debt’. Although Edge declared the proposal ‘completely impossible’ because the American people would never countenance it, Flandin’s efforts to present a readjustment of war debts and reparations as part of a general plan for the limitation of armaments suggests that the French were hoping for some sort of deal along lines Hoover was known to favour. As Edge concluded afterwards, Flandin’s visit had been


Depression and the debt question 69 made ‘for the sole purpose of opening up these possibilities in an unofficial manner’ – particularly as he added that during his official visit, ‘Laval might need some encouragement to go so far, as he was a cautious man’. The leak of an alleged brief for Laval’s use in Washington in the authoritative Le Matin on 17 October appeared to confirm these suspicions, as did Flandin’s subsequent visit to the US Embassy three days later during which he emphasised the efforts of the Bank of France to combat a speculative raid on the dollar in order that ‘the United States might be impressed by his friendliness’ and to give force to his repeated assertions about the need for cooperation over disarmament, war debts and reparations.45 To drive the point home, on the following day the British government informed Washington that ‘since France and the United States by force of circumstances had become the two strongest nations in the world, the rest of the world looked at this visit of the French Premier with keen anticipation and hoped for great results’ with regard to disarmament and the settlement of war debts.46 American spokesmen publicly emphasised the importance of Laval’s visit as an opportunity for better understanding, but in private Hoover appeared to regard it as ‘just a nuisance to him’ at a time when he was wrestling with an unprecedented banking crisis. As Stimson noted in his diary, ‘all he was thinking about was how he could best stop Laval from picking his pocket while he was here’.47 Yet Hoover’s irritable prejudices and preoccupations aside, the American administration nurtured relatively high hopes of Laval’s visit – particularly after Walter Edge reported that he had been ‘impressed with [Laval’s] extreme frankness and his obvious intention, while in Washington, of laying his cards on the table’.48 Indeed, in the hope of ‘extracting Franco-American relations from the blighting influence of British policy’, American officials even reconciled themselves to the need for possible concessions on the subject.49 At a high-level conference on 19 October it was thus agreed that America should sympathetically consider the idea of a general 50 per cent reduction in both reparations and war debts, although to obtain public support some progress also needed to be made with disarmament to ensure taxpayers’ money did not go towards further military expenditure. At this juncture, the idea of two linked conferences emerged as a possible mechanism for progress – the first called at German instigation between the countries involved in reparations to be followed by a second conference between America and its war debtors leading to re-negotiation of the debt settlements through a reconstituted debt funding commission.50 Laval arrived in America on 22 October 1931 accompanied by his 18-yearold daughter, eight expert advisers and 20 French journalists. Three days later he departed ‘agreeably surprised to discover in the President an amount of sympathy and feeling which were carefully concealed by his somewhat cold appearance’.51 Laval’s satisfaction was scarcely surprising in view of the fact that Hoover unveiled his two-stage proposal at their second meeting on 23


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October. If an international conference called under the provisions of the Young Plan to reassess Germany’s ability to pay reparations produced a successful outcome, this would open the way for a corresponding American review of war debts given their debtor’s own reduced capacity to pay. According to Stimson, Laval initially appeared ‘a little surprised’ by the proposal, but when he asked the President if America would cooperate in such a scheme ‘Hoover replied that we would cooperate, of course, but in the sense of the depression only and subject of course to Congress’; a pledge ‘to help our debtors on debts during the depression’ repeated later the same evening.52 While this apparently momentous (but carefully qualified) declaration was being made in private, the joint communiqué from Hoover and Laval on the eve of his departure noted only that before the end of the moratorium ‘some agreement regarding [inter-governmental debts] may be necessary covering the period of business depression’ but that the initiative must come from the debtor nations in accordance with the terms of their debt settlements.53 In retrospect, the key issue arising from Laval’s visit concerns his subsequent claim that Hoover gave definite assurances ‘that if a European solution could be found for reparations, the American contribution would be a debt settlement’; a prospect so tantalizing that Laval immediately encouraged the Germans to apply under the terms of the Young Plan for a committee of enquiry into its capacity to pay in order ‘to lose no time’ in setting this two-stage process in motion.54 Laval’s interpretation of this personal understanding was undoubtedly genuine,55 but it later became an issue of intense sensitivity and irritation to both the President and Secretary of State when the allegation became public after a speech by Laval in January 1933.56 When the matter was discussed in the Senate on 4 January, therefore, Mills and Stimson both wrote immediately to Senator David Reed declaring that ‘without qualification that there is no justification for any assertion or belief that . . . any assurance, direct or implied, was given’ and that ‘the informal economic discussions were limited to problems of a temporary nature arising from the economic depression’.57 In his own account of the talks with Laval nine months after they took place, Hoover also denied any specific undertaking to reduce debts.58 At a strictly semantic level, these denials were correct. As Stimson informed Ambassador Dawes and Sackett after Laval’s return to France, if the Young Plan advisory committee ‘reported favourably for a readjustment of reparations to relieve Germany, President Hoover would then, and not before, send a recommendation to Congress urging that the debt settlements which the United States made with its various debtors individually be reconsidered’.59 Thereafter, all American declarations adhered rigidly to this very precise form of words. When Laval began to ‘wobble’ on the meaning of this understanding, Stimson thus issued a definitive aide memoire to the French and British governments on 29 December 1931 ‘restating our position in words of one syllable’:



Only after the extent of Germany’s capacity or incapacity to pay has been fairly determined and the manner and extent in which the resulting sacrifice will be borne by the nations who are entitled to receive reparations is also determined, would it be possible to bring such a question before the people of this country with anything but a certainty of failure. Then and only then could it be proposed that the situation of each of the nations which have obligations to the United States be examined individually in the light of the present temporary depression and the then existing international situation both as regards themselves and as regards the United States.60 In part, this conflict of understanding can be explained by the fact that the words meant very different things in Washington than they did in Europe. To France and Britain, the intimacy of the financial relationship between reparation receipts and their own war debt payments suggested a logical reciprocity of sacrifice and an implied contract – particularly as it was simply impracticable both politically and financially to suggest cutting one without the other. Conversely, for Hoover and Stimson the carefully rehearsed formula technically committed them to nothing more than an impartial assessment of their debtors’ capacity to pay, but in their view this had never been dependent on the collection of German reparations. Yet it is difficult to accept the view of one distinguished historian that Hoover had ‘qualified his remarks with so many conditions that it required either great carelessness or audacity to construe the discussion as committing the United States to anything’.61 Indeed, the reality of the situation was that Hoover’s words were quite deliberately selected to suggest what Laval interpreted them to mean while leaving the way open for a retreat if the domestic opposition became too great to resist. As a result, when Undersecretary of State Castle read Stimson’s aide memoire of 29 December, even he understood it to mean that ‘it clearly does not close the door to some later revision of war debts if the European nations seriously cut reparations’. For this reason he feared that if the text leaked out (as everything did when given to France), there would be ‘exceeding great irritation’ in Congress.62 Ultimately, it was these political concerns rather than any semantic ambiguities which lay at the heart of the dispute over the Laval meeting. In many respects, Hoover’s approach to the debt problem at this juncture was as bold as his initial hopes for a moratorium four months earlier, but both initiatives were seriously constrained by his chronic fear of congressional resistance and a public backlash on the eve of the presidential elections. After the greatest outflow of gold in American history on 22 September and the ensuing collapse of over 800 banks, Hoover always recognised that ‘it would be impossible to get the American people to approve any more sacrifices to Europe unless it was tied up with a plan to alleviate distress in this country’.63 In this context, the successful execution of the two-stage strategy Hoover had outlined to Laval depended upon his ability to create the illusion that the


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inexorable force of external events compelled him reluctantly to acquiesce in the logic of debt revision. Conversely, any suspicion that he was actually the instigator of this chain of events would be disastrous both for his electoral popularity and the prospects of congressional acceptance. As a result, the more vociferously Laval spoke publicly about an implied agreement linking debts with reparations, the more an embarrassed Hoover was obliged to deny the existence of any such understanding by falling back on a strictly literal interpretation of the Laval communiqué. Hoover’s apprehensions about Congress were well-founded. In July 1931 a total of 276 Representatives and 68 Senators had pledged themselves to support the moratorium, but Congress was not finally called upon to ratify the measure until December 1931. In the interim, the initial aura of goodwill had dissipated to such an extent that, as Stimson later confided to MacDonald, if Hoover had not taken the precaution of pledging a majority of Congress to it in July, he would have failed to secure ratification at all such was ‘the intensity of the wave of isolationism that has swept over the country during this gloomy autumn’.64 In his message to Congress on 10 December, Hoover proposed the re-constitution of the World War Foreign Debt Commission with authority to make ‘temporary adjustments’ because many debtors were now unable to meet their obligations and it was ‘useless to blind ourselves to an obvious fact’.65 On the same day, the Senate received the moratorium for formal approval. Unfortunately for the President, he had seriously misjudged the congressional mood and the joint resolution became the subject of long and acrimonious debate. As the moratorium was an ‘accomplished fact’ even its staunchest opponents like the isolationist Senator Hiram Johnson of California was unable to delay it, but as he proudly told his sons, he had ‘kicked up enough of a row to halt, at least temporarily . . . the cancellation of our foreign debts’.66 In an atmosphere of intense suspicion of the President’s intentions, particularly after Laval’s visit, Hoover was violently and repeatedly denounced for having ‘sold out his country’, while the Senate refused to agree to the re-establishment of the Debt Commission which it suspected was merely a Trojan horse to open the way for debt reduction or cancellation.67 As a result, a final clause was added to the joint resolution authorising the moratorium, expressly declaring it ‘to be against the policy of Congress that any of the indebtedness of foreign countries to the United States should in any manner be cancelled or reduced’.68 Efforts by Treasury Undersecretary Mills to add the rider ‘without trade or other concessions moving to the United States’ proved to no avail, as were Castle’s private efforts to persuade Senator Reed to propose something similar.69 According to Sir Ronald Lindsay, the British Ambassador in Washington, the congressional attitude represented ‘100 per cent cowardice’ but it effectively torpedoed Hoover’s cautious two-stage plan for debt revision and turned the entire initiative into a Pyrrhic victory for the administration. ‘I have a glorious fight here on the moratorium’, Johnson boasted to Harold Ickes, ‘one of those losing fights



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which is won’. After this rebuff to his plans and facing a presidential election, Hoover bent to the popular mood by adopting a stiffer posture. The Hoover administration attempted to dismiss the significance of its congressional difficulties in ratifying the moratorium. Given divided party control in a new and inexperienced Congress, Stimson assured the British that the ‘no cancellation’ clause merely ‘indicates the difficulties which any American President faces when he goes into foreign affairs’, but he argued that the administration ‘got along as well as we could possibly expect’.71 From Europe, however, Stimson received authoritative reports that the action of Congress had ‘worked an incalculable harm’ by suggesting that America was reneging on the Laval arrangement and ‘they all say that it is a case of Wilson over again in 1919 being repudiated by the Congress’.72 In France, these events provoked ‘surprise and some bitterness’ because they had ‘the effect of materially lessening hopes of a reduction in interallied war debts’. It also confirmed the French government’s view that ‘they could not count on anything said by Hoover or Stimson or Ogden Mills, as they apparently could not control their Congress’.73 While the Germans complained to Washington of its ‘very bad psychological effect on Europe’ and the likely encouragement it offered to French intransigence towards Germany, MacDonald also privately warned the President on 16 December that the ‘no cancellation’ clause would ‘inevitably lead to an impasse’ because there was no prospect of reparations for a long time and that without them France would not pay its war debt annuities to Britain, who in turn would be unable to meet its obligations to the United States. Although ‘very averse from anything which might be represented as repudiation’, MacDonald declared, it was ‘only fair to put you in possession of the real facts of our situation’.74 In reality, MacDonald’s warnings concealed far more than they revealed about British despair at the ‘irresolution, weakness and timidity’ of the American President and his administration. In a much-admired despatch in mid-September, the Embassy in Washington detailed the many and pressing problems confronting Hoover arising from the economic depression, unemployment, the failure of the Farm Board, a ‘sensationally rising deficit’, the increasing cost and futility of enforcing the Volstead Act and prohibition and the scandalous revelations of racketeering, gangsterism, police corruption and brutality exposed by the Wickersham Commission. Such are some of the difficulties and problems now confronting the unfortunate Mr Hoover, many of them calling for urgent decision and prompt action . . . In face of a chorus of counsels, appeals, criticisms and attacks, he stands embarrassed and irresolute, helpless and unhelpful, inspired with admirable intentions, but otherwise meagrely equipped to deal with the complexities of a situation that would daunt any man alive. He would appear to be patently and pathetically unequal to the responsibilities of his office and his time.


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Given these problems, it was concluded that ‘it is no use for foreign countries to look for practical measures of salvation to the United States until they have settled among themselves the urgent issues that militate against any general improvement in the world situation’.75 This was certainly the conclusion of Neville Chamberlain, the new British Chancellor of the Exchequer. In view of the likely cessation of both reparation and inter-Allied debt payments to London, he advised the Cabinet in December 1931 that if they wanted ‘a reopening of the war debt settlement, they must take initiative of declaring their inability to pay’ with the private warning that ‘something must be arranged about our debt if a definite default is not to be forced upon us’. A month later the Cabinet agreed that the budget should contain no provision for the payment of war debts.76 In this atmosphere of hardening attitudes, Stimson’s personal remarks to Lindsay about debt cancellation on 20 September which had ‘aroused great and continuing hopes in the breast of the Treasury’ were now put in their proper and much less hopeful context. ‘Stimson is a sincere, sentimental and warm-hearted idealist who believes in American cooperation with Europe . . . He is in no sense a politician in the American – and worst – sense of the word’, D’arcy Osborne, the Embassy Counsellor, reported from Washington. But as he also recognised, congressional rebuffs over debts and Manchuria, combined with presidential pusillanimity and fear of public opinion, meant that the Secretary of State had ‘no political pull or capacity and he is incapable of stimulating his chief in the direction of courageous leadership or resistance to Congress’.77 Little wonder the British were infuriated by the ‘inexcusable’ behaviour of Congress as parties and legislators began ‘playing to the electorate in the gallery, with eye and mind on next year’s Presidential election and future personal prospects’. The passage of the ‘no cancellation’ clause had been an ‘exhibition of irresponsibility, buffoonery and ineptitude that could hardly be paralleled by the Haitian legislature’, but as Lindsay reported bleakly, ‘the outlook for revision of the debts by consent of Congress is about as black as it could be’.78 By the beginning of 1932 the gulf between the Old World and the New World was greater than ever as a result of the ‘no cancellation’ clause and the dispute over the meaning of the President’s meeting with Laval in October. Immediately after his return from Washington, Laval had encouraged the Germans to apply to the Bank of International Settlements to appoint a committee of experts to report on its capacity to pay. The Special Advisory Committee met in Basle between 8 and 23 December 1931. Although American participation on the committee was confined to Walter Stewart acting in an unofficial capacity, even this involvement raised the question of the administration’s attitude towards the whole inter-related question. To resolve this dilemma, meetings on 26–27 November between Stimson, Mills, Feis and Stewart ended with an agreement that ‘if it could be done the thing to do was to have a permanent rather than a temporary settlement of the reparations and intergovernmental debt questions’. Hoover also suggested


Depression and the debt question 75 that he was thinking along similar lines. Yet anxieties were soon aroused when Stewart reported from Basle that the Europeans were preparing to say ‘Here is about what we can do, but [it is] dependent upon America’s doing so and so’.79 Reports from the US embassies in London and Paris in late December 1931 also confirmed that the debtors were planning to use the forthcoming reparations conference scheduled to meet at Lausanne on 13 January to put pressure on America to cancel a corresponding proportion of their debts or to extend the moratorium. Even more alarming was the knowledge that Britain and France were collaborating to achieve a common policy before the conference assembled in the belief that ‘a united front is essential, on account of the attitude of Congress’.80 In response, Washington pressed Stewart to ‘make every possible effort to bring out in the report of the Committee all the facts of the situation in Germany in such a way that responsibility for remedying affairs would clearly lie with European nations’.81 Despite these efforts to distance the United States from the reparations problem, the Basle Committee’s report on 23 December not only accepted Germany’s claim about its inability to pay reparations but also stressed the alarming implications of this failure for the stability of its creditors. As such, the Committee declared that a comprehensive adjustment of all such debts ‘should take place without delay if new disasters are to be avoided’.82 In practice, this amounted to a formal acknowledgement that the Young Plan was now unworkable and that there was no possibility of dealing with the German problem apart from a broader and joint consideration of inter-Allied debts. Worse still, Stewart warned Stimson that Britain had ‘a perfectly good case’ for a review of its own debt settlement under the terms of the Basle Committee and that if America failed to negotiate some remission with Britain it would ‘fall into the hands of the French and that they will altogether engineer a default’.83 This danger was delicately highlighted in early January by another of MacDonald’s ‘personal notes’ to Stimson in which he pointedly explained that if Germany: is to pay no more or to pay a mere fraction . . . we will be unable to meet our obligations which we undertook on the Balfour Note assumption. No Government here will be able to impose further taxation upon our people in order to provide large sums to be transferred abroad. Despite his pledge to ‘bear every burden we can, and make no proposal to anybody which is purely selfish or unfair’, the message was clear – America would be faced by demands for debt adjustment as soon as reparations were finally settled at Lausanne.84 Confronted by this nightmare scenario of a European ‘united front’ and the implicit threat of mass repudiation in the depth of devastating depression, the US State Department embarked upon a systematic campaign of ‘divide and rule’ designed to differentiate between its European debtors. Above all,


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given the fallacious assumption that European debt policy was now being dictated by Paris while London meekly followed the French lead, Stimson was anxious to prevent Britain drifting into either default or alignment with France through a mistaken belief that it was hopeless to make any approach to Washington. This, he believed, would be a ‘major disaster’ which threatened all hopes of a forward policy based on Anglo-American cooperation. And in this context, London’s refusal to join Washington in a joint note to Japan and China was believed to be ‘a first symptom of breaking away’. On the other hand, however, after the rumpus over the Laval communiqué, Stimson was equally anxious to avoid giving Congress the impression that the administration had itself prompted the British to make an approach regarding debt revision. On this basis, Hoover and Stimson agreed on 11 January that the safest strategy would be to encourage Senators like Reed, Borah and Joe Robinson to make speeches refuting the renewed European allegations of America’s ‘Uncle Shylock’ posture. By highlighting the particular justice of the British case over that of France it was hoped to demonstrate a desire to be reasonable to countries where a strong case for revision existed based on their ‘temporarily diminished capacity’ to pay.85 Four days later, Ray Atherton pointedly informed the British Foreign Secretary that the prospects for revision would improve after the presidential election but ‘it would be very unfortunate if the excellent claims which Britain had for consideration were exposed to the danger of being discounted owing to their association with claims, less well founded, of other debtors’.86 In reality, American fears of an Anglo-French ‘united front’ were somewhat exaggerated – at least during the early months of 1932. By December 1931, the British Cabinet certainly demonstrated considerable eagerness to establish closer relations with France in view of the forthcoming conferences on reparations and disarmament.87 Yet beneath this superficial degree of agreement, relations were relatively strained. Flandin’s talks in London in late November left him ‘distinctly disappointed’ when his proposals for ‘a scheme for general cooperation’ between France and Britain revealed ‘great differences’ between the two governments. As Sir Frederick Leith-Ross, the Treasury’s leading expert on the debt, told Rueff of the French Finance Ministry on 1 December, Britain was equally enthusiastic about Anglo-French cooperation, ‘but there must be a basis for cooperation we believe in’. In order to resolve some of these differences, Leith-Ross visited Paris on 19 December 1931 for a ‘general exchange of views’ on all the outstanding financial questions including reparations and war debts and ‘with particular reference to the United States attitude’.88 To his great disappointment, however, British pleas for an urgent and permanent agreement on ‘the whole question of intergovernmental indebtedness which is something more than a makeshift’ were rebuffed by Flandin’s refusal to discuss anything more than ‘a temporary arrangement covering the period of the depression’.89 As this short-term alternative was anathema to the British,


Depression and the debt question 77 hopes of a joint initiative were remote and a shift to the right in the structure of Laval’s Cabinet in mid-January only exacerbated this problem. At the heart of Anglo-French differences was a major divergence of interests over both the best method of dealing with German reparations and the most effective means of persuading Washington to honour its supposed pledge to Laval. For the French, some continued reparations payment by Germany was deemed absolutely essential on both financial and political grounds and remission would only be acceptable if directly and immediately compensated by a corresponding reduction in French war debts. To achieve this goal, Paris wanted to establish ‘a common procedure with regard to the United States’ designed to exploit the substantial fund of sympathy for Britain’s plight in Washington as a lever to force debt revision.90 Conversely, in mid-January Orme Sargent, the head of the Central Department at the Foreign Office, elucidated three very different principles underlying their own policy: 1 It is essential to preserve the special position which we at present occupy in the United States with regard to war debts: therefore we must not adopt an attitude which may in any way imply cooperation with France with a view to bringing pressure to bear on the U.S. Government. 2 We must not slacken our efforts to bring about the complete cancellation of German reparations, even though it be at the temporary risk of having to continue to make payments to the United States until the new Congress is prepared to revise our war debt settlement. 3 Complete cancellation being our object, we must not accept any scheme for revising the Young Plan in order to enable it to work again when conditions become normal.91 Unfortunately, as Sir John Simon, the Foreign Secretary, explained to the Cabinet in a ‘birds-eye view’ of the problem in January 1932, the position was complicated by the fact that the British preference for all-round cancellation of reparations and war debts meant that ‘Germany would gain enormously; France would lose materially; America would lose heavily; but Britain would remain unaffected (assuming payments by the Dominions continue) so far as the balance of receipts and payments is concerned’. This happy state of affairs Simon justified quite legitimately on grounds of past British generosity both in adopting the Balfour Note principle of collecting only what was needed to pay America and by its action in remitting twothirds of the French debt (along with comparable treatment for its other debtors). Britain would also benefit most from a ‘clean slate’ because the British debt to America was funded earlier and on far more onerous terms than applied to France and the other allies with the result that it had already paid far more. Notwithstanding this excellent defence, however, Simon still

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recognised that the British policy position would ‘provoke the criticism that it is easy to urge sacrifice on others when you do not join in yourself’.92 Yet by this juncture, British policy-makers were almost equally exasperated by the behaviour of their two principal allies. ‘Historians of the future will not be indulgent to French and American post-war policy’, Sir Robert Vansittart, the Permanent Under-Secretary at the Foreign Office declared in a special assessment of the international situation for the Cabinet on 1 January 1932. ‘Both have been blind and selfish, and the former have been unduly vindictive as well’. This conclusion echoed the views of another Foreign Office appraisal written five weeks earlier: we have been careful to cultivate Anglo-American relations to a degree of cordiality never before attained. We are now in the United States the most popular member of Europe, and this position we must strive to maintain, with a full knowledge of American limitations. For when we come to deeds, not words, collaboration with Washington – so long next door to a fool’s paradise – has on the whole proved little easier than with the Quai d’Orsay. Full credit must be given for the ‘Hoover year’, but the United States have often let us down . . . Mr Hoover has been a failure, and there is now at the Capitol every sign of a return to the larger lunacy.93 While the Treasury complained repeatedly of American intransigence in refusing to accept the link between reparations and war debts, therefore, both it and the Foreign Office were becoming increasingly mistrustful of French behaviour towards the Lausanne conference where they were ‘digging themselves in on the basis that reparations payments must be linked up with concessions on debts. We have gone very far to meet these and they have not moved an inch’, Leith-Ross complained on 22 January. ‘They have been raising statement after statement of their policy while we have carefully refrained from expressing our views. Things cannot continue like this without the Government being charged with having no policy and being dragged behind the French chariot’.94 These were sentiments which the Chancellor of the Exchequer wholeheartedly endorsed. Neville Chamberlain was the younger son and true political heir of ‘Pushful Joe’ Chamberlain. Having succeeded to the Treasury after the October 1931 general election, Chamberlain’s vice-like grip upon the management of economic policy was soon extended over many other aspects of the all-party National Government’s policy during the 1930s. Nowhere was this extra-departmental influence more obvious than with regard to Chamberlain’s determination to retain the Treasury’s longestablished domination over the conduct of all debt negotiations.95 Despite a general recognition that the issue was more political than economic and that ‘the maintenance of good Anglo-American relations were in present circumstances of particular importance not only to this country but to the


Depression and the debt question 79 world’, the Foreign Office’s repeated warnings about the Treasury’s crude negotiating strategy and its insensitive reading of the American situation fell on completely deaf ears.96 From Chamberlain’s perspective, the solution to the debt problem was obvious. The myopic intransigence, political cynicism and self-interested greed of France and America over inter-governmental debts threatened to undermine economic recovery and only drastic action would enable the world to break out of this vicious spiral. ‘Any reparations settlement or adjustment must be accompanied by a corresponding settlement or adjustment of war debts’, Chamberlain explained to his sisters in December 1931. ‘Hoover knows it but darent say so. Unless he says so France darent move and so we are all locked in a suicidal embrace which will probably drown the lot of us!’ In order to escape from this hopeless impasse, Chamberlain intended to proceed in two quite distinct negotiating phases – similar to those proposed by Stimson but with a far more closely-related and certain outcome. First, Germany’s European creditors needed to settle reparations; then, and only then, should they approach America over a war debt settlement. Yet while these were to be managed as separate phases, Chamberlain was always determined to ensure that the problems remained inextricably bound together in the minds of America’s other European debtors – both as a means of encouraging them to accept a practicable settlement of their own claims on Germany and to increase their collective leverage over the recalcitrant Americans when the time for settlement or default finally arrived. Given the interlocking nature of this strategy, he was thus prepared to accept a brief postponement of the planned Lausanne conference on reparations until there was some certainty of a negotiated European agreement on their cancellation, in the belief that this would massively strengthen the force of subsequent Anglo-French overtures after the US presidential elections in November when requesting that America should ‘make their contribution’ to world recovery.97 This two-stage approach remained central to Chamberlain’s bargaining strategy throughout the rest of 1932 and it was endorsed by two different Cabinet Committees on reparations under his chairmanship on 6 January and 11 May. Chamberlain’s logic did not pass entirely unchallenged on these committees (or in Cabinet) even at this juncture. On the contrary, Walter Runciman declared forcefully that ‘we are indulging in dangerous illusions if we bank on American generosity. However much goodwill may be felt for us by Administration circles in Washington, it will count for little with a Congress in the throes of an unprecedented depression’. On these grounds, he advocated telling the Americans that public opinion at home would simply not allow Britain to continue paying its debts if it received nothing from Europe. ‘If Europe is not to go over the precipice, Lausanne must result in wiping out, once and for all, the collection of reparations and war debts’. It was an impassioned plea for immediate cancellation or default which Runciman repeated in December 1932 and again in June and December

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1933. But supported by Foreign Office scepticism as to whether this was practicable at Lausanne, Chamberlain’s determination carried all before it.98 On 8 June the full Cabinet endorsed Chamberlain’s desire to begin the Lausanne conference with a general declaration to the effect that it was in the interest of the entire world for an all-round cancellation of reparations and war debts.99 As Chamberlain had summed up his strategy to the high level Lausanne preparatory committee on the previous day: he wanted to avoid repudiation, if possible or at any rate put it off until the last possible moment. It was true that in the circumstances contemplated it would be impossible to avoid default, but this was not the same thing as repudiation. If we could get no payments from Europe it would be necessary to go to the United States and so explain that this made it impossible at the moment to pay. He distinguished, however, between default of this kind and repudiation of war debts in their entirety. In the meantime, they should give no indication to France that Britain was contemplating repudiation. He also deprecated telling Stimson of their strategy because if he still demanded payment ‘it would be rather insulting and awkward’, but if Lausanne succeeded he was confident ‘this might have a great effect in the United States’.100 British efforts to coax the French into an acceptance of this two-stage strategy proved less successful and the difficulties this created only further aggravated existing tensions. Preliminary talks with France in early January over the allied stance at Lausanne soon ‘got into rather a trough’ when Flandin bluntly declared that ‘whereas the fundamental principle of British policy was cancellation, any French Government that proposed such a policy would most certainly be overturned’.101 With his patience ‘very nearly exhausted’, MacDonald angrily complained that ‘the French are just playing their old game of delay and compromise’, but with only days to go before the Lausanne conference was scheduled to convene on 25 January, the absence of French agreement compelled its postponement until June, by which time it was hoped that elections in France in April and in Germany in May might have stabilised the situation.102 Yet although postponement resolved the immediate problem, by now the gulf between the major participants was seemingly unbridgeable. Germany had served notice that it would make no further reparations payments and wanted the conference to agree upon terms for cancellation while rejecting any postponement or temporary arrangement which left the obligations intact, while France wanted only a one-year extension of the Hoover moratorium to tide Germany over the worst of the crisis while remaining intransigent in upholding their rights to unconditional reparations and talked of a long-term railway bond as a form of settlement.103 French intransigence over Lausanne and their efforts to tie reparations to a corresponding settlement of war debts forced the British to face two key


Depression and the debt question 81 questions regarding their debt policy towards America. First, could they exploit their privileged position and superior leverage with Washington to force Paris to embrace their two-stage strategy? And, second, should they overtly align themselves with France in approaching the Americans even if Paris could persuade them to adopt a common strategy? When the Prime Minister, Chancellor and Foreign Secretary met to discuss the situation on 19 January (and during the full Cabinet discussion next day), it was clearly understood that French enthusiasm for a joint approach to Washington was based entirely on their opportunistic recognition that their own moral and economic case for remission was far weaker than that of Britain. Ministers also knew that the ‘strongest possible advice’ from both British and American diplomatic sources suggested unequivocally that London should act independently of Paris by making it clear that they wished to settle reparations without any conditions about war debts and then ‘to trust to making a settlement afterwards with the United States . . . as regards war debts’. As France would only consent to revise the Young Plan if it was guaranteed a corresponding settlement of its debts to America, the Cabinet thus concluded that it ‘must not be drawn into associating ourselves with France in representations to . . . America on the subject of war debts’. All they could do was hope that the French would eventually come to embrace their new version of the two-stage strategy. MacDonald, Simon and Chamberlain were prepared to visit Paris to promote an agreed formula for Lausanne, but by late January they were determined that they were ‘not going to get squeezed & haggled with’.104 Throughout the spring of 1932 Anglo-French discussions continued in the hope of forging a joint policy. By early March, however, Lord Tyrrell, the British Ambassador to Paris, told his American counterpart that ‘it was his unqualified opinion that it would be impossible for France and Great Britain to reach an accord upon the reparations problem unless Great Britain agreed with France that at some time in some manner further restitution to France should be made by Germany’.105 After his protracted negotiations with the French, Leith-Ross also told the Cabinet Committee on Reparations in May that although the new French government might agree to ‘passing the sponge over both reparations and war debts’ if concessions to Germany were matched by corresponding adjustments in French war debts, ‘any French Government which made any payment in respect of war debts in excess of their receipts from Germany would be overthrown’.106 This French intransigence had a damaging effect upon British attitudes towards all their other dealings with France. ‘I do my best to have confidence in [the] French, but am always defeated’, MacDonald lamented after meeting the French Foreign Minister in early April over the Danubian conference. ‘They seem incapable of disinterested diplomacy . . . The diplomacy of France is an ever active influence for evil in Europe’. After an amiable private discussion with Stimson at Geneva on war debts and reparations a month later, MacDonald again contrasted his approval for the Americans as ‘hearty


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cooperators’ with his mistrust for the French who ‘never seemed straight’ and who ‘certainly pursued crooked diplomacy and worked behind our backs’.107 The fact that French leaders exploited every opportunity privately to tell American representatives that Britain was ‘doing everything [it] could to bring Europe up against the United States’ only further antagonised this triangular relationship and left MacDonald ‘very cross with the French for their duplicity’.108 Yet despite the Prime Minister’s increasing contempt for France and his overriding anxiety for Anglo-American goodwill, on the eve of departure for Lausanne Simon, Chamberlain and most of the Cabinet overruled MacDonald’s opposition to a ‘common front’ with France on the grounds that there was nothing to be gained in Washington by remaining aloof, while a display of Anglo-French cooperation might yield benefits with regard to disarmament.109 Despite repeated European efforts to draw the Hoover administration into a definite commitment as to its future action on debts, it refused to go beyond the terms of its aide memoire of 29 December. As Stimson told the Greek, Belgian and Italian representatives on 14 January, ‘if they proposed that they should lose no more to Germany than they gained from us, so that we made the only sacrifice, such a proposition would have no hope of acceptance in this country’. When the French Ambassador warned Undersecretary Castle on the same day that if Germany repudiated its reparations obligations, France would be compelled to end its payments to America, all Castle could say was that ‘I had always heard that the French were a very logical people and that I could not quite understand why indefensible action on Germany’s part, as he called it, would justify France in an equally indefensible action’ – particularly as it was a ‘just debt’ and France possessed ample resources to pay it.110 Unfortunately for the Hoover administration, such arguments were increasingly falling upon deaf ears and time was running out before the Lausanne conference convened. As a result, in early June Stimson resolved to ‘get across to the British the fact that it would not, as the British Treasury thinks, make a good impression in the United States if reparations should be entirely cancelled at Lausanne’ – particularly as the State Department feared the American taxpayer would find it hard to understand why Germany alone should be freed from sharing the costs of the war and that they were sure to regard it ‘as a first step toward putting the entire burden on the USA’. Indeed, so concerned were Stimson and Castle at this perceived misunderstanding of American wishes that on 1 June they personally disabused Lindsay of the cancellationist illusion and instructed Atherton to do the same with his ‘close friend’ Sir Warren Fisher, the Permanent Secretary at the Treasury.111 These briefings left absolutely no doubt that the most desirable outcome from an American perspective was a ‘compromise solution’ at Lausanne capable of giving the inter-governmental debt system another lease of life as a prelude to a separate British approach to Washington for debt concessions, although Stimson ‘frankly admitted the extreme difficulty of the task . . . of carrying cooperation with [the] French


Depression and the debt question 83 Government just to the point which suited [Britain] and then breaking it off’.112 Little wonder the Foreign Office interpreted Stimson’s words as ‘the most open expression we have yet received of the American politician’s desire to get everything and to give nothing, and to hold up the solution of a world problem largely for the sake of the future of his own political party’.113 Nevertheless, to drive the point home, on the same day Stimson issued a similar warning to the Italian government, while five days later he informed the French and Germans that ‘he sympathized with the French and not with the British Treasury’ because the former view ‘aimed at a solution based upon a fair and proportionate sacrifice among all parties’.114 Chamberlain was already deeply mistrusted in Washington as the architect of a British tariff and monetary policy perceived to be contrary to American interests and Stimson was equally correct in identifying him as the principal threat to their position over debts. On the eve of Lausanne it was clearly understood by the Chancellor’s senior officials that ‘his mind is obviously envisaging the united front and if necessary repudiation’ as levers to force America to cancel its claims. By this juncture, Simon was also understood to favour Chamberlain’s policy of the ‘clean slate’ and the presentation of a ‘united front’ with the French in Washington after the presidential election and they talked optimistically of extorting a high price from Paris in concessions over disarmament and other matters in return for their support. As all recognised, however, ‘the P.M. will obviously be very reluctant to accept this policy and there may be other members of the Cabinet who will share his reluctance’.115 Indeed, so strong was MacDonald’s perceived Atlanticism that Simon’s Cabinet paper outlining precisely this policy was withdrawn suddenly on 1 June on the grounds that ‘the Prime Minister might react unfavourably if the note was circulated before he had been squared’.116 Any doubts the Americans might have had about the dangerous trend of Chamberlain’s policy leadership were swiftly dispelled by MacDonald himself who was shamelessly engaged in leaking the content of Cabinet debates about debt policy directly to Hoover and Stimson. In practice, MacDonald shared the Cabinet’s general desire for all-round cancellation, but he was also a committed believer in the critical importance of AngloAmerican cooperation as a force for good in world affairs and he was no admirer of either Chamberlain or the perfidious French who he suspected of ‘rush[ing] us into what will be sure to be a conflict with America’.117 As a result, on 20 June at Geneva, MacDonald told the American disarmament negotiators ‘in great confidence’ of the difficulties created by Chamberlain’s insistence upon a tough line towards war debts and the need for ‘a united front with the other debtors to deal with this problem as a whole’; a policy which MacDonald claimed he could not accept as he ‘would not be willing to do anything that would embarrass the United States or in any way weaken the spirit of cooperation that has been built up between the two countries’. Despite this personal position, however, MacDonald informed Washington


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that Cabinet support for Chamberlain’s position had recently grown even stronger and that he had actually been out-voted on the question. On this basis, he warned that deliberation at Lausanne would probably end in an effort to link reparations and debts and an immediate united front demanding cancellation or drastic reduction. Little wonder that when Stimson received this report he noted in his diary, ‘MacDonald has behaved very loyally . . . and he sent word to me . . . that he could not carry out the arrangement which we talked over at Geneva together [on 23 April] when we had our confidential talk on reparations’.118 By the time the reparations conference convened on 16 June 1932 reports of political developments in France and Germany convinced Chamberlain that ‘the outlook for Lausanne is improving’ and he looked forward to the completion of a comprehensive settlement. In taking this view he was encouraged by various reports from Paris that the new Radical government under Edouard Herriot now accepted that Germany would not be able to pay anything for some time and that French opinion was reconciled to the cancellation of reparations. As such, Lord Tyrrell reported that Herriot’s government fully endorsed the British policy and ‘were prepared to do anything we liked about reparations on the understanding that we followed the same policy about debts’. Above all, as America was better disposed towards Britain, it should ‘take the lead in inducing America to cancel debts’.119 ‘There would be two operations’, Herriot told MacDonald and Simon during their pre-Lausanne talks in Paris on 11 June, ‘a European operation which would be subordinated to a later American operation’.120 Central to Chamberlain’s planning for Lausanne was the hope that at an early stage in the proceedings the five creditor powers would pass a resolution declaring that in the interests of world recovery there should be an all-round cancellation of all war debts and reparations for the duration of the conference. In the event, after a ‘very strenuous time’ wrestling with the other delegations, Chamberlain and Simon finally succeeded in obtaining agreement on a draft which was adopted by the conference on 17 June – although only after Chamberlain made himself distinctly ‘disagreeable’ to Herriot. The result of this ‘big stroke’ Simon reported to London, was ‘to produce a firm impression that we mean business and will not be content with a mere short moratorium and nothing done’.121 In a similar vein, Chamberlain’s opening speech ‘caused great delight’ by giving an unequivocal lead in favour of cancellation all-round because the vast intergovernmental debt was ‘disastrous to the whole economic fabric of civilisation’. Although studiously avoiding the term ‘cancellation’, with an eye on American as well as French reactions, he reminded the conference of Britain’s well-established generosity with regard to the collection of its own war debts and its future willingness ‘to take [its] share in a general wiping of the slate, provided that all other Governments concerned would do the same’. It was an inelegantly phrased section of the speech, but the message was crystal clear to French delegates at the conference and to the Hoover


Depression and the debt question 85 Administration in Washington – as the ‘financial stability of the greater part of the world is in danger’ there was ‘no time to lose’ and they should eschew ‘any makeshift or temporary solutions’ because ‘the disappointments which would ensue might well precipitate the final disaster’.122 According to Runciman, ‘Neville spoke clearly, and was more down-right than either the P.M. (I guess) or the French (certainly) quite liked’. But convinced that ‘plain speech’ was the only hope of progress, Runciman was not alone in feeling ‘we have reason to be grateful to him for this direct style of doing business’.123 The principal initial obstacle to the fulfilment of British plans came not from the Germans who proved ‘very helpful and [more] conciliatory than might have been expected from a German Government of the Right’ but rather from the French. Although Chamberlain found Herriot ‘very attractive, a great talker . . . & a capital raconteur’, he regularly lamented that ‘when it comes to business he always takes refuge in the plea that he doesn’t pretend to understand these technical matters only he knows what his people will stand and that they will never agree to total cancellation’. As a result, Chamberlain had ‘rather a painful surprise’ at Lausanne when he found that Herriot had not shifted from Flandin’s earlier position that the best France could offer would be a scaling down of Germany’s payments because some ‘ “relic” of reparations’ must remain in place.124 This insistence confirmed Chamberlain’s suspicion that the French obsession with their American debt meant that ‘they wanted something [in future reparations payments] . . . to show the Americans that they were not losing sight of the interests of the United States’. ‘If only Mr Stimson had not warned the French that America did not want cancellation’ he noted bitterly on 4 July, ‘we should not have had any very great difficulty in getting the French to agree to it as Lausanne’.125 Little wonder that Walter Runciman soon reported to London, ‘The American problem is always haunting the French and us, and we cannot see the way in which it can be met’.126 In the event, ‘the American problem’ was overcome by adhering strictly to the two-stage strategy and by putting first things first on the grounds that ‘America would resent cancellation which wd merely mean passing the burden from our shoulders to hers but if she saw that we all were prepared to make sacrifices she might come in’.127 Throughout these difficult negotiations with obstinate delegates over the precise amount of Germany’s final lump sum payment, therefore, Chamberlain presented himself ‘in the position of the honest broker. He had nothing to gain from the transaction’, he told the Germans on 3 July. ‘He only wanted a settlement’.128 After tense and frustratingly protracted negotiations which regularly appeared on the verge of complete deadlock, an agreement was finally reached on 8 July after a relaxed and friendly dinner between Herriot and Chamberlain at which they negotiated late into the night to produce a settlement sketched out on the latter’s napkin giving the Germans the desired declaration that ‘a new order was about to begin’ to compensate them for agreeing to the French demand for three billion gold marks ($715 million) in bonds.129


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Chamberlain was greatly relieved at having achieved a European settlement, but he always recognised that this was only part of his broader strategy for removing the burden of inter-governmental debt. As he assured intransigent Franco-German negotiators on 28 June, ‘the first thing was to settle the question of Reparations . . . then it might be found that the position vis-à-vis America settled itself’. When the Germans subsequently made difficulties, he told them that if they could achieve a settlement ‘the situation would improve so rapidly that the Americans could not take the responsibility of upsetting it’ because Washington ‘would feel ashamed if they did not make some contribution when every other country was doing so’.130 Similarly, when confronted by entrenched French scepticism, Chamberlain reassured them that what the Hoover administration said for domestic consumption before the presidential elections may not be the same as their policy afterwards. ‘The important thing was to say nothing to them now but to come to a settlement ourselves’ on the grounds that if it commended itself to world opinion it would be difficult for the United States to resist; an expectation substantiated soon after the conference commenced by unofficial American hints that if the European powers ensured the issue remained off the public agenda during the presidential elections it might be possible for Hoover to defer the next war debt payment (due on 15 December) until a negotiated settlement had been reached.131 Yet as Chamberlain also consistently assured the other creditor powers, the logical corollary of his strategy was that it ‘was impossible to . . . conclude a complete and final settlement at Lausanne because America was not represented. We must proceed stage by stage’. Although they could not say so publicly, what this meant in practice was that ‘it would be understood among ourselves that ratification must depend on the attitude of America’.132 To retain this clear link between reparations and war debts in pursuit of a ‘clean slate’, the creditor powers thus entered into a secret ‘gentleman’s agreement’ postponing ratification until they reached a ‘satisfactory settlement’ with the United States over their own war debts. If no satisfactory settlement with America was possible, the Lausanne agreement would not be ratified by its signatories and the legal position would revert to that before the Hoover moratorium. A similar arrangement was also extended to interAllied debts to Britain.133 The ‘gentleman’s agreement’ was a suitably flexible formula which had been under discussion in Whitehall for some time and then agreed in AngloFrench talks in Paris on the eve of Lausanne. For Chamberlain it certainly meant precisely what it said. By avoiding any premature threat of eventual repudiation, it enabled Britain to allay allegations of ‘the smuggest hypocrisy’ after stern lectures to its Irish and Balkan debtors on the sanctity of such obligations. It also permitted Britain to avoid being branded a defaulter which ‘would make Englishmen blush for generations’. While doing this, however, Chamberlain also believed his strategy would create the conditions in which the United States would be compelled to accept the


Depression and the debt question 87 inexorable logic of the ‘clean slate’. ‘What I want is cancellation by consent’, he told Simon before Lausanne; ‘and I believe we can get it if we give America time . . . I am convinced that every extension of the period during which no payments pass, serve to educate public opinion in the USA and hence to facilitate ultimate cancellation by consent’.134 Yet even within the British Treasury there were those like Leith-Ross who always regarded the ‘gentleman’s agreement’ as nothing more than a convenient formula designed to avert an inevitable crisis for a few more months before Britain eventually faced the blunt issue of whether to pay America or not.135 Unfortunately, what no one had envisaged was that Herriot would almost immediately refer to the ‘gentleman’s agreement’ in a public speech – particularly after Ogden Mills made it abundantly clear that Lausanne should avoid any ‘shock’ to American opinion to assist him in inserting a ‘neutral and colourless’ paragraph on debts into the Republican programme. Instead, however, after the ‘half-publicity’ already given to it by Herriot, on 12 July an embarrassed British Cabinet agreed to publish an official explanation of this supposedly secret undertaking despite a recognition of its ‘unfortunate effect’ upon opinion in America.136 Lausanne did not produce an ideal result for British diplomacy and in the ensuing parliamentary debate the ‘secret diplomacy’ of the ‘gentleman’s agreement’ was savagely condemned by Churchill and Lloyd George. Although neither critic was influential in the United States, as MacDonald confessed privately, he was ‘a little bit disturbed’ about the American reaction because ‘anybody is good enough for an election cry during a Presidential election’. Nevertheless, in Parliament, the Prime Minister effectively rebuffed these criticisms on 12 July with the assertion that it would have been far worse for the world if Lausanne had failed to produce a permanent settlement and that having obtained it Britain would be able to call upon America to play its part in the process. As MacDonald told the economist John Maynard Keynes, the conference had been ‘a great tussle. The United States was in the background all the way – present, not as a negotiator, but as a shadow’. Yet for all that, he remained confident that America would now ‘play up’ in a manner in which it would not have done before the settlement on reparations.137 The principal problem confronting Britain’s ‘stage-by-stage’ strategy was that the White House and Congress were adamantly and publicly opposed to any remission or cancellation of European war debts. Even before Lausanne, the Cabinet were aware that Stimson was ‘getting apprehensive lest reparations should be cancelled’ because no agreement of this sort could hope to be favourably received in America.138 When rumours of the supposedly secret ‘gentleman’s agreement’ leaked out on 11 July, Hoover was furious. It was ‘a Hell of a thing’ he exploded, ‘they are trying to “gang” us’ in order to fasten the sole responsibility and burden for all inter-governmental debts upon the American taxpayer;139 suspicions reinforced by the publication at the same time of an Anglo-French agreement to exchange information in


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‘complete candour’ while cooperating over disarmament and a projected world economic conference.140 Stimson was equally infuriated by rumours that ‘some stupid ass in the British Treasury’ claimed that ‘he knew American psychology, and that the way to treat American psychology was to cancel reparations and then present us with a fait acompli and cancel debts’ – and he subsequently told the French Ambassador so in very blunt language.141 In reality, the ‘gentleman’s agreement’ should have come as absolutely no surprise to Washington. Indeed, Atherton actually told the Foreign Secretary in mid-January that ‘it would be better to present the United States Government with an accomplished fact of an arrangement regarding reparations [after the presidential election] than attempt to secure their consent in advance which would only embarrass them’; advice subsequently repeated privately by figures as diverse as Parker Gilbert (the former AgentGeneral for Reparations) and Senator Borah.142 More important, the Hoover administration had known for many months that Chamberlain was working towards a ‘clean slate’ and on the eve of a settlement at Lausanne MacDonald privately warned Washington through the American negotiatiors at Geneva that ‘it was going to be difficult for him to get an agreement at Lausanne without some attempt probably to make that conditional upon a settlement on debts’.143 Given all this prior intelligence, when MacDonald confirmed the existence of the ‘gentleman’s agreement’, Undersecretary of State Castle lamented its existence but he accepted it as a political reality – particularly as Norman Davis assured him that ‘it is there in an unobjectionable way’.144 Stimson and Mills took a similarly pragmatic and sanguine view, but Hoover was tired, irritable and much less philosophical when he found that ‘the European nations were all in an iniquitous combine against us’. Indeed, with the presidential election campaign already under way, he initially wanted to retaliate with a vigorous public denunciation and when an anxious Stimson attempted to dissuade him Hoover expostulated with ‘a rather high degree of heat’ that they ‘really had no common ground’ on the subject; an angry declaration which provoked Stimson to declare that if this was true their differences were so great that he should resign. After this, Hoover agreed not to issue a statement. As Stimson noted after this clash, as so often in the past, ‘when he has blown off his steam, he becomes his real self again and is helpful and good-natured. The real trouble is that he is stale and really badly tired out, and nobody around him holds him back. He is irritable and there is the real danger . . . he is so tired that he has lost his perspective’.145 Hoover’s temper and Stimson’s tact were to be tried a great deal further before this particular storm had blown itself out. On the very same day Chamberlain told the House of Commons that the European representatives of Lausanne had reached their agreement after assurances from the American delegates to the Disarmament Conference at Geneva that the United States would scale down their own war debts. Stimson was predictably ‘staggered’ by Chamberlain’s ‘astounding statement’, but concluded that he had ‘lost his


Depression and the debt question 89 head in debate’; a view subsequently confirmed by MacDonald’s message that the Chancellor had ‘spoken hastily and without thought’. Hoover was also furious, but he demanded action to rebut the claim because in the prevailing ‘state of nerves’ in Washington Chamberlain’s words ‘produced quite an explosion on the Hill’. As he now took ‘a very drastic and radical view’ of the situation, the gulf between the President and Secretary of State was further widened because, as Stimson complained, he ‘looks upon everybody with suspicion in the foreign field and in domestic politics they are all reptiles’.146 In the event, private protests from Norman Davis to Simon at Geneva led immediately to the publication in London of two statements clarifying the misunderstanding caused by Chamberlain’s statement and denying unequivocally that the ‘gentleman’s agreement’ represented any form of European united front against the United States.147 Nevertheless, after further malicious and inaccurate reports in the Anglophobe Hearst press to the effect that Stimson had encouraged the Lausanne negotiations, Hoover produced a statement declaring that America had not been consulted on the matter, was not a party to it and that the American people would never be ‘pressed into any line of action . . . by a combination [of its debtors] either open or implied’.148 Despite Stimson’s concern about the ‘undignified’ tone employed to attack European allies who had produced an otherwise ‘magnificent’ agreement, Hoover was adamant and Stimson prudently gave way for fear of provoking something even worse. To soften its effects, at Stimson’s instigation, the declaration was then formulated into a coldly legalistic letter to Senator Borah and issued next day. Stimson also wrote privately to MacDonald urging him not to be discouraged by this response because ‘the intense politics of a presidential campaign, which has already been embittered by the depression, makes it impossible to expect fairness and a poised judgement in respect to the actions of our sister nations’. Nevertheless, he promised to spare no effort to develop the ‘relations of confidence and frankness’ between their two governments which he regarded as ‘one of the most important achievements of the past three years’. Yet as Stimson also lamented privately after the row was over, Hoover and Mills ‘see it entirely from the standpoint of domestic politics, not from the standpoint of our greater interests and broader view’.149 This would become the Secretary of State’s constant refrain during the final months of the Hoover presidency – and with good reason.

5

The British ‘bombshell’


July–November 1932

The end of the Hoover moratorium on 30 June 1932 compelled the British to consider their response to likely American demands for their next instalment scheduled for 15 December. Despite the 12-month respite, American attitudes appeared to have changed little during the presidential election campaign. Although both candidates would have preferred to ignore the issue altogether, a subterranean current of activity ensured that it repeatedly bubbled to the surface. After a declaration from cotton growers in the southern states that debt cancellation would be a small price to pay for the restoration of their European markets, considerable debate was aroused by a speech on 13 April from Al Smith, the unsuccessful Democratic candidate for the presidency in 1928, proposing that America should ‘forget the debt for 20 years’ and write off the principal sum annually in direct proportion to the debtor’s purchases from the United States; an idea warmly endorsed by both Wall Street and the powerful Railroad Brotherhoods. After this, the issue rumbled on throughout the summer and autumn, spurred on by speeches in July and August from William Borah, the influential isolationist chairman of the Senate Foreign Relations Committee, urging the reconsideration of war debts as part of a far broader programme including disarmament, the restoration of the gold standard and possible tariff reductions. And all of this took place against a background of active propaganda from New York financial interests pressing for a final settlement and the well-publicised activities of a committee of prominent political, academic and industrial figures studying the adverse effects of the war debt problem on American business. Notwithstanding this publicity, however, the Washington embassy repeatedly warned against exaggerated hopes about its influence upon public or congressional opinion – and without such a transformation it was clear the President would not act.1 During the campaign, Hoover continued to stand squarely upon his previous Message to Congress. When accepting the Republican nomination on 11 August, the President declared that he remained opposed to cancellation because it transferred all of the burden on to the shoulders of the American taxpayer, but he was ‘hopeful of such drastic reduction of world armaments as will save the taxpayers in the debtor countries a large part of


The British ‘bombshell’ 91 the cost of their payments to us’. He also hinted that he was prepared to trade war debts for ‘some other tangible form of compensation, such as an expansion of markets for American agriculture and labour, and the restoration and maintenance of our prosperity’. He repeated this message at Des Moines on 4 October and Cleveland 11 days later and an outline proposal regarding agricultural exports was even put before the British Treasury in late October.2 Although the State Department soon concluded ‘there was not enough in it to interest Great Britain’ on the basis of a 25 (or even 50) per cent war debt credit for each extra dollar of imports because of the limited scale of American agricultural exports to Britain, Hoover instructed Ambassador Mellon to ‘at least begin negotiations’ with the British Treasury in the hope of a presidential announcement within a few days.3 When Ray Atherton did so, however, Sir Warren Fisher ‘pointed out very definitely and frankly that it would be impossible for the British Government to consider any such proposal not only because of the unwillingness of the Government to act contrary in any way to the letter or spirit of the Ottawa Agreement [on imperial tariff preferences], but also because certain principles connected with the debt settlements were involved’. Despite the repeated scepticism of the London Embassy, Hoover, Stimson and Mills were clearly desperate to obtain agreement and they believed the British were equally eager ‘to find some way out’ of a ‘very pressing question’.4 In contrast, Governor Franklin Delano Roosevelt of New York, Hoover’s Democratic opponent, echoed the substance of his article in Foreign Affairs in 1928 with which he had hoped to influence the previous presidential campaign. This condemned the allegedly absurd position of the Republicans who were ‘demanding payment and at the same time making payment impossible’ through their support for a high tariff policy. As Roosevelt declared in a broadcast on 30 July, his own policy was to oppose cancellation but to be ‘realistic about providing ways in which payment is possible through the profits arising from the rehabilitation of trade’.5 By late August, Roosevelt was also sending authoritative secret signals to ministers in London that, while cancellation was electorally inconceivable, he favoured some radical revision of the debt funding agreement with ‘specially favourable terms’ for Britain. Although he rejected Hoover’s idea of trading debts against other concessions, he floated the idea of reciprocal trade arrangements in which Britain would grant tariff concessions worth $250 million to American goods produced on better terms in the United States than in Britain in return for an equivalent schedule of British goods receiving preference in the American market. He also made it equally clear that he looked forward to a time when the United States, Canada and Britain would find themselves ‘acting with a complete identity of political and economic interests and, in that way, acquire between them the moral leadership of the whole world’.6 Beyond these references, however, there was remarkably little discussion of international relations during Roosevelt’s campaign, not least because he recognised that ‘old Hoover’s foreign policy has been pretty good’.7


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While American leaders were reticent about the debt question, their European counterparts carefully remained completely silent on the subject. After the hostility aroused in Washington by the ‘gentleman’s agreement’, Herriot told the US Ambassador that the subject of war debts ‘should officially be left absolutely taboo, anyhow for the next four months’. In a similar display of deference to the sensitivity of Hoover’s position, when the French Chamber of Deputies reconvened on 25 October the scheduled debate on war debts was postponed until after the imminent presidential election – apparently in direct response to pleas to the French government from Hoover’s representatives in Paris.8 In Britain, the debt question received equally tactful treatment on the grounds that ‘any reference to the subject seems to excite public opinion in America and there was a grave risk that it might become an Election issue’. As the Prime Minister and Foreign Secretary agreed, ‘the best thing is to leave the American Government alone at present, for things are working out our way if we keep quiet’.9 Active consideration of Britain’s policy options did not actually begin in earnest until late September. These musings were prompted initially by Sir Ronald Lindsay, the British Ambassador to Washington, who sought instructions on how to answer the inevitable questions about likely British action towards the December instalment when he returned to the United States after his annual leave. At this juncture, Lindsay made three crucial assumptions. First, that Britain would abandon its previous position of awaiting American plans for readjustment and take the initiative by presenting the Lausanne agreements as the basis for its claim to comparable cancellation of European war debts. Second, on the thorny question of whether Britain should act alone or in conjunction with France in making these overtures, Lindsay assumed that it would adopt the former strategy ‘(a) because we may hope for rather more generous treatment than our ex-allies and (b) because the United States Government have unambiguously expressed a preference for separate dealings’. Finally, he assumed that while the ultimate objective was total remission of the debt, as this was ‘not practical politics’ Britain needed a compromise option capable of obtaining the maximum possible concession from an American administration determined to press for all it could get.10 The outlines of the initial British policy were established at a meeting between key officials from the Treasury and Foreign Office on 30 September. The Treasury was represented by Sir Warren Fisher, its Permanent Secretary, Sir Richard Hopkins (Second Secretary and the chief financial expert) and Sir Frederick Leith-Ross (Chief Economic Adviser), while the Foreign Office was represented by Sir Robert Vansittart and Lindsay. Both the Foreign Office representatives knew the United States well. Before becoming Permanent Under-Secretary at the Foreign Office, Vansittart had been head of its American Department from 1924 until February 1928. Similarly, Lindsay had previously served in Washington in 1905–1906 and 1919–1920, where he acquired an ‘excellent reputation’ and ‘close personal relations with the

The British ‘bombshell’ 93


11

Harding people’. He had also been Permanent Under-Secretary during the severe crisis in Anglo-American relations in the late 1920s before he took up his post as Ambassador in Washington in 1930. Like Vansittart he also had an American wife as did Craigie, the current head of the American Department. Yet for all this accumulated experience, the Treasury perspective dominated the discussion from the outset. According to Warren Fisher, the ‘kernel of the situation’ was that Britain simply could not pay the instalment of £27 million ($95.5 million) due on 15 December except by adding 6d (2p) to Income Tax while the £58,500,000 due annually from 1933 would require a further one shilling (5p) or more on Income Tax. As neither Parliament nor public opinion would tolerate such an imposition, he declared their moral position was ‘unassailable’ given a British tax burden over three times greater than that in the USA when all national and local taxes were included. The Americans should thus be informed that Britain simply would not pay in December and that an agreed suspension was the only means of avoiding default. On this basis, it was agreed that Lindsay should communicate this message privately to Washington as a prelude to overtures immediately after the presidential election with the intention of arranging a moratorium to cover the period up to the World Economic Conference in the middle of the following year. At the heart of the case for revision was Stimson’s aide memoire of 29 December 1931 proclaiming that the European powers should settle the reparations question and ‘then, and only then, could it be proposed that the situation of each of the Nations which have obligations to the United States should be examined individually in the light of the present temporary depression’.12 Although the Treasury view prevailed throughout these discussions, during November it was forced to fight two stiff battles with the Foreign Office regarding both the degree of Anglo-French consultation and the fundamental negotiating strategy to be adopted. When the French Ambassador in London raised the first of these question in early November, the Foreign Office immediately declared that ‘any open talk of Franco-British “consultation” would be particularly dangerous at this juncture and that whatever may happen in practice the least said on the subject the better’; an opposition justified by the established American hostility to anything suggestive of a united front among its European debtors and the very reasonable fear that such suspicions would jeopardise Britain’s prospects of obtaining a particularly favourable settlement. In reply, Fisher conceded that ‘in the last resort we have complete freedom as to deciding our own policy and are not bound to obtain the prior concurrence of the French’, but he still asserted that Britain was ‘morally bound’ to keep in close touch with France, Italy and Belgium and that ‘it seems to us clear that we have every motive for doing so since our interests are common and we all desire the same thing, namely, a postponement of the payment on December 15th, and a permanent settlement on the basis of the clean slate policy’. Moreover, as he told the Prime Minister and Chancellor, there was every advantage in keeping in close


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touch given fears that the French and Italians might at the last moment decide to pay their fairly modest instalments of £5,500,000 and £350,000 respectively without forewarning the British who faced a payment of £27 million. Given their recognition that formal public consultation would be ‘likely to offend American susceptibilities’, however, all agreed this should be carried out ‘quietly and unobtrusively’ through private contacts.13 The second and more fundamental source of inter-departmental conflict related to the negotiating strategy to be adopted with regard to the December payment. Lindsay had always been extremely sceptical about the prospects of total cancellation and predicted that the Hoover administration would ‘press us as hard as possible’ for payment, noting shrewdly that the potency of these claims would be enhanced by the failure at Lausanne to abolish reparations completely; a fact which would be used to justify some further payments to America calculated on the capacity of each debtor to pay.14 After their first inter-departmental meeting on 30 September, Robert Craigie also expressed his alarm as head of the American Department that the Treasury’s inverted Balfour Note policy of paying America no more than Britain collected from its debtors would lead inexorably to a unilateral but premature repudiation of the debt at a particularly unfavourable moment. Convinced that cancellation would come eventually, Craigie thus proposed an annual token payment of £20 million for a few years to buy sufficient time for America to accommodate itself to this unpalatable necessity.15 At Vansittart’s request, Orme Sargent, the head of the Central Department at the Foreign Office, then prepared a six-page note on the forthcoming war debt negotiations which outlined his concerns about the vulnerability of the proposed British bargaining position. In particular, he warned that Stimson might accept all Britain’s arguments but still declare that debt revision depended exclusively on Congress and ‘a wild or irresponsible Congress (and we know they can be both) might turn down our very first overture. In that event it seems only too possible that we should find ourselves in open and flagrant default’.16 Undeterred by the collective wisdom of the Foreign Office, the Treasury stood firm against what it perceived to be their vacillation and weakness. Sargent’s fears were thus countered with the implicit rebuke that ‘we all expect the negotiations to be extremely difficult and no one would be in a hurry to rule out the “less pleasant eventualities”. But my impression is that our Ministers are not prepared to contemplate any retreat and would not regard it as useful to begin now to prepare a Reserve Line of Trenches’.17 Ultimately, from the Treasury’s rather simplistic perspective it was a matter of bluff, brinksmanship and strong nerves and their determination carried all before it. On 7 November the Cabinet agreed to the terms of a diplomatic Note to be presented to the US Secretary of State with the intention of reopening the question of debt revision.18 After the polls closed on 8 November the returns showed that Hoover had suffered a spectacular defeat greater even than his own unprecedented margin


The British ‘bombshell’ 95 of victory four years earlier. Two days later, during the Secretary of State’s ‘Diplomatic Hour’ set aside for ambassadorial visits, Sir Ronald Lindsay dropped what Stimson later described in his diary as his ‘bombshell about the debt settlement’.19 This Note (drafted by Leith-Ross and David Waley) argued that the Hoover moratorium had been a useful first step, but it had not realised its objective of alleviating economic depression, while Lausanne was characterised as ‘the maximum contribution in the field of intergovernmental finance which the Governments concerned have so far been able to make towards the early restoration of world prosperity’. As Britain remained convinced that this regime of international financial obligations needed radical and urgent revision, it thus urged the United States to enter into negotiations on a corresponding review of European war debts. As no such final settlement of the question was realistic in the five weeks before the next British instalment was due on 15 December, the immediate purpose of the Note was to argue for a suspension of this payment to enable these negotiations to take place unencumbered by such burdens in a manner similar to that employed at Lausanne.20 Next day Stimson was presented with a strikingly similar document by the French Ambassador, while Claudel warned of the stern attitude of the French Chamber and the danger of mass default leading to the bankruptcy of Europe. Although prepared to discuss disarmament as a possible quid pro quo for a satisfactory debt settlement, like the British, Claudel declared that ‘he was not very much taken’ with Hoover’s ideas about exchanging debts for trade concessions. He also repeatedly referred to a possible ‘lump sum’ final settlement and its ‘very marked beneficial effect upon the world’. Over the next few days Poland, Greece, Belgium, Italy and Czechoslovakia all followed the Anglo-French example.21 The protracted delay in receiving a definitive American response to the British Note, only intensified Foreign Office concerns about the Treasury’s cancellationist strategy and made them increasingly ‘anxious lest we should be taken unawares and have to improvise a policy at the last moment to meet the American line of attack’. With this in mind, Vansittart repeated their earlier warnings to the Treasury that ‘the most optimistic of our friends in the USA would scarcely, I think, be prepared to advise us to go into these discussions with nothing in our minds except cancellation’.22 Another meeting ‘for the purpose of clearing our own departmental minds’ thus took place on 21 November against a background in which the Chancellor adamantly still repeated that ‘no payment whatever will be made on December 15’, while Lindsay indicated from Washington that the Americans were probably going to refuse a further moratorium.23 Of the three options under consideration, the possibility of withholding payment but offering the Americans a ‘formal IOU’ was rejected by all as ‘the worst of both worlds; not only from the American point of view should we be defaulting, but from the British we should have to sign documents specifically reaffirming our liability’. On the other hand, Vansittart, Sargent and Nichols of the Foreign Office all favoured a token payment of around


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£3,000,000 as a means of accustoming America to ‘non-payment by stages’. This had the advantage that it would ‘let them down as gently as possible’ while avoiding technical default in December. It was also believed that ‘time was on our side’ and that negotiations would be easier with a powerful new President supported by a Democrat-dominated Congress than at the present moment when an irresponsible legislature confronted a lame duck administration. On these grounds it was ‘worth while to make a small payment now if by so doing we improve our chances later on of obtaining an agreed cancellation’. In contrast, the Treasury representatives objected that a token payment would not be sufficient to prevent Congress regarding it as a technical default but it would lead to continual wrangling over both the amount of the token payment and the question of capacity to pay – ‘which must be avoided at all costs’. As such, Fisher, Hopkins and Waley (supported by Granville of the Foreign Office) favoured the Chancellor’s position of simply refusing to pay anything and issuing another Note renewing the request for a moratorium and a revised settlement.24 In an atmosphere of increasing nervousness and uncertainty created by the American delay in responding, Lindsay briefly held out the optimistic possibility that Hoover and President-elect Roosevelt might still cooperate over the debt problem in order to find some basis for a bipartisan settlement.25 In presenting the French Note to Stimson on 11 November, Ambassador Claudel also vigorously urged the need for inter-party cooperation to settle the debt question as ‘a final crown to Mr Hoover’s great work as President’.26 In the event, a reluctant Hoover was soon persuaded that he should be working along similar lines, although the initiative placed an almost intolerable burden on the President’s already strained relations with his Secretary of State.27 Stimson was not exaggerating when he described the European demarche as a ‘bombshell’. Yet in many respects, this action should have come as no surprise to Washington. After all, since December 1931 the French government had repeatedly warned the Americans that the British wanted to cancel all reparations at Lausanne as a means to present the most powerful case for war debt revision or cancellation to the US government. Similarly, Ray Atherton had reported from London in early May that ‘Washington may not grasp how far the English mind which forms public opinion here is preparing itself to accept an almost complete cancellation of reparations payments and making representations to Washington after the Presidential elections’. If the United States refused to accept this compromise offer, these governments were likely to default. ‘I do not want to appear an alarmist’ he warned, ‘but I do want you to realize a frame of mind which exists here so that if events bend in such a direction we shall not be caught entirely unawares’.28 The ‘gentleman’s agreement’ at Lausanne should have further amplified the force of Atherton’s message in the minds of the political leadership in Washington. Yet, for whatever reason, these apprehensions appear to have gone unheeded.


The British ‘bombshell’ 97 When the worst happened, the Hoover administration was painfully aware that it was in a peculiarly difficult position to deal constructively with European requests for debt adjustment. First, the Republican ascendancy in American government came to a spectacular end in November 1932 beneath a Democratic party landslide which swept Hoover from the White House. Second, the final session of the 72nd Congress which assembled on 5 December was weakened by the fact that it contained 158 members who had been retired or repudiated by the November 1932 elections and it was divided in control between 219 Democrats to 209 Republicans in the House of Representatives and 47 to 48 respectively in the Senate.29 Worse still, Hoover was the victim of a historic quirk in the American constitution. For the Founding Fathers, a four-month interregnum between the presidential election in early November and the inauguration of a new President on 4 March was entirely reasonable in order to permit representatives to reach Washington from the furthest parts of the United States on horseback. With the development of modern transportation, however, this extended delay served only to embarrass the defeated incumbent while placing the entire executive branch into a form of political limbo. In November 1932, Hoover thus found himself in the supremely invidious position of being a ‘lame duck’ President for a further four hopeless months – the last holder of that office to suffer such an indignity before the Twentieth Amendment ended the outgoing President’s term on 20 January. In office, but lacking either democratic legitimacy or political power, there appeared to be little hope of any new policy departure on war debts. In an attempt to extricate themselves from this dilemma, Stimson and Treasury Secretary Ogden Mills, believed ‘very strongly’ that Hoover should invite the President-elect to cooperate in responding to this European demarche. The President initially took a very different view. Indeed, when informed of the British Note on 10 November he was ‘full of fight’ and refused either to abdicate responsibility or to share it. After further consideration, however, he became ‘much more amenable’ and agreed to a public letter to Roosevelt ‘putting the thing on the right level’. Although Stimson and Mills then laboured until midnight on the draft and both thought they had produced ‘a good piece of work’, it provoked another sharp disagreement with Hoover who insisted upon injecting into the draft his own decidedly harder line against cancellation; amendments which Stimson feared would have ‘a very bad effect’ by removing ‘the simple and magnanimous tone’ he sought to convey. In particular, he was alarmed that this harsher tone would stiffen the European position, force Britain to default and make Roosevelt less inclined to cooperate.30 These concerns were fully justified by Hoover’s eventual telegram to Roosevelt on 12 November which reasserted that he did ‘not favour cancellation in any form’, but added provocatively that the United States should be ‘receptive to proposals from our debtors of tangible compensation in other forms than direct payment in expansion for our markets for the products of our labour and our farms’. He also repeated


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his view that the disarmament question had a direct bearing on debts. Given the results of the election, however, he explained that he was reluctant to make any recommendations to Congress until he had the opportunity to confer with the President-elect.31 At this juncture, there was no consensus about how to respond to the European initiative among either Republicans or Democrats. On 15 November, Mills advised the President to revive his proposal for a congressional debt commission authorised to negotiate with debtor nations in return for increased markets for American goods on condition that they ‘loyally participate in a genuine disarmament program’.32 Next day, the President met Stimson alone to discuss the plan and to Stimson’s ‘great relief’ Hoover appeared so completely restored after the strain of the campaign that he was ‘an entirely different man from when he left here’. Yet it also became clear that the three key policy actors within the administration each had a different view, for while Mills was ‘thinking only . . . of the Treasury’, the President still appeared to have ‘some of the spirit of the campaign on him’, while Stimson lamented that neither colleague was thinking as much as he was of ‘the necessity of doing something which will not offend the other nations, both to preserve our relations with them and to save the situation’. At a second meeting later that afternoon with Mills and Assistant Secretary of State Bundy also present, it was agreed that ‘the whole matter . . . is a very delicate one to handle’. On one hand, Congress was coming back ‘redhot against any concession whatever’ and Roosevelt was unlikely to take any strong position in the middle of the session. But on the other hand, ‘an incompetent position on debt relations will probably set back the whole situation of [domestic economic] recovery’.33 Differences of approach, priorities and perspective within the Hoover administration were soon brought into sharp relief by the debate about possible responses to the British Note. For his own part, Stimson believed that in their discussions with Britain ‘we have to depart from the legal situation which surrounds a regular loan’ because ‘the quicker we get these damned debts out of the way in some settlement . . . the better off we will be’. As he later recorded in his diary: from the very beginning of this thing I have been fighting a minority battle. I can see all the benefits of the good will that we have been laboring so hard for the past three years to build up tumbling in fragments around us, and I have been trying to make it as easy as possible [for the European debtors]. But my zone of operations has been a very narrow one, for the President has been perfectly set in his policy, and all that I have been able to do is to try to smooth down affairs here and there and to guide the thing into as easy channels as possible. In that point Mills, too, has been against me. He sees only the clear mathematical and legal relation of the two nations, and he has been fighting . . . for his Treasury.


The British ‘bombshell’ 99 Looking back on the struggle within the administration over debt policy, Stimson concluded the episode ‘has shown some of the President’s weaknesses as well as his strength’. What rankled most for Hoover was the reference in the British Note to the Laval communiqué; an ‘inept expression’ whose imputation of bad faith ‘completely undid the President’ and provoked him to defend his record and reputation. But as Stimson also rightly noted, it was ‘one which a less sensitive and broader man would have seen the necessity of ignoring’.34 This penetrating analysis reflected a more profound difference in character between the sternly self-controlled Quaker nature of Hoover who had always suffered from an acute sensitivity to criticism and his forceful Secretary of State who possessed all of the patrician arrogance, charm and affable self-assurance of his class. While Stimson was temperamentally pragmatic and flexible in adjusting to new foreign policy challenges, Hoover was a chronic worrier whose innate desire to plan even those things he could not control made him appear rigid and touchy. As Martin Fausold puts it, ‘Stimson had a sense of constructive optimism; Hoover had a knack for destructive pessimism’ – and never was this difference more evident than after his electoral defeat in November 1932.35 In composing the draft reply to the British, Stimson recognised ‘there wasn’t a chance of payment’ in gold in New York as specified, but he wanted to encourage London to suggest some compromise solution ‘so as to preserve the continuity of the contract and yet not break Great Britain’. On 17 November, Stimson spent half the day, most of the evening and the early hours of the next day on his first draft but he had ‘quite a rambunctious time’ when discussing it after lunch on 18 November with Hoover and Mills who both appeared concerned principally by domestic political considerations as the former battled to defend his past record while the latter attempted to protect his future. Conversely, as Secretary of State, Stimson was anxious ‘not to have [his] note fan the flames of hostility, to the nations of the world’. Above all, he declared in his diary, ‘What I am most afraid of in case we drive them to default is the tremendous bitterness which will be involved between us and Europe, and which will undo so much of what we have been working for’. Confronted by this difference of priorities, Stimson went away to redraft the American reply to the British Note, convinced that there was ‘very little we can do except to prevent matters being inflamed by us’.36 Over the next few days Stimson resumed his battle to inject a more conciliatory tone into the draft reply against the far more combative posture adopted by Hoover and Mills who both believed America ‘should strike back at the British’ – particularly as the President was now ‘very much disturbed’ by the malicious allegations of the Hearst press that his moratorium had effectively committed America to the cancellation of war debts. As the British Note suggested something similar by linking the Laval communiqué to their own Lausanne settlement, Hoover and Mills were determined to refute the allegation even if this meant colouring the whole tone of their official reply. In the end, these long and tiring debates did produce some


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softening of the approach, but Stimson found it all ‘very discouraging’ because ‘if the winter is going to be this way, and the President is going to be so influenced by all the attacks which will surely be made upon him, we are going to have a hard time’. Moreover, Stimson’s task was not made any easier by the arrival of supposedly ‘very direct information’ on the 20 November that the British intended to default unless the December payment was postponed and that all the other debtors ‘were united in a combine to do the same thing’; reports probably emanating from Floyd Blair who had recently returned from London and who told Castle that the British Treasury and Bank of England ‘now talk openly and blithely about repudiation as though it was of no more importance than refusing potatoes at dinner’. There was even less comfort in the warnings of the Commerce Secretary that European default would precipitate a tidal wave of further defaults on public and private debts within America itself.37 Hoover’s invitation to President-elect Roosevelt to consult on the debt question set a precedent in American history, but nothing came of the initiative because the two men were deeply divided by temperament, tactics and fundamentally different views of the causes of the economic depression and the best method of escaping from it. By deliberately tying debt talks to the disarmament issue and the forthcoming World Economic Conference, Hoover obstinately attempted to force Roosevelt to acknowledge that the American depression was part of a world phenomenon and thus best countered by international action. In contrast, Roosevelt’s electoral campaign had been fought largely on the domestic causes of slump and the need for internal reform while playing down the role of external factors in America’s deepening depression. As a result, when he received Hoover’s invitation couched in these international terms, Roosevelt and his advisers inevitably feared being trapped into endorsing their opponent’s diagnosis and prescriptions with adverse effects for their future freedom of manoeuvre at a time when Roosevelt’s own views on the subject of debts were largely unformed.38 During two decades of elective and administrative work as a state senator, Secretary of the Navy and then governor of New York since January 1929, Franklin Delano Roosevelt had acquired an impressive reputation as a highly skilled and pragmatic politician. As the depression set in, he emerged as an equally innovative leader prepared to embrace bold policy departures in order to overcome the economic problems of the nation’s largest state. Yet by his own admission, Roosevelt entered the presidency with little knowledge of economics and Moley doubted whether either he or the new President could have passed an elementary college examination in the subject.39 Beyond the vague conviction that war debts were a ‘politically explosive but economically insignificant issue’, therefore, his relative silence on the subject during the election campaign reflected the fact that he had given the problem scarcely any detailed consideration at all prior to Hoover’s unexpected invitation.40 To complicate matters further, opinion in the Roosevelt camp was sharply


The British ‘bombshell’ 101 divided on the debt question. Raymond Moley, a member of Roosevelt’s ‘brain’s trust’ and one of his closest early advisers, undoubtedly overstated the case when he later claimed that the re-emergence of the war debt issue in late November was ‘destined to divert Roosevelt from domestic affairs during the greater part of two months and, what was even more serious, bring very close a perilous division in his triumphant party’.41 Nevertheless, the divisions were real enough in the months leading up to the inauguration in March 1933 as ‘internationalists’ like Colonel Edward House, Owen Young, Norman Davis and William Bullitt struggled for the ear of the Presidentelect while an opposing camp of economic nationalists – or ‘intranationalists’ – like Professors Moley and Tugwell sought to focus his attention overwhelmingly on the domestic reform agenda. In the eyes of the economic nationalists, after his election Roosevelt ‘humiliated us a good deal’ over foreign relations. Although they approved his actions against international exchange speculators and Anglo-French efforts to use the World Economic Conference for their own purposes, they lamented the victory of the internationalists in pressing the ‘most favoured nation’ policy and ‘in the actual, if only nominal, forgiving of the intergovernmental debts’.42 Yet this complaint is more than a little curious given the fact that the key figures advising Roosevelt about debts and his response to Hoover’s invitation were not the suave internationalists from the cultivated Washington establishment or the New York banking community but rather Moley and Tugwell themselves. Neither man had much grasp of war debts or international finance and even less of foreign affairs, but both undoubtedly knew that their policy priorities lay at home.43 Moley’s selection to accompany the President-elect to the White House was logical enough at a time when neither the Secretary of State nor the Treasury Secretary had been selected. Moley had also enjoyed a close confidential relationship with Roosevelt for many months prior to his victory. Of the two, however, the more determined was Rexford Tugwell, a specialist in agricultural economics from Columbia University. Tugwell wholeheartedly rejected ‘Hoover’s thesis – or alibi – that the depression had “come upon us from abroad”, as a result of the dislocations following the war’. Instead, he blamed a misguided Republican tariff policy and the ‘glorified racket’ of self-interested New York investment bankers. Convinced that Britain and France both could and should pay their debts, and profoundly mistrustful of the suave East Coast internationalist elite seeking to cancel these obligations, Tugwell’s claim that he and Moley were ‘country bumpkins’ in diplomatic circles was intended to be paraded as a badge of inverted snobbery rather than an admission of weakness.44 When Roosevelt received Hoover’s invitation at Albany, Tugwell was already consulting with the President-elect on banking reform and Moley was summoned immediately. Beyond a collective fear that cooperation would commit them to a policy which could bind the new administration for years to come, Roosevelt was even more anxious to avoid becoming tainted by


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association with his predecessor’s failed efforts to tackle the depression. While aware that a public appearance of national unity was politically necessary, therefore, his acceptance of Hoover’s invitation was ‘cordial but firmly noncommittal’.45 He was willing to confer at a ‘wholly informal and personal meeting’ once his ‘slight cold’ had cleared up, but he also pointed out that the immediate question raised by the European debtors ‘creates a responsibility which rests upon those now vested with executive and legislative authority’.46 After this, Moley and Tugwell spent ‘most of the waking hours’ over the next week thoroughly immersing themselves in the war debt question and discussing the case for readjustment with Roosevelt. During these deliberations, they concluded that ‘the debt problem was more political than economic’ and that ‘many of those Americans in the Middle West who were so bitter about cancellation had perhaps a shrewd conception of the right in the matter’. Like Roosevelt, his advisers were also convinced that neither Congress nor public opinion would ever accept cancellation. As a result, in a reflex reaction to the self-interested propaganda of European diplomats and East Coast investment bankers, Tugwell and Moley advised Roosevelt to resist the postponement of the December payment or any effort by Hoover to associate him with such a policy.47 These conclusions provided an unpropitious background for the strained meeting at the White House on the afternoon of 22 November between Hoover and Mills on one side and Roosevelt and Moley on the other. In order to engender a spirit of goodwill, Hoover had done everything possible to conciliate the President-elect in procedural terms. To accompany them in the official car to the White House, as a ‘delicate touch of hospitality’ Hoover sent Roosevelt’s cousin Warren Delano Roosevelt, a protocol officer at the State Department, along with the President’s own naval aide as a further compliment to Roosevelt as a ‘former naval person’.48 Yet for all the procedural niceties, the meeting was a dismal failure. It was widely understood that Hoover had returned to Washington ‘exceedingly disappointed and embittered’ by his opponent’s evasive reply to his invitation. It was also rumoured correctly that he was reluctant to meet Roosevelt alone (as he requested) and proposed being accompanied by his Treasury Secretary ‘due to his profound mistrust of the President-elect’. By the same token, it soon became apparent to Hoover that Roosevelt and Moley were equally ‘obviously suspicious that we were trying to draw them into some sort of trap’.49 A further indication of Hoover’s choleric disposition was the decision to exclude Stimson from the meeting, perhaps because of his more accommodating attitude to the European debtors, Roosevelt and the New York banking community, although the President blandly explained the decision simply as a means of limiting the size of the Roosevelt delegation.50 In the event, the two and a half hour encounter exposed the gulf between the two sides while disagreement over the outcome of this meeting only further reinforced Hoover’s antipathy towards his successor. After a few



pleasantries, Hoover opened with a long and detailed analysis of the war debt problem, speaking for almost an hour with scarcely any interruption and with no recourse to either notes or prompting from the Treasury Secretary. The President-elect remained taciturn and non-committal throughout, but as Moley ‘took charge of the conversation for Roosevelt’ Hoover increasingly directed himself to educating this ‘very ignorant [but] . . . well-meaning young man’.51 Such was Hoover’s mastery of detail and the cogency of his discourse that Moley soon realised that on war debts ‘we were in the presence of the best-informed man in the world’ as he outlined the four principles upon which his administration’s debt policy had been formulated: First, these were not political debts, but substantially honest business obligations. Second, each debtor should be dealt with as an individual unit; each debt was an individual transaction to be judged upon its specific merits. Third, the debts and reparations were not related, so far as the United States was concerned. The United States had taken no responsibility for the fixing of German reparations, had accepted no reparations, had suffered no devastation at home. It could therefore not accept the contention of the European debtors that since they had reduced reparations payments we should for that reason reduce the debts. Fourth, capacity to pay should be considered. We should take account of proven inability on the part of the debtors to pay us. Hoover then went on to argue that although cancellation and default should both be ‘avoided at all costs’ given their adverse implications for international credit and America’s economic stability, they could not insist upon payment without offering some hope of revision or re-examination as this would isolate the United States while provoking a united front of debtors against them at the disarmament conference, in the Far East and at the forthcoming World Economic Conference. While both Hoover and Mills expressed ‘a bitter attitude towards France, they were sympathetic with Britain’ who they predicted would experience difficulties in meeting their December instalment as they had only about £78 million on deposit in the United States while the necessary transfer of gold for payment would provoke a fall in the value of sterling with a consequent deterioration in employment, wages, prices and the standard of living. Turning to ‘the crux of the situation’, Hoover then recounted the history of congressional dominance over the debt issue and the certainty of their opposition to any presidential efforts to negotiate a settlement. Against this background, Moley recounted that Hoover declared that he wanted to revive the World War Foreign Debt Commission to be composed of three presidential nominees from Congress and three named – or at least approved – by the President-elect. In the meantime, Hoover would insist publicly on the December payment and while enabling negotiations to begin under his administration, no commitments could be made until the new one was in

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52

office. According to Hoover’s account, he emphasised repeatedly to Roosevelt that there must be ‘a complete solidarity of front on our part which would involve cooperative action both of himself, the Congress and my Administration’.53 While all of this is tolerably clear, the nature and degree of agreement became the subject of considerable confusion and this fuelled subsequent recrimination and allegations of betrayal. Hoover later recalled that Roosevelt and Moley ‘agreed to all our proposals’. Although Roosevelt was not prepared either to join Hoover in a joint press statement or to attend a meeting with congressional leaders of both parties at the White House next day, according to Hoover, the Democrats pledged their willingness to issue an approving response to his press statement and to communicate their support for the reactivation of the Debt Commission to Democratic leaders in a separate statement.54 Despite Moley’s claim that this version was written nearly 20 years after the event and thus ‘might be attributed to faulty memory’, the fact remains that it conforms closely with Hoover’s memorandum of the meeting and the notes taken by Stimson of Hoover’s impressions made an hour after the meeting. As a result, Roosevelt’s statement to waiting pressmen after the meeting that the responsibility for the problem still lay with the existing administration and that he would not bring any influence to bear on Congress inevitably left ‘a very unpleasant impression’ on Stimson and the President. Worse still, Hoover was ‘astonished’ to find that Roosevelt had not communicated with Democratic leaders in Congress when they opposed his plan to reactivate the Debt Commission at their White House meeting next day.55 On the Democrat side of these negotiations, two accounts exist. Roosevelt’s version is misleading and unhelpful given its erroneous assertion that ‘little discussion took place’ and that ‘on the subject of foreign debts no tangible suggestion was forthcoming’.56 The other account of these events was recorded by Moley later that evening and it differs substantially from Hoover’s. Although he concedes that Roosevelt agreed to the four principles guiding debt policy and on the need to insist on the December payment, Moley flatly contradicts Hoover’s claim that Roosevelt agreed to his proposals regarding the Debt Commission and he attempts to explain Hoover’s confusion by referring to Roosevelt’s unfortunate habit of nodding as a means to indicate his understanding of what was being said rather than to express agreement. According to Moley’s account, he made most of the running for Roosevelt and effectively demolished Hoover’s plan to re-appoint the Debt Commission on the grounds that Congress would never agree. In saying this Moley was keenly aware of the danger of alienating congressional support for Roosevelt in a body hostile to debt revision but whose support he desperately needed to carry his domestic recovery programme. Moley thus argued that any future debt negotiations should be conducted by the executive branch through normal diplomatic channels on the grounds that these were not constitutionally under the power of Congress. Although Hoover and Mills


The British ‘bombshell’ 105 appeared ‘visibly annoyed’ by this counter-proposal, when Roosevelt immediately embraced this formula Hoover appeared reconciled to the fact that ‘the time had come to make the best of things’ and to issue two separate statements. After a ten-minute private conversation between Hoover and Roosevelt, the meeting ended with the agreement that Mills would present the text of the presidential press statement for the approval of the Presidentelect next day.57 This meeting at the Mayflower Hotel on the following morning was even less cordial. Hoover’s bitterness towards Roosevelt after the campaign was intensely felt but (as Moley recalled) between Mills and Roosevelt as ‘Hudson Valley neighbours, members of the same generation of prominent families, and Harvard classmates, there existed implacable political enmity and personal animosity’.58 After Roosevelt’s words to the press on the previous evening, the President and Mills worked hard on the draft press statement at the White House early on 23 November, convinced that ‘he had let them down’ and was going to ‘welch’ on their agreement.59 In the event, however, Roosevelt’s own press statement issued later that night at Richmond outlined the policy position adopted at the White House conference but reiterated his view that the responsibility lay squarely with the current President and Congress and that the subject should be tackled along established diplomatic channels without any recourse to special new machinery. According to Moley, ‘this statement and the formulas [sic] it presented were to be the new Administration’s policy throughout the year that followed Roosevelt’s inauguration’.60 While Roosevelt met Mills at the Mayflower Hotel on 23 November, Hoover was simultaneously meeting congressional leaders around the Cabinet table at the White House. Hoover was ‘at his best, quiet and yet very impressive’ when explaining the situation and what he proposed to do about it, but the Congressmen were ‘a pretty hard-boiled lot’ and Speaker Garner and Floor-leader Rainey led the opposition to the re-establishment of the Debt Commission. According to Stimson who ‘sat quietly in a corner’ for most of the meeting, ‘the President’s logic gradually got under the skins of some of them’, but as all agreed ‘it was quite impossible to get it through’.61 Unable to persuade either the President-elect or congressional leaders to accept the idea of debt readjustment or the reactivation of the Debt Commission, Hoover’s statement after this conference again elaborated his policy of exchanging debt concessions for suitable trade and other advantages and he made specific reference to both the Disarmament Conference and the forthcoming World Economic Conference. It also urged Congress to authorise a new agency composed of members from these two conference delegations to consider the question while Hoover floated the idea of debtors paying the December instalment in their own currency into a blocked account to ease the cost and difficulty of making the transfer; a proposal which American press and editorial comment generally appeared to favour.62 Hoover’s failure to obtain Roosevelt’s cooperation shattered initial British


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hopes of an easy solution on agreed lines. Soon after the President’s meeting with congressional leaders on 23 November Stimson presented Lindsay with the American reply to the British Note. By way of a preface, he explained that ‘the British had made it pretty hard for those of us who were fighting their battles because of the language in which their request had been couched’, particularly as the reference to the Laval communiqué ‘seemed to some to impute a charge of bad faith against the President and the Government’. Lindsay was evidently ‘shocked’ by these accusations and Stimson noted he appeared ‘terribly broken up’ by the tone and content of the American reply. This was actually a considerable understatement. Indeed, when first shown a draft by the Secretary of State early on the afternoon of 23 November, Lindsay declared that ‘the whole note was calculated to produce the worst possible impression in England’ and that he was ‘completely horrified at it’. The ‘[t]one of the whole note was dry, legalistic and entirely unsympathetic’, the Ambassador reported to London. At its heart was a blank refusal to accept the European interpretation of the Hoover-Laval communiqué as evidence of an American commitment to act on war debts once Europe had resolved the reparation problem, while pleas to extend the moratorium were dismissed on the grounds that no new evidence had been adduced as to its necessity. In reply, Lindsay refused to concede either point, arguing reasonably that although no formal promise to cancel or revise war debts had been given by the United States, the Laval document was but the first of several written and verbal undertakings which all amounted to much the same thing, namely, ‘Open your mouth and shut your eyes and see what I will give you’. From Stimson’s remarks the reasons for this stiff and uncompromising tone soon became apparent. First, he spoke of the problems created by the ‘united front’ between the European allies against America; a suggestion which Lindsay repudiated rather disingenuously with the claim that there were ‘a number of Powers in one box and in identical situations; they naturally reacted in identical ways’. Second, and far more important, Stimson’s claim that Hoover was ‘a sensitive man’ served as a prelude to repeated references to presidential pique at the ‘implication of bad faith’ in the British document. Although the Ambassador made it abundantly clear that he had ‘never been more astounded in [his] life’ by this interpretation, the fact that the point recurred more than once was clearly indicative of its importance at a time when Stimson noted privately in his diary that Hoover had been ‘very much embittered’ by the form of the British Note and that this had been the ‘principal stumbling block’ to his own more conciliatory position.63 What is most remarkable about this interview is the degree to which Stimson became increasingly alarmed by the vehemence of Lindsay’s evident distress. Indeed, at one point the Ambassador declared that he had drafted the British Note himself and that ‘if the answer went in the form it was, it would mean the end of his diplomatic career’.64 Stimson was ‘very much troubled’ by this response. ‘The way he took it brought home to me more clearly than


The British ‘bombshell’ 107 I could get it any other way the effect that even the most moderate statement of our views would have on the British, when it was coupled with a refusal to extend the time of the December 15th payment’. Afraid that all the goodwill he had been labouring to create would come ‘tumbling in fragments around us’, Stimson decided to make ‘one final attempt to tone it down . . . and to get out of it some of the history of the American position’ even if he could not modify the substance. With this assurance, Lindsay handed back the American reply after a ‘very emotional interview’ lasting an hour. After giving the French Ambassador the formal American response to their Note, which Claudel accepted ‘in a very philosophic way’, Stimson then hurried over to the White House where he persuaded the President to strike out the last part of the text rebutting the British references to the Laval communiqué which Hoover had initially drafted himself in far more robust language and placed prominently at the start of the draft reply. Stimson then returned home with the now ‘comparatively small document’ and gave it to the ‘much relieved’ British Ambassador at 6.45pm, declaring that ‘it cost him [the] utmost effort to get [the] President’s approval of it’.65 Although the tone of Stimson’s revised note was ‘much less offensive’, the substance (published on 25 November) offered equally little hope of compromise. While acknowledging both the cost of the Lausanne settlement to Germany’s creditors and the adverse impact of war debts on world economic recovery, it still emphasised that the administration could not disregard the effects of the British proposal on the American taxpayer when the economy was wallowing in the depths of depression. Moreover, as the ultimate decision about the funding of war debts lay with Congress rather than the President, Stimson coolly informed Lindsay that ‘I cannot see any presentation in your note which would be likely to induce the Congress of the United States to act upon the question any differently now from the manner and principle upon which it has acted in the past’. As such, the written American reply concluded that ‘Such importance is attached by our Government and people to the maintenance of the original agreements . . . as to far outweigh any reasons now apparent for its suspension, and by such payments the prospects of a satisfactory approach to the whole question, in my opinion, would be greatly increased’.66 Despite the rather stiff language of the formal American reply, the tone of Stimson’s conversation at his second meeting with the British Ambassador on 23 November was rather more encouraging. Although no progress was made over the contentious question of a prior American commitment to act after Lausanne, Stimson misleadingly claimed that after the President’s meeting with congressional leaders that morning there was every chance they might re-establish the Debt Commission in order to extend special consideration to Britain. He also explained that the Note in its new form was designed to encourage Britain to come forward with a counter-offer and when questioned on whether he had anything in mind, he suggested ‘either something in the nature of a part payment or something like the President’s proposal to pay in


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sterling into a blocked account’. In order to make further progress, however, Stimson made immediate arrangements for Lindsay to discuss the options with Mills, with the enigmatic warning that he should not officially repeat his earlier claim that Britain was unable to pay in December because if he did so ‘Mills would be bound as a matter of duty to take some action of a very drastic nature which he himself did not understand and could not explain’; a vague but ominous threat to British credit which briefly created alarm in London.67 When Lindsay met Mills immediately after leaving Stimson on 23 November, the Treasury Secretary adopted a ‘highly critical attitude’. In response to the Ambassador’s question about the form of a British counteroffer, Mills vaguely repeated the President’s idea of payment in sterling into a blocked account and their desire to treat the British with special consideration. He also made it clear that they were absolutely determined not to make any concessions to other debtors. Lindsay responded with studied coolness. Hoover’s blocked account proposal would afford a temporary respite from transfer and exchange problems but it would not relieve the British budgetary or fiscal burden and his government could not realistically ask Parliament to add a shilling to Income Tax to pay America. Moreover, he argued that the idea of discussing new proposals for the December payment ‘was an invitation to negotiate with a noose round our neck’, while there was the very real risk that payment now would only provoke a similar demand in June. Warming to his theme, Lindsay declared that ‘any suggestion that we could pay [the] December instalment was like a game of poker in which the players ante in order to keep in, only that Great Britain would pay 4 and a half times as much as the other who may have deserved less good treatment’. When Mills suggested that Britain had the right under its funding agreement to request a postponement of the capital instalment, Lindsay replied stiffly that the British ante would then only be three times as large as that of the other debtors. ‘I spoke throughout with the utmost frankness and indeed it verged on the discourteous’, Lindsay later reported to London. ‘He showed no resentment whatever and listened with a degree of patience and consideration which I cannot appreciate too highly’. At the end of the meeting, however, Lindsay declared that he regarded the situation as ‘quite hopeless’.68 Despite this sparring, three points emerged clearly from these meetings with Stimson and Mills. First, that both congressional leaders and the White House differentiated between Britain and their other European debtors and wished to accord it some special consideration. Second, to make this possible, American public opinion needed more instruction on the British case for debt revision because (as the published American reply also contended) this had never been adequately presented. Finally, although the Hoover administration was extremely keen for Britain to profit from this goodwill and were prepared privately to suggest a variety of acceptable expedients to make this possible, ultimately everything depended on a public British


The British ‘bombshell’ 109 counter-offer to their creditor. If Hoover’s idea of sterling payments into a blocked account was unacceptable, then ‘surely their ingenuity was adequate to devising some other similar scheme for meeting the situation of next month with satisfaction to both parties’. When Lindsay consulted Mills for a second time on 28 November, he again ‘harped insistently on the necessity of making a counter offer’ but Lindsay’s efforts to float the idea of a token payment were ‘received with a complete silence which [he] could only interpret as disapproval’. Next day, Herbert Feis (economic adviser to the State Department and speaking with Stimson’s full knowledge) suggested that if Britain was unable to pay the entire instalment it should pay what it could and issue a bond or note to the United States for the remainder, but he warned that default would be disastrous, less from the economic point of view (though that would be bad enough) than from the political perspective. ‘On both sides of the Atlantic it would engender lasting bitterness which would complicate and possibly defeat all hopes of cooperation on matters of world importance such as disarmament, economic conference etc’.69 During a much-needed Thanksgiving weekend duck-shooting in South Carolina, Stimson concluded that ‘it was very important that the President should prepare to take responsibility right in his hands and lead a real battle against the reactionaries in Congress’. As a result, immediately after his return to Washington on 28 November, Stimson ‘urged strongly upon the President not to be cautious and not to yield to the attitude that Congress must do the negotiating’ because if he intervened directly default could be avoided – particularly as his interview with Lindsay had convinced him that ‘when the British actually reached the brink of the chasm, they would stop, and that if we gave them any chance to work out a compromise they would accept it’. Although Hoover was ‘rather reluctant’ and Mills was definitely against the idea, Stimson ‘urged him pretty hard’ and he came away optimistic. At the Cabinet meeting next morning, Stimson again refuted the President’s previous suggestion that Congress had removed his power to negotiate with debtor states and deliberately employed ‘strong language’ in declaring that ‘it was his duty to do so and not to abdicate his power’. By the end, Stimson believed that he had carried his point with the majority in his favour while the President remained silent. Confronted by evidence of a ‘tremendous deterioration in business’ since the election, by the following afternoon even Mills now shared Stimson’s view that ‘it was a great opportunity for the President to come out in his message [to Congress] with a bold course which would make it really a great state paper’. Above all, he should ‘recommend as strongly as he can, the only way which we can break out of a vicious descending spiral of depression which we are in, will be to settle the debt question as promptly as possible’. After this, Stimson, Mills and Chapin (the Commerce Secretary) saw the President alone and impressed upon him that their experts all agreed that ‘everywhere there was a vicious circle that must be broken’. ‘The President reacted all right at once’, Stimson noted. ‘He said it was fine that he would do it’. Above all, to restore the


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business confidence shattered by Hoover’s defeat, they needed ‘some bold step in order to change this psychology’.70 By this juncture, Stimson was more convinced than ever that success depended crucially upon separating British claims for debt revision from those of the other debtors – and particularly from those of France. Britain deserved special treatment because of the much greater size of its payments and the weakness of its currency, reserves and general economic condition. As none of these arguments for preferential arrangements applied to France, there could be no complaint from Paris that it was being unfairly discriminated against – particularly as the same criteria regarding capacity to pay had bestowed upon France a much less onerous debt settlement in 1926 than that offered to Britain.71 Yet underlying this differentiation was the fact that American spokesmen found it extremely difficult to conceal their irritation at French pleas for postponement. As Norman Davis told a French diplomat at Geneva in mid-November, ‘since she had withdrawn in a few months this year enough gold from the United States to pay ten annual installments [sic] on her debt . . . bringing the question head-on for a decision did not seem appropriate at this time’.72 Hoover, Stimson and Mills were equally annoyed by the French tactic of ‘trying to get relief . . . by getting behind Great Britain’s skirts in the hope that it will be impossible to make a difference’.73 Stimson was fully aware of the difficulties of offering preferential treatment to Britain – not least because Tom Lamont spelled them out in detail on the morning of 28 November after informal consultations by his banking colleagues at J.P. Morgan with the French Treasury and the Bank of France. ‘Our people have got to get away from the idea that there is a ganging [up] going on between the British and French’ he chided. ‘It is a political thing. The British feel that if they disregard the French in this thing, they will lose their cooperation on Disarmament and everything else’. Conversely, given the ‘very powerless situation’ of Herriot’s government, Lamont warned that the French believed they ‘must go along with the British’ or risk being deposed from power. Yet despite Lamont’s protests, Stimson resolutely refused to accept French claims to equal treatment on the grounds that their instalment of $19 million was small compared with the British payment of $95 million – particularly as sterling’s depreciation meant that it actually amounted to nearly $150 million in gold. ‘If they will not look at mathematics but insist on treating it as politics’, Stimson explained in frustration, ‘nothing can be done’.74 Having thrown the ball into the British court, Stimson hoped that London would ‘use its head and think intelligently’. The problem, however, was that he suspected Chamberlain of being the principal obstacle to his hopes and plans. ‘The suggestions we have made have not gotten any further than the Chancellor’, Lamont reported to Stimson on 30 November. While they might have some appeal to MacDonald, he lamented that Lindsay had been ‘totally lacking in suggestion’ and that the desire to preserve the entente with France and support Herriot ‘has transcended every other matter’.



It has transcended in their minds the importance of their own sterling position, the dangers of default on the one hand or shipping gold on the other, and I think it has transcended every other consideration except that of friendly feeling between America and Great Britain. In other words, while we do not know what has been going on in the Cabinet meetings over there, I imagine that that has been a very cardinal principle.75 This verdict was unfair to Lindsay, but in their concerns about Chamberlain and Britain’s close association with France, the Americans had ample grounds for apprehension.

6

‘To pay or not to pay, that is the question’


December 1932

Confronted by Hoover’s ‘hopelessly unresponsive’ reply to their request for a further moratorium and with no contingency plan whatsoever, the British faced a stark dilemma. As the Chancellor of the Exchequer noted with more than a touch of Shakespearean drama in late November, ‘To pay or not to pay, that is the question’.1 As the man on the spot, Lindsay certainly favoured payment and a more conciliatory approach. He feared that default would create much hostility in America and would ‘be flung into our teeth every day and with all the more insolence because in circles such as those of Congress a guilty conscience usually hides itself behind vituperation’. Although Britain had more friends in America than ever, after default they ‘will be disarmed and reduced to silence’ while ‘with a hostile America in our rear our influence in Europe in the cause of peace will be gravely and permanently impaired’. For all these reasons the Ambassador counselled against default in the belief that Britain was dealing ‘with a body actuated entirely by English mob psychology which is always stupid and generally brutal, but which is also capable of hysterical generosities’. In order to appeal to sympathetic elements, Britain should adopt a dignified stance in ‘the guise of a supplicant debtor’ while avoiding speeches and press comment expressing ‘galling criticisms’ of American policy on the grounds that ‘however justifiable [they] have a disastrous effect on this vain [,] ignorant and sensitive people’. Above all, in the Ambassador’s view, Britain needed to respond to the White House claim that it had offered no reasoned explanation for suspension capable of being submitted to Congress – ideally by publishing a version of the Treasury’s ‘British Case’ given privately to Lindsay before his return to Washington – because ‘nothing is likely to avail in our answer except some forcible and above all lucid appeal to [the] self-interest of this country, and I feel that such a case could easily be made out’.2 At the Foreign Office, Lindsay’s conclusions were warmly endorsed as the basis for a possible compromise option in the form of a ‘token payment’ designed to avoid the equally distasteful evils of either default or a full payment in gold. Yet to a remarkable degree, the Foreign Office had been effectively marginalised by the policy ascendancy of the Chancellor and the Treasury. Deeply frustrated by their inability to influence the policy debate


‘To pay or not to pay’ 113 and utterly contemptuous of the Treasury’s simple-minded advocacy of a strategy of postponement or non-payment, all the professional diplomats could do was prepare another memorandum formally recording the reasons for opposing the adopted policy.3 As an ardent Atlanticist convinced that Anglo-American cooperation represented ‘the foundation of world work’, the Prime Minister also inevitably endorsed Lindsay’s conclusions. Even after Hoover’s defeat, MacDonald remained confident that he would honour his pledge to negotiate a new debt settlement as soon as the election was over. Instead, when he learned of the American refusal to grant a moratorium on the December payment, MacDonald angrily recorded in his diary that ‘its action will disgrace it for all time unless men cease to value honourable and fair conduct & sense. It cuts me to the heart to find friends behaving so’. As he protested in late November, Hoover’s refusal ‘had made him look like a fool’, but he still wanted to do ‘what a natural Scotsman would do – pay and write a letter of a natural gentleman’. Unfortunately, as he confided to William Bullitt, who was acting as Roosevelt’s secret intermediary, while he and Baldwin both favoured making the December payment, this was by no means certain because he ‘was having grave difficulty with the Cabinet’. Above all, he warned that ‘Neville Chamberlain was absolutely opposed to paying and that the Treasury officials agreed with Chamberlain’.4 MacDonald was right to be concerned about Chamberlain and the powerful Treasury establishment. In fairness, some at the Treasury were prepared to detect a silver lining within the cloudy countenance of the American reply to the British Note. Certainly one official, probably Sir Richard Hopkins, argued that British press and official comment on the statements by the President and President-elect had missed the crucial point that when put together they constituted ‘an enormous step forward’ because they both tacitly conceded the need for a review of the subject while for those debtors likely to experience transfer problems ‘the door has been opened for discussion of postponement of December 15th payments’ in return for any reasonable alternative such as serial bonds. Furthermore, the European press also appeared to have completely ignored the fact that Roosevelt had ‘clearly shown that he is prepared to take a constructive attitude in the whole War Debt question’. As such, Britain should seize their opportunity by working out a satisfactory formula for payment in December while discouraging the press from attacking the Americans because with properly handling this might ‘make a new starting point for cooperation between the European debtor countries and America which will mean much to the economy of the whole world’.5 This optimistic assessment was not shared by the Chancellor. On the contrary, Chamberlain drew a very different conclusion when he pondered the question, ‘To pay or not to pay’. On the one hand, he recognised that default would encourage every other small debtor nation to do the same while the action would gravely undermine confidence in Britain’s moral leadership as


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‘To pay or not to pay’

well as its credit. But on the other hand, paying America would only vindicate their cynicism and obduracy towards European debtors to the detriment of world recovery and encourage them to expect further instalments at a time when the nominal balance owed by Britain amounted to $4,700 million – larger than the original advance of $4,300 million after nearly half of that original sum had already been repaid. Against this background, Chamberlain concluded in late November that ‘it really requires more courage to refuse to pay than to pay’, but after the American reply he was inclined towards non-payment. ‘I should not repudiate; I should expressly admit the obligation but at the last moment I should inform the Yanks that my conscience would not allow me to take such a step which I was convinced would upset the world & throw back all chance of recovery for an indefinite period’. Despite Foreign Office advice to make a conciliatory token payment of £3 million to accustom the Americans to ‘non-payment by stages’, Chamberlain and the Treasury were determined there should be no payment on 15 December and that Britain should simply insist upon a moratorium and a revised settlement.6 This stance conformed well with Chamberlain’s broader two-stage strategy of first educating the French at Lausanne before going on to do the same with American opinion. In practice, Chamberlain was always realistic about the slim prospects of complete cancellation because ‘from the moment . . . they had agreed at Lausanne to a further and final payment by the German Government, it had been clear to him that they could not expect the United States to accept complete cancellation; something would be sure to be asked from them’. Nevertheless, he was convinced that ‘the longer they go without payment the more easy will it be for them to accept the prospect that there never will be payment’.7 As he explained to Flandin in mid-November, his strategy was to work for a moratorium of at least three years with ‘a lump sum payment of enormously reduced amount, so that the Americans could tell their Congress that they had refused to listen to cancellation; but the amount would, in fact, be so small as to be nearly the same thing’. As the British enjoyed far warmer relations with Washington than Herriot’s government, all agreed it was better if France ‘sat back and let us do the running’.8 To prepare British public opinion for the shock of default, in late November Chamberlain assiduously briefed the press on the position.9 Chamberlain’s own view was vigorously reinforced by all his senior Treasury advisers. Above all, Sir Frederick Leith-Ross asserted that the Cabinet needed to decide if it was going to pay in the last resort because Congress was not going to change its mind and ‘nothing could be more humiliating for us than the position we would be in if after repeatedly pressing for suspension we eventually paid. The ordinary Congressman would declare that we were twisters and that experience showed that the only thing was to deal firmly with us and we would pay up’. In his own mind, LeithRoss had absolutely no doubt that Britain should refuse to pay and he mobilised a formidable range of reasons to justify this stance. Payment would


‘To pay or not to pay’ 115 ‘irretrievably . . . wreck the prospects of a ratification of the Lausanne Agreement’, but it would not prevent France from defaulting because both Herriot and his Finance Minister Louis Germain-Martin were committed to resignation rather than do so. It would also deny the financial markets the certainty they needed and may threaten the British exchanges even further. Anyway, as Congress was ‘completely irresponsible’ and resistant to reasoned argument, ‘the only way to make them face facts is for us to suspend payments’. Moreover, as Leith-Ross shrewdly explained, while payment in December would only open the way for a repetition of the situation in June, suspension before Roosevelt came into office would enable him to make a reasonable settlement once in power while transferring all the blame on to his predecessor. For all these reasons, Leith-Ross argued for a suspension of the December payment pending a final settlement with another British Note stating the full case for doing so in the belief that such a strategy would confer ‘the support of the whole of Europe and the moral leadership of the world’. Or, as the Chancellor’s influential private secretary noted, it was ‘better to save Europe and the world by facing the music now instead of letting everything be wrecked and enduring the long process of humiliation on the pretty hopeless gamble that the American leopard will change its spots in time’.10 Yet although such opinions reflected the general state of Treasury sentiment at the time, they would soon undergo a radical change. The crucial turning point in the development of Chamberlain’s thinking occurred on the afternoon of Sunday 27 November, at a meeting with the Governor of the Bank of England. Here Chamberlain was informed for the first time that the US Treasury Secretary privately sympathised with the British stance and was ‘anxious to help’. To this end Mills had secretly hinted that Britain should differentiate between payments on the principal and interest on the December instalment, totalling $30 million and $65.5 million respectively. In so doing, Britain could avail itself of its right to suspend payments on the principal for two years under Article 6 of the 1923 Funding Agreement. Although only Congress could remit the interest, Britain should offer to make this part of the payment in the form of three blocks of one, two and three yearly serial bonds to be held by the US government until maturity. As Mills would look sympathetically upon such a request, there was every hope that Congress may be persuaded to accept it.11 From Chamberlain’s perspective, the obvious objection was that the Americans refused to extend such a plan to the French, to whom they were violently hostile – largely because it was difficult to insist that Americans pay their private debts while relieving the taxpayers of a country where the economy was still relatively healthy and which had withdrawn enough gold from the Federal Reserve to pay their entire war debt obligation until 1942. Chamberlain regarded this deliberate differentiation between Britain and France as ‘very serious, for it would involve the default of France and the nonratification of Lausanne’. It would also expose Britain to allegations that it had betrayed its ally and their ‘gentleman’s agreement’ in pursuit of purely


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selfish national interests. On the other hand, however, the Governor argued forcefully that British repudiation would prompt Australia, Argentina, Germany and other debtors to default on their payments to London.12 Having hitherto been adamant in his refusal to pay, this meeting with Montagu Norman provoked a complete and immediate volte-face in the Chancellor’s position. As he informed his sisters, ‘almost from that moment I began to veer to the other point of the compass and finally I definitely came to the opinion that on this occasion we must pay’ because although default might become unavoidable ‘the consequences of non payment were so serious that . . . we ought to avoid them as long as there remained even a remote chance of a happy ending’. Shortly afterwards he put the Mills plan to MacDonald, Simon and Baldwin and made it clear that he favoured it, but only if they obtained prior French agreement; a suggestion which provoked MacDonald’s angry retort that while ‘we had to do our very best, & to do it honestly for Europe, we were under no obligation to disgrace or ruin ourselves to accommodate ourselves to France . . . she has made herself unpopular in America and in the end she must bear her burdens’.13 On the following morning (Monday 28 November), Vansittart and Fisher had a further interview with Montagu Norman regarding the Mills plan. After this, they agreed that no reliance could be placed upon the Governor’s report because although it was almost certainly a basis for agreement with Mills, there was no reason to believe that the President or Congress would accept it. Anyway, even if they did, the situation had been changed by the ‘cardinal point’ that ultimately any American proposal would not be acceptable unless a suitable offer was made to France. This demand clearly had important ramifications for the nature of the Anglo-French relationship because it meant that each should temporarily recover their liberty of action to negotiate with America independently but with the firm understanding that they would compare notes at the end of the process and unless there was a mutually satisfactory result ‘there is nothing doing, vis-a-vis the United States’. Although this implied a rather less intimate process of consultation than initially envisaged, Vansittart and Fisher advised the Chancellor that this involved ‘no trickiness with the French’ who were likely to accept the idea because ‘it involves, if anything, from their point of view, a solidification and not an alternation [sic] of the united front’.14 In an atmosphere of ‘great nervousness’ created by American intransigence, an informal meeting of ministers convened at 6pm on Monday, 28 November, to avoid the public speculation and alarm likely to attend a full session of Cabinet.15 The Prime Minister began by explaining that the question of the American debt ‘was becoming more & more complicated’ because there was little chance of obtaining a revision of the forthcoming payment and no political authority in Washington capable of action before 15 December. The question he put to ministers, therefore, was quite simply ‘did they favour default or not?’ At this point Chamberlain began a long exposition of his thoughts. Although in the immediate aftermath of the


‘To pay or not to pay’ 117 American reply Chamberlain had found it ‘very hard to control [his] feelings about the Americans’ who ‘haven’t a scrap of moral courage’, he confessed that he had not entirely abandoned hope of American suspension even if ‘he stood almost alone in this view’. After explaining the option of postponing payment on the principal without going to Congress, he agreed this ‘would not help very much on the question of principle’. Anyway, he emphasised the dangers of antagonising France, ‘as this would react on the Disarmament Conference and the peace of Europe’. He also pointed out that if the Herriot government attempted to pay on 15 December it would be ‘thrown out’ by the French Chamber of Deputies. Turning to the central issue, Chamberlain made it clear that press statements that Britain was unable to pay were incorrect: ‘We could pay. The question was whether we should’. On this basis, he argued that ‘in view of the present situation in Europe and the world, it would be almost a crime to make this payment’. On the other hand, he highlighted the damaging precedent that British default would create among smaller debtor nations and the ‘terrific shock’ such an action would administer ‘to a very large number of the best of our people who would feel that England’s name had been dragged in the mud and would suffer humiliation accordingly’; arguments vigorously employed by Norman at the Bank of England’s Committee of Treasury three days earlier.16 On these grounds, Chamberlain informed his colleagues that ‘he had at last come to the conclusion that we ought . . . to pay’, while simultaneously impressing upon Congress the damaging consequences of a resumption of payments for American recovery and the hope that before the next scheduled payment in June they would have entered into negotiations for a final settlement. Contrary to a widely circulating rumour at the time, after his talk with Norman on the previous day, Chamberlain rapidly became a vociferous advocate of full compliance in the hope of concession.17 Notwithstanding Treasury fears that ‘the gold fetish is so strong abroad that a large shipment of gold from London would create a scare and a lack of confidence in the £’, all talk of repudiation or payment in dollars, bonds, securities or into a blocked account had been abandoned.18 The trend of ministerial opinion also now generally favoured payment in full and in gold if Congress refused to suspend it. Yet this strategy was vociferously challenged by Runciman who declared that ‘Instinct told him to pay, and reason, not’, while Lord Hailsham and Sir Philip Cunliffe-Lister were both afraid that a payment in December would not help them in June when they would face exactly the same problems. Indeed, the former announced that ‘he could not remain a member of a Government that intended to continue to pay except under the provisions of the Balfour Note’. In response, Baldwin reiterated his support for Chamberlain’s arguments, which he supported ‘by instinct and reason’, noting decisively that repudiation was ‘an ugly word’ and it ‘might bring the world within sight of the end of Capitalism. Our word is unique in the world’. At this the Prime Minister concluded the meeting with the assurance that the Cabinet


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committee composing the British reply would submit their draft to Cabinet the following evening.19 When the Cabinet met the next evening to consider the draft British Note, the battle lines of the previous day re-emerged even more sharply. Chamberlain began by reporting the rather different views of an ‘authoritative source’ (probably Hopkins) to the effect that Britain had already ‘gained a major point . . . as both the present and coming President . . . had agreed to a re-examination of the Debt situation’. He then outlined the secret Mills proposal, their refusal to extend it to France and the damaging implications of such a veto for the Lausanne agreement to which he attached ‘the utmost importance’. In consequence, he urged the Cabinet to make the full December payment if America refused a final request to extend the Mills plan to other European debtors. To Chamberlain’s consternation, however, ‘a strong section’ led by Cunliffe-Lister and Hailsham were in favour of accepting the American offer and ‘let the French go hang’ – particularly as rejection would anger and alienate American opinion which would thereafter have a legitimate grievance capable of prejudicing future negotiations. At this juncture, things ‘got a bit warm’ because Chamberlain was determined to resign rather than accept ‘a betrayal of our Ally and a fatal blow to Lausanne’. Yet in the event, it was agreed that Chamberlain’s draft Note should be accepted after deleting the final part announcing that the payment would definitely be made if Congress refused to accept the British case. When submitted to the US government, the Ambassador should also press the case for extending the offer to France, while Paris was to be given a general account of developments in the vague hope of obtaining their consent to British acceptance of the American offer.20 Chamberlain’s 14-page Note represented the sort of powerful and comprehensive exposition of the full British case for debt revision that Washington had demanded. At its heart were two interrelated themes appealing implicitly to American enlightened self-interest and fairness. The latter argument was rooted firmly on a recitation of Britain’s past record on inter-governmental debts and the relatively greater cost of all-round cancellation for the British taxpayer than their American counterpart. In this context, it was pointed out that while the US Treasury had advanced $10,000 million (£2,055 million) to the Allies compared with the $7,800 million (£1,600 million) lent by Britain, the former had already received $2,112 million (£434 million) in repayments while the UK taxpayer had received nothing because all its debt and reparation receipts were passed on to the United States. Furthermore, the dramatic effect of sterling depreciation and a correspondingly large fall in the wholesale price index since 1917 both served substantially to increase the financial burden of debts when expressed in gold. Finally, the fact that Britain had contracted only 40 per cent of the total American debt but had contributed 80 per cent of all American debt receipts gave it ‘a strong claim to consideration on the part of the United States Government’.


‘To pay or not to pay’ 119 The other strand of the British case was based on an appeal to the enlightened self-interest of the United States. This commenced from an analysis of the international economy and the contention that war debts and reparations have been ‘one of the major causes’ of the world depression. It also argued that these were fundamentally different from commercial debts raised for productive purposes which were normally self-liquidating insofar as they provided the means by which the borrower could repay the loan while becoming more prosperous. In stark contrast, war debts were characterised as ‘expenditure on destruction’ which ‘instead of producing a slow and steady accumulation of wealth destroys in a few hours stored-up values of the past. Like the shells on which they were largely spent these loans were blown to pieces. They have produced nothing to repay them and they have left behind nothing but fresh complications and perplexities’. Worse still, their repayment necessitated ‘unnatural transfers which provoke widespread economic evil’ even when concealed by further foreign borrowing to meet the payments. Against this background, the second British Note attached particular blame to the United States for two key reasons. First, its insistence on payment in gold rather than goods and services had resulted in a major drain on the gold reserves of debtor states and forced down commodity prices with disastrous consequences for all producers. As such, emphasis upon the capacity to pay should be subordinated to ‘the capacity of the world to endure the economic and financial consequences which those transfers involve’. Second, the Americans were culpable because their high tariff regime created further problems for their debtors in meeting their obligations. In the British case, this meant that a war debt annuity of £33 million in 1923 amounted to approximately half of British exports to the USA. By 1933, however, the annuity payment had risen to £60 million but exports to the US had fallen to £18 million in 1931 and below £16 million by 1932. In this context, resumption of payments meant that ‘a definite and unfavourable reaction must follow to the United States producer’, particularly in the chronically depressed agricultural sector. As the value of international trade had fallen by 50 per cent in three years – or the equivalent of $5 million for every hour that passed – the British argued it ‘will not profit a creditor country to collect a few million pounds or dollars if it thereby perpetuates a world disorder which reacting on itself involves losses of revenue many times greater’. It was thus incumbent on Britain and America as the two great creditor nations to build on the foundations of Lausanne by cancelling inter-Allied war debts and thus taking ‘the final and essential step towards averting disaster, financial, economic and political’.21 Lindsay presented this second British Note to the Secretary of State early on 1 December. According to Stimson he then ‘fished out a little separate paper’ containing the proposal that the US Treasury should waive their capital instalment of $30 million for two years while the $65.5 million interest payment should be divided into three serial bonds to be retained by


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the US government and to be paid after one, two and three years. Alternatively, both capital and interest should be dealt with in the above manner. Stimson then hurried off to the White House where he examined the Note with Hoover and Mills and to Stimson’s ‘general relief’ they agreed ‘it was a very good-tempered document and very thorough’. When Stimson then explained the contents of Lindsay’s additional ‘little separate paper’, he was equally encouraged when Hoover agreed that both principal and interest should be covered by serial bonds, but with the crucial modification that they should carry a rate of interest which would enable them to be offered for sale as par on the New York market. Stimson then returned to the State Department to inform Lindsay that he was ‘not dickering with him’ but that this modification was essential to pass it through Congress.22 No sooner had the British Note opened one diplomatic door than Hoover’s insistence upon marketing the serial bonds closed it behind them again – particularly because any such payments would not be taken into account in future negotiations towards a final settlement. These fundamental modifications rendered the Mills bond option wholly unacceptable insofar as it represented no relief at all but rather it was merely the equivalent of borrowing on the New York market to make the payment rather than transferring reserves from the British Exchequer – but with the added disadvantage that it would depend on the goodwill of the American government as to when the bonds were marketed. Worse still, when these bonds fell into private hands, the British war debt instalment would immediately be equivalent to the Dawes and Young loans and ‘will cease to be a political debt after all and will become a commercial one’.23 Lindsay had no more success when he returned to Stimson early the same evening with another Note from London containing its plea to end the differentiation between Britain and France in order to preserve Lausanne, British honour and Cabinet unity. In reply, Stimson explained that Hoover had been greatly impressed by the admirable tone and substance of the earlier British Note and was prepared to send a message to Congress strongly in support of its general case, but it was ‘absolutely impossible’ to persuade Congress to consent to a postponement of the French debt. He was prepared, however, to offer the revised Mills bond scheme to France. As their instalment was only $19 million and it had none of the transfer difficulties of a non-gold standard depreciated currency, France should simply sell bonds on the New York market to cover their requirements before 15 December. This would enable Herriot to pay while being able to claim that ‘they had done practically the same thing that the British had done, and this might obviate the difficulty in getting the problem through his Parliament’. The only difference was that the larger size of the British payment necessitated its bonds to be held by the US Treasury and marketed over time while the smaller French notes could be marketed immediately.24 Shortly after Stimson’s interview with Lindsay, the French Ambassador arrived to deliver his own government’s Note requesting a re-examination of their case for


‘To pay or not to pay’ 121 postponement. ‘Good as the arguments in these notes are’, Undersecretary of State Castle recorded in his diary, ‘they remain pleas to be let off contractual obligations’. The President ‘felt the same way’, although as Mills agreed ‘there is nothing to be done about the French note until we get an answer from the British to see what their counter suggestion will be’. As Stimson told the French Ambassador, everything now hinged upon the British and whether they were prepared to offer anything more.25 Not surprisingly, the British Note of 1 December received ‘a good reception [in Britain] but a bad reception in the United States’ where Congress ‘closed their eyes to it’.26 Impressed by the British Note as ‘an admirable piece of argument’, Bill Castle predicted: ‘The best way for Congress to refute it will be not to read it at all, and this is probably exactly the method that nine-tenths of Congress will adopt. It is probably true also that a large proportion of the Congress would not understand what it is all about’.27 Yet whether they had read more than the ‘highlights’ or not, as the Democratic leader of the House of Representatives explained, the underlying problem was that there was scarcely a single member of Congress in the recent elections who had not pledged themselves against reduction and cancellation. Moreover, Congress was widely reported to resent being lectured on economics by their debtors.28 Despite the ‘mixed’ press comment and a congressional attitude that was ‘about as sticky as can be’, however, Chamberlain still remained hopeful of obtaining the postponement to which he attached ‘the greatest possible importance’.29 In reality, the hopes of both Stimson and Chamberlain that the actions of the other side would resolve all their problems were equally misplaced. On the following afternoon, 2 December, Lindsay delivered the British rejection of the marketable bond proposal and reasserted the need for equal treatment for France, adding ‘that differentiation might drive us to refuse settlement with America in order to save Lausanne’. Although Stimson made no reply, he privately regarded the British response to be ‘pretty unsatisfactory’.30 Yet when he returned to the White House, he was relieved to find the President’s mind was ‘working more liberally now’ and that he was even prepared to consider extending equal treatment to the French. But with regard to British demand that the bonds should be held by the US Government rather than commercialised, it was agreed that this represented ‘no real advance over the position we have now. It is merely giving us another written obligation which we cannot use in place of the note which we now have for the $95,000,000, due on December 15th’. To escape from this impasse, Hoover and his advisers recognised they ‘really had to get out of this arm’s length business and talk to [London] direct’ – particularly as they had all been ‘troubled by the difficulties of getting at what the British are driving at through Lindsay’. Above all, there was a feeling that ‘if the British are really going to default, and if they are simply trying to put us in the wrong by their formal notes and their method of dealing with us, we want to know it’. To this end, the President suggested

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that Ambassador Mellon should approach Baldwin to ‘find out what the English really wanted to do, whether they are going to default or not’. As Stimson recorded in his diary, the message for the British was unambiguous: We told [Mellon] to make it clear to Mr Baldwin that if they default, that will cripple and end all the President’s power to help them to get through real revision. We told him that the President is ready to fight hard for that. He won’t get it through Congress, but he will lay the foundation for it. But if default comes, all that is off. There will be a great bitterness of feeling and the situation will be immeasurably complicated in many ways. Stimson gave a similar message to Ambassador Claudel on the same day.31 Mellon saw Baldwin almost immediately and found him ‘very receptive and friendly’ but Stimson’s hopes that ‘we might get something going’ were soon dashed. Indeed, Mellon’s interview with Chamberlain proved ‘totally unsatisfactory’ from an American perspective when he refused to make any counter-offer whatsoever. As Stimson lamented, this was ‘very discouraging’ and default now appeared inevitable because ‘the British Treasury as usual is as stubborn, obstinate, and narrow-minded’ as ever.32 At around the same time, Baldwin formally notified Mellon of the British refusal to consider the possibility of marketable bonds and he did so again two days later after the scheme was ineptly pressed by the US Embassy in London.33 After this, Stimson’s attitude cooled markedly. At a ‘long and harrowing’ meeting with Lindsay early on the evening of 3 December it was clear the position on both sides had hardened significantly. For his part, Stimson protested that the second British Note had stiffened congressional attitudes rather than making them more yielding and he chided Lindsay that ‘the British public had not grasped the full extent of the breadth and high purpose of the President’s statement issued last week. They didn’t understand that he was on their side on the big issue’. In particular, he accused the British of failing to give due attention to Hoover’s remarks about disarmament and world economic cooperation with the result that ‘these broader issues had been obscured by [the] comparatively trifling matter of the debt instalment’; an allegation Lindsay vigorously rebutted on the grounds that debts were ‘pregnant with terrible consequences and if any of them took the wrong path it would be extremely difficult to return to the right one’. With regard to the December payment, it was clear that neither side had changed their opinion about marketable bonds. Moreover, when it became apparent that Stimson had no intention of responding to the new British Note because it contained only ‘renewals of the old suggestion which [he] had already answered’, it was Lindsay’s turn to express chagrin. ‘A week ago you sent us a note in which you said that you could not consent to a suspension of the December payment because we hadn’t produced any facts’, Lindsay protested angrily. ‘Now we send you five thousand words containing facts . . .


‘To pay or not to pay’ 123 Are you not going to give us any answer to that?’ On the content of the President’s message to Congress in the following week, Stimson also proved ‘very evasive’, arousing the suspicion that he would ‘merely drop our note in Congress as one might drop a stone in a pond’; a prospect which prompted yet another ‘bitter reproach’ from the Ambassador for this dismal lack of presidential leadership. Lindsay left this meeting with two clear impressions. First, Stimson’s declaration that the President was eager to promote Anglo-American relations but that ‘his efforts would be completely crippled if there were any question of a default’, convinced him that the White House was ‘making a plea to pay up and save something out of the ruin with which we are menaced’. Second, he reported that ‘what is quite clear is that [the] President has been frightened by Congress and has lost all the little courage he ever possessed’, but that ‘his power to damage a cause is undiminished and his sensitive nature and sore feelings will make him a potential danger until the end of his term’. This was a perceptive judgement. That morning Hoover had already been ‘all churned up’ because of some ‘rather nasty’ editorials on the British Note with the result that Stimson’s report of his talk with Lindsay that evening cast him once more into gloom about the inexorable British slide into default.34 Worse still, after learning from George Harrison of Stimson’s proposed compromise solution of non-negotiable bonds on the afternoon of Sunday 4 December, Hoover phoned Stimson ‘full of combativeness’, declaring that ‘Stimson like all New Yorkers wanted only to suspend this debt payment’. After this, as Stimson euphemistically noted, they ‘got into a little discussion’ on the subject when his plea for compromise prompted the President’s stern reply that this was ‘ten millions of miles away from his position’ because ‘debts were merely a chip on the current of ordinary prosperity’: a response which Stimson conceded privately had ‘discouraged me a good deal’ after his reading (and agreement) with Moulton and Pasvolsky’s recently published War Debts and World Prosperity. On the other hand, however, the outcome of these clashes was a new presidential proposal to consider a suspension of thirty days ‘while we tried to straighten out this payment’.35 When drafting their reply to the second British Note, the Hoover administration had the inestimable advantage of knowing precisely what London planned to do after MacDonald secretly confided to American officials at Geneva that if Hoover refused the Cabinet’s request for a postponement, Britain would pay in full and in gold; an astonishing breach of Cabinet secrecy which completely undermined the effectiveness of the British bargaining strategy. To Stimson’s ‘great relief’, when Hoover was shown the draft reply he declared that he understood that it committed him to negotiate without necessarily consulting Congress but that he ‘had fully made up his mind to do it’. Stimson clearly regarded this as a major advance when he handed the Note to Lindsay at 9pm on 7 December.36 Yet in reality, the ‘extremely friendly tone’ of the American reply could not mask its continued insistence on payment.37


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Although continued silence from London about their precise intentions made Stimson and Mills ‘very nervous’, even before receipt of Stimson’s official reply the British had decided upon their strategy.38 On 5 December Chamberlain consulted Baldwin and Runciman and together they informed the Prime Minister and Foreign Secretary at Geneva that they favoured a full payment in gold because any request to defer the capital payment ‘would obscure the main argument of our note, and would also encourage Congress to think that, if they acquiesced, they would have behaved with sufficient generosity’.39 As Sir Warren Fisher put it forcefully in language which suggests much about the underlying currents of national pride and amour propre which permeated this entire conflict, they should avoid ‘demeaning ourselves by begging favours’ with the equally distasteful risk of either rebuff or ‘contemptuous and condescending acquiescence, probably accompanied by conditions’. Anyway, he argued, there were two other considerations: First, I feel very strongly as an Englishman that the proposed ‘cap in hand’ procedure is quite repellent, and I believe our fellow-countrymen as a whole would share that view. Whatever we may do hereafter – fair and ample notice having been given that we are not going to be America’s whipping-boy for all time – is a matter for future consideration, but I trust it may not take the form of grovelling. Secondly, the fundamental argument of our note of 1st December is that these inter-governmental payments are disastrous . . . If we submit to blackmail on the 15th December we do so in order to buy time for this examination [of our case] and for the education of public opinion and in so doing to take the opportunity of giving a warning well in advance that our Note is not a mere Sixth Form prize essay, but means business. To put in a plea now that we should be allowed to pay down only X pounds instead of X+Y pounds (on whatever grounds) seems to me to obscure, if not to vitiate, our fundamental argument.40 Yet although this was spiritually satisfying, the policy of making the full payment in gold was not without its dangers. As both Leith-Ross and Lindsay warned in identical terms, if Britain refused to exercise its right to postpone the capital component of the instalment (some $30 million of the $95 million) they might ‘be criticised as cutting off our nose to spite our face’:41 fears apparently confirmed next day when the Philadelphia Ledger published a sensational report that the British payment in gold was deliberately designed to depress the value of sterling on the exchanges, thereby forcing down commodity prices and increasing American unemployment still further. Yet as Lindsay made clear, such an idea was not so far wide of the mark. After urging the importance of educating American public opinion in the months before the next instalment, he believed that by far and away the most potent element in that learning process would be provided by a further fall in sterling and commodity prices and that he would


‘To pay or not to pay’ 125 ‘be rather disappointed if [the British payment] does not produce an immediate fall in Sterling’.42 Chamberlain wholeheartedly supported the logic of his Permanent Secretary and he dominated the Cabinet discussion on 7 December during which they decided whether to make the full payment in gold accompanied by a further British Note (Chamberlain’s preferred option), or half in gold and half in bonds (favoured by the Foreign Office), or to request a suspension of the $30 million capital instalment (as advocated by Leith-Ross). Chamberlain denounced the Foreign Office preference as ‘humiliating’, while he argued that the Leith-Ross option would offend Congress who wanted nothing but cash. Anyway, he suspected that Hoover was so cowed and defeatist that he might submit even this modest request to Congress. Given all these circumstances, Chamberlain’s policy met with unanimous Cabinet approval.43 The full British payment of $95.5 million was thus to be made in gold on the grounds that it was ‘the least prejudicial of the methods open’. Despite Leith-Ross’ efforts to reopen the bond option in the hope of glutting the American market, the Treasury’s general mistrust of Hoover and the desire ‘not to ask for any further favours’ brought a stern refusal.44 By this juncture, Chamberlain was convinced that ‘the time had come to be a little more outspoken’ in order to educate American public opinion and to indicate clearly that ‘there are limits to our squeezability’. Chamberlain’s Note accompanying the payment thus stopped short of the threat of future repudiation, but it crucially explained that the December instalment should be regarded not as a resumption of annual payments, but rather as an ‘exceptional and abnormal’ measure to be treated as a capital advance against a final settlement.45 As Lindsay reported when he heard the news, ‘only by paying in full without asking any more for favours can His Majesty’s Government find a really incontrovertible ground on which to base their declaration against making any further payments’. The policy ‘would . . . give us a difficult period to face in Anglo-American relations’, he warned, ‘but one which I think we should not have to look forward to with extreme fear’.46 Lindsay ruined another peaceful Sunday afternoon for the Secretary of State when he delivered Chamberlain’s Note after lunch on 11 December. Alarmed by the appearance of conditions and confused about its precise meaning, Stimson recognised at once that the promise to pay in gold was accompanied by ‘a lot of other things . . . evidently for home consumption’ but expressed in ‘such an inept and clumsy way that it left it open to very serious attack by people here’. On these grounds he feared it would end in a ‘terrible row’. In reply, Lindsay briskly explained that as the British request for assistance had been rejected they were ‘not disposed to ask for any semi-generosities’. Recognising that the British Note placed them in ‘a very ticklish situation’, Stimson immediately agreed with Hoover and Mills to issue a formal reply to be published simultaneously to ‘show our cantankerous people that we are on the job and that there is no use of their getting excited’. This document recorded satisfaction at the British decision to pay but it reiterated that the


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executive branch had no power to amend the funding agreement. As such, it noted that their willingness to receive the payment ‘cannot constitute approval of or agreement with any condition or declaration inconsistent with the terms of the agreement’.47 The publication of the British Note and its American reply on 12 December created ‘a great to-do’ in Washington and ‘a general chorus of approval from the Hill’.48 Although it had been a stiff fight, in Britain the first round in the battle to determine policy had been won resoundingly by Neville Chamberlain. On 14 December, his robust speech on the history of the debt controversy and British policy towards it was regarded almost universally as a great success and his personal prestige rose immensely as a result. As the Chancellor reminded the Commons, successive British governments had urged the cancellation of the entire structure of reparations and war debts; a policy first proposed in Lloyd George’s letter to President Wilson on 5 August 1920 and enshrined in the Balfour Note which (he reiterated several times) still remained the basis of British policy. To the American argument that contracts were sacred, he retorted that Britain also had its own obligations and responsibilities not only to its own countrymen but to the millions throughout the world whose happiness depended on the proper fulfilment of these obligations by both creditors as well as debtors.49 The events of November and December 1932 fully vindicated the warnings of those who argued that it was impossible for Britain to satisfy both France and the United States at the same time and that any appearance of a ‘united front’ with France would fatally damage Britain’s privileged standing in Washington and its hopes of a settlement on favourable terms. In stark contrast with its acceptance of the British case for debt adjustment, the Hoover administration had absolutely no sympathy for France and no belief in the validity of its case. In part this antagonism stemmed from longstanding disputes over French tariffs, commercial policy and double taxation, all of which ‘rankly discriminated against the United States’.50 Memories of French prevarication with regard to the Hoover moratorium provided a further source of intense anger and mistrust in Washington, as did their continual equivocation and unacceptable amendments to the American draft of a most-favoured nation commercial treaty after August 1932.51 But as all agreed, ‘what particularly rouses [American] fury is that the French in June and July . . . took hundreds of millions of dollars of gold from France [sic: America] and, in their opinion, deliberately tried – and nearly with success – to push the United States off the gold standard at the moment when their whole banking structure was tottering; and now say they cannot pay back even $19,000,000’.52 Against this background, French fears that America intended to discriminate in favour of Britain in any future negotiations over debt revision were wholly justified. Indeed, even as early as February 1932 the President instructed William Castle to assure the British Ambassador on precisely this point.53 Given this antipathy towards France there can be little doubt that Britain


‘To pay or not to pay’ 127 paid a high price in American goodwill for their efforts to concert action with Paris during November and December. Despite the joint desire to avoid any appearance of a ‘united front’ of European debtors, the reality had been painfully evident to American observers since the unfortunate disclosure of the ‘gentleman’s agreement’ in July, while the delivery of strikingly similar diplomatic Notes immediately after the presidential election only reawakened suspicions of collusion. Despite the efforts of both London and Paris to suggest that it was ‘a question of similar conditions producing like results and not a question of common action’, the Americans inevitably found this explanation extremely difficult to accept – particularly as Warren Fisher had spent three weeks at the British Embassy in Paris in October.54 As Lindsay reported, the effect was that ‘our case is prejudiced by its juxtaposition to that of France and it is a great pity that [the] French Note bears so close a family resemblance to ours’.55 Soon afterwards, Oswald ‘Foxy’ Falk, a British stockbroker, canvassed the ‘semi-official’ views of leading people in New York who also emphasised ‘the suggestion of a united front with France is disastrous, and the difficulty in securing any remission if we appeared to be tied to France will be greatly increased. The general feeling is much more pro-England than pro-France but we can’t cooperate with both France and America’.56 As the December crisis finally drew to a close, Stimson also laid most of the blame for these tensions on the obstinacy and ineptitude of Chamberlain and the British Treasury who were trying ‘to suit the French and to get the French to come across and pay their instalment’.57 Stimson had a point. Chamberlain unquestionably placed vast importance upon the preservation of Lausanne and good Anglo-French relations as a foundation upon which he hoped to build a settlement of the war debt controversy and the eventual recovery of the world economy. But in fairness to Chamberlain, irrespective of his personal preferences, the fortunes of Britain and France were inextricably bound together by the inexorable logic of mutual need. From the French perspective, they needed to cooperate with London to cancel their American debts, partly because the British exerted far more leverage in Washington and partly because their war debt agreement with Britain bound them to pay annuities to London whether they received any reparations or not. It was also stipulated that anything France paid to the United States must be matched pari passu by a proportional payment to Britain. Conversely, from the British perspective, the Treasury recognised that (whatever the technical position), ‘whether we shall be able to extract the money from the French and Italians is another matter’ given the effective end of German reparations at Lausanne. Equally worrying was the fear of British isolation if they failed to concert action with Paris. Indeed, ironically, during the second half of November, the position of America’s two major debtors was completely reversed as initial British fears that the French would decide at the last moment to pay leaving Britain as an isolated defaulter were soon replaced by the equally alarming prospect that it would be isolated by the decision to pay while France, Italy and Belgium all defaulted.58 Just as Paris


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had compelling reasons to hang on to John Bull’s coat-tails during these negotiations with Washington, therefore, London had every incentive to keep the French in step if they were to preserve Lausanne and free the world economy from the crushing burden of unproductive inter-governmental debt. Unfortunately for Chamberlain, while his well-known opposition to payment and strategy of brinkmanship alienated the Hoover administration, the consequent uncertainty as to whether Britain would actually pay inevitably created tensions in the Anglo-French relationship upon which he placed such great importance. This divergence between British and French positions became painfully apparent on 5 December. After deciding that they should pay in full, British policy-makers agreed to inform Paris with ‘the utmost frankness that, having in mind the paramount desirability of the Lausanne signatories keeping in step’, Britain would prefer the French to follow their lead and make a similar payment. In reaching this decision, British ministers were well aware that the likely outcome would be ‘a definite breach between French and British policy which will make the whole European situation more difficult’.59 Had there been any doubt on the subject it was dispelled on the same day, when Herriot handed the British a Note at Geneva pressing for secret consultation before any final decision was announced because a British payment would create the greatest difficulties for his government.60 Two days later, Herriot’s private secretary also told the British Ambassador that the French government were ‘much inconvenienced’ by London’s determination to pay and wanted ‘all the methods and consequences of payment reviewed not only as regards relations with America but also respecting Lausanne and the future of Franco-British relations’; a self-interested attempt to blame Britain for jeopardising Lausanne which provoked MacDonald angrily to record that ‘one requires a longer spoon in supping with the French than with the devil’.61 There was never much chance of the French legislature permitting the Herriot government to pay their December instalment, and with public opinion ‘hardening’ against repayment, most French parliamentarians became increasingly hostile to any such notion. ‘There is a strong feeling in the Chamber that France has been tricked; that America, having led Europe on to believe that if reparations and European war debts were first settled she would do her part in a general clean-up, has now backed out’. As a result, Lord Tyrrell, the British Ambassador in Paris, warned that this resentment would lead the Chamber of Deputies to reject any payment to America not covered by receipts from Germany in accordance with their landmark resolution of July 1929. The only hope of agreement depended on Herriot playing on French national shame at having dishonoured its signature, but even this was unlikely to be acceptable in France without a reopening of the Lausanne agreements.62 By this stage, however, the prevailing wisdom in Paris was that after Herriot’s defeat and resignation the ministerial crisis would be deliberately prolonged beyond 15 December to enable default to occur without any specific governmental responsibility.63


‘To pay or not to pay’ 129 Given the British priority upon keeping the Lausanne signatories in step behind their lead, the Cabinet had no option but to respond favourably to Herriot’s request for close and secret consultation. After all, if France paid the United States only by reopening the Lausanne settlement it would be a disaster for British policy. On the other hand, if Britain paid and France defaulted, Lausanne would be unaffected only if Britain agreed to sacrifice its own claim for war debt repayments from France – an extremely difficult position to justify to the House of Commons and domestic public opinion. Either way, Britain had much to lose if it failed to carry France with it. As a result, MacDonald and Chamberlain visited Paris for a four-hour meeting on 8 December to explain British strategy and the need to strive jointly at Washington for fair (if not necessarily the same) treatment over debts. In return, the French Prime Minister and Finance Minister appeared equally eager to find a mutually satisfactory solution and the meeting ended with an agreement to submit separate Notes to the United States employing slightly different language to convey the same common message – that the last instalment had already been made and that the December payment would be ‘the first and last of its kind’.64 In reaching this joint accord, the British were acutely aware of the importance of considering not only Anglo-French relations but also their future relations with America. As MacDonald warned the meeting in Paris on 8 December, ‘Were anything done to unite America against Europe these conversations would have been a bad business’. Unfortunately, these concerns were soon vindicated when Ogden Mills told the French Financial Attaché in Washington that he believed the Paris meeting had produced ‘a much more solid understanding than has been announced’; a description couched in terms which suggested his suspicions of an Anglo-French plot.65 To allay such fears, on the evening of 9 December the British Ambassador to Paris told his American counterpart that he was ‘particularly concerned that the American Government might misinterpret the interest which had been shown by the British Government in consulting with the French as collusion or as presenting the European debt front which the United States disapproves’. Instead, Lord Tyrrell declared, the preservation of Lausanne made it absolutely necessary to ‘remain on speaking terms with France’ but this ‘must not be regarded as any action directed against the United States’. Such was Tyrrell’s apparent concern that he urged the State Department to assure Lindsay that they understood this position to ‘prevent possible misunderstandings, in view of the uncertain and strained position in France’.66 Despite these American suspicions, Herriot was profoundly grateful to the British government for their loyalty and generosity in supporting his position – particularly in response to his desperate appeal to publish the substance of their final Note to the United States before the crucial debate in the Chamber on 11 December in the belief that French Deputies ‘would not dare to go against [the] declared policy of the British Government’.67 In their turn, the


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British were relieved to learn on 11 December that the French Cabinet had decided to adopt a policy of ‘payment under reserve’ and that their parliamentary support was increasing.68 Unfortunately for both Herriot and the British government, this momentum in favour of French payment was brought to a grinding halt by the publication the next day of the second American Note rejecting the British effort to pay with conditions. According to Tyrrell, the hostile effect in France was ‘instantaneous and overwhelming’ and it greatly strengthened Herriot’s opponents while he grew ‘more and more nervous’. Thereafter, despite further demonstrations of British support and last minute American efforts to persuade France to follow Britain in making ‘a last payment preliminary to a revision’, nothing could overcome the intransigence of the French legislature while violent demonstrations took place outside the Chamber of Deputies on 12 and 13 December in which the Royalist Action Française and the Ex-Servicemen’s Associations were prominent.69 By this stage, the French Cabinet had agreed to follow the British line of welcoming American acceptance of the principle of debt revision while announcing the intention to pay its instalment on 15 December – but with the plea that it should be placed in a blocked account pending the conclusion of negotiations and on the clear understanding that this would be the final payment of its sort because in future France would ‘not be in a position, in fact or in law, to bear the burden of a régime which cannot be justified in good faith except by the due payment of reparations’.70 Despite the warning of Ambassador Edge that Herriot’s government was about to fall, leaving France without a government to make the 15 December payment, his appeal for some helpful gesture of compromise fell on deaf ears in Washington where Hoover and Stimson agreed that ‘it was very unwise to have an understanding or arrangement with the French Government at this time’.71 After this crucial decision another door closed on the prospect of an amicable settlement. Later that evening the final acts of the drama were played out in the Chamber of Deputies. First, the joint commissions of Finance and Foreign Affairs, already exasperated by continued battles over the budget, voted against payment and rejected Herriot’s draft reply to the United States. The debate reached its climax soon after midnight when the Socialist Party announced they would vote against payment while news arrived that Belgium had also decided not to pay.72 Herriot’s final speech in the early hours of 14 December defended his stance as ‘a question of international moralities’ which touched not just on relations with America but also with Britain. As Britain and Italy intended to pay, he warned that France would be isolated from its European allies when America differentiated between debtors in good standing and those defaulters like France. Yet beyond the fear of financial sanctions, Herriot’s speech dwelt at length upon the threat to Anglo-French solidarity. Having established a new cordiality and intimacy with Britain since Lausanne, the French Premier asked the Chamber whether they were prepared to destroy this valuable spirit of cooperation at Washington and Geneva for the sake of $19,261,432. Finally, he attacked


‘To pay or not to pay’ 131 those who invoked morality to defend default by stressing the higher morality of ‘strict and absolute respect of signatures. It was the honour of the French family, it was faith in a signature on a piece of paper which they did not wish to be turned into a scrap of paper. It was France and her signature that he was defending’. On these grounds, Herriot begged the Chamber to be indulgent to a man who was sacrificing himself for the honour of France.73 Despite this eloquent and impassioned appeal to French national pride, the government’s resolution was defeated by 402 votes to 196 and Herriot resigned immediately. That afternoon the French Ambassador in Washington informed the Hoover administration that the fall of Herriot meant there was no longer anyone with the power to continue the negotiations on the December payment.74 France then formally defaulted on its war debt obligations. With his hopes in ruins, after resigning the Premiership, Herriot declared publicly that he would not accept office again unless permitted to pay the debt and when asked to form a new ministry on 15 December he refused. Next day, however, he informed the US State Department that as President Lebrun was having difficulty forming a new government without him, and as he would not come back without paying the debt, there was an opportunity for America to ‘find an easy way of doing it’. Stimson eagerly seized the opportunity to salvage something by proposing that the French should follow the Czech example and accept that the payment was unconditional while leaving themselves free to add to their Note whatever riders, qualifications and conditions they desired while Mills ‘made no bones’ about his willingness to accept late payment of the instalment. ‘Their mouth is full of pickles’, Stimson noted in his diary, ‘but it is quite easy with a little sentiment to change them’. Unfortunately, emerging (but misplaced) concerns that America was being called upon to accept a new understanding soon prompted the President and Mills to veto the State Department’s idea; a ‘very discouraging’ outcome for Stimson who again lamented that Hoover’s attitude over debts left ‘a feeling of very complete depression and discouragement, with a feeling that our leader is showing the worst side of himself instead of his best’. The only silver lining for the President was that French default had finally broken up the ‘European cabal’ working against American interests.75 France was joined in its default by Belgium. Almost from the outset it was clear that the Belgians had no intention of paying on any grounds given their reduced capacity to pay after Lausanne. As Sir John Simon noted wryly after the Belgian Ambassador informed him that Belgium had a ‘moral duty’ not to pay anything, ‘I refrained from observing that it was always a happy state of mind when the dictates of morality exactly corresponded to considerations of practical convenience’.76 In practice, however, the Belgian position was made more difficult by the fear that if they paid while France defaulted this would fatally jeopardise their hopes of an urgent loan from the French banks.77 Austria, Estonia, Greece, Hungary and Poland also seized the opportunity to default. On the other hand, the Italians did pay along with


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Finland, Latvia, Lithuania and Czechoslovakia. Of the $98,685,910 received by the United States Treasury in December 1932, however, all but $3 million had come from Britain. In retrospect, December 1932 has been portrayed as the great ‘missed opportunity’ for both the European debtors and the incoming Roosevelt administration. If Britain and France had led the way towards a coordinated default at this point, all the opprobrium would have fallen squarely on the shoulders of an already defeated and discredited Hoover administration. By drawing a line under the whole sorry controversy, it would also have enabled Roosevelt to ‘begin his relations with Europe on a fresh page’.78 Yet while an enticing proposition, such arguments ignore the very real policy constraints upon Britain’s freedom of manoeuvre given its status as a major international creditor as well as a debtor. They also overlook the degree to which default would have embittered Anglo-American relations at a time when Roosevelt had absolutely no desire to jeopardise public or congressional goodwill towards his future legislative programme for the questionable benefits of closer relations with Britain and France. Whatever the potentialities of the December crisis, the practical outcome was to stiffen the British attitude very considerably towards the United States. As Sir Warren Fisher angrily recounted to Vansittart, America had entered the war ‘solely and avowedly for the protection of US interests; and . . . the modern suggestion from America that they were wholly – if belatedly – inspired by a chivalrous determination to preserve England and France from catastrophe is a convenient fiction to justify their pose as high moralists in the international sphere, particularly with regard to debts and disarmament’.79 This perception was central to the British indictment. As Fisher put the situation to Chamberlain: I hold very strongly that the ethical aspects of this War Debt controversy should not be lost sight of, and in our subsequent negotiations with the USA should be continuously emphasised. For it is nothing short of absurdity to allow ourselves to be mesmerised by the constant repetition of phrases like ‘sanctity of contracts’ addressed to us by a country whose record in the matter is a compound of quite immoral selfishness and of quite sickening sanctimoniousness. The morals of this business are wholly with us; and if ‘sanctity’ is an appropriate expression at all in this sordid story, we with our record have a monopoly of it, and the Americans not a vestige.80 Neville Chamberlain wholeheartedly endorsed these views, but for the moment he declared himself satisfied. ‘Looking back now I don’t think we have anything to regret’, he told his American step-mother on 17 December, ‘and though it is difficult to see how we are to arrive at a satisfactory conclusion . . . I don’t despair of getting home with patience and good temper’.81 This prediction would be severely tested over the next 12 months.

7

The presidential interregnum


December 1932–March 1933

Although Hoover suffered a bruising series of rebuffs at the hands of Congress and the President-elect over his plans to tackle the debt problem, the experience did little to dampen Stimson’s belief in eventual progress. At a political level, it was widely recognised in Washington that with the December payment behind them they were ‘now on solid ground and must not make our position weaker by refusing to negotiate with a debtor who wants to negotiate’. Similarly, the Federal Reserve Bank of New York now advised the Treasury Secretary that war debts had ‘become a symbol of uncertainty, destroyer of confidence, and a powerful barrier to economic recovery’ and that it was in the interests of America and the entire world to resolve the problem as swiftly as possible. The only alternative was to continue to demand payment with the increasing danger of mass repudiation and default which would only further strain relations with powerful foreign countries whose cooperation was needed to deal with other great international problems. On this basis, in mid-December Stimson and Mills pressed a pessimistic President to take the first steps towards a general settlement in the belief that ‘unless Hoover started it with all his knowledge and momentum of the facts, it will take Roosevelt months to get to the same place if he ever does, and that will be a tremendous setback to recovery’. Yet as Stimson also recognised, it would be difficult to persuade Roosevelt to join them in any initiative, and that if he declined to do so ‘it will be pretty hard . . . to do anything’ because the President would then be ‘very reluctant to hang around his own neck the sole responsibility for starting it’.1 Despite fears that the President was ‘backsliding’ on debt policy,2 on 17 December Hoover was persuaded to despatch a lengthy telegram to Roosevelt advising him that the debt problem could only be resolved by ‘free and direct round table discussion with each government separately’. As he believed this needed to be conducted outside normal diplomatic channels, Hoover revived his earlier idea of negotiating through an executive commission consisting of Congressional representatives and members of the delegations to both the Disarmament Conference and the forthcoming World Economic Conference ‘in order that these three important questions should be given coordinate consideration’. Given the urgency of the situation, Hoover also emphasised


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that he would be ‘neglectful of [his] duty’ if he did not act immediately to establish this machinery even though no settlement could be agreed until after the change of administration. To this end, he wanted Roosevelt to join him in selecting delegates.3 Shortly before sending the telegram, Hoover took the precaution of persuading Colonel House to ‘back it up’ with Roosevelt. When Roosevelt’s secretary informed the White House early on 19 December that he had only just received the President’s telegram, however, Hoover and Stimson rightly suspected this was ‘rather a fishy story’ designed to buy time to see what the President’s message to Congress contained before he replied.4 In practice, Hoover’s Message to Congress on 19 December added little to the position established in various American declarations since midNovember and its failure to reflect any movement convinced Britain, France and his Democratic opponents that nothing could be achieved while he remained in the White House. At the heart of Hoover’s position was the continued refusal to countenance debt revision without a substantial quid pro quo. He was equally unwilling even to consider postponement as this ‘would amount to a practical breakdown of the integrity of these agreements’ while European claims about the damaging economic effects of war debts were dismissed as ‘exaggerated’. British complaints about the unfavourable trade balance were thus breezily brushed aside with an ill-informed reference to the value of American tourist expenditure and emigrant remittances while the scale of European defence expenditure justified the claim that cancellation ‘would only free large sums for further military preparations abroad’. Furthermore, as America had made double the sacrifice of any other nation during the 1931–1932 moratorium, all of this was accompanied by the now traditional appeal not to exploit the innocence and generosity of the simple American. Yet despite this intransigence, Hoover boldly persevered with his earlier plea to reactivate the Debt Commission while pressing for cooperation with Roosevelt because it was ‘of great importance that preparatory action should be taken at once; otherwise time will be lost while destructive forces are continuing against our agriculture, employment, and business’.5 As the President had accepted more of Stimson’s suggestions on the draft than was usually the case, he thought the text was ‘a good one’ and Undersecretary Castle thought it ‘excellent’.6 Yet as they both rightly assumed, Roosevelt had neither the inclination nor incentive to respond favourably to Hoover’s renewed overtures. His reply late on 19 December was thus ‘a polite refusal’ to be drawn into cooperation.7 Nettled by this response, Hoover’s draft reply was also ‘a little bit combative and offensive’ until Stimson and Mills persuaded him to tone it down.8 The published version next day (on 20 December) thus made a further plea for ‘solidarity of national action’ and suggested that Roosevelt should nominate Owen Young, Colonel House or ‘any other man of your party possessed of your views and confidence’ to commence discussions with the existing administration to make progress on debts. The importance of this cooperation was highlighted by the British Ambassador on the same day when he informed William Castle that ‘the



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British would hardly wish to talk with anybody if the result of the talks would be thrown into the discard after the 4th of March’.9 In the Roosevelt camp, the President’s overtures were greeted with deep suspicion on the grounds that they ‘knew perfectly well that [Hoover] would use his appointing power and his constant contact with the delegates to further his own point of view with which we differed’. Again, therefore, Roosevelt refused to become entangled in any joint responsibility which ‘might well be construed by the debtor or other nations . . . as a commitment’.10 By the time this reply arrived at the White House, however, Hoover had received confidential news that Roosevelt was deliberately obstructing cooperation because he was ‘planning for a big dramatic meeting in March in which he would have MacDonald and perhaps some of the French Government come on to Washington and then settle the debt question’; a revelation which suddenly explained all of their past difficulties with the President-elect. In retaliation, the White House released the entire hitherto confidential correspondence to the press on 22 December with the terse comment that ‘Governor Roosevelt considers that it is undesirable for him to accede to any suggestions for cooperative action on the foreign proposals outlined in my recent message to Congress. I will respect his wishes’. As Stimson noted, ‘it very effectively shelves everything that we are trying to do and it leaves us with nothing except to show that we have done our best and to get out of it as diplomatically as possible’. Driving home that evening, Stimson and Mills agreed ‘it was pretty much the end of an era’. In his counter-statement next day, Roosevelt retorted that it was ‘a pity not only for this country, but for the solution of world problems’ that Hoover should have made such a statement – particularly as he had urged the President to select his own representatives to make a preliminary study of the issues.11 On this note, Roosevelt successfully gave the appearance of active cooperation while retaining a completely free hand to inscribe his own debt policy on what he hoped would be a clean slate on 4 March. Despite Roosevelt’s success in neutralising Hoover’s efforts to commit him to a joint response to the debt problem, the President-elect soon faced a recrudescence of the deep cleavage between ‘internationalism’ and ‘intranationalism’ within the ranks of his own party when he began to waver over his previously firm convictions about the domestic priority for action.12 This crisis came to a head over the incoming administration’s attitude to the World Economic Conference. The US representatives on the preparatory commission at Geneva were Edmund E. Day, an official of the Rockefeller Foundation and Professor John H. Williams of Harvard University. When they returned to the United States with the preliminary agenda in December, it at once became painfully obvious that the British had skilfully manipulated the proceedings in Geneva to present the need for immediate and substantial progress towards a debt settlement as a necessary precondition for the conference’s success. As the report noted in bold and unequivocal language:


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The presidential interregnum One important development in the intergovernmental situation is indispensable: a definitive settlement of the war debts must be clearly in prospect, if not already attained, before the Commission comes together again. To have this question overhanging the next meetings of the Preparatory Commission would be to cloud the discussion with such suspicion and ill-feeling as to preclude any effective progress. With a satisfactory debt settlement in hand, or in the making, and with a willingness on the part of two or three of the principal powers to assume [the] initiative in working out a program of normalization of the world’s economic order, the next meeting of the Preparatory Commission may be expected to yield highly important results.13

This declaration threatened all that the intranationalists sought to achieve and their sense of insecurity was further increased by the failure of Moley’s efforts to replace Day and Williams at the next stage of preparatory talks in January. Despite these setbacks, however, Roosevelt assured his anxious advisers that he still stood solidly behind their previously agreed policy on debts and on 16 December he deputed Tugwell to convey to Day and Williams the incoming administration’s views about avoiding an international ‘poker game’ in which debts were to be traded for concessions and their determination to prevent foreign issues deflecting them from their domestic recovery programme.14 Tugwell had little choice but to accept this outcome, but his admiration for Roosevelt did not blind him to the dangers of his decision-making style. ‘The formal set up of governmental structure will, I imagine, never mean very much to Roosevelt’ Tugwell recorded in his diary. ‘Everything which has to do with policy will be filtered through his mind. The difficulty will be that he will not always be careful to have continuing advice. He is apt to take it from me at one time, from Moley at another time, and, perhaps if we are not handy, from some senator or congressman who happens to turn up at an opportune moment’. This perceptive verdict was soon vindicated by events as Roosevelt adopted a ‘wobbly attitude’ over policy priorities under the influences of two powerful internationalist forces. The first was provided by the return of Norman H. Davis from the Disarmament Conference at Geneva. For Tugwell and Moley, Davis was the apotheosis of American internationalist sentiment. Despite serving Hoover at Geneva, he had been a friend of Roosevelt’s since the Wilson presidency and to intranationalists like Tugwell and Moley, he was ‘one of those Democrats who were practically indistinguishable from Republicans’.15 Yet as they discovered to their surprise during this ‘struggle for Roosevelt’s mind’, Davis proved far more influential with the President-elect than they had expected – particularly when supported by the full weight of the eastern press and banking community.16 Ironically, the other powerful influence over Roosevelt’s thinking during this period was Stimson. Before entering public office, Stimson had been a



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New York lawyer and his closest contacts, friends and personal affinities lay among the East Coast financial community, particularly Tom Lamont and the partners of J.P. Morgan. Despite Hoover’s sometimes vigorous opposition, as Secretary of State, Stimson had been a committed believer in the need for stronger diplomatic and economic links with Europe – and particularly with Britain with whom America shared a direct interest regarding the containment of Japanese imperialism in Manchuria. During September and October 1932 Stimson had thus initially resisted the pleas of Hoover and Mills to take a more vigorous part in the presidential campaign and when he did so he conspicuously refrained from any direct personal attacks upon Roosevelt. Undeterred by Roosevelt’s rebuffs to his efforts at cooperation on debts, Stimson remained determined to pursue this goal even after Hoover formally declared such overtures at an end on 22 December. While convinced that Roosevelt’s position reflected ‘a most laughable . . . ignorance of the situation’, therefore, he continued to believe ‘that with a little tact we can get him to yield on the main point’ only if they could ‘convince him that we are in earnest [and] are playing fair’. As Stimson suspected the problem stemmed from a profound personal antipathy between Hoover and Roosevelt (fuelled by Mills), he also came to believe that he could achieve what the President could not through direct contact with the President-elect.17 Stimson’s opportunity arrived ‘suddenly out of a clear sky’ when Roosevelt asked his old friend Felix Frankfurter on 22 December to get Stimson to ‘come up here and talk with me and settle this damn thing that nobody else seems to be able to’. According to Frankfurter’s subsequent telephone conversation, Roosevelt believed there had been ‘a terrible misunderstanding’ and that he ‘feels very badly that all cooperative efforts had been broken off’. The conversation ended with the assurance that Roosevelt had no acrimonious feelings towards Stimson who ‘didn’t play politics’. Yet although evidently ‘anxious to go’, when Stimson informed Hoover next morning, a ‘prolonged argument’ ended with the instruction that ‘he should have no communication at all with Governor Roosevelt’ except to make it clear that Hoover’s last offer was still on the table if he was prepared to nominate two or three senior Democrats to a reconstituted Debt Commission. Stimson dutifully passed this message on to Frankfurter later that evening, but in reply he received four messages from Roosevelt expressing his desire to cooperate with the outgoing administration, his hopes of discussing debts with British experts and his conviction that preparations for the World Economic Conference should continue in January even if the final agenda and timing could not be finalised until after his inauguration.18 Next day, Christmas Eve, Frankfurter telephoned again to report that Roosevelt was ‘very anxious’ to see him in early January. By this stage, Stimson and ‘everybody else [he] . . . talked with’ felt ‘very strongly’ that he should grant the request because it was ‘incomprehensible that we should take a position which would deprive the incoming President . . . of important information about foreign affairs’.19 Three days later, Roosevelt’s


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acknowledgement of Stimson’s letter regarding the return of Day and Williams to the preparatory conference on 9 January casually noted that he would be grateful to be kept informed of progress ‘either by telephone or in person’. The phrase ‘in person’ had been heavily underscored.20 When Hoover returned to the White House on 3 January Stimson was encouraged to see that he was ‘looking very much better than when he went away and apparently in better spirits’. Later that afternoon, however, when Stimson ‘spoke pretty seriously and . . . rather impressively to him’ about his desire to meet the President-elect as a prelude to a further meeting at the White House, Hoover insisted that ‘Roosevelt was a very dangerous and contrary man and that he would never see him alone’. Fortunately for Stimson, at this moment his leverage was substantially reinforced by evidence of the damage being caused by this ‘deadlock’ when the British refused to participate in any negotiations with the outgoing administration unless there was some hope that their outcome would be accepted by its successor. Next day, Walter Edge threatened to resign as Ambassador in Paris on the grounds that he had only returned to his post after the election in the hope that the presidential interregnum might be used productively to resolve FrancoAmerican tensions, but that the ‘stalemate’ revealed by the published exchange between Hoover and Roosevelt convinced him that he was ‘filling a post without a function’.21 After this, Hoover reluctantly yielded to Stimson’s pressure to meet the President-elect, but to ensure there was no misunderstanding, he issued Stimson with written instructions regarding the forthcoming talks because he did ‘not wish our efforts minimised down to mere conversations which are being misrepresented on every occasion to further disturb the public mind and our international relations’. In particular, these terms demanded that ‘three, or a minimum of two, men of eminence with an understanding of these problems shall come to Washington and shall sit in with the responsible Cabinet officers for the formulation of a definite and positive organization of the machinery for handling the Arms Conference and the negotiation of the debt’ – albeit on the clear understanding that such talks would not commit the next administration. Furthermore, despite Stimson’s own efforts to ensure his meeting with Roosevelt should remain ‘a profound secret’, Hoover also insisted that ‘if you see him it must be public not secret’. The next afternoon, as Stimson left the White House, he thus discovered from the waiting journalists that the President’s press secretary had informed them of Roosevelt’s invitation.22 Stimson’s conversation with Roosevelt alone at Hyde Park on 9 January lasted from 11am until 5.30pm. Neither man had any difficulty in getting on amicable terms and they ‘spoke with the utmost freedom and informality’. It was the beginning of a relationship which culminated in Stimson’s appointment as Secretary of War under Roosevelt between 1940 and 1945. Their talks covered Cuba, Haiti, recognition policy in South America, the World Economic Conference and debts. With regard to the latter question,



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Roosevelt outlined his objections to Hoover’s proposal for a reconstituted Debt Commission on the grounds that such a body would be unpopular and impede his own efforts to carry a future debt settlement through Congress, while Stimson explained the need for ‘prompt and dramatic action . . . to obtain the necessary psychological effect in the country to stop this [economic] deterioration’. After further ‘thinking aloud’, Roosevelt suggested that if the British sent Baldwin to ‘begin the necessary spade work on debts’ with Stimson he would also take a personal part in the talks. On this basis, Stimson promised to take up the idea with the President although he deprecated Roosevelt’s further hint of negotiating simultaneously with France on the grounds that it was undesirable to treat a defaulter on equal terms with a debtor which had fulfilled its obligations. Despite this warning, on the following day Roosevelt secretly informed the French Ambassador that they could reach an accommodation over war debts on the same basis as America’s Revolutionary War debt to France under which Paris would pay the principal but not the interest on the loan.23 After his meeting with Roosevelt, Stimson told Undersecretary Castle that ‘if you could take at 100% all that he said, the future would look very hopeful as to foreign relations’. The problem, however, was that ‘Franklin . . . agreed with the man to whom he was talking’. When Castle reported this remark to Hoover, the President declared they ‘would be lucky if it was worth 5%’ because ‘Roosevelt was a man with a knitting bag full of little political tricks’.24 As a result, when Stimson ‘very strongly’ urged Hoover and Mills to consider Roosevelt’s debt proposal on 11 January, he ‘faced two grim faces’ and ‘lots of objections’.25 Nevertheless, when Hoover did respond to Roosevelt’s ideas with a memorandum on Sunday 15 January, Stimson was encouraged by the advance in the President’s thinking, even though it was ‘pretty rigid in some of the conditions that it laid down’.26 Unfortunately, while the President now appeared ‘quite in accord with our progress with Roosevelt’, the President-elect seemed ‘hesitant and confused’ over the debt question at his ‘very friendly and cordial meeting’ with Stimson on 19 January – particularly regarding his new insistence upon not making any commitment to reduce debts until assurances had been received from Britain about currency stabilisation; a ‘wobbly attitude’ which appeared to confirm other reports concerning his ‘lack of grasp of this whole situation and his ignorance about it’.27 Yet while there is much truth in this general allegation, in this specific case Roosevelt’s ‘wobbly attitude’ was actually symptomatic of the battle going on between ‘internationalists’ and intranationalists’ within his entourage. Moley and Tugwell had not been invited to Roosevelt’s meetings with Davis or Stimson and they inevitably interpreted his endorsement of Stimson’s Manchurian policy and apparent commitment to discuss the British debt as a reflection of the growing influence of the internationalists. ‘The crux of the difference’, Rex Tugwell noted, ‘was that Davis wanted to trust matters to the present administration’.


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The presidential interregnum He would have favored a single conference covering all subjects immediately. Moley was determined that nothing but preparation should take place before March 4, and that there should be no suspicion of concession on the debts. Davis represents Wall Street, the State Department and the cancellationist attitude. Moley, I think, believes as I do too, that the debts are a big shadow in the background, affecting every international question; but he is against playing the Wall Street, Republican game for cancellation . . . The Hoover administration is trying . . . to move rapidly now, so that they can say they have started the thing off and so can claim credit for it . . . Davis is playing their game and Moley resents it bitterly as I do too.28

These fears from the Moley-Tugwell camp about Roosevelt’s constancy of purpose were largely unfounded. As so often, Roosevelt’s presidential style was simply to keep his options open and make his own decision while shielding his purpose from those around him until he was ready to act. When Moley and Tugwell tackled him on the question on 17 January, Roosevelt thus assured them he still shared their perspective. The ensuing meeting between Hoover and Roosevelt on 20 January also represented a victory for the ‘intranationalists’ as Moley ‘jumped in as the opponent of any attempt to connect the debt negotiations with assurances as to the economic situation in general’. At this point, ‘Roosevelt became rather wobbly again’ but throughout he relied entirely upon Moley to rebut the warnings of Hoover, Stimson and Mills that to invite a British representative to Washington ‘would lead simply to discussion of reduction of debt, out of which the British had everything to gain and we had everything to lose’ unless debts were linked directly to concessions at the World Economic Conference. When pressed further by Stimson, Roosevelt insisted that these negotiations ‘should be treated as physically two different discussions of which the results of one might be made conditional on the other’ – probably to be concluded by difference representatives in different rooms; a masterly exercise in evasion designed to satisfy all sides seeking to influence him. Although the Republicans regarded this to be ‘a highly foolish position to take’, Hoover tactfully drew up a final communiqué which satisfied everyone by separating the subjects in separate sentences.29 Another ‘battle royal’ followed that afternoon between Stimson, Bundy and Feis against Moley and Tugwell over the phrasing for the aide memoire to be given to the British Ambassador regarding the separation of the debt negotiations from those on other economic issues at the World Conference. Stimson appeared ‘irritable’ as he ‘warned them again and again that they were riding for trouble’ when they met the British unless they linked the outcome of the two conversations. Indeed, at one point Tugwell records ‘he turned on me as trying to tear down everything he had been working for throughout his term’; an outburst attributed to ‘an accumulation of irritation at not having his way all day and at having to deal with people who must to



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him have seemed like sheer amateurs and upstarts’. After this Tugwell was ‘pretty angry and red’ but he confined himself to silent ‘glaring’, while Stimson insisted on leaving a record of his dissent in the State Department files. Yet under Moley’s ‘most conciliatory but very firm’ insistence that his own decision would be final, Stimson eventually gave way. This was another important victory for the ‘intranationalists’, but as even Roosevelt supporters like J. Pierrepont Moffat conceded, the outcome demonstrated that ‘the new administration had still done very little “thinking” along the lines of foreign affairs and was still labouring under the illusion that with time, patience and good will, events would right themselves’. After this meeting, Sir Ronald Lindsay was informed of Roosevelt’s desire for British negotiators to be sent to Washington in early March.30 The Hoover-Roosevelt meeting on 20 January did absolutely nothing to increase the President’s respect for his successor’s ability, trustworthiness or understanding of the problem. Furthermore, he came away with an even more strident dislike for the ‘half-baked, pert and very fresh’ Moley whose leaks to the press depicting the meeting as a victory for Roosevelt exposed him as a ‘cheap politician’. Yet the far more important outcome of this meeting was that it seriously undermined Hoover’s confidence and trust in his own Secretary of State. Relations between these two strong-willed and quicktempered men had always been strained ever since Hoover appointed a man he scarcely knew to a key post in his administration simply because his first three choices had all declined the offer. After this, personal and temperamental differences opened a vast gulf between them and Stimson’s refusal to campaign on Hoover’s behalf made this chasm utterly unbridgeable.31 After a long talk on the subject with the President in late January 1933, Castle noted that, ‘Poor Hoover feels that Stimson comes very close to disloyalty and poor Stimson feels that his loyalty is a terrible strain on his conscience. Each man will leave Washington on March 4th hoping that he may never see the other again and that is a tragedy’.32 This conflict of policy, perspective and loyalties soon boiled to the surface once more over the best method of dealing with the French default. France had even more reason to pin all their hopes on Roosevelt than the British. On the basis of his soundings within the American foreign policy elite in December, Robert Brand ‘found no single man who would reduce the French Debt “by a nickel” ’ and French default only inflamed this antagonism in the White House, on Capitol Hill and in the minds of the American public.33 Yet for all this latent hostility, French foreign policy-makers continued to hope that someone or something would provide ‘a way out of the difficulty’ capable of restoring the good standing of France in Washington without the need to expend the financial or political capital required to expunge the debt. To this end, the French hoped that the situation would be ‘greatly facilitated’ if the outgoing President’s Message to Congress on 19 December recommended the appointment of a committee of international experts to examine the inter-Allied debt question.34 As Pierre


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Cot, the new French Undersecretary for Foreign Affairs told the US Embassy in late December, he envisaged that a week after a Franco-American commission met it might be possible to recommend immediate payment of the December instalment as a gesture of goodwill while negotiations continued.35 In the event, Hoover’s Message to Congress offered little more than an unrepentant and unmodified reiteration of the old refusal either to postpone payment or to accept the link between debts and reparations. Worse still, American sources made it abundantly clear to France that they were not prepared to negotiate anything with defaulters and that ‘one could not expect rejoicing over the return of the prodigal until he had returned’. In response, the new French government announced on 28 December that it would suspend further negotiations on war debts until Roosevelt took office on 4 March.36 Like the British, the French were now pinning all their hopes on the President-elect. Whatever the French expected from the incoming administration, the outgoing Republicans were not prepared to let the matter rest. In early January, Walter Edge proposed the extraordinary course for a serving ambassador of encouraging Republican and Democratic Senators to engage in ‘some pretty plain talk’ in condemnation of French default in the hope that it would ‘force France to make the overdue payment if the attack was properly staged’. By undermining their belief that defaulters would be dealt with on equal terms with those who had paid in December, Edge believed it would ‘at least disillusion the French who . . . now feel that they have put one over and are doing a great deal of chuckling at our expense’. In the absence of congressional protest, however, ‘they are lulling themselves into a state of mind that Santa Claus is coming’. Above all, he advised that ‘immediate negotiation with England or even steps towards it would tend to bring the French around as they are somewhat disturbed by the outflow of gold and their threatened isolation’.37 Hoover and Mills were also ‘very anxious’ to bring direct pressure to bear on the French.38 To this end, on 13 January the President proposed sending a note to Paris calling for immediate payment of the December instalment to demonstrate that they were serious in their demands.39 If this initiative was known to have the support of Roosevelt, Hoover believed it would ‘do more to make them pay than anything else’. When a deeply sceptical Stimson sounded Roosevelt on the possibility on 19 January, however, he showed considerable hesitation and the matter was soon allowed to drop.40 Worse still, earlier on the same day the British Ambassador explained to Stimson that for diplomatic reasons ‘his Government faced the great difficulty of not knowing whether they could go ahead with any steps at all without offending France’.41 From Paris, Walter Edge also reported that the French press generally expressed a ‘marked confidence that Great Britain will act as a spokesman for France and defend her interests in Washington despite the fact that the December 15th debt instalment was withheld’.42 Hoover refused to be deterred by these obstacles to progress. Much annoyed by Roosevelt’s refusal to differentiate between British conduct with



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regard to the December payment and French default, he was infuriated by authoritative rumours that ‘the French would pay the money immediately on Governor Roosevelt’s inauguration as a compliment to him and as a slap at the present administration’. While he remained President, Hoover declared that he ‘was not going to be a party to such things’. Frustrated by Stimson’s delay in sending his demand to Paris, on 21 January the President insisted the State Department issue a forceful Note demanding the French government should reverse their default. Convinced this was ‘a futile gesture’ likely to make France ‘very angry and spoil the relations of the two nations for some time longer’, Stimson refused to comply. Furthermore, given Roosevelt’s expressed opposition to the threat, he feared a rift in the collaboration he had striven so hard to create with the incoming administration. As a result, Stimson and Hoover exchanged ‘some pretty hot words’ on the subject with ‘the President getting more irritated than [Stimson] had seen him for a long time’, while the Secretary of State also ‘spoke pretty freely’. After this, Hoover again backed down while Mills drafted a ‘very conciliatory and short note’. Hoover was also persuaded to seek Roosevelt’s approval for the terms of this ‘courteous reminder’ to Paris, although at the same time the President-elect would be warned that his equal treatment of France and Britain was ‘doing harm to the American people’. Stimson returned home from this clash feeling ‘very angry and churned up’. After consulting George Harrison of the Federal Reserve Bank next morning, Stimson conceived the compromise idea of a Note to Italy, Czechoslovakia, Latvia, Lithuania and Finland saying the President-elect invited them to discuss debt revision immediately after the end of the British negotiations on the grounds that they had met their December obligations; a move calculated to highlight the isolation and discrimination against France. When he revealed the idea to Hoover over the telephone that afternoon, however, the President was annoyed to learn that Stimson still did not propose to send the agreed Note to France and after another acrimonious discussion he gave Stimson ‘positive directions’ to submit it to Roosevelt. If he approved, they would almost certainly collect the money, but if he disapproved its dispatch, ‘it at least relieved this administration from responsibility’. Either way, Hoover was determined to put the French on the spot in the expectation that any response from Paris would provide the opportunity ‘to set out clearly and precisely their outrageous conduct in the whole matter and leave a record that would be indelible for all time on the situation’.43 Following this confrontation, Stimson confessed to being ‘sore and angry’ because, as he told Mills, he felt Hoover ‘is holding me responsible for a good many of his troubles and that is not a very pleasant thing to have’. On 24 January, however, ‘a rather embarrassed’ President apologised for having ‘blown up’ and after this Stimson noted ‘the cloud under which I have labored for the last two or three days has lifted’.44 Despite this repair in their personal relations, Hoover’s strategy did not bear fruit. Later that afternoon, Edge reported from Paris that the French


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press considered the invitation for Britain to commence negotiations ‘in no way affects the French position’ because ‘in the final analysis the United States and Great Britain can reach no important conclusion without taking France into consideration’ and Britain could be relied upon to act as a spokesman for French interests. Worse still, Edge’s discussion next day with the new French Premier, Paul Boncour, confirmed the view obtained from other French sources that while ‘he had no dearer aim than to find a solution’ for the debt problem, discrimination against France ‘would badly influence public opinion and make it impossible to change . . . parliamentary opinion’.45 After hearing this, Roosevelt’s objections to the tone of Hoover’s note to France ensured its postponement until it was possible to gauge French reaction to the invitation to Italy which he thought ‘would probably bring the French around’.46 If this was Roosevelt’s genuine belief, it was scarcely consistent with reports in the entire French press next day that an official communiqué from his therapeutic retreat at Warm Springs, Georgia, ‘left no doubt that nations such as France which has thus far declined to make its December payment will also be eligible to lay their case before the United States Government’ because this failure ‘did not constitute a default but could be regarded as an adjournment of payment until the question had been discussed’.47 Next day, Boncour met William C. Bullitt acting in his capacity as Roosevelt’s unofficial secret emissary and offered assurances that he hoped it would be possible to make the payment shortly after the inauguration and that Herriot would soon visit America ostensibly on a lecture tour but really to begin talks with Roosevelt. Moreover, in the event that his own government should fall over the budget (as was widely expected), Boncour declared that ‘a new government would adhere to this project’.48 On this basis, Roosevelt informed Stimson next day that he preferred ‘the more temperate methods’ of an informal oral suggestion to the French in preference to the bellicose tone of Hoover’s formal note of protest and an unhappy President was grudgingly forced to agree.49 While Roosevelt was busy cultivating France, at the State Department Stimson made it clear to Lindsay that ‘the door to this place still is open and will remain open’ because the President was anxious to help. Although Stimson did not say so explicitly, the Ambassador understood this to mean that ‘for the next ten weeks [the] United States Government will be impotent; that it is open to His Majesty’s Government to assume the leadership and initiative; and that the present administration would be glad if they would do so’.50 In the event, however, the deadlock revealed by the exchange of correspondence between Hoover and Roosevelt in December persuaded the British that there was no useful purpose to be served in negotiating with a ‘lame duck’ President when the conclusions of those deliberations would be immediately discarded by his successor.51 Nevertheless, British policy-makers were still determined to achieve two key objectives during the presidential interregnum. First, they believed that the



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success of the forthcoming World Economic Conference depended upon getting the war debt issue out of the way first in order to clear the way for agreement on the other major issues at a time when Britain, France and America were ‘very wide apart’ – and that without some prior agreement ‘the Conference appeared doomed to fail’.52 Second, they were equally determined to educate the President, Congress and American public opinion into the recognition that British payments could not continue indefinitely. As Fisher and Vansittart rightly feared, having received Britain’s payment there was a natural desire for America to ‘back-pedal’ and ‘to leave the whole subject alone until nearly 15 June, and then say to us “come along, boys, with our swag” ’. To prevent this possibility, London decided that it was necessary ‘to poke them’ by mobilising Britain’s friends in the American banking world and by making continual demands for immediate discussions at a time when Hoover and Roosevelt ‘prefer to let sleeping dogs lie, since both can only expect to get bitten by disturbing them’.53 In practice, public opinion in Britain had already moved to align itself with official policy. The decision to pay the December instalment was thus greeted with weary resignation in business and financial circles, but this was accompanied by a growing belief that payments could not be permitted to continue indefinitely. As the January 1933 issue of the National Union of Manufacturers’ Journal put it, Britain was ‘being forced steadily, but inevitably, towards the decision that no further payments of United States war debts can be made’. Unfortunately, the British government could derive far less satisfaction from the impact of its communications strategy upon American sentiment. Ultimately, this problem stemmed from the vast leap of imagination it required to understand the British case when ‘faced with a mass of absurd ignorance’ in the United States.54 As the Ambassador explained, given the scale of America’s economic collapse and the ensuing nervous uncertainty, ‘it was difficult to get Americans to realise that by facing up to the realities of the Debt situation, which involved making an unbalanced budget worse, they would get an improvement’. Moreover, if policy-makers in Washington found this logic difficult to accept, it was even harder for ordinary American citizens struggling to pay their personal debts and mortgages to understand how relieving the burden on European taxpayers was actually serving their own best interests. Against this background, ministers were frustrated in February 1933 to learn from the Ambassador that while the unofficial Sloane Committee and other educative bodies were doing an ‘admirable job’ in propagandising the British case and in keeping the issue alive, their efforts ‘evaporated like a drop of water on a hot plate, and did not seem to produce the slightest permanent effect’. As a report from the British Library of Information in New York (BLINY) explained, editors ‘probably knew the truth but were unwilling to utter it’ in the prevailing climate of economic distress.55 Against this background, ministers gradually came to recognise that first and foremost ‘education must be done by Americans and by events’.56


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This official diplomatic assessment was soon confirmed by an influential private source. Robert Henry Brand was a British banker and public servant of the very highest calibre with close connections and many friends in the United States. Brand’s opinion had carried considerable weight in British policy deliberations during the December payment crisis.57 Convinced of the need to use the presidential interregnum to educate the President-elect and his advisers about the war debt problem, in late December Brand offered Chamberlain his own services along with those of Messrs Lazard Frères as a purely personal channel to open informal contact with Roosevelt through coded messages delivered via their New York office.58 Four days later, on 27 December, he spent the afternoon with Simon giving him a full account of his impressions gained during a recent private visit to the United States and pressing his ideas about a final lump sum payment ‘to clean the slate’. In midJanuary MacDonald also had a private talk with Brand ‘on the American debt & how to handle it’.59 Having spent almost a month in New York and Washington in November and December, Brand had met virtually everyone directly concerned with the debt controversy in both parties, the banking community and in Congress.60 On the basis of these authoritative consultations, he completed a 15-page memorandum on 29 December and circulated it to Chamberlain, Simon and (in the absence of Montagu Norman) to the Deputy Governor of the Bank of England. The picture painted by Brand concerning American attitudes and understanding of the war debt question was deeply depressing from a British perspective. After outlining the many practical difficulties in educating public or congressional opinion, Brand adduced at least three inter-related reasons for contending that it was ‘impossible to imagine a more unfortunate time to have to take up this question’. At the heart of all these reasons for pessimism, was the sheer magnitude of the American economic crisis. Above all, the breathtaking scale of domestic agricultural and real estate indebtedness adversely affected all public and political perceptions of the international war debt problem. Second, beyond a few economists and bankers, American public opinion and their political leaders were reported to be afflicted by an understandable myopia about their best interests which stemmed from a more profound economic illiteracy. Not only did Americans refuse to acknowledge any link between war debts and reparations, but the transfer problem was completely unknown and ignored – far less was there any understanding of the argument that the payment of these debts only exacerbated deflationary pressures which forced down price levels even further. The problem was thus regarded ‘as almost entirely one of shifting the burden of taxation from the backs of Englishmen and Frenchmen on to those of Americans and as long as they could possibly pay no question of revision could arise’. Finally, Brand argued that most Congressmen during the recent elections had pledged themselves to make European war debtors pay to the utmost of their capacity and in this context it was particularly unfortunate that the new Congress was ‘still more parochial, limited and



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certainly more inexperienced than the last’. Against this background, Brand warned the British government to beware of advice from seemingly friendly Americans urging default because this was often simply a means to relieving themselves of the need to honour their electoral pledges at a time when they were just beginning to recognise some of the complexity of the war debt problem. With regard to future policy, Brand was equally apprehensive. Although the universal recognition that Britain had ‘a rough deal, and has done her best’ would permit revision down to a French basis, he doubted either whether it would be possible to go below that level or whether even this could be obtained without concessions on disarmament and commercial matters ‘which according to American standards, it would be almost morally reprehensible to let slip’. Just as M. Poincaré regarded reparations as a trump card against Germany, so American opinion feels the debts give them the only hold they have both to make Europe behave rationally over disarmament, and to get some new commercial or even territorial advantages. Just to cancel or almost cancel the debts without consideration would, they fear, make them ‘the suckers for the world’, i.e., morally and materially humiliated before a mocking, no doubt antiquated, but unfortunately still too astute Europe. In this context, Brand was extremely sceptical as to whether the United States would be prepared to accept even a moderate lump sum settlement before the next payment fell due on 15 June 1933. As the Hoover administration was effectively powerless and Roosevelt and his advisers were not yet either fully informed about the war debt problem or prepared to accept a radical solution to it, Brand argued strongly that the British government should concentrate all of its efforts on educating the new administration before it came into office on 4 March. Brand’s memorandum undoubtedly made for ‘gloomy reading’ in London.61 But it also deeply impressed the group dealing with the war debt question and its dismal verdict was amply confirmed by similar assessments from all sides. The central theme of all of these reports was that ‘unless Mr Roosevelt gives a strong lead to the new Senate and Congress and is able to get across to the ordinary working man that it is to his self interest to revise war debts, matters won’t move’.62 Yet as the British Treasury and Foreign Office agreed, with a ‘lame duck’ in the White House no serious negotiations could begin until March, while any secret discussions with Roosevelt through intermediaries prior to that date would be ‘most unfortunate’ and potentially embarrassing.63 Or as Leith-Ross concluded after reading Brand’s report, ‘the difficulties of the situation only emphasise the need for doing everything we can to educate public opinion in America without committing ourselves to negotiation with people who are unable to deliver the goods’.64 As a result,


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they vigorously resisted the efforts of Simon and MacDonald to recall Lindsay for consultation while opening ‘subterranean’ negotiations with Roosevelt through the shadowy figure of Colonel House who appeared to be ‘acting as gumshoe man’ in making these arrangements.65 Despite these gloomy reports from Washington, there was a strong collective sense of wishful thinking in London that Roosevelt would be far more amenable to the British pleas over war debts than his predecessor in the White House. As a result, the British fell easy prey to a combination of their own fondly cherished illusions and Roosevelt’s skilful manipulation of these hopes. After Roosevelt’s first conference with Hoover on debts in late November, J.P. Moffat recorded that many Americans expected Roosevelt to give diplomatic recognition to the Soviet Union ‘as being something he can do at once and on his own, in foreign affairs, and which will have little repercussion or real meaning’. But beyond this symbolic act ‘the general impression is that he will carry on Stimson’s policies almost unchanged’.66 Yet if such an appraisal was widely shared among Washington insiders, it was not one which reached the ears of the British Ambassador, nor did it permeate the thinking of the British foreign policy elite where faith in Roosevelt remained unabated long after it ceased to be rational to hold such beliefs. The origin of British illusions about Roosevelt can be traced to ‘a very long and important talk’ which A.J. Cummings of the News Chronicle had with Governor Roosevelt on 31 August and which he reported confidentially to Walter Runciman at Roosevelt’s request. Cummings ‘formed an extremely favourable impression of the man, both as a statesman and a personality. He has liberal views and is undoubtedly a real friend to this country’. On the subject of War Debts, the Governor made it clear that he is personally in favour of cancellation. He made it equally clear that in the present state of politics and industry in the U.S.A. it would be impossible officially to advocate this course . . . ‘We must ask you all’, he said ‘to acknowledge the debt, but you would find us an extremely indulgent creditor and we should only expect any payment to us in those years in which the debtor country had a favourable trade balance and was on strong ground financially. With regard to Great Britain we should be willing and anxious to make specially favourable terms. Every responsible person in America’, he added, ‘realises that Mr Baldwin, on behalf of Great Britain, though with the best intentions, made an extremely bad bargain for his country’.67 British confidence in Roosevelt was further reinforced by confidential personal overtures. Soon after his victory, the President-elect opened a secret channel for communication direct to MacDonald through William C. Bullitt. As a European correspondent of the Philadelphia Public Ledger and assistant to Woodrow Wilson at Versailles, Bullitt knew Europe and its



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leaders relatively well and MacDonald regarded him as a personal friend who was ‘about as trustworthy a man as America produces’.68 After being reintroduced to Roosevelt in October 1932, at the suggestion of a mutual friend Bullitt visited Europe in a strictly private capacity both to spare the incoming President embarrassment should news of his activities leak out and because the Logan Act imposed stiff penalties on private citizens conducting any conversations with foreign governments without official permission.69 Nevertheless, when Bullitt visited the British Prime Minister on 28 November he told him that ‘he knew Roosevelt’s mind and came from him’ with a message to the effect that he intended to make a personal visit to Britain to engage in ‘comprehensive negotiations’ regarding debts, tariffs and trade.70 According to Bullitt’s record, MacDonald spoke volubly and at great length about ‘the mess’ over the December payment, declaring with ‘considerable heat’ that Hoover’s recent attitude ‘made him look like a fool’ and that ‘if he could not establish franker and more intimate and reliable relations with the Governor than he had been able to establish with Hoover, he would resign’. The conversation ended with MacDonald urging Bullitt to ‘keep in the closest possible touch’ because it was most important that he had some means of communicating ‘privately and unofficially’ with Roosevelt in case of emergency before March. To this end, they arranged ‘a little code and an absolutely private channel of communication for both letters and telegrams’.71 Despite MacDonald’s confidence in Bullitt’s established personal friendship and Anglophile sympathies, the Foreign Office later obtained reliable confirmation that Bullitt together with Lewis Howe, Roosevelt’s private secretary, were the ‘two men in the White House set who are always trying to instil hatred or distrust of Great Britain into the President, whispering it to him on every occasion’.72 In the short term, however, Bullitt’s credibility was reinforced a few days later when a reliable but ‘unimpressive’ intermediary approached Lindsay in Washington with a message that the President-elect was anxious to begin early discussions with the British Government.73 MacDonald did not tell Chamberlain of this private contact until 2 January when he persuaded him that they should invite Roosevelt to send an authoritative emissary to London for discussions. Convinced that a new President was at his strongest position in dealing with Congress during his first few months, Chamberlain agreed on the grounds that Roosevelt ‘may not be prepared to use his power but the best chance is to try and convert him to the right view of how it should be used’.74 Almost immediately, Roosevelt responded to this overture with the promise to send an emissary to meet MacDonald and Chamberlain secretly at Chequers to discuss war debts at the end of the month. He also told Stimson of his desire for immediate discussions to ‘begin the necessary spade work on debts’ with a senior figure like Baldwin as a foundation for rapid action after his inauguration.75 Despite Lindsay’s suspicions of Bullitt’s credentials and trustworthiness, his ‘exploratory’ meetings with MacDonald on 21–22 January and with


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MacDonald and Chamberlain at Downing Street on 24 January radiated goodwill and encouraged British hopes of an early settlement on favourable terms. Reporting the substance to Cabinet afterwards, Chamberlain noted it ‘seemed clear that Mr Roosevelt was anxious to come finally to agreement with us’, and was ‘particularly apprehensive of the possibility of a default’. Although Congress would never accept a final lump sum settlement, the Cabinet were equally encouraged by the news that the President-elect wished to scale down the debt very considerably – by up to 80 per cent. More important, Bullitt suggested that Roosevelt was prepared to consider a moratorium on payment and that (according to MacDonald’s account) ‘there seemed to be an idea that the moratorium might last so long that the American public could forget what was to be paid’. Even on the question of France, there was encouragement when Bullitt intimated that a similar deal was contemplated for the other European debtors; a pledge given substance by Bullitt’s subsequent visit to Paris, Rome and Berlin and by the fact that Roosevelt personally confirmed the substance of everything that had been said when Bullitt spoke to him over the telephone from the Prime Minister’s room in Downing Street. As far as method was concerned, both Bullitt and Roosevelt declared that they expected a senior British representative in New York in late February to meet Roosevelt immediately as a prelude to a visit by the Prime Minister to seal the deal soon after the inauguration.76 Contrary to Tugwell’s belief that the British were ‘apparently flabbergasted’ by this proposal, they regarded it as a vindication.77 Despite Roosevelt’s ‘rather shamefaced’ public statement that ‘Bullitt was in no way his representative’ when revelations of his secret mission appeared in the hostile Hearst press at the end of January, the British attributed this denial to the delicacy of his domestic political position at a time when some senators demanded Bullitt’s arrest as a ‘fake envoy’.78 Nevertheless, as Chamberlain told the British Cabinet, these overtures suggested that their own strategy was apparently bearing fruit. It was obvious that American public opinion had a long way to go, as had Mr Roosevelt himself, before their ideas approached to our own. For this a certain amount of time was necessary. So long as we could obtain a moratorium during the conversations it was unnecessary to agitate ourselves about delay. Time must work in our favour, for the facts of the situation would tend to bring the Americans to see the ill effects on the United States of a continuation of payments. Although it was impossible as yet to see our way through the jungle, nevertheless he felt fairly confident in his own mind. As the Cabinet shared Chamberlain’s belief that any new president was at his strongest in dealing with Congress at the start of his term, they responded positively to Roosevelt’s own expressed eagerness for secret contacts before his inauguration on 4 March. As the British Ambassador in Washington was



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selected to act as an intermediary with the President-elect, Sir Ronald Lindsay was publicly recalled to London with the effect that Roosevelt immediately invited him to an interview before his departure.79 ‘That’s the best news for a long time’, Chamberlain noted cheerfully, adding that so long as talks could be kept in private channels there was some real hope of progress. In public, he declared Roosevelt’s invitation to be ‘the act of a man of courage . . . [and] good sense’ and a hopeful augury of progress.80 Despite the British Cabinet’s satisfaction with these developments, at this delicate juncture Chamberlain’s heavyhanded intervention threatened to jeopardise any hope of progress. There were a variety of reasons for the Chancellor’s decision to restate in combative terms the full British case for debt revision. First, it was widely recognised that Roosevelt had no conception of the vast scale of the ‘adjustments’ the British actually needed in order to preserve Lausanne; an ignorance which risked an apparently ‘generous’ offer of a 50 per cent remission from Roosevelt which the British would be forced to reject to the detriment of Anglo-American goodwill and the forthcoming World Economic Conference.81 Second, there was the equally real danger that after the British Note in December had declared that this was the last such payment, any subsequent decision to pay the June 1933 instalment in gold would provoke a speculative ‘bear movement against sterling . . . which it might be difficult to hold in check’.82 Finally, worrying reports from Washington suggested that American opinion complacently expected a further British payment in June in an atmosphere in which the debt issue had been relegated to the status of ‘a mere nuisance . . . of secondary importance’.83 To avert any of these disasters while clarifying the situation, the Treasury thus concluded it was vital to play an active role in the education of the new administration. ‘Nobody wants default’, Leith-Ross declared, ‘but I think that we will have no alternative but to warn the Americans definitely that unless they can find ways and means of revising the debt settlement by the 15th June we shall be compelled to default’.84 This advice from Treasury officials coincided with the Chancellor’s own conclusion that this was the moment for some plain speaking. In late November, when hopes of a postponement still persisted, Chamberlain was prepared to heed Lindsay’s warnings about the need to avoid ‘galling criticisms’ of American policy because of the ‘disastrous effect on this vain, ignorant and sensitive people’. But after the December payment, Chamberlain was much less prepared to accept the Ambassador’s view about the need to leave ‘time for self-education’ in American opinion. On the contrary, while he accepted that it might be impossible for Britain to do anything effective to accelerate the process, he also concluded that ‘we may impress R[oosevelt] himself more especially if we can educate public opinion here in the right direction’. And, as he told MacDonald on 4 January, this meant warning domestic opinion about the burden of continued payments ‘in such a way that the public would begin to declare that . . . [it] would be impossible’.85 With this in mind, the Chancellor characteristically decided it


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was time to lead from the front with a bluntly assertive public declaration of the British case designed to reassure the French about the British commitment to Lausanne while stiffening domestic opinion against future payment.86 In a well-publicised speech at Leeds on 24 January 1933, Chamberlain suggested that as America held ‘more gold than she knows what to do with’, the payment of war debts could only be funded by increased foreign exports to America or by reduced imports from them. This lesson in elementary bookkeeping he represented as a warning rather than a threat, in much the same way as one would warn a man walking along the edge of a precipice and it was ‘not the less friendly because it is evident that, if the man goes over the precipice, he is quite likely to drag you down with him’. If America was not yet prepared to cancel all war debts, agreement was still possible but on two specific conditions; that the settlement must be final and that it should not involve the resumption of reparation claims on Germany which would undermine the Lausanne settlement, ‘the one substantial advance during the last few years in the troubled history of Europe’.87 Chamberlain was delighted with the reception given to the speech both at home and in France where it ‘steadied them on Lausanne’. With regard to America, he also felt he had been ‘very tactful’ in stressing that it was a warning not threat, but this was a distinction almost entirely lost on American opinion which bitterly resented the tone, the implied conditions and the suggestion that Britain was not prepared to bargain over its debt.88 Hoover’s Assistant Secretary of State certainly warned that it was ‘bad policy to attempt to instruct this country from London since the only effect was to play into the hands of Congress and the Hearst press . . . and correspondingly to undermine [the] future position and influence of [the] President-Elect’.89 Similarly, the British Embassy’s survey of leading senators reported that most were ‘worked up about Chamberlain’s speeches and talk of cancellation’.90 While Roosevelt dismissed the speech privately on the grounds that it ‘sounded to him foolish’, his supporters bitterly resented ‘speeches which amount to lectures to us on elementary economics. The whole attitude is that we are inferior and illiterate – if we were not we should see that we ought to cancel all international obligations’.91 Norman Davis accurately assessed the speech’s significance when he told Ambassador Mellon that it was reassuring to find the British were ‘just beginning to realise that, as regards debt settlement, the policy of the new administration will not be markedly more lenient’.92 Nevertheless, he urged Lord Lothian to warn MacDonald that ‘F[ranklin] R[oosevelt] is taking his political life in his hands and N[eville] C[hamberlain] is making it more and more difficult’: a concern about Chamberlain’s ‘rather crude’ observations which the President-elect expressed himself to the British Ambassador in late January.93 W.Y. Elliott of the Harvard Group with close contacts to Roosevelt and Moley also warned, ‘For heaven’s sake, let us have fewer pronouncements “ex cathedra” from Neville Chamberlain et al. as to what you will insist upon in allowing us to scale



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down the debts! A truce to these dangerous speeches and an amnesty on the past’.94 Although Chamberlain’s speech made him the focus for American public hostility he was utterly unrepentant. Convinced that it was ‘useless for both sides to go on hiding their real opinions’, he was now even more determined to educate American opinion into accepting the realities as he saw them and by this juncture even the Ambassador conceded ‘a little of the truth should now be let out’. Yet ironically, what Chamberlain failed to recognise, was that his own increasingly robust public utterances about war debts and the British terms for settlement actually made this prospect progressively less likely. This was a point lamented even by some senior ministers who acknowledged the Leeds speech had been (in British eyes) nothing but ‘a clear statement of what had been said before by many economists’, but who were equally concerned by the outburst of American hostility aroused by Chamberlain’s provocative remarks.95 ‘N.C.’s speeches on American debt have neither clarified the real issues in the American mind nor improved their general attitude to us’, MacDonald irritably recorded in his diary. ‘I am in favour of speaking but not any speaking’. Like the Prime Minister, the Foreign Secretary was also increasingly vexed by the Chancellor’s efforts to trespass on his departmental prerogatives, reporting to MacDonald that his banker cousin just back from New York had noted a general feeling of ‘resentment at Mr Chamberlain “dictating” terms of a debtor to a creditor’.96 Yet despite all of this, BLINY’s analysis of newspaper and congressional comment concluded there was no general opposition to Lindsay’s projected meeting with Roosevelt before he returned to London.97 On this basis, Chamberlain remained optimistic that progress was finally being made with the incoming administration even if Hoover stuck doggedly to his earlier position. Lindsay’s 90-minute meeting with Roosevelt took place on 29 January 1933 at Warm Springs. According to the Ambassador’s report to London, Roosevelt ‘spoke throughout with remarkable frankness’ about his desire for eventual agreement with Britain. At the heart of his general scheme was the desire for ‘a comprehensive programme in which debts and other questions will automatically fall into their proper places’, but he refused to contemplate either protracted bargaining or piecemeal action because ‘only by presenting Congress with the prospect of curing the world as well as the domestic situation can he hope to ensure its support’. To this end, he wanted to commence negotiations with the British immediately after his inauguration on 4 March and these were ‘to be pressed forward with the utmost energy’ to be completed by 20 April when he planned ‘to present without delay 5 or 6 great and important measures, to force [Congress] to confine itself to these, and to use pressure to make it adjourn within 60 days. When Congress is out of the way he would wish the World Economic Conference to be held’. In practice, Lindsay understood this to mean that the idea was ‘to dress up the question of War Debts with these other questions in order to make the


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decision palatable to Congress’. To achieve this goal, Roosevelt proposed that the ‘British “number 2 man” ’ should arrive by 4 March. Negotiations would then proceed ‘entirely by private conversations with no general meetings, no speeches, and interference by the press reduced to a minimum’, in the hope that sufficient progress would be made within ten days for the Prime Minister ‘to come out in person to finish matters off’. On the substance of his debt policy Roosevelt was much less encouraging. Although willing to reduce them as far as practical, he made it clear that he was essentially offering a modification of the existing terms rather than an immediate final settlement as envisaged by Britain and France. In this respect, Roosevelt talked of foregoing all interest and treating past interest payments as repayments of the principal with a new agreement over less than the scheduled 62 years for repayment of the outstanding balance. When Lindsay explained on the basis of some hasty calculations that this scheme would still be unacceptable to Britain as it imperilled Lausanne, it provoked a cri de coeur from Roosevelt who asserted that it would be impossible to persuade Congress to accept more than a remission of interest given the ‘really terrible’ conditions in the country and that ‘if he and Hoover and an archangel from Heaven were all to be united in asking it for more it would not avail’. After consulting Norman Davis, Lindsay concluded that Roosevelt was perfectly well aware that the proposed settlement of $1,200–1,500 million would be unacceptable to London but that his real objective was to obtain congressional authority to suspend payments at his discretion and that the only method of doing so was by combining the request with ‘a general plan of wide scope which will appeal to the imagination of the people and give them a reasonable hope that serious coordinated effort is being made to end their troubles’. Equally encouraging, Roosevelt accepted Lindsay’s point about ‘the importance of bringing the French government along with us in everything’ and he gave assurances that he would treat ‘their failure to pay as a deferment and not a default’, although he repeated his earlier insistence that he still expected the French to pay their December instalment.98 After the interview, Lindsay reported to London that he had completely revised his view of Roosevelt. Having always previously regarded him as ‘a very engaging playboy’, he now concluded he was ‘a very serious man’: He has immense optimism, vision, spirit, imagination and a weighty desire to accomplish things. He has all the political acumen I knew of before but I believe that he has also the courage to attack any position which it is in the bounds of possibility for him to take. If I have often emphasised how much depends on the personality of the new President, I still recognise the existence of the most formidable difficulties and do not know if they can, by any possibility, be overcome, but I now believe we shall deal with a man capable of leadership which is essential and I feel encouraged.



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Concerns remained that Roosevelt was ‘over sanguine and thinks that he can do everything’, that his programme was ‘over loaded’ and that the Hoover administration might react badly to these unofficial contacts, but these early indications were all extremely encouraging for British policy-makers.99 Yet as Chamberlain had been warning for some time, ‘before we can begin these talks we must get our own programme into a more definite form than it has taken up to now’.100 The forum for these vital policy deliberations was the newly-established Cabinet Committee on British War Debts to the United States (BDA) consisting of MacDonald, Baldwin, Chamberlain, Simon and Runciman. After his return to London on 6 February, Lindsay attended five lengthy meetings with the committee before a final briefing on 13 February. In many ways, Lindsay’s account of his talks with Roosevelt was reassuring and optimistic. Even when Chamberlain and Runciman objected that Roosevelt’s proposals would cost the Allies £2.5 million a year more than they could collect in reparations, Lindsay was able to offer some reassurance about the absence of premeditated calculations when he announced that Roosevelt had not even known the total amount of the debt! Yet what emerged most clearly from these debates was an acute sense of uncertainty and doubt. Throughout their early sessions, ministers regularly returned to the fact that Roosevelt’s views and his likely chief advisers were all ‘almost unknown’. Worse still, Chamberlain declared that he ‘doubted whether Mr Roosevelt had formed any clear conception himself’. Notwithstanding this uncertainty, the BDA committee eventually reached two key decisions about their policy and the best method of approach. On the former, Chamberlain’s view prevailed unchallenged. Lindsay’s account of American opposition to any settlement on terms satisfactory to Britain reaffirmed Chamberlain’s emphasis upon the primary need for a moratorium to cover the next payment on 15 June and he believed Roosevelt was aiming at the same thing. ‘Time was on our side’, he told the committee. ‘It should be remembered that we had had to educate Europe on the subject of reparations, and we should now have to educate American on the subject of debts. For this time was necessary, and the question was how to get time; in other words a Moratorium’. To pave the way for such a step, Chamberlain proposed that Lindsay should persuade the President that his five-week timetable for reaching a settlement was wholly unrealistic and that he should send a message to Congress declaring that war debts could not be settled until related questions about tariffs, world prices and currencies were resolved at the World Economic Conference – and this required a moratorium in June to assist a final settlement of these separate but concurrent talks. In practice, all recognised that this would probably require a combination of carrot and stick to persuade Roosevelt. On the latter, the committee were reconciled to the need for an authoritative threat of default to increase the attractions of a moratorium as the less distasteful alternative. Moreover, while Simon argued that ‘the sympathy and support and


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cooperation of Great Britain might be well worth securing in return for a moratorium’, Chamberlain was prepared to go even further ‘to sweeten Congress’ by changing the venue of the World Economic Conference from London to Washington to assist ‘the education of the Americans’ and to dispel allegations that Europe was ‘pulling the wool over the eyes of America’ – but only so long as MacDonald retained the conference chairmanship on which he had ‘set his heart’.101 With regard to the terms of a final settlement, the committee devoted remarkably little time to the subject, but it was clear that the sanctity of Lausanne was not tantamount to the complete cancellation of all existing debts. Indeed, Chamberlain was not only prepared to pay a lump sum equivalent to the amount Germany was scheduled to pay under the Lausanne terms, but he was also willing to concede privately that ‘we might even have to try and get a little more from the Germans’. On the question of timing, however, Chamberlain’s dominant view contained a high level of ambivalence. On one hand, he remained convinced that time was on their side and so long as payment was postponed it did not matter how long a final settlement was delayed. But on the other hand, he continually reiterated that the World Economic Conference and the reconstruction of the world economy had little hope of success until a final settlement was reached.102 Ironically, the question of who should represent Britain and how the preliminary negotiations should be presented aroused far more heated controversy – particularly whether the delegation should be led by the ‘British “number 2 man” ’ as Roosevelt had put it when he expounded his own vision and timetable at Warm Springs. This procedural matter raised a number of related issues of some importance. First, the British were profoundly sceptical about the timetable proposed. Even if Roosevelt was ready to commence talks on 4 March (which the Cabinet Committee doubted), there was scarcely any time to settle the proposed programme of five or six major issues like war debts before the special session of Congress met on 10 April or the World Economic Conference convened in June. Second, as this shortage of time implied a high risk of failure to achieve any tangible agreement, the government’s authority and credibility might be severely damaged if a senior minister went to Washington only to return home empty-handed.103 Finally, on the question of representation, the increasingly assertive Chancellor suffered a significant defeat at the hands of the Prime Minister who believed that the matter would be better dealt with by a politician capable of making decisions, both as a compliment to Roosevelt and to speed up the process given the shortage of time between the inauguration and the next payment on 15 June.104 In late December, when MacDonald first hinted that he might conduct the negotiations personally, the Treasury regarded it as ‘a very bad idea and one that should be nipped in the bud’.105 Yet convinced of the cardinal importance of good Anglo-American relations and his own unique capacity and destiny to achieve this goal, MacDonald was not prepared to let the



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matter rest. Above all, he was anxious to ensure that even if they ‘were to fail in getting what we want, we could fail in the most friendly way, and . . . impress America with the spirit which animates us, so that if it ever came to repudiation, our friendly relations would not be impaired’. This would require delicate handling if Britain was going to coax America out of ‘a policy of rather superior isolation’ and educate it on ‘how to cooperate with proper consideration’ for other nations ‘without sinking [them] to the position of being mere echoes of American policy’. To achieve these goals, MacDonald talked of ‘experts under the wing of the Minister who could conduct negotiations either with the President alone, or with members of his Administration’.106 While senior Treasury and Foreign Office officials concluded on 8 February that the Chancellor should go to Washington in mid-March, MacDonald was determined that he should conduct these negotiations.107 As he told the Runcimans in early February, ‘he was dying to go off to U.S.A. “They don’t want facts”, he said. No, he felt sure they only wanted the kind of moral uplift he could give’.108 What MacDonald carefully omitted to mention to his Cabinet colleagues was that as early as 24 January he had assured Bullitt that he would visit America personally after the inauguration unless prevented by pressure of work.109 Through a mutual friend in New York, he also conveyed to Roosevelt his confidence that high level personal negotiations would soon produce ‘a really fine agreement which would make us truly proud of each other’.110 To this end, at a conference with Baldwin and Chamberlain on 29 January, MacDonald denounced the Foreign Office proposal to send two Treasury officials as ‘madness’. As he told the BDA Committee, ‘so much depended on psychological considerations and the “personal touch” ’ and Simon and Lindsay wholeheartedly endorsed the Prime Minister’s logic about the need for a minister to convince the Americans that Britain meant business both in their search for a settlement and the threat of default if a moratorium was not granted.111 When framed in these terms, seniority and status were crucial requirements. As the Chancellor could not go and Runciman refused to do so because he expected failure, the Prime Minister was the obvious candidate – as even Chamberlain was grudgingly forced to concede.112 In order to enhance the prospects for a successful outcome, MacDonald was clearly thinking along the lines of his secret daily preparatory conversations with US Ambassador Dawes and Atherton at Downing Street before his visit to America to discuss naval disarmament in 1929 and in a lengthy ‘personal and private’ letter on 10 February, he proposed that Roosevelt should discuss the full range of issues with Lindsay to resolve outstanding difficulties. Having completed these negotiations through Lindsay, MacDonald declared he would be ‘very delighted to run over to Washington for a comparatively brief time and help to dot the i’s and stroke the t’s and finish the sentences’.113 In preparation for Lindsay’s talks with Roosevelt, intensive personal briefings with the Cabinet Committee were supplemented by a 13-page


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‘Memorandum for Instructions’ prepared at MacDonald’s suggestion to clarify British policy towards a final settlement and the best means of enabling America to become ‘a partner in the Lausanne Settlement’. This document outlined three tasks for the British Ambassador at his next scheduled meeting with Roosevelt on 20 February. The first was to express British satisfaction at the comprehensiveness of the President-elect’s programme. Second, the committee had been particularly emphatic that he should ‘speak with complete candour’ about the hardening state of Cabinet and public opinion in Britain on debts in order to disabuse Roosevelt of the illusion that the problem could be resolved on the lines or timetable he previously indicated while stressing the paramount importance placed upon Lausanne as ‘the European contribution to world recovery’ and ‘the basis of permanent European peace’. Finally, Lindsay should enquire how far these points affected Roosevelt’s suggested timetable and choice of British representative. In particular, a Cabinet minister would only be sent if there was a reasonable prospect of a successful outcome – albeit that it should be made clear that the published objective of the visit was for ‘the purpose of exchanging views and preparing the ground’ with the President-elect over a wide range of subjects in the lead up to the World Economic Conference. In the Treasury memorandum attached to the Ambassador’s instructions, the key conditions for any acceptable settlement were equally emphatically reiterated. As ‘nothing is more certain than that the Lausanne settlement represents the maximum sum that can be obtained from Germany’ the memorandum declared that the only solution consistent with the Lausanne would be for the United States to accept a total European payment equivalent to the eventual proceeds of the Lausanne Bonds – a sum not exceeding 715 million dollars capital, or 50 annuities of 39 million dollars. From a British perspective, this required both the elimination of all interest (both before and after funding) and ‘a further substantial reduction’ to enable a final figure to be reconciled with Lausanne; a draconian cut to be justified as a scaling down of the debt in proportion to either the substantial depreciation of sterling, or the equally significant fall in world prices from the inflated wartime levels originally paid for the commodities. By any standard, the debtor was making an enormous demand upon its creditor. But the final paragraph spelt out the choices with brutal simplicity: ‘the fact is that the United States of America and the United Kingdom are co-creditors of a bankrupt world, and a settlement has to be reached between them on the basis of what can be recovered from their joint debtors’. If America refused to reach such a settlement, Britain would be compelled to choose between either maintaining Lausanne and suspending payments to the United States or to make its debt payments only by recovering the cost from their European debtors ‘with incalculable consequences on European financial and political stability’. As both courses were equally impossible, the only means of avoiding an impasse was for Washington to agree to a moratorium on war debt payments pending a general settlement with the Lausanne signatories.114



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While the British plotted out their plan of campaign, the incoming administration were equally busy turning over the problems of procedure, personnel and policy on both debts and the World Economic Conference. In a reply to MacDonald’s private letter on 10 February, Roosevelt was friendly but unyielding – particularly with regard to the proposed moratorium to cover the 15 June payment, falling back on Hoover’s standard defence that it was beyond the President’s constitutional powers to grant such a request. As to his general strategy, Roosevelt reported that they should ‘seek together the best solution for each problem individually and not bargain one solution against another; but we should reach our final solutions of all at the same time’ through simultaneous but concurrent discussions of debts, tariffs, monetary questions, gold and silver. Moreover, as he agreed with MacDonald that ‘speed is of the essence’, he conceded that this would best be served by a continual dialogue through Lindsay who had ‘the matter at his finger tips’ rather than through the despatch of a British minister.115 Ignoring much of what Roosevelt had actually said, however, the British Treasury read between the lines to conclude that this proposal appeared ‘to open the way to a moratorium on June 15th’.116 At Roosevelt’s next meeting with Lindsay on 20 February he acknowledged their ‘irreconcilable opposition’ over debts but proposed a new focus on broader economic questions as a means of finding ‘a fairly wide measure of agreement for a programme of world recovery’; a course which would create a favourable atmosphere in the United States and help Congress ‘towards accepting measures to forestall a crisis over debts in the immediate future’. Yet as Bullitt warned MacDonald, Lindsay’s exposition of the British position created ‘an exceedingly bad impression’. While Roosevelt wanted ‘true cooperation’ he would never accept ‘a collaboration similar to the collaboration between the automobile and the chauffeur – with England in the driver’s seat’. The outcome of the policy Lindsay outlined ‘is not acquiescence by the United States but default by Great Britain’ and that ‘in the long run we should be able to bear [the consequences] better than you could’.117 Lindsay also reported ‘most gloomily’ on these conversations with Roosevelt but the Cabinet derived some comfort from the belief that it was ‘a good thing to get into personal contact with the President-elect’.118 Certainly Chamberlain refused to be despondent. ‘The picture could hardly look blacker than it does’, he confessed to Lord Lothian, ‘but, nevertheless, I am not unhopeful of the future since the facts and time are on our side’.119 He thus continued to remain confident of an eventual moratorium. ‘I don’t think Roosevelt sees the light yet’, he told his cousin on 20 February, but: he has leanings that way . . . We know exactly what we want, which gives us an advantage; and I am not without hope that we may get our conversations with him on the basis of a general cooperation in a world policy, resulting finally in reduction of tariffs and all other international

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barriers; harmonisation of monetary policy; cancellation of War Debts; and raising of wholesale prices. This will take a bit of time, and the fools of this world will go on cackling; but, fortunately, we have got a year or two before us, and that may be time enough.120 Unfortunately for Chamberlain and the British Cabinet, they had gravely misjudged the degree to which Roosevelt was either willing or able to act on war debts. The President’s newly-established ‘clipping service’ monitored nearly 400 newspapers and magazines daily for comments about the administration, while he personally surveyed many of the 8,000 letters a day coming into the White House for him and his wife.121 Given this almost obsessive preoccupation, Roosevelt was always more inclined to follow public and congressional opinion than to lead it, and over an unpopular issue like debts he effectively abdicated all semblance of policy leadership. As the Chancellor’s senior officials feared, the President-elect recognised that full payment was increasingly unlikely, but Congress had forbidden him to reduce or cancel these debts and Roosevelt was far too shrewd as a player of the game of presidential transactional politics to squander his personal capital and political leverage in hopeless and peripheral skirmishes when he had far more fundamental battles to fight over the New Deal at home. Indeed, as Roosevelt had previously been warned against any hasty agreement which might be presented as one in ‘which those clever devils in Europe had hornswoggled . . . you’, he was careful to avoid any such impression at a time when American public opinion had not advanced one step on the question.122 In addition, after his second conversation with Lindsay on 20 February, the political constraints upon Roosevelt’s freedom of manoeuvre were evidently reinforced by a certain personal pique at finding that his soundings had ‘not been received as cordially as he had hoped’ by a British government which had ‘not been sufficiently responsive’.123 Yet underlying all of these obstacles to the success of the British strategy was a more fundamental difference of priorities. ‘I favour a practical policy’, Roosevelt declared in his inaugural address; ‘the putting of first things first. I shall spare no effort to restore world trade by international economic adjustment, but the emergency at home cannot wait on that accomplishment’.124

8

Counting on Roosevelt


March–July 1933

In the State Department’s ‘Review of Diplomatic Relations’ written for the incoming administration in late February 1933, the Division of Western European Affairs declared unequivocally that ‘American relations with Great Britain had been particularly satisfactory during the past four years’. Minor matters had been settled promptly, while over major issues like disarmament, the Far East and war debts the two governments had maintained ‘the closest collaboration’.1 This verdict probably aroused some scepticism in the Roosevelt camp where they were just as confused, uncertain and suspicious of British intentions as London was of the new President’s objectives. The group established by Moley and Tugwell to consider the forthcoming negotiations thus met with Bullitt late in February and concluded, ‘We cannot understand the British attitude except on the assumption that to them the debts are everything and the rest of the program of recovery nothing’. The malevolent Bullitt even suggested that the British were seeking to drive America off the gold standard to establish sterling as the world’s monetary unit. A more widely held view was that they were simply ‘stalling’ to prevent anything being settled by 15 June in order to open the way to default and a refusal to cooperate with the rest of the American programme for world recovery. To forestall this possibility, the incoming Secretary of State, Cordell Hull, met Lindsay in late February to warn that ‘plenary negotiators’ would be welcome to discuss debts and other economic matters but ‘if they insist on clean cancellation, nothing can be done’.2 To pave the way for prior agreement at the World Economic Conference, a week before Roosevelt was sworn in as President, Chamberlain sent him a comprehensive statement entitled ‘British Policy on Economic Problems’; a document which concluded with the warning that ‘it is essential to stress throughout that any hope of arriving at better conditions is dependent on a satisfactory settlement, of the War Debts question having been reached, or at least assured’ because debts represented ‘an insuperable barrier to economic and financial reconstruction, and there is no prospect of the World Economic Conference making progress if this barrier cannot be removed’.3 Although Cordell Hull expressed his satisfaction with the British wish for cooperation and with many of the policies it proposed, he told Lindsay of his ‘entire


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disagreement’ with the insistence upon a prior debt settlement, repeating that the new administration was prepared to discuss them alongside (but separate from) the rest of the draft agenda. At the same time, however, both Hull and Assistant Secretary of State Moley made it clear that nothing would more effectively open the American mind to the prospect of a moratorium to cover the June instalment than a visit from the British Prime Minister who enjoyed a great personal popularity in the United States. When Lindsay reported this invitation to London, he argued that the President’s initial honeymoon period was coming to an end and that ‘while his prestige and popularity are undiminished his real difficulties are coming thick and fast’. As a result, the President was effectively appealing for help to capitalise on the warmth felt towards the British Prime Minister in order to tackle the war debt problem. Although the ‘utmost’ he could offer would be a postponement of the June payment, Lindsay emphasised that this would be ‘an immense achievement in face of the difficulties present and it would have more than its face value’. Despite the risks inherent in MacDonald’s visit, therefore, he concluded ‘the moment is now very near when the risk is one which can properly be faced’.4 When the Ambassador’s report reached London, all of the accumulated frustrations about Roosevelt’s reluctance to grasp the nettle of war debts rapidly boiled to the surface. Discussions on the agenda for the World Economic Conference had revealed an American willingness to consider a wide range of questions of direct benefit to their own interests but a ‘wholly unsatisfactory’ attitude when it came to acknowledging the importance of the debt issue. Although it was not clear what the Americans were after, therefore, all agreed that without a suspension or dramatic reduction in payments the situation was ‘hopeless’ – not least, because it was useless for Roosevelt to try to drive up internal price levels while pursuing a policy which simultaneously forced them down internationally. ‘It is hoped that Mr Roosevelt has no illusions as to the necessity of debt revision, and is simply playing poker with a view to finding some means of getting such a revision approved by Congress’, Treasury officials fulminated. But they were clearly alarmed that ‘Mr Roosevelt even at the zenith of his power is afraid of tackling Congress on this question [because] . . . the situation is too serious for anyone with any sense of responsibility to waste time in playing poker’. Ultimately, therefore, the choice confronting Britain remained one of either default or wrecking the Lausanne agreements and ‘it rests with Mr Roosevelt to decide whether to force us into default which we are most anxious to avoid, or to agree that payments should be suspended’. Unless he did so, however, senior Treasury officials agreed that it would not only be ‘quite impossible to call the Conference’ but also ‘very dangerous’ for the Prime Minister to visit Washington.5 Yet despite the intractability of the American position, British ministers continued to nurture the illusion that MacDonald’s visit to Washington might break the deadlock. Certainly MacDonald was convinced that he



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‘could do more to swing American public opinion on our side than anyone else . . . I know Roosevelt’s type of personality and could work with it as well as anyone else’.6 As in February, Baldwin was sceptical and hesitant because he ‘dreaded’ the prospect of MacDonald returning empty-handed, but Chamberlain crucially accepted the wisdom of the Prime Minister’s strategy because the threat of British default in June was an extremely dangerous bluff which, if called, would encourage Australia, Argentina and Britain’s other debtors to follow suit and so ‘the whole economic structure of the world would collapse’. Moreover, still convinced that ‘time was on our side’, the Chancellor argued that just one suspension to cover the World Economic Conference in June could be presented as a triumph. To maximise the benefits, while minimising the risk of perceived failure, it was decided that the public announcement would emphasise that the Prime Minister was visiting Washington in his capacity as chairman of the World Economic Conference ‘not to negotiate but to make contact with the [new] President’. On this basis, the Cabinet approved the idea of MacDonald spending four days in America, departing on 15 April and returning on the same ship.7 MacDonald was less pleased to discover that Roosevelt had also apparently ‘invited the whole world . . . to go to Washington’ and that Herriot would actually be there during his visit.8 British hopes that MacDonald would be able to achieve a significant breakthrough in the impasse over a moratorium were not entirely fanciful. Since his successful visit to Washington to negotiate naval disarmament in September 1929, MacDonald believed that he exercised a special influence over American opinion and during the discussions over war debts his vanity had also been exploited by others to reinforce this illusion. Yet what the Cabinet Committee did not know was that the Prime Minister had established his own private conduit directly to the new administration in Washington through Lord Lothian after his return from a private visit to America where he ‘saw almost everybody of importance except the incoming President’.9 During these travels, Lothian offered his services as a secret intermediary using coded telegrams to pass messages between the Prime Minister and the veteran American diplomat Colonel Edward House who had once been Woodrow Wilson’s principal adviser on foreign affairs and who now formed part of Roosevelt’s stable of advisers.10 Upon his return to London in mid-February 1933, Lothian met the Prime Minister to communicate House’s view that there was no possibility of a mutually acceptable debt agreement by June and that the only means to proceed was to merge the debt issue into a larger discussion of measures for world recovery. Only by persuading American public opinion that something really practical could be delivered would Congress be prepared to agree to a moratorium in June to allow the World Economic Conference to search for such broader solutions. Precisely the same message had been emphasised by Bullitt in January and it would be repeated by Norman Davis to Runciman in late March. ‘He is most anxious to co-operate with Mr Roosevelt’, Lothian


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eagerly reported back to House, informing him that MacDonald wanted the new US Ambassador in London to be fully primed on 4 March as he intended to consult him within 12 hours of arrival.11 On this basis, Lothian urged the incoming President to adopt a bold course. Drawing a historical parallel with his own personal experiences as a key member of Lloyd George’s entourage in the ‘garden suburb’ between 1916 and 1922, Lothian declared the ‘turning point’ in Lloyd George’s career had come in March 1919 when he recanted his provisional agreement to cut German reparations when threatened with a Conservative backbench revolt. According to Lothian, Roosevelt confronted the same critical dilemma and the outcome would define his presidency. If he cancelled war debts unilaterally as an act of enlightened self-interest he would be in ‘an impregnable position’ within six months ‘for the facts will prove him to have been right’. When he learned that the new US Ambassador to London had been ‘much impressed’ by this advice and that the President-elect had also read it, Lothian assured MacDonald that he was more than ever convinced of the value of an immediate ‘dash across the Atlantic’ for a friendly talk.12 MacDonald and his daughter Ishbel arrived in America aboard the Berengaria on 21 April accompanied by Leith-Ross and Vansittart. While he was still two days out from New York, however, much of the value of the visit had already been effectively undermined by Roosevelt’s sudden announcement that America had departed from the gold standard; a move which infuriated Britain and France by suggesting a competitive depreciation of the dollar which completely sabotaged all hope of any scheme for currency stabilisation. Indeed, such was the magnitude of the blow that Leith-Ross advised MacDonald to trans-ship on their arrival at New York and return home immediately ‘as the American action made nonsense of all the plans for the Conference’; a view endorsed by Vansittart who later declared the visit had been ‘useless’.13 Despite this setback, MacDonald appeared undaunted at his spectacular official reception at the White House on 21 April. At a press conference earlier that evening he explained that he was conferring with the President on the problems confronting the World Economic Conference. When asked specifically about debts, he conceded that it was ‘one of those features of the landscape we have got to survey’.14 Next day the President first broached the idea of a ‘token payment’, but MacDonald rebuffed it with the argument that even this would still be a considerable financial burden, while the continuation of the obligation would create ‘a bad House of Commons position’. On 24 April, after discussions on disarmament and a tariff truce, MacDonald recorded with some disappointment that Roosevelt ‘began to unfold a plan which “would stagger America”, & it turned out apparently to be the proposal to scale us down to the Italian level which we had rejected months ago’. According to MacDonald’s notebook covering the mission, the meeting ended with the President’s ‘promise to seek . . . powers which would enable him to suspend the 15th June payment’ and ‘to regard failure . . . to



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pay . . . as not a default but a deferment’. Although MacDonald gathered that Roosevelt was apparently ‘not well disposed to France’, the President also soon led Herriot to understand that if France paid its outstanding instalment he would seek to suspend payment in June to negotiate a settlement in parallel with the World Economic Conference.15 Throughout the visit, both sides reiterated to the press and Congress that there was no intention of reaching any sort of settlement on debts. In a final press conference at the White House, the Prime Minister thus declared that while these ‘friendly, pleasant conversations have been fruitful in a way that I hardly imagined would be possible when I came. But still – and I repeat it – no agreement, no settlements. I leave your President as free as he was when I found him and he lets me go home . . . as free as I was on the day I left’. The final communiqué radiated an aura of genuine optimism that Europe and America would be able to cooperate effectively at the World Economic Conference in June to lift a beleaguered world out of economic depression and Herriot’s departing words echoed these same sentiments.16 Yet beyond the encouraging platitudes, MacDonald’s visit to Washington actually achieved little in terms of tangible progress towards a debt settlement – or anything else. The talks were ‘satisfactory’, MacDonald told the Cabinet on his return in early May. Roosevelt was ‘in an awkward position, but he sincerely desired full agreement with the British Government . . . They had talked as friends who wanted to put all their cards on the table, and each had stated all his difficulties’. In particular, the President understood that Lausanne was ‘the greatest thing done since the Peace, and it was clear that he was anxious to play up to it’. In this context, MacDonald assured his colleagues that although Roosevelt had no power to deal with war debts, he had given a ‘very firm pledge’ to seek them before Congress rose.17 MacDonald’s relatively positive account to the Cabinet does not appear to have been entirely candid in the light of information from Lindsay about his meeting with Moley and Lewis W. Douglas, the US Director of the Budget on 29 April. Despite the ‘most friendly atmosphere’, Lindsay reported that the Americans were adamant that Congress would never agree to a complete suspension of the June payment – and consequently some acknowledgement of the debt was essential. The Ambassador thus gloomily informed the Prime Minister that ‘their attitude today is so inconsistent with hopes raised by your visit that I report it at once’. Leith-Ross recorded similar impressions. Having remained in Washington to continue technical discussions with American experts after MacDonald’s departure on 26 April, five prolonged meetings only confirmed the gulf between the two sides given American insistence upon receiving either a large capital sum to be expended on public works or soundly-secured bonds which they could use as collateral for domestic loans without arousing public fears of inflation.18 One ostensibly more hopeful consequence of Leith-Ross’ long discussions with Moley and Douglas came on 1 May when James P. Warburg proposed a radically new mechanism for reducing war debts in a manner palatable to


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American public opinion.19 Jim Warburg was the scion of the well-known German-American banking dynasty and Vice-President of the Manhattan Bank. Despite a reputation as ‘a bit of a playboy’, according to Leith-Ross he was the most practical of the American financial experts and his scheme offered the most ingenious solution.20 There were two distinct components within Warburg’s plan to capitalise these debts. First, debtor states would pay 20 per cent of the total debt in gold to the Bank of International Settlements and a further 5 per cent in gold to the US Treasury. This would be used to issue non-interest bearing Treasury bills as a basis for an issue of currency notes. Second, debtors would deposit notes with the Bank of International Settlements for the remaining sums due. The sinking fund payments on these notes would then be used to purchase US government bonds on the market and the interest saved on these bonds would be reinvested in the further purchase of US bonds until the war debt obligations were paid off. On this basis, Moley calculated that America expected total notes from all its European debtors of around $6,000 million. Of this sum, the British debt would be written down from $4,500 million to just $2,500 million. Assuming a rate of accumulation of 3 per cent, this would then be paid off as $625 million in gold and the remainder by 50 annuities of $16,600,000.21 According to Warburg, the beauty of the plan was that the debtors would be able to console themselves with the thought that payments were smaller than the nominal amounts owed while the American government would gain access to substantial amounts of spot cash. On this basis, Warburg affectionately called his plan ‘Bunny’ because (like the conjurer’s rabbit from the hat) it magically made the problem disappear. Moley and Douglas were also attracted by the scheme in that it helped to head off the inflationists in Congress while addressing an important international factor in the depression. Both men also saw it as a method of reforming the gold standard without abandoning it. Conversely, as the British rightly suspected, the plan’s central attraction for Roosevelt rested upon the immediate influx of gold to fund his New Deal public works programme.22 The British were initially far more suspicious and sceptical about the Warburg plan both because of its financial details and its implications for Lausanne. On the former, Leith-Ross objected simply to the sheer size of the amount still required from the debtors, although he suspected the Americans could be persuaded to accept a nominal $2,000 million representing an annuity of $20 million.23 At the Treasury, Hopkins was concerned about the omission of any reference to a moratorium but concluded that ‘while this scheme is represented as the work of a skilful designer preparing camouflage for the American people it reads to me more like the work of an economist in full cry’. Sir Frederick Phillips, the Permanent Under-Secretary at the Treasury, went still further in the view that it was ‘such obvious camouflage that it would be surprising if even the Middle West was deceived by it’. Moreover, on closer examination, Phillips considered the ‘plan contained so



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many strange features that it is difficult to grasp all at once their real meaning’. Above all, he considered the ‘most onerous and impossible part of the scheme’ related to the initial payments in gold, covering a quarter of the total debt.24 In addition to these financial reservations, the Warburg plan also raised ‘very complicated issues in regard to Lausanne’. As Warren Fisher inscribed in a marginal note on the initial plan, it was ‘a cardinal British policy that Lausanne – & all it symbolises – shall not be smashed’. Yet despite a British wariness about entering into ‘ill-timed commitments’ until it was clear that a general agreement among the Lausanne signatories could be reached, it soon became apparent that Italy shared the British reservations about the gold payment but otherwise regarded the Warburg proposal as ‘an interesting one’, while the French (who were not officially to be given details until they cleared their outstanding December payment) still knew enough to discuss the idea with Lindsay ‘in a rather favourable tone’. On this basis, Warburg informed London that the next move needed to be made by America’s debtors – and swiftly if Roosevelt was to tell Congress that sufficient progress on the negotiations had been made to justify a suspension of the June payment.25 At this juncture, the British believed that the President really was about to ask Congress for new powers to suspend the June payment while negotiating a settlement. To assist this process, the Prime Minister wrote a long ‘personal and unofficial’ letter to Roosevelt explaining that the Cabinet was ‘as anxious as ever to find ways of reconciling your difficulties with our own’, but that they had ‘exceedingly treacherous country . . . to cross before we reach easier times’. Besides the problems of a tariff truce, he specifically warned that the scope for a final debt settlement was narrowing as both governments came under public pressure to assert their own national interests. In these circumstances, MacDonald opined that he could ‘see no way out of this disaster other than the one we considered: viz – a suspension of the June payment . . . on the definite and announced understanding that you are in no way committed to anything beyond the specific act of temporary suspension’. Yet, as he also noted, the latest news from Washington on this possibility was ‘rather ominous . . . and, frankly, it depresses me. If this cannot be arranged, then I fear much that nothing can be done; if it can be arranged, an agreement though it be difficult is within the bounds of possibility’.26 The British were right to be worried. A few days later, their hopes were dashed by authoritative reports from Washington that the President now regarded a postponement of the June payment to be utterly impossible given the truculent mood within Congress.27 This was certainly the view within Roosevelt’s entourage of advisers. After preliminary conversations with Britain, France, Italy and Argentina regarding the World Economic Conference, Tugwell talked of ‘a strong feeling of defeat’. Initial hopes of ‘real progress’ with Britain and France had now given way to the gloomy recognition that ‘nothing was gained and . . . the Conference will be a failure’;


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an eventuality that he predicted would ‘see us on the nationalistic road within two months’.28 Little wonder that in mid-May Lindsay reported dismally that ‘a deep pessimism prevails here in all circles as to prospects for June 15th induced largely by feeling that Economic Conference is likely to prove a failure’ – not least because of America’s own departure from the gold standard. Indeed, only a few days earlier the State Department had argued that it would be better to send a second-rate delegation to the conference in order to discount its failure in advance. In this atmosphere, most believed there was no hope of either the President proposing any concessions on war debts or of Congress agreeing to them at a time when both the Speaker and Vice-President were prepared to break with Roosevelt rather than accept postponement. As Lindsay warned on 14 May, Congress was ‘still thinking only in terms of [the] most short-sighted internal politics’ and even ‘the best disposed people are hoping that debtors will default and thus transfer the shirt of Nessus from America to their own shoulders’. As to the President, Lindsay contended that if he tried to use his power over Congress ‘he could bend it to his will’, but instead ‘his intentions are . . . wrapped in complete obscurity and every statement of them, whether by himself or by his spokesmen is evasive’.29 When the Cabinet’s BDA Committee met to consider the ‘gloomy character’ of this rather ‘disturbing telegram’ in mid-May, Chamberlain lamented that the American belief in the likely failure of the World Economic Conference removed the only inducement for them to grant a moratorium. In an attempt to retrieve the situation, the Prime Minister despatched a ‘very secret personal telegram’ to Roosevelt assuring him of their optimism about the conference and pressing him to act on debts. Next day, the President’s interim verbal reply remained evasive, but his promised fuller reply on 22 May secretly proposed an interim part payment, perhaps in silver, to make ‘it clear in both countries that there had not been a default’.30 Assured by Lindsay that ‘all would be right on the day’ because he expected Roosevelt would ‘keep Congress in the dark until the eleventh hour and then . . . send them an informative message telling them what he proposed to do, without asking for their advice or approval’, it was still confidently predicted in London that the President would eventually bow to British pressure for a moratorium. Indeed, according to Lindsay, a first draft of the President’s message to Congress had already been prepared.31 Again, these hopeful expectations were soon brutally crushed. On 4 June Moley and Assistant Secretary of State William Phillips informed Lindsay of the President’s difficulties because the situation in the country and in Congress had ‘deteriorated very seriously’. As Congress had been ‘pushed very hard lately’ by a formidable revolt over veterans payments, the previously anticipated Message to Congress had been abandoned and Roosevelt had now reverted to his earlier idea of an interim part-payment. Despite warnings that any allegation that this was a presidential notion would compel the White House to disavow it completely, the State Department then went on to



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suggest in the strictest confidence the form and procedure best calculated to overcome the impending crisis on 15 June. This entailed Notes being exchanged after Congress adjourned on 10 June in which the British should ‘plead poverty as an excuse and say that we could not pay more than 10,000,000 Dollars. They would then offer to accept payment in silver’. The size of this part-payment in Bill Phillips’ words ‘should not be “either ridiculous or burdensome” ’ and he repeated a figure of $10,000,000 paid in dollars or silver. To Lindsay’s objections that this was in excess of Lausanne receipts, and would merely set a precedent for similar demands in December, the American negotiators stressed the need both to satisfy American opinion and to enable the World Economic Conference to proceed with its labours. In response to Lindsay’s further concern that Congress may accept the money but still declare Britain in default, Moley offered assurances that the President would issue a personal indemnity acknowledging that partpayment did not constitute default; a claim about which Lindsay remained sceptical in his report to London on the grounds that the President did not possess the constitutional authority to grant legal indemnity.32 These pessimistic warnings set the tone for all American communications throughout the remaining week of crisis. On the same day, MacDonald despatched another letter to Roosevelt rejecting any suggestion of a part payment and calling for a complete moratorium. Warning of the economic, political and electoral objections for Britain, MacDonald declared ‘Our American creditors ought in fairness to face the whole realities and not merely a part of them. Is the little substance in a token payment worth the reaction and consequences which must follow?’ Without a postponement, Britain would be forced into a policy of default.33 Roosevelt’s reply simply reiterated the impossibility of a moratorium and the need for a part-payment in silver and the Assistant Secretary of State did the same on 7 June when he explained that to try to persuade Congress to accept a settlement would ‘provoke bitter controversy not only on the subject of debts but on countless other topics; would prolong [the] session into the summer; and would cause uneasiness in the country which might endanger [the] revival of prosperity’. Lindsay’s arguments that the best hope for American recovery was through a ‘reasonable attitude’ over war debts fell on deaf ears, as did his suggestion that this was the ideal time for bold presidential action given Roosevelt’s authority as a new incumbent with an unprecedented majority. After this it was clear that the administration were interested only in the idea of a partpayment and anxious for a British reply to a proposal which they could not espouse in public.34 In London this news was interpreted as a typically craven retreat by a President who was unwilling to resist Congress rather than as a calculated piece of White House duplicity. Indeed, the notion that they were being strung along by an administration engaged in cynical brinkmanship designed to squeeze any concession it could scarcely appears to have occurred either to the Ambassador or the Treasury. One of the few exceptions to this sanguine


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optimism was Leith-Ross. ‘Roosevelt is displaying the same qualities as his predecessors in running away when it comes to action on War Debts’, he minuted the Chancellor, adding shrewdly that although a part-payment had been specifically rejected by the British during MacDonald’s visit to Washington and in his recent letter to Roosevelt, the idea had obviously been in the American mind for some time.35 For most, however, Vansittart’s assessment was typical when he noted that Roosevelt ‘is evidently as timid as a hare in regard to debts for all his apparent courage in other directions’.36 From the British perspective, part-payment was not entirely unacceptable – particularly as the Czechs, Italians and other debtors were known to favour it as a means of circumventing a crisis in June.37 Nevertheless, it did raise a variety of problems. First, when Moley and Phillips floated the idea on 4 June they planned to receive the British proposal only after Congress adjourned on 10 June. Yet no sooner had they said this than the congressional session was extended, with the result that both Lindsay and the Treasury assumed ‘the beautiful idea has vanished in smoke’ because Congress would still be in session on 15 June.38 A second and most vexatious problem was that the proposed size of the part-payment in June represented $20,000,000 in a full year and this exceeded the amount covered by Lausanne. Against this background, the British generally assumed that it would be possible to compromise on $5,000,000 on 15 June which was far nearer the Lausanne figure. As Vansittart noted, ‘if Paris was “worth a mass” Anglo-American relations were worth 5 million dollars . . . I feel that the Administration are, within the limits of their funk, trying to be helpful and that if we can come, as I believe, within the Lausanne maximum on this occasion we ought to reflect on the world at large before we bid them go hang’ – particularly as a rejection of the President’s overtures risked alienating a powerful ally in any future battle with Congress.39 At the Treasury, Warren Fisher also counselled against default with the view that it would be better to pay $10 million out of their own pockets. At this point, the ingenuity of Leith-Ross once again revealed itself in the argument that the part-payment might satisfy everyone if presented as ten million ounces of silver, which at a cost of 50 cents an ounce would appear to be worth $5 million for the half-yearly part-payment but would actually only cost the British $4 million to purchase from India.40 Crucially, the Chancellor had also come round to this view. On the assumption the President offered the promised indemnity, he was prepared to offer $5 million – although he refused to offer it on grounds of poverty but rather as a down payment towards a final settlement.41 After Chamberlain convinced the Prime Minister to accept this course, Lindsay was instructed to make one last effort to persuade the President. At their friendly meeting on 8 June, however, Roosevelt repeated that: a very serious deterioration had taken place in the Congressional situation and it was absolutely impossible now to send any such messages. In the temper of Congress at this moment such action might


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provoke them to pass every kind of legislation, mischievous not only to the United States but even to the world in general. As a result, the President repeated his request for an interim part-payment of £10,000,000, while Lindsay’s unofficial proposal that $5,000,000 would be more acceptable was rebuffed with the assertion that they needed ‘to strike public opinion and create a favourable impression by part payment’ and that the higher figure was far more likely to achieve this goal. After the meeting, the British Ambassador reported to London that there was ‘nothing vague or indefinite in what was said though there are plenty of contradictions’. But as he also added, Roosevelt’s crisp decisive replies left the Ambassador ‘wondering sometimes if they were brilliant improvisations’.42 American efforts to assist the British to pay complicated the state of Anglo-French cooperation. French default in December had been hailed with relief and even subdued rejoicing at the Foreign Office. ‘It’s an ill wind that blows no one any good’, Orme Sargent and Vansittart agreed as they contemplated ‘tell[ing] the French quite frankly that we are out to get the best bargain we can get for ourselves from the U.S. and that we cannot “carry” them and they must not expect it of us’.43 Yet when Moley and Phillips informed Lindsay that they did not intend to tell Paris of the part-payment offer to Britain until France had paid its December instalment, the Ambassador warned that it would be ‘a matter of extreme embarrassment’ for London to negotiate secretly and separately from its allied co-debtors.44 As a result, Leith-Ross sounded Rueff on 7 June and he learned that the French did not intend to pay on 15 June because of parliamentary opposition. Next day, Rueff returned to the Treasury with a message from Finance Minister Bonnet to the effect that he wished ‘all the debtors to America to treat the question of debts as settled on the basis of Lausanne, and to make no further payments to America pending the negotiation of a final settlement’; representations prompted by rumours of an impending British part-payment which drew the explicit warning that ‘sentiment in France would be hurt if we made such a payment’ because it would divide the allies, delay joint negotiations on a final settlement and prejudice the prospects for the World Economic Conference.45 Conflicting pressures of this sort raised in an acute form the question of British policy towards the next payment on 15 June. When Simon had raised the possibility of a future default during a Cabinet discussion on debt policy on 30 January, Chamberlain had angrily deprecated the idea that the minutes should record such a decision.46 Yet by the time the Cabinet considered these conflicting Franco-American overtures on 9 June, Chamberlain’s position was far less conciliatory. In response to the presidential desire for AngloAmerican talks without the other powers, he warned that ‘in the spirit of the Lausanne Agreement it was necessary that the debtors to America should keep in touch with one another’. More important, he now declared that the December payment had been designed to avoid default ‘but that payment had


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not done us much good, as Congress appeared more obdurate than ever. If we paid 10,000,000 Dollars now there was no reason why we should not be asked to pay the same again next December, and two payments of 10,000,000 Dollars would amount to a big figure in one year’. As it would also threaten Lausanne by compelling Britain to ask for more from its own debtors, he thus argued that a part-payment in June ‘would . . . be a mistake, but a token payment as a recognition of the legal position, might be regarded in a different light’. As a result, to avoid antagonising Roosevelt, he proposed to offer 10,000,000 ounces of silver both to emphasise the token nature of the payment and because it was worth only $5,000,000 – but only on condition the President gave prior approval of the proposal.47 The ensuing Cabinet discussion resulted in the same cleavage of opinion as had occurred in the previous November with Runciman, Hailsham and Cunliffe-Lister emerging as the principal challengers to Chamberlain’s authority. Although Runciman claimed to be ‘a little afraid Neville regards it as an intrusion on his sphere’, he had consulted widely on a forceful Cabinet paper which argued strongly that the Cabinet ‘should not be frightened by a word’. Although default and deferment were ‘ugly words’ with awkward implications for a creditor nation like Britain, ‘to make payment at the expense of our equilibrium and of our recuperative strength is still more dangerous. The ugly words we can survive, but the strain on our country’s heart and strength may prove to be the beginning of a catastrophe’.48 On this basis, Runciman declared in Cabinet that all the arguments were now against payment, particularly as the President’s attitude ‘instead of becoming more flexible, appeared to be hardening’. These views were echoed by Hailsham who argued that ‘it was impossible to go on paying for ever’ and if there was no prospect of a complete settlement, it was better to act now rather than in six or 12 months when still more money had been wasted. Betterton, the Minister of Labour with whom Chamberlain had been in conflict for months over his plans for a new Unemployment Assistance Board, also contended that if Chamberlain was sincere in the belief that a June payment would imperil the World Economic Conference, it should not be made. Annoyed that Chamberlain was ‘going back on his previous stout position’ without warning or consultation, even the Prime Minister questioned the value of a token payment and derided the idea of silver as ‘not sufficiently dignified’. Despite this opposition, however, when challenged directly by the Chancellor on whether ‘if the worst came to the worst, we should not pay’, there was a general consensus with no dissent that they should pay. Lindsay was then instructed to inform the President that Britain was prepared to offer 10,000,000 ounces of silver as a token payment to be taken into account towards the final settlement, but only so long as they obtained ‘a certificate of good intention from the President’ publicly accepting that a token payment was not tantamount to default.49 Contrary to Patricia Clavin’s claim that ‘it was, once again, Chamberlain who took the most uncompromising line’ in these discussions, of the principal



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protagonists in this drama he was actually the most anxious to avoid confrontation and default.50 Over the next three days the reduced British counter-offer became the subject of intense negotiations in Washington. As instructed, on the evening of 9 June Lindsay met the President and Moley and found they had no objection to the payment in silver or even to the use of the term ‘token payment’, although they urged the British to combine it with references to ‘part-payment’ in their accompanying Note. On the crucial question of the amount, however, Roosevelt remained adamant that the task would be difficult enough with $10,000,000; reservations expressed in substantially stronger language next day by Secretary of State Hull. The effect on American public opinion of only $5,000,000 would be ‘thoroughly bad’ – particularly if made in silver. Moreover, Hull warned that the phrase ‘partpayment’ was infinitely preferable to the British language as the ‘word “token” has no meaning in this country beyond a small worthless coin’. On the other hand, Hull reassuringly agreed that the President would have no difficulty in accepting the failure to pay in full as a ‘deferment’ given the need to assist the World Economic Conference ‘where the interests of fifty odd nations should not be endangered by a dispute between two great nations over a matter not related to the Conference’. Undersecretary of State Phillips also strongly endorsed the view that as ‘purely a matter of psychology’, $10,000,000 was ‘a more distinguished figure’ and Americans expected the British government ‘to behave with distinction’. But unlike his chief, Phillips warned pessimistically that it would not be possible for the President to state publicly that this action did not constitute default because it was not true given the congressional ‘no cancellation’ resolution of December 1931 – and (even if it was true) the statement would raise too many constitutional and political difficulties with a truculent Congress which now wished to prolong the session still further.51 This new evidence of American intransigence aroused surprise and alarm in London for two reasons. First, from a British perspective, the term ‘partpayment’ or ‘payment on account’ was an ‘entirely different conception to that which the Cabinet had in mind’ – particularly as $10 million could not be regarded as anything other than a substantial payment. As a semantic compromise, the British were prepared to return to the language of the Prime Minister’s visit to Washington in April in which the President talked of the intended payment as ‘an acknowledgement of the debt, pending a final settlement’. The second and far more important problem concerned the amount and the quid pro quo to be obtained for a larger payment. Throughout his meeting with Hull, Lindsay had repeatedly stressed that the British would not pay anything ‘without specific and authoritative moral indemnity’ from the President. Yet when confronted by Hull’s obduracy he took it upon himself to suggest that if the terms of the indemnity were satisfactory perhaps the Cabinet might increase its offer. This raised major difficulties in London both with regard to British public opinion and the


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Cabinet ‘who only with the greatest reluctance and considerable divergence of opinion, agreed to the lower figure’. Yet while the Foreign Office recognised that ‘We cannot put ourselves in the position of both making a payment and of being regarded as defaulters’, their willingness to ask the Cabinet to consider a higher offer depended on the exact wording of the President’s indemnity.52 On 12–13 June the crisis culminated in a series of crucial meetings in London. At 6pm the Cabinet’s BDA Committee was convened at short notice to consider Lindsay’s report on his unsatisfactory meeting with Phillips. Forced to consider the possibility of default if the President failed to offer the specific indemnity, a draft note to this effect was ready for despatch if the worst came to the worst. As the President’s reply would not be deciphered until late that night, an emergency session of the full Cabinet was scheduled to meet at 11pm to discuss the American response to the British terms. At this meeting the Prime Minister explained that the President had been unable to issue the desired ‘exonerating statement’ which would have justified a token offer of $5,000,000 and there remained considerable doubt as to whether even $10,000,000 would produce this outcome, although he indicated that he would recommend the higher figure to the Cabinet if a satisfactory certificate could be obtained from Roosevelt. In the absence of the expected telegram from Washington which would enable it ‘to decide whether to pay or not to pay’, the Cabinet adjourned until the following morning. By this juncture, even MacDonald blamed Roosevelt for his ‘bad tactics’ in failing either to adjourn Congress or to obtain the necessary powers.53 Overnight three telegrams arrived from the Washington Embassy. The first contained the President’s reply accepting an unspecified amount as ‘an acknowledgement of the debt pending final settlement’ while extending an invitation to Britain to make representations on debt revision to begin in Washington on 17 July. The second telegram contained the draft text of the presidential statement with its crucial indemnity to the effect that ‘I have no personal hesitation in saying that I do not characterise the resultant situation as a default. Beyond this the law and the constitution do not permit me to go’. Finally, Lindsay communicated ‘a last and urgent appeal’ for $10 million from the President (sent via Moley) who declared that ‘public opinion here will strongly resent acceptance of so small a sum as five millions and the effect in Congress which may well be session still tomorrow is to be feared’. It was also noted that if the higher figure was agreed, the use of silver would be regarded as ‘natural and unexceptionable’.54 When the Cabinet reassembled at 9am on 13 June, it was presented with all three telegrams. It then went on to accept Chamberlain’s advice (endorsed by MacDonald and Baldwin) that Roosevelt’s statement was reasonably satisfactory and should be accepted on the grounds that the difference between the two figures was not so great as to be crucial – particularly given their obvious relative impact on the President and American public opinion.



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There was even the possibility of recouping some of the additional sum from Britain’s own debtors when Lausanne was finally ratified.55 After further lastminute complications created by the difficulty of a simultaneous announcement in London and Washington given the time differences, Chamberlain finally made an announcement on the following night to a House of Commons which received the news ‘with unanimous applause and congratulations’. After this, MacDonald rejoiced privately at the ‘end of this silliness’ and he optimistically hailed it as the opening of a ‘new chapter’ in Anglo-American relations.56 For his own part, Chamberlain confessed it was ‘a great relief to my mind, for we were in a dilemma of the most embarrassing kind, and, up to almost the last moment, I did not know whether we should secure what I wanted’. Having done so, however, he proclaimed himself ‘well satisfied’ because he regarded it as ‘the best of both worlds’ on the grounds that ‘it is not a nice thing to default and yet payment again really was not possible’. Equally important, he regarded the ‘generally favourable’ press comment in America as evidence of ‘a substantial advance in the education of the American people: God knows they want it’.57 Despite this sanguine optimism, however, within only two weeks the collapse of the World Economic Conference destroyed any hope of a satisfactory debt settlement and confirmed all of Chamberlain’s prejudices against Roosevelt and the United States: an abiding mistrust he would carry with him to the grave.58 American support for a British proposal to hold a World Economic Conference in London took ‘everyone by surprise’, but Whitehall was encouraged by the response.59 Yet from the outset it was evident that there was considerable potential for serious Anglo-American conflict, both despite and because of Chamberlain’s efforts to achieve some prior agreement on the key issues facing the conference. Above all, the debt issue continually loomed in the background. Repeated British insistence that a debt settlement (or at the very least a moratorium) was ‘absolutely essential’ before the conference convened, was thus countered by even more insistent American protests that their attendance was strictly conditional on the complete exclusion of war debts from the agenda.60 Yet notwithstanding this agreement, MacDonald’s reference to war debts in his opening address to the conference on 12 June was a deliberate act of strategy designed to increase the pressure on the United States and was not something to be ‘attributed to senility rather than bad faith’.61 Indeed, while tactfully acknowledging that war debts were not within the scope of the conference, Chamberlain’s opening speech two days later also pointedly repeated MacDonald’s assertion that a debt settlement would be necessary if the measures agreed in other fields were to be effective. The American delegation and Washington were predictably infuriated by this apparent breach of faith and some talked in apocalyptic terms about its likely effects on the outcome of the conference.62 In the event, however, while the World Monetary and Economic Conference did soon collapse in ignominious failure, this had nothing whatsoever to do with war debts. From the outset, the question of currency stabilisation had dominated


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discussion, particularly as central bank officials from Britain, France and the United States worked desperately behind the scenes to secure a temporary agreement for the duration of the conference to enable negotiators to tackle the means to recovery free from anxieties about exchange fluctuations.63 The Americans had initially favoured such an agreement during the winter and spring of 1933, even after Roosevelt had withdrawn from the gold standard and floated the dollar on 19 April. With the consequent rise in dollar prices, however, Moley records that the President succumbed to a ‘dangerous euphoria’ which led him to reject currency stabilisation in the belief that the depreciation of the dollar was an essential prerequisite for the sort of increased purchasing power needed to accelerate domestic recovery. By the time the American ‘argonauts’ sailed for London on 31 May, Tugwell noted that it was clear there was a growing ‘split between those of us who are bent on pursuing a domestic policy which will put our house in order and take us out of the crisis, and those like Hull (and most of the rest of the State Department) who are apparently little concerned about the domestic policy but who want to keep the rest of the world sweet-tempered’.64 Against this background, the US delegation announced to a startled conference on 22 June ‘that measures of temporary stabilisation now would be untimely’. Confronted by increasing speculative pressure on the remaining gold bloc currencies, however, Chamberlain and Moley ‘hammered out’ a formula for temporary stabilisation on 30 June which Moley ‘felt pretty sure the President wd sanction’. Even at this juncture, the Chancellor suspected that Moley did not enjoy the President’s full confidence. Three days later, these suspicions were confirmed when Cordell Hull read Roosevelt’s ‘most offensive’ message to the conference, declaring that it would be ‘a catastrophe amounting to a world tragedy’ if delegates were diverted from their main task by considering ‘a purely artificial and temporary experiment’ in exchange stabilisation relevant to only a few nations.65 Roosevelt may have been correct in the view that ‘European statesmen are a bunch of bastards’, but this devastating declaration in favour of economic nationalism finally torpedoed all hope for the conference.66 In America the message was ‘intensely popular throughout the country’ and the White House received thousands of telegrams every day commending it. Yet to the British government it came as a ‘bombshell’ and they were furious. After quoting ‘certain of the more offensive phrases’ to the British delegation, Chamberlain angrily declared ‘the message was couched in language which could not fail to give deep offence to almost every other Delegation . . . Its tone was arrogant and it lectured the Conference in a manner and in circumstances which were hardly believable’. After Roosevelt’s statement, however, all agreed that it was ‘difficult to see how the problem could be surmounted without some catastrophe’.67 After ‘another bombshell’ from Washington three days later, effectively declaring ‘it was useless to discuss anything but silver’, Chamberlain denounced the Americans for having ‘effectively torpedoed the Conference at every point’. ‘The Conference drags


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on but to all intents & purposes it is dead’, he complained a few days later.68 On 27 July the World Economic Conference adjourned, never to meet again. Already convinced by the battle over war debts that he had the ‘misfortune to be dealing with a nation of cads’, Chamberlain angrily contended that ‘there has never been a case of a Conference being so completely smashed by one of the participants’.69 Although few realised it at the time, this American retreat into economic nationalism left the war debt question effectively unresolvable on terms acceptable to the British.

9

Drifting towards default


August 1933–June 1934

In mid-August 1933 Lindsay gloomily anticipated that within four months ‘the instalment of God knows how many millions falls due and the question has to be dealt with once again’. Although he believed American public opinion had progressed ‘very considerably on the road to realism’, it had not yet reached the point at which cancellation could be contemplated, no final settlement was in sight and Congress would soon begin to turn its mind to the mid-term elections in November 1934.1 Against that unpromising background, it was announced that Leith-Ross would visit Washington in October to commence preliminary conversations on a war debt settlement. Sir Frederick Leith-Ross was the ideal candidate for the assignment. As a member of the Reparations Commission between 1920 and 1925, he had acquired an extraordinarily high level of expertise in international finance and inter-governmental debt which he put to good use when appointed as the government’s Chief Economic Adviser in 1932. At Lausanne and throughout the debt discussions with the United States he was acknowledged to be ‘the leading figure’ among the officials. According to Lindsay, during his discussions in Washington in April and early May 1933, Leith-Ross also demonstrated ‘the proper mixture of friendliness, forthcomingness, and firmness, and all this, combined with his great abilities, has won him a good will in all the important circles here which will be invaluable if ever H.M.G. want to use him again in the same way’.2 As a former Deputy Cabinet Secretary later encapsulated the general view, his ‘transcendent ability impresses everyone’.3 Unfortunately, in this particular case, the prospects for negotiations were never hopeful. Vansittart reported to an anxious Prime Minister in late August that the Americans were ‘inclined to look for scapegoats to carry the onus of their own failures, and particularly their exhibition at the Economic Conference’. Afraid that the tendency ‘to blame the foreigner . . . will grow in direct proportion to increasing domestic difficulties’, Vansittart predicted they would ‘make large and frequent demands upon our stock of patience’ before the debt talks were over.4 In response to MacDonald’s anxious request for information about the deterioration in Anglo-American relations, the Washington Embassy also warned against any extravagant efforts to restore



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Britain to the President’s good graces. Above all, when considering a debt settlement ‘a realistic rather than a sentimental approach is the only one’ and this meant ‘a take-it-or-leave-it, lump sum offer’ prefaced by quotations from Roosevelt’s election campaign to the effect that American policy effectively precluded a substantial repayment regime. Despite the inevitable congressional protest at such an offer, the British Ambassador and Minister in Washington both suspected that ‘they would be thankful to be rid of the question and they might find it difficult to refuse a cash offer’.5 Against this background, it was scarcely surprising that Leith-Ross had concluded that it was ‘very difficult to find any firm ground because of the wide differences of opinion which prevail here and the complete absence of any settled policy in America’. By this juncture, the collective view of the Treasury and Foreign Office was also that the best Britain could hope for would be ‘some compromise’.6 In the negotiating instructions prepared by the Treasury, Chamberlain clearly envisaged a settlement based on a version of the Warburg Plan, but even this had its problems. First, ‘the chief drawback’ was that it was ‘too ingenious’. As its actual costs and benefits could be presented in a very different manner on either side of the Atlantic, the whole thing was ‘bound to be embarrassing if each side has to give a different version of the settlement in the course of the controversy’. Nevertheless, if Roosevelt believed ‘this obscure and complicated form is more likely to be acceptable than a frank and straightforward solution’, the British were prepared to adopt it. The second issue concerned the actual payment. On the assumption that the annual cost over 50 years would be around $19,250,000 from 1936–1937 onwards – a figure which would ‘not be far off the Lausanne terms’ and equivalent to the annual total of the token payments established in June – Chamberlain argued ‘it would be wise to close with it rather than leave the much heavier burden of the existing agreement hanging over our heads’. Yet to avoid a disastrous repetition of the 1923 funding agreement when other debtors subsequently obtained far better terms, Chamberlain stipulated a ‘let out’ clause so that after five or seven years the settlement could be reviewed and if other nations had obtained more favourable terms these would automatically be extended to Britain. After discussing these conditions with the French Finance Minister shortly before the end of the World Economic Conference, Chamberlain concluded the French government would also support Britain’s acceptance of such terms and would do so themselves if they were offered by America.7 As in the past, the British were handicapped in their planning for the forthcoming talks by an astonishing degree of uncertainty about what the Americans actually wanted. As Chamberlain acidly observed a few days before Leith-Ross’ departure, they were ‘all in the dark as to what is in [Roosevelt’s] mind, if there is anything in his mind’.8 He had every reason to be concerned. Hull only very belatedly proposed a discussion with the President on the subject (and this was eventually delayed until 5 October),


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while Undersecretary of State Phillips warned Hull two days before LeithRoss’ departure that not only was there no one in a comparable position to the British negotiator in the State or Treasury Department, but that no one had even yet studied the voluminous documentation provided by the London Embassy as a basis for some reasoned assessment of Britain’s capacity to pay.9 As a result, it was scarcely surprising that American thinking on the terms of a possible settlement had progressed astonishingly little since Hoover left office. They certainly knew what they did not want. But what they were prepared actually to accept was cloaked in an impenetrable shroud of uncertainty, despite some inconclusive consideration of a variety of options within the office of the Economic Adviser to the State Department. These ranged from the possibility of writing down of the debt in accordance with changes in the gold price since 1917; or by crediting past interest payments of $1,912 million to reduce the principal to $2,365 million; or by dividing the principal into one part to be paid over a short period while the other was ‘to remain merely as a claim by the United States collectible in kind under special circumstances, such as war, crop failure, or monetary disturbance in the United States’. Other variations on these ideas included collecting part of the British debt through the transfer of cable and radio rights, fuel bunking stations, seadromes for transatlantic aviation or as a means to finance American tourist travel in the British Empire.10 Yet for all the plethora of possible solutions, there was no settled policy in Washington and even the choice of American negotiator was not made until a few days before the talks commenced. Little wonder that when the negotiations failed in late October this came as no surprise to many observers. ‘No preparation for the talks had been made in the United States’, Hoover’s former Undersecretary of State noted in despair when it was all over. ‘If Great Britain made a proposition we had no counter proposition to offer’.11 This failure was all the more remarkable given perceptions of a shift towards greater pragmatism within the American press. Although a few titles still insisted on payment, as the State Department’s review of editorial comment from 45 key newspapers in 20 states suggested in early October, there was now ‘a strong desire that we settle the matter once and for all and then never discuss it at all’ – particularly as there was a widespread recognition that America would never be paid in full. As the Cedar Rapids Gazette told its Iowa readership, ‘there is as much chance that the nations of Europe will pay the instalment due December 15 as there is that Hitler will change the name of Germany to New Jerusalem’. As a result, while nothing would be gained by forcing Britain into default, there was ‘a growing belief that scaling down the debt would improve both our relations with the British Empire and our foreign trade’.12 Unfortunately for Roosevelt, it was equally clear that public and congressional opinion had not shifted to a corresponding degree. Indeed, if anything, the failure of the World Economic Conference and the Geneva Disarmament Conference had markedly stiffened the existing resistance to further concessions to obstructive and hostile Europeans.



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Before departing for the United States on 27 September, Leith-Ross confessed that he had hoped for a postponement of negotiations because all the signs were ‘distinctly discouraging’, but the Prime Minister had been insistent that there should be no further delay.13 As before, the extremely capable LeithRoss soon made ‘a very favourable impression’ on the Americans with his knowledge, tact and experience, but the negotiations proved intensely frustrating from the outset.14 After an ‘entirely formal’ meeting with Secretary of State Hull on 4 October to ‘set the ball rolling’, his first business meeting next day with Treasury Undersecretary Dean Acheson and Frederick Liversay (Assistant Economic Adviser to the State Department) was largely ‘confined to preliminary skirmishing’ given Acheson’s admission that he was ‘not in a hurry to begin serious talks’ because he was new to the subject and had not yet had an opportunity to discuss it with the President! At this juncture, he reported that Roosevelt believed ‘that people were sick of the whole question and if some permanent settlement could be reached which could be got across Congress it would be much better’. Leith-Ross agreed, arguing that Britain also wanted finality because it was ‘not able to go on acting as lightening conductor and absorbing the shock of these payments’. Leith-Ross left this inconclusive first meeting convinced that Acheson was ‘a very decent fellow of the same type as Louis Douglas’; a young lawyer with a great capacity for marshalling his arguments, but without any real experience of finance. Nevertheless, he rightly believed ‘his attitude was friendly and frank and his desire to talk privately with me seems a good sign’.15 After this faintly promising start the outlook soon clouded over. Acheson’s plans to give the press a briefing after each round of talks as ‘the most effective means of educating public opinion’ was vetoed by the President after the first meeting.16 Later that afternoon, Leith-Ross found Louis Douglas, the Director of the Budget, ‘very depressed’ about American policy generally given the gravity of the economic, banking and currency situation which the administration apparently refused to discuss with him. With regard to war debts, Douglas opposed the Warburg plan and hoped to link a settlement to currency stabilisation and a reduction in tariffs, but in a ‘secret’ aside he also conceded that ‘the President was becoming more and more headstrong on the question’ of currently stabilisation because his policy was dictated by ‘political considerations’ and was too influenced by pressure from the inflationists. As a result, Douglas warned that ‘the President would be reluctant to make up his mind and advised [Leith-Ross] to go slow and be ready to stay on till a settlement had been worked out’. Worse still, when Leith-Ross met Acheson at his house for a private talk on the morning of 6 October, it was equally clear that he was ‘not happy’ about the instructions he had received from the President on the previous day ‘which were not in accordance with his views’. At the heart of the problem was that the President was still attracted to the Warburg Plan because it ‘would enable him to issue greenbacks against the collateral of the debt payments’, but the US Treasury opposed the idea as dangerously inflationary.17


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Leith-Ross returned to Acheson’s house later that afternoon (6 October) where he explained that it was ‘politically impossible’ for Britain either to pay more than in June or than it received from its own debtors, although this ‘might be presented as a large sum under the Warburg Plan’. The discussion then turned on how this could be presented to a President who was opposed to further concessions and unwilling to accept the Warburg Plan unless it definitely enabled him to use the bonds as a means to expand the money supply; a highly problematical proposition given the US Treasury’s refusal to permit such action on the basis of bonds redeemable over only 50 years and at a time when the American financial authorities were ‘very apprehensive of inflation with a serious flight from [the] dollar and collapse of Government credit’. There was equally little encouragement to be derived from the vast gulf over the scale of a revised settlement. To be acceptable, Leith-Ross explained that America needed substantially to write down the debt by one means or another to a figure below $1,000 million to be paid in equal instalments over 50 years. When Acheson argued that the President ‘could only get it through Congress by denouncing us as prepared to default and justifying settlement as salvage i.e. all that can be got out of the wreckage and the alternative being no receipt at all’, Leith-Ross objected that this ‘would certainly be resented by public opinion at home as unjust and ungenerous’ – although in reality this had been the essence of the British strategy since November 1932. Given the obstacles to a permanent settlement, Acheson then proposed a temporary arrangement, but when Leith-Ross offered further token payments for the next three to five years with a ‘let out’ clause Acheson was again sceptical about congressional reactions. Moreover, in response to Leith-Ross’ request to put the Warburg Plan before the President, Acheson declared ‘it would be better to wait a bit and go slow. The President was very impatient about a lot of arguments used in the past about these war debts and would certainly not be easy to persuade’. After this meeting, Leith-Ross requested guidance from London about the question of presenting such a deal as ‘salvage’, but he was in no doubt about the essentially political nature of the underlying problem: Acheson is very friendly but he is afraid of the President. He says the President is very impatient of arguments that war debts upset the world and believes we can quite well pay 50 or 60 million dollars a year . . . He said President also has to take account of political difficulties. It was essential for him to retain control over Congress which next January would already be influenced by coming elections and he could not risk defeat over the debt.18 During a long talk, Douglas also warned that Roosevelt was inconsistent on the subject: ‘his instructions to Acheson might have been given by Calvin Coolidge. But his real position had not changed and his difficulty was Congress’. Like Acheson, Douglas also urged a temporary agreement as a



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prelude to a general European settlement covering currency stabilisation, reform of the gold standard, tariff reductions and a Department of Agriculture scheme for debt remission in return for trade concessions on cotton, pigs and wheat.19 In London, the Foreign Office concluded that to avoid deadlock there was ‘much to gain from a veiled procrastination, with the ultimate objective of bringing about a general settlement . . . when the present Administration has had a little more time to learn wisdom from experience’.20 In contrast, the Treasury was unimpressed by Acheson’s offer. With regard to the presentation of any settlement as ‘salvage’, the Chancellor was convinced it was ‘certainly not worth while to pay 20 million dollars a year for the purpose of being stigmatised as people who were burning with a desire to default’ – although if the concept of ‘salvage’ could be phrased in a manner more sympathetic to the British predicament he had fewer objections. In order to increase British leverage, Leith-Ross was instructed to dwell on the hardening of British public opinion. ‘France has refused to pay the United States and is not a penny worse on that account. H.M. Government is still willing to pay something to avoid recrimination but the something is bound to grow less and less as our public opinion moves on its present direction’. The Treasury had even less enthusiasm for the various proposals for a permanent settlement. Douglas’ ideas about a general European settlement were thus briskly dismissed on the grounds that this could ‘only lead to long delay and eventual disappointment’. Efforts to tie a debt settlement to tariff reductions were also unattractive, while the British government’s secret efforts to stimulate Lancashire’s consumption of Indian cotton in direct competition to the American product precluded concessions in this area. Similarly, despite Leith-Ross’ subsequent plea that ‘there seems more excitement about pigs than about cotton’, closer examination suggested the Americans were labouring under a misapprehension because they were already supplying less than their existing allocation. Above all, there was strong Treasury resistance to any talk of joint action on currency stabilisation because inevitable American demands for action on sterling would be to lead to a flight of capital to New York which would ‘probably be fatal to gold countries and in our own case might well involve credit restrictions destructive to internal recovery’.21 After widespread consultation within the British Treasury on 9–10 October, Fisher formally instructed Leith-Ross to steer discussions back towards a narrow focus on a debt settlement – ‘permanent if possible if not temporary’. if [the] President contemplates denouncing us as defaulters we will at least earn the title by refusing to pay anything. The essence of the matter in our view is whether the President will actually sign a satisfactory Agreement or promise in writing to recommend it to Congress. If the President merely takes note of our offer and presents it to Congress as

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salvage, we should regard the position as worse than if negotiations were broken off altogether, and surely there would be a strong chance that Congress would reject it and prefer to put us in default. In contrast, a temporary settlement would be far less satisfactory as Britain would get nothing from its own debtors, but as all agreed, ‘a temporary settlement, if carefully worded, would be better than a breakdown’.22 In Washington, everything now hinged upon the reaction of the President, because while Acheson was ‘extraordinarily friendly and most anxious to get an agreement’, his difficulty was that ‘the President adopts a negative attitude and turns down every suggestion made’. Leith-Ross expected a crisis in the following week when Roosevelt rejected the various British proposals, at which point he planned to leave town for a few days ‘to let the President think it over’. Although the US Treasury would do their utmost to encourage Roosevelt to make alternative proposals, Leith-Ross predicted these ‘will almost certainly be unacceptable to us; and then we have some hope that the President will accept our terms with some minor amendments’. If this occurred, however, he feared that British insistence on an ‘opt out’ revision clause would create the greatest difficulties. ‘The President’s whole object in making a settlement is to use it as a colourable pretext for issuing currency which will be used to retire interest-bearing U.S. Government securities. If our payments are open to revision at the end of 5 years, the camouflage will be too thin as the currency issue will be proper inflation’. As predicted, when Acheson finally discussed the matter with the President on 11 October, he was critical of all the British proposals although he was still prepared to contemplate the Warburg Plan if it enabled him to issue currency.23 These early skirmishes set the tone for the negotiations throughout the rest of October and into early November. At his second formal meeting with the US Treasury on 13 October, Leith-Ross outlined two key British options: the Warburg Plan reducing the debt to $2,259 million repaid in 50 annuities of under $20 million; or an alternative plan to reduce the debt by the Warburg method and then by excluding munitions expenditure to reduce it further to only $877 million to be repaid by 50 equal annuities of $17.5 million. Brief consideration was also given to the retrospective application of the Italian terms.24 When Acheson and Douglas presented these proposals to the presidential Cabinet that afternoon, suspicions were immediately aroused that the two negotiators were ‘willing to make the utmost concessions to Great Britain’ while Harold Ickes declared that he ‘wouldn’t be surprised if either one of them would not go all the way in wiping off the debts entirely’. Always a ‘hard bargainer’, Roosevelt now proclaimed he was ‘holding out for much more favourable terms’ and when Acheson warned that the British delegates might simply return home it was apparent to all present that ‘this did not seem to worry the President’.25 Indeed, at around the same time Roosevelt actually told an astonished Douglas that ‘he must have a scheme



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which provided for the repayment in full of the original capital advances’, while any temporary arrangement which offered only $20 million a year was open to the insuperable objection that it could be derided as ‘a ten per cent settlement’. A ‘very disheartened’ Acheson reported the ‘bad news’ privately to the British on 17 October. The most-favoured nation clause was ‘impossible’ in any form and the Warburg Plan was rejected because ‘everyone would see that it was a fraud’. The best the President could offer was a reduction of the capital debt to $2,260 million spread over 50 equal annuities of around $40 million ‘and it was nonsense to say [the] British Government could not pay this’. As the President claimed he was ‘willing to help a settlement but [the] British Government were putting altogether too great a burden on him’, Acheson warned that Roosevelt’s mind was turning to a ‘purely temporary arrangement’ which could be covered by a declaration from the White House and did not require congressional approval. In response, Leith-Ross expressed his ‘great disappointment’ at the President’s attitude but ended the discussion by asking whether Britain would be offered the French or Italian terms if other solutions were rejected; a position which meant a lengthy moratorium because Britain had already paid sufficient to cover instalments on French terms until 1941 and until 1958 on an Italian basis. ‘We do not want to act unilaterally’, he concluded ominously, ‘but may be forced to’.26 In secret, American bankers like Warburg, Harrison and Leffingwell (of J.P. Morgan) encouraged the ‘very disheartened’ Acheson and Leith-Ross ‘to stand firm upon war debts and go away if the President would not be more reasonable’ because he had ‘no conception of the position and had told Acheson that we could easily get 3 billion dollars’. As Warburg declared on 18 October, ‘the President’s mind simply worked under the influence of yesterday’s events. He could not be relied upon to follow any consistent policy at all’ and ‘if things turned wrong he might suddenly become a helpless cripple’.27 At this juncture, the drift towards deadlock on a permanent settlement reached a climax. After several days delay, Acheson told Leith-Ross on 23 October that he was ‘very upset’ over Roosevelt’s gold purchase policy which the US Treasury and the bankers all opposed but over which the President ‘was very ill-humoured and complained bitterly that Acheson and the Treasury were working behind his back against his programme’. Indeed, such were the internal tensions that when the President refused even to discuss the policy with Acheson, he submitted his resignation. Moreover, although he confessed to Leith-Ross that he had not had any real discussions with the President on debt policy, both men were now convinced that a permanent settlement was beyond reach and the best they could hope for would be a temporary arrangement – albeit that Acheson’s insistence on annual capital payments of $35 million from Britain, $50 million from France and $15 million from Italy was vigorously rejected by Leith-Ross who made it clear that Britain would pay no more than $20 million a year for a permanent


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settlement (with both a ‘most-favoured nation’ and a ‘let out clause’) while it would pay only $15 million a year for temporary terms. Everything now depended on Acheson’s meeting with the President next day ‘to have it out with him’.28 Roosevelt received Acheson in ‘a very friendly way’, but he pointedly hinted at his transfer from the Treasury Department. Contemptuous of Roosevelt’s ‘ridiculous’ idea that it was possible to obtain repayment of the full original capital advance, Acheson thus advised the British to work for a temporary settlement while warning that the President was deeply opposed to $15 million a year because it represented an inadequate continuation of the June token payment. He also made it clear to Leith-Ross that he had lost all influence with the President and that at their next formal meeting ‘we must not be astonished if when we got to the Treasury we found that there was neither a Secretary or an Assistant Secretary’.29 On 26 October, Acheson finally resigned for fear that the President was about to dismiss him on the pretext of obstructing his programme. Advised by Lindsay and Leith-Ross that a permanent settlement was beyond reach, Chamberlain also now abandoned hope of anything but a temporary settlement.30 This time, when confronted by the choice between default and token payments, Chamberlain encountered considerably stiffer opposition from the ‘good many who wished to sit back & refuse further payments’. Again, the leading critics ‘in full cry for default’ were Runciman, Cunliffe-Lister and Hailsham supported now by Sir William Ormsby-Gore, the First Commissioner of Works, who had been appalled by Roosevelt’s behaviour towards the World Economic Conference and who was determined ‘never to pay . . . another penny of War debt’. ‘We have gained nothing from America by the payments we have made’, he protested to the Prime Minister, ‘and nothing we pay in future will buy the cooperation or effective support of a country set firmly on the path of unsplendid isolation’. The strength of this opposition took MacDonald and many others by surprise. As the usually opaque Cabinet conclusions recorded with studied litotes: ‘The general tenor of the discussion revealed some hardening of opinion on the subject of payments’. Yet despite this influential and increasingly fractious opposition, Chamberlain remained convinced that it was still ‘worth our while to pay something though not too much to avoid being denounced however unjustly as defaulters’, particularly as ‘a complete moratorium for 3 years would make it much easier to obtain the final cancellation which is my ultimate aim’. In taking this stand, the Chancellor’s authority ensured that he commanded the support of not only Baldwin and MacDonald but also many of those less directly involved. A note from Lord Irwin passed across the Cabinet table during the harangue against payment bore the simple message: ‘Two or three of us who are ignorant & therefore silent, shall trust your judgement better than others; & you may as well know it’.31 Although Chamberlain’s will had prevailed in the short-term, the Treasury took the challenge seriously. On the day after this bruising clash



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with ministerial opponents, Fisher warned Leith-Ross of the Cabinet’s ‘great and increasing disinclination’ to make any substantial payment without assurances that it would soon be followed by a satisfactory final settlement and that it was ‘only with difficulty that the Chancellor has obtained authorisation to proceed’ on temporary lines. By this stage, Leith-Ross’ patience had also worn perilously thin. As he complained to Stimson on 27 October, ‘they were not getting anywhere but simply batting the air’. The President’s attitude had ‘stiffened over the last three weeks’ and was clearly dominated by internal politics ‘which make any concession to a foreign country dangerous’. In these circumstances, Leith-Ross advised that if the President refused to accept a continuation of the token payments ‘we ought without hesitation to suspend payments completely despite the pain it will give many of our friends here. The vast amount we have over-paid as compared with France and Italy gives us the best pretext on which to hang a default’. Whatever happened, however, he had ‘had enough of this place’ and hoped to conclude matters early in the following week. By this stage, the Chancellor and Treasury favoured a modest lump sum payment to cover a period of three to four years as an alternative means to achieve their long-term objective. ‘If there were no annual payments for four years the habit of mind would be in the direction of not expecting anything’ while the President could still declare it a success because he would be ‘able to show a substantial bird in hand’.32 At Leith-Ross’ meeting with the President on 1 November he put the British view ‘courteously but strongly’, but the discussion merely exposed the utter futility of his mission. The President was ‘affable’: but he was quite adamant that he was not going to put forward any sort of revision either permanent or for a period of years to Congress. We believe that he can get anything he likes through Congress, but after all he is the only person who can decide this and he is evidently not disposed to take any risks. Probably he feels that while he could get a settlement through Congress he would lose a good number of tail feathers which he can ill afford to do. At the back of his mind there is no doubt that he thinks we can quite well afford to pay more than 20 million dollars and thus make things easier for him. But I do not believe that he cares about the actual money except so far as an increased offer could facilitate his handling of Congress.33 When the Cabinet met a week later, Roosevelt’s rejection of both the proposed British permanent and temporary settlements and his request for another token payment prompted Chamberlain to urge acceptance on the grounds that he still clung to the hope of voluntary cancellation and default ‘would wreck all hope of this’. Although some ministers considered this ‘extremely unsatisfactory’, the majority supported Chamberlain’s view that it was the course open to least objection.34 Despite the Ambassador’s preference


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for a token payment of $10 million and Chamberlain’s wish to avoid ‘the appearance of futile haggling’, Leith-Ross (supported by Acheson) argued strongly for an offer of $7.5 million on the grounds that it was equivalent to the actual value of the June payment given the enhanced price of silver and because it offered more margin for a permanent settlement. This reduced figure was finally accepted by the President on 4 November. As Simon congratulated the British negotiators two days later, ‘in the circumstances the prevailing result is the best that could be attained and better than we at one time expected’. Next day, Roosevelt declared that he accepted this token acknowledgement of the debt and ‘shall not regard the British Government as in default’.35 The reasons for the failure of the Leith-Ross mission were disputed even at the time. Roosevelt predictably placed the blame squarely on the British. ‘I think you will be a bit horrified’, he told Senator Frederic C. Walcott of Connecticut, ‘first at the suggestions that were made to us, and secondly, as to the extremely adamant position that was taken in regard even to suggestions of some kind of compromise’. The ‘ridiculous’ British offer of $460 million in full settlement of an $8 billion debt prompted Roosevelt to complain ‘that no self-respecting Congress and, for that matter, no selfrespecting President, could go on with the discussion’.36 Outside observers in America came closer to the truth when they attributed the breakdown to the ‘nervous strain’ upon a ‘tired team’ within an administration ‘up to their ears in domestic affairs’ and grappling with the problems of bank closures, depressed farm prices and public works loans. As a result, there was no time to discuss debts and that, anyway, having instituted a new monetary policy it was premature to discuss debts until it was clear where the dollar exchange settled relative to sterling.37 On the other hand, the President’s Republican critics suspected that Roosevelt’s refusal either to prepare a policy or to meet Leith-Ross and Acheson was part of a premeditated plot to force a breakdown and then place the responsibility for the breach upon the British.38 The clear drift of British policy encouraged other debtors to follow its example. In late November, the Italian Ambassador announced that they were prepared to offer $1,000,000 of the $2,133,905 scheduled for the December 1933 payment and this was accepted in terms which reserved America’s constitutional position. Soon after the Czech Minister offered a token payment of $150,000 and, despite American efforts to increase it to $180,000 to match their June payment, the Czechs refused to comply given past criticism of the Benes government from both its domestic opponents and from Paris at a time when their French ally had simply defaulted.39 On the other hand, at the President’s direct instruction the Finnish debt was recalculated on the basis of the far more generous Italian terms with the result that their total repayment over the next 40 years was reduced from $18,715,000 to only $10,165,000. France and Belgium remained in default, but according to Lindsay, their Ambassadors were ‘extremely uncomfortable’ because it represented ‘a permanent diplomatic weakness which may be



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acutely felt at any moment’. As such, he expected that ‘sooner or later they will have to eat humble pie’.40 The British reluctantly accepted a second token payment as the best option available at the time but a final settlement appeared as far away as ever. Indeed, despite the President’s hopeful talk of obtaining congressional authority to settle the debt question before the next payment in June 1934, on his return to London Leith-Ross echoed the Ambassador’s warning that it may be necessary to make further token payments in June and December 1934 ‘and possibly even longer until U.S. opinion got accustomed to payments on this scale’.41 Yet as Douglas told Leith-Ross before his departure, one very significant benefit of the aborted negotiations was that ‘the debt has ceased to have any news value and that itself was an improvement’.42 As the Ambassador confirmed in late December, press comment on the entire subject had been ‘markedly scarce’ and the general tone was one of ‘rueful resignation’; a fact Chamberlain noted with quiet satisfaction as ‘a very good omen for the ultimate settlement’.43 In the event, however, these token payments in December 1933 provoked a full-scale row with the US Congress which passed a resolution preventing the President from accepting further such payments. At the centre of the agitation was Senator Hiram Johnson of California. Johnson was a former governor of California and vice-presidential running mate to Theodore Roosevelt on the Bull Moose Progressive third party ticket in 1912. Elected to the US Senate in 1916, Johnson was second only to Borah in seniority among the Republicans on the Senate’s Foreign Relations Committee and a dogged isolationist with what he himself admitted was ‘a fatal facility for getting into a lone fight – that is, a contest where I feel entirely right, and where most of my fellows feel exactly as I do, but in which none of them has the guts to go the route’.44 Abrasive, opinionated and highly skilled as an orator and legislator, Johnson believed himself to be engaged in an isolated crusade against the forces of evil – especially those represented by the liberal internationalists in what he called the ‘American foreign legion’ and their allies in the State Department and the New York banking community. On these grounds he had fought the Hoover moratorium until the end and pressed for an embarrassing investigation into the irresponsible lending of American international bankers. He also derived great pride from his achievements in crystallising congressional and public opinion on the debt question to prevent ‘a conspiracy . . . to scale down the debts, and then cancel them’ at a time when American taxpayers and farmers faced crippling burdens without any assistance from their government.45 By the same token, he had bitterly resented ‘the dictatorial attitude of England’ during the payments crisis in December 1932 and openly declared that he preferred letting Britain default to retain the obligation rather than accept a smaller sum and surrender it. As he told the British Embassy in February 1933, they ‘had been given a bond and must stick to it’.46 Within 18 days of Roosevelt’s inauguration, Johnson introduced a bill


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designed ‘to prohibit financial transactions with any foreign government in default on its obligations to the United States’. The measure effectively closed the New York securities and money markets to further loans to all governments behind on their debt payments to the American government. Roosevelt could probably have blocked Johnson’s bill had he wanted to do so – but he decided against it at a time when he needed the support of western progressive isolationists like Republican Senators Johnson, Couzens, La Follette and Norris far more than he needed a debt settlement with unpopular European ‘militarists’ and ‘welchers’. As a result, behind the scenes, the State Department had made it clear to Johnson that ‘the President really favoured the bill’ and ‘would like it as a weapon in dealing with these European welchers’, but he also desired some amendments to exclude private debts to protect the administration’s efforts in Latin America and Russia. These changes were eventually agreed, but Johnson adamantly refused to accept a clause designed to allow the President to determine whether a default had occurred and when the penalties should apply. On this basis, Roosevelt instructed Assistant Secretary of State R. Walton Moore to help steer the bill through Congress and on 13 April 1934 Roosevelt signed the Johnson Act into law.47 From the outset, the British had been remarkably unperturbed by the threat posed by this congressional challenge. When the Johnson Bill passed the Senate on 2 February with the apparent blessing of the Democratic leadership, Lindsay freely admitted that he had ‘certainly been caught napping in this business’ but he was initially ‘very puzzled’ by the ‘silliness’ of it all. Three days later, however, his ‘earnest protest and complaint’ about the measure to the Secretary of State prompted Hull to indicate ‘very uncertainly that some doubt might exist as to whether the bill did refer to war debts or not’; an admission which prompted an incredulous Ambassador to renewed and more vigorous protests. For all their contempt for this ‘extraordinary state of muddle and indecision at the State Dept’, however, Lindsay and the Foreign Office assumed that the US administration had simply overlooked its possible application to war debts.48 Even the apparent blessing for the Bill from the Democratic floor leader in the Senate and his declaration that it applied to all war debtors expect Finland in early February was not regarded by the Ambassador as a particularly serious development.49 By this juncture, however, Lindsay confessed to Orme Sargent that he felt ‘far less strongly on evading default than [he] used to, and the attitude which would be taken up by the United States Government under this Bill certainly is a sheer reducio ad adsurdum’ – particularly as Britain and France were branded as defaulters while Russia (the largest defaulter of all) was specifically excluded and allowed credits to finance purchases in America through ad hoc government corporations. In London, Leith-Ross also reported in February that ‘no one here seems to be worrying much’, while Warren Fisher noted ‘My hope is that it will become law – & with any luck, even in a more foolish form’.50



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As the Johnson Bill progressed through Congress, however, British apprehensions increased rapidly – particularly as it definitely appeared to have the administration’s blessing. While in January Congress was believed to be malleable and subservient to the President’s will, by March it appeared to be getting ‘out of hand’ and less susceptible to White House control as the mid-term elections loomed. Nevertheless, the British Ambassador still expected the President to ‘lie low and be enigmatic’ by delaying the Johnson Bill in the House Committee on Foreign Affairs until it lapsed with all uncompleted legislation at the end of the session. But when the Bill was amended to cover only default on inter-governmental debts in late March, Lindsay reported with alarm that it progressed smoothly through Congress ‘like a letter through the post’. Yet incredibly, even at this stage, considerable ambiguity still existed as to whether the Johnson Bill applied to countries making token payments. The perpetuation of this uncertainty until mid-May was bitterly interpreted at the Foreign Office as ‘all of a piece with the opportunistic bargaining policy of the Administration’ which was ‘waiting deliberately to see which interpretation suits them best’.51 A few days before the President signed the Bill into law, hopes of a settlement were briefly revived by unofficial (but supposedly authoritative) American enquiries about British reactions to the idea of all debtors being offered the Italian terms.52 As these terms were highly disadvantageous to France and only really attractive to Britain in the extremely unlikely event that they were applied retrospectively, the British sat back and waited for a formal offer while preparing to present their default in the most respectable manner possible.53 To this end, only four days after the Johnson Bill became law, Chamberlain’s third Budget conspicuously failed to allocate any of his £31 million surplus towards even a token payment; a symbolic action widely interpreted even among previously sympathetic American opinion as a sign that Britain was about to default, while for Britain’s critics in the United States it only added insult to injury. As the Salt Lake Telegram protested about the British budget, ‘with 129,000,000 pounds in gold and with 11,000,000 on hand for armaments, may we not be pardoned for wondering just how much John Bull will want to have on hand before he remits something on account to Uncle Sam’.54 In London, this American reaction provoked a wave of righteous indignation. As Leith-Ross protested, the suggestion that the budget surplus should be used to pay America ‘is one which makes the blood boil here, and it would be difficult to put any such paragraph into reasonably civil language’.55 And in reality, the British had a good case for arguing that American complaints were ‘fallacious and disingenuous for the surplus is simply a measure of the unprecedented sacrifices made by this country’ at a time when the burden of taxation was double that of the United States and when public expenditure had been drastically cut while America still attempted to spend its way out of economic depression. The Foreign Office also had a point when it noted that ‘noone in the U.S. seems to be aware of


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the reverse side of the picture – that the U.K. having paid $2,000 million out of the $4,600 million now owed $36 million or so more than she originally agreed to pay’.56 Yet for all that, as Lindsay warned repeatedly, such arguments cut little ice in America and ‘we have to deal with public opinion here as it is and not as it ought to be’. Now convinced that Roosevelt ‘may have encouraged the passage of [the] Johnson Bill in order to relieve himself of [the] responsibility of carrying single-handed the whole burden of [the] debt situation’ but anxious to minimise the diplomatic ‘bad blood’, Lindsay pressed strongly for an audience with the President to consider ‘some further but final payment now, pending arrival of [the] moment when both governments will be able to consider debts in a realistic spirit’. As Lindsay put it to Leith-Ross, ‘I detest spending the hard earned millions of my Government and I am afraid that all of you over there will say that I only want to pitch good money after bad’. Nevertheless, he urged a final offer because he sincerely believed ‘the money would be well spent taking the long view of policy . . . If you decide to stage a death bed scene for the debt, do it as handsomely as you can. Do not grudge a few million dollars, and make it 25 if possible. There is nothing so sordid as a funeral with an implication of stinginess’.57 Lindsay’s pleas fell on deaf ears in London. At the Treasury, Leith-Ross inscribed on one such appeal, ‘I shd lie low & say nuffin’. The Foreign Office similarly thought Lindsay’s advice offered ‘the worst of both worlds, for we should still be technically in default and should in addition be making a lump sum payment which would be embarrassing financially and prejudicial to world recovery’. As a result, it advised against an approach to the President because there was no sign of progress in American sentiment and no interest in London in further payments without a presidential indemnity against default – and this was now impossible given Roosevelt’s evident support for the Johnson Act. Determined to ‘sit tight’ and await developments, it was thus concluded that the only option after the Johnson Bill was to suspend payment completely until the President has obtained adequate authority to negotiate a reasonable revision. Ultimately, it was also hoped that the international situation at Geneva and in the Far East, which made American support for Britain so important, may have an even more marked effect upon attitudes in Washington.58 Anyway, British policy-makers were now convinced that their own public opinion had hardened so sharply after the Johnson Act that the ‘overwhelming majority’ welcomed complete suspension, while in the City Roosevelt’s monetary experiments meant that ‘America has put herself outside the pale’. Even the Governor of the Bank of England was reconciled to default. Similarly, within the Cabinet there was ‘a considerable element’ which opposed any further token payments and even the Chancellor was not easily persuaded to continue.59 Despite repeated evasion and equivocation from the Roosevelt administration, when Undersecretary Phillips finally made it clear on 11 May that the Johnson Act effectively precluded the use of further token payments



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and that it might be necessary for Britain to pay all of its arrears in June in order to avoid being branded as a defaulter, even Lindsay declared that ‘the whole matter of war debts had now become so ridiculous that in the interests of international good relations it would seem advisable to make it as ridiculous as possible’. The meeting with Phillips ended with Lindsay’s warning that there would inevitably be ‘repercussions’.60 These repercussions were immediate and predictable. At the annual meeting of the Bank of International Settlement in Paris on 14 May, the representatives of 26 central banks agreed that it was ‘futile to expect the debtors now to advance propositions to the United States in the face of the adamant attitude of Congress’.61 In a last desperate attempt to avoid the seemingly inevitable, London instructed Lindsay to meet the President to establish whether he was willing or able to accept another token payment in return for an indemnity that it did not constitute default. If he declined to do so, he was to be told that Britain would completely suspend payments; a strategy encouraged by Norman Davis who was simultaneously telling Roosevelt that ‘debts which in themselves were a question of no importance had now come to be an insuperable obstacle to [the] solution of three great questions viz: disarmament, stabilisation and tariff reductions’.62 The outcome was never in doubt. Throughout Lindsay’s ‘very discursive’ talk with the President on 18 May, Roosevelt ‘displayed his usual breezy optimism and amazing candour’, but Lindsay once more noted that his ideas ‘were frequently haphazard and even self-contradictory, and his ignorance of economics was often evident’. Moreover, while encouraged by the President’s repeated emphasis on the crucial need for Anglo-American goodwill given a European situation ‘more tense than in 1914’, ultimately Roosevelt was compelled to acknowledge that there was no hope of avoiding default although he hoped to avoid using this ‘very ugly’ word.63 On 25 May 1934 the Anglo-American war debt controversy reached its climax when the US Treasury despatched a formal request for $261,788,011 (over £50 million) to cover the balance Britain still owed in respect of the two ‘token’ instalments from 1933 plus the further $85 million due on 15 June 1934. A week later, on 1 June, Roosevelt’s Message to Congress reviewing the history of the debt problem made no reference to the Johnson Act but it concluded by reaffirming that the American people were ‘in a just position to ask that substantial sacrifices be made to meet these debts’.64 If the Johnson Act had been passed in the hope of coercing debtor governments into meeting their obligations in full, it was a miserable failure. In the 1920s the threat of withholding loans by closing the American capital markets had been sufficient to persuade most debtor governments to fund their wartime obligations. But in the early 1930s, with little prospect of a revival in America’s international lending, the Johnson Act merely pushed them into inexorable default. Confronted by a choice between default or paying $262 million in June 1934 to the detriment of its own economic recovery and the Lausanne agreement, and in the certain knowledge that it


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would receive no further repayments from its own debtors, Britain finally agreed to suspend all further payments. As MacDonald put it: ‘Payments that would upset [the] financial order (such as it is) would be treason to the whole world. We have to take upon ourselves the thankless task of putting an end to the folly of continuing to pay’.65 Leith-Ross’ masterly draft Note explaining the full British economic, financial and taxation position was published on 4 June. As Chamberlain told the Commons next day, Britain had ‘no intention of repudiating their obligations and will be prepared to enter upon further discussion on the subject at any time when in the opinion of the President . . . such discussion would be likely to produce results of value’. The published American reply expressed disappointment, but claimed that the US Attorney General’s recent ruling meant that Britain needed to pay only $85,607,765 of the $262 million because it was not already in default. It also effectively tossed the ball firmly back into the British court by repeating that it was the duty of the debtor to approach the creditor to initiate a future settlement.66 Both sides in the dispute had finally run out of not just diplomatic options but also the will to prevaricate any further. Significantly, when Undersecretary of State Phillips inscribed on the draft American Note that ‘Perhaps its tone is a bit too severe?’ Roosevelt returned it with the decisive notation, ‘No – OK’.67 American press and public opinion warmly endorsed the President’s stance. A State Department survey of editorial opinion in 712 newspapers across the United States, reported a three to one majority in support of his debt message. Yet for all that, only 27 editorials favoured the Johnson Act and most of these were rather ‘lukewarm in their praise’, while 155 papers in 40 states were ‘violently opposed’ to its deplorable impact in forcing one of America’s best customers into default while encouraging other debtors to follow suit. Perhaps the most important conclusion to emerge from this analysis was the overwhelming view that the debts would ‘never be paid in full and it is our duty . . . to save as much as we can from the wreckage of the original agreements’. While some 257 papers now favoured revision or readjustment of the debt settlements, only 39 opposed it.68 It was the dawning of a new realism, but now it was also far too late. The Johnson Act has been accurately described as ‘more of an angry nationalistic slap at Europeans than any real effort to win further payments’. For its advocates, it was just one expression of a far more general American hostility towards European entanglement and the power of international bankers whose interests appeared to be dominant at the State Department in the 1920s. In this context, the Johnson Act was the direct lineal forebear of the Nye Commission and the Neutrality Acts of the 1930s designed to prevent financial and economic ties dragging America into another European war against the wishes of its people.69 For Lindsay, after all his efforts to maintain good relations, anxieties about the future and regret at the thought of ‘heaps of defaulted bonds poisoning relations between England and America’ were tinged with a stinging sense of resentment. ‘There is



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something completely sadistic about the way in which the American Democracy – or rather Demagogy – operates in a case like this and it is quite ready, as far as we are concerned, to indulge its anger in a frenzy of cruelty’.70 On the other side of the Atlantic, default was a painful blow to national pride and an even worse defeat for all Chamberlain’s hopes of a satisfactory settlement, but he took comfort from the conviction that American myopia had forced them into it and that their prolonged efforts had proved the moral rectitude of their stance to the entire world; a logic he would later apply to his even more persistent efforts to appease Hitler in the late 1930s. ‘Well, we have defaulted on the American Debt & not a dog has barked’, Chamberlain wrote to his sisters. I am sure that if we had done it last year the papers would have been full of protests, but the public have been led along so gradually, first with a full payment then a token payment & then a smaller token payment that they seem hardly to notice the final stoppage. Altogether I am well satisfied with the way I have treated the whole thing including the last note, over which I took a lot of trouble. It is amusing to find Americans commenting that they have played a mug’s game in depriving themselves of $40 million which they would have pouched if they hadn’t given themselves the pleasure of passing the Johnson Act.71 In a final British Note published on 27 June, Chamberlain briskly rejected Cordell Hull’s hints about the possibility of payments in kind given the inherent transfer difficulties revealed by the Allied experience of German reparations and the fact that Britain needed to be paid for its exports in order to obtain the foreign exchange needed to purchase American goods.72 On 22 November 1934 the United States issued a formal reminder of the amounts owing in advance of the scheduled payment on 15 December. In reply the British repeated that while they were fully prepared to discuss proposals for a settlement, they believed such negotiations could not be usefully renewed at that time because ‘the considerations which governed their decision six months ago apply with equal force today’.73

10 Epilogue


1934–1941

After 15 years of almost continual wrangling and diplomatic tensions, none of the great powers involved in the war debt controversy had moved an inch in their attitude towards the economic and moral issues involved. In practice, this was scarcely surprising. After all, this was the classic zero-sum calculation for which there existed no equitable or wholly satisfactory compromise solution.1 While war raged, everything had been subordinated to the need to secure military victory – whatever the financial cost. Without the defeat of Germany and its allies there was nothing. But once the hostilities came to their dramatic end, the problems of liquidating these vast obligations rapidly took the centre of the stage and informal discussions on the subject soon exposed fundamental and intractable differences between the United States and its European debtors. The future implications of these vast and inter-related obligations fully vindicated the wartime concerns of some American policy-makers. As Senator Cummings of Iowa declared shortly after America’s entry to the war: ‘I am perfectly willing to give to any of the Allied Nations the money they need to carry on our war, for it is now our war . . . [but] I do not want the United States to become the bond creditor of Great Britain or of France or of Russia or of Italy: I do not want to enter the entangling alliance which the possession of these evidences of indebtedness will inevitably create’.2 Such fears were well-founded. The resulting controversy over these war debts produced much hypocrisy and even more self-interested special pleading on both sides of the Atlantic. In retrospect, as H.G. Nicholas observes, ‘it is impossible to follow the course of the so-called war debts controversy without a feeling of disgust and irritation at the stupidity, insensitivity, small-mindedness, and demagoguery displayed by almost all of the participants’.3 From an American perspective, this meant adopting a wholly inconsistent policy towards inter-governmental indebtedness largely in pursuit of economic self-interest and electoral expediency. With regard to reparations, Washington repeatedly urged a modest settlement for fear that a draconian financial penalty would retard European economic recovery and thus deny America important markets for its rapidly expanding industries and finance. Yet perversely, the same logic did not apply to the war debts owed to the


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United States. For its American defenders, this differentiation rested upon an important moral distinction. When a former Mayor of New York argued that ‘debts are debts and reparations are fines’ in the summer of 1933, Raymond Moley declared he had ‘never heard a better summation of the subject’. Yet for America’s debtors, the key difference appeared to be that with regard to war debts the United States were now being asked to make the financial sacrifices rather than the European victors. Both sides also recognised the substantial advantage that payments of these debts bestowed upon the United States in their competition with Britain for world markets. As Norman Davis later recalled, if Britain had been allowed to avoid repaying its $4.6 billion war debt to the United States, it ‘could win out against us’.4 Although American policy-makers repeatedly (if unconvincingly) contested the details of the British case for debt adjustment, they generally preferred simply to ignore its central themes. Rather than write-off these Allied war debts as their contribution to the war, successive Presidents resolutely insisted upon the full repayment of obligations they had always explicitly treated as ordinary short-term commercial debts rather than as gifts or ‘political debts’. The Bolshevik repudiation of all Tsarist debts – including $192 million owed to the United States – was thus met by a policy of nonrecognition for the new Soviet regime. For the rest, the American attitude was most forcefully summed up by the compellingly simple (not to say simple-minded) logic of President Calvin Coolidge: ‘They hired the money didn’t they? Let them pay it off!’5 Worse still, what particularly outraged British policy-makers was the ‘sickening sanctimoniousness’ of their American counterparts when presenting this selfish pursuit of commercial and economic advantage as a moral crusade in defence of the sanctity of contract.6 Yet the reality for Republican administrations firmly committed to low taxation and the early retirement of public debt was that high-minded talk about debt cancellation would effectively transfer much of the cost of the war after April 1917 on to the shoulders of the American taxpayer from whom the US government had borrowed the money in the first place. Almost equally important, from the outset, successive administrations were afraid that any effort to cancel war debts or to link them directly to reparations would infuriate Congress and provoke it into some form of damaging retaliation. Alongside this extremely cautious deference to domestic prejudice, American policy-makers were also influenced by a strong feeling of personal and national offence at the slanderous ingratitude of Old World debtors who high-handedly demanded generous concessions without being prepared to give anything in return. As Undersecretary of State William Castle recorded in his diary during the December 1932 payments crisis: Ever since the War there has been everywhere a growing feeling against America, largely on account of debts, but it is strange that the nations do not realize that a debtor is likely to get better terms from his creditor if

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he treats him well than if he treats him badly. I think the arguments in favour of a broad settlement under which we should have to give up far more than anyone else are excellent, in that the settlement – almost any settlement – would help world conditions in the long run, but it is clear that the nations seeking such a settlement have acted perfectly selfishly towards the United States and have thereby built up a bad psychology. It is clear also that they have not and give no indication that they will try to play the game with us after a settlement has been made.7 Castle’s frustration and bewilderment reflected a more general irritation at the air of effortless superiority and patronising condescension which senior British officials and politicians brazenly displayed towards their New World brethren during these years. The traditional and much beloved British characterisation of the Anglo-American relationship in familial terms tended to cast the United States in the role of a callow adolescent slowly finding its feet but always in need of a careful guiding hand from John Bull as the older and wiser parent enjoying the fruits of infinitely greater experience, subtlety and understanding of the world. Alternatively, as Lindsay observed in March 1937, the United States was to be portrayed as ‘still extraordinarily young and sensitive. She resembled a young lady just launched into society and highly susceptible to a little deference from an older man’. Yet whether a brash youth or an impressionable belle, this condescending characterisation offered the British policy elite a comforting vision of future influence. As Lord Robert Cecil assured the War Cabinet in September 1917, ‘though the American people are largely foreign, both in origins and in modes of thought, their rulers are almost exclusively AngloSaxon, and share our political ideas’. As such, he concluded that ‘if America accepts our point of view . . . it will mean the domination of that point of view in all international affairs’.8 In practice, Anglo-American relations proved to be rather more complex and substantially less rewarding than this cosy familial comparison suggested, but the underlying notion of a special or ‘peculiar relationship’ analogous to that of a ‘father and son’ continued to lie at the centre of British thinking for much of the century. As Robert Craigie noted in November 1928: Americans are notoriously hasty and impetuous in their judgements and the actual advantages which they derive from good relations with Great Britain are patent only to a relatively small and thoughtful minority. Any United States Government is liable to allow feelings of temporary animosity or disappointment to obscure its considered judgement, and to lose sight in times of stress of the more solid and permanent interests of its own country. With our older traditions and wider experience it should be possible here to take a longer and steadier view of the whole question.9

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Increasing awareness that Britain was falling behind the emerging American superpower in economic and political influence did nothing to soften this sense of condescending superiority in London or the bitter resentment with which these pretensions were regarded in Washington. On the contrary, as an anonymous piece of verse penned during the 1945 Keynes mission to raise a postwar loan in the United States encapsulated the prevailing view: In Washington Lord Halifax Once whispered to Lord Keynes It’s true they have the money bags But we have all the brains.10 Yet while this diplomatic conceit provided some passing consolation for the loss of an unchallenged political and economic ascendancy during the interwar years, it could never entirely compensate for British feelings of wounded pride or their anger at American opportunism in exploiting Europe’s hour of need. On the contrary, the intractability of American demands for repayment of these war debts fuelled vast tensions and mistrust. Just as American politicians and their voters regarded the Europeans as untrustworthy ‘welchers’ trying to evade their legitimate financial obligations, in the Old World the United States was reviled for reneging on its even greater moral debt. In these circumstances, there was an inevitable tendency for the affectionate ‘Uncle Sam’ to be recast in the guise of ‘Uncle Shylock’ callously demanding his pound of flesh. Despite all the cant about the sanctity of commercial contracts, the European Allies repeatedly argued that these debts had been incurred as part of a common struggle to defend democratic ideals and American interests. Furthermore, not only did America delay its entry to the war until April 1917, but its troops did not appear in Europe until a year later and were not used in force until 12 September 1918 – only two months before the Armistice. In this context, British policy-makers were fond of quoting the US Secretary of the Treasury who in December 1917 had acknowledged that the loans were ‘made to our allies to enable them to do the fighting that otherwise the American Army would have to do at much expense, not only of men but of money, money which would not be returned to us and lives that could never be restored’.11 Similarly, Georges Clemenceau, the French wartime Premier, dismissively referred to war debts as a ‘tradesman’s account’ and he came out of retirement in 1926 to communicate this moral obligation to Coolidge in forceful terms: If nations were only business firms, bank notes would determined the fate of the world. You ask us to pay a debt incurred not in commerce, but in war, and you know as well as we do that our till is empty. Three mortal years we waited to hear America say ‘France is the frontier of freedom’. Three years of blood as well as money flowing out of our pores. Come see

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the endless lists of dead in our villages . . . Is the life force of lost youth not a bank note?12 To give substance to such arguments, throughout the 1920s and early 1930s British policy-makers regularly tabulated the costs and scale of the British war effort into a grim balance sheet of the 744,702 members of the British armed forces who perished, 23,500 civilians killed by enemy action, 1,693,262 wounded, 7,866,674 gross tonnage of shipping lost and the estimated total cost to the British Empire (excluding loans and advances) of £7,500 million – a figure around 38 times the rate of annual peace time expenditure in the years immediately preceding the war. As a result of those sacrifices, the British National Debt had risen from £650 million on 31 March 1914 to £7,435 million by March 1919. In contrast, America’s military losses of 115,660 (of whom only 53,000 were killed in battle) appeared embarrassingly meagre in comparison. In France, the total number of troops lost numbered 1,385,300 and in Italy it was 460,000. Proportionate to population, Britain suffered nearly 15 times more than America in terms of deaths and ten times as badly in terms of wounded.13 ‘To apply a commercial foot-rule to the measurement of our comparative sacrifices in human life would be . . . intolerable’, Lloyd George later noted. ‘Hardly less seemly was to treat as business liabilities the material assistance which one Ally had been forced to accept from another in the desperate ferocity of a struggle to avoid a defeat which would have brought disaster to Ally and Associate alike’.14 This tallying of the balance sheet of relative sacrifices was bolstered by powerful economic arguments. As the British never tired of repeating, these war debts were ‘radically different from the commercial loans raised by foreign Governments on the markets’ because they were neither productive nor self-liquidating in that they could never generate the means by which the borrower could repay the loan while becoming more prosperous. On the contrary, ‘like the shells on which they were largely spent these loans were blown to pieces’. Moreover, while the European Allies were destroying the accumulated wealth of the past, a neutral America was prospering greatly from these transactions. These loans not only transformed America into the world’s greatest creditor, but they were also used to purchase goods exclusively in the United States, with the result that American industry prospered and the nation’s wealth and gold stocks burgeoned dramatically. Against this background, British governments repeatedly highlighted the fact that while the total cost of the war was equivalent to 8.5 per cent of US national wealth, it represented some 34.5 per cent of the total national wealth of Great Britain. Or, to put it another way, aggregate British war expenditure as a proportion of National Income was three times greater than that of the United States. On this basis, it was claimed that ‘even the total cancellation of the war-debts due to her . . . would not bring her contribution up to anything approaching a comparable burden in money alone’.15


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The financial terms on which these debts were to be liquidated were a far more grievous source of bitterness. Britain and its allies had paid inflated prices for the food and munitions bought in the United States during the war. According to the American Bureau of Statistics, the average wholesale price index in the United States from April 1917 to November 1918 stood at 189. By 1933 the comparable figure was under 90 – or to put it another way, each dollar repaid by America’s debtors purchased more than twice what it had when the money was first advanced. Over the same period, Britain’s capacity to pay had also correspondingly declined. The depreciation of sterling after being forced off the gold standard in September 1931 meant that to repay these debts in dollars required £1 7 shillings (£1.35p) in 1933 to cover the value of one pound sterling at its 1917–1918 parity. Overall, therefore, not only had the debt doubled because of differences in price levels but the fall in the value of sterling multiplied that inflated sum by nearly half as much again. To add insult to injury, after Britain funded its debt it became the victim of a more onerous settlement than that offered to any other Allied debtor – and many inevitably regarded this as further evidence of an American desire to gain an important commercial advantage over its principal rival. The British debt remission (calculated on a 4.5 per cent basis) was equivalent to 18 per cent of the total. The French settlement remitted 50 per cent and the Italian debt was cut by 68 per cent – and to make matters even worse, Britain funded its debt earlier and its payments were far higher than its co-debtors from the outset. Finally, the British rightly and regularly protested that many of the payment problems stemmed from America’s commitment to high tariff protectionism which prevented debtors from earning the dollars needed to pay their war debts. The scheduled sum to be paid by Britain in 1923 was equivalent to six months of exports to the United States. By 1932 the annual instalment was worth four years of exports to America. As the President of the Board of Trade sharply reminded Norman Davis in March 1933, ‘if we are to pay in goods, tariffs must come down’.16 Yet although the British believed that they possessed a monopoly of virtue and morality on the debt question, such arguments also represented an equally convenient rationalisation for self-interest. After a devastating war in which Britain had been forced to squander its accumulated wealth, there was an acute awareness that these massive new debts would handicap Britain in its battle to retain its former ascendancy against the inexorable advance of America. As Lloyd George ruefully conceded at the Paris Peace Conference, ‘if we have to carry this sacrifice, and America has to carry no sacrifice, we may have fought for the greatness of America’. Little wonder that Norman Davis believed the British delegation appeared ‘panicky’ at Versailles or that successive British Cabinets feared that the payment of these war debts would ‘enable the American Government to reduce taxation and so place the American manufacturer in a favourable position as regards his British competitor’. Behind the ostensibly reasonable effort to transfer German reparations payments directly to the United States in settlement of war debts,


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and despite the high-minded language behind the Balfour Note of August 1922, therefore, both sides knew that these proposals actually involved Britain wiping out the largely bad debts of recalcitrant Bolsheviks, defeated Germans and impoverished European victors in a wartorn Old World in return for the United States wiping out good debts which it had every prospect of collecting.17 Unfortunately for all concerned, British appeals to fairness and enlightened self-interest fell on deaf ears in an increasingly isolationist America – particularly after 1931 when it became the victim of chronic economic crisis. But for all the American obduracy in attempting to uphold these financial obligations, in the end the reviled ‘Uncle Shylock’ did not get his money after all. Only ‘Brave little Finland’ paid its instalment of $228,538 in December 1934 and it eventually cleared its relatively modest debt of $21.7 million borrowed as a postwar reconstruction loan; a fidelity to the letter of the contract which earned them ‘a sentimental regard’ in the United States as ‘the one nation which paid up on the nail’.18 None of the other European governments many any further payment. Certainly for the British government, enough was enough. Having borrowed $4,277 million, Britain had repaid $2,025 million by 15 June 1934 but it still had an outstanding debt balance of $4,713,785,000. Of the total of $5,572,300,000 borrowed by other European governments, only $678,500,000 was ever repaid. Britain eventually covered 47 per cent of its total initial borrowing compared with 14 per cent from France, 6 per cent from Italy, and 13.7 per cent from Belgium. For the British population, this meant a burden of taxation amounting to nearly a quarter of National Income and in relation to national wealth it was twice as heavy as in the United States. Against this background, it is scarcely surprising that when Norman Davis made a last minute appeal to persuade the British to pay one final instalment of £14 million ‘to preserve goodwill and to keep the question open’ (even though they would technically remain defaulters), the Ambassador retorted sharply they would be only ‘throwing more money down the drain’. As Robert Craigie wearily concluded at the Foreign Office ‘the game is not worth the candle’.19 Despite the air of finality about the British repudiation in June 1934, the ‘American debt’ still had the capacity to generate intense emotions on both sides of the Atlantic. When US Undersecretary of State William Phillips complained to a senior British Embassy official two months after the default that ‘the present lack of contact, understanding and collaboration . . . was a tragedy in the present chaotic state of the world’, D’arcy Osborne retorted that British policy had always been one of cooperation but they had ‘found it a difficult path’ and ‘full of disillusion’ whenever they promoted joint endeavours. When this conversation was reported to an almost apoplectic Vansittart, he responded with an angry recitation of all the British concessions granted to America since the war in the unfulfilled hope of adequate reciprocation. ‘In ageing I have lost my wind for running after the


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U.S. Government’, he confided to Lindsay, ‘it is a futile paper-chase. But if the U.S. Government showed any signs of coming towards us I would still be quick enough on my legs to meet them more than half way’.20 American sensitivity about the subject was equally intense during the late 1930s. When Robert Hudson, the Minister of Pensions, declared in June 1936 that Anglo-American relations were ‘better because Englishmen had made up their minds that we were never going to pay the debt, nor going to be asked to pay it’, Tom Lamont heard this with regret and retorted that ‘the subject may not be dead in the States though quiescent’. Similarly, at a dinner party at Cliveden in April 1937, even the very mention of the subject kept the distinguished array of visitors to Lady Astor’s table busy until midnight and Norman Davis was ‘thoroughly roused from this yawning platitudes by Brand’s opposition to paying a single cent’.21 On the other side of the Atlantic, sensitivity over the European default remained a constant irritation just beneath the surface but always ready to flare up at the least opportune moment until America entered the war in December 1941.22 The overwhelming public hostility to debt revision which had exerted such a paralysing effect upon the executive and legislative branches of the US government during the years of prosperity before 1929 became even more oppressive when boom turned to catastrophic slump during the 1930s. As Sir Ronald Lindsay noted in a review of the recent history of the debt controversy in December 1934: Such has been the recalcitrance of Congress that neither President has thought it worth while, or has had the courage, to talk common sense to it in public; while Senators and Representatives have been just as much afraid of their more ignorant voters as presidents have been of Congress, and have preferred to forgo all receipts . . . rather than face such odium as might be incurred by voting for a compromise. The deadlock is complete and seems likely to last a long time. Yet as Lindsay also reported, friendly Americans never tired of propounding schemes for a settlement without adequately considering the financial and political obstacles. ‘I am afraid that delay will not rid us finally of this tiresome question’, Craigie noted after reading this despatch, ‘but delay will reduce it to more manageable proportions’.23 In the first of these verdicts the newly promoted Assistant Permanent Undersecretary for Foreign Affairs was absolutely correct. In the second judgement, however, he was far from accurate. With accumulated interest, by June 1939 the British debt had grown to a staggering $5,466 million and without an American willingness to make concessions of an almost unimaginable scale all agreed that repayment was now ‘completely unmanageable’.24 While the British government decided simply to ‘let sleeping dogs lie’ after June 1934, the Roosevelt administration never abandoned hope of salvaging something from the wreckage of the debt settlements. In August


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1934, Raymond Moley made unofficial overtures about a possible settlement, claiming that ‘people like Hull, Philips [sic] . . . and the President himself . . . want to get the debt issue out of the way once and for all to clear the way for cooperation on other issues’.25 In the same month, at Roosevelt’s request, Undersecretary Phillips began a trawl through the State Department’s files to collate various ‘war debt solutions’, including the possibility of a readjustment of annuities, reduction or elimination of interest, lump sum settlements, deliveries in kind or in the form of commercial credits and marketable bonds. In each case, however, he concluded there were significant objections or obstacles to their adoption. Others proposed legal action before the Permanent Court of International Justice against one or more major debtor to collect the money, while there were regular demands to trade a debt settlement for disarmament.26 Throughout the next year, various novel, ingenious and often bizarre schemes flooded in to the State Department and the White House, while Congress carefully debated a variety of discriminating proposals of its own, including the possibility of subjecting defaulting nations to increased tolls on the Panama Canal, triple duties on their products and their exclusion from future trade agreements. Not wishing to be outdone, the Washington State legislature debated a bill to prevent any company from a defaulting nation from doing business in the State.27 One more serious suggestion mentioned in the American Note in June 1934 was for Britain and the other defaulters to clear their debts with payments in kind. This proposal stemmed from a new interest at the State Department in the possibility of receiving supplies of manganese, tin, nickel, tungsten and other strategic materials not produced in America for use only in time of war. Although a secret analysis of the idea in March 1934 concluded that it would ‘not make much of a dent in the British debt . . . unless the figure is greatly reduced’, its potentiality was explored thoroughly by a new interdepartmental Minerals Policy Committee during the second half of 1934.28 When Cordell Hull raised the proposal secretly with Lindsay in June 1935, he attempted to render it more palatable with the claim that ‘some little payment in kind . . . would be a revival of and in harmony with the spirit behind the token payments which the British Government had been cheerfully making until the . . . Johnson Act’. In response, London rejected the idea as politically, electorally and economically impracticable – particularly as they suspected they were being ‘invited once again to delude ourselves with false hopes; to pay our debts and forgive our debtors; and to buy, at the price of real sacrifices, certain imponderabilia, plus what we wrongly call the Dead Sea fruit of American friendship’.29 Another idea very popular in the United States was to exchange debt remission for parts of the British Empire. Suggestions of this sort had been in the air since 1919 and in the immediate aftermath of the Hoover moratorium the usual proposals were received at the White House calling for the debts to be traded for ownership of British Nova Scotia, Newfoundland and other European possessions in the Caribbean. Many such proposals continued to be


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considered with due gravity in Congress and the State Department during the remainder of the decade.30 How seriously the British took such ideas is difficult to assess, but a Treasury memorandum on possible assets to be exchanged for debts in 1933 noted that ‘perhaps we could offer them Somaliland or the Mandate for Palestine or British Honduras. I have always assumed the latter was a liability to us, but it is near the Panama Canal’. Alongside this paragraph another official had added wryly, ‘or the Irish Free State or Newfoundland’.31 Rather less plausible was the proposal of one New York optimist in October 1936 that Canada should hold a referendum to decide on annexation by the United States as part-payment for the debt. Almost equally bizarre was the State Department’s own investigation in 1938–1939 into plans for London to cede British Guiana to America as a home for German Jews fleeing Nazi persecution.32 Not all of these proposals for settlement came from the United States, although few were as ingenious as that of Cecil Perkins from London who claimed he was sufficiently embarrassed by British default that he sent a cheque for £1 to the President to cover his share of the debt.33 While the US Treasury politely declined to accept private arrangements of this sort, even official overtures from European capitals aroused considerable suspicion in Washington. In June 1936 an Italian hint that they wished to resume discussions on a possible settlement came to nothing because the Americans suspected their motive was a desire to ‘get the jump on England and France’ with a ‘great diplomatic move’. By December 1936, however, a variety of well-informed unofficial sources suggested that the Italian Finance Ministry was not only prepared to open negotiations but was also ready to make some form of token payment.34 In parallel with these Italian manoeuvres, France also conveyed the impression that it wanted to resume negotiations. In October 1936, Bullitt (now US Ambassador in Paris) reported that a Belgian industrialist with close ties to Chamberlain and Paul Van Zeeland, the Belgian Prime Minister, had been despatched to America ‘to feel out the question of war debts’. Convinced that France and Italy were ‘exceedingly anxious’ to borrow money in New York and needed a settlement to release them from the Johnson Act’s prohibition on lending, the Americans concluded ‘we should not accept anything less than a thoroughly reasonable offer’, – particularly given Bullitt’s suspicion that with war on the horizon any money lent would never be repaid once hostilities broke out again. A month later the irascible Bullitt reported in equally hostile terms about French overtures communicated by Emmanuel Monick, their Finance Attaché in Washington, calling for a debt settlement as a prelude to ‘some vast scheme for economic and financial collaboration of the United States with England and France, designed to get us into close political collaboration as well’.35 These developments aroused considerable apprehension in American circles. When Bullitt met Blum alone on 1 December he warned him against basing his foreign policy ‘on any exaggerated expectation of the effect on . . .


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the United States if France made debt payments’. As a result, when Blum proposed sending a note on 15 December offering to discuss French indebtedness on ‘war stocks’, it met a predictably cool response from the US Ambassador who pointed out that ‘this particular “egg” could not be “unscrambled” from the Mellon-Bérenger Agreement’ and that unless France was prepared to make an acceptable offer to Congress they should avoid ‘stirring up polemics on both sides of the Atlantic on the debt question’.36 Treasury Secretary Morgenthau was even more alarmed by the thought of joint European representations on debts and feared that Bullitt’s antics might place them in an untenable position. When he took the matter up with the President on 18 December, however, he was reassured when Roosevelt declared there was ‘absolutely nothing doing on foreign debts’ because their ‘policy for the last 3 yrs [was] for us to sit tight and let our debtors come to us and make proposals’.37 Renewed interest in a debt settlement in Rome and Paris inevitably raised questions about British policy. By the autumn of 1936 there were certainly some prominent figures like Lord Lothian who had taken up an unofficial crusade for a debt settlement on the grounds that nothing would be more likely to deter a potential aggressor than American support for British rearmament.38 As a result, by the end of the year, the US Ambassador in London reported that ‘in official and unofficial circles there is an everincreasing desire to cultivate better relations with the United States and they are becoming more and more anxious about the debt situation’; a change in attitude largely attributed to a desire to regain access to American credit in an increasingly menacing international situation. To ease relations, an ‘American Committee’ was formed in the House of Commons to promote cooperation and at its first dinner in honour of the US Ambassador on 16 December he declared that America had not forgotten war debts even if the British had, and that as France was about to despatch a special envoy to discuss the resumption of payments it would create a bad impression if Britain did not follow this example. The Ambassador was even more encouraged by the apparent enthusiasm in London for an Anglo-American trade agreement and the removal of the head of the British rubber control body after American protests at his obstructive and hostile attitude to the United States.39 Yet in reality, official opinion in Whitehall was divided on an appropriate response to the rumoured Franco-Italian demarche in Washington. At the Foreign Office, Craigie and Vansittart thought Britain should seize the initiative and open negotiations before either France or Italy. If Roosevelt could be persuaded to compromise on a figure of $30 million a year, they argued, ‘£6 million a year is a drop in the ocean . . . for the final liquidation of a problem which looms extraordinarily large in the mind of the average American and will, while it exists present a bar to really cordial relations’. On the other hand, however, the Treasury and Chancellor still adhered doggedly to its established ‘wait and see’ position. As war debts were ‘the only actively


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sore place in Anglo-American relations’, Lindsay also lamented the revival of interest in the subject created by French overtures, particularly as he believed that ‘nobody who thinks expects any settlement is within the range of possibilities’.40 This verdict was soon confirmed when Runciman visited Roosevelt in January 1937. In response to his brief allusion to war debts, the President made it clear that he had no wish to see the matter reopened because it was ‘not practical politics’.41 Although some at the Foreign Office persisted with a contrary view, Chamberlain’s succession to the Premiership in May 1937 ensured that it received little support in Cabinet. Despite reliable reports that the President was now eager for a ‘reasonable settlement’ of British debts before he left office in 1940, such hopes came to nothing because the new Prime Minister doubted their realism given the strength of American isolationism and Roosevelt’s reluctance to give practical substance to encouraging words.42 Similarly, after a ‘very friendly’ three-day visit from Cordell Hull in October 1937, Lord Tweedsmuir, the Governor General in Canada, assured Chamberlain ‘that American isolationism has had a nasty jog from the war between China and Japan’. As Hull’s conversations suggested that even on the debt question Britain and America had ‘never been closer on our general attitude to things’, Tweedsmuir proposed the resumption of token payments and an immediate debt settlement opening the way for the two peoples to be ‘aligned in international policy for generations, and civilization would be underpinned’.43 This enthusiastic missive posed a difficult dilemma for Downing Street given the desire to convey the impression ‘that it isn’t as easy as all that’ while still exploiting Tweedsmuir’s connections with Hull and Roosevelt to reiterate the British case for concessions. In reply, Chamberlain and Sir John Simon (his successor as Chancellor) reiterated their desire for ‘a closer understanding and a more complete community of purpose between our two nations’, while simultaneously highlighting the obstacles to any resumption of annual debt payments as a means of justifying their conclusion that ‘a policy of silence is best for the present’.44 Despite this diplomatic cold water, Tweedsmuir continued to reassure the American Minister to Canada that his own proposals were being given ‘serious attention’ by the Chamberlain government.45 In similar vein, Lindsay told Hull and Assistant Secretary of State Sumner Welles in February 1938 that he had been ‘rather struck’ on his last visit to London by ‘the change in attitude demonstrated in high official circles . . . with regard to the debt question’. In contrast with the past ‘utter unwillingness’ to even consider further talks, Lindsay confided that ‘from Chamberlain down, he had found a very active interest in the matter and an apparent desire to undertake negotiations’.46 In reality, such advice was misleading. As Chamberlain told the Commons in July 1938, a debt settlement required the cooperation of both parties.47 In this context, the policy remained unchanged. ‘ “Let sleeping dogs lie” appears to be the only policy at present’, a Foreign Office official had noted some time earlier. ‘It is only to be hoped that with the passage of time


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America may be compelled to realise the impracticability of the present debt agreement and may herself come forward with practical proposals’.48 In the event, the rapid deterioration of the international situation during the late 1930s forced a radical reappraisal of this attitude towards the debt question and the Johnson Act. During the spring of 1934 Foreign Office and Treasury officials had been sanguine, and even vaguely contemptuous, about the legislation as it made its way through Congress. Craigie thus dismissed its practical financial effects upon Britain with the sneering observation that ‘we are not likely to want to borrow again in the U.S. – we should presumably prefer to sell our own shirt off our own back first’. But even at the time Lindsay and other senior officials at the Foreign Office warned prophetically that ‘it would be a very formidable nuisance if we ever had the misfortune to be again at war’. And within a few months the realisation began to dawn in Whitehall that they really would need American loans to rearm against a tripartite challenge to a globally over-stretched Empire. As such, the Johnson Act represented a significant threat to Britain’s national security. ‘We only just scraped through the last war with Germany with every assistance we could get from the USA’, Vansittart minuted in January 1936, ‘the deduction is plain . . . In any crisis of life and death . . . this might mean our “death” ’.49 With these thoughts in mind, Warren Fisher proposed to the Chancellor in July 1937 that a ‘final settlement in about 18 months from now of, say, £150 million (transferred in gold) might well have an incalculable value in its influence on Middle West opinion as against a future when we were in a European mess’; a proposal he repeated equally unsuccessfully in May 1939.50 Nevertheless, it was indicative of the state of European anxiety about the Johnson Act that in February 1939 Paul Reynard, the French Finance Minister, had approached Ambassador Bullitt with an offer to resume their payments along with some territorial transfer to enable France to borrow in America to fund their own rearmament programme. Again, however, Roosevelt cautiously rejected the proposal on the grounds that the moment was ‘inopportune’.51 During the spring of 1939, however, American feelings of insecurity when faced with the prospect of an imminent war did revive the interest of Washington in the possibility of securing territorial concessions in the Caribbean and Central America to safeguard the Panama Canal.52 In response, the Foreign Office was prepared to consider the idea, while the Admiralty was clearly willing to transfer certain West Indian possessions of no strategical importance to the United States in exchange for complete cancellation. When the Colonial Office (supported by the Prime Minister) adopted ‘a completely uncompromising attitude’, however, the scheme was allowed to lapse.53 Although the failure to expunge the British default had soured AngloAmerican relations in the late 1930s, it became a far more pressing problem once war was declared on 3 September 1939 – and the balance of advantage now resided very definitely with the United States. This was demonstrated


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almost immediately when Treasury Secretary Morgenthau informed the British and French Ambassadors on the day after war was declared that they ‘might care to dispose [of the] “Queen Mary” and “Normandie” to [the] United States in return for a credit on war debts’; a remarkable example of self-interested debt recovery made all the more astonishing by his very definite rejection of any hope that compliance would result in credits to cover future war purchases in the United States. Although the suggestion was officially withdrawn before it was rejected, it highlighted the threat posed by the Johnson Act. Moreover, although the American neutrality legislation was amended in November 1939 to permit the Allies to purchase war materials from America provided they paid hard cash, the Treasury soon concluded that it had insufficient dollar reserves to sustain this ‘cash and carry’ trade for anything like the two years it had initially predicted. This depressing revelation prompted Lothian, now British Ambassador to Washington, to predict that the financial crisis would reopen the debate about the Johnson Act which ‘raises many fierce memories, war debts, the futile adventure in Europe of 1917–18, the isolationist war cry “First arms, then your money, then your boys” ’. Although the Ambassador predicted a ferocious battle to repeal the Act, he expected eventual success because ‘if money can help Britain and France to repel Hitlerism and the want of money will bring about their defeat and the destruction of the bulwark they now interpose between Hitler and the United States, the money will be found’.54 Nevertheless, under renewed pressure to open discussions on a war debt settlement from those seeking to float British loans on the American market,55 in July 1940, Sir Frederick Phillips, a senior Treasury official, was dispatched to Washington to explain that by mid-1941 Britain would require ‘massive assistance’ with American credit. In reply, Roosevelt offered soothing words but ‘said nothing which could be regarded as a commitment’.56 Despite Lothian’s earlier optimism and Britain’s parlous financial state, at this juncture the Americans demanded a high price for such aid – not least because Roosevelt still clung tenaciously to the illusion of continued British wealth, despite contrary evidence from the Commerce Department and the Federal Reserve Bank. In the wake of the French capitulation to Germany in June 1940, a friend of Roosevelt’s even proposed that the Royal Navy should be handed over to the United States as payment for its war debts if Britain also surrendered!57 In the event, with Britain’s gold and dollar reserves almost exhausted, Churchill’s letter to Roosevelt on 8 December 1940 proved decisive when it starkly set out the desperate facts of the British financial position and appealed for assistance with the reminder that American security depended on the continued survival of the British Empire. Roosevelt did not answer the request directly, but at a press conference on 17 December the President drew an analogy between Britain’s struggle against Germany and a neighbour fighting a fire. It was clearly in the householder’s interest to lend his neighbour the garden hose and worry about repayment later. The result was the Lend-Lease Act which permitted the President to transfer whatever


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he wished to any nation so long as it contributed to American defence. At a stroke, Roosevelt had effectively created a new mechanism capable of avoiding the disastrous repetition of the network of inter-governmental indebtedness which had bedevilled international relations since 1917.58 Yet the contrast should not be carried too far. Although Lend-Lease effectively circumvented the problem of future war debts, arguably the underlying objective of this supposedly ‘most unsordid act’ was actually to bring about the collapse of Britain’s external economic policy; plans which began with efforts to dismantle Britain’s imperial preference system and prevent British exporters entering new markets or to extend their trade at the expense of American competitors, and which culminated in 1945–1946 with the negotiation of the American loan and the conditions attached to it. As Kathleen Burk concludes, it was ‘in no way intended to give Britain and other recipients something for nothing, Lend-Lease aid was always to be paid for in some sort of coin’.59 Similarly, it needs to be remembered that despite the launch of a massive aid programme under Lend-Lease terms, the US Treasury continued routinely to issue its twice-yearly notices requesting payment from debtor governments until June 1941, when Hull finally declared the practice to be ‘undesirable’ at a time when these governments were fighting for their lives – although even then Roosevelt thought of sending a note to the representatives of France, Italy, Hungary and Romania explaining that this did not constitute a waiver of the obligation.60 Even more remarkable is that when Treasury Secretary Morgenthau sent the President a draft bill to cancel the indebtedness of Britain and Russia arising out of the First World War in December 1941, Roosevelt still confessed to the Secretary of State that he was ‘very much in two minds on it’.61 It was a fitting epitaph to his ambivalent and pusillanimous attitude since coming to office and to the repeatedly shattered hopes of his Old World debtors that he might actually be prepared to do something constructive. Whatever Roosevelt’s doubts about cancellation, by December 1941 there was little doubt that the structure of inter-governmental indebtedness erected during and after the First World War had already collapsed and would never be reconstructed. While it remained intact, however, it had exerted a profoundly damaging effect upon the international economy by distorting world price levels and capital flows. According to Moulton and Pasvolsky’s authoritative study of the question, which had so impressed Stimson in December 1932, American insistence on the collection of war debts was a major factor in the problems leading to the Great Depression and an equally substantial deterrent to America’s recovery from that slump in an economically interdependent world. Contrary to the belief that cancellation would only make matters worse by transferring the entire burden on to the shoulders of the US taxpayer, therefore, it would actually have been beneficial to creditor nations as well as their debtors; a compelling argument when estimates suggested that during 1931 alone American National Income fell by three times the total capital value of all its war debts and nearly 80 times

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62

211

as much as the total value of one year’s annuities. Yet while the wisdom of economic hindsight suggests that the United States should have liquidated these war debts at the outset and taken its reward in world recovery, the even more compelling political reality was that the state of American public and congressional opinion prevented this ever becoming a practical option. In political and diplomatic terms, the legacy left by the war debt controversy poisoned Anglo-American relations throughout the interwar period and scarred the consciousness of all those involved. At a general level, the battle over debts played a major role in fuelling the conflicting passions behind what Frank Costigliola calls ‘Europe’s love-hate relationship with America’ during this period.63 In the British context, this conflict also inflicted substantial damage upon the always ambivalent spirit of ‘competitive cooperation’ which lay at the heart of the Anglo-American nexus. For American leaders after the Great War, experience suggested that Britain was immoral, untrustworthy, cynically adept at manipulating the diplomatic process to protect its own interests and invariably it ended up with the lion’s share of the spoils. Above all, any American sympathy for the unfavourable outcome of its 1923 debt settlement was eclipsed by its threat to ‘welch’ on a legitimate debt and its efforts to construct a ‘united front’ of European debtors to help it to do so. The result was a reaffirmation of the historic desire to avoid the sort of ‘entangling alliances’ which many believed had sucked the United States into the First World War against the wishes of its people and its interests; a suspicion which manifested itself in Senator Gerald P. Nye’s Senate committee examined the role of the so-called ‘merchants of death’ in leading America into war and the passage of the first Neutrality Act in August 1935 prohibiting the export of arms to any belligerent in time of war. Throughout this process, bitter memories of Old World default served to fuel public enthusiasm for America’s disengagement from the tribulations of Europe. Yet feelings of disappointment and betrayal were not only confined to the New World in the aftermath of Britain’s default. On the contrary, the final crisis of war debts disturbed the sentimental Anglo-Saxonism of even a deeply committed Atlanticist like Ramsay MacDonald. ‘What a pity that our more recent experiences of the United States has been so disappointing’, MacDonald recorded in October 1934, ‘they can think of nothing but themselves & are very bad cooperators. The essence of friendship is not in them’. Six weeks later he again complained about ‘American shortsighted diplomacy. They are but beginners & in the capacity of handling equals & of working with anyone else who is not an echo, & they have no idea of how to play in a team . . . They are the most difficult people in the world to deal with as colleagues because they have not yet learned the difference between colleague and boss’. Above all, the lack of trust in Roosevelt’s willingness to translate high-flown language into anything of tangible value blighted all prospects for Anglo-American cooperation in the Far East against the Japanese threat throughout the rest of the decade. After one clash,


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MacDonald thus asked Norman Davis with heartfelt irritation ‘whether he would think we were anything but incompetents if we went into a dangerous situation in the Pacific knowing that the Americans would be likely to leave us to do the fighting & nearly added, and the paying’.64 Stanley Baldwin succeeded MacDonald as Prime Minister in June 1935 and he shared the prevailing view. As the architect of the British funding agreement in 1923 he had been involved in the controversy throughout and shortly before his retirement he emphatically told the US Ambassador that he had ‘never regretted’ reaching the settlement. Yet this did nothing to ameliorate his bitterness about the rapacity and hypocrisy of the United States government and the craven timidity of its leaders. ‘You will get nothing from America but words’, he declared in 1932, ‘big words, but only words’.65 Such was his vexation with the protracted struggle over debts, that he refused to dine with Roosevelt’s son in October 1933 telling Neville Chamberlain that ‘he has got to loathe the Americans so much that he hates meeting them’.66 Baldwin’s reactions were typical of an entire generation within a British policy elite which displayed an astonishing degree of continuity throughout the interwar period. Sir Maurice Hankey served as Cabinet Secretary from 1916 until 1938 and he harboured a deep animosity towards the United States, particularly over their naval pretensions. Sir Warren Fisher was Permanent Secretary at the Treasury from 1919 until 1938 and it was widely known that he ‘hates the Americans’.67 Vansittart, Fisher’s counterpart at the Foreign Office, had also been shorn of much of his past enthusiasm for cordial relations. As he confessed in 1934, ‘we have been too tender, not to say subservient, with the United States for a long time past. It is we who have made all the advances, and received nothing in return. It is still necessary, and I desire as much as ever, that we should get on with this untrustworthy race. But we shall never get very far; they will always let us down’.68 Of all those involved in the battle over war debts, it left by far the most indelible and significant mark upon the political consciousness of Neville Chamberlain. In reality, he had never nurtured much respect for what he regarded as the self-righteous cant and selfish myopia behind American foreign and commercial policy.69 After the repeated disappointment and frustrations of 1932–1934, however, his loathing and contempt knew few bounds and this proved a major factor in shaping his instinctive response towards Roosevelt and the United States throughout his Premiership – often with good reason. As a calculating pragmatist, such feelings did not prevent his desire for the ‘closest and most friendly contact’ with Morgenthau and the US Treasury over exchange rate stabilisation after the Belgian devaluation in 1935 or the French devaluation 18 months later.70 Nor did distaste for American policy blind him to the need to enter into negotiations for an Anglo-American Trade Agreement at the end of 1936. Chamberlain recognised that Cordell Hull was determined to dismantle the Ottawa system of imperial preference as the epitome of everything he most detested as a


Epilogue

213

crusader for trade liberalisation. Yet for a British government confronting the nightmare scenario of war on three fronts without the resources to defend an over-stretched global empire, Chamberlain also understood that the appearance of Anglo-American cooperation represented a valuable potential deterrent to the dictators and a useful means ‘to educate American opinion to act more & more with us’.71 Yet a pragmatic acceptance of the need to cultivate the United States in a dangerous international situation did nothing to dilute the vitriol Chamberlain reserved for that country and what he perceived to be its accursedly weak leadership, craven legislators and ignorant electorate. MacDonald was absolutely correct when he noted that Chamberlain ‘liked to sneer at R[oosevelt] & Washington’ and Sir Alexander Cadogan (Vansittart’s successor at the head of the Foreign Office) was equally fair in the verdict that Chamberlain ‘had an almost instinctive contempt for the Americans’.72 Yet everything that had happened over war debts and the World Economic Conference convinced him that ‘the real trouble with Yanks . . . is that they never can deliver the goods’. With regard to the Far East, this almost visceral contempt for pious American declarations of goodwill when unsupported by any practical action led him to champion an accommodation with Japan at the direct expense of relations with the United States throughout 1934. ‘We ought to know by this time that U.S.A. will give us no undertaking to resist by force any action by Japan short of an attack on Hawaii or Honolulu’, he declared angrily in July 1934. ‘She will give us plenty of assurances of goodwill especially if we will promise to do all the fighting but the moment she is asked to contribute something she invariably takes refuge behind Congress’.73 Such prejudices played a crucial role in shaping Chamberlain’s management of foreign affairs when he became Prime Minister in May 1937.74 The US Ambassador in Paris was thus fully justified in his anxieties when he reported to Roosevelt that he was ‘somewhat disturbed about the manner in which Anglo-American relations might develop under Chamberlain as Prime Minister “since if it could be said that any Englishman was anti-American, Chamberlain was that anti-American Englishman” ’.75 After the failure of his repeated efforts to persuade the United States to cooperate in joint or parallel action against Japanese aggression, in December 1937 Chamberlain complained ‘It is always best & safest to count on nothing from the Americans except words’. Convinced that ‘the Americans have a long way to go yet before they become helpful partners in world affairs’, Roosevelt’s famous ‘quarantine’ speech on 5 October 1937 provoked a similarly acid retort to the effect that ‘after a lot of ballyhoo the Americans will somehow fade out & leave us to carry all the blame & the odium’. The same prejudice guided his response to Roosevelt’s international peace plan in January 1938 and all other American diplomatic initiatives. Even after the war had broken out, Chamberlain’s recognition of the need for American support did not prevent him from declaring, ‘Heaven knows I don’t want the Americans to fight for us – we should have to pay too dearly for that’.76


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Against this background, it can be argued that the war debt controversy cast an extremely long shadow over Anglo-American economic and diplomatic relations between 1919 and 10 May 1940 when Hitler launched his long-awaited attack in the West and Churchill replaced Chamberlain as Prime Minister; a transition which brought to an abrupt end to the ‘cool and distant’ transatlantic relationship which had characterised the Phoney War. Five days later, Churchill issued his first appeal for American aid along with a plea for a shift in its position from strict neutrality to one of ‘nonbelligerency’ in support of Britain and France.77 Only then was the war debt issue effectively laid to rest as a new and highly personal ‘special relationship’ emerged between Churchill and Roosevelt. What made this development all the more notable was that for the preceding two decades there had been very little that could be described as ‘special’ about this relationship. On the contrary, despite an occasional resort to sentimental language about ‘hands across the ocean’, the underlying leitmotiv of the entire debt controversy on both sides of the Atlantic had been one of political expediency, naked national self-interest and the unrelenting pursuit of competitive advantage.


Appendices

Appendix I: net inter-Allied indebtedness to Britain and France by April 1917 (in million dollars converted at par) Debtors

To Britain

To France

Total

Belgium France Greece Italy Portugal Romania Russia Serbia (Yugoslavia)

243 555 7 673 10 61 1,657 59

48 – 4 – – – 427 36

291 555 11 673 10 61 2,084 95

Total

3,265

515

3,780

Source: The Economist, ‘War Debts’ supplement, 12 November 1932, p.2; British Treasury, ‘Great Britain and the War Debt’, (revised November 1931), T172/1505; Moulton and Pasvolsky, War Debts and World Prosperity, p.425.

216

Appendices


Appendix II: net inter-Allied indebtedness to Britain and France at the Armistice (in millions of dollars converted at par) European debtors

To Britain

To France

Total

Belgium France Greece Italy Portugal Romania Russia Yugoslavia (Serbia)

422 1,683 90 1,855 61 78 2,472 92

535 – 155 75 – 220 955 297

957 1,683 245 1,930 61 298 3,427 389

European total

6,753

2,237

8,990

Australia New Zealand South Africa Newfoundland

447 144 81 2

– – – –

447 144 81 2

Dominion total

674

–

674

7,427

2,237

9,664

Dominion debtors

Grand total

Source: The Economist, ‘War Debts’ supplement, 12 November 1932, p.2; Moulton and Pasvolsky, War Debts and World Prosperity, p.426.

7,067

2,521

62

– – 62 – – – – – –

2,458

177 1,027 581 15 617 25 – 16

Post-Armistice loans

740

260

12 24 30 14 8 2 5 5 160

480

30 407 – – – 13 5 25

Sale of war supplies and relief loans

10,142

297

12 24 91 14 8 2 5 5 136

9,845

378 3,358 4,166 15 1,648 36 193 51

Net principal owed February 1922

692

27

1 1 11 2 1 – – – 11

665

29 197 261 ⫺1 145 4 25 5

Net interest accrued by February 1922

10,836

324

13 25 102 16 9 2 5 5 147

10,512

406 3,556 4,428 141 1,793 41 218 56

Total net indebtedness by February 1922

Source: US Treasury Department, ‘Memorandum covering the indebtedness of Foreign Governments to the United States’, revised 15 November 1933, Hoover MSS 1012 and T188/75 pp.15–16; The Economist, ‘War Debts’ supplement, 12 November 1932, p.2; FRUS 1922, I, p.398. Note 1 Excludes $12,167,000 advanced on 10 May 1929 at the time of the Greek debt funding agreement.

Grand total

–

Total ‘others’

7,076

Total Allies

– – – – – – – – –

172 1,970 3,696 – 1,031 – 188 11

The Allies Belgium France Great Britain Greece Italy Romania Russia Yugoslavia

‘Others’ Armenia Austria Czechoslovakia Estonia Finland Hungary Latvia Lithuania Poland

Pre-Armistice loans

Debtor government

Appendix III: European war debts to the United States by February 1922 (in millions of dollars converted at par)


8 May 1930 18 August 1925 13 October 1925 28 October 1925 1 May 1923 29 April 1926 18 June 1923 10 May 1929 25 April 1924 14 November 1925 24 September 1925 22 September 1924 14 November 1924 4 December 1925 3 May 1926

Austria Belgium Czechoslovakia Estonia Finland France Great Britain Greece Hungary Italy Latvia Lithuania Poland Romania Yugoslavia

1 January 1928 15 June 1925 15 June 1925 15 December 1922 15 December 1922 15 June 1925 15 December 1922 1 January 1928 15 December 1933 15 June 1925 15 December 1922 15 June 1924 15 December 1922 15 June 1925 15 June 1925

Date as of which debt was funded

22,259.2

24.6 727.8 312.8 37.7 21.7 6,847.7 11,106.0 38.1 4.8 2,407.7 15.8 15.1 481.7 122.5 95.2

Total annuities payable ($ million)

60

40 54 80 82 82 50 82 34 82 32 32 82 32 89 79

Percentage of total debt

2.135

– 1.790 3.327 3.306 3.306 1.640 3.306 0.250 3.306 0.405 3.306 3.306 3.306 3.321 1.030

Average rate of interest on debt as funded

Source: US Treasury Department, ‘Memorandum covering the indebtedness of Foreign Governments to the United States’, November 1933, pp.24, 29; Moulton and Pasvolsky, War Debts and World Prosperity, pp.91, 101.

Total

Date of agreement

Debtor

Appendix IV: War debt funding agreements with the United States


Appendices 219


Appendix V: War debt funding agreements with Great Britain Debtor

Date of agreement

France Italy Greece Romania Portugal Yugoslavia

12 July 1926 27 January 1926 9 April 1927 19 October 1925 31 December 1926 9 August 1927

Total

Total annuity payable (£ million)

Percentage of total debt

799.5 248.0 23.5 31.2 24.0 32.8

42.6 15.5 37.9 43.4 39.0 37.9

1,159.0

37.2

Source: The Economist, ‘War Debts’ supplement, 12 November 1932, p.2; ‘Great Britain and the War Debt’, p.17, T172/1505.


Notes and references

The following abbreviations have been used in references to sources: AC Austen Chamberlain MSS, Birmingham University Library CAB Cabinet Conclusions, CAB 23 Series, The National Archive, Kew CP Cabinet Paper, CAB 24 Series, The National Archive, Kew DBFP 2 Documents on British Foreign Policy, 2nd Series, 1919–1938, 21 vols (ed.), R. Butler, W.N. Medlicott et al. (London: HMSO, 1946–1985) FO Foreign Office: Great Britain, The National Archive, Kew FRUS Papers Relating to the Foreign Relations of the United States, (Washington, DC: US State Department, 1934–1957) H.C. Debs, 5s House of Commons Debates, Fifth Series NC Neville Chamberlain MSS, Birmingham University Library OF Official Files, Roosevelt MSS, Hyde Park, New York PPF President’s Personal File, Roosevelt MSS, Hyde Park, New York PREM Premier: Files of the British Prime Minister, The National Archive, Kew PSF President’s Secretary’s File, Roosevelt MSS, Hyde Park, New York SB Stanley Baldwin MSS, Cambridge University Library T Treasury files: Great Britain, The National Archive, Kew 1 Britain, America and the ambivalence of the ‘special relationship’ 1 David Reynolds, In Command of History: Churchill’s Fighting and Writing of the Second World War, (London: Allen Lane, 2004), pp.43, 149; John Ramsden, Man of the Century: Winston Churchill and his Legend since 1945, (London: Harper Collins, 2002). 2 John Dumbrell, A Special Relationship: Anglo-American Relations in the Cold War and After, (London: Palgrave Macmillan, 2001), p.4. 3 H.C. Allen, The Anglo-American Relationship Since 1783, (London: A& C Black, 1959), p.26; H.G. Nicholas, The United States and Great Britain, (Chicago: University of Chicago Press, 1975), p.1; David Reynolds, The Creation of the Anglo-American Alliance, 1937–1941: A Study in Competitive Cooperation, (London: Europa, 1981), p.292. 4 MacDonald to Stimson, 8 January 1932 and reply, 27 January 1932, MacDonald MSS PRO30/69/678/4/671, 683. 5 MacDonald Diary, 11 October 1932, PRO30/69/1753/1, fol.424. 6 Robert M. Hathaway, Ambiguous Partnership: Britain and America, 1944–1947, (New York: Columbia University Press, 1981); Christopher Thorne, Allies of a Kind: The United States, Great Britain and the War Against Japan, 1941–1945,

Notes (pp. 2–8) 221

7


8

9 10 11 12 13

14 15

16 17 18 19

20 21 22 23 24 25 26

(Oxford: Oxford University Press, 1978); Warren F. Kimbell (ed.), Churchill and Roosevelt: The Complete Correspondence, (3 volumes, Princeton: Princeton University Press, 1984). Roberta Allbert Dayer, ‘Anglo-American Monetary Policy and Rivalry in Europe and the Far East, 1919–1931’, in B.J.C. McKercher (ed.), Anglo-American Relations in the 1920s: The Struggle for Supremacy, (London: Macmillan, 1991), p.179. See also D.C. Watt, Succeeding John Bull: America in Britain’s Place, 1900–1975, (Cambridge: Cambridge University Press, 1984). David Watt, ‘Introduction: the Anglo-American Relationship’, in Wm. Roger Louis and Hedley Bull (eds), The ‘Special Relationship’: Anglo-American Relations since 1945, (Oxford: Clarendon Press, 1989), pp.4–5; Dumbrell, A Special Relationship, pp.8–15. John Dickie, ‘Special’ No More, Anglo-American Relations: Rhetoric and Reality, (London: Weidenfeld and Nicolson, 1994), p.ix. Dumbrell, A Special Relationship, p.89; Dickie, ‘Special’ No More, pp.174–5. The Times and Guardian, 19 February 2003 and 15 November 2004. Correlli Barnett, The Collapse of British Power, (Gloucester: Alan Sutton, 1972), pp.258–63. Coral Bell, The Debatable Alliance: An Essay in Anglo-American Relations, (London: Oxford University Press, 1964), pp.11–12; Bradford Perkins, The Great Rapprochement: England and the United States, 1895–1914, (New York: Athenaeum, 1968). A.C. Turner, The Unique Partnership: Britain and the United States, (New York: Pegasus, 1971); Nicholas, The United States and Great Britain, p.4. Alan Dobson, Anglo-American Relations in the Twentieth Century, (London: Routledge, 1995), pp.11–16, 18–26; Ritchie Ovendale, Anglo-American Relations in the Twentieth Century, (Basingstoke: Macmillan, 1998), pp.4–17; David Watt, ‘Introduction’, p.2. D.R. Woodward, Trial by Friendship: Anglo-American Relations, 1917–1918, (Lexington: University of Kentucky Press, 1993). Nicholas, The United States and Britain, p.68; Seth P. Tillman, Anglo-American Relations at the Paris Peace Conference of 1919, (Princeton: Princeton University Press, 1961), pp.401–8. ‘Outstanding Problem affecting Anglo-American Relations’ by Robert Craigie, 12 November 1928, circulated as CP 344(28), ‘Anglo-American Relations’, 14 November 1928, CAB 24/198. Dobson, Anglo-American Relations, p.43; McKercher, Anglo-American Relations in the 1920s, p.1. See also Frank Costigliola, Awkward Dominion: American Political, Economic and Cultural Relations with Europe, 1919–1933, (Ithaca and London: Cornell University Press, 1984), p.16; Watt, Succeeding John Bull, p.51. David Dimbleby and David Reynolds, An Ocean Apart: The Relationship between Britain and America in the Twentieth Century, (London: Hodder and Stoughton, 1988), p.93. CP 344(28), p.2, CAB 24/198. David Watt, ‘Introduction’, p.3; Dumbrell, A Special Relationship, p.2. B.J.C. McKercher, The Second Baldwin Government and the United States, 1924–29: Attitudes and Diplomacy, (Cambridge: Cambridge University Press, 1984), chapters 4, 8. Roberta Dayer, ‘The British War Debts to the United States and the AngloJapanese Alliance, 1920–1923’, Pacific Historical Review, 45 (1976), pp.569–95. McKercher, Second Baldwin Government, pp.69–71, 93–4; CP 344(28), 14 November 1928, p.1, CAB 24/198. CP 344(28), 14 November 1928, pp.3, 9–10, CAB 24/198.


222

Notes (pp. 8–14)

27 Frank C. Costigliola, ‘Anglo-American Financial Rivalry in the 1920s’, Journal of Economic History, 37 (December 1977), pp.911–34, idem, Awkward Dominion; Dayer, ‘Anglo-American Monetary Policy’, pp.158–86. 28 Sir Auckland Geddes to Lord Curzon, 13 December 1920 and (also to Philip Kerr), 3 January 1921, Curzon MSS Eur.F112/206. 29 Costigliola, Awkward Dominion, pp.106, 257. 30 Neville Chamberlain Diary, 6 July 1923, NC2/21. 31 Dayer, ‘Anglo-American Monetary Policy’, p.161. 32 Ibid; Sir Otto Niemeyer to Robert Brand, 19 May 1927, T188/13. Also CP 301(31), 26 November 1931, CAB 24/226. 33 William R. Castle Diary, 6 November 1925; Alanson Houghton to Castle, 23 November 1925, Castle MSS 3/26. Also Ray Atherton to Castle, 30 March 1926, Castle MSS 3/27. 34 Sir Maurice Hankey to Thomas Jones, 11 October 1928, Keith Middlemas (ed.), Thomas Jones: Whitehall Diary, II, 1926–30, (London: Oxford University Press, 1969), pp.147–8; McKercher, Second Baldwin Government, p.166. 35 Dobson, Anglo-American Relations, p.58; Joseph Brandes, Herbert Hoover and Economic Diplomacy: Department of Commerce Policy, 1921–1928, (Pittsburgh: University of Pittsburgh Press, 1962). 36 Costigliola, Awkward Dominion, pp.127–9; McKercher, Second Baldwin Government, pp.167–9; Dayer, ‘Anglo-American Monetary Policy’, p.176. 37 Michael Hogan, Informal Entente: The Private Structure of Cooperation in AngloAmerican Economic Diplomacy, 1918–1928, (Columbia: University of Missouri Press, 1977), p.254 passim; Kathleen Burk, ‘The House of Morgan in Financial Diplomacy, 1920–1930’, in McKercher (ed.), Anglo-American Relations in the 1920s, pp.125–57; Reynolds, The Creation of the Anglo-American Alliance, p.294. 38 CP 344(28), 14 November 1928, p.6, CAB 24/198. 39 Watt, Succeeding John Bull, p.32. 40 War Cabinet 534(1), 19 February 1919, CAB 23/9. 41 McKercher ‘Introduction’, in idem, Anglo-American Relations in the 1920s, p.13. 42 Paul Kennedy, The Rise and Fall of the Great Powers: Economic Change and Military Conflict, 1500–2000, (London: Fontana ed, 1989), pp.xxi, 255–9; Kathleen Burk, Britain, America and the Sinews of War, (London: George Allen & Unwin, 1985), p.54. 43 McKercher, ‘Introduction’, pp.3, 8–9; idem, ‘Wealth, Power and the New International Order: Britain and the American Challenge in the 1920s’, Diplomatic History, 12 (1983), pp.411–41. 44 Patricia Clavin, The Failure of Economic Diplomacy: Britain, Germany, France and the United States, (London: Macmillan, 1996). 45 Keith Feiling, The Life of Neville Chamberlain, (London: Macmillan, 1946), pp.218–21, 225; Iain Macleod, Neville Chamberlain, (London: Frederick Muller, 1961), pp.174–5. 46 David Marquand, Ramsay MacDonald, (London: Jonathan Cape, 1977). 47 Viscount Simon, Retrospect, (London: Hutchinson, 1952); David Dutton, Simon: A Political Biography, (London: Aurum Press, 1992). 48 Keith Middlemas and John Barnes, Baldwin: A Biography, (London: Weidenfeld & Nicolson, 1969), p.690. 49 Euan O’Halpin, Head of the Civil Service: A Study of Sir Warren Fisher, (London: Routledge, 1989), pp.191–2. 50 Frank Friedel, Franklin D. Roosevelt: Launching the New Deal, (Boston: Little, Brown & Co., 1973), pp.19–46, 128–36; Robert Dallek, Franklin D. Roosevelt and American Foreign Policy, 1932–1945, (Oxford: Oxford University Press, 1995), pp.23–8, 30–2.

Notes (pp. 14–21)

223

51 Bruce Kent, The Spoils of War: The Politics, Economics and Diplomacy of Reparations, 1918–1932, (Oxford: Oxford University Press, 1991); Marc Trachtenberg, Reparations in World Politics: France and European Economic Diplomacy, 1916–1923, (New York: Columbia University Press, 1980); Melvyn Leffler, The Elusive Quest: America’s Pursuit of European Stability and French Security, 1919–1933, (Chapel Hill: University of North Carolina Press, 1979); S. Schuker, The End of French Predominance in Europe: The Financial Crisis of 1924 and the Adoption of the Dawes Plan, (Chapel Hill: University of North Carolina Press, 1976).


2 Origins of the inter-Allied war debt problem 1 Harold G. Moulton and Leo Pasvolsky, War Debts and World Prosperity, (Washington, DC: Brookings Institution, 1932), pp.5–10, chapter VII. 2 Costigliola, Awkward Dominion, p.206. 3 Burk, Britain, America and the Sinews of War, chapter 4; Moulton and Pasvolsky, War Debts, pp.32–5; Treasury memorandum, ‘Great Britain and the War Debt’, revised November 1931,T172/1505, pp.3–4. 4 Hew Strachan, The First World War, Volume I: To Arms, (Oxford: Oxford, 2001), p.962; Martin Horn, Britain, France and the Finance of War, (London: Palgrave, 2002). 5 Moulton and Pasvolsky, War Debts, p.35; Burk, Britain, America and the Sinews of War, p.95. 6 The Economist ‘The War Debts’ supplement, 12 November 1932; Garrard Winston, American War Debt Policy, (June 1928), p.2, Bank of England Archive OV9/330. 7 Benjamin D. Rhodes, ‘The Image of Britain in the United States, 1919–1929: A Contentious Relative and Rival’ in McKercher (ed.), Anglo-American Relations in the 1920s, pp.193–4. 8 Moulton and Pasvolsky, War Debts, p.58; ‘History of the Anglo-American Debt Negotiations and Settlement, 1914–1928’, anonymous and undated memorandum probably prepared by Sir James Grigg, Baldwin MSS 233/27–8 (hereafter ‘History of the Anglo-American Debt’). 9 There were only two further advances after this date – to Czechoslovakia in May 1922 and to Greece in May 1929. 10 ‘Memorandum Covering the Indebtedness of Foreign Governments to the United States’, US Treasury Department, 15 November 1933; Hoover MSS 1012. 11 Treasury Memorandum, ‘The Relation between Anglo-American Debt and Allied Debts to Great Britain’, n.d. [1925?], T188/76. 12 ‘History of the Anglo-American Debt’ SB 233/41–2; ‘Memorandum Respecting Inter-Allied Indebtedness and the Attitude of the United States’, 7 December 1922, FO371/7283, A7369; David Lloyd George, The Truth about Reparations and War Debts, (London: Heinemann, 1932), p.97. 13 ‘History of the Anglo-American War Debt’, SB233/43–7. 14 Costigliola, Awkward Dominion, p.36. 15 War Cabinet 534(1), 19 February 1919, CAB 23/9. 16 Montagu Norman Diary, 17, 18 and 21 May 1920, Bank of England Archive ADM34/9. 17 CAB 29(20)4, 19 May 1920, CAB 23/21. 18 Benjamin Strong to Russell Leffingwell, 25 and 31 July 1919, Lester V. Chandler, Benjamin Strong, Central Banker, (Washington, DC: Brookings Institution, 1958), p.295; Andrew Boyle, Montagu Norman: A Biography, (London: Cassell, 1967), pp.151–2.


224

Notes (pp. 22–31)

19 Moulton and Pasvolsky, War Debts, pp.53–7; Combined Annual Reports of the World War Foreign Debt Commission 1922–26, (Washington, DC: World War Foreign Debt Commission, 1927), pp.63–7. 20 ‘History of the Anglo-American Debt’, SB 233/52–4, 72–6. 21 Herbert Hoover, American’s First Crusade, (New York: C. Scribner’s Sons, 1942), p.36; Combined Annual Reports of World War Foreign Debt Commission, pp.66–7; Trachtenberg, Reparations and World Politics, pp.54–5. 22 ‘History of the Anglo-American Debt’, SB 233/52–9. 23 Margaret MacMillan, Peace Makers: the Paris Conference of 1919 and its Attempt to End the War, (London: John Murray, 2001), pp.194–5; Thomas W. Lamont, ‘Reparations’ in Edward House and Charles Seymour (eds), What Really Happened at Paris: The Story of the Peace Conference, 1918–19, by American Delegates, (New York: Greenwood Press, 1976 reprint of 1921 edition), p.289; Robert Skidelsky, John Maynard Keynes: Volume One, Hopes Betrayed, 1883–1920, (London: Macmillan, 1984), pp.354–7. 24 ‘History of the Anglo-American Debt’, SB 233/63, 211–26; Melvyn Leffler, ‘The Origins of Republican War Debt Policy, 1921–23’, Journal of American History, 59 (1972), pp.585–601. 25 ‘History of the Anglo-American Debt’, SB 233/80–7; Moulton and Pasvolsky, War Debts, p.40. 26 Ibid, SB 233/83–9. 27 Sir Basil Blackett memorandum, 2 February 1920, reproduced in CP 584, 6 February 1920, CAB 24/97; also Treasury memo for Niemeyer, 1922, T172/1288/12–16. 28 Ibid; CP 597, 9 February 1920, CAB 24/97. 29 Rowland Sperling minute, 13 February 1920, FO371/4563, A1290/182/45. 30 Moulton and Pasvolsky, War Debts, pp.61–2; Economist ‘War Debts’ Supplement, 12 November 1932, p.4. 31 Lindsay telegram 150, 26 February 1920, FO371/4563, A1291/182/45. 32 Lindsay telegram 177, 8 March 1920 and FO telegram 268, 12 March 1920, FO371/4562/A1224/182/45; ‘History of the Anglo-American Debt’, SB 233/102. 33 CP 621, 12 February 1920, CAB 24/98. 34 CP 1156, 23 April 1920, CAB 24/104. 35 CP 1202, 1 May 1920, CAB 24/105. 36 CP 1093, 17 April 1920, CAB 24/103. 37 CP 1153, 25 April 1921, CAB 24/104. 38 CAB 23(20)2, 26 April 1920 and CAB 30(20)2, 21 May 1920, CAB 23/21. 39 Geddes telegram 592, 29 April 1920, FO371/4563, A3016/182/45. 40 Blackett memorandum, 11 May 1920 printed as CP 1259, CAB 24/105. 41 Ibid; CAB 29(20)4 and CAB 30(20)2, 20–21 May 1920, CAB 23/21. 42 Geddes telegram 458–9, 18 June 1920, FO371/4563, A4043/182/45. 43 Lloyd George to Woodrow Wilson, 5 August 1920, CP 2037, 1 November 1920, CAB 24/114. 44 Geddes telegram 717, 22 October 1920, CP 2029, 29 October 1920, CAB 24/104. 45 Treasury memorandum, ‘Great Britain and the War Debt’, (1931), pp.7–8, T172/1505. 46 CP 2214, 30 November 1920, CAB 24/116. 47 CAB 59(20)2, 3 November 1920, CAB 23/23; Lord Curzon to Geddes, 5 November 1920, Curzon MSS Eur. F112/206. 48 Geddes telegrams 818 and 835, 2 and 15 December 1920, FO371/4563, 48471/182/45. 49 CP 2214 and 2214A, 30 November and 3 December 1920, CAB 24/116. 50 Seymour minute, 6 December 1920, FO371/4563, A9109/182/45; Lindsay memorandum, 4 January 1921, FO371/5661, A247/247/45.

Notes (pp. 32–42)

225

51 CAB 72(20)5–6, 17 December 1920 and CAB 5(21)1, 7 February 1921, CAB 23/23–4. 52 Craigie telegram 74, 9 February 1921; Craigie to Lord Curzon, 17 February 1921, FO371/5661, A966, A1478/247/45. 53 CP 2705, 11 March 1921, CAB 24/121. 54 CAB 37(21)4, 10 May 1921, CAB 23/25. 55 Blackett to Cecil Harmsworth, 14 July 1921 and FO telegram 447 to Geddes, 21 July 1921, FO371/5662, A5144/247/45. 56 CAB 93(20)2, 16 December 1921, CAB 23/25.


3 Britain and the inter-Allied war debt settlements 1 Hiram Johnson to his sons, 25 June 1921, Robert E. Burke (ed.), The Diary Letters of Hiram Johnson, 1917–1945, (7 volumes, New York and London: Garland Publishing, 1983), volume 3. 2 See ‘Inter-Allied Indebtedness and Attitude of the United States’, April 1922, FO371/5662, A7885/247/45; Moulton and Pasvolsky, War Debts, pp.77–80. 3 Philip A. Grant, ‘President Warren G. Harding and the British War Debt Question, 1921–23’, Presidential Studies Quarterly, 15.3, (Summer 1995), pp.479–80; FRUS, 1922, I, pp.391–9. 4 Parliamentary Debates: House of Commons Debates, Fifth Series (hereafter H.C. Debs, 5s) 150 col.1528 and H.C. Debs, 5s 152 col.240–1, 20 February and 21 March 1922; Benjamin Strong to Montagu Norman, 19 November 1921, Bank of England Archive OV31/5/36. 5 ‘Financial Agreements relating to Allied War Loans’, No.40, Niemeyer MSS T176/1A. 6 ‘History of the Anglo-American Debt’, SB 233/152–7; CP 4020, 8 June 1922, CAB 24/137; Sperling minute, FO371/7282, A3237. 7 Geddes telegram 234 and 259, 16 May and 6 June 1922; Blackett to Undersecretary of State and Sperling/Willert minutes, all 22 May 1922, FO371/7282, A3237, A3360, A3678/236/45. 8 FRUS, 1922, I, p.402. 9 CP 4020, 8 June 1922, CAB 24/137. 10 CAB 35(22)6, 16 June 1922, CAB 23/30. 11 ‘Note of a Conversation at 10, Downing Street’, 5 July 1922, CAB 23/39. 12 CAB 38(22)2, 7 July 1922, CAB 23/30. 13 CAB 38(22)2, 7 July 1922, CAB 23/30; FRUS, 1922, I, 402, 403–4. 14 Blackett, ‘Inter-Governmental Debt’, 12 July [1922], Niemeyer MSS T176/8/30–2. 15 CAB 42(22)3, 25 July 1922, CAB 23/30. 16 Cmd 1737, 1922; FRUS, 1922, I, pp.406–9; Middlemas and Barnes, Baldwin, p.133. 17 FRUS, 1922, I, p.410. 18 Lady Betty Balfour to Lady Frances Balfour, n.d., Whittinghame Balfour MSS, GD433/2/368/25; Robert Brand to Lord Balfour, 30 July and 4 August 1922, Whittinghame Balfour MSS GD433/2/11/1/1–4 and 15–18. 19 FRUS, 1922, I, pp.413–44. 20 Kent, The Spoils of War, pp.18–89; Benjamin Strong to Montagu Norman, 3 August and 18 October 1922, Bank of England Archive OV31/5/25, 53. Middlemas and Barnes, Baldwin, p.133. 21 ‘History of the Anglo-American Debt’, SB 233/193–5. 22 Miles Lampson minute and Willert annotation, 8 August 1922, FO371/7282, A5029/236/45.

226 23 24 25 26 27 28 29 30


31 32 33 34 35 36 37

38 39 40 41 42 43 44 45 46 47 48 49 50 51

Notes (pp. 42–9)

Craigie to Curzon, 21 September 1922, FO371/7283, A6083. Alanson Houghton to Castle, 28 September 1925, Castle MSS 3/26. CAB 42(22)3, 25 July 1922, CAB 23/30. See CAB 45(22)2, 12 August 1922, CAB 23/30; CP 4344, 20 November 1922, CAB 24/140; Trachtenberg, Reparations in World Politics, pp.257–8. Austen Chamberlain to Hilda Chamberlain, 8 August 1922, AC5/1/247. CAB 46(22)1, 14 August 1922, CAB 23/30. CAB 64(22) Annex IV, 1 November 1922, CAB 23/32. CP 4376, n.d. CAB 24/140; J. Néré, The Foreign Policy of France from 1914 to 1945, (London: Routledge & Kegan Paul, 1975), p.53. FRUS, 1922, I, p.415. CAB 64(22) Annex IV, 1 November 1922, CAB 23/32; H.C. Debs, 5s, 157, col.1744, 1 November 1922. H.C. Debs, 5s, 159 col.3233, 14 December 1922. Geddes telegram 405, 6 October 1922, FO371/7283, A6198/236/45; ‘History of the Anglo-American Debt’, SB 233/199; CAB 60(22)6, 7 October 1922, CAB 23/31. Geddes telegram 405, 6 October 1922; Geddes to Curzon despatch 1117, 1126 and 1146, 5–6 and 17 October 1922, FO371/7283, A6193, 6346, 6613/236,45; CAB 64(22) Annex IV, 1 November 1922, CAB 23/32. Sperling minute, 21 December 1922, FO371/7283, A1698; Maurice Paterson minute, 9 January 1923, FO371/8503, A136; Rowe-Dutton to Blackett, 21 March 1923, Blackett MSS Eur. E397/29. Rowe-Dutton to Blackett, 21 March 1923; Boyle, Montagu Norman, pp.155–6; Sir Henry Clay, Lord Norman, (London: Macmillan, 1957), pp.173–4; Lloyd George, Truth about Reparations and War Debts, p.116. For Norman’s belief in the ‘paramount’ importance of a debt settlement, see Norman to Strong, 23 May, 1 December 1921, 25 February 1922, Bank of England Archive OV31/4/98 and OV31/5/57, 62. Washington Post and The Times, 5–6 January 1923. For the negotiations see Combined Annual Reports of the World War Foreign Debt Commission; ‘History of the Anglo-American Debt’, SB 233/258–73; RoweDutton to Blackett, 21 March 1923, Blackett MSS Eur. E397/29. Geddes telegram 4, 8 January 1923, FO371/8503, A216; ‘History of the AngloAmerican Debt’, SB 233/260–1. CP 16(23), 13 January 1923, CAB 24/158. Ibid. Beaverbrook memorandum, n.d., Beaverbrook MSS G/57/29; Keynes to J.C.C. Davidson, 30 January 1923, Baldwin MSS 109/96. FRUS, 1922, II, pp.187–95; Kent, The Spoils of War, p.203. R.J.Q. Adams, Bonar Law, (London: John Murray, 1999), p.348; Thomas Jones (ed.), Diary with Letters: 1931–1950, diary entry for 27 February 1932, p.31; CP16(23). CP18(23), 15 January 1923, CAB 24/158; ‘History of the Anglo-American Debt’, SB 233/267–72. CAB 2(23)1, 15 January 1923, CAB 23/45; FO telegram 19 and 22, 15 and 17 January 1923, FO371/8503, A313, A345. ‘History of the Anglo-American Debt’, SB 233/167–73; P.J. Grigg, Prejudice and Judgement, (London: Jonathan Cape, 1948), p.101. Adams, Bonar Law, p.349; Geddes telegram 41, 29 January 1923, FO371/8504, A570/136/45. Robert Rhodes James, Memoirs of a Conservative: J.C.C. Davidson’s Memoirs and Papers, 1910–37, (London: Weidenfeld & Nicolson, 1969), p.143. Neville Chamberlain to his wife, 23 January 1923, NC1/26/313.


Notes (pp. 50–6) 227 52 Davidson memorandum, Davidson MSS 143, Middlemas and Barnes, Baldwin, pp.144–7. 53 Derby Diary, 30 January 1923, Derby MSS 29/1. 54 Amery Diary, 29–31 January 1923, pp.319–20; Earl of Swinton, Sixty Years of Power: Some Memories of the Men who Wielded it, (London: Hutchinson, 1966), p.75; Jones Diary, 5 February 1923, reporting Hankey, p.227. 55 Derby Diary, 31 January; Robert Sanders Diary, 4 February 1923. 56 Frederic le Clerq to William Castle, 29 March 1923, Castle MSS 3/24. 57 Hankey Diary, 3 February 1923, HNKY 1/7; also Neville Chamberlain to his wife, 23 January 1923, NC1/26/313. 58 Derby, Sanders and Amery Diary and CAB 5(23)1, all 31 January 1923, CAB 23/45. 59 Beaverbrook memorandum, Beaverbrook MSS G/57/29; Jones Diary, 5 February 1923, p.227. 60 ‘History of the Anglo-American Debt’, SB 233/286–93. 61 Debt Commission Report, 3 February 1923, FO371/8503, A1065; Geddes despatch 188 and 220, 16 and 23 May 1923, FO371/8505, A1230, A1355; ‘Address of the President . . . to the Congress’, 7 February 1923, pp.3–4, Hoover MSS 1006; Grigg, Prejudice and Judgement, p.103. 62 Cmd 1912, The American Debt Settlement, 18 June 1923. 63 ‘Great Britain and the War Debts’, pp.18–19, T172/1505; Lloyd George, Truth about Reparations and War Debts, p.121. 64 Niemeyer to Blackett, 20 March 1923; Rowe-Dutton to Blackett, 21 March 1923; Norman to Blackett, 26 February 1923, Blackett MSS Eur. E397/29 and Clay, Lord Norman, p.177–9. 65 CP 344(28) 14 November 1928, CAB 24/198. 66 Middlemas and Barnes, Baldwin, p.148; Grigg, Prejudice and Judgement, p.105. 67 Grant, ‘President Warren Harding and the British War Debt Question’, pp.484–5; L. Ethan Ellis, Republican Foreign Policy, 1921–33, (New Brunswick: Rutgers University Press, 1968), pp.196–8; Memoirs of Herbert Hoover, the Cabinet and Presidency, 1920–1933, (New York: Macmillan, 1952), pp.178–9. 68 Robert Blake, The Unknown Prime Minister: The Life and Times of Andrew Bonar Law, 1858–1923, (London: Eyre & Spottiswoode, 1955), p.494. 69 Geddes to Curzon, despatch 188, 16 February 1923, FO371/8505, A1230; Sperling minute on Geddes telegrams 38–39, 26 and 29 January 1923, FO371/8504, A521. 70 Atherton [?] to Castle, 30 April 1923, Castle MSS 3/24. 71 Middlemas and Barnes, Baldwin, pp.372, 375. 72 Austen Chamberlain to Hilda Chamberlain, 17 December 1927, AC5/1/441. 73 Percy Blair to Castle, 4 June 1925, Castle MSS 3/24. 74 Cecil Hurst minute, 28 October 1925, FO371/10646; McKercher, Second Baldwin Government, p.38. 75 CAB 41(26)2, 21 July 1926, CAB 23/53. 76 FRUS, 1927, II, pp.731–38; Sir Esme Howard to Austen Chamberlain, 18 March 1927, FO371/12103, C2811/100/62. 77 Minutes by Campbell, Vansittart, Sargent and Austen Chamberlain, 18–30 March 1927, FO371/12103, A1655/25/45. See also FO371/12103,C2995/ 100/62, C3664, C3789, C4021. 78 Castle Diary, 2 May 1927; FRUS, 1927, II, pp.731–45. 79 Public No.455 – 67th Congress, H.R. 14254, Hoover MSS 1006. Moulton and Pasvolsky, War Debts, pp.106–7. 80 Percy Blair to Castle, 5 December 1924; Frederick Hibbard to Castle, 10 December 1924, Castle MSS 3/24. 81 For details see Moulton and Pasvolsky, War Debts, chapter V.


228

Notes (pp. 56–62)

82 Castle Diary, 30 April 1926. 83 Kent, The Spoils of War, p.268; Néré, Foreign Policy in France, p.78. 84 See Moulton and Pasvolsky, War Debts, chapter VI and idem, World War Debt Settlements, (Washington, DC: Brookings Institution, 1926), chapters III–V. 85 Grigg, Prejudice and Judgement, p.208; Sir Frederick Leith-Ross, Money Talks: Fifty Years of International Finance, (London: Hutchinson, 1968) p.95. For these British debt settlements see Robert Self, ‘Britain, America and the French Debt’, (forthcoming). 86 FRUS, 1926, II, pp.102–6. 87 Moulton and Pasvolsky, War Debts, pp.113–15. 88 Costigliola, Awkward Dominion, p.210. 89 Norman Armour to Kellogg telegram 414, 18 December and reply, telegram 426, 20 December 1928, Castle MSS 18/138; FRUS, 1929, II, pp.1025–83. See also the voluminous correspondence on this in Hoover MSS 1006 and Castle MSS 18/138. 90 Henry Stimson to Paris Embassy, telegram 102, 8 April 1929; Hoover to Coolidge and reply, 8–9 April 1929, Hoover MSS 1006. 91 Owen Young to Andrew Mellon, 13 April 1929 and reply, 16 April 1929; State Department secret message to Young, 15 April 1929; Young to Stimson, 19 April 1929, Hoover MSS 1006; Castle Diary, 25 June 1929. 92 Draft Presidential Statement, 7 June 1929, Hoover MSS 1006. 93 Garrard Winston, ‘American War Debt Policy’, pp.26–7, Bank of England Archive OV9/330. 94 Moulton and Pasvolsky, War Debts, pp.193–4 and Appendix B. 95 Robert H. Ferrell, American Diplomacy in the Great Depression: Hoover-Stimson Foreign Policy, 1929–1933, (New Haven: Yale University Press, 1957), p.16. 4 Economic depression and revival of the debt question 1 Benjamin D. Rhodes, ‘Herbert Hoover and the War Debts, 1919–33’, Prologue: The Journal of the National Archives, (Summer 1974), p.130; Joan Hof Wilson, Herbert Hoover: Forgotten Progressive, (Boston: Little, Brown & Co, 1975), pp.79–121; Martin L. Fausold, The Presidency of Herbert C. Hoover, (Lawrence: University Press of Kansas, 1985), pp. 9–15, 39. 2 Ferrell, American Diplomacy in the Great Depression, pp.39–40; Joan Hoff Wilson, ‘Herbert Hoover’s Foreign Policy’, in Martin L. Fausold and George T. Mazuzan, (eds), The Hoover Presidency: A Reappraisal, (Albany: State University of New York Press, 1974), p.165. 3 Raymond Moley, After Seven Years, (New York: Harper, 1939), p.72. 4 The Memoirs of Herbert Hoover: Volume II, The Cabinet and the Presidency, p.179. 5 Ibid, pp.177–8; Hoover memorandum, 4 February 1923, Hoover MSS 1006. 6 For the text of the speech see FO371/7283, A6615/236/45. 7 Rhodes, ‘Herbert Hoover and the War Debts’, p.133; Hoover to Henry A. Forster, 2 March 1923 and to Irving T. Bush, 21 October 1922, Hoover MSS, Commerce Department Official Files. 8 Geddes to Curzon, despatch 1146, 17 October 1922, FO371/7283, A6613/236/45. 9 Thompson minute, 29 October 1928, FO371/12812; CP 344(28), 14 November 1928, CAB 24/198. 10 Esme Howard telegram 143, 17 March 1929, FO371/13541, A1932. 11 CP312(29), October 1929, CAB 24/207. 12 Hoover memorandum, 4 February 1923, Hoover MSS 1006.


Notes (pp. 62–9) 229 13 MacDonald note, 12 November 1929, FO371/13552, A7633; Hoover, Memoirs, II, pp.345–6. 14 Roberta Allbert Dayer, Finance and Empire: Sir Charles Addis, 1861–1945, (New York: Palgrave Macmillan, 1988), chapter 7. 15 Moulton and Pasvolsky, War Debts, p.318. 16 Charles D. Hillis to Hoover and reply, 16 and 21 October 1930, Hoover MSS 882. 17 ‘The President: Diary of Developments of the Moratorium’, 6 May–22 July 1932, Hoover MSS 1015. 18 J. Frederic Dewhurst to Dr Klein and memorandum, 9 and 12 May 1931, Hoover MSS 1006. 19 ‘Diary of Developments’, 11 and 19 May, 5 June 1931; Untitled Diary of events, Hoover MSS 1015; Stimson Diary, 5 June 1931. 20 Theodore G. Joslin, Hoover Off the Record, (New York: Doubleday, Doran & Co., 1934), p.91. 21 Castle Diary, 12 June 1931. 22 Stimson to Walter Edge, 15 June 1931, FRUS, 1931, I, p.20. 23 MacDonald Diary, 14 and 17 June 1931; ‘Conversation with the Prime Minister of Great Britain’, 13 June 1931, Castle MSS 17/132. 24 Henry Stimson and McGeorge Bundy, On Active Service in Peace and War, (New York: Harper & Brothers, 1948), pp.57–8. 25 Hoover statement, 21 June 1931, Hoover MSS 1006; Jordan A. Schwartz, Interregnum of Despair: Hoover, Congress and the Depression, (Urbana: University of Illinois Press, 1970), pp.78–9. 26 Atherton telegram 175 and 199 to Secretary of State, 8 and 20 June 1931, Hoover MSS 1005–6. 27 MacDonald Diary, 21 June 1931, fol.381. 28 Edge to Hoover, 9 June 1931, Hoover MSS 995. 29 Ibid; Stimson to Atherton, 15 June 1931, FRUS, 1931, I:18–19. 30 Kent, Spoils of War, p.346; Edge to Stimson, 21 June 1931, FRUS, 1931, I:43–5 31 Memorandum of conversation between Stimson and Claudel, 18 and 19 June 1931, FRUS, 1931, I, pp.26–29. 32 Stimson telegram 268 to Paris Embassy, 23 June 1931, Hoover MSS 1007; CAB 35(31)1, 24 June 1931, CAB 23/67; Leith-Ross minute, n.d. [20 June 1931] PREM 1/95. 33 Edward W. Bennett, Germany and the Diplomacy of the Financial Crisis of 1931, (Cambridge: Harvard University Press, 1971), p.169. 34 Leith-Ross, ‘Hoover Plan’, 28 June 1931, T188/26. 35 MacDonald Diary, 25 June 1931 fol.385; Stimson telegram 289 to Edge, 26 June 1931, Hoover MSS 1007. 36 CAB 37(31)2, 1 July 1931, CAB 23/67. 37 ‘Moratorium Diary’, 4–6 July 1931, Hoover MSS 1015. 38 MacDonald Diary, 5, 11, 15, 22 July 1931, fol.384–5. 39 Charles Dawes Diary, 8 July 1931. 40 Castle note to President, 15 July 1931, Hoover MSS 1009. 41 Edge to Castle, 28 August 1931, Castle MSS 5/49. 42 Castle telegram 362 to Paris Embassy, 16 July 1931, Hoover MSS 1009. 43 Dawes telegram 357 and Hoover [?] to Castle, both 3 September 1931 Hoover MSS 1010. 44 D’arcy Osborne despatch 578, 21 September 1931; Osborne to Sargent, 29 December 1931, FO371/1509, C388/29/62. 45 Edge to Stimson, 1, 17 and 21 October 1932, FRUS, 1931, II, pp.244–50 and Hoover MSS 1011.


230

Notes (pp. 69–74)

46 ‘Memorandum of Conversation between Castle and British Ambassador’, 21 October 1931, FRUS, 1931, II, pp.251–2. 47 Stimson Diary, 30 September 1931. 48 Edge telegram 641 to Stimson, 7 October 1931, Hoover MSS 1010. 49 Feis and John F. Carter Jr memoranda, 29 September 1931, Hoover MSS 1010. 50 ‘Memorandum of Exchange of Views . . . to discuss . . . matters that may arise during the visit of Premier Laval’, 20 October 1931, Hoover MSS 1015. 51 Lord Tyrrell telegram 13, 5 November 1931, PREM1/117 reporting Laval. 52 Stimson Diary, 23 October 1931, XXV:170–8. 53 Joint Statement, 25 October 1931, Hoover MSS 1011. 54 Tyrrell telegram 13, 5 November 1931, PREM1/117 reporting Laval. 55 R.H. Campbell to Leith-Ross, 29 December 1931, FO371/15904, C265/29/65. 56 See Stimson Diary, 5 January 1933, XXV:78–9. 57 Mills and Stimson to David Reed and Edge telegram 8, all 5 January 1933, Hoover MSS 1012 and Stimson Reel 84. 58 Hoover to Stimson, n.d., [July 1932?], Hoover MSS 1012. 59 Lawrence Richey to Castle, and Stimson telegram to Dawes, both 28 October 1931, Hoover MSS 1011; Stimson to Ambassador Sackett [Berlin], 27 October 1931, FRUS, 1931, II, p.334. 60 Stimson to MacDonald, 27 January 1932, PRO30/69/678/4/672–73; Aide memoire to French Charge d’Affaires, 29 December 1931, Hoover MSS 1013. 61 Rhodes, ‘Herbert Hoover and the War Debts’, p.138. 62 Castle Diary, 7 January 1932. 63 Stimson Diary, 29 September 1931. 64 Stimson to MacDonald, 27 January 1932, PRO30/69/678/4/675; Swartz, Interregnum of Despair, pp.80–2. 65 FRUS, 1931, I, xxiii–xxv. 66 Hiram Johnson to his sons, 12 December 1931, Burke (ed.), Diary Letters of Hiram Johnson, volume 5. 67 Lindsay to Simon, despatch 1942 and 1964, 17 and 24 December 1931, FO371/15130, A7539/269/45 and C97/29/62; Castle Diary, 21 December 1931. 68 Public Resolution No.5 – 72nd Congress, 1st Session, 23 December 1931, Hoover MSS 1015. 69 James Rogers to Stimson, 17 December 1931, Hoover MSS 46; Castle to Dave Reed, 19 December 1931, Castle MSS 4/37. 70 Lindsay to Simon, 31 December 1931, FO371/15905,C394; Schwartz, Interregnum of Despair, pp.85–7. 71 Memorandum of Conversation between Stimson and Lindsay, 24 December 1931 Hoover MSS 1011; Lindsay to Selby, 24 December 1931, FO800/285/275–7. 72 Stimson Diary, 10 January 1932, XIX:35. 73 Edge to Stimson, 17 December 1931, FRUS, 1931, II, pp.246–7; Leith-Ross conversation with Flandin, 19 December 1931, FO371/15905, C9580/272/62. 74 Memorandum of Conversation between Castle and the German Ambassador, 23 December 1931, FRUS, II, p.249; Dawes telegram 463 to Stimson, 16 December 1931, Hoover MSS 1011; MacDonald to Hoover, 16 December 1931, DBFP, 2, II, 379n.2; secret message from Prime Minister to Stimson, 18 December 1931, FO800/285/248. 75 Osborne to Lord Reading, despatch 1462, 18 September 1931, FO371/15130, A5736/269/45. 76 CP 315(31), 11 December 1931, CAB 24/225. 77 Osborne to Sargent, 29 December 1931 and Sargent minute, 25 January 1932, FO371/15905, C388/29/62.


Notes (pp. 74–81)

231

78 Lindsay despatch 1964 and 1986, 17 and 31 December 1931, FO371/15130, A7539/269/45 and FO371/15905, C394/29/62. 79 Stimson Diary, 26–27 November 1931, XIX:98–101; memorandum of conversation between Stimson and George Harrison of Federal Reserve Bank, 17 December 1931, Hoover MSS 1011. 80 Edge telegram 913 to Stimson, 29 December 1931 reporting Flandin’s Chef de Cabinet, Hoover MSS 1011. 81 Castle Diary, 23 December 1931. 82 Cmd 3995, Report of the Special Advisory Committee, December 1931. 83 Stimson Diary, 10 January 1932, XIX:35. 84 MacDonald to Stimson, 8 January 1932, PRO30/69/678/4/679–84. 85 Stimson Diary, 11 January 1932, XIX:40–1; Castle Diary, 14–15 January 1932. 86 Simon to Lindsay, 15 January 1932; Lindsay telegram, 17 January 1932, FO371/15905, C532–33/29/62. 87 CAB 87(31)2 and CAB 91(31)2, 10 and 15 December 1931, CAB 23/69. 88 Leith-Ross ‘Note of an interview with Monsieur Rueff’, 1 and 14 December 1931, T175/55. 89 DBFP 2, II, 379–82; Leith-Ross meeting with Flandin, 19 December 1931, T188/32. 90 Tyrrell telegrams 9 and 15, 18 and 20 January 1932, FO371/15905, C561/29/62. 91 Sargent minute, 19 January 1932, FO371/15906, C638/29/62. 92 CP13(32), ‘Reparations and Debts: A Bird’s-Eye View’, 9 January 1932, CAB 24/227. 93 CP 4(32) ‘The British Position in relation to European Policy’, 1 January 1932; CP 301(31)26 November 1931, CAB 24/226–7. 94 Leith-Ross note to Chancellor, 22 January 1932, PREM 1/117; Tyrrell telegram 15, 20 January 1932, FO371/15905, C567/2962. 95 See Robert Self, Neville Chamberlain: A Biography, (Aldershot: Ashgate, 2006), chapter 8. 96 ‘Record of a meeting held at the Foreign Office’, 21 November 1932; Vansittart to Leith-Ross, 18 November 1932, T188/49/70, 79. 97 Neville Chamberlain to Hilda Chamberlain, 17 January 1932, Robert Self (ed.), The Neville Chamberlain Diary Letters, (4 volumes, Aldershot: Ashgate, 2000–2005), volume 3, p.302. 98 RWD(31) Committee on Reparations and War Debts, 2nd Conclusions and ‘British Proposals for Reparations Conference’, 6 January 1932, CAB 27/466; RC(32) Reparations Committee, 1st Meeting, 11 May 1932; RC(32) Paper 6, 23 May 1932, CAB 27/488; Nichols minute, 27 May 1932, FO371/15909, C4109/29/62. 99 CAB 32(32)1, 8 June 1932, CAB23/71. 100 LC(B) 1st and 2nd Meetings of Lausanne Preparatory Committee, 7 June 1932, CAB 29/139. 101 Neville Chamberlain to Hilda Chamberlain, 3 January 1932, Self (ed.), The Neville Chamberlain Diary Letters, volume III, p.300; RWD (31) 3rd and 4th Conclusions, 12–13 January; RWD(31) Paper 11–12, note of conversations between Leith-Ross and Flandin, 8–9 and 11 January 1932, CAB 27/466. 102 MacDonald to Walter Layton, 4 January 1932, PRO30/69/678/2/388. 103 Edge telegram 81 to Stimson, 2 February 1932, Hoover MSS 1011. 104 Meeting of Ministers, 19 January and CAB 4(32)1, 20 January 1932, CAB 23/70; CAB 5(32)1 and 8(32)5, 21 and 26 January 1932, CAB 23/70; MacDonald Diary, 24 January 1932, fol.471. 105 Edge telegram 145 to Stimson, 4 March 1932, Hoover MSS 1011. 106 RC(32) 1st Meeting, 11 May 1932, CAB 27/488.


232

Notes (pp. 82–6)

107 MacDonald Diary, 7 April and 1 May 1932, fol.412–15. 108 MacDonald ‘Lausanne’ Notebook and Chamberlain Lausanne Diary, both 21 June 1932, PRO 30/69/1753/3 and Chamberlain 2/16. 109 CP 191(32), 31 May 1932, CAB 24/230; CAB 32(32)1, 8 June 1932, CAB 23/72. 110 Memoranda on conversations with Belgian, Greek, Italian and French Ambassador, all dated 14 January 1932, Hoover MSS 1101 and Castle MSS 17/132. 111 Castle Diary, 1 June 1932; Stimson telegram 163 to London Embassy, 1 June 1932, Hoover MSS 1012; CP 195(32) ‘Record of interview with French Ambassador’, 6 June 1932, CAB 24/230. 112 Lindsay telegram 246, 1 June 1932, FO371/15910, C4414/29/62; DBFP 2, III:147–8. 113 Nichols minute, 2 June 1932, FO371/15910, C4414/29/62. 114 Memo of conversation between Stimson and Italian, German and French Ambassadors, 1 and 6 June 1932, Hoover MSS 1012 and Castle MSS 17/133. 115 Donald Fergusson to Leith-Ross, 31 May 1932, and Fergusson, ‘The Chancellor’s View’, n.d. [1 June 1932] T188/47/3; CP191(32), 31 May 1932, CAB 24/230. 116 David Waley to Leith-Ross, 1 June 1932, T188/47/11. 117 MacDonald to Simon, 3 June 1932, T188/47/47–51. 118 Gibson telegram 258–60, 20 June 1932, Hoover MSS 1012; Stimson Diary, 20 June 1932, XXII:126. 119 Chamberlain annotations on Leith-Ross minute, 24 May 1932, T172/1799; Leith-Ross, ‘Discussions in Paris’, 6 June 1932, T172/1506; CP 179(32), 30 May 1932, CAB 24/230. 120 ‘Notes of a Franco-British meeting . . . [in] Paris’, 11 June 1932, FO371/15911, C4833/29/62. 121 Neville Chamberlain to Hilda Chamberlain, 19 June 1932, Self (ed.), The Neville Chamberlain Diary Letters, volume III, p.329; Simon to Vansittart, 20 June 1932 appended to CAB 37(32), 22 June 1932. 122 Hore-Belisha to Runciman, 20 June 1932, Runciman MSS 260; Chamberlain’s Lausanne Diary, 17 June 1932, NC2/16; Record of Second Plenary Session, 17 June 1932, CAB 29/139. 123 Runciman to Hore-Belisha, 17 June 9132, HOBE 3/2. 124 CAB 41(32)2, 30 June 1932, CAB 23/72; Neville Chamberlain to Hilda Chamberlain, 19 June 1932; to his wife, 17 June 1932, NC1/26/460; to Baldwin, 17 June 1932; Hankey to Baldwin 19 and 22 June 1932, Baldwin MSS 119/2–3, 8–9. 125 L(UK) 11th Meeting of UK Delegation, 4 July 1932, CAB 29/139. 126 Runciman to Baldwin, n.d., Baldwin MSS 119/31. 127 Chamberlain’s Lausanne Diary, 18 June 1932, NC2/16. 128 L(GBG) 3rd Meeting with German Delegation, 3 July 1932, CAB 29/139. 129 Chamberlain’s Lausanne Diary, 7 July 1932, NC2/16; L(GBF) 11th Meeting of Franco-British Delegations, 8 July 1932, CAB 29/139. 130 L(FGE) 2nd Meeting of French, German and British Delegations, 28 June 1932; L(GBG) 3rd Meeting of British and German Delegations, 3 July 1932, CAB 29/139. 131 Neville Chamberlain to Ida Chamberlain, 20 June 1932, Self (ed.), The Neville Chamberlain Diary Letters, volume III, pp.330–1; Chamberlain’s Lausanne Diary, 18 June 1932 NC2/16; Simon to Vansittart, 20 June 1932, CAB 37(32) Appendix, 22 June 1932, CAB 23/72. 132 L(AB) 6th Meeting of Inviting Powers other than Germany, 2 July 1932 and Annex, CAB 29/139. 133 Published as Cmd 4129 of 1932, 14 July 1932.


Notes (pp. 87–94)

233

134 Chamberlain to Simon, 2 June 1932, T188/47/44–5. 135 Leith-Ross note to Chamberlain, 27 May 1932, T172/1788. 136 Lindsay despatch 724, 27 April 1932, FO371/15909, C3853/29/62; CAB 44(32)1, 12 July 1932, CAB 23/72. 137 MacDonald to Reading, 15 July 1932, PRO 30/69/1442/887; MacDonald to Keynes, 13 July 1932, PRO30/69/678/2/375. 138 LC(B) 1st Meeting, 7 June 1932, CAB 29/139. 139 Costigliola, Awkward Dominion, p.257; Davis telegram 329 to Stimson, 14 July 1932, Hoover MSS 1012. 140 CAB 44(32)6, 12 July 1932, CAB 23/72, published as Cmd 4131 of 1932. 141 Stimson Diary, 13 October 1932, XXIV:18. 142 Nichols memorandum, 7 June 1932, FO371/15911, C4848/29/62. 143 Gibson telegram 307 to Stimson, 6 July 1932, Hoover MSS 988. 144 Telephone transcript between Castle, Gibson and Davis, 8 July 1932, Hoover MSS 1012. 145 Stimson Diary, 11 July 1932, XXIII:44–6; Lindsay telegram 303 and despatch 1114, 14 and 18 July 1932, FO371/15912, C5997, C6658/29/62. 146 Stimson Diary, 12 July 1932, XXIII:49–52. 147 Gibson telegram 329 and 331 to Stimson, 14 July 1932, Hoover MSS 1012. Also FO371/15912, C6268/29/62. 148 Hoover to William Borah, 14 July 1932, Castle MSS 17/131. 149 Stimson to MacDonald, 20 July 1932, PRO 30/69/1442/1022–3; Stimson Diary, 13–14 July 1932, XXIII:58–62. 5 The British ‘bombshell’: July–November 1932 1 Lindsay despatch 673, 21 April 1932, FO371/15908, C3491; D’arcy Osborne to Orme Sargent, 6 October 1932, T188/76/119; Kelly minute, 22 August 1932; Osborne despatch 1394, 15 September 1932, C7235, C8135/29/62. 2 Hoover at Washington, The Times, 12 August 1932; Bundy telegram to Joslin and Mellon, both 2 November 1932, Hoover MSS 1012. 3 Stimson Diary, 29 and 31 October 1932, XXIV:38–9, 43. 4 Mellon telegram to Stimson, 27 October and 2 November 1932; ‘Telephone conversation between Secretary Stimson, Mills and Mellon’, 31 October 1932’, Hoover MSS 988, 1012. 5 ‘Attitude of Democrat and Republican Parties’, T188/76/132. 6 A.J. Cummings, ‘Memorandum of conversation with Governor Roosevelt at Albany on August 31 1932’, Runciman MSS 259/32–8. 7 Raymond Moley (with Elliot Rosen), The First New Deal, (New York: Harcourt, Brace & World, 1966), p.22. 8 Edge cable 451 to Stimson, 28 July 1932, Hoover MSS 1012; Commercial and Financial Chronicle, 29 October 1932, p.2909. 9 Simon to MacDonald and reply, 9–10 August 1932, PRO30/69/678/3/596–98. 10 Lindsay to Vansittart, 24 September 1932, FO371/15913, C8127/29/62. 11 Tyrrell minute to Curzon, 4 January 1921, FO371/5661, A247/247/45; Stimson to Hoover, 8 November 1929, Hoover MSS 987. 12 ‘Note on conversation with Vansittart and Sir Ronald Lindsay about War Debts’, 7 October 1932, T188/49/51–5. 13 Vansittart to Leith-Ross, 5 November; to Warren Fisher, 10 November and reply 12 November 1932; Fisher to Hankey, 18 November 1932; ‘Our relations with the French Government in regard to War Debt Negotiations’, 17 November 1932, T172/1506. 14 Lindsay to Vansittart, 24 September 1932, T172/1506.


234

Notes (pp. 94–102)

15 Craigie minute, 6 October 1932, FO371/15913, C8442/9/41. 16 Orme Sargent, ‘Forthcoming Negotiations with the United States Government over War Debts’, 28 October 1932; Sargent to Waley, 31 October 1932, T188/49/61, 67. 17 Waley to Sargent, 1 November 1932, T188/49/68. 18 CAB 61(32)7, 7 November 1932, CAB 23/73. 19 Stimson Diary, 10 November 1932, XIX:76. 20 CP 389(32), 10 November 1932, CAB 24/234 published as Cmd 4192. 21 ‘Memorandum of Conversation between Secretary Stimson and the French Ambassador . . . at Woodley’, 11 November 1932, Hoover MSS 1012. 22 Sargent minute, 16 November 1932, FO371/15914, C9437/29/62; Vansittart to Leith-Ross, 18 November 1932, T188/49/70. 23 Fisher to Vansittart, 22 November 1932, T188/49/74; Lindsay telegram, 461 and 463, 19 November 1932, FO371/15914, C9655. 24 ‘Record of a Meeting in the Foreign Office’, 21 November 1932, T188/49/75–81. 25 ‘Note on a conversation with Vansittart and Sir Ronald Lindsay about War Debts’, 7 October 1932, T188/49/54. 26 Stimson Diary, 11 November 1932, XXIV:81; memorandum of conversation between Stimson and Claudel, 11 November 1932, Hoover MSS 1012. 27 Ferrell, American Diplomacy in the Great Depression, p.40. 28 Atherton to Castle, 3 May 1932, Castle MSS 4/37. 29 E. Pendleton Herring, ‘Second Session of the Seventy-Second Congress, December 5, 1932, to March 4, 1933’, American Political Science Review, 27 (1933), pp.846–74. 30 Stimson Diary, 10–13 November 1932, XIX:76–84; Castle Diary, 11 November 1932. 31 Hoover to Roosevelt, 12 November 1932, Hoover MSS Personal Files 204. 32 Mills ‘Memorandum for the President’, 15 November 1932, Hoover MSS 1012. 33 Stimson Diary, 16 and 19 November 1932, XXIV:96–100 and 109. 34 Stimson Diary, 23 and 29 November 1932, XXIV:124–5, 140–1. 35 Fausold, The Presidency of Herbert Hoover, p.171; Ferrell, American Diplomacy in the Great Depression, pp.40–3. 36 Stimson Diary, 17–19, 29 November 1932, XXIV:103–9, 141. 37 Stimson Diary, 20–21 November 1932, XXIV:111–15; Castle Diary, 19 November 1932; Chapin to Hoover, 21 November 1932, Hoover MSS 1012. 38 Moley, First New Deal, p.23. 39 John Morton Blum, From the Morgenthau Diaries, Volume I: Years of Crisis, 1928–1938, (Boston: Houghton Mifflin, 1959), p.141; Moley, The First New Deal, pp.6, 244. For a contrary view see Rexford Tugwell, The Brains Trust, (New York: Viking Press, 1968), p.73. 40 William E. Leuchtenburg, Franklin D. Roosevelt and the New Deal 1932–1940, (New York: Harper & Row, 1963), pp.30–1 and James MacGregor Burns, Roosevelt: the Lion and the Fox, (New York: Harcourt, Brace and World,1956), pp.145–6. 41 Moley, First New Deal, p.22. 42 Rexford Tugwell, In Search of Roosevelt, (Cambridge: Harvard University Press, 1972), p.142. 43 Herbert Feis, 1933: Characters in Crisis, (Boston: Little, Brown & Co., 1966), p.13. 44 Tugwell, In Search of Roosevelt, pp.141–3, 211–12. 45 Moley, First New Deal, pp.23–4. 46 Roosevelt to Hoover, 14 November 1932, Hoover MSS (Presidential Personal File) PPF 204. 47 Tugwell Diary notes, 20 December 1932, Tugwell MSS Box 30; Moley, First New Deal, pp.25–6.


Notes (pp. 102–12)

235

48 Moley, First New Deal, p.27. 49 Lindsay telegram 456, 17 November 1932, FO371/15914, C9547/29/62; Stimson Diary, 16 and 22 November 1932, XXIV:99–100. Memoirs of Herbert Hoover, volume III, p.179. 50 Stimson Diary, 22 November 1932, XXIV:118; Moley, First New Deal, p.24. 51 Memoirs of Herbert Hoover, volume III, p.179. Also Stimson Diary, 22 November 1932, XXIV:118. 52 Moley, First New Deal, pp.30–1. 53 Hoover ‘Memorandum – November 22 1933 [sic:1932]’, Hoover MSS 1012; Stimson Diary, 23 November 1932, XXIV:121–2. 54 Memoirs of Herbert Hoover, III, pp.180–1. 55 ‘Memorandum – November 22, 1933 [sic:1932]’, Hoover MSS 1012; Stimson Diary, 22 November 1932, XXIV:118–19. 56 Samuel I. Rosenman (ed.), Public Papers & Addresses of Franklin D. Roosevelt, (13 volumes, New York: Russell & Russell, 1938), I, p.867. 57 Moley, First New Deal, pp.29, 30–2; After Seven Years, pp.72–7. 58 Ibid, p.32. 59 Stimson Diary, 23 November 1932, XXIV:121. 60 William Starr Myers and Walter H. Newton, The Hoover Administration: A Documented Narrative, (New York: Charles Scribner’s Sons, 1936), pp.287–8; Moley, First New Deal, p.35. 61 Stimson Diary, 23 November 1932, XXIV:121–2; Castle Diary, 23 November 1932. 62 Myers and Newton, The Hoover Administration, pp.283–7. 63 Stimson Diary, 23 November 1932, XXIV:123–5; Lindsay telegram 471, 24 November 1932, FO371/15914, C9740/29/62. 64 Castle Diary, 25 November 1932. 65 Stimson Diary, 23 November 1932, XXIV:120–9; Lindsay telegram, 471, 24 November 1932. 66 Lindsay telegram 470, 23 November 1932, FO371/15913, C9739/29/62, published as Cmd 4203. 67 Lindsay telegram 471–2, 24 November 1932; Sargent to Waley, 25 November 1932, FO371/15913, C9740–1/29/62. 68 Lindsay telegram 472–3, 24 November 1932, FO371/15914, C9741–42/29/62. 69 Lindsay telegram 472–3, 482, 488–9, 24, 28, 29 November 1932, FO371/15914, C9741, FO371/15915, C9865, C9897/29/62. 70 Stimson Diary, 28–30 November 1932, XXIV:132–5, 138–40, 146–7. 71 Telephone conversation between Stimson and Lamont, 10.50am, 28 November 1932, Hoover MSS 1012. 72 Norman Davis telegram 38 to Stimson, 13 November 1932, reporting conversation with René Massigli in Geneva, Hoover MSS 1012; Castle Diary, 19 November 1932. 73 Stimson Diary, 16 and 18 November 1932, XXIV:99, 106. 74 Stimson Diary, 28 November 1932, XXIV:135–6; telephone conversation between Stimson and Lamont, 10.50 am, 28 November 1932, Hoover MSS 1012. 75 Telephone conversation between Stimson and Lamont, 28 and 30 November 1932, Hoover MSS 1012. 6 ‘To pay or not to pay, that is the question’: December 1932 1 Neville Chamberlain to Hilda Chamberlain, 26 November 1932, Self (ed.), The Neville Chamberlain Diary Letters, volume III, p.360.


236

Notes (pp. 112–21)

2 Lindsay telegram 461, 476–7, 479–80, 488–9, 19, 24 and 28 November 1932, FO371/15914, C9757–9, C9865. See also Montagu Norman Diary, 18 October 1932, Bank of England Archive ADM34/21 3 ‘War Debts’, 24 November and Vansittart minutes, 25, 28 November and 2, 6 December 1932, FO371/15915, C9805, C10003, C10104, C10123. 4 MacDonald Diary, 1 October, 21 and 23 November 1932, fol.427–8; Bullitt to Louis Wehle, 3 December 1932 reporting MacDonald, Roosevelt MSS PPF 693. 5 Unsigned memorandum, ‘War Debts’, 28 November 1932, T172/1507/159–63. 6 Neville Chamberlain to Hilda Chamberlain, 26 November 1932; ‘Record of a meeting in the Foreign Office’, 21 November 1932, T188/49/75–81; Fisher to Vansittart, 22 November 1932, T188/49/74; Donald Fergusson to Chamberlain, 27 November 1932, T172/1507/154. 7 CP 425(43), Paris, 8 December 1932, p.2, CAB 24/235; Neville Chamberlain to Ida Chamberlain, 4 December 1932, Self (ed.), The Neville Chamberlain Diary Letters, volume III, p.363. 8 Chamberlain to Lord Tyrrell, 17 November 1932 and ‘Notes of conversations with M. Flandin, November 1932’, NC7/11/25/47–8. 9 Hore-Belisha Diary, 22, 24 and 28 November 1932, HOBE1/1/96–7. 10 ‘The War Debts Position’, 25 November 1932, T188/49/100–2; Donald Fergusson to Chamberlain, 27 November 1932, T172/1507/154. 11 Neville Chamberlain to Ida Chamberlain, 4 December 1932, Self (ed.), The Neville Chamberlain Diary Letters, volume III, p.363. 12 Meeting of Ministers, 28 November 1932 appended to CAB 63(32), CAB 23/73. 13 Neville Chamberlain to Ida Chamberlain, 4 December 1932, Self (ed.), The Neville Chamberlain Diary Letters, volume III, p.363; MacDonald Diary, 27 November 1932, fol.429; MacDonald Notebook, ‘Geneva, December 1932’, PRO 30/69/1753/3; Chamberlain to MacDonald, 5 December 1932, T188/46/151–2. 14 Vansittart and Fisher memorandum for the Chancellor of the Exchequer, 28 November 1932, T172/1507. 15 Neville Chamberlain to Ida Chamberlain, 19 November 1932, Self (ed.), The Neville Chamberlain Diary Letters, volume III, p.359; Meeting of Ministers, 28 November 1932, Appendix to CAB 63(32), CAB 23/73. 16 Neville Chamberlain to Hilda Chamberlain, 26 November and to Ida Chamberlain, 4 December 1932, Self (ed.), The Neville Chamberlain Diary Letters, volume III, pp.359–60, 362–6; Clay, Lord Norman, p.447. 17 Lord Beaverbrook to Robert Borden, 8 December 1932, Beaverbrook MSS C/51; Chamberlain Diary, 4 January 1933. 18 ‘War Debt to America: Probable effects’, n.d., T172/1507/90–2. 19 Meeting of Ministers, 28 November 1932, appended to CAB 63(32), CAB 23/73. 20 CAB 63(32)1, 29 November 1932, CAB 23/73; Neville Chamberlain to Ida Chamberlain, 4 December 1932, Self (ed.), The Neville Chamberlain Diary Letters, volume III, p.366; MacDonald Notebook, ‘Geneva, December 1932’, PRO 30/69/1753/3. 21 CP 416(32), CAB 24/235 published as Cmd 4210, 1 December 1932. 22 Stimson and Castle Diary, 1 December 1932, XXIV:150–3; Hoover reply, 1 December 1932, Hoover MSS 1013. 23 Lindsay telegram 497, 1 December 1932, FO371/15915, C10002; ‘U.S. offer to France and the U.K. as regards December 15 payment’, n.d., T172/1507/245–6; Orme Sargent memorandum, 5 December 1932, T172/1506/165–72. 24 Stimson Diary, 1 December 1932, XXIV:154–7; Lindsay telegram 499 and 502, 1 December 1932, FO371/15915, C10003, C10010; Stimson to Hoover (and draft reply to France), 1 December 1932, Hoover MSS 1012. 25 Stimson and Castle Diary, both 2 December 1932.


Notes (pp. 121–7)

237

26 Neville Chamberlain to Hilda Chamberlain, 10 December 1932; Lord Reading to Neville Chamberlain, 2 December 1932, NC7/11/25/30. 27 Castle Diary, 1–2 December 1932. 28 Lindsay telegram, 509, 2 December 1932, FO371/15915, C10052. 29 Chamberlain to Lord Reading, 2 December 1932, NC7/11/25/30. 30 Stimson Diary, 2 December 1932, XXIV:163; Lindsay telegram 504, 2 December 1932, T188/49/133. 31 Stimson Diary, 2 December 1932, XXIV:163–5; memorandum on conversation with Paul Claudel, 2 December 1932, Castle MSS 17/133. 32 Stimson Diary, 3 December 1932, XXIV:166, 169–70. 33 Baldwin to Mellon, 3 December 1932, Baldwin MSS 110/65–6; FO telegram 599 to Lindsay, 5 December 1932, FO371/15916, C10124. 34 Stimson Diary, 3 December 1932, XXIV:167–71; Lindsay telegrams 513–15, 4 December 1932, FO371/15915, C10076–8. 35 Stimson Diary, 4 December 1932, XXIV:176–7. 36 Hugh Wilson telegram 57, 4 December 1932, Hoover MSS 1012; Stimson Diary, 6–7 December 1932, XXIV:184–90. 37 Lindsay telegram 537, 8 December 1932, FO371/15916, C10204; Cmd 4211, 7 December 1932. 38 Stimson Diary, 9 December 1932, XXIV:196. 39 FO telegram 599 to Geneva, (Chamberlain to MacDonald), 5 December 1932, FO371/15916, C10124. 40 Fisher memorandum to Chancellor, 6 December 1932, T188/49/163–5. 41 Leith-Ross to Fisher and Chamberlain, 6 December 1932, T188/49/166; Lindsay telegram 521, 5 December 1932, FO371/15916, C10123. 42 Lindsay telegram 521 and 529, 5 and 7 December 1932, FO371/15916, C10123, C10169. 43 CAB 65(32)1, 7 December 1932, CAB 23/73. 44 Fisher and Chamberlain annotations on Leith-Ross note, 10 December 1932, T172/1506/157–8. 45 Neville Chamberlain to Hilda Chamberlain, 10 December 1932, Self (ed.), The Neville Chamberlain Diary Letters, volume III, p.366; Appendix to CAB 65(32) published as Cmd 4215, 11 December 1932. 46 Lindsay telegram 532, 7 December 1932, FO371/15916, C10207. 47 Stimson Diary, 11 December 1932, XXIV:203–4; Lindsay telegram 551, 12 December 1932, FO371/15916, C10310; Cmd 4216, 11 December 1932. 48 Stimson Diary, 12 and 13 December 1932, XXIV:206–8. 49 Cuthbert Headlam Dairy, 14 December 1932, Stuart Ball (ed.), Parliament and Politics in the Age of Baldwin and MacDonald: The Headlam Diaries, 1923–1935, (London: The Historians’ Press, 1992), p.254; Neville Chamberlain to Ida Chamberlain, 17 December 1932, Self (ed.), The Neville Chamberlain Diary Letters, volume III, p.368. 50 Edge telegram 81 to Stimson, 2 February 1932, Hoover MSS 1011; Castle Diary, 2 December 1932. 51 ‘Western European Affairs Division: Review of Diplomatic Relations with France 1933’, n.d., [January 1933] Hoover MSS 51. 52 Robert Brand, ‘Memorandum: December 1932’, 29 December 1932, p.9, T172/1506/217. 53 Castle Diary, 18 February 1932. 54 US Embassy Paris to State Department, telegrams 647–8, 12 November 1932, Hoover MSS 988, 1012. 55 Lindsay telegram 456, 17 November 1932, FO371/15914, C9437. 56 ‘Note of a conversation with Mr O.T. Falk’, 24 November 1932, T172/1507/164. 57 Stimson Diary, 13 December 1932, XXIV:214–15.


238

Notes (pp. 127–34)

58 ‘Our relations with the French Government in regard to War Debt negotiations’, 17 November 1932, T172/1506/40; Tyrrell telegram 155, 25 November 1932, T172/1508/108. 59 FO telegram 599, 5 December 1932, FO371/15916, C10124; ‘War Debts: The Next Step’, 5 December 1932, T188/49/155. 60 Consul-General, Geneva, to Foreign Office, telegram 433, 5 December 1932, FO371/15916, C10205. 61 Tyrrell telegram 162, 6 December 1932, T172/1508/115; ‘Notes [by the British Embassy in Paris] on the French attitude to the Debts Question’, 7 December 1932, T172/1506/282–4, 286; MacDonald Notebook, ‘Geneva’, December 1932, PRO30/69/1753/3. 62 Tyrrell telegram 162, 6 December 1932, T172/1508/115–16. 63 ‘Notes on the French attitude to the Debts Question’, 7 December 1932, FO371/15916, C10433. 64 Ibid; CP 425(32), ‘War Debts’, 8 December 1932, CAB 24/235. Neville Chamberlain to Hilda Chamberlain, 10 December 1932, Self (ed.), The Neville Chamberlain Diary Letters, volume III, p.367. 65 CP 425(32), ‘War Debts’, p.6, Annex I. 66 Edge telegram 704 to Stimson, 9 December 1932, Hoover MSS 988. For these suspicions see Castle Diary, 10 December 1932. 67 Tyrrell telegram 132, 10 December 1932, FO371/15916, C10312. 68 Tyrrell to Vansittart, 11 December 1932, T172/1509/44. 69 Tyrrell telegram 139 and 168, 13–14 December 1932, T172/1508/130–1; CAB 66(32)2, 13 December 1932, CAB 23/73. 70 Leith-Ross note to Fergusson, 13 December 1932 reporting Rueff; ‘Text of proposed French reply’, 13 December 1932, T172/1506/271–2. 71 Edge telegram 713, 13 December 1932, Hoover MSS 1012; Stimson Diary, 13 December 1932, XXIV:213. 72 Tyrrell telegram 139, 14 December 1932, FO371/15916, C10416. 73 Tyrrell telegram 167, 14 December 1932, FO371/15917, C10452. 74 Tyrrell telegram 169, 15 December 1932, T172/1508/132; Stimson Diary, 15 December 1932, XXV:5. 75 Stimson Diary, 15–17 December 1932, XXV:11–16; Clavin, Failure of Economic Diplomacy, p.56. 76 Simon memorandum to MacDonald, Baldwin and Chamberlain, 1 December 1932, Baldwin MSS 110/63–4. 77 Lord Granville telegram 26 to FO, 13 December 1932, T172/1508/34. 78 Clavin, Failure of Economic Diplomacy, pp.59, 180. 79 Fisher to Vansittart, 16 December 1932, T172/1706/259. 80 Fisher to Fergusson, 14 December 1932, T172/1507/214–15. 81 Neville Chamberlain to Mary Carnegie, 17 December 1932, NC1/26/187. 7 The Presidential interregnum: December 1932–March 1933 1 Castle Diary, 10 December 1932; Stimson Diary, 13 December 1932, XXIV:215; ‘Reconsideration of War Debts’, 12 December 1932, Hoover MSS 1012. 2 Stimson Diary, 15–16 December 1932, XXV:6–7, 9–13. 3 Hoover to Roosevelt, telegram, 17 December 1932, Roosevelt MSS PSF204. 4 Stimson Diary, 17 and 19 December 1932 XXV:17–18, 21–2. 5 Hoover Message to Congress, 19 December 1932, Hoover MSS 1013. 6 Stimson Diary, 19 December 1932, XXV:21–2; Castle Diary, 20 December 1932. 7 Moley, First New Deal, p.40.


Notes (pp. 134–42)

239

8 Stimson Diary, 20 December 1932, XXV:25. 9 Hoover, Memoirs, volume III, pp.185–7; ‘Memorandum of Conversation: British Ambassador’, 20 December 1932, Castle MSS 17/133. 10 Tugwell Diary notes, 20 December 1932, Tugwell MSS Box 30; Moley, First New Deal, p.41. 11 Stimson Diary, 21–22 December 1932, XXV:30–2, 36; Hoover and Roosevelt statements, The Times, 23–24 December 1932. 12 Moley, First New Deal, pp.35–8. 13 ‘Report of American Delegates to the Preparatory Committee of Experts on the World Monetary and Economic Conference’, p.14, Hoover MSS 1013; Clavin, Failure of Economic Diplomacy, pp.48–9. 14 Tugwell Diary notes, 20, 27, 29 December 1932, Tugwell MSS Box 30; Moley, First New Deal, p.39. 15 Tugwell Diary, 23 December 1932, Tugwell MSS Box 30; Tugwell, In Search of Roosevelt, pp.141–2. 16 Moley, First New Deal, p.42; Tugwell Diary, 24, 27, 29 December 1932, Tugwell MSS Box 30. 17 Stimson Diary, 24 December 1932, XXV:25, 51. 18 Hoover aide memoire, 23 December 1932, Hoover MSS PPF 204; Hoover memorandum to Stimson, n.d., Stimson MSS Reel 84; Stimson Diary, 22–23 December 1932, XXV:38–41, 47–9. 19 Stimson Diary, 24 December 1932, XXV:50–2. 20 Stimson Diary, 27 October 1932, XXV:56–7. 21 Stimson Diary, 3 January 1933, XXV:69–71; Edge telegram to Stimson, 4 January 1933, Hoover MSS 995. 22 Stimson Diary, 5 January 1933, XXV:75–9; ‘Instructions to Stimson on Conversations with Roosevelt’, 4 January 1933, Hoover MSS 1012. 23 Stimson Diary and ‘Memorandum of Conversation with Franklin D. Roosevelt’, both 9 January 1933, XXV:94–105; Robert Dallek, Franklin Roosevelt and American Foreign Policy, (Oxford: Oxford University Press, 1995), p.28. 24 Castle Diary, 10–11 January 1933. 25 Stimson Diary, 11 January 1933, XXV:111; Castle Diary, 14 January 1933. 26 Stimson Diary, 15 January 1933, XXV:120–3; Hoover Diary Memorandum, 15 January 1933, Hoover MSS 1012. 27 Stimson Diary, 19–20 January 1933, XXV:144–6, 149. 28 Tugwell Diary, 22 January 1933, Tugwell MSS Box 30. 29 Dallek, Franklin Roosevelt and American Foreign Policy, pp.28–30; Stimson Diary, 20 January 1933, XXV:150–2. 30 Stimson Diary and Hoover memorandum of the conversation, both 20 January 1933, XXV:150–66 and Hoover MSS PPF 204; Tugwell Diary, 22 January 1933 Box 33; Castle Diary, 24 January 1933; Moffat Diary, 20 January 1933 in Welles MSS 211/01. 31 Ferrell, American Diplomacy in the Great Depression, pp.35, 40–3. 32 Castle Diary, 24 January 1933. 33 Brand ‘Memorandum: December 1932’, 29 December 1932, p.9, T172/1506/217. 34 Tyrrell telegram 171, 19 December 1932, T172/1509/2–3. 35 Edge telegram 736, 21 December 1932, Hoover MSS 1012. 36 Ibid; The Times, 29 December 1932. 37 Edge to Stimson and to Senator David Reed, both 3 January 1933, Stimson MSS Reel 84; Edge telegram 18, 14 January 1933, Hoover MSS 1012. 38 Stimson Diary, 3 January 1933, XXV:69–70. 39 Hoover Diary Memorandum, 13 January 1933, Hoover MSS 1015. 40 Stimson Diary, 18–19 January 1933, XXV:141, 144–5.


240

Notes (pp. 142–9)

41 Memorandum of Conversation between Stimson and the British Ambassador, 19 January 1933, Castle MSS 17/133. 42 Edge telegram 29, 24 January 1933, Hoover MSS 1012. 43 Hoover Diary Memorandum, 21–22 January 1933, Hoover MSS 1015; Stimson Diary, 21–22 January 1933, XXV:169–72; aide memoires for Italy, Latvia, Lithuania, Finland, 24 January 1933, Hoover MSS 1012. 44 Stimson Diary, 23–24 January 1933, XXV:174–9. Stimson to Roosevelt and draft note to France, 22 January 1933, Roosevelt MSS PPF20. 45 Edge telegram 29, 33 and 34, 24–26 January 1933, Hoover MSS 1012. 46 Stimson Diary, 25 January 1933, XXXV:183–4. 47 Edge telegram 32, 25 January 1933, Hoover MSS 1012. 48 Bullitt telegram to Miss Le Hand, 26 January and 1 February 1933, Roosevelt MSS PPF1124. 49 Roosevelt telegram to Stimson, 27 January 1933, Hoover MSS 1012; Stimson Diary, 27, 29, 31 January 1933, XXV:197, 203, 207. 50 Lindsay telegram 579, 22 December 1932, FO371/15917, C10837. 51 Memorandum of a Conversation between Stimson and the British Ambassador, 19 January 1933, Castle MSS 17/133; Stimson Diary, 19 January 1933, XXV:142–3. 52 CAB 68(32)4, 21 December 1932, CAB 23/73; Neville Chamberlain to Ida Chamberlain, 19 November 1932, Self (ed.), The Neville Chamberlain Diary Letters, volume III, p.358. 53 Vansittart to Fisher and reply, 16–17 December 1932, T172/1506/257, 264. 54 Lindsay telegram 539–40, 8 December 1932, FO371/15916, C10259. 55 BDA (33) 1st Meeting, 6 February 1933, p.13, CAB 27/548; Lord Astor memorandum, 29 December 1932, Lothian MSS GD 40/17/198/97–111. 56 Lindsay telegram 521, 5 December 1932, FO371/15916, C10194. 57 Lindsay telegram 539–40, 8 December 1932, FO371/15916, C10259; LeithRoss minute to Fisher, 10 December 1932, T172/1506/151. 58 Robert Brand to Neville Chamberlain, 23 December 1932, T172/1506/242–3. 59 Simon to Chamberlain, 29 December 1932, T172/1506/202; MacDonald Diary, 16 January 1933, fol.430. 60 Brand ‘Memorandum: December 1932’, p.1, para.1–2, T172/1506/209. 61 Leith-Ross minute to Fisher and Chamberlain, 20 December 1932, T188/58/40. 62 Lord Astor memorandum, 29 December 1932, Lothian MSS GD40/17/198/97–111. 63 Fergusson, ‘American Debt’, 29 December 1932, T172/1506; Craigie minute, 21 December 1932, FO371/15917, C10940. 64 Leith-Ross to Fisher and Chamberlain, 30 December 1932, T172/1506. 65 Fergusson to Chamberlain, 13 December 1932, T172/1506/200–1; Stimson Diary, 21 December 1932, XXV:31. 66 Nancy H. Hooker (ed.), The Moffat Papers: Selections from the Diplomatic Journal of Jay Pierrepont Moffat, (Cambridge: Harvard University Press, 1956), pp.77–8, writing on 22 November 1932. 67 A.J. Cummings to Runciman, 9 September 1932 and ‘Memorandum on conversation with Governor Roosevelt at Albany on August 31 1932’, Runciman MSS 259/30–8. 68 MacDonald Diary and MacDonald to Chamberlain, both 5 January 1933, NC7/11/26/25. 69 Louis B. Wehle, Hidden Threads of History: Wilson Through Roosevelt, (New York: Macmillan, 1953), p.118. 70 MacDonald Diary, 28 November 1932, fol.429.


Notes (pp. 149–55)

241

71 Bullitt to Louis Wehle, 3 December 1932, Roosevelt MSS PPF 693; Stimson Diary, 21 December 1932, XXV:31. 72 Vansittart to MacDonald, 16 December 1933, MacDonald MSS PRO30/69/679/103–4. 73 Lindsay telegram 520, 5 December 1932, FO371/15916, C10123. 74 Fisher to Chamberlain, 2 January 1933; Chamberlain to MacDonald, 4 January 1933, T188/45/45–53. 75 Neville Chamberlain to Hilda Chamberlain, 8 January 1933, Self (ed.), The Neville Chamberlain Diary Letters, volume III, pp.370–1; memorandum of a conversation with Roosevelt, 9 January 1933, Stimson MSS XXV:100. 76 CAB 5(33) Appendix, 30 January 1933, CAB 23/75; Simon telegrams 35 and 39 to Lindsay, 22 and 24 January 1933, MacDonald MSS PRO30/69/ 308; MacDonald Diary, 21–22 January 1933 fol.431–2; ‘Conversation between Governor Roosevelt and Mr Bullitt’, 22 January 1933, PRO30/69/ 1753/4. 77 Tugwell Diary, 24–25 January 1933, Tugwell MSS Box 30. 78 Lindsay telegram 60, 65, 28 and 30 January 1933, MacDonald MSS PRO30/69/308; Orville H. Bullitt (ed.), For the President Personal and Secret: Correspondence between Franklin D. Roosevelt and William C. Bullitt, (London: Andre Deutsch, 1973), p.24. 79 CAB 5(33) Appendix, 30 January 1933, CAB 23/75; BDA(33) 1st Meeting, 6 February 1933, CAB 27/548. 80 Neville Chamberlain to Ida Chamberlain, 29 January 1933, Self (ed.), The Neville Chamberlain Diary Letters, volume III, p.373. Also Chamberlain at Birmingham, The Times, 4 February 1933. 81 Lord Astor to MacDonald, 6 January 1933, MacDonald MSS PRO30/69/679/152. 82 Hubert Henderson to Baldwin, 16 January 1933, Baldwin MSS 110/135. 83 Lindsay telegram 22, 18 June 1933, T172/1508/26–8. 84 Leith-Ross to Fisher and Chamberlain, 30 December 1932, T172/1506/196. 85 Chamberlain annotation on Fergusson note, 4 January 1933, T172/1506/201; Chamberlain to MacDonald, 4 January 1933, T188/58/53. 86 Neville Chamberlain to Ida Chamberlain, 29 January 1933, Self (ed.), The Neville Chamberlain Diary Letters, volume III, p.373; to Arthur Chamberlain, 20 February 1933, NC7/11/26/9. 87 The Times, 25 January 1933. For the full text see T188/76/147–60. 88 Neville Chamberlain to Ida Chamberlain, 29 January 1933, Self (ed.), The Neville Chamberlain Diary Letters, volume III, p.373. 89 Osborne telegram 90, 3 February 1933, T172/1508/86. 90 RJB ‘Interviews in Washington with Senators and others, 6–9 February 1933’, T188/58/73–8. 91 Stimson Diary, 27 January 1933, XXV:195; Tugwell Diary, 25 January 1933, Tugwell MSS Box 30. 92 Mellon telegram 16, 25 January 1933, Hoover MSS 988. 93 Lothian notes, ‘Lamont dinner’, n.d., Lothian MSS GD40/17/199/138–9; CP 29(33), 30 January 1933, CAB 24/237. 94 W.Y. Elliott to Lothian, 1 February 1933, Lothian MSS GD40/17/199/183. 95 BDA (33), 1st Meeting, 6 February 1933, pp.6, 13. 96 MacDonald Diary, 5 February 1933, fol.434; Neville Butler [Foreign Office] to MacDonald, 22 February 1933, enclosing Robert Stopford memorandum, MacDonald MSS PRO30/69/255. 97 Osborne reports, 2 and 7 February 1933, T172/1508/80–3, 20. 98 CP 39(33), Lindsay telegrams 67–8, 71, 30–31 January 1933, CAB 24/237. 99 Lindsay telegram 70, 30 January 1933, T172/1508/75.


242

Notes (pp. 155–61)

100 CAB 68(32)3 and Chamberlain to MacDonald, both 21 December 1932, T172/1506/254. 101 Neville Chamberlain to Ida Chamberlain, 12 February 1933, Self (ed.), The Neville Chamberlain Diary Letters, volume III, p.375; Chamberlain to Lothian, 17 February 1933, Lothian MSS GD40/17/200/220–1. BDA (33), 1st, 2nd, 3rd and 4th Meeting, 6–9 February 1933, CAB 27/548. 102 BDA (33), 3rd, 5th and 6th Meetings, 8, 10 and 13 February 1933, CAB 27/548. 103 BDA (33), 2nd and 3rd Meeting, 7–8 February 1933, CAB 27/548. 104 Patrick Duff to Fisher, 29 December 1932, T172/1506/228. 105 Fergusson, ‘Negotiations with America’, 29 December 1932, T172/1506. 106 MacDonald’s untitled memorandum sent to Runciman, 31 January 1933, Runciman MSS 259/66–73. 107 Waley notes, 8–9 February 1933, T188/58/68–71. 108 Hilda Runciman Diary, 13 February 1933, Runciman MSS Additional 8. 109 Bullitt telegram to Miss Le Hand, 24 January 1933, Roosevelt MSS PPF 1124. 110 MacDonald to Lilian Wald, 7 February 1933 and her note to Roosevelt, Roosevelt MSS PPF114. 111 MacDonald Diary, 29 January 1933 fol.433; BDA (33) 2nd and 3rd Meeting, 7–8 February 1933, CAB 27/548. 112 Hore-Belisha Diary, 26 January 1932, HOBE 1/1. 113 MacDonald to Roosevelt, 10 February 1933, Roosevelt MSS PSF 38. 114 CP 134(33), 24 May 1933, CAB 24/241; CAB 8(32)2, 13 February 1933, CAB 23/75; CP 28(33) Revise, 10 February 1933, CAB 24/237. 115 Roosevelt to MacDonald draft, n.d. [February 1933], Roosevelt MSS PSF 38. 116 Waley to Leith-Ross, 21 February 1933, T188/58/88. 117 Bullitt to MacDonald, n.d., Orville Bullitt (ed.), For the President, p.30. 118 Neville Chamberlain to Ida Chamberlain, 25 February 1933, Self (ed.), The Neville Chamberlain Diary Letters, volume III, p.378; CAB 10(33)9, 22 February 1933, CAB 23/75. 119 Chamberlain to Lothian, 17 February 1933, Lothian MSS GD40/17/220–1. 120 Neville Chamberlain to Ida Chamberlain, 1 April and to Hilda Chamberlain, 29 April 1933, Self (ed.), The Neville Chamberlain Diary Letters, volume III, pp.384, 389; Chamberlain to Arthur Chamberlain, 20 February 1933, NC7/11/26/9. 121 Richard W. Steele, ‘The Pulse of the People: Franklin D Roosevelt and the Gauging of American Public Opinion’, Journal of Contemporary History, 9 (1974), pp.197–202. 122 Hopkins and Waley note for Chamberlain, 27 March 1933, T175/79/4–8; Clavin, Failure of Economic Diplomacy, p.155. 123 BDA (33), 7th Meeting, 31 March 1933, p.87, reporting Norman Davis, CAB 27/548. 124 Samuel I. Rosenman, (ed.), The Public Papers and Addresses of Franklin D. Roosevelt, 1933, p.14. 8 Counting on Roosevelt: March–July 1933 1 ‘Review of Diplomatic Relations’, 25 February 1933, probably by Frederick P. Hibbard, Hoover MSS 51. 2 Tugwell Diary, 26 February 1933, Tugwell MSS Box 30; Stimson Diary, 1 March 1933, XXVI:118–19. 3 Cordell Hull to Roosevelt, 27 February 1933 and ‘British Policy on Economic Problems’, Roosevelt MSS OF17.


Notes (pp. 162–9)

243

4 Lindsay to Simon, 17 March 1933, FO800/211/219–20; Lindsay telegram 175–6 and 182–3, 24 and 26 March 1933, T172/1509/7–12, 22–5; Lindsay telegram 182–3, 26 March 1933, T172/1509/22–5. 5 Hopkins and Waley ‘Note sent to Chancellor’, 27 March 1933, T175/79/4–8. 6 MacDonald to Baldwin, 31 March 1933, Baldwin MSS 121/186–7. 7 BDA(33) 7th Meeting, 31 March 1933, CAB 27/548; CAB 23(33)5, 5 April 1933, CAB 23/75. 8 MacDonald Diary, 7 and 11 April 1933, fol.440–1. 9 Lothian to Chamberlain, Runciman, Baldwin and Simon, 16 February 1933, Lothian MSS GD40/17/200/218. 10 Sir William Wiseman [House’s Secretary] to Lothian, 23 February 1933. Also Colonel House to Lothian, 24 February 1933, Lothian MSS GD40/17/200/241–3. 11 Lothian to Colonel House, 13 February 1933, Lothian MSS GD40/17/200/200–8. 12 Lothian to Colonel House, 13 February and reply 24 February 1933; Lothian to MacDonald, 27 February 1933, Lothian MSS GD40/17/200/243, 245. 13 Leith-Ross, Money Talks, pp.160–1; MacDonald Notebook, 15, 19–21 April 1933, PRO30/69/1753/3; Robert Vansittart, The Mist Procession, (London: Hutchinson, 1958), p.466. 14 ‘Press Conference – Ramsay MacDonald Held in the President’s Office, Friday, April 21, 1933 – 6.35 pm’ Roosevelt MSS PSF38. 15 MacDonald Notebook, ‘American Mission 1933’, 21–24 April 1933, PRO30/69/1753/3; MacDonald to Simon, 25 April 1933, FO800/291/258; Lindsay telegram 277, 28 April 1933, T175/77/25. 16 ‘Press Conference, Prime Minister MacDonald’, 26 April 1933, Roosevelt MSS PSF38. 17 CAB 33(33)2, 5 May 1933, CAB 23/76. 18 Lindsay to MacDonald, telegram 284, 29 April 1933, T175/77/10A; Leith-Ross, Money Talks, p.163. 19 Leith-Ross telegram 291–2, to the Treasury, 2 May 1933, T175/79/10–12. 20 Leith-Ross, Money Talks, p.166. 21 ‘Notes by Sir F. Phillips on the Warburg Plan’, 4 May 1933, T175/79/17. 22 George McKinsey, The Presidency of Franklin Delano Roosevelt, (Lawrence: University of Kansas Press, 2000), p.39. 23 Leith-Ross telegrams 292–3, 2–3 May 1933, T175/70/12, 14. 24 Hopkins minute on Leith-Ross telegrams, 3 May 1933; ‘Notes by Sir F. Phillips on the Warburg Plan’, 4 May 1933 T175/79/15–18. 25 Leith-Ross to Hopkins, 2 May 1933; Fisher and Chamberlain annotations on Hopkins minute on the Leith-Ross report, 3 May 1933; Lindsay telegram 299, 8 May 1933, T175/79/13–14, 22–3. 26 MacDonald to Roosevelt, 8 May 1933, Roosevelt MSS PSF38. 27 FO telegram 256 to Lindsay, 11 May 1933, appended to BDA(33) 9th Meeting, 16 May 1933, CAB 27/548, pp.106–7. 28 Tugwell Diary, 6 May 1933, ‘The 100 Days’, Tugwell MSS Box 30. 29 Lindsay telegram 309, 14 May 1933, appended to BDA(33) 9th Meeting, 16 May 1933, CAB 27/548, pp.103–5. 30 BDA(33) 9th Meeting, 16 May 1933, p.101; Lindsay telegram 364–5, 4 June 1933, T188/74/17–18; Roosevelt to MacDonald and reply, 22 and 24 May 1933, Roosevelt MSS PSF38 and T172/1805/101–2. 31 Lindsay telegrams 381–2, 8 June 1933 appended to CAB 38(33)1 and CAB 39(33)2, 31 May, 9 June 1933, CAB 23/77. 32 Lindsay telegram 364–5, 4 June 1933, T188/74/17–18. 33 MacDonald to Roosevelt, 4 June 1933, T172/1815/98.

244 34 35 36 37 38 39 40


41 42 43 44 45 46 47 48 49 50 51 52 53 54 55 56 57

58 59 60 61 62 63 64 65

Notes (pp. 169–76)

Lindsay telegram 374–5, 7 June 1933, T188/74/45, 48–50. Unsigned minute to Chancellor, n.d. [5 June 1933], T188/74/26. Vansittart to Leith-Ross, 6 June 1933, T188/74/35–6. Lindsay telegram 372, 7 June 1933, T188/74/43. Waley to Leith-Ross, n.d. [6 June 1933]; Lindsay telegram 371, 6 June 1933, T188/74/41, 34. Vansittart to Leith-Ross, 6 June 1933, T188/74/36–8. Fisher to Chamberlain, 6 June 1933, T188/74/32; unsigned memorandum to Chancellor, n.d. [15 June 1933], T188/74/26. Leith-Ross minute ‘Note of what I can remember of a telephone conversation with the Chancellor of the Exchequer this afternoon’, n.d. [8 June 1933?], T188/74/54. Lindsay telegram 381–2, 8 June 1933 appended to CAB 39(33)2, 9 June 1933, CAB 23/77. Orme Sargent minutes, both 16 December 1932, FO371/15917, C10543, C10476. Lindsay telegram 364–5, 4 June 1933, T188/74/17–18. Leith-Ross memoranda for Chancellor, n.d. and 8 June 1933, T188/74/48, 52–3; CAB 39(33) Appendix II, 9 June 1933, CAB 23/77. CAB 5(33) Appendix, 30 January 1933, CAB 23/75. CAB 39(33)2, 9 June 1933, CAB 23/77. Hilda Runciman Diary, 29 May, 12–15 June 1933, Runciman MSS Additional 8; CP 134(33), 24 May 1933, CAB 24/241. CAB 39(33)2, 9 June 1933; MacDonald Diary, 11 June 1933, fol.444. Clavin, Failure of Economic Diplomacy, p.119. Lindsay telegram 387–8, 395, 398–9, 9–11 June 1933, T188/74/71–9 and Appendix 1 to BDA (33) 11th Meeting, pp.115–18, CAB 27/548. FO telegram 301 to Lindsay and Lindsay telegram 398–9, both 11 June 1933, T188/74/97. BDA (33) 11th Meeting, 12 June 1933, pp.112–15; MacDonald Diary, 13 June 1933, fol.445. Lindsay telegram 400–2, 12 June 1933, T188/74/98–103. CAB 41(33)1, 13 June 1933, CAB 23/77. Chamberlain Diary, 14 June 1933, NC2/22; Headlam Diary, 14 June 1933, Ball (ed.), Parliament and Politics, p.273; MacDonald Diary, 15 June 1933, fol.445. Chamberlain to Amery, 16 June 1933, NC7/2/62; to Lord Reading, 17 June 1933, Reading MSS Eur.F.118/24l; to Hilda Chamberlain, 10 June 1933 and to Ida Chamberlain, 17 June 1933, Self (ed.), The Neville Chamberlain Diary Letters, volume III, p.394. For this mistrust see Self, Neville Chamberlain, pp.185–7, 190, 242–3, 276–7. CAB 36(32)2, 1 June 1932, CAB 23/71. Hopkins and Waley note to Chamberlain, 27 March 1933, T175/79/4–8; Roosevelt to MacDonald, 22 May 1933, Roosevelt MSS PSF38. Robert Skidelsky, John Maynard Keynes: Volume II, The Economist as Saviour, 1920–1937, (London: Macmillan, 1992), p.481. Cordell Hull, The Memoirs of Cordell Hull, (2 volumes, New York: Macmillan, 1948), volume I, p.250, 256. Clavin, Failure of Economic Diplomacy, pp.159–60. Tugwell Diary, 31 May 1933, ‘The 100 Days’, Tugwell MSS Box 30; Wayne S. Cole, Roosevelt and the Isolationists, 1932–45, (Lincoln: University of Nebraska Press, 1983), pp.57–64. Chamberlain Diary, 29 June, 2 and 4 July 1933, NC2/22; ME(UK) 18th Meeting of the British delegation, 2 July 1933, CAB 29/142; statement by the Honourable Cordell Hull, 3 July 1933, Roosevelt MSS OF17.

Notes (pp. 176–84)

245

66 Henry Morgenthau Jnr Diary, 9 May 1933. 67 Chamberlain Diary, 4 July 1933; ME(UK) 19th and 21st Meeting, 3 and 5 July 1933, CAB 29/142. 68 Chamberlain Diary, 6, 13, 17 July 1933, NC2/22. 69 Neville Chamberlain to Hilda Chamberlain, 4 February 1933; to Ida Chamberlain, 15 July 1933, Self (ed.), The Neville Chamberlain Diary Letters, volume III, pp.374, 398.


9 Drifting towards default: August 1933–June 1934 1 Lindsay memorandum, 12 August 1933, FO371/16673,C8366/1/62. 2 Hankey to Howarth, 27 June 1932, Hankey Magnum Opus MSS MO(32)8, CAB 63/45/7; Leith-Ross, Money Talks, p.167. 3 Jones Diary, 16 April 1937, Thomas Jones (ed.), A Diary with Letters, 1931–50, (London: Oxford University Press, 1954), p.327. 4 Vansittart to MacDonald, 25 August 1933, MacDonald MSS PRO30/69/314. 5 Osborne to Vansittart, 30 August 1933, MacDonald MSS PRO30/69/314. 6 Leith-Ross to Runciman, 15 September 1933, Runciman MSS 259/164–5; Fisher ‘War Debts’, 15 September 1933; Leith-Ross minute, 22 September 1933, T188/74/175–7. 7 CP 222(33), 25 September 1933, CAB 24/243; CAB 58(33)1, 26 October 1933, CAB 23/77. 8 Neville Chamberlain to Hilda Chamberlain, 24 September 1933, Self (ed.), The Neville Chamberlain Diary Letters, volume III, p.403. 9 Hull to Roosevelt, 12 September 1933; Phillips to Hull, 25 September 1933, Roosevelt MSS OF48/1. 10 Office of Economic Adviser, ‘Skeleton Outline of Alternative Approaches to Possible Debt Agreement with Great Britain’, 25 September 1933, Roosevelt MSS PSF32/302. 11 Castle Diary, 28 October 1933. 12 M.J. McDermott, ‘War Debts: a Digest of Editorial Opinion’, 9 October 1933; Phillips to Roosevelt, 17 October 1933, Roosevelt MSS OF212. 13 Leith-Ross to Runciman, 15 and 17 September 1933, Runciman MSS, 265/53, 259/164–5. 14 Lindsay’s report in CAB 64(33)10, 22 November 1933. 15 Leith-Ross to Hopkins, ‘War Debt’, 5 October 1933, T175/79/27–30; LeithRoss telegram 532 to Treasury, 5 October 1933, T175/76/2. 16 ‘Note of a conversation with Mr Acheson on October 25th 1933’, T188/74/374. 17 Leith-Ross to Hopkins and secret record of conversation with Douglas, 5 October 1933; Leith-Ross memorandum, 6 October 1933, T175/79/31–40. 18 Leith Ross to Hopkins, 7 October 1933; ‘Notes of a Conversation with Mr Acheson, 6 October [1933]’, T175/79/41–3; Lindsay telegrams 538–42, FO371/16674, C8822/1/62. 19 Leith-Ross to Hopkins, 8 and 10 October 1933, T188/74/229. 20 Craigie minute, 10 October 1933, FO371/16674, C8854/1/62. 21 Leith-Ross to Fisher and reply, both 12 October 1933, T175/79/53 and T172/1509/54–6. 22 Chancellor’s draft reply to Leith-Ross, 10 October 1933, T175/82/7; Fisher telegram 419–21 to Leith-Ross, 10 October 1933, FO371/16674, C8909. 23 Leith-Ross to Fisher, 12 October 1933, T175/79/48–52. Leith-Ross telegram 548 to Fisher, 12 October 1933, FO371/16674, C8954. 24 Leith-Ross telegram 551 to Fisher, 13 October and FO telegram 435–7, 16–17 October 1933, FO371/16674, C8989 and T175/83/233, 40–2.


246

Notes (pp. 184–90)

25 The Secret Diary of Harold L. Ickes: Volume I, The First Thousand Days, 1933–1936, (New York: Simon & Schuster, 1953), entry for 13 October 1933, pp.106–7. 26 Leith-Ross to Fisher, 17–18 October 1933, Washington telegram 556–60, 562–3, FO371/16674, C9094, C9159/1/62; ‘Note of conversation’ with Warburg, 16 October and with Acheson on October 25 1933, T175/79/68, 91. 27 Notes of conversations with Harrison and Leffingwell, both 16 October and with Warburg, 16 and 18 October 1933, T175/79/68–9, 75–7. 28 ‘Note of a conversation with Mr Acheson on 23 October 1933’, T175/79/83–8; LeithRoss to Fisher, 24 October 1933, (Lindsay telegram 568), FO371/16674, C9307. 29 ‘Note of a conversation with Mr Acheson on October 25 1933’, T175/79/90–3. 30 CAB 58(33)1, 26 October 1933, CAB 23/77. 31 Neville Chamberlain to Ida Chamberlain, 28 October 1933, Self (ed.), The Neville Chamberlain Diary Letters, volume III, p.410; Irwin note to Chamberlain, n.d., 28 October 1933, NC7/10/20; Ormsby-Gore to MacDonald, 23 September 1933, MacDonald MSS PRO30/69/679/646–7; MacDonald Diary, 26 October 1933, fol.455; CAB 58(33)1, 26 October 1933, CAB 23/77. 32 Fisher to Leith-Ross, 27 and 30 October 1933, FO371/16675, C9441, C9445; Stimson Diary, 27 October 1933, XXVII:1. 33 Leith-Ross to Fisher, 2 November 1933, T175/79/103–4. 34 CAB 59(33)6, 2 November 1933, CAB 23/77. 35 Leith-Ross to Fisher, telegrams 589–90, 596, 1–2 November 1933, FO371/16675, C9542, C9550, C9567; Simon telegram 481 to Lindsay, 6 November 1933, T188/74/450; Cmd 4448. 36 Roosevelt to Senator Frederic Walcott, 8 November 1932, Roosevelt MSS OF212. 37 Time, ‘The Presidency: Tired Team’, 13 November 1933. 38 Castle Diary, 28 October 1933. 39 Phillips to Roosevelt, 23 November and two letters on 6 December 1933, Roosevelt MSS OF212 and 233. 40 Acheson to Roosevelt, 14 November 1933; Phillips to Roosevelt, 23 November, 21–22 December 1933, Roosevelt MSS OF212; Lindsay despatch 1636, 27 December 1933, FO371/17585, A500/393/45. 41 CAB 65(33)1, 29 November 1933, CAB 23/77. 42 ‘Note of a Conversation with Mr Douglas on November 7th 1933’, T175/79. 43 Lindsay despatch 1636, 27 December 1933, FO371/17585, A500/383/45; Chamberlain Diary, January 1934, NC2/22. 44 Hiram Johnson to his sons, 19 and 27 December 1931, Burke (ed.), Diary Letters of Hiram Johnson, volume 5. 45 Cole, Roosevelt and the Isolationists, pp. 56, 86–9. 46 ‘Interviews in Washington with Senators and others, 6–9 February 1933’, T188/58/75. 47 Hiram Johnson to his son, 4 February 1934, volume 6, pp.8–9; Morgenthau Diary, 3 May 1934; Cole, Roosevelt and the Isolationists, pp.92–3; Edgar B. Nixon, (ed.) Franklin D. Roosevelt and Foreign Affairs, January 1933-January 1937, (3 volumes, Cambridge: Harvard University Press, 1969), volume I, pp.514–15, 598–600, 615–16, and volume II, pp.26–7. 48 Lindsay telegram 54, 5 February and FO telegram 47, 7 February 1934; Craigie minute, 6 and 22 February 1934, FO371/17567, A1061, A1434/15/45; memorandum of conversation between Hull and Lindsay, 5 February 1934, Hull MSS Reel 29. 49 Lindsay to Sargent, 8 February 1934, FO371/17567, A1434/15/45. 50 Lindsay to Leith-Ross, 9 February 1934; Lindsay to Sargent, 8 February 1934; Leith-Ross minute to Fisher and annotation, 26 February 1934; Leith-Ross to Lindsay, 19 February 1934, T188/75/12–16, 24, 26.


Notes (pp. 191–7)

247

51 Minutes by various Foreign Office officials, 16 April 1934, FO371/17568, A2961; Lindsay to Simon, Despatch 166, 318 and 351, 8 February, 14 and 22 March 1934, FO371/17584, A11206, FO371/17568, A2405 and A2573. 52 Hore-Belisha memorandum to Chancellor, 9 April 1934, T188/75/65–6. 53 Leith-Ross minute to Hopkins, Fisher, Hore-Belisha and Chamberlain, n.d.; Leith-Ross to Lindsay, 11 April 1934; Waley memorandum, ‘Application of Italian terms to British War Debts’, n.d. T188/75/63–72. 54 ‘American Editorial Opinion on the Problem of War Debts’, 13 June 1934, Roosevelt MSS, PSF170. 55 Leith-Ross to Lindsay, 7 May 1934, T188/75/97. 56 FO telegram 114 to Lindsay, 1 May 1934, FO371/17585, A3387; FO371/17568, A2947. 57 Lindsay telegram 131, 134, 139, 24, 26 April, 3 May 1934, FO371/17568, A3229, FO371/17585, A3280, 3513; Lindsay to Leith-Ross, 26 April 1934, T188/75/77–86. 58 Craigie and Vansittart minute, 25–26 April 1934; FO telegram 113 to Lindsay, 30 April 1934, FO371/17568, A3229/15/45. 59 Leith-Ross to Lindsay, 7 May 1934, T188/75/96–7. 60 Lindsay telegram 150, 11 May 1934, FO371/17585, A3755; Phillips, ‘Memorandum of conversation with British Ambassador’, 11 May 1934, Roosevelt MSS PSF32/302. 61 Phillips to Roosevelt, 16 May 1934, and telegram 367, Roosevelt MSS PSF170. 62 Lindsay telegram 156, 16 May 1934, T188/75/130–1. 63 Lindsay telegram 158, 18 May 1934, FO371/17586, A3928/383/45. 64 Lindsay telegram 168, 25 May 1933, FO371/17586, A4117/383/45; Presidential Message to Congress, 1 June 1934, Roosevelt MSS PSF170. 65 CAB 22(34)3 and Appendix, 30 May 1934, CAB 23/79; Note by Leith-Ross, n.d. [30 May 1934], T188/75/174; MacDonald Diary, 3 June 1934, fol.490. 66 CP 146(34), 29 May 1934, CAB 24/249; Cmd 4609 and 4627, (1934); H.C. Debs, 5s, 5 June 1934. 67 Phillips to Roosevelt, 11 June 1934, Roosevelt MSS, OF320/2. 68 ‘American Editorial Opinion on the Problem of War Debts’, 13 June 1934, Roosevelt MSS PSF170. 69 Cole, Roosevelt and the Isolationists, p.94. 70 Lindsay to Leith-Ross, 23 May 1934, FO371/17586, A4602/383/45. 71 Neville Chamberlain to Ida Chamberlain, 9 June 1934, Self (ed.), The Neville Chamberlain Diary Letters, volume IV, p.73. 72 Text of Note from British Charge d’Affaires, 27 June 1934, Roosevelt MSS PSF32/302. 73 Lindsay to Cordell Hull, 10 December 1934, Roosevelt MSS PSF32/302, published as Cmd 4763.

10 Epilogue: 1934–1941 1 Charles P. Kindleberger, The World in Depression, 1929–1939, (London: Allen Lane, 1973), pp.27–8. 2 Jean-Baptise Duroselle, From Wilson to Roosevelt: Foreign Policy of the United States, 1913–1945, (London: Chatto & Windus, 1964), p.133. 3 Nicholas, The United States and Britain, p.81. 4 Moley, First New Deal, p.25; Costigliola, Awkward Dominion, p.37; C.P. Parrini, Heir to Empire: United States Economic Diplomacy, 1916–1923, (Pittsburgh: University of Pittsburgh Press, 1969).


248

Notes (pp. 197–205)

5 Donald McCoy, Calvin Coolidge: The Quiet President, (New York: Macmillan, 1967), p.190. 6 Fisher to Fergusson, 14 December 1932, T172/1507/215. 7 Castle Diary, 2 December 1932. 8 Reynolds, The Creation of the Anglo-American Alliance, p.11; Dimbleby and Reynolds, An Ocean Apart, p.76. 9 CP 344(28), 14 November 1928, p.6, CAB 24/198. 10 Reynolds, In Command of History, p.447. For the resentment see Stimson Diary, 27 January 1933, XXV:195; Tugwell Diary, 25 January 1933, Tugwell Box 30. 11 ‘Draft Note to U.S. Government’, 25 September 1933, p.3, FO371/16673, C3491/1/62. 12 Duroselle, From Wilson to Roosevelt, p.151. 13 ‘Great Britain and the War Debts’, pp.3, 5, T172/1505. 14 Lloyd George, Truth About Reparations and War Debts, pp.97–9. 15 CP 146(34), 24 May 1933; CP 416(32), 1 December 1932, CAB 24/235; Great Britain and the War Debts’, pp.21–2; Lloyd George, Truth About Reparations and War Debts, pp.99–100. 16 CP 134(33), 24 May 1933, CAB 24/241; Runciman Memorandum, 31 March 1933, Runciman MSS 259/51. 17 Costigliola, Awkward Dominion, pp.34, 98; CAB 93(20)2, 16 December 1920, CAB 23/25. 18 Neville Chamberlain to Ida Chamberlain, 3 December 1939, Self (ed.), The Neville Chamberlain Diary Letters, volume IV, p.475. 19 CP 146(34), 29 May 1934, CAB 24/249; ‘United States Debt – Situation at 15 June 1934’, T188/75/152–3; Lindsay telegram 156, 16 May 1934 and Craigie minute, 17 May, FO371/17586, A3854/383/45. 20 Osborne to Vansittart, 24 August 1934; Vansittart to Lindsay, September 1934, Baldwin MSS 109/66–78. 21 Jones Diary, 11 June 1936 and 16 April 1937, Diary with Letters, pp.219–20, 327. 22 BLINY, ‘War Debts: Survey of American Press, November 1939–January 1940’, FO371/24245, A957/290/45. 23 Lindsay despatch 1325, 24 December 1934 and Craigie minute, 17 January 1935, FO371/18750, A288/288/45. 24 Lindsay despatch 388, 5 April 1939, FO371/22802, A2766/85/45. 25 Astor to Tom Jones appended to Leith-Ross to Sargent, 4 September 1932, FO371/17587, A7112. 26 Phillips to Roosevelt, 30 August 1934 and ‘War Debt Solutions’; Phillips to Roosevelt, 31 October and 8 November 1935, Roosevelt MSS PSF170. 27 Lindsay despatch 395, 11 April 1935, FO371/18750, A3706/288/45. 28 ‘Essential Raw Materials’, 12 March 1934, Hull MSS Reel 155/249–50; Lindsay despatch 1325, 24 December 1934, FO371/18750, A288/288/45. 29 Memorandum of conversations between Hull and Lindsay, 6 June and 5 August 1935, Hull MSS Reel 29; Lindsay despatch 634 and 643, 4 and 6 June 1935, FO371/18750, A5353, A5360. 30 Secretary’s File on War Debts 1931–1932, Hoover MSS 920; Castle Diary, 23 December 1932; Congressional Resolution, 12 April 1933, Roosevelt MSS OF212; Lindsay despatch 876, 1 August 1935, FO371/18750, A7083. 31 Leith-Ross [?] note to Waley, 2 January 1933, T188/76/134. 32 G.Y. Yancey to Roosevelt, 28 December 1937, Roosevelt MSS OF48A/4; Col. C.A. Secane to H.M. McIntyre, 20 August and 23 November 1938; Welles to Roosevelt, 11 January 1939, Roosevelt MSS OF48/2. 33 M.H. McIntyre note, 8 January 1936, Roosevelt MSS OF48A. 34 Morgenthau Diary, 3 June 1936, Morgenthau MSS 26/77–9; Phillips telegram 503 from Rome, 2 December 1936, Morgenthau MSS 49/73.


Notes (pp. 205–10)

249

35 Bullitt to Roosevelt, 24 and 28 October 1936, Roosevelt MSS PSF29–30; Bullitt telegram 1152 to Hull, 27 November 1936, Morgenthau MSS 46/275/76. 36 Bullitt telegram 1176–7 and 1225, 1 and 10 December 1936, Morgenthau MSS 47/75–7, 48/130–1. 37 Telephone conversation between Morgenthau and R. Walton Moore, 11 December 1936, Morgenthau MSS 48/114–17; Morgenthau note, 18 December 1936, Morgenthau MSS 48/306. 38 Lothian to Jones, 14 September 1936, Diary with Letters, p.266. 39 Robert Bingham to Roosevelt, 18 December 1936 and 5 January 1937, Roosevelt MSS PSF37 and 32/303. 40 Gwatkin, Craigie and Vansittart minutes, 24 December 1936; Leith-Ross and Phillips minute, 3 December 1936; Lindsay to Leith-Ross, 21 December 1936 and to Eden, 11 January 1937, FO371/19830, A9843/220/45; FO371/20653, A55 and A535/55/45. 41 Lindsay to Craigie, 28 January 1937, FO371/20653, A1003. 42 Lindsay despatch 426, 14 May 1937, FO371/20653, A3771/44/45; Jones Diary, 20 April and 7 May 1937, Diary with Letters, pp.330, 337. 43 Lord Tweedsmuir to Chamberlain, 25 October 1937, Simon MSS 84/145–9. 44 Horace Wilson note to Woods, 9 November 1937; Chamberlain to Tweedsmuir, 19 November 1937, PREM 1/229/3–7, 12–13. 45 Norman Armour to James Dunn, [State Department Adviser], 11 December 1937; Feis to Morgenthau, 22 December 1937, Morgenthau MSS 104/4–12. 46 ‘Memorandum of Conversation’, 28 February 1938, Morgenthau MSS 113/265–7. 47 Joseph Kennedy telegram 689 to Hull, 27 July 1938, Morgenthau MSS 134/351. 48 Foreign Office minute, 6 September 1935, FO371/18750, A7761/288/45. 49 Craigie and Wellesley minutes, 5–6 February 1934, FO371/17567, A1015/15/45; Lindsay to Leith-Ross, 21 May 1934, FO371/17586, A4602; Watt, Succeeding John Bull, p.76. 50 George Peden, British Rearmament and the British Treasury, 1932–1939, (Edinburgh: Scottish Academic Press, 1979), p.86; Fisher to Horace Wilson ‘(for N.C.)’, 15 May 1929, Fisher MSS Coll. Misc. 461/2/43. 51 Bullitt to Roosevelt, 22 February and 4 April 1939, and reply, 16 May 1939, Orville Bullitt, For the President, pp.315–17, 334–6, 353. 52 Lindsay despatch 388, 5 April 1939, FO371/22802, A2766/85/45. 53 J.H. Phillips [Admiralty] to J. Balfour, 29 June 1939; Poynton [Colonial Office] to Perowne, 28 August 1939 and various Foreign Office minutes, FO371/22805, A4563, A5844. The Bank of England also favoured a transfer of West Indies possessions, see J.A.C. Osborne [Deputy Governor], ‘The American Debt’ and ‘Some Incidental Arguments’, both 19 December 1938, Bank of England Archive OV179/1/66A. 54 Lothian telegram 4 September 1939, FO371/22803, A5993; Lothian to Lord Halifax, 1 February 1940; to Simon, 3 February 1940, Simon MSS 86/20. 55 D.M. Mason to Churchill, 3 June and to Chamberlain, 25 July 1940, NC8/34/83–4. 56 R.S. Sayers, Financial Policy, 1939–1945, (London: HMSO, 1956), p.367; Reynolds, Creation of the Anglo-American Alliance, p.146. 57 Fred Kent to Roosevelt, 17 June 1940, Roosevelt MSS OF212. 58 Churchill to Roosevelt, 8 December 1940, PREM 3/486/1; Warren F. Kimball (ed.), Churchill and Roosevelt: the Complete Correspondence, Vol. I, Alliance Emerging, pp.37, 101–3. 59 W.F. Kimball, The Most Unsordid Act: Lend-Lease 1939–1941, (Baltimore: Johns Hopkins University Press, 1969); E.L. Hargreaves and M. Gowing, Civil Industry

250

60


61 62 63 64 65 66 67 68 69 70 71 72 73 74

75 76

77

Notes (pp. 210–14)

and Trade, (London: HMSO, 1952), pp.145–51; Sayers, Financial Policy, p.408; K. Burk, ‘American Foreign Economic Policy and Lend-Lease’ in Ann Lane and Howard Temperley (eds), The Rise and Fall of the Grand Alliance, 1941–45, (London: St Martin’s Press, 1995), p.64; Ovendale, Anglo-American Relations, p.43. Morgenthau to Hull, 9 June 1941, Morgenthau MSS 210/210; Welles to Roosevelt, 12 June 1941 and reply 16 June 1941, Roosevelt MSS OF212. Morgenthau to Roosevelt, 31 December 1941; Roosevelt memorandum to Hull, 2 January 1942, Roosevelt MSS OF212. Moulton and Pasvolsky, War Debts, pp.403–22. Costigliola, Awkward Dominion, p.220. MacDonald Diary, 29 October, 10 and 13 December 1934, fol.502, 517, 519. Bingham to Roosevelt, 18 December 1936, Roosevelt MSS PSF37; Middlemas & Barnes, Baldwin, p.729. Neville Chamberlain to Hilda Chamberlain, 7 October 1933, Self (ed.), The Neville Chamberlain Diary Letters, volume III, p.406. Jones Diary, 28 April 1934, Diary with Letters, p.129. Norman Rose, Vansittart: Study of a Diplomat, (London: Heinemann, 1978), pp.126–7. Neville Chamberlain to Hilda Chamberlain, 8 October 1916, 11 July 1920, 20 March 1926, 4 February 1933, Self (ed.), The Neville Chamberlain Diary Letters, volume I, pp.161, 381; volume II, p.338; volume III, pp.373–4. George C. Peden, The Treasury and British Public Policy 1906–1959, (Oxford: Oxford University Press, 2000), pp.281–2. CAB 39(37)7, 27 October 1937; CAB 36(38)3, 28 July 1938, CAB 23/89, 94; Neville Chamberlain to Hilda Chamberlain, 9 October and to Ida, 16 October 1937; Self (ed.), The Neville Chamberlain Diary Letters, volume IV, pp.273–5. MacDonald Diary, 13 June 1933; Cadogan to Lord Templewood, 26 October 1951, Templewood MSS XIX(2)12. See also Oliver Harvey Diary, 16 January 1938; Nicolson Diary, 7 March 1938. Neville Chamberlain to Ida Chamberlain, 27 October 1934; to Hilda Chamberlain, 28 July 1934, Self (ed.), The Neville Chamberlain Diary Letters, volume IV, pp.83, 94–5. Self, Neville Chamberlain, pp.276–7. For a particularly critical assessment of this policy see Greg Kennedy, ‘Neville Chamberlain and Strategic Relations with the US during his Chancellorship’, Diplomacy and Statecraft, 13.1 (March 2002), pp.95–120. Bullitt to Roosevelt, 5 May 1937; Robert Bingham to Cordell Hull, 6 July 1937, Roosevelt MSS PSF32/37, 303. Neville Chamberlain to Hilda Chamberlain, 29 August, 9 October, 17 December 1937 and to Ida Chamberlain, 16 October 1937 and 27 January 1940, Self (ed.), The Neville Chamberlain Diary Letters, volume IV, pp.267, 273, 275, 292, 294. Reynolds, Creation of the Anglo-American Alliance, pp.63–92.


A guide to archival sources

1 Private papers and diaries Addis MSS Baldwin MSS Beaverbrook MSS Blackett MSS Bradbury MSS Brand MSS Bridgeman MSS Castle MSS Cecil MSS Austen Chamberlain MSS Neville Chamberlain MSS Churchill MSS Curzon MSS Davidson MSS

Sir Charles Addis, Bank of England Archives. Stanley Baldwin, 1st Earl Baldwin of Bewdley, Cambridge University Library. Sir William Maxwell Aitken, 1st Baron Beaverbrook, House of Lords Record Office, Hist. Coll. 184. Sir Basil Phillott Blackett, Oriental and India Office Collections, British Library. Sir John Swanwick Bradbury, 1st Baron Bradbury, National Archives, Kew, T170. Robert Henry Brand, 1st Baron Brand, Bodleian Library, Oxford. William Clive Bridgeman, 1st Viscount Bridgeman, Shropshire Record Office, SRO 4629. William R. Castle, Herbert Hoover Presidential Library, West Branch, Iowa. Lord Robert Cecil, Viscount Cecil of Chelwood, British Library. Sir Austen Chamberlain, Birmingham University Library. Neville Chamberlain, Birmingham University Library. Sir Winston Leonard Spencer Churchill, Churchill College, Cambridge. George Nathaniel Curzon, 1st Marquess Curzon of Kedleston, Oriental and India Office Collections, British Library. Sir John Colin Campbell Davidson, 1st Viscount Davidson, House of Lords Record Office, Hist. Coll. 187.

252


Derby MSS Ezekiel MSS Fisher MSS


Grigg MSS Hankey MSS Hawtrey MSS Headlam MSS Hoover MSS Hopkins MSS Hore-Belisha MSS Hull MSS Law MSS Leith-Ross MSS Lloyd George MSS Lothian MSS MacDonald MSS

Magnum Opus MSS Moffat MSS

Edward George Villiers Stanley, 17th Earl of Derby, Liverpool City Central Library. Mordecai Ezekiel, Franklin Delano Roosevelt Presidential Library, Hyde Park, New York. Sir Norman Fenwick Warren Fisher, British Library of Political and Economic Science, Coll. Misc. 461. Sir Percy James Grigg, Churchill College, Cambridge. Sir Maurice Hankey, 1st Baron Hankey, Churchill College, Cambridge. Sir Ralph George Hawtrey, Churchill College, Cambridge. Sir Cuthbert Headlam, Durham Record Office. Herbert Clark Hoover, Herbert Hoover Presidential Library, West Branch, Iowa. Sir Richard Hopkins, Public Record Office, T/175. Leslie Hore-Belisha, 1st Baron Hore-Belisha, Churchill College, Cambridge. Cordell Hull, microfilm at Cambridge University Library. Andrew Bonar Law, House of Lords Record Office, Hist. Coll. 191. Sir Frederick Leith Ross, Public Record Office, T/188. David Lloyd George, 1st Earl Lloyd-George of Dwyfor, House of Lords Record Office, Hist. Coll. 192. Philip Henry Kerr, 11th Marquess of Lothian, National Archives of Scotland, Edinburgh. James Ramsay MacDonald, including the papers of Miss Rose Rosenberg, the National Archive, Kew. The diaries are used in accordance with MacDonald’s wish that they were ‘meant as notes to guide and revive memory as regards happenings and must on no account be published as they are’. Sir Maurice Hankey, ‘Magnum Opus’ files CAB/63, National Archives, Kew. Jay Pierrepont Moffat, Franklin Delano Roosevelt Presidential Library, Hyde Park, New York.

A guide to archival sources 253 Morgenthau MSS Phillips MSS Reading MSS


Roosevelt MSS Runciman MSS Samuel MSS Sanders MSS

Simon MSS Stimson MSS Swinton MSS Templewood MSS Tugwell MSS Vansittart MSS Welles MSS

Henry Morgenthau Jnr., Franklin Delano Roosevelt Presidential Library, Hyde Park, New York. Sir Frederick Phillips, Public Records Office, T/177. Sir Rufus Daniel Isaacs, 1st Marquess of Reading, Oriental and India Office Collection, British Library. Franklin Delano Roosevelt, Franklin Delano Roosevelt Presidential Library, Hyde Park, New York. Walter Runciman, 1st Viscount Runciman and diary of Hilda Runciman, Newcastle University Library. Sir Herbert Louis Samuel, 1st Viscount Samuel, House of Lords Record Office, Hist. Coll. 128. Sir Robert Sanders, 1st Baron Bayford, first consulted at the Conservative Research Department and now held at the Bodleian Library, Oxford. Sir John Simon, 1st Viscount Simon, Bodleian Library, Oxford. Henry Lewis Stimson, consulted at Herbert Hoover Presidential Library, West Branch, Iowa. Microfilm by courtesy of Yale University Library. Sir Philip Cunliffe-Lister, 1st Earl of Swinton, Churchill College, Cambridge. Sir Samuel Hoare, 1st Viscount Templewood, Cambridge University Library. Rexford Tugwell, Franklin Delano Roosevelt Presidential Library, Hyde Park, New York. Sir Robert Gilbert Vansittart, 1st Baron Vansittart, Churchill College, Cambridge. Sumner Welles, Franklin Delano Roosevelt Presidential Library, Hyde Park, New York.

2 Government records CAB 23 CAB 24 CAB 27 CAB 29 CAB 58 CAB 63

Cabinet Conclusions Cabinet Papers Cabinet Committees World Economic Conference Economic Advisory Council Hankey memoranda: ‘Magnum Opus’ files


254


CAB 65 FO 371 FO 800 PREM 1 T 160 T 161 T 170 T 171 T 172 T 175 T 177 T188 T 208

War Cabinet Conclusions and Papers Foreign Office: General Correspondence Foreign Office Private Papers Series Prime Minister’s Office: correspondence and papers Treasury: Finance files Supply files Sir John Bradbury papers Chancellor of the Exchequer’s Office: Budget papers Chancellor of the Exchequer’s Office: miscellaneous papers Sir Richard Hopkins papers Sir Frederick Phillips papers Sir Frederick Leith-Ross papers Sir Ralph Hawtry papers

3 Bank of England archive ADM 16 ADM 34 OV GI

Sir Charles Addis papers Montagu Norman papers Overseas files Governor’s files

4 Published collections of official documents Documents on British Foreign Policy, 2nd Series, 1919–1938, 21 volumes, ed. R. Butler, W.N. Medlicott et al. (1946–1985): DBFP, 2. Papers relating to the Foreign Relations of the United States, 1919–39, (Washington, DC: US State Department, 1934–1957). Hansard, Parliamentary Debates, House of Commons, 5th Series.

5 Published diaries Amery Diary

Bayford Diary

Harvey Diary Headlam Diary

John Barnes and David Nicholson (eds), The Leo Amery Diaries, 1896–1929 and The Empire at Bay: The Leo Amery Diaries, 1929–1945, (London: Hutchison, 1980 and 1988). John Ramsden (ed.), Real Old Tory Politics: The Political Diaries of Sir Robert Sanders, Lord Bayford, 1910–1935, (London: The Historians’ Press, 1984). John Harvey (ed.), The Diplomatic Diaries of Oliver Harvey, 1937–1940, (London: St Martin’s Press, 1970). Stuart Ball (ed.), Parliament and Politics in the Age of Baldwin and MacDonald: The Headlam Diaries, 1923–1935, (London: The Historians’

A guide to archival sources 255

Ickes Diary


Jones Diary

Nicolson Diary Riddell Diary

Press, 1992) and Parliament and Politics in the Age of Churchill and Attlee: The Headlam Diaries, 1935–1951, (Cambridge: Cambridge University Press, 1999). Harold L. Ickes (ed.), The Secret Diary of Harold L. Ickes: Volume I, The First Thousand Days, 1933–1936, (New York: Simon & Schuster, 1953). Keith Middlemas (ed.), Thomas Jones: Whitehall Diary, 1916–1930, (2 volumes, London: Oxford University Press, 1969) and Thomas Jones, A Diary with Letters, 1931–1950, (London: Oxford University Press, 1954). Nigel Nicolson (ed.), Harold Nicolson: Diaries and Letters, 1930–1962, (3 volumes, London: Collins, 1966–1968). Lord Riddell (ed.), Lord Riddell’s War Diary, 1914–1918, (London, Nicholson & Watson, 1933); Lord Riddell’s Intimate Diary of the Peace Conference and After, 1918–1923, (London: Gollancz, 1933).

6 Published collections of letters and speeches Orville Bullitt (ed.)

For the President, Personal and Secret: Correspondence Between Franklin D. Roosevelt and William C. Bullitt, (London: Andre Deutsch, 1973). Robert E. Burke (ed.) The Diary Letters of Hiram Johnson, 1917–1945, (7 volumes, New York and London: Garland Publishing, 1983). Max Freedman (ed.) Roosevelt and Frankfurter: Their Correspondence 1928–1945, (London: Macmillan, 1967). Martin Gilbert (ed.) Winston S. Churchill, Companion to Vol. 5, (3 Parts, London: Heinemann, 1979–1982). Elliott Roosevelt (ed.) F.D.R. His Personal Letters, (4 volumes, New York: Duell, Sloan & Pearce, 1950). Samuel I. Rosenbaum (ed.) The Public Papers and Addresses of Franklin D. Roosevelt, (13 volumes, New York & London: Macmillan, 1938–1950). Robert Self (ed.) The Austen Chamberlain Diary Letters: The Correspondence of Sir Austen Chamberlain with his sisters Hilda and Ida, 1916–1937, (Cambridge: Cambridge University Press, 1995). Idem The Neville Chamberlain Diary Letters, (4 volumes, Aldershot: Ashgate, 2000–2005).


Index

Acheson, Dean 181–6, 188 Action Française 130 Adams, John Quincy 60 Addis, Charles 51 Admiralty (British) 208 American Bankers’ Association 44 American Bureau of Statistics 201 American Committee (in Commons) 206 American Relief Administration 19 Amery, Leopold 50 Anglo-American Arbitration Treaty (1928) 7 Anglo-American relationship 1–5, 53, 111, 125, 147, 161, 197–200, 204, 205, 206, 211; commercial rivalry 5, 8–9, 10, 11, 33, 39, 53, 197, 199, 201, 210; naval rivalry 4, 5–7, 8, 9, 10, 11, 39, 62, 157, 212; shared roots in history, kinship 1–2, 3, 5–6, 11; strains 4, 5–7, 9, 199; unbalanced partnership 8–9, 11–12; cooperation and its difficulties 1, 11, 53, 56, 62, 76, 78–9, 109, 159, 161, 165, 175, 193, 202–3, 205, 206, 211–14; as deterrent to dictators 206, 213; see also Great Britain; ‘special relationship’; United States of America Anglo-American Trade Agreement (1938) 206, 212 Anglo-French Compromise (1928) 7 Anglo-Irish Treaty (1921) 4, 10, 33, 42, 53 Anglo-Japanese alliance 4–5, 9, 10, 213 ANZUS Pact 3 Argentina 116, 163, 167 Armenia, war debts 56, 217 Astor, Nancy 203 Atherton, Ray 65, 76, 82, 88, 91, 96, 157

Australia 8, 116, 163, 216 Austria 56, 59, 63, 131, 217, 218 Baldwin, Stanley 6, 7, 41, 212; negotiates 1923 debt settlement 14, 43, 44–50, 53, 148, 212; debt policy in 1930s 13, 113, 116, 117, 122, 124, 139, 149, 155, 157, 163, 174, 186, 212 Balfour, Lord 20, 37, 38, 39, 41 Balfour Note (1922) 20, 36–43, 44, 57, 75, 77, 94, 117, 126, 202 Bank of England 11, 16, 21, 41, 51, 52, 63, 100, 115, 117, 146; see also Norman, Montagu Bank of France 69, 110 Bank of International Settlements 74, 166, 193 Baruch, Bernard 41 Basle Committee (1931) 74–5 BDA, Cabinet Committee on British War Debts to the United States (1933) 13, 155–8, 168, 174 Beaverbrook, Lord 50, 51 Belgium 21, 43, 212; war debts 20, 55, 82, 93, 95, 127, 130–1, 188, 202, 215–18 Bell, Coral 4 belligerent rights 4, 6, 53 Bermuda 62 Betterton, Henry 172 Birkenhead, Lord 37 Blackett, Basil 23–6, 28–9, 35, 38–9 Blair, Floyd 100 Blair, Tony 3 blockade (and claims) 4, 5, 6, 9–10, 53 Blum, Leon 205–6 Bologne Conference (1920) 29 Boncour, Paul 144 Bonnet, Georges 171, 179


Index 257 Borah, William 76, 88, 89, 90, 189 Brand, Robert 41, 146–7, 203 Briand, Aristide 56 British empire 2, 15, 209; territorial concessions to US 9, 10, 62, 204–5, 208 British Guiana 205 British Honduras 62, 205 British Library of Information in New York 145, 153 Bulgaria 15 Bullitt, William 101, 113, 144, 148–50, 157, 161, 163, 205–6, 208, 213 Bundy, McGeorge 98, 140 Burk, Kathleen 210 Burnham, Lord 49 Burton, Theodore E. 35 Cadogan, Alexander 213 Canada 8, 10, 11, 91, 205 cancellation of war debts 21–3, 25, 26–7, 28, 31, 32, 33, 35, 38, 43, 44, 61, 63, 64, 69, 72, 77, 79–80, 84, 94, 95–6, 102, 114, 118, 125, 140, 147, 152, 156, 160, 189, 197, 210 ‘capacity to pay’ principle 51, 54, 55, 58, 59, 61, 64, 70–1, 74, 75, 76, 94, 96, 103, 110, 119, 131, 180, 201 Castle, William R. 54, 67, 71, 72, 82, 88, 100, 121, 126, 134, 139, 141, 180, 197–8 Cave, Lord 50 Cecil, Lord Robert 198 Chalmers, Lord 32–3 Chamberlain, Austen 9–10, 22, 25, 27, 29, 30, 32–3, 39, 40, 43, 53 Chamberlain, Neville 13, 49, 79, 81, 93, 146, 205, 212; policy leadership 78–9, 83–4, 86–7, 112–13, 125, 126, 152–3, 155–6, 170, 172, 186; continued optimism about debts 117, 121, 132, 150–1, 153, 155, 159, 168, 175, 186–7, 189, 195; efforts to ‘educate’ US opinion 118–19, 125, 149, 151–3, 156, 159, 175, 183, 213; attitude to Roosevelt/US 149–50, 153, 155, 175–7, 179, 195, 212–14; World Economic Conference 151, 156, 161, 163, 168, 175–7, 213; anxious to avoid default 80, 113–14, 116, 163, 172–3, 186, 187; ‘two-stage strategy’ 74, 79, 83, 85–7, 114, 155; debt policy 86–7, 95–6,

112–14, 122, 124, 161; at Lausanne 82, 84–9; anxious to cooperate with France/preserve Lausanne 94, 111, 114, 115–17, 118, 127–9, 151, 171–2, 179; believes ‘time on our side’ 150, 155, 159, 163; defends continued payments 115–18, 170, 171–2, 174–5, 186–7, 191, 192, 195; attitude after default 206, 207, 208; US attitude towards 83, 88, 110–11, 122, 128, 152–3, 213 Chapin, James 100, 109 Churchill, Winston 1, 12, 37, 87; debt policy 21, 27, 39, 54, 57; wartime appeals to Roosevelt 209, 214; ‘special relationship’ 1–2, 214 Claudel, Paul 66, 67, 95, 96, 107, 120–1, 122, 131, 139 Clavin, Patricia 13, 172 Clayton-Bulwer Treaty 4 Clemenceau, Georges 199–200 Colonial Office 208 Columbia University 54, 101 Coolidge, Calvin 55, 62, 182, 197, 199 Costigliola, Frank 16, 57, 211 Cot, Pierre 141–2 Couzens, James 190 Craigie, Robert 5, 8, 11, 12, 32, 93, 94, 198, 202, 203, 206, 208 Creditanstalt 63 Crosby, Oscar T. 20, 22 Cuba 19, 138 Cummings, A.J. 148 Cunliffe-Lister, Philip 50, 117, 118, 172, 186 currency stabilisation 9, 139, 176, 181–3, 188, 193, 212 Curzon, Lord 27, 31, 37, 43 Czechoslovakia 15, 95, 131–2, 143, 170, 188, 217, 218 Danubian Conference (1932) 81 Davidson, J.C.C. 49, 50 Davis, Norman 2, 27, 88, 89, 100, 110, 136, 139–40, 152, 154, 163, 193, 197, 201, 202, 203, 212 Dawes, Charles 62, 64, 67, 70, 157 Dawes Plan (1924) 10, 14, 53, 54, 62, 120 Day, Edmund E. 135–6, 138 de Billy, Eduard 22 Debt Funding Agreements (with US): Britain 10, 14, 34–53, 68, 77, 108, 110, 115, 147, 148, 179, 192,


258

Index

Debt Funding Agreements – contd. 200–1, 202, 211; France 35, 37, 53, 55–6, 57, 68, 95, 110, 147, 201, 202; other countries 56, 57, 201, 202 Derby, Lord 50 Devonshire, Duke of 50 disarmament 6–7, 27, 53, 62, 63, 65, 67, 68, 69, 76, 82, 83, 88, 90, 95, 98, 122, 134, 147, 193 Disarmament Conference, Geneva (1932–1934) 65, 82, 83, 88, 103, 105, 109, 110, 117, 133, 136, 138, 180 Dominion war debts 8, 15, 29, 57, 66, 77, 216 Douglas, Lewis W. 165–6, 181, 183, 184–5, 189 Edge, Walter 66–7, 68, 69, 81, 92, 129, 130, 142–4 elections: US presidential (1920) 26–31; mid-term (1922) 35; presidential (1928) 90–1; presidential (1932) 76, 79, 86–7, 89–98, 100, 121, 127, 138, 179; mid-term (1934) 178, 182, 191; German and French elections (1932) 80 Elliott, W.Y. 152 Ellis, L. Ethan 53 Estonia, war debt 56, 131, 217, 218 Falk, Oswald 127 Federal Reserve Bank of New York 11, 18, 21, 41, 64, 133, 143, 209 Feis, Herbert 74, 109, 140, 180 Fergusson, Donald 115 Finland 132, 143, 188, 190, 202, 217, 218 Fisher, Warren 14, 82, 91, 92–4, 96, 116, 124, 127, 132, 145, 170, 183, 187, 190, 208, 212 Flandin, Pierre 68, 76, 80, 85, 114 Fordney-McCumber tariff 6, 53 Foreign Office 5, 33, 35, 45, 53, 54, 64, 68, 78, 92, 94, 147, 149, 157; debt policy/conciliatory approach 93–4, 96, 112–14, 125, 174, 179, 183, 206, 207–8; attitude to US 62, 78, 83, 190–2, 208; attitude to France 93–4, 171; doubts about Treasury strategy 79, 93–4, 95, 112–13; Treasury view of 94, 125 France 12, 13, 21, 27, 28, 39, 40, 63, 66, 71, 164, 167, 212; reparations policy 28, 30, 38, 42–3, 49, 51, 73,

76–7, 80–1; opposes Hoover moratorium 64–8, 126; origins of war debt 15–16, 17, 19, 20, 199–200; debts to Britain 15–17, 19–20, 36, 42–3, 47, 57, 77, 127, 129, 215–17, 219; debts to US 35, 37, 53, 55–6, 57, 68, 167, 179, 185, 187, 191, 205–7, 208, 217–19; cooperation with Britain over US debts 29, 68, 76–7, 80–1, 83–5, 88, 92–4, 114–17, 121, 126–8, 130–1, 144, 152, 171, 179; attitude to British policy 39, 42–3, 51, 76–7, 80, 129–31; Chamber of Deputies and default 56, 92, 95, 117, 128, 124–31, 144; default 95–6, 115, 117, 127–34, 142, 145, 171, 183, 188; US response to default 139, 141–4, 150, 165, 167, 171, 188, 205–6, 208, 210; British attitude towards 67, 78, 80–2, 83; US attitude towards 22, 56, 66, 69, 71, 76, 82–3, 85, 110, 115–16, 118, 126, 141–4, 150, 155, 167, 171 Frankfurter, Felix 137 Garner, John Nance 105 Geddes, Auckland 8–9, 27, 29, 30, 31, 35, 38, 39, 44, 46, 51, 53 Gentleman’s Agreement (July 1932) 86–9, 92, 96, 127 Germain-Martin, Louis 115, 129 Germany 180, 195, 196, 202, 208, 209; economic crisis 59, 62–3, 65, 66–8, 75, 80, 116; at Lausanne 85–6, 158; Nazi persecution of Jews 205; see also reparations Gibson, Hugh 64 Gilbert, Parker 88 Glass, Carter 22 gold standard: in Britain 11, 36, 56, 120, 210; in US 126, 161, 166, 176, 183 Great Britain: debt policy 22–4, 28–9, 31–2, 51, 74, 79–81, 85–7, 90, 92–5, 120–2, 157–9, 171–2, 174, 182; advocates cancellation all round 21–3, 25–7, 28, 31–2, 33, 35, 118–19; debt settlement with US 10, 14, 34–53, 68, 77, 108, 110, 115, 147–8; case for debt cancellation 21, 24–8, 39–41, 43, 44, 46, 47, 50, 75, 118–19, 124, 132, 194, 199–202, 207; allied debts to Britain 16–17, 19–20, 30, 32, 36–8, 40, 49–50, 52,


Index 259 55–6, 57, 77, 86, 118, 127, 129, 184, 194, 219; cooperates with France over debts 29, 68, 76–7, 80–1, 83–5, 88, 92–4, 114–17, 121, 126–8, 130–1, 142–3, 156, 171; organises united front of debtors 35–7, 75–6, 79, 81–3, 93, 110, 116, 126–32; possibility of default 32, 36, 48–9, 73–4, 80, 86, 93–4, 112–14, 115, 117, 125, 127, 132, 155, 162, 169, 172, 174–5, 183, 190–1; awareness of economic weakness 7–8, 31, 36, 159, 172, 200, 209–10; attitudes to US 7–8, 35, 49, 53–4, 124, 132, 179–201; British hopes and disappointments over US cooperation 9, 24–6, 29, 30, 36, 51, 53–4, 158, 161, 165, 202–4; dependence on US goodwill 7–8, 112, 159; attitudes to Hoover 44, 62, 74, 79, 83, 112, 122–3, 125, 144; attitudes to Roosevelt 93, 113, 147–50, 154–5, 160, 162, 169–70; attitudes to France 39, 42, 56, 66–7, 80–1, 92–4; First World War 4, 16, 19, 196, 200, 210, 218; Second World War 1–3, 208–10 Greece, war debts 56–7, 82, 95, 131, 215–19 Grigg, (Percy) James 42, 44, 45, 57 Hailsham, Lord 117–18, 172, 186 Haiti 138 Halifax, Lord 199 Hankey, Maurice 10, 50, 212 Harding, Warren 18, 30, 34, 44, 46, 48, 51, 55, 60; Presidential Administration 27, 30, 31, 33, 34, 35, 38, 42, 43, 48, 62, 92–3 Harrison, George 64, 123, 143, 185 Harvard Group 152 Harvey, George 37–8, 41, 44, 50, 53 Hearst press 33, 89, 99, 150, 152 Herriot, Edouard 84, 85, 87, 92, 110, 115, 117, 120, 128–34, 144, 163, 165 Hitler, Adolf 180, 195, 209, 214 Hoover moratorium 63–8, 72–3, 86, 90, 126, 134, 189, 204 Hoover, Herbert 2, 19, 58, 60–1, 83, 91, 96–7, 103, 136, 154, 159; personality 99–100, 106, 123, 131; on Debt Commission 35, 44, 53, 61; as Commerce Secretary 10, 60–2;

economic depression 69, 73–4, 100–1, 109–10; debt policy 62, 68, 72–3, 76, 79, 86, 90–1, 97–8, 100, 103–5, 107–8, 112–13, 121–2, 133–4, 140–2, 159, 180, 203; response to British Notes on debts 98–9, 107–8, 193, 120–3, 125; meeting with Laval 68–74, 99–100, 106; strained relations with Stimson 88–9, 96–8, 102, 123, 131, 137–8, 139, 141; invites Roosevelt to cooperate 96–7, 100–5, 133–5, 138, 140–4; mistrusts Roosevelt 102–6, 135, 137–9, 141–4; fear of Congress 108–9, 123, 125, 203; hostility to France 126, 130, 142–4; British view of 44, 62, 74, 79, 83, 112, 122–3, 125, 144, 149 Hopkins, Richard 92, 96, 113, 118, 166 Horne, Robert 27, 35, 36, 39, 40, 43, 49 Houghton, Alanson 42, 62 House of Commons: attitude to debts 28, 48, 129, 164, 175; American Committee 206 House, Colonel Edward 101, 134, 148, 163–4 Houston, David F. 26–7, 32 Howard, Esme 9, 55 Howe, Lewis 149 Hudson, Robert 203 Hughes, Charles Evans 9, 29, 35, 38, 44, 45, 47, 49 Hull, Cordell 161–2, 173, 176, 179–81, 190, 195, 204, 207, 210, 212 Hungary 15, 210, 217, 218 Hurst, Cecil 54 Hythe conferences (1920) 21, 28 Ickes, Harold 72, 184 imperial tariff preference 91, 210, 212 Indian cotton 183 Inter-Allied debts to Britain 5, 16–17, 19–20, 30, 32, 36–8, 40, 49–50, 52, 55–7, 77, 86, 118, 127, 129, 184, 194, 219 interest rates and payments on debt 20, 24, 34, 38, 46–7, 48, 51, 52, 56, 61, 158, 180; deferment and payment 23, 25, 26, 30, 31, 35, 47; Roosevelt remission plans 154

260

Index


Irish Treaty/Free State 4, 10, 33, 42, 53, 86, 205 Irwin, Lord 186 ‘isolationism’, sentiment and policy in US 8, 11–12, 34, 53, 72, 180, 186, 189, 194–5, 202, 207, 209, 211 Italy 39, 43, 200; war debts 17, 19–22, 43, 53, 56, 57, 82, 83, 93, 95, 127, 130, 131–2, 143–4, 165, 167, 170, 184, 185, 187, 188, 191, 196, 201, 202, 205–7, 210, 215–19 J.P. Morgan & Company 23, 44, 137, 185 Japan: alliance with Britain 4–5, 9–10, 213; Anglo-American cooperation against in Far East 161, 211–14; threat to China 76, 137, 207 Johnson Act (1934) 189–95, 204, 205, 208, 209 Johnson, Hiram 72, 189–95 Jones, Thomas 51 Kellogg-Briand Pact (1928) 7 Kennedy, Joseph 212 Kennedy, Paul 12 Keynes, John Maynard 23, 24, 87, 199 La Follette, Robert 190 Lamont, Thomas 9, 44, 110–11, 137, 203 Latvia 132, 143, 217, 218 Lausanne Conference (1932) 14, 94, 95, 178; British policy towards 75, 79, 81, 84–5, 96; French policy 78, 80–1, 130–1, 171; proceedings/outcome 84–6, 94, 114, 128, 169; Gentleman’s Agreement 86–9, 92, 96, 115, 127; US reactions 68, 75, 82, 84, 96, 107, 158, 165; as basis of British policy 92, 99, 114–15, 118–21, 127–9, 151–2, 154, 156, 158, 162, 166–7, 169, 170, 175, 179, 193 Laval, Pierre 68–74, 76–7, 106–7 Law, Andrew Bonar 19, 37, 43–4, 46–53 League of Nations 4, 10, 28, 34 Lebrun, Albert 131 Leffingwell, Russell 23, 26, 27, 185 Leith-Ross, Frederick 76–8, 81, 87, 92–3, 95, 124–5, 147, 164, 170–1, 178; favours default 114–15, 151, 187; negotiations in Washington

164–6, 177–8, 189; Johnson Act and default 190, 192 Lend-Lease 2, 209–10 Lever, Hardman 22–3 Liberia 19 Liberty Loans Acts/Bonds 17–18, 20, 24, 34 Lindsay, Ronald 26, 72, 74, 82, 92, 94, 112, 140, 145, 198, 203; role in December 1932 crisis and interregnum 95, 96, 106–9, 111–13, 119–25, 129, 134–5, 141, 148–9, 151–3, 157; intermediary with Roosevelt 151, 153–5, 157, 159, 161–2, 165, 167–74, 178–9, 186, 188–9; Johnson Act and default 190–5, 203–4, 207–8; US attitude towards 92–3, 111 Lithuania 132, 143, 217, 218 Liversay, Frederick 181 Lloyd George, David 4, 23, 29, 30, 37, 39, 42–3, 45, 87, 126, 164, 200, 201 Lloyd-Greame, Philip see Cunliffe-Lister Logan Act 149 Lothian, Lord 152, 159, 163–4, 206, 209 McAdoo, William Gibbs 20 MacDonald, Ishbel 164 MacDonald, James Ramsay 13, 67, 72, 82, 87, 88, 89, 93, 116, 117–18, 124, 129, 146, 152, 153, 159, 186, 213; Atlanticism of 1–2, 83–4, 110, 113, 157, 211–12; secret contacts with US 83, 88, 123, 148–50, 157, 163–4; supports Hoover moratorium 64, 65–7; Lausanne conference 68, 80, 81, 83–4, 88; visits USA 62, 65, 135, 154, 156–8, 162–5, 173, 178; World Economic Conference 156, 175; debt policy 92–110, 113, 148, 155, 167, 168, 169, 172, 174–5, 181, 186, 194 McKenna, Reginald 44, 47, 50 McKercher, Brian 5 Manchuria 74, 76, 137 Marquand, David 13 Mellon, Andrew: as US Treasury Secretary 34–5, 38, 41, 44, 46, 48, 52, 54–5, 64, 67; as US Ambassador to London 91, 122, 152 Mellon-Bérenger Agreement 206 Middle Eastern oil 2, 4, 10 Millerand, Alexandre 30


Index 261 Mills, Ogden 64–5, 70, 72–4, 87–9, 133; debt policy 91, 97, 98, 102, 104–5, 108, 109, 115–16, 118, 120, 124, 125, 129, 131, 133–4, 143; supports Hoover against Stimson 98, 99, 109, 131, 139, 142; dislikes Roosevelt 105, 137 Minerals Policy Committee 204 Moffat, Jay Pierrepont 141, 148 Moley, Raymond 61, 100–5, 136, 139–41, 152, 161–2, 165–6, 168, 170–1, 173–4, 176, 197, 204 Monick, Emmanuel 129, 205 Moore, R. Walton 190 Morgenthau Jnr, Henry 206, 209, 210, 212 most-favoured nation clause (1933) 185–6 Moulton, Harold G. and Leo Pasvolsky 123, 210

Poincaré, Raymond 42, 43, 147 Poland 95, 131, 217, 218, 219 Portugal 57, 215–19 press comment on debts: in Britain 113, 114; in France 142, 144; in US 33, 49, 51, 105, 121, 124, 145, 150, 175, 180, 181, 189, 194 Princeton University 54 public opinion on debts: in Britain 28, 37, 79, 93, 114, 129, 145, 151–2, 158, 173, 182, 183, 192, 195; in France 85, 114, 130; in US 26, 28–31, 33, 37–8, 44, 65, 68–9, 71, 74, 82, 90, 92, 102, 125, 132, 150, 160, 163, 166, 169, 171, 174, 178, 180, 189, 192, 194, 203, 208–11; British efforts to ‘educate’ US opinion 37, 40, 42, 87, 108, 114, 122–3, 124–5, 145, 150–1, 155–7 Queen Mary 209

National Union of Manufacturers 145 Neutrality Acts 194, 209, 211 New Zealand 216 Newfoundland 204, 205, 216 Nicaragua 19 Nichols, Philip 95 Niemeyer, Otto 52 Norman, Montagu 21, 36, 41, 44–6, 49, 51, 52, 64, 115–16, 117, 146, 192 Normandie 209 Norris, George 190 Nova Scotia 204 Novar, Viscount 50 Nye, Gerald P., Senate Committee 194, 211 Olney, Richard 1 Operation OVERLORD 2 Ormsby-Gore, William 186 Osborne, D’arcy 74, 179, 202 Ottawa Imperial Economic Conference 91, 212 Palestine 205 Panama Canal 204, 205, 208 Paris Peace Conference 22–3, 201 Perkins, Cecil 205 Pershing, General John J. 4 Philadelphia Public Ledger 124, 148 Phillips, Frederick 166–7, 209 Phillips, William 168–9, 170–1, 173–4, 180, 192–3, 194, 202, 204

Railroad Brotherhoods 90 Rathbone, Albert 22, 24, 25–6, 28, 30, 31 Reagan, Ronald 3 Reed, David 70, 72, 76 Reichbank 63, 64 reparations 7, 9, 14–16, 27, 29–30, 36, 42, 47, 57, 60, 62, 64, 65, 76, 84, 87, 119, 147, 156, 195; link with war debts 20–1, 23, 30, 31, 34, 36, 49, 50, 57–9, 65, 68, 70, 71, 75, 78–9, 80–2, 86, 118, 127–8, 130, 152, 155–6, 197, 201–2; British policy on 29–30, 36, 40, 42, 47, 76–7, 79, 81, 164; French policy on 28, 30, 38, 49, 73, 76–7, 80–1, 130–1, 171; US policy on 20–2, 23, 34, 47, 58–9, 70, 82, 84, 196–7 Revelstoke, Lord 10 Reynaud, Paul 208 Robinson, Joseph 76 Romania 15, 57, 210, 215–19 Roosevelt, Franklin Delano 1, 61, 132, 163, 212; personality and career 100, 136, 139–40; foreign policy 91, 101, 138, 141, 148, 176, 192, 213; domestic economic policy 100–1, 132, 135–6, 140, 148, 160, 164, 166, 168, 176–7, 180–2, 184–5, 188, 192; ignorance of economics/debts 100, 139, 155, 171, 185, 193; debt policy 91, 100, 104,


262

Index

Roosevelt, Franklin Delano – contd. 113, 132, 140, 154, 159, 164–8, 174, 179, 180–8, 190–4, 204, 206–8; rejects cooperation with Hoover 96–7, 100–5, 133–5, 137–8, 140–1, 143–4; proposes/accepts token payments 164, 168–9, 170–1, 173–4; secret contacts with Britain 91, 146–50, 154–5, 157–9, 163–4; plans early action on debts 135, 139–41, 144, 149–50, 153–4, 164–5, 167, 174; British faith in 96, 113, 147–50, 159–60, 167; British disillusion with 162, 165, 168, 170–2, 174, 185, 210; need to conciliate Congress 104, 159–60, 162, 167–71, 182, 187–8, 190; sensitive to public opinion 160, 187; World Economic Conference 101, 135, 145, 159, 161–2, 165, 169, 175–7; attitudes to Britain 1–2, 132, 149, 159, 161, 165, 209–10; British views of 147–50, 153–5, 160, 162, 165, 170, 172, 175, 178–9, 211–14; policy on French debt and default 139, 144, 150, 154, 163, 165 Roosevelt, Theodore 189 Roosevelt, Warren Delano 102 Rowe-Dutton, Ernest 44, 52 Ruhr occupation (1923) 49, 51 Runciman, Walter 13, 79–80, 85, 148, 155, 157, 163, 207; opposes payment 117, 122, 172, 186 Russia, Tsarist debts 15–16, 17, 20, 56, 190, 196–7, 202, 210, 215–19 Sackett, Frederic M. 63–4, 70 Salt Lake Telegram 191 Sargent, Orme 77, 94, 95, 171, 190 Serbia 215–19 Ship Subsidy Bill (1922) 36, 39, 53 silver, in payment of debt 168–9, 170, 172–3, 174–5, 176, 188 Simon, John 13, 77, 81, 82, 83, 84, 87, 89, 92, 116, 124, 131, 146, 148, 153, 155, 157, 171, 188, 207 Sloane Committee 145 Smith, Alfred 90 Smoot, Reed 17–18, 35 Soldier’s Bonus Bill (1922) 35, 42 South Africa 216 Spa Conference (1920) 29 ‘special relationship’ 1–4, 198, 214 Sperling, Rowland 35

Stalin, Josef 2 sterling: concern about exchange rate 16, 23, 25, 36, 49, 103, 110–11, 115, 118, 124–5, 151, 158, 161, 164, 188, 201; currency stabilisation 139, 183; convertibility 2–3 Stewart, Walter 74–5 Stimson, Henry Lewis 2, 58, 64, 66–7, 79, 83, 96, 109, 130, 134, 187, 201; personality and career 99, 136–7; attitude to debt revision 58, 68, 70–4, 82, 91, 93–4, 110, 122, 133–4, 144; response to British Notes on debt 95, 97, 106–8, 119–24; ‘divide and rule’ policy towards debtors 75–6, 82–3, 110; Lausanne Conference 68, 80, 82, 87, 89; supports cooperation with Roosevelt 97, 136–41, 143, 149; strained relations with Hoover 88–9, 96–7, 99, 102, 123, 131, 139, 141–3; anxious about effect of debts on foreign relations 89, 98–9, 106–7, 137–40, 143 Strong, Benjamin 21, 41, 45 tariffs: British policy 83, 90, 91, 159; French policy 126; US policy 36, 53, 91, 101, 119, 149, 155, 159, 181, 183, 201; tariff truce 155, 159, 164, 167, 193 taxation: in Britain 16, 37, 49, 53, 75, 93, 108, 146, 191, 202; in France 37, 146; in US 33, 37, 82, 93, 107, 146, 191, 197, 201, 202 Thatcher, Margaret 3 token payments 96, 109, 112, 171; Roosevelt proposes 164, 168, 169–70, 187; presidential indemnity 169, 172–4, 183–4, 188, 192–3; British attitude towards 169–70, 171–2, 173–4, 182, 186–9, 191–3; efforts to revive after 1934 193, 202, 204–5, 207 Treasury, British 52, 64, 87, 91, 112, 147, 156, 205, 206, 209; debt policy 23–6, 28–9, 35, 38–9, 45–54, 74, 78–80, 82–3, 85–7, 92–6, 112–14, 116–17, 122, 124, 155, 161, 163, 170, 172–3, 179, 183, 186–7; Foreign Office views of 79, 93–4, 95, 112–13; US views of 82–3, 88, 100, 110–11, 122, 127–8, 152–3, 213

Index 263


Treaty of Versailles 4, 5, 15, 22, 34, 63 Trinidad 62 Tugwell, Rexford 101–2, 136, 139–41, 150, 161, 176 Tweedsmuir, Lord 207 Tyrrell, Lord 81, 84, 128, 129, 130 ‘Uncle Shylock’ 10, 41, 76, 199 unemployment: in Britain 7, 12, 37, 51, 103; in US 59, 73, 124 Union of Soviet Socialist Republics 148 United States of America: economic position 7–8, 11–13, 15, 19, 59, 65, 69, 71, 73, 107, 145–6, 148, 154, 169, 181, 200–2; ‘isolationist’ policy and sentiment 8, 11, 12, 34, 53, 72, 180, 186, 189, 194–5, 202, 207, 209, 211; policy towards Europe 9, 28, 61, 183, 196–8; case against debt cancellation 41, 56, 61, 121, 134, 194, 196–7; refusal to link debts with reparations 20–2, 34, 47, 58, 63–5, 75, 78, 82, 103, 142, 146, 158, 201–2; proposes trading debts for other concessions 62, 67–8, 72, 90, 95, 97–8, 105, 122, 134, 140, 180, 183, 204–5, 208–9; hints at cooperation in return for debt settlement 37–8, 48, 54, 159, 163; proposes preferential treatment for Britain 37–8, 42, 75–6, 82–3, 103, 107–8, 110, 126–7, 148; domestic calls for debt revision 54, 90, 119, 145, 194; American fears of British default and US policy after it 97–9, 100, 109, 121–3, 147, 150, 159, 161, 180, 182, 189, 191, 194, 203–11; fear of ‘united front’ of debtors 21, 75, 77, 88–9, 93, 100, 103, 106, 110, 126–7, 129, 131, 211; hostility to France 56, 69, 71, 76, 82, 92, 103, 110, 115–16, 118, 126–7, 141; response to French default 139, 141–4, 150, 154, 155, 163, 165, 167, 171; British views of 1–13, 35, 49, 53–4, 78, 80–1, 124, 132, 157, 179–201, 207, 211–14; resentment at British attitudes 197–9, 202–3, 211; see also AngloAmerican relationship US Commerce Department 10, 60–1, 62, 63, 209 US Congress: opposition to debt remission 7, 14, 17, 18, 24–5, 26,

30–4, 42, 44–6, 48–9, 51, 55–6, 61, 65–6, 70–9, 87, 89, 94, 96, 98, 103–5, 109, 112, 114, 115–16, 118, 120–3, 125, 132, 139, 146–7, 149–50, 152–4, 156, 159–60, 163, 165, 167–70, 172–4, 178, 180, 182–4, 187–8, 193, 197, 203–5, 206, 211, 213; House of Representatives 72, 97, 191; Senate 4, 7, 34, 42, 51, 70, 72, 97, 142, 147, 152; Senate Foreign Relations Committee 90, 189 US Department of Agriculture 183 US Farm Board 67, 73 US Grain Corporation 19 US Liquidation Commission 18 US State Department 9–10, 35–6, 54, 55, 75, 91, 129, 131, 140, 141, 143, 144, 161, 168–9, 176, 180, 189, 190, 204–5 US Treasury 18–20, 22, 24–5, 30, 46, 56, 58, 132, 166, 180, 182, 184–6, 193, 210, 212 Van Zeeland, Paul 205 Vansittart, Robert 54, 78, 92, 94, 95, 116, 132, 145, 164, 170, 171, 178–9, 202–3, 206, 208, 212, 213 Venezuela, Anglo-American crisis over 4 veterans payments 168 Volstead Act 73 Walcott, Frederic C. 188 Waley, David 95, 96 Wall Street Crash (1929) 5, 59, 62 war debt problem: origins 16–20, 40, 196; scale 15–16, 202, 203, 215–19; consequences 210–14 war loans 16, 17–18, 24 war surplus, sales 18–19 Warburg, James P. (and Warburg Plan) 165–7, 179, 181–2, 184–5 Washington Conference/Naval Treaty (1922) 4, 6, 9, 10, 33, 37, 39, 42, 61 Welles, Sumner 207 Wickersham Committee 73 Williams, John H. 135–6, 138 Wilson, Woodrow 4, 12, 17, 20, 22–3, 27, 29–30, 73, 136, 148, 163 Winston, Garrard 18, 54, 58 World Court of International Justice 61, 204

264

Index


World Economic Conference (1933) 13, 122, 133, 156, 158, 163, 169; British policy towards 93, 145, 150, 159, 161–2, 163, 172, 175; French policy 165, 171; US policy 100, 101, 103, 105, 135–6, 137, 138, 140, 153, 155–6, 159, 162, 163, 165, 167–8, 173, 175–7, 178; and currency stabilisation 164, 175–6; outcome and legacy 175–7, 180, 186 World War Foreign Debt

Commission/Act 34–5, 38, 44–5, 46, 48, 49, 51, 55, 56, 61, 69; Hoover’s planned reconstitution 72, 98, 103–4, 105, 107, 133–4, 137, 138–9 Worthington-Evans, Laming 28 Young Commission/Plan (1929) 14, 57–9, 60, 66, 70, 75, 77, 81, 120 Young, Owen D. 57–9, 60, 64, 101, 134 Yugoslavia, debt settlement 56, 215–19


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