Winter, 1924-1925 (Age 50)

“Finance Less Proud and Industry More Content”

Churchill was active on many fronts, in turn taking on the United States over Allied war debts, the Royal Navy over expenditures, and the Bank of England over a return to the gold standard.

In January Churchill went to Paris for a finance conference of the Allied debtor and creditor nations. He had consistently opposed the American position that all inter-Allied debts must be paid bilaterally, regardless of what other nations did. He favored a general settlement. In the event, Churchill prevailed, but it wasn’t easy. He wrote in a letter to Clementine from Paris: “I have had tremendous battles with the Yanks, & have beaten them down inch by inch to a reasonable figure….I think on the whole I have succeeded.”

Indeed Churchill had succeeded very well. As Martin Gilbert notes: “All the former Allied powers accepted the principle that Britain’s debt payments to the United States should be accompanied by simultaneous, proportionate payments to Britain by France, Belgium, Italy and Japan, Britain’s principal debtors….the £1,000 million which Britain owed America was offset by over £2,000 million which the other former Allies owed to Britain.”

On his return from Paris, Churchill resumed his struggle to keep naval expenditures from overwhelming the budget and his plan for an across the-board income tax cut. It wasn’t a fair fight. Churchill knew too much about running a navy. On February 4th, Churchill sent a six-page list of quite specific cost-cutting suggestions to his friend the First Sea Lord, Admiral David Beatty. As Churchill explained in an accompanying note: “It is no good telling me the First Sea Lord cannot do this if he lets it be known that it is his wish. Even when First Lord, as you know, I often found this amount and larger amounts in a few mornings with a blue pencil.” Beatty complained to his wife, “I have to tackle Winston….It takes a good deal out of me when dealing with a man of his calibre with a very quick brain. A false step, remark, or even gesture is immediately fastened upon, so I have to keep my wits about me.”

Churchill’s eventual agreement, in March, 1925, to the Bank of England’s return to the gold standard at pre-war parity was not easily achieved. At the outset, Churchill prepared a lengthy memorandum in which he challenged Montague Norman, the Governor of the Bank of England: “If we are to take the very important step of removing the embargo on gold export, it is essential that we should be prepared to answer any criticism which may be subsequently made upon our policy.” The British banker, Lord Bradbury, accused Churchill of having “his spiritual home in the Keynes McKenna sanctuary.” Some of Churchill’s letters seem to reflect that view: “The Treasury has never, it seems to me, faced the profound significance of what Mr. Keynes calls ‘The paradox of unemployment amidst dearth.’ The Governor shows himself perfectly happy in the spectacle of Britain possessing the finest credit in the world simultaneously with a million and a quarter unemployed….”

Churchill eventually made his decision shortly after a dinner and late night “Symposium,” where he brought together Keynes and McKenna with the two principal advocates from the Treasury Department. Keynes’s accurate predictions of deflation and increased unemployment were eventually overcome by the Treasury arguments that inflation was a greater danger.

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