When Churchill Slammed America

As Britain’s chancellor of the exchequer in the 1920s, Winston Churchill went hard at U.S. leaders over the issue of war debts

(Alamy Stock Photo)

By James H. Douglas

This review appears in the Summer 2025 issue of the Coolidge Review. Request a free copy of a future print issue.

Mellon vs. Churchill: The Untold Story of Treasury Titans at War
by Jill Eicher (Pegasus Books, 2025)

For the first three years of World War I, Britain bankrolled the Allied cause. But by 1917, “Britain had exhausted its international credit and hovered on the verge of insolvency,” writes former U.S. treasury official Jill Eicher. In 1917, the United States entered the war, providing fighting forces as well as the financing needed for Allied victory.

The conflict over how to resolve the debts would endure for years after the Great War ended.

Two leading antagonists to emerge in this drama were Andrew Mellon and Winston Churchill. Mellon, the banker, business titan, and philanthropist, served as U.S. treasury secretary from 1921 to 1932. Churchill, best remembered for his leadership during the Second World War, was Mellon’s opposite number, serving as Britain’s chancellor of the exchequer.

The clash between Mellon and Churchill played out in speeches (the voluble Churchill’s preferred approach), written statements (favored by the taciturn Mellon), diplomatic communiqués, comments in the press, and face-to-face meetings.

Newspapers on both sides of the Atlantic portrayed the two treasury officials as if they were in a boxing match. “Heavyweights in War Debt Ring,” proclaimed a front-page Paris Times headline, for example.

“WE PAID IN BLOOD”

Under Presidents Woodrow Wilson, Warren Harding, and Calvin Coolidge, the U.S. government held a consistent position on war debts. Coolidge articulated that position in his first cabinet meeting as president. He said his administration would “do everything it can do honorably, to collect every dollar that is due to the United States from foreign countries,” but with “no intention of bearing down on those countries that find themselves wholly unable to pay.”

In other words, rescheduling, yes; forgiveness, no.

But Churchill argued that the United States had a moral obligation to cancel the war debts.

In 1926, he told the House of Commons, “We have never taken the view that the cost of shot and shell fired in the common cause can be considered, morally and sentimentally, whatever it may be legally, as on exactly the same footing as ordinary commercial debts.”

Other British leaders shared this view. In 1923, Prime Minister Andrew Bonar Law initially balked when Churchill’s predecessor at the Exchequer reached an agreement with Mellon to pay down the British debt. Bonar Law, who had lost two sons in the war, said privately: “We paid in blood; they did not. You can’t equate that with a cash payment.”

But the matter of war debts proved more complicated that Churchill’s moral framing would suggest. As early as 1917, Churchill understood the geopolitical implications. He warned colleagues that having to repay the debt would bring “a complete alteration of our financial position in relation to America.” Eicher summarizes Churchill’s view: “In its desperation for American credit to avoid losing the war, Britain had ceded its financial supremacy to the United States.”

Starting in 1920, Churchill pushed the British cabinet to “declare publicly that we are perfectly ready to wipe out every European debt owing to us if the United States will accord us a similar release from the fifty per cent smaller sums we owe them.” Churchill’s intent, Eicher says, “was to shame the United States into cancellation.”

In 1922, the Balfour Note enshrined this policy. The note maintained Britain’s preference for writing off “the whole body of inter-allied indebtedness” but explained that if the United States insisted on repayment, Britain would collect from its debtors only what it owed America. Churchill cited the Balfour Note throughout his time as chancellor of the exchequer.

Meanwhile, the British press cast the U.S. government as greedy creditors, a characterization that “enraged and offended” Mellon, according to Eicher. This morality tale overlooked the fact that Mellon and Coolidge never treated war debts exactly like commercial debts.

Mellon stood for the “moral principle of fairness,” Eicher points out. He rebuffed U.S. hardliners who insisted that wartime allies repay debts in full. Calling Europe “America’s best customers,” Mellon said, “I should rather have solvent customers in the future which permit me to run a profitable business than insist upon terms to debt settlement which will again force my customers into bankruptcy.”

Secretary Mellon also told a Belgian delegation: “The funding of your debt to us within your capacity to pay means far more than mere payment by you and the receipt by us of a certain number of dollars each year. It is a recognition of the integrity of international obligations and the settlement of a question which might disturb the long friendship of our two nations.”

In his first annual message to Congress, President Coolidge said that the United States should not “assume the role of an oppressive creditor.” He maintained “the principle that financial obligations between nations are likewise moral obligations which international faith and honor require should be discharged.”

In short, Coolidge and Mellon were not rapacious usurers. They wanted to avoid what we would call moral hazard. Waiving the debt of foreign governments, they believed, would undermine the sanctity of contracts and encourage fiscal irresponsibility in the future. The same principle animates those who oppose forgiving student loan debts today.

Mellon’s attitude toward the settlement of war debts was “both pragmatic and sympathetic,” Eicher argues. She writes that Mellon, soon after becoming treasury secretary, suggested “that the United States should extend leniency in approaching the Allies’ indebtedness.” This suggestion led Congress “to limit his power” by creating a five-member debt commission, and “to impose strict terms for settlement.” But in reaching agreements with thirteen countries, Mellon’s debt commission authorized interest rates well below the 4.25 percent minimum Congress had set, and it “effectively canceled 43 percent of the Allies’ total indebtedness.” The commission also “provided for deferred or postponed interest payments.”

ABOUT-FACE

Eicher’s story contains an unexpected coda: both Churchill and Mellon changed their positions after their battle ended.

In 1929, after he lost his cabinet seat, Churchill was asked about the adoption of the Young Plan, which was designed to reduce German reparations but still give Allies enough to keep repaying the United States. Churchill said the concessions Britain had received for agreeing to the plan gave his country the chance for “a release from the self-denying limitations of the Balfour Note,” which would “carry general relief to the British taxpayer.”

Churchill’s about-face was “stunning,” Eicher writes. He had urged the Balfour Note on the cabinet and had publicly insisted on the policy. Moreover, as Eicher says, the point of that policy had been “to trumpet British financial superiority, not to provide relief to the British taxpayer.”

In 1931, as the world sank into a depression, President Herbert Hoover proposed a one-year moratorium on collecting war debts. Mellon opposed the idea until he met with British officials, who convinced him of the gravity of Europe’s situation. The treasury secretary advised a postponement of “at least two years,” though Hoover opted for the one-year moratorium.

Eicher also shows how the overlooked story of war debts connected to Mellon’s well-known focus on reducing the national debt. As he negotiated, Mellon saw a growing risk that European countries would default on their payments. “If the Allies did default on their loans,” Eicher writes, “the U.S. Treasury would still have to repay Americans who had purchased Liberty Bonds to fund them.” This default risk “made his efforts to institutionalize the practice of running budget surpluses to aggressively pay down the national debt even more critical.”

Coolidge and Mellon ran surpluses every year of Coolidge’s presidency, allowing them to pay down about one-third of the national debt. Unfortunately, that discipline seems to have disappeared from Washington when Coolidge and Mellon left the city.

James H. Douglas served as governor of Vermont as well as state treasurer. He is a trustee of the Coolidge Foundation.

This review appears in the Summer 2025 issue of the Coolidge Review. Request a free copy of a future print issue.