FEW IN BRITAIN even noticed Archduke Ferdinand’s assassination on 28 June 1914. The Irish Question had dominated politics in Britain for most of 1914. Writing to his Paris partners soon after the Archduke’s death, Lord Rothschild was more worried about the chancellor of the exchequer Lloyd George’s demagoguery. Markets, he reported, were better than they had been all year, and ‘all the new issues which were at a discount are now at a premium’.1
The mood among politicians and financiers began to darken in mid-July, however. European stock exchanges fell on Monday 20 July, and London reacted badly to news of Austria’s ultimatum to Serbia on the following Friday. The next morning the London Stock Exchange experienced its worst fall since 1870. When Serbia rejected the ultimatum, commentators described the markets as chaotic: ‘A DAY OF FORCED SALES’ ran the headline in the Financial Times.
After spending a few days with his family on the coast of Norfolk, Churchill returned to London in time to approve the First Sea Lord Prince Louis of Battenburg’s recommendation to delay the dispersal of Britain’s fleet to its home ports following its gathering at Spithead for a review by the king. It passed without lights through the Dover Strait to take up battle stations in the North Sea on the night of Wednesday 29 July; the very day when Austria-Hungary declared war on Serbia, prompting a steep drop in government bond prices across Europe.*1 The Bank of England raised the bank rate to 4 per cent on Thursday 30 July, doubled it to 8 per cent on Friday and raised it again to 10 per cent on Saturday 1 August, when the London Stock Exchange closed ‘until further notice’.
Paying one of his last bills – for personal use of HMS Enchantress – Churchill described the scene in the capital to Clementine, who remained in Norfolk: ‘The city has simply broken into chaos. The world’s credit system is virtually suspended. You cannot sell stocks and shares. You cannot borrow. Quite soon it will not perhaps be possible to cash a cheque.’2 Three days later, with the agreement of Prime Minister Asquith, he ordered the full mobilization of the British fleet; on the following day, Britain’s ultimatum to Germany expired. Shortly before midnight Churchill authorized a signal to all ships: ‘Commence hostilities at once with Germany.’3
Financiers and politicians alike were taken by surprise: Cassel was still on holiday in Switzerland; Paul Nelke, the senior partner of Jack’s stockbroking firm, spoke for many when he told a stock exchange committee that ‘he was a rich man on 1st July but what he was now he could not say’.4 A complete financial collapse was prevented only by a government moratorium on all debts and emergency funding from the Bank of England.
Churchill warned Clementine that they would have to take ‘rigorous measures’ to reduce spending. However, his immediate difficulty sprang from his new life insurance policy’s restrictions against using submarines or aeroplanes: he was forced to pay an extra £39 to cover ‘aviation (including sea-planing)’ for six months, while his insurers wanted £146 if he stepped on to a warship.5
While Britain and Germany’s navies began a game of cat-and-mouse at sea, the start of hostilities made little early impact in London itself. Churchill marked the birth of his third child Sarah, at Admiralty House on 7 October, with an order of a large number of fresh cigars and of wine which took the balance of his account at Randolph Payne back above £500.6
Only his earnings as an author slowed: Thomas Nelson & Sons offered £70 for the right to issue a new, cheap edition of The Malakand Field Force, but otherwise the literary field lay quiet.7 Instead Churchill turned his mind to a means of breaking the deadlock on the Western Front, backing a plan to use a combined army and navy assault to force a way through the Dardanelles straits to Constantinople. A successful thrust might not only remove the Ottoman Empire as an ally of Germany but encourage Bulgaria and Roumania to enter the war on the side of the Allies.
Churchill did not initiate the Dardanelles Campaign, but he was its most consistent and vigorous advocate. It started badly during the spring of 1915: the army reduced the number of troops it was prepared to commit and Turkish resistance proved stouter (and the British naval detachment’s leadership poorer) than expected. This failure provoked a political crisis at home, sparked by the sudden resignation as First Sea Lord of the eccentric Admiral Fisher, whom Churchill had controversially recalled to duty in October 1914 in order to resume the vigorous leadership of the British fleet which he had previously demonstrated in the post (1903–10).
Once linked in the public mind to evident disarray at the top of the Admiralty, the poor start to the Dardanelles Campaign led to calls for a national wartime government that Prime Minister Asquith and his senior Liberal colleagues were unable to resist. As their price for joining, Tory elders demanded the head of Churchill as the First Lord of the Admiralty: they had not forgiven him for defecting to the Liberal Party a decade before or for supporting what they perceived as its assault on the landowning class to which he belonged.
Churchill was demoted from First Lord of the Admiralty to Chancellor of the Duchy of Lancaster, although he remained a member of the War Committee, now called the Dardanelles Committee. The duties of Chancellor of the Duchy of Lancaster proved little more arduous than the appointment of county magistrates. It normally paid a salary of only £2,000, but Churchill continued to earn £4,360 because the cabinet had decided to pool its pay and divide it equally for the duration of the war. It was the exclusion from the centre of power which hurt him: ‘The hour is bitter: and idleness – torture,’ he told his friend Archibald Sinclair,*2 already serving at the Front. ‘Here I am in a fat sinecure v[er]y well received & treated by the new Cabinet... I cannot endure sitting here waiting for a turn of the political wind.’8
Conscious that his government salary might not last for long, Churchill reappraised his finances in the middle of June 1915. His overdraft stood at a relatively modest £444; his various investments added up to a net £2,500, and there was still £3,300 of James Caird’s money in his deposit accounts.9 He noted some small economies that he could make: resigning from four of his clubs would save £41 a year; and he asked Clementine to give up the Ladies’ Athenaeum and Walton Heath Golf Club. Eccleston Square was still being rented to Sir Edward Grey, so he moved the family into the large house at 41 Cromwell Road that Jack had just bought with help from his father’s will trust. The brothers had also jointly leased a fifteenth-century farmhouse near Godalming in Surrey for the summer of 1915, before it became clear that the war was going to last.
Hoe Farm provided a welcome respite from Churchill’s political misery: ‘It really is a delightful valley and the garden gleams with summer jewellery,’ he told Jack, who had already left on army service. ‘We live v[er]y simply – but with all the essentials of life well understood and well provided for – hot baths, cold champagne, new peas, & old brandy.’10 It was in the garden of Hoe Farm that Churchill first observed Jack’s wife Goonie painting. When he tried it and found himself absorbed, Clementine rushed into the nearby town to buy artists’ materials, relieved that her husband had found a distraction from his gloom. Once back in London, according to his secretary Eddie Marsh, Churchill ‘bought up the entire contents of Robertson’s colour-shop in Piccadilly – easels, palettes, brushes, tubes and canvasses’.11
A measure of political redemption beckoned during the summer of 1915 when Prime Minister Asquith asked Churchill to visit the Dardanelles task force and to report back to the cabinet. Churchill asked Cox & Co.’s chairman to arrange insurance cover under an oath of secrecy,12 before preparing a letter summarizing his finances. It was marked ‘To be sent to Mrs Churchill in the event of my death’:
Cox holds about £1,000 worth of securities of mine (chiefly Witbank Colliery). Jack has in his name about £1,000 worth of Pretoria Cement shares; & Cassel has American stocks of mine wh shd exceed in value my loans from him by about £1,000. I believe this will be found sufficient to pay my debts & overdraft... The insurance policies are all kept up and every contingency is covered. You will receive £10,000 and £300 a year in addition until you succeed my Mother.
He asked her to secure all his Admiralty papers:
Masterton Smith*3 will help you secure all that is necessary for a complete record. There is no hurry: but some day I should like the truth to be known. Randolph will carry on the lamp.13
A day before he was due to leave, however, senior Tories heard of Churchill’s visit to the Dardanelles task force and vetoed it. It was a fresh humiliation. ‘Mr Churchill asks me to say that he now finds he cannot go on the journey wh[ich] he discussed with you, & is staying in London,’ Marsh had to inform Cox. ‘In these circumstances, he hopes that if the insured premium has not been paid, it need not be; and that if it has, it can be recovered.’14
Despite this setback, Churchill did not resign. ‘Naturally I have been thinking constantly of the possibility of escaping to simpler and more congenial tasks,’ he told his friend Archibald Sinclair. ‘But since we parted political events have laid hold of me, & I must abide their issue.’15 Though he could not initiate policy, Churchill still sat on the Dardanelles Committee, where he and others openly questioned General Kitchener’s competence at the head of the War Office. Churchill continued to nurse hopes of a return to the centre of the government’s decision-making in any reorganization that followed the general’s removal, although he forfeited the support of Asquith and Lloyd George by persistently advocating the reinforcement of the Allies’ failing forces in the Dardanelles.
Asquith refused to dismiss the general and instead replaced the Dardanelles Committee with a five-man war cabinet at which there was no seat for Churchill. Churchill waited a week to see whether he would be offered another post, but resigned on 30 October when nothing came. Asquith asked him to stay his hand for a few days, during which time Churchill suggested he might take over as governor and commander-in-chief of British East Africa. Asquith declined to appoint him, so Churchill resigned for a second time on 11 November to join his regiment, the Queen’s Own Oxfordshire Hussars on the Western Front.
Departure preparations were swift: within a week Churchill had arranged full war-risk insurance cover through Phoenix Assurance (at a cost of £472) and raised his second loan of £1,000 within five weeks from Cox & Co., both made possible only with the help of a guarantee from his cousin Captain Freddie Guest.16 Churchill’s loans from the bank had now reached £9,000: their annual interest would absorb all his new pay of £420 a year as an army major, leaving only his salary as an MP (of £400 a year)*4 to look after the family. They would clearly need more, so before leaving for St Omer on 18 November Churchill paid a last-minute visit to Sir Ernest Cassel who was still managing Churchill’s remaining investments although he had all but retired five years earlier. Sir Ernest set Churchill’s mind at rest by promising him an immediate advance of £1,000 and ‘unlimited credit’ thereafter, even if the balance on his account had been exhausted.17
Churchill’s parting instructions certainly did not encourage thrift in the Cromwell Road household, which now consisted of two mothers, five young children, nine servants and his mother Jennie, who contributed £40 a month to the household’s expenses.
I really don’t think you or Goonie should deny yourself any reasonable comfort or convenience. Keep a good table: keep sufficient servants & yr maid: entertain with discrimination, have a little amusement from time to time. I don’t see any reason for undue skimping. With about £140 a month there shd be sufficient. Extra bills you must write to me about.18
As usual, Churchill’s calculations turned out to be optimistic. Household expenses had been averaging £220 a month since the start of 1915, and while he was away he would end up transferring to Clementine twice his original monthly estimate. It didn’t help that he sent regular orders from the front for extra food, drink and clothes. The day after arriving, Churchill asked for new riding trousers, a warm brown leather waistcoat (‘with the utmost speed’), a pair of trench wading boots, a periscope and a sheepskin sleeping bag; three days later he requested a weekly ‘small box of food to supplement the rations’, containing ‘sardines, chocolate, potted meats, and other things wh[ich] may strike your fancy’.19
So that Churchill could learn his military craft, his commander-in-chief Sir John French (an old friend) posted him to the Grenadier Guards, where, after a difficult start, he won over both officers and men. Sir John planned to give Churchill command of a brigade in the rank of major general.*5 Asquith, however, squashed the plan as soon as he heard of it. Clementine had to cancel the general’s tunic that she had ordered, while her husband awaited new orders in a house full of Canadians, where he befriended Max Aitken.*6
Sir John French was soon replaced by Sir Douglas Haig, who gave Churchill command of a badly depleted battalion of Royal Scots Fusiliers early in 1916. A young officer described Churchill’s arrival: their new commanding officer was seated on a black charger and accompanied by Archie Sinclair as his second-in-command, plus two equally well-mounted grooms and a pile of luggage well above regulation weight, including ‘a long bath and a boiler for heating the water’.20 Churchill soon restored morale among the Scots Fusiliers, which held a thousand yards of front line near the village of Ploegsteert (‘Plug Street’, as it became known by British soldiers).
Clementine relayed to him the latest political gossip while Churchill waited for a suitable moment to return to Westminster life. His wife urged caution, but after a short spell of leave in January 1916, Churchill returned for a second visit in March, at the end of which he spoke in a House of Commons debate, attracting ridicule in the final moments of his speech by calling for Admiral Fisher’s reinstatement at the head of the navy. The Spectator magazine mocked Churchill’s ‘restlessness of mind and instability of purpose, joined with the restless egotism of the political gambler, which would make him a most dangerous element’.21 Chastened, Churchill spent another two months at the Front before he stepped down from his command in May 1916 when his regiment was conveniently amalgamated with another whose commanding officer was more senior in rank.
There was to be no swift return for Churchill to front-line politics. From a financial point of view, this was fortunate. With only £123 left in his current account22 and his MP’s salary wholly devoured by interest payments, Churchill needed the time to resume his role as a journalist in order to support his growing family. In June he made use of his connection with the newspaper owner Lord Northcliffe (formerly Sir Alfred Harmsworth) to win four articles (at a fee of £250 each) for the family’s new Sunday Pictorial.*7 In July came a commission from The Strand Magazine for six articles (also £250 each) to be published in 1916;23 Lord Northcliffe’s The London Magazine paid double the price (£500 each) for a series of six articles in August. By the time the Sunday Pictorial returned in November for a second series, Churchill had earned more in six months from journalism than he would have done in a year as a cabinet minister.
Literary success brought with it a new financial confidence. The Sunday Pictorial payments bolstered his threadbare bank account, but Churchill forwarded The London Magazine’s cheque to Abe Bailey for him to invest in South African mining shares. ‘Money worries need not weigh with you,’ he told his brother Jack, who was still based with the army in the eastern Mediterranean. ‘I find myself able quite easily to earn ten or twelve thousand pounds in the next six months. So that Cromwell [Road] and all in it will be well supplied. Mind you let me know of anything that wants paying. I get 4 or 5 shillings a word for everything I write: and apparently even at this price the newspaper is the gainer.’24
By the autumn Churchill felt confident enough to start looking for the ‘country seat’ that he and Clementine coveted: she was after ‘a little country basket’;25 he ‘a place to end my days amid trees & upon grass of my own!’ he told Archie Sinclair, who was the owner of more than 100,000 acres in Scotland. ‘Freed from the penury of office these consolations become possible.’26
Estate agents suggested Lullenden Manor, near Lingfield. The half-timbered Elizabethan house, built of grey stone and surrounded by sixty-seven acres, lay at the end of a long lane, in a hollow among hills where the counties of Sussex, Surrey and Kent meet. Churchill fell for the far-flung views from the back of the house, closing his mind to the property’s poor condition. Early in 1917 he followed Jack’s example by funding the £5,500 cost of the main house through a loan from his father’s will trust (which leased it back to Clementine at an annual rent equivalent to 5 per cent of its cost). He then emptied his own bank account to share with the trust the separate £1,750 cost of Lullenden’s lodge.27
The British government’s Commission of Inquiry into the Dardanelles began work in August 1916, but it would clearly need several months of work before it could report its findings. Churchill’s political reputation therefore remained under its cloud when the failure of the Allies’ offensive at the battle of the Somme brought long-simmering dissatisfaction over Britain’s conduct of the war to a head in November. Conservatives in the House of Commons insisted on turning a vote on an obscure issue (the sale of enemy property in Nigeria) into a vote of confidence which the government only narrowly survived. Asquith’s Liberal rival Lloyd George and the Conservative leader Bonar Law then plotted to restructure the Coalition. Asquith was forced out of office and Lloyd George became prime minister. Although Liberal members of the outgoing cabinet refused to serve under Lloyd George, Britain’s new prime minister was able to form an administration by including the Labour Party and the previous coalition’s Conservative members. Part of their price was that Churchill should be left out in the cold.
Churchill was bitterly disappointed, but it allowed him to continue his journalism. He might have used his earnings from another six articles for the Sunday Pictorial to reduce his debts or to establish a reserve to pay future tax (the Inland Revenue allowed writers and journalists to spread payments over three years).28 Instead he used them to build up his shareholdings, which were worth £8,500 by the middle of 1917; he also asked his bank to make an extra loan to him of £2,000, so that he could invest in the new technology of smokeless coal. Cox & Co. refused to lend the full amount, but Churchill’s loans reached a record level of £10,690.29
Churchill’s only hope of servicing this debt lay in keeping up his earnings from journalism. However, in March 1917 the Dardanelles Commission’s first report cleared Churchill of acting impetuously on his own, the most damaging of the charges levelled against him. Three months later Lloyd George offered him a chance to return to government as Chancellor of the Duchy of Lancaster, a post which Churchill declined. In July Lloyd George suggested the new post of minister of munitions while he and Churchill travelled together by train to Dundee. Churchill immediately accepted.
Churchill was in his element back at the centre of British politics, but his finances soon suffered. A ministerial salary of £4,000 failed to compensate for the loss of earnings as a journalist, just as his tax bill for the previous year became due.30 He decided that Eccleston Square had to be sold if he was to hold on to Lullenden. As a result, on weekday nights Churchill stayed at his ministry’s offices, the commandeered Hotel Metropole near Trafalgar Square, or ‘perched’ at the London homes of friends or family; the rest of the Churchill family stayed in the country.
Cox & Co. offered Churchill a breathing space by extending his four wartime loans until April 1919, but once again Churchill chose to act on a strong tip from Sir Abe Bailey that he should buy shares in Government Gold Mining Areas (Modderfontein) Consolidated. He hoped that his father’s will trust would do the buying, but when Norwich Union objected that the shares were too risky Churchill arranged another personal bank loan for £2,000.31
The decision to buy more shares came at the expense of Lullenden, which needed serious money spent on it. Churchill had paid £400 to connect the house to the public water supply. He also commissioned a plan to develop the gardens and tennis court, but there is no evidence of any further spending once he resumed political office. Armed with wartime powers of inspection to enforce efficient food production, the local Godstone District War Agricultural Committee objected to what it saw as Churchill’s neglect of Lullenden’s farming potential: ‘We found the property in a very poor and derelict state,’ they reported after an inspection. ‘We are informed that this neglect is due to lack of labour, but we should have thought that Mr Churchill would have been in a position to obtain all the labour required in the way of German prisoners.’32
Stung by the committee’s criticism, Churchill claimed by the end of 1918 to have invested more than £1,000 by building a cowshed, a haystack, three pig sties and a manure heap; by enlarging the vegetable garden and sowing an acre of potatoes; and by buying a horse, a cart, two cows and seventeen bullocks. Six little pigs had even been sold at market for £12: ‘See how scrupulous & God-fearing I am!’ Clementine told Eddie Marsh. ‘Instead of spending these cheques on paying household bills I send them to you for W’s Cox account.’33 Churchill was so happy at Lullenden, she told the visiting Wilfrid Blunt, that he planned to stay there for the rest of his life.
But the cost of renting Lullenden from his father’s trust and the drop in his income were gradually squeezing Churchill’s finances: including the Lullenden loan from his father’s trust, he was paying almost £1,000 in interest each year. Within three months of asking for his last loan, Churchill returned to his new bank manager William Bernau*8 for yet another £2,000 to pay urgent bills. This took his bank loans up to £14,690.34 When Bernau politely asked for the transfer to the bank of £3,000-worth of ‘South African’ investments that Churchill mentioned during their meeting, it was left to Eddie Marsh to break the news to Bernau that they were actually worth only £2,000.35
Something had to give and Lullenden was the obvious candidate. Churchill covered three sheets of paper trying to work out whether he could buy the property from his trustees by selling £5,500 worth of investments and finding another £1,300 from the bank, but his arithmetic was flawed: he recorded his bank loans at £12,500 rather than £14,690, and even then he came up £3,000 short.36
Desperate to hold on to Lullenden if possible, he asked Nicholl, Manisty & Co. whether he could use his marriage settlement’s life policy as additional security for a loan, but their reply was no. He asked Bernau whether the bank could lend against the security of Lullenden itself, but was told that the bank did not lend on mortgages. Time was running out. Soon he was due to make expensive life insurance payments underpinning £4,000 of wartime loans guaranteed by Freddie Guest. Churchill finally came up with the idea of reducing his loans by selling shares, but Bernau told him dustily that he had already pledged the proceeds from his shares to reducing his separate overdraft, which now stood at £2,276.37
Late in August 1918 another nasty shock came: Churchill was faced with a tax payment of £476 against his earnings from journalism in 1916 and 1917. He questioned the figure, only to be told that the amount was not only correct but already overdue. He had to ask Bernau to delay paying the insurance renewals until the insurers’ thirty days’ grace period had expired, a request that rang alarm bells at the bank. Bernau sent a summary of Churchill’s £16,000 debts to his senior partner Reginald Cox and asked whether the facilities should be renewed. Cox knew that rumours about his bank’s health were already circulating in government quarters, so he decided not to risk a battle: the bank would renew for twelve more months, provided Captain Guest would reconfirm his guarantee.38 Three days later Eddie Marsh assured Sir Reginald that Churchill ‘has seen Capt. Guest who is willing to undertake the responsibility which he discussed with you’.39 It had been a close shave and the fate of Lullenden was still undecided as six weeks later the couple’s fourth child Marigold was born.
When the war drew to a close in November 1918 Churchill was not alone in surveying the damage to his finances. The wartime suspension of the gold standard, which had fixed the value of sterling against gold since 1819, and the debts taken on to fund five years of fighting, had sapped Britain’s pre-eminent position in the world’s financial order. Jack had lost his job: his stockbroking firm had collapsed. Even the duke of Westminster looked at the grand houses on his Mayfair estate and wondered aloud whether the wealthy would ever again be able to afford them.
*1 British Consols fell from 74 to 69.5 between 18 July and 1 August, before trading was suspended in most capitals; Russian government bond prices fell by 8.7 per cent; French bonds by 7.8 per cent; German bonds by 4 per cent. See Niall Ferguson, The Rothschilds, p. 963.
*2 Sir Archibald Sinclair, Bt. (1890–1970), son of an American mother and a Scottish landowner; first met Churchill at the home of actress Maxine Elliott; joined Life Guards 1910; personal military secretary to secretary of state for war (Churchill) 1919–21; private secretary to secretary of state for colonies (Churchill) 1921–2; MP 1922–45; secretary of state for Scotland 1931–2; Liberal Party leader 1935–45; secretary of state for air 1940–45; baronet 1912, Viscount Thurso 1952.
*3 James Masterton-Smith (1878–1938), joined the Admiralty 1901. Private secretary to the Second Sea Lord 1904–8, to the permanent secretary 1908–10 and to successive First Lords of the Admiralty 1910–17; he served Churchill again as permanent under-secretary of state for the colonies 1921–4.
*4 Payment of MPs was introduced in 1911.
*5 A major general earned £1,000 a year; a colonel £500, a major £420.
*6 Max Aitken (1879–1964), born in Canada; MP 1910–16; minister of information and Chancellor of the Duchy of Lancaster 1918; acquired control of Daily Express 1916, later the Sunday Express and Evening Standard; minister for aircraft production 1940–41, supply 1941–2, war production 1942, Lord Privy Seal 1943–5; knighted 1911, Lord Beaverbrook 1917.
*7 Founded in March 1915; Sunday newspapers started during the Boer War (1899–1900) as a response to the thirst for news of the war. The Sunday Pictorial’s circulation rose by 400,000 to 2,500,000 copies during Churchill’s series.
*8 William Bernau (1870–1937), banker; Churchill’s manager at Cox & Co., then Lloyds Bank 1919–33.