2. Chapter 1: Origins & Early Days

Early in 1919 a small group of powerful and influential men met to discuss what might be done to halt what they saw as the growing "Red Infection" in Britain. They met in the offices of the "National Publicity Agency", the brewery owners' lobbying organisation based at number four Dean's Yard in Westminster. When the meeting closed an organisation had been created which would play an important, and largely clandestine, role in British political and industrial life for the remainder of the twentieth century. After a number of name changes, in 1926 it finally adopted the name by which it is known today - "The Economic League". Dean's Yard is a spacious, elegant and almost Oxbridge quadrangle immediately behind Westminster Abbey, and no more than a couple of minutes walk from the House of Commons. The meeting had in fact been called by one of the House of Commons' newest Conservative and Unionist Party members, Rear Admiral William Reginald Hall. Hall had been elected for a Liverpool constituency in the hastily called post-war election1.

Also at the meeting was Major Richard C. Kelly (director of the National Publicity Agency), and the right wing Conservative MP John Gretton (Chairman of the Bass Brewery and member for the brewing town of Burton in Staffordshire) who was presumably already a regular visitor to the offices. The leading industrialists at the meeting included: Evan Williams (president of the mine owners' Mining Association); Cuthbert Laws (of the ship owners' association); Arthur Balfour (later Lord Riverdale and perhaps the leading Sheffield steel manufacturer) and Sir Allan Smith (director of the Engineering Employers Federation). The only published account of that first Dean's Yard meeting is the Economic League's sketchy and unreliable autobiography "Fifty Fighting Years". According to this, the Dean's Yard meeting had decided

". . . . to raise sufficient funds to set up an organisation to counter subversion in industry during the critical period of post-war re-adjustment".

This organisation had at first consisted of "a number of groups in industrial areas. . . known as Economic Study Clubs, each with a small staff of speakers and lecturers to hold meetings and distribute leaflets at factory gates, pit heads and on docksides". These Economic Study Clubs were "co-ordinated from an office in London, this task falling mainly to Admiral Hall and R. C. Kelly". There is, however, compelling evidence that the League's origins were by no means as straightforward as they themselves were presented them. These Economic Study Clubs were just one element in what was a complicated and highly organised network of groups and organisations which supported and advanced the cause of a group of radical right wing politicians and industrialists known as the "Diehards". Although there are good reasons for believing that Admiral Hall's entry into politics really did give an impetus to the growth of this network, its origins and therefore the origins of the Economic League, can be traced back to at least 1915 and perhaps to other equally important individuals2.


The League began life as the National Propaganda Committee of a group called the British Commonwealth Union, and it is likely that it was this committee which was being established at the Dean's Yard meeting. It quickly acquired an identity of its own - becoming known simply as "National Propaganda". National Propaganda acted as the co-ordinating body for a growing number of groups often treated by historians as independent entities - the British Empire Union, National Citizens Union, National Alliance of Employers and Employed, Industrial League and Council, Industrial Welfare Society, Christian Counter Communist Crusade, Children's Faith Crusade, the Economic Study Clubs. In 1924 National Propaganda changed its name to "The Central Council of the Economic Leagues" and this name was finally shortened to The Economic League. Although the current name was not formally adopted until 1926, all its literature has subsequently claimed 1919 as the date of its formation. In addition to these public organisations there was also a secret and tightly knit intelligence operation run by Sir George Makgill, the author of some minor novels of imperial life. Makgill's little known organisation was inextricably linked to the National Propaganda/Economic League network. However Makgill's intelligence operation was fragmented, with agents working in "cells" which knew little or nothing about the work of other cells. It was perhaps at best a semi-detached wing of the National Propaganda network and certainly thus did not survive intact his early death in 1926. But one particular cell, called "Section D", did continue to function and flourished under the shadow, if not strictly within, the Economic League3.


The British Commonwealth Union, that is the group that acted as midwife to the Economic League, was according to the historian Barbara Lee Farr :

"An important, unique direction of right-wing activism. Money not moral pronouncements was its means of persuasion. Its methods reveal an underground network of secret subsidies to sympathetic politicians and labour leaders, infiltration of government departments and spying. "4

But the most complete published account of the BCU's origins is to be found in an essay by J A Turner describing the BCU's activities from its foundation in 1916, until the Election of December 19185. According to this the first meeting of the group that became BCU took place on December 18th, 1916. It was attended by: Sir Vincent Caillard, Sir Trevor Dawson, Sir William Bull MP, F Orr Lewis, F H Barker, G Muir Ritchie, F N Garrard, F W Ashe, Grant Morden. This group, which initially called itself the "London Imperialists", had from the outset the intention of creating some sort of "Industrial Party" in Parliament. To this end they set about trying to enlist the formal support of the Federation of British Industries (FBI). The FBI had also been founded in 1916, with the aim of being an employers' organisation capable of representing the political interests of business and manufacturing. But in order to attract the broadest support from industries, the FBI had to fudge its position on the one issue that dominated the political thinking of industrialists and manufacturers - the debate between the Free Traders and Protectionism, about which there was some considerable dispute between industries. On March 29th 1917 the London Imperialists met 9 members of the FBI council with the objective of securing its official approval for their plans. After the meeting eight of the FBI council members joined the London Imperialists. The ninth was the FBI President, Frank D Docker who was enthusiastic but reluctant to become a paid up member without the FBI's formal support of the group. In spite of the success of this meeting, within the FBI there was considerable, and successful, resistance to the London Imperialists' approach. Their opponents argued, successfully, that support for the protectionist London Imperialists would jeopardise the compromises over "tariff reform" that were then essential to the FBI existence6. Spurned by the FBI, the London Imperialists changed their name briefly to the "Industrial and Agricultural Legislative Union" and went a-courting the British Empire Producers Organisation. By October 1917 it was now finally calling itself the British Commonwealth Union and was in negotiations with the "patriotic labour" group called the British Workers League. The British Workers League was one of the more successful of a number of political organisations trying to mobilise support for conservative and anti-socialist causes amongst working class voters. The negotiations with the British Workers League were, it seems, successful. But it was a relatively small and poor group and the BCU therefore continued to make overtures to a variety of employers' organisations. These included the Engineering Employers Federation, Shipbuilding Employers Federation, the National Employers Federation and other manufacturing, chemical, commercial and shipping organisations7. Eventually, on February 22nd 1918, the BCU received the formal support of the management committee of the Engineering Employers Federation (EEF). According to its Director Allan Smith: "The political developments which are taking place and the probable large increase in the strength of the Labour Party in the House of Commons makes such an action appear to be a necessary development. . . . "8

In the light of its success with the Engineering Employers, on May 8th the BCU was again reorganised. There was now to be a "Council", meeting infrequently and chaired by Sir Richard Vassar-Smith. Also on the Council were the FBI's Frank Docker and three members of the Engineering Employers Federation. A monthly "Executive" was chaired by Sir Hallewell Rodgers and included Docker and Sir Joseph Lawrence. Sir Ernest Hiley chaired its "Finance Committee", and Allan Smith, its weekly "General Purposes Committee". On 13th June the BCU appointed Patrick Hannon, then secretary of the Navy League, as its General Secretary with the substantial salary of £1,500 per year. In the run-up to the 1918 General Election the BCU spent a great deal of time and money establishing a secret slate of its own candidates. Although these candidates were expected to run for already established parties, it was made clear to them that the "political label of the candidate takes second place following upon his clearly defined duty to the Union". By the time of the Election, in December, there were 26 BCU candidates of which 20 entered parliament9. All but one of the BCU's clandestine candidates (Norton-Griffiths) had pledged support for Lloyd George's coalition, and all but five were Conservatives. Morris was a Liberal, Hallas and Seddon were British Workers League, Cristabel Pankhurst had been a candidate for the "Women's Party" and J. B. Cronin was a "Lower Deck" candidate standing for better pay for ordinary naval ratings.

Contributors to the BCU funds, and thus to these candidates' election expenses, had included shipbuilders, gas companies, electrical supply companies and British Sugar refineries. The two largest contributors were Vickers Ltd and the Metropolitan Carriage, Wagon and Finance Co10. After the election, according to J A Turner, the BCU "abandoned its attempts to organise in constituencies and concentrated upon propaganda and organisation among M. P. s; in 1922 it turned exclusively to propaganda and in 1926 submerged its identity in the Empire Industries Association." The secretary of the Empire Industries Association was Patrick Hannon, by then a Birmingham MP11.


To understand what the British Commonwealth Union must have been hoping to achieve at the Dean's Yard meeting it is first necessary to have a clear picture of Admiral Hall, the man who had set up the meeting, and who subsequently took charge of the organisation it created. Hall was a larger-than-life, Mr Punch-like figure, whose Dickensian features were accentuated by a facial twitch which earned him the nickname "Blinker", though to friends, like Peter Wright's father, he was generally known as Reggie12. His distinguished sea going career, during which he earned a considerable reputation as a firm-but-fair captain, a fine trainer of gun crews and something of an innovator, had been cut short by ill health just as war was breaking out in 1914. In order to keep him in the service, and, it was suggested, after some intensive lobbying by his wife, the Admiralty appointed him Director of Naval Intelligence, a post held in the past by his father. Although Hall's appointment as DNI was accidental, it was for the Admiralty a fortuitous one which influenced not only the course of the Great War but also the course of British, American and Irish history. Blinker Hall was by all accounts a charismatic and, when he wanted to be, a charming figure. His piercing stare had impressed both Compton Mackenzie (the novelist and thoroughly disillusioned former secret agent) and Walter Page (the American Ambassador to Britain during the Great War). Page had been particularly impressed by Hall's abilities as an Intelligence chief, and described him as:

"a clear case of genius . . . . All other secret service men" are amateurs by comparison"13.

Patrick Beesly, the naval historian who himself knew Hall, paints a vivid picture of a "maverick" who was "not typical of the naval officers of his generation":

"He was fascinated by "The Great Game", the world of spies, agents, deception, bribery, disinformation, destabilisation, all that side of Intelligence now stigmatised as the "Dirty Tricks" department."14

The Great War saw dramatic changes in the British intelligence services. The two armed services ran their own intelligence departments to provide military and naval commanders with intelligence, while three other main services covered the political, civilian and diplomatic fields. MI5, then under the leadership of Vernon Kell, was responsible for domestic intelligence operations in Britain and on British territory. However because MI5 had no official status and thus no legal powers of search or arrest, MI5 shared its responsibility for domestic intelligence with the police force's "Special Branch", then under Basil Thomson. Finally MI6 (also known as the Secret Intelligence Service or SIS) then under Admiral Sir Hugh "Quex" Sinclair, was responsible for foreign intelligence.

In this grand scheme, therefore, Hall's main responsibility as DNI should have been to provide the Admiralty with the intelligence it needed to wage war against the German navy. But under his extraordinary leadership Naval Intelligence became the most important of all the British Intelligence Services operating during the Great War. This was partly the result of its good fortune in acquiring the German Naval codes within twelve weeks of the outbreak of war. But most of the credit for the Naval Intelligence's pre-eminence must go to Hall. He supported and encouraged the development of the technology needed to intercept the German radio messages that were subsequently decoded. He also relentlessly and ruthlessly pursued any interesting intelligence that passed through the code breakers in "Room 40" at the Admiralty - regardless of its particular interest to the Navy, or its political and diplomatic consequences. Patrick Beesley, in his book "Room 40", provides us with the most detailed published account of the activities of Naval Intelligence's code breakers, and Hall, during the Great War15. Beesley suggests that they were largely responsible for the Navy's success in the battles of Dogger Bank and Jutland, and the British mastery over the U-Boats. But he also claims, with justification, that they were responsible for the quick defeat of the Easter Rebellion in Ireland, and for dragging the unwilling Americans into the War in April 191716. Hall played a central part in the arrest and execution of Sir Roger Casement and later in the manipulation of the intercepted "Zimmerman Telegram" to try to draw the United States into the War. Naval Intelligence had provided the information which led to Casement's arrest, and the inevitable failure of the Easter Rising in Dublin in 1916. This had mostly come from intercepted wireless messages although Hall had also organised an undercover mission in which British seamen masquerading as American tourists sailed around the coast of Ireland in a prestigious yacht call the "Sayonara" looking for information about German support for Irish nationalists. Hall and the head of Special Branch, Basil Thomson, then interrogated Casement. After his conviction for treason it looked like a powerful campaign, led by Sir Arthur Conan Doyle, was going to be successful in getting Casement's death sentence lifted. Hall however leaked to the press details from Casement's homosexual diary and the campaign fell apart. Casement was executed. Walter Page, the American Ambassador to Britain, was a committed anglophile and relied on Hall's unauthorised help to win his battle to draw his country into the War. A coded telegram from Zimmerman, German Foreign Minister, to Washington which was sent on January 16th 1917 seemed to propose unrestricted submarine warfare. It was intercepted by Hall's department, decoded, and passed to Page. The implication was clear - it would make neutral American merchant shipping a target for U-Boats. It also suggested that attempts should be made to secure a German alliance with Mexico in the event of the United States entering the War on the side of Britain.

The Zimmerman telegram earned Hall his knighthood. But at the end of the war the 48 year old Hall sought permission from the Admiralty to stand as a Unionist candidate in the 1918 General Election. This was not a unique request at the time, and it would have been unusual if it has been rejected. However the Admiralty seem to have considered, though ultimately thrown out, the unprecedented possibility of allowing Hall to continue as DNI while sitting in parliament17. Although he therefore retired from the service when he entered Parliament, he continued to be well known and respected in the intelligence community. In 1924 he was implicated in the "Zinoviev Letter" affair, in which information from MI5 was leaked to the press in an attempt to discredit Ramsay MacDonald, the first Labour Prime Minister. A few years later, in 1927, he was involved in the discovery of a Russian spy named Wilfred McCartney and much later, in 1939, when he was 69, he was recalled to advise on the reorganisation of Naval Intelligence for the Second World War18.

When he entered Parliament in 1919 it became clear that he was no ordinary, novice, backbencher. Yet this hardly explains what he was doing in Dean's Yard, with some the country's most powerful industrialists just a few weeks after entering Parliament. The explanation for this is perhaps to be found in a scheme he hatched in conjunction with Basil Thomson before he had left Naval Intelligence. Both men were aware that, with War ended, the government would be seeking to reduce and rationalise the intelligence services and so they proposed the creation of a single, centralised, domestic intelligence service. Their idea was to combine the functions of MI5, Special Branch and the various "labour unrest" intelligence departments that had been operated by many of the wartime ministries. But this apparently reasonable suggestion was only part of a grander, and more dubious scheme. If their plan had gone ahead Thomson would have headed the new department, and MI5 would have been disbanded.

Vernon Kell, the head of MI5 whom Hall had described as "short sighted and timorous", would have been pensioned off. But this scheme was more than just an early example of inter-service rivalry in the intelligence community. Both Hall and Thomson were profoundly worried by the growth of the Labour Party and the increasing activity of the trade unions. They realised that the intelligence services would be vulnerable to control by the Labour Party if, as a result of the extension of the franchise, it was to obtain a parliamentary majority and form a government. So with the help his assistant Claud Serocold, a former financier he had recruited from the City, Hall devised a plan in which this new domestic secret service would be funded by a one-off undisclosed payment by the government of £1 million. This money would then be used to create a fund, managed by trustees, which would provide a steady and reliable income, and thus protect the service from any possible Labour government19. It is easy to see now that what the two men were proposing was a peacetime political police force. In the Cabinet, Hall and Thompson had the enthusiastic support of Walter Long, Secretary of State for the Colonies and a confirmed "Diehard". Fortunately, perhaps aware of the potential of the monster they would have been unleashing, the Cabinet as a whole did not fall for the plan. Instead they adopted what was in the end an incoherent and watered down version of the scheme. A new department with responsibility for domestic intelligence, the Directorate of Intelligence, was established at the Home Office. Thus on May Day 1919 Basil Thomson became its chief, while at the same time he retained control of Special Branch. But MI5 was not disbanded, only slimmed down, and it stayed under the control of Vernon Kell until 1940. No section of the intelligence community was to be given absolute financial and political independence from government. The fears that had led Hall and Thomson to seek protection for the domestic intelligence services from a democratically elected Labour government were not uncommon at the time. Nor were they particularly unreasonable fears. They also knew how hard it would be to rehabilitate hundreds of thousands of fighting men, and that in the months after the Russian Revolution, rebellion had broken out in army camps, and industrial action was growing. To make matters worse, from their point of view, the 1918 Representation of The People Act had given a vote to hundreds of thousands of potentially rebellious working class voters.

In the end Basil Thomson's Directorate of Intelligence was short lived. A series of intelligence fiascos and problems led the Cabinet to appoint, in 1921, a committee of senior civil servants to examine "Secret Service Expenditure". Their report was fiercely critical of the Directorate of Intelligence and the Metropolitan Police Commissioner, General Horwood, twisted the knife by calling the independence of Special Branch "a standing menace to the good discipline of the force". Horwood was also critical of the quality of the intelligence being provided by the Directorate:

". . . As to its information regarding labour matters at home, I have recently called the attention of the Secretary of State to misleading and inaccurate reports by the Directorate of Intelligence to the Cabinet in regard to meetings of the unemployed in London itself. . . " 20.

Horwood insisted that Special Branch be brought back under the control of the Metropolitan Police. In this he won the support of Lloyd George, the Liberal Prime Minister. When Basil Thomson refused to co-operate Lloyd George summarily dismissed him, without consulting his coalition cabinet colleagues. Hall was convinced that Lloyd George had traded Thomson for Labour Party support for his Irish policy and in a debate on the issue, on 3rd November, he forced a vote in which forty two other Diehards voted against the Tory dominated coalition21. The establishment of the Directorate of Intelligence had not offered the domestic intelligence service a cast iron defence against the Labour Party. This fact had, for Hall, been underlined by Thomson's humiliating dismissal. But Hall had not waited for proof that his suspicions were correct. His resignation as DNI, and the government's refusal to adopt his scheme for a politically and financially independent intelligence service had left him free to develop the idea himself. The money that would have originally been raised through a secret War loan would now have to be obtained from private sources and the meeting in Dean's Yard, and the creation of National Propaganda, was the first stage in creating his new private intelligence service.


National Propaganda was based at 25 Victoria Street, in London, which was one of the bases for right wing lobbyists. It was here that the Union Defence League, the Employers' Parliamentary Council and the Property Defence League were based. The Union Defence League was one of the central organising committees of the Conservative Party, coordinating Conservative resistance to Irish independence. The other pressure groups both run by Frederick Millar, a veteran anti socialist who at the end of the nineteenth century had been editor of the "Liberty Review" which described itself as "The Organ of Free Labour, Free Contract and Free Trade"22. National Propaganda organised a network of regional groups. By 1923-1924, there were 14 of these each of which used the name "Economic League", for example "Leeds Economic League"; apart from a short lived West Yorkshire group targeted at women, called "Women's Work" and the group working on Tyneside and Teeside which called itself "National Propaganda". However an Independent Labour Party 1926 pamphlet, part of its regular series of "Notes for Speakers", made explicit National Propaganda's connection with a string of other organisations, most notably the British Empire Union and National Citizens' Union. The ILP's claims would seem to be supported by a Special Branch memo to the Foreign Office, from about the same time, which also makes these connections. Another organisation which was absorbed by National Propaganda was the Liberty League. Though hardly a major force it was nonetheless interesting since it was an anti-Bolshevik organisation set up in 1920 by the authors H Rider Haggard and Rudyard Kipling, and Lord Sydenham, who later in the twenties was a prominent member of the British Fascists. It was taken under National Propaganda's wing in 1921, when its Treasurer absconded with its funds23.


From the beginning the Economic League was designed to be more than merely a platform for anti-socialist politicians. Fifty years later the League explained that the original objective had been not only to:

"Fight subversion relentlessly and ruthlessly . . . But replace it by constructive thought and ideas, by what, for want of a better term, is known as simple economics. "24

Although the Economic League originated within the BCU and may well have accounted for all of the BCU's £50,000 spending spree, it soon became a distinct organisation. What distinguished the League from similar anti-socialist groups was the way in which it set about "replacing" socialism with "constructive thought and ideas". It adopted the same evangelical methods as the socialists, syndicalists and communists. The Economic League took the self interested politics of manufacturing industry to the factory gate in what it later called a "Crusade for Capitalism".

National Propaganda was of course not the only active anti-Labour Party organisation. By 1919 the Anti-Socialist Union had already been in existence for more than ten years. After the formation of the Communist Party of Great Britain it changed its name to the Anti-Socialist and Communist Union. Its founders, in 1908, had included Harry Brittain who would be a key figure in the Economic League for half a century. The Lords Malmesbury and Illiffe were also executive members of both the ASU and the Economic League. Both groups coexisted happily until 1949 when the ASU dissolved itself and passed all its assets to the Economic League25. Unlike the ASU however the job of putting the League's message across was given to speakers recruited and paid to do it:

"Speakers were selected not only because of their aptitude for discussing economic problems in simple terms but also for their ability to make themselves heard and deal with violent opposition. They were big men in every sense of the word, tough, well able to look after themselves, and with plenty of physical and moral courage. Most of them had come to the League straight from the services. "26

The pitches from which the League's "big men" would preach their message were exactly the same ones used by the infant Communist Party of Great Britain:

"The town centre gathering points of the unemployed (Bigg Market in Newcastle, Tower Hill in London, The Covered Market in Wigan, the dockside in Liverpool, The Bull Ring in Birmingham) and outside the factories where in the days before works canteens the workforce would eat their lunch. " 27

Although "Fifty Fighting Years" tells us nothing about the arguments that its paid preachers were using at the factory gates, it is possible to obtain a comprehensive picture of their economic arguments. In 1921, the Economic Study Club, operating by this time from 2 Millbank House, published "The Facts of The Case - for speakers, writers and thinkers". This is a fascinating, revealing and exceptionally well put together anti-socialist reference book, "compiled" by the editor of "Industrial Peace". Its 250-odd pages present carefully worked out responses to the whole range of topics likely to be encountered in a debate with a member of the Labour Party, the newly formed Communist Party or an active trades unionist: Capitalism, Direct Action, Leninism, Marxism, Nationalisation, Prices, Production, Profits, Revolution, Socialism, Unemployment, Wealth, Statistics. Indeed, reading it today, it is possible to believe that, in the hands of National Propaganda's paid mercenaries and the working people they drew into its Economic Study Circles, that "The Facts of the Case" did much to damage the impair the growth of the labour movement in Britain. National Propaganda's active, rather than reactive, battle plan meant presenting capitalism in a way that would have popular appeal. This was something it had never before needed to do. Revolution in Russia, the growth of the Labour Party and trade union movement at home, and the creation of the Communist Party of Great Britain in 1920, had each, in their own way, contributed to the need for accessible and convincing capitalist propaganda. However it was the extension of the franchise, through the 1918 Reform Act, which gave it a sense of urgency. This Act had given voting rights to practically every man in the country and to women over thirty, and had thus raised the very real prospect of a democratically elected Labour Party Government in the immediate future. What Hall and the other founders of National Propaganda feared was less a violent revolution than, what Basil Thomson called, a "democratic revolution".

From its outset therefore National Propaganda had two objectives, an overt one and a covert one. Overtly they set out to support and encourage working class opposition to socialism. Covertly they began to establish the framework of a shadow state, out of reach of Parliament and Government. In this respect although 1912 marked the beginning of the Secretive State, with the introduction of official secrecy and the formalisation of counter-subversive policing, it was 1919 that marked the beginning of the Secret State in Britain. It was no longer enough to protect government from the people, the machinery of the state had to be protected from government. National Propaganda, and those behind it and those drawn into their circle, were to play a leading role in this transformation from the State-being-secret to the Secret State proper.