The House of Rothschild, Volume 1

by Niall Ferguson

  Nathan’s slapdash approach to paperwork was evidently a recurrent source of friction. Three years after this first admonition on the subject, Mayer Amschel was still harping on the same theme, in a way which makes it abundantly obvious where power lay in their relationship. This rare letter—one of the few of Mayer Amschel’s private letters which survive—is worth quoting at some length to give a flavour of the early Rothschild correspondence:

  [T]o begin with, all our correspondents complain about you, dear Nathan, and say that you are so disorganised when sending consignments. Sometimes you write that you have sent, for example, the chest with this number, then later [it arrives with] another number. If you send a chest today, you only let Esriel Reiss know six months after. One of his clerks said to me that you are very disorganised. My dear friend, if you don’t write down all the numbers of the chests when you send them off, if you don’t write them down until you receive acknowledgement that they have arrived, if you don’t pay attention, if you [don’t] ask where the chest has gone when you don’t receive an answer from your correspondent, if you are so disorganised and don’t have someone or a friend with you, then you will be swindled. What is the good of that[?] Everyone can be a millionaire if they get the [right] opportunity. I already complained in Frankfurt about your extraordinary expenditures and disorganisation, dear Nathan; I don’t like it.

  This repetitive, haranguing style—which was inherited by Mayer Amschel’s elder sons Amschel and Salomon—does not make for easy reading today; it cannot have given Nathan much pleasure either. However, the father’s determination to bludgeon his son into mending his ways provides a fascinating insight into the business methods of the day:

  I have seen the orderly way in which Heckscher and the merchant Baresch despatch and return consignments. They have special clerks in order to keep an eye on everything. They say that without good order a millionaire can go broke the more business he does, because the whole world is not, or not very, honest. When people see that you are not orderly in your despatching, they will do business with you only in order to cheat you . . . Mostly they will pick quarrels with you in order to cheat you, the more so when they see how disorganised you are with your consignments. In sum, they will do business with you to exploit your disorganisation. There was a man in Frankfurt called Eluzer Elfelt who made a great deal of money, but the whole world made money from him because he was so disorganised and it went as badly for him in the end as he himself had been badly organised. Dear Nathan, don’t be angry with your father. When it comes to penmanship you are not much good. Take on a clerk to manage the despatching of consignments and take my advice, be more organised with your despatching, otherwise I don’t give your business much chance. The more you sell the worse it will get if you aren’t organised. My dear son, don’t be cross that I write like this . . . You have to be careful, and Amschel says that you don’t keep a proper record when he sends you remittances. That is wrong . . . It really is necessary that you keep a precise record of everything that you send us and all that we send you, you really must keep your books properly. If you can’t manage to keep all our accounts in good order because of your book-keeper, write home and maybe we can suggest a plan . . . If you are organised, organised in your writing and careful in the way you give credit, I don’t doubt that you will do well.

  Nor did this paternal lecture end there. Mayer Amschel went on to berate Nathan for failing to calculate his profits net (as opposed to gross); for doing business with Rindskopf in precious stones (“But you are no jeweller”) and for failing to discount bad debts:

  My dear son, you must not be angry when a father, who has the happiness of all his children at heart, asks to know the real state of your finances, because if you have many bad debts, which God forbid, and enter them as if they are good, that is simply to pretend that you are rich . . . My dear son, you are hard-working. Do your bit like a good boy. You can’t do more. I just want to encourage you to be more organised . . . You really have a good brain but you haven’t learnt [the importance of] order, and here I see that all the merchants who are well organised are the ones who get very rich, and the ones who are disorganised are the ones who go broke. So dear son don’t take it badly when I write you my opinion.

  What is unmistakably apparent from this letter is that, in Mayer Amschel’s eyes, Nathan was still just one of five subordinates within an essentially patriarchal family firm. Provided Nathan improved his business methods, he could look forward to having “as good a share in my business as your brothers” once their sisters had been married off. But until then, Mayer Amschel would give the orders.

  Another possibility which has been suggested is that Nathan left Frankfurt in order to escape from the religious restrictions of the ghetto. It is true that Jews—who had been readmitted to England only in 1656 after three and a half centuries of exclusion—enjoyed far greater liberty in England than in Germany in the early 1800s. There were very few economic restrictions on Jews in England by this time,9 though (in common with Catholics, Non-conformists and unbelievers) they were still excluded from Parliament, local government and the universities, and, as foreigners, new immigrants were subject to increasingly stringent supervision as the war with France intensified (Jews born in Britain were British subjects). In London, confident and prosperous Jewish communities had developed during the eighteenth century including Sephardic families like the Mocattas and Ashkenazim like the merchant Levi Barent Cohen, whose father had been a successful Amsterdam linen-dealer. In the late 1790s Benjamin and Abraham Goldsmid were already playing just the sort of dynamic financial role which Nathan would later imitate with such success, challenging the dominance of the Baring brothers and their Amsterdam correspondents Hope & Co.—and incurring in the process a version of the sort of religiously tinged but essentially economic resentment we have already encountered in Frankfurt. We know Nathan had an entrée into this world through his father’s business contacts with Salomons. Yet he apparently spent no more than a few months in London when he first arrived in England, before setting off northwards to the far less socially congenial environment of Manchester, where the small and still embryonic Jewish community was overwhelmingly made up of poor shopkeep ers—dealers in old clothes, cheap jewellery, umbrellas and patent medicines. Though he was subjected to much less formal discrimination in Manchester than he had been in Frankfurt, it is hard to believe that Nathan was attracted there by anything other than business.

  How successful was Nathan in what contemporaries sometimes disparaged as the “rag trade”? Very, according to his own account, thanks mainly to his own business acumen:

  . . . the nearer I got to England, the cheaper goods were. As soon as I got to Manchester, I laid out all my money, things were so cheap; and I made good profit. I soon found that there were three profits—the raw material, the dyeing, and the manufacturing. I said to the manufacturer, “I will supply you with material and dye, and you will supply me with manufactured goods.” So I got three profits instead of one, and I could sell goods cheaper than anybody. In a short time I made my 20,000£ into 60,000£. My success all turned on one maxim. I said: I can do what another man can, and so I am a match for the man with the patterns, and for all the rest of them! Another advantage I had. I was an off-hand man. I made a bargain at once.

  This was not a bad summary of Nathan’s mode of operation, but again it greatly oversimplified matters. Nathan arrived in Lancashire with orders for British textiles from his father, and continued to receive these by post. Having assessed the market to establish the quality and price of cloth available, he then proceeded to place these orders with manufacturers—not only those based near Manchester, but also from firms as far afield as Nottingham, Leeds, Stockport and even Glasgow. The cloth was then manufactured (usually by sub-contracted weavers in their cottages) and “finished” by dyers and printers, usually small firms in and around Manchester. In order to drive down the price of the goods he bought, Nathan tried as far as possible to pay
up front “on present bill terms,” which meant “drawing on” (that is, borrowing from) his London bankers “at three months” (for three months). As he explained in December 1802:

  On Tuesdays and Thursdays the weavers who live in the country twenty miles round Manchester bring here their goods, some twenty or thirty pieces, others more, others less, which they sell to the merchants here at two, three and six months’ credit. But as there are generally some of them in want of money and willing to sacrifice some profit to procure it, a person who goes with ready money may sometimes buy 15 or 20 per cent cheaper.

  Nathan did not actually have to pay the bigger manufacturers until their goods were shipped for the continent. On the other hand, it was necessary to wait—usually two months—before expecting payment from Frankfurt. Obviously, the profit to be made in such a business took the form of simple percentages. However, at a time when profit margins in the textile industry could be as high as 20 per cent, Nathan’s charges were modest: 5 per cent on the cost price for purchases in cash from his warehouse, as little as 9 per cent for goods which had to be despatched to the continent. This was a deliberate ploy to attract customers and increase his market share: in his letters to potential buyers, Nathan constantly stressed that his mark-up as a middle-man was lower than those charged by his competitors. As he told his father in September 1802: “No House in Manchester purchase the Goods cheaper—if so cheap—as I do and none are at so much trouble as we are to procure them to advantage.” “You cannot find any person in Manchester who will serve you with so small a Profit as myself,” he assured one new customer. “I have the pleasure to tell you my meaning plainly, if you will do any business with me in future, you may depend that I shall send you Goods as cheap as any Person in the whole World.” Moreover, as his business expanded and he began to export to firms other than his father’s, Nathan began to offer not only low prices but also reasonable credit terms, telling the same buyer that he regarded his money as being “as safe in your hands as if I had it in my Pocket.” His continental customers were generally expected to pay with bills falling due after three months—in effect, five months after the goods had been shipped (and paid for) by Nathan. The more Nathan could pay in cash or “present bills,” the less he could pay his suppliers; the more credit he could give his customers, the more customers he attracted. This seems to have been his fundamental principle.

  The practical implications of this system were, as the letter copy books of the period show, nerve-racking. To begin with, Nathan himself had to do a great deal of travelling to establish a network of suppliers and customers. As early as November 1800 he left Manchester for Scotland, where he apparently found better cloth or better prices. He returned there again in 1801 and 1805. Frequent trips to London (like the one he made in the summer of 1800 or 1801) were also necessary to maintain good relations with the bankers on whose overdraft facilities he depended. And although some buyers sent agents to Manchester, Nathan preferred to deal directly with continental firms, making at least two major expeditions across the Channel to drum up new business. The spring of 1802 saw him in France and the Netherlands, establishing links with firms in Paris, Nancy, Lyon, Liège, Metz, Brussels, Maastricht, Antwerp and Amsterdam. Before returning to England, he also went to Germany and Switzerland, securing orders from firms in Hamburg, Nuremberg, Heidelberg, Cologne, Munich, Memmingen, Salzburg, Leipzig, Königsberg and Basel. His list of customers for 1803 even included a firm in Moscow. One of the catalogues he took with him on such trips still survives and shows—on page after page studded with small squares of cloth—the extraordinary range of patterns and textures British manufacturers were able to produce.10 These absences in turn meant that a considerable amount of work devolved on his clerks, principally Joseph Barber, an English book-keeper he had hired shortly after arriving in Manchester.

  Yet no amount of travelling could ensure that suppliers delivered their goods on time, or, for that matter, delivered the goods that had actually been ordered. Much of Nathan’s correspondence was therefore concerned with cajoling manufacturers to comply with his orders. At the same time, there was no guarantee that customers would always be satisfied with the goods they received, and almost as much time had to be spent in haggling retrospectively about the price and the quality of consignments. As he remarked ruefully to Geisenheimer “If I send off the goods it is two months before I can draw at 3 months date and then . . . I may be kept out of my money five or six months . . . it is very easy to get commissions but not quite so easy to get paid for them.” Nathan also had recurrent disputes with his bankers in London over their interest charges, and the very high costs of insurance which they took care of. These three pressures seem to have led to a degree of diversification on Nathan’s part. It seems that in 1801 dissatisfaction with his suppliers prompted him to become directly involved in manufacturing himself—hence the purchase of a copping machine from Boulton & Watts. Then, in 1805, he went into partnership with another immigrant from Frankfurt, Nehm Beer Rindskopf (the son of Mayer Amschel’s business associate Beer Nehm), leaving the latter to deal with sales to customers. Rindskopf soon led Nathan to diversify further, placing orders on his behalf not only for cloth but also for indigo, and later pearls, tortoiseshell and ivory (so-called colonial goods imported to Britain from her overseas empire). Finally, Nathan began to concentrate increasing amounts of his own attention on the various credit transactions generated by his business. He constantly shopped around for better borrowing and bill-discounting facilities, dealing with a succession of London bankers including Lyon de Symons, Goldsmid & D’Eliason and Daniel Mocatta, as well as continental bankers, notably Parish & Co. and the Schröder brothers. Like his father, he was gradually shifting from being a merchant to being a merchant banker.

  The frenetic, hustling atmosphere of these formative years is vividly captured in the letter books of Nathan’s which have survived. In a market crowded with numerous small businesses, subject to rapid fluctuations in prices and interest rates and almost completely unregulated, it took a combination of burning aggression and cool calculation to survive and thrive. Nathan Rothschild possessed both in abundance. He was prepared, in his earliest days, to be ingratiating, on one occasion sending Salomon Salomons a cask of wine in the hope of getting better insurance rates.11 But soon the brash, even bullying tone which seems to have come most naturally to him began to predominate. As early as December 1800 he could write confidently to one Scottish manufacturer with whom he had placed an order: “[P]rovided you will exert your best endeavours to please me and expeditiously, [you] may rest assured that it is in my power to furnish you regularly with considerable commissions.” Two weeks later he underlined the message: “I expect any day commis[sion]s from the Continent. I certainly shall give you the preference but wish to have the commis[sion]s you have . . . executed first before I can give you any more. You request to have 3 weeks more to execute it but the quicker you are in serving me, and the lower you do it, the more com[missions] you may depend on.” When no response was forthcoming, Nathan was indignant: “I am astonished that I have not heard from you before this. When I was in Glasgow you promised me faithfully to execute my order instantly and now it is a long while ago that I never even heard from you. If you could execute orders in a short time you might depend upon large commission for it is of no use to give commission if they are not executed by the promised time.” Another Scottish firm which delayed dispatching goods he had ordered was reproached even more forcefully:

  I suppose you keep them in possession as a security untill I had sent you your very large Bill ! which I think is very ungenteel conduct . . . I suppose you think I shall never come to Glasgow or Paisley any more but I give you my honor I will come again in 2 mo[nths] and I believe I shall be able to procure plenty of goods for my method of payment.

  A year later, he did not hesitate to accuse an awkward French buyer of “chicanery.”

  At times, Nathan felt himself almost at war with his business rivals
. He was on one occasion “surprized beyond measure to be informed of the most scandalous and unfounded reports that have been so industriously circulated in Frankfort by my enemies.” There were, he told his father, “many people in this country that would be very glad to support their own credit and character by destroying mine—But I thank God that I am so firmly established, that they cannot effect their purpose, by their wicked and weak attempts.” No doubt his rivals did seek to get the better of him. However, it is hard to avoid concluding that at times he let his combative temper run away with him. “You are a great rascal,” the Hamburg banker Behrens told him in the course of a minor spat:

  I . . . cannot but express my astonishment at the tune [sic], as well as the contents [of your letter]; to be sure you would like to make me believe you as virtuous as Cato and as rigid in being as good as your word as Regulus; however whether your wishes in this respect will ever succeed with me remains a question which I have neither the leisure nor the humour to investigate . . . You are often crazy, that’s what I think. Do you fancy that you might frighten me because of your money? I have as much as you have and I am not even living in England.