The House of Rothschild, Volume 1

by Niall Ferguson

  I certainly feel at a loss to understand the reason you cannot follow the instructions I have so repeatedly given you . . . I am certain you cannot be aware of the injury you are doing me . . . by your inattention I have lost at least ⅞ of the business I expected . . . What do you suppose will be the result for they are not my orders but Government’s as I before mentioned and I am continually blamed. I beg of you to do nothing whatever for the present in purchasing coins or bills to draw on London a single bill, and if you do I shall not countenance your operations in any way whatever, and will not accept the bills, but let them be returned protested to you. I hope I shall not have occasion to repeat this.

  Yet it was hardly James’s fault. It was simply—as Davidson pointed out—that he was being undercut by continental bankers like Heckscher who discerned the absurdity of the Rothschilds’ shipping gold from Hamburg and Amsterdam to London only to ship it back to the continent:

  When I left London, Mr R, the Commissary in Chief in fact everyone was anxious that as much bullion might be obtained as possibly might be done. To execute this order there was no alternative but to draw on London. Things have since taken a different turn, and the long expected war remains hitherto only in preparation, and no actual war having commenced, has the effect that bullion can be collected fom all quarters. Moreover the Houses which at the time when Bony recaptured France had no desire to be connected in that line of business, appear more anxious to receive a share thereof.

  James—despatched back to Paris in disgrace—and Salomon, now joined in Amsterdam by Carl, struggled to reverse the slide of sterling, but the damage had been done.

  It was at this juncture that the military situation came to its epoch-ending climax at Waterloo. No doubt it was gratifying to receive the news of Napoleon’s defeat first, thanks to the speed with which Rothschild couriers were able to relay a newspaper version of the fifth and conclusive extraordinary bulletin—issued in Brussels at midnight on June 18—via Dunkirk and Deal to reach New Court on the night the 19th. This was just twenty-four hours after Wellington’s victorious meeting with Blücher on the battlefield and nearly forty-eight hours before Major Henry Percy delivered Wellington’s official dispatch to the Cabinet as its members dined at Lord Harrowby’s house (at 11 p.m. on the 21st). Indeed, so premature did Nathan’s information appear that it was not believed when he relayed it to the government on the 20th; nor was a second Rothschild courier from Ghent.5 But no matter how early it reached him, the news of Waterloo was anything but good from Nathan’s point of view. He had expected nothing as decisive so soon; indeed, just five days before the battle, he had arranged a new million pound loan for the British government in Amsterdam, and was in the middle of organising a subsidy payment to Baden even as his courier neared London. Now Waterloo threatened to bring his financial operations on behalf of the anti-French coalition to a premature and highly inconvenient end. For the brothers were encumbered not only with substantial amounts of depreciating bullion, but also with over a million pounds’ worth of treasury bills to be sold in Amsterdam, to say nothing of a succession of half-finished subsidy contracts which would cease the moment a peace treaty was signed. As reports reached New Court confirming that the end of the war was imminent, Nathan was faced not with the immense profits of legend but with heavy and growing losses. John Roworth, his agent with the British army, described a gruelling journey on foot from Mons to Genappe, walking by day “in the midst of a cloud of dust under a burning and scorching sun” and sleeping at night “under the cannon’s mouth on the ground.” But when he finally caught up with Wellington’s Commissary-General Dunmore, he was handed back unwanted Prussian coins worth £230,000.

  Although Nathan told his brothers to carry on delivering specie to Wellington’s military chest, the business had ceased to be viable. Towards the end of July an “alarmed” Carl temporarily halted payments to the military chest. Two months later James found himself so strapped for cash that he had to do the same. Amschel, by contrast, was “swimming” in money in Frankfurt, but money which no one needed. As Carl admitted, “Now we don’t need money for the army, as the army has enough.” By the end of the year James was reduced to offering Drummond deposit facilities in Paris in an attempt to get some of the specie back—a suggestion which was curtly rejected. Even bigger difficulties arose in Amsterdam, where Carl found himself unable to sell the British treasury bills at the relatively modest discount agreed between Nathan and Herries. Indeed, the sudden advent of peace had made the Amsterdam market so liquid that such long-dated bills could scarcely be sold at all, precipitating another round of ill-tempered recrimination between the brothers.6 The French collapse also had a disruptive impact on the subsidy business. In Berlin, James’s negotiations with the Prussian government were thrown into confusion as the news of Waterloo caused a surge in the sterling exchange rate. Other German states quickly began demanding more generous exchange rates for their subsidy payments. To compound the brothers’ misery came news of a family tragedy: the death of their sister Julie at the age of thirty-five. “I feel my spirits very depressed indeed,” Nathan confessed to Carl just two weeks after Waterloo, “and [am] by no means able to attend to business as I could wish. The melancholy communication of the death of my sister has entirely unhinged my mind and have done but very little business today on that account.” Far from being hugely profitable, the aftermath of Wellington’s victory was a period of acute crisis for the Rothschilds.

  In London, a frantic Nathan sought to make good the damage; and it is in this context that the firm’s purchases of British stocks have to be seen. On July 20, the evening edition of the London Courier reported that Nathan had made “great purchases of stock.” A week later Roworth heard that Nathan had “done well by the early information which you had of the Victory gained at Waterloo” and asked to participate in any further purchases of government stock “if in your opinion you think any good can be done.” This would seem to confirm the view that Nathan did indeed buy consols on the strength of his prior knowledge of the battle’s outcome. However, the gains made in this way cannot have been very great. As Victor Rothschild conclusively demonstrated, the recovery of consols from their nadir of 53 in fact predated Waterloo by over a week, and even if Nathan had made the maximum possible purchase of £20,000 on June 20, when consols stood at 56.5 and sold a week later when they stood at 60.5, his profits would barely have exceeded £7,000. Much the same can be said of Omnium (another form of government bond), which rose eight points on the news of victory. In fact, the brothers’ correspondence suggests that such purchases were not made on a large scale until some time later, in the period before the Paris peace treaty was finally signed. An unusually anxious letter from Nathan suggests that even these were nerve-racking speculations, dependent as they were on the assumption that this time the French would not seek to resist the peace terms:

  Everything is going well, so help me God, better [even] than you would imagine. I am quite pleased. I went to see Herries, he made me feel . . . well. He swears that everything is going well. I bought stock at 61⅛ and 61½ and Herries swears . . . that everything is going well, with God’s help . . . We are all in better spirits. I hope it will have the same effect on you.

  According to Salomon, Nathan had also purchased around £450,000 of Omnium funds at 107; if he had followed his brother’s advice and sold at 120, his profit would have been around £58,000. But this evidently did not strike him as a significant sum; he fretted at having bought too few in the first place, and held on for higher prices in the new year. Indeed, it may not have been until quite late in 1816 that Nathan made perhaps his most successful speculation in stocks to date: the purchase of £650,000 at an average price of 62, much of which he sold in November 1817 at 82.75, yielding a profit of £130,000. However, this was not his to keep, as the original investment had been made with government funds at Herries’s suggestion.

  A second and more important way of recouping some of the losses caused by Water
loo lay in prolonging for as long as possible the subsidy payments to Britain’s allies. In this, the Rothschilds had invaluable accomplices in the Allied powers themselves, who naturally wished to pocket as much as they could before peace was signed and the subsidies ceased. In October the Prussian representative Jordan privately admitted that the continental powers were spinning out the negotiations to secure an extra month’s subsidy; a gift of £1,100 in British stocks ensured that the Rothschilds handled the payment. Another amenable official was, as before, the Russian Gervais, who received a generous cut (2 per cent) of the subsidy business he sent the Rothschilds’ way. “The main thing,” reported James from Paris, “is that Gervais, thank God, had been made Commissar in Chief for everything. Yesterday he said to me: ‘Rothschild, we must make money!’ ” The previously wary Austrian government too (thanks partly to lobbying by Limburger) now entrusted some of its subsidy business to the Rothschilds. As Carl observed, it was “not easy to do business with the Austrians . . . but once you have their confidence you can depend upon it.” On the other hand, the increase of competition on the continent reduced the commissions which could be charged, and it was harder to make money on the side from arbitrage. Some governments—for example, that of Saxe-Weimar—were eager to avoid “falling completely and utterly into the hands of Mr Rothschild, who is, after all, a Jew.” The brothers repeatedly alluded to the meagreness of the profits (often as little as 1 per cent) they were making in this period, and it seems questionable whether the various petty German states which Amschel provided with subsidy payments—including Frankfurt as well as Saxe-Coburg and Coburg-Saarfeld—were worth the “heartbreak” of which he complained. Salomon and Amschel were philosophical: “You can’t make millions every day,” wrote the former as negotiations with Prussia dragged on. “Nothing in this world can be forced to happen. Do what you can; you can do no more.” The whole world could not “belong to Rothschild.” “Things here are not the way they are in England, where transactions worth millions happen every week. For a German 100,000 gulden is a big deal.” It is doubtful whether such fatalism impressed their brother in London.

  The summer of 1815 was therefore anything but a time of unalloyed success for the Rothschilds. The agreement drawn up in March of that year would seem to suggest that the brothers’ collective assets had grown substantially since the last balance sheet of 1810. But no less than two-thirds of the total capital in 1815 was credited to Nathan, and he had not been party to the 1810 agreement. Taking into account only the shares of his four brothers, there may in fact have been a contraction in the continental side’s capital. Moreover, this agreement predated the crisis of the Hundred Days and should therefore be regarded as evidence of earlier success (primarily, it seems reasonable to conclude, the highly lucrative business done for Herries in 1814). By the summer of 1816, it is true, the brothers estimated that their combined capital amounted to between £900,000 and £1 million, implying a doubling of their capital between March 1815 and July 1816. Given that the figure agreed between them in June 1818 was £1,772,000 (a three-quarters increase over two years), this was a remarkable rate of growth. But there is good reason to doubt whether the period immediately after Waterloo was when the bulk of this increase occurred.

  The trouble is that it is almost impossible to say precisely how the Rothschilds performed financially in this period because they had no idea themselves. So tumultuous were the events precipitated by Napoleon’s return from Elba, and so enormous the turnover of their various transfer operations during 1814 and 1815, that their already rudimentary accounting procedures collapsed altogether.

  The problem first surfaced in June 1814, as Carl scrambled to raise the cash needed for an especially large subsidy instalment. The only way he had been able do this, he complained, was by “swindling” (issuing accommodation bills, or bills unrelated to “real” purchases of commodities). When James complained about this, Carl pointed out that it was not his responsibility to “keep the books.” At this stage, it was Salomon who was regarded as the accountant of the family—the one who could always cheer their father up by making him “on paper . . . rich in a minute.” But even he was soon unable to keep track of the immense commitments Nathan was making on his brothers’ behalf. By August 1814 he and Amschel had to confess that they were “completely confused and do not know where the money is.” “Together we are all rich and if all the five of us are taken into consideration we are worth quite a lot,” wrote Salomon anxiously to Nathan. “But where is the money?” Nathan’s (perhaps rather acid) response was that “a book [should] be kept where [Carl] should enter business rules.”

  The problem recurred in September 1815, when the brothers on the continent experienced a severe cash-flow crisis. “But dear Nathan,” wrote Salomon, “you must have a frightful amount of money over there because here I am in debt [and] Amschel hasn’t much left over. It must all be over there and [yet] you write that you are so much in debt. Where is our [cash] reserve?” Calculating that he owed as much as £120,000 in Paris alone, he repeated the question a few days later:

  You must have all our money over there with you. We here are stinking poor. We haven’t a penny to spare. Amschel has less than a million left and therefore the whole lot must be with you, including what we owe . . . Work out where the family money is, my good Nathan. I don’t know . . . Where is our money? Well, it’s just absurd. God willing it will turn up when we do the spring cleaning!

  When Nathan wrote back suggesting that it was Amschel who was the “big rich man,” there was something close to panic.

  The problem was that Amschel had a string of subsidy payments to make in Berlin and elsewhere, and virtually no cash in hand, while Carl’s funds were almost entirely tied up in the British treasury bills in Amsterdam. In Paris too the position was alarmingly tight. “This eternal indebtedness is not very pleasant,” complained James. “The payments we have to make are big, far too big,” echoed Salomon. “Dear Nathan, you write that you have one million or two million over there. Well you really must have, because our brother Amschel is bust. We are bust. Carl is bust. So one of us must have the money.” In fact, the continental Rothschilds averted “bankruptcy” at this time only by means of short-term borrowing and by making further use of accommodation bills. Not surprisingly, they blamed Nathan for their predicament. Echoing their father’s earlier criticisms, Salomon bitterly accused his brother of mismanagement: “We are relying on miracles and luck, and I say to you once again that you don’t write clearly enough. In the name of God, such important transactions have to be carried out precisely. Unfortunately, there is absolutely no order in the way you deal with these.” Too much of their accounting was being done “in the head” instead of on paper. Was it any wonder the Austrian government feared that the Rothschilds might “go bankrupt?”

  Nathan tried to reassure his brothers that their position was secure. But Amschel continued to yearn for some tangible proof of the family’s wealth. “You state that I need not enquire as to where the money actually is,” he complained to Nathan. “In this respect I am like little Anselm [Salomon’s son, then aged thirteen] who always inquires as to where the money is. ‘People say my father possesses five millions,’ he says. He would like to see it all in one single heap.” Were they millionaires, he demanded to know, or bankrupts? The uncertainty was making him ill: “I have to tell you that since Sukkoth [October 1815] I have not been well and I cannot bear it any longer. If you wish to keep your brother in good health then you must try to reduce his money worries. I have sacrificed my health. I have to take it easy . . . I have lost my spirit of speculation.” They were, he complained, “living like drunkards”: “We don’t know whether we owe money to the English Government or not.”

  To compound the problem, this period of chaos came just as Herries was facing allegations of “maladministration” in the Commons and was therefore pressing Nathan for detailed account statements. His principal parliamentary critic, Alexander Baring, had an axe to
grind, needless to say. On the other hand, there was some justification for his claim. In their dealings with at least one government (the Russian) the Rothschilds had secured additional commissions and paid bribes about which Herries had not been informed. In addition, they had made the most of exchange rate differences during the early phase of subsidy payments. The need to cook books which were already in a state of some confusion no doubt explains the months of prevarication in the face of repeated requests for accounts from the “very particular” Herries. Even if it meant keeping the clerks in Paris working until midnight, it was vital, as Salomon said, to avoid damaging the Rothschilds’ reputation in London, “as England is our bread basket.” So fearful was Nathan of a scandal that in early 1816 he wrote to Amschel advising him not to purchase a new house in Frankfurt:

  I asked Herries and he gave me a rather incomplete answer saying that I should not go in for luxuries because the papers would immediately commence writing against me and officials here would start questioning . . . It would be best to take mine and Herries’s advice, do not buy a house, wait until my accounts are straight.

  Herries was already receiving disquieting reports from Drummond in Paris about a “simulated transaction” which James assured him had been necessary to avoid disturbing the exchange rate. “This I dare say is very true,” commented Drummond nervously, “but on the other hand in matters of account that are to come before the auditors nothing is more to be avoided than fiction to which a suspicion is always likely to be attached . . . Would it not be a proper general injunction to all accountants to banish all fiction?” What Drummond did not know was the extent of the fiction. When his colleague Dunmore paid a visit on James in March 1816, the latter confessed: “My heart was beating terribly as I was scared that he might give me the order to send his money to the army.” James had in fact no more than 700,000 francs, far less than the sum Dunmore could legitimately have demanded.