The House of Rothschild, Volume 1

by Niall Ferguson

  [O]ne should [n]ever lose one’s head. Here lies the advantage of a partnership. If one of the partners loses his senses, the others must remain serene. If all of them lose their heads—then good night. I hope that [this letter finds you] quietened down and that you will give thanks to God that we gained a fortune quicker than anybody else.

  There were indeed occasions when Nathan was only too glad to postpone a difficult decision by claiming that he needed to consult his brothers. At times, this was a gambit; at times, he genuinely listened to them.

  Finally, no matter how much they quarrelled, the brothers had no one else whom they could trust as much. We know that on occasion Salomon forged Nathan’s signature on bills when Nathan had forgotten to endorse them; it is inconceivable that anyone else could have done so. Even the best clerks were kept at one remove: when one named Feidel appeared to be gaining an undue influence over Amschel, Carl’s response can only be described as jealous. Similarly, their brothers-in-law—sisters’ husbands and wives’ brothers alike—were always viewed with a measure of suspicion, as outsiders with designs on their business. James was especially worried that Nathan was confiding too much to his wife’s relatives Salomon Cohen and Abraham Montefiore (Moses’s brother), and was relieved to hear otherwise:

  It is rare that a man should realise that even what friends are telling him is nothing more than flattery, that there is not a true word in it; when they leave you they are laughing at your credulity. Well, dear Nathan . . . you are clever and honest, you know the world . . . Before your letter arrived, a stone fell from my heart because Salomon told me that London is now different, not only are [Abraham] Montefiore and Salomon Cohen no longer allowed to read and deliberate [about] the letters and all the business, but not even Davidson is allowed to do so. This is now confirmed by your letter.

  In the same way, the other brothers were kept abreast of Carl’s attempts to find a wife in Hamburg because it was a matter of intense interest to all of them which family Carl married into. In the end, there were authentic bonds of brotherly love, forged in the Judengasse, which no other ties could rival. “Did anyone promise us more when we all slept in one little attic room?” asked Salomon when Nathan was grumbling at having sold some consols too soon. Such memories were never wholly forgotten, no matter how far apart the brothers lived and how many harsh words they exchanged by post.

  The extent—and limits—of fraternal unity were most apparent as the brothers debated whether or not to modify the 1815 partnership agreement. The legacy of the great transactions of 1814 and 1815 was a tangle of financial interdependence which could not easily be undone. The question now was whether James should be allowed to establish a new house in Paris under the explicitly collective name of “de Rothschild Frères.” Although James was against merging the accounts of the various establishments, Amschel had his anxieties, fearing that James might embroil him in risky business. He and Carl were only brought round when James agreed that the capital of the partnership should not be made public—an important decision in favour of secrecy which was to set an enduring precedent. The result was a compromise which it took almost two years to hammer out. The 1818 agreement accordingly defined the brothers’ partnership as “three joint mercantile establishments [conducted] under their the said five partners’ mutual responsibility” but at the same time “form[ing] but one general joint concern.” It was a nice distinction which quite accurately encapsulated the way the brothers reconciled their individual differences with a deep and enduring sense of common fraternal purpose.

  FOUR

  A“ Court Always Leads to Something” (1816-1825)

  You are certainly right that there is much to be earned from a government which has no money. But you have to take risks.

  —JAMES ROTHSCHILD TO NATHAN ROTHSCHILD.

  N. M. Rothschild . . . has the money, the strength and the power.

  —NATHAN ROTHSCHILD TO CHRISTIAN ROTHER.

  In 1823 the twelfth, thirteenth and fourteenth cantos of Byron’s Don Juan were published in London, at a time when their author was embroiled—fatally, as it proved—in the Greek struggle for independence. Byron’s aristocratic profligacy with money was by now as notorious as his libertinism. Nevertheless, these late verses indicate a keen awareness of the power of money—and specifically of the new kind of financial power personified by Nathan Rothschild. “Who hold the balance of the world?” asked Byron in the twelfth canto, “Who reign

  O’er Congress, whether royalist or liberal?

  Who rouse the shirtless patriots of Spain?

  (That make old Europe’s journals squeak and gibber all.)

  Who keep the world, both old and new, in pain

  Or pleasure? Who make politics run glibber all?

  The shade of Bonaparte’s noble daring? -

  Jew Rothschild, and his fellow Christian Baring.1

  Those lines have been quoted by historians before. It is worth, however, reading the verse which follows too, for it nicely illustrates the ambivalent feelings with which contemporaries regarded the spectacular financial boom of the early 1820s. To Byron, Rothschild and Baring were, along with the “truly liberal Laffitte,” “the true Lords of Europe,” whose every loan

  Is not a merely speculative hit,

  But seats a nation or upsets a throne.

  Republics also get involved a bit;

  Columbia’s stock hath holders not unknown

  On ’Change; and even thy silver soil, Peru,

  Must get itself discounted by a Jew.

  Byron went on to discuss—with remarkable insight—that ascetic materialism which, as we have seen, was such a distinctive early Rothschild trait. Indeed, it seems not unreasonable to suggest that the poet’s reflections on “gaunt Wealth’s austerities” may have been inspired by Nathan himself:

  He is your only poet;—passion, pure

  And sparkling on from heap to heap, displays

  Possess’d, the ore, of which mere hopes allure

  Nations athwart the deep: the golden rays

  Flash up in ingots from the mine obscure;

  On him the diamond pours its brilliant blaze,

  While the mild emerald’s beam shades down the dyes

  Of other stones, to soothe the miser’s eyes.

  The lands on either side are his: the ship

  From Ceylon, Inde, or far Cathay, unloads

  For him the fragrant produce of each trip;

  Beneath his cars of Ceres groan the roads,

  And the vine blushes like Aurora’s lip;

  His very cellars might be kings’ abodes;

  While he, despising every sensual call,

  Commands—the intellectual lord of all.

  Perhaps he hath great projects in his mind,

  To build a college, or to found a race,

  A hospital, a church,—and leave behind

  Some dome surmounted by his meagre face:

  Perhaps he fain would liberate mankind

  Even with the very ore which makes them base:

  Perhaps he would be wealthiest of his nation,

  Or revel in the joys of calculation.

  The allusion to “his nation” may indicate that there was more of Rothschild than of Baring in this inspired evocation of financial might.

  That Byron could suggest—even satirically—that Nathan Rothschild held, along with Alexander Baring, “the balance of the world” requires some explanation. The name of Baring was, of course, well established. Like the Rothschilds the family hailed from Germany (Francis Baring had emigrated from Bremen in 1717); and, like Nathan, Francis’s son John had made his fortune in the textiles business, as a wool manufacturer, before his sons established the merchant bank of Baring Brothers in 1770. However, as Lutherans the Barings had easily been absorbed into the social elite of Exeter and later London. John’s younger son Francis had been an MP since 1784, a member of the board of the East India Company since 1779 and a baronet since 1793. Alexander, his son and successor
at the bank, also became an MP in 1806. By contrast, only a few years before Don Juan, the Rothschilds’ role in the financing of the war against Napoleon was still largely a secret, known only to political and financial insiders. Even the Paris banker Jacques Laffitte was better known as Governor of the Banque de France between 1814 and 1820 and one of Napoleon’s financial backers in the Hundred Days. What happened in the years after the upheaval of Waterloo to catapult Nathan to such celebrity—and notoriety—that he could be said to “reign” over royalists and liberals, “rouse” Spanish patriots and “keep the world, both old and new, in pain / Or pleasure?”

  The Economic Consequences of the Peace

  The answer must be sought in what might be called (to adapt a phrase used in similar circumstances a century later) the economic consequences of the peace—the Second Peace of Paris, imposed on France after Waterloo. The First Treaty of Paris had imposed no reparations on the restored Bourbon regime, but the mood of the victorious powers after Waterloo was less clement. Quite apart from any desire to punish the French collectively for the actions of those who had rallied to Napoleon in the Hundred Days, there was a practical need to pay for the troops occupying northern France, who at one stage numbered more than a million. Even before the peace was signed in November, a charge or “contribution” of some 50 million francs was levied to pay for their upkeep. The final terms of the treaty set a total for reparations of 700 million francs to be paid over five years beginning in March 1816, during which time an occupying force of 150,000 men would remain on French soil. The costs of this occupation were also to be met by the French Treasury.2

  The Rothschilds evidently hoped that the financial provisions of the peace—which implied a new and potentially lucrative series of international transfers, this time from Paris rather than London—would provide them with plentiful opportunities to recoup the losses of the Hundred Days. At first, there were grounds for optimism, at least as far as relations with the recipient states were concerned. Gervais as usual promised to hand Rothschilds the better part of Russia’s share, and Herries was likewise expected to secure a large tranche of the British. However, it quickly became apparent that any business arising from the French “contributions” would have to be shared with other bankers, who now rushed to challenge the Rothschild monopoly on international transfer payments. Only by entering into loose partnerships—with Mendelssohn in Berlin, Bethmann and Gontard in Frankfurt, Arnstein & Eskeles in Vienna and Parish & Co. in Hamburg—were Salomon and James able to participate in the initial payments to Prussia and Austria. Even the British and Russian contributions could not be taken for granted.

  Partly, the problem was one of declining influence. Dunmore, Herries’s representative in Paris, was less “friendly” than Herries himself, while the Russian minister Count Nesselrode had reasons for favouring Gontard. It was a serious setback when first Gervais and then Herries left office. To make matters worse, some of the other officials they found themselves dealing with—the Russian Merian and the Prussian Rother—declined to accept bribes. But the real problem was that peace had brought competition. As James complained, contemplating profits of 1.5 per cent and less, there was “not much joy to be had from the contributions business, because there are too many people here.” Salomon was especially irked by the Austrian representatives, who “run from one house to the next for the sake of an extra sou.” Ultimately, he and James became almost fatalistic: “There are no big, brilliant deals to be made here. But now that we’re here, we’re happy to take all that we can to prevent it going to anyone else.” The only consoling thought—frequently repeated—was that contacts with courts, no matter how unprofitable, might lead to business in the future. The brothers never turned up their noses at small-scale transactions and gladly advanced the contributions due to the smaller German states and the minor compensation payments which Russia had to make for damage to private property by Russian troops.

  Far more disappointing, however, was James’s failure to win a share of the business generated on the other side of the reparations equation. That France would be able to pay reparations and the costs of occupation only by means of a large loan had become obvious by late 1816. Despite efforts to cut spending and raise taxes, there was no realistic way of achieving an annual surplus in excess of 170 million francs, not least because of the unhelpful attitude of the ultra-royalist “Incredible Chamber” which—like most nineteenth-century assemblies elected by income or property tax payers—showed little enthusiasm for raising direct taxes. Indeed, the 1816-17 budget showed a deficit of over 300 million francs, which was financed only with the greatest difficulty by short-term borrowing. Moreover, the Paris capital market by itself was far too weak to absorb unassisted the new issues of rentes which were inevitably going to be needed. With the price of 5 per cent rentes down as low as 50, the government had little option but to look abroad.

  In the immediate aftermath of Napoleon’s defeat, the Rothschilds’ prospects of influence at the French court had been good. Not only had they been responsible for relaying a British loan to the returning French King, but Dalberg, the former Prince-Primate of Napoleon’s Rhenish Confederation and Grand Duke of Frankfurt, had emerged as a member of the French provisional government—one of a number of opportunists (the most famous being Talleyrand) who managed to survive yet another change of regime by a well-timed defection.3 However, the resignation of Talleyrand and the formation of a new government under the duc de Richelieu appear to have weakened the Rothschild position. James made every effort to cultivate Richelieu’s secretary, who evidently provided valuable inside information on French intentions. But, when the question of a loan was raised in the autumn and winter of 1816, the Finance Minister Corvetto elected to give the business to Baring and Pierre-César Labouchère of Hope & Co.,4 who had successfully been wooed by Gabriel-Julien Ouvrard, another survivor of the imperial era. An agreement was reached in early 1817 whereby, in return for a 2.5 per cent commission, Baring provided the French government with an initial 297 million francs in return for 5 per cent rentes. Because the bonds were issued over a period of several months in three tranches at prices of 52.5, 55.5 and 61.5, this meant that the French government had increased its national debt by around 534 million francs for the sake of less than 300 million francs in cash—or to put it another way, it was paying interest at an effective rate of around 9 per cent, nearly double the nominal rate on its rentes. Contrary to later mythology, the Rothschilds found themselves more or less excluded from this immense operation, “to prevent,” so Baring claimed, “a selling race at the exchanges with resulting depreciation.”

  This was a bitter blow to James, who had expended considerable energy on his own plans for a loan, and who believed up until the eleventh hour that, at the very least, he would be able to participate in some kind of consortium. “Depressed” and angry, he railed at Baring’s duplicity, claiming that his rival had bribed the French government to exaggerate its inability to pay and thereby secure a six-month breathing-space. His anger was redoubled when a last-ditch effort (in partnership with Laffitte and Parish) to join the Baring group for the third issue of rentes in July 1817 came to nothing. Salomon, returning to Paris from London, could not help but admire the way his brother had been outmanoeuvred:

  He is quite a crook this Baring. Today he is going to dine with us, together with Laffitte . . . We must certainly watch our step as far as he is concerned. Baring’s lot are and were as well versed in the way of using influence as we are. There is not a single man of importance amongst the authorities here who would not work with Baring hand in glove . . . The Russian ambassador Pozzo di Borgo is on the side of France and of Baring whose orbit he is in . . . Baring and the French Minister of Finances are sharing the profit. The Minister is reputed to be one of the most corrupt of all.

  Whatever the truth of these allegations, Baring was in a strong enough position to exclude James again when the negotiations began for a final loan to pay off the remainder of the
indemnity. Although rentes with a face value of 290 million francs were issued directly to the public in May 1818, the government appears to have taken fright at the frantic speculation these attracted (the issue was oversubscribed almost ten times, pushing prices up to a peak of 80 compared with an issue price of 66.5), and a second issue of 480 million francs (nominal) in the same month was entrusted to Baring. When James—along with the other Paris banks Baguenault, Delessert, Greffulhe, Hottinguer and Laffitte—was offered a mere 10 million francs, to be shared with David Parish, he was disgusted, fulminating at the “abominable” way he had been treated. He and the others had to content themselves with shares of a 31 million franc loan to the city of Paris. As the Duke of Wellington reported to Lord Liverpool, “The fact is that Baring, having the French finances in his hands, and French loans being in fashion in England, has to a certain degree the command of the money market of the world. He feels his power, and it is not a very easy task to succeed in counteracting him.” If there was ever a moment when Barings deserved to be called “the sixth great power” (a probably apocryphal phrase attributed to Richelieu), then this was it.

  There were admittedly arguments for limiting the brothers’ direct involvement in a large-scale loan to France. After the trauma of the Hundred Days, Nathan had good reason to doubt the stability of the restored Bourbon regime. Salomon might reassure him that, according to best sources in Paris, there would be “no more revolution in France,” but he added the important rider: “at least not in the foreseeable future, and if there is something, it is certainly not be feared in the next three months.” After all, as he admitted, there was “no way of insuring against the hot heads of the French,” and a future default could not be ruled out. Such comments suggest that he had no more confidence than Nathan in French funds. This pessimism was reinforced by “talk of war” which James heard in Paris in May 1816. A few months later he was even more alarmed by news that the British government might favour replacing Louis XVIII with the duc d’Orléans, which James warned would lead to civil war. Widespread social unrest in 1817 caused by a bad harvest and high food prices reinforced such anxieties.