The House of Rothschild, Volume 1

by Niall Ferguson

  Although he came from an aristocratic family with estates in the Mosel valley, Prince Klemens Wenzel Nepomuk Lothar von Metternich-Winneburg was “cash-poor” for much of his long political career. Within a year of their first meetings with him—in Paris during the 1815 peace negotiations—he raised the possibility of a loan of 300,000 gulden with Amschel and Carl in Frankfurt. Metternich had already proved a useful ally to the brothers, supplying political news in Paris, supporting their efforts to secure Austrian financial business and apparently also sympathising with their campaign for Jewish emancipation in Frankfurt. The arrangement he now proposed was that the Rothschilds should advance him 100,000 gulden and sell a further 200,000 gulden of 5 per cent bonds to other investors, all secured on the new estate at Johannisberg which the Austrian Emperor had just given him. However, Carl was reluctant to lend so much to a single individual, no matter how wealthy, recalling how unsatisfactory similar loans had been for Prince Wilhelm. Despite the fact that Metternich continued to prove himself “a great friend of ours”—supporting the requests for noble and consular status—the brothers preferred at this stage to limit their generosity to routine banking services and occasional gifts, like the Wedgwood china Nathan sent him in 1821.

  It was in October of that year that Metternich—accompanied by his mistress, Princess Dorothy de Lieven—first publicly accepted an offer of Rothschild hospitality, “taking soup” with Amschel in Frankfurt on his way back to Vienna from Hanover.8 This was interpreted by some observers as a calculated gesture of support for the Frankfurt Jewish community at a time when conflict over the civil rights question was at its height. Less than a year later, Metternich received his thanks: a loan of 900,000 gulden, agreed just six days before the brothers received the title of “baron” from the Emperor. This loan sealed the “friendship” between Metternich and the Rothschilds. At Verona in 1823, Salomon furnished Metternich with cash to meet his (considerable) personal expenses. In Paris two years later, James played host to Metternich, throwing a lavish dinner for “the representatives of the Holy Alliance” which greatly impressed the Constitutionnel newspaper. It commented ironically:

  Thus does the the power of gold reconcile all the ranks and all the religions. One of the more curious spectacles our time—rich as it is in contrasts—is that of the representatives of the Holy Alliance established in the name of Jesus Christ attending a banquet given by a Jew on the day that the law of sacrilege is being debated in the chambers.9

  A year later James was present at another equally grand soirée. It was in this period that Metternich began to make use of the Rothschilds’ courier service for important correspondence. From this point onwards, he and Salomon shared political news on a regular basis, Metternich informing Salomon of Austrian intentions while Salomon provided him with news he received from his brothers in London, Paris, Frankfurt and Naples. By the end of the 1820s the Rothschilds had begun to provide Metternich—or “Uncle,” as they often called him—with an unofficial diplomatic channel, through which he could relay his political views indirectly and discreetly to other governments.

  All of this puts the bitter accusations of David Parish on the eve of his suicide in a new light. The Rothschilds, Parish complained to Metternich, had “understood better than I how to draw you into their [sphere of] interest” and how to secure “your special protection.” It was, he insisted in his letter to Salomon, “the new alliance” between Metternich and the Rothschilds which had ruined him. “Under the protection of Prince Metternich, you succeeded in securing exclusive control over numerous transactions in which I had a moral and legal claim to a substantial share.” If Salomon had given him his rightful cut of the profits from the Austrian and Neapolitan loans, he might have been able to rescue Fries & Co. “But you found it easier and more advantageous to come to an agreement with the Prince over the old rentes operation and in this way to put him wholly on your side.”

  Although Parish’s allegations cannot be taken at face value, there was real substance to his claim that an alliance had developed between Metternich and Salomon Rothschild. This can be demonstrated with reference to the contents of the silver box, recently rediscovered in Moscow, in which Salomon kept Metternich’s accounts and private financial correspondence. These long-lost bank statements show that between 1825 and 1826 Metternich was in a position to repay much of the loan of 1822. However, no sooner had the loan been paid off—ahead of schedule—than a new loan for 1,040,000 gulden (c. £110,000) was arranged, roughly half of which Metternich used to purchase a new estate at Plass, and the rest he took as cash. The balance sheet of the Vienna house shows that Salomon retained some 35,000 gulden of the bearer bonds issued by Metternich for the purchase of Plass, on top of which the Prince owed an additional 15,000 gulden. His total private debt to the Rothschilds grew in the succeeding two years to nearly 70,000 gulden. In addition, the Frankfurt house advanced over 117,000 gulden to Metternich’s son Viktor. When Metternich married again in 1831, Salomon was on hand to help resolve the financial difficulties of his third wife, Countess Melanie Zichy-Ferraris.

  Nor did the Rothschilds confine themselves to loans and overdrafts. “Our friend Salomon’s devotion always touches me,” remarked Princess Melanie in her diary in May 1841, on receiving a present from him of American deer for their estate near Frankfurt. A few months later she described a visit by “Salomon and James, their nephew Anthony and Salomon’s son and finally Amschel, who made a great point of our coming to dine with him at Frankfurt next Tuesday. James brought me a pretty mother-of-pearl and bronze box from Paris, filled with sweets, which was all to the good.” At Christmas in 1843 Salomon visited the Metternichs at Ischl, bringing “lovely things to the Metternich children, such as tempted their mother to play with them herself.”

  Metternich was not the only eminent Austrian to put his private financial affairs in Salomon’s hands. In 1821—in a classic example of financial speculation based on inside information—a senior Austrian commander, General von Wolzogen, asked Salomon to purchase 100,000 gulden worth of metallic bonds on his behalf. His calculations provide a fascinating insight into the dispassionate attitude of one senior military figure to the Austrian military intervention in Italy:

  My reasoning is as follows: either it will stay cold, or it will get hot. In the first case, [metalliques] will immediately go up anyway. If it turns hot, then it is probable that the [army?] will march into Naples and in that case I believe they [metalliques] will rise too . . . If peace remains, one can expect high prices. The only question is therefore whether to buy now or after the declaration of war. I am inclined to buy soon . . . But I leave it to you to do as you think best, and indeed not to buy at all if you do not think it advantageous.

  Other political figures who feature in the accounts of the Vienna house include Stadion and the influential diplomat Apponyi, as well as a number of the most important families of the Austro-Hungarian aristocracy. Of these, the Esterházys, with their immense estates in Hungary and links to the still wealthier Thurn und Taxis family, were the most important—and problematic. Beginning with £10,000 in 1820 and 300,000 gulden in 1822, the Esterházys borrowed often from the Rothschilds. Three years later Salomon went into partnership with two leading Vienna houses, Arnstein & Eskeles and Simon G. Sina, to float a large 6.5 million gulden loan (at 6 per cent). This was secured on Prince Esterházy’s estates and was intended “definitively to reorder” the family finances. However, balance sheets for the succeeding years show Esterházy continuing to run overdrafts with Rothschild houses in London and Vienna: £28,000 in London in 1825, 2,300 gulden in Vienna three years later. By 1831 matters were bad enough for Esterházy to approach Salomon (through Metternich) for another loan. Although Salomon was hesitant, the Vienna accounts for 1832 put Esterházy’s total debts at 827,000 gulden, and three years later the debt was larger still. When the Prince was succeeded by his son Paul in 1836, there was another attempt at stabilisation in the form of a 7 million gulden lottery loan, i
ssued jointly by Salomon and Sina. Yet another loan (for 6.4 million gulden) followed eight years later—one of a spate of major loans to the aristocracy floated by Rothschilds and Sina in the 1840s. Small wonder Esterházy “spoke very flatteringly of the family” to third parties. As in the case of Metternich, financial ties were inseparable from social and political ties. In London, Prince Esterházy dined regularly with Nathan while serving as Austrian ambassador and received much of his correspondence from Metternich via Rothschild couriers. In Vienna, the relationship appeared so close that in 1822 unfounded rumours appeared in the press suggesting that Esterházy had persuaded Salomon to abandon Judaism.

  The strategy of extending credit and other financial facilities to influential but profligate figures like Metternich and Esterházy was a highly effective way of ensuring political goodwill and “friendship.” Of all the private financial relationships of this era, none illustrates this better than that between Salomon and Metternich’s secretary, Friedrich von Gentz. Gentz was an intelligent, conservative and thoroughly venal man of letters—a kind of Central European Edmund Burke gone wrong—who had acquired the habit of selling the influence he had in Vienna for cash long before he came into contact with the Rothschilds. Indeed, for a time it was David Parish whom he regarded as “the matador, the pearl of the merchant class of all Christendom”—a view which was not unrelated to the 100,000 gulden stake Parish had given him in the 1818 Austrian loan. It did not take the Rothschilds long to purchase Gentz’s fickle allegiance. After an initial encounter in Frankfurt, he, Carl and Salomon met at Aix in 1818. On October 27 Gentz recorded in his diary that Salomon had handed him 800 ducats, supposedly the proceeds of a successful speculation in British stocks. A few days later there were more “pleasant financial dealing with the brothers.” Gentz was soon paying regular visits to his new friends, whose apparently instinctive ability to make money deeply impressed him. He had regular business dealings with Salomon thereafter: a minor transaction in late 1820, a small loan at Laibach in 1821, a share in the Neapolitan loan of the same year which earned him 5,000 gulden within a year. His diaries in this period make repeated references to “very agreeable communications” from Salomon; “important financial arrangements” with him; “a proof of real friendship” over breakfast; “matters which, although not so elevated [as diplomacy], were far more pleasant”; and “highly welcome financial transactions with the excellent Rothschild.” The pattern continued throughout the decade. In 1829 Salomon lent Gentz 2,000 gulden “with the most amiable readiness,” bringing his total debts to Salomon and other bankers to over 30,000 gulden. To Gentz, such loans were to be regarded as “donations pure and simple.” Indeed, according to one account, Salomon finally dispensed with the fiction that the money would ever be repaid by paying Gentz an annual retainer, though this did not prevent Gentz from pleading for yet another loan of 4,500 gulden from Salomon, and gratefully settling for 500 gulden to tide him over.

  Gentz performed a number of valuable services in return for his money: supplying news and facilitating access to Metternich, for example. In addition, he was responsible for the Rothschilds’ first real foray into public relations. At a time when the brothers were the objects of an increasing volume of negative comment in the press, an experienced and politically influential journalist like Gentz was a useful ally. In 1821 he wrote twice to the editor of the Allgemeine Zeitung to express his “grave dissatisfaction” about recent articles by the paper’s Frankfurt correspondent which had been critical of the Rothschilds. “The constant attacks upon the House of Rothschild,” he argued, “invariably, and sometimes in the most outrageous manner, reflect upon the Austrian government by necessary implication, since, as everybody knows, it is transacting important financial matters with that House, which is not only unimpeachable, but is honourable and thoroughly respectable.” Facing the threat of a ban throughout Austrian territory, the editor of the newspaper was obliged to “promise not to accept . . . anything in future relating to the value of Austrian public securities, or anything whatever relating to the House of Rothschild (at least affecting its relations with Austria).” When Salomon heard that he had been awarded a Russian decoration in 1822, he immediately asked Gentz to arrange for a newspaper article on the subject. Four years later, at Salomon’s request, Gentz himself put pen to paper, writing the first “official” account of the family’s history—or , as he described it, an attempt “briefly and I hope not infelicitously to explain the phenomenon of the greatness of this House.” After Gentz had read it to one of Salomon’s senior clerks and received his “actual pay” from Salomon, it was published in the Brockhaus Encyclopaedia. These were the first Rothschild attempts to exert some influence on a generally hostile press, and far from the last. In 1831, with Gentz’s influence waning, Salomon made overtures to the satirist Saphir in the hope of winning his services as a pro-Austrian—and implicitly also pro-Rothschild—publicist.

  Money Makes Money

  The evidence that the Rothschilds established a network of private financial relationships with key public figures in Restoration Europe is therefore compelling. Yet the conspiracy theorists of this and later periods misunderstood the role of such relationships when they portrayed them as the key to Rothschild power. The image of the Rothschilds at the centre of a web of “corruption” would become a recurrent one in the years after 1830. But it was not, in reality, the bribes, loans and other favours they bestowed on men like Metternich which made them the dominant force in international finance after 1815. It was the sheer scale—and sophistication—of their operations.

  In 1822 their old rival Simon Moritz von Bethmann “heard from a reliable source that Salomon Rothschild has stated that the annual balance-sheet of the 5 brothers showed a net profit of 6 million gulden.” As he observed, “This is certainly a case where the English proverb applies: ‘Money makes money.’ Having regard to their industry and judgement, we may expect their business to continue to flourish; indeed, one hopes so, since the overthrow of this Colossus would be terrible.” The evidence now available from the firm’s accounts amply confirms this judgement. In 1815 the combined capital of the Rothschild houses in Frankfurt and London was at most £500,000. In 1818 the figure was £1,772,000; in 1825 £4,082,000; and in 1828 £4,330,333. The equivalent figures for the Rothschilds’ nearest rival, Baring Brothers, were £374,365 in 1815, £429,318 in 1818, £452,654 seven years later and £309,803 in 1828. In other words, having been on a more or less equal footing with Barings in 1815, the Rothschilds’ resources had grown to be more than ten times greater than their principal competitor’s in as many years. While Barings’ capital had actually declined in size, the Rothschilds had increased theirs by a factor of eight. These are astonishing figures.

  The explanation for this disparity is not just that the Rothschilds made bigger profits. Just as importantly, they ploughed the bulk of these profits back into the business. Here, the contrast with Barings, which tended to distribute profits to the partners (even in years when the bank made a loss) rather than allowing capital to accumulate, is impressive. Nor did the Rothschilds lose momentum in the succeeding years. In 1836—the next time the partners met to settle accounts and renew their contractual agreement—the capital had increased again to £6,007,707. Such figures as are available for the profits of the individual houses in this period confirm the broad impression of rapid and sustained growth. Even in the relatively sluggish years between 1825 and 1828, the Paris house alone made profits totalling £414,000. Between 1823 and 1829 the profits of the Naples house totalled 7,390,742 ducats (£924,000).

  These figures explain the dominance of the Rothschilds on the international capital market in the 1820s; perhaps the only thing that is surprising is that they were not more dominant. Between 1818 and 1832 it has been estimated that N. M. Rothschild accounted for seven out of twenty-six loans contracted by foreign governments in London, and roughly 38 per cent (£37.6 million) of their total value. This was more than twice the value of th
eir nearest rivals, B. A. Goldschmidt. Moreover, the bank’s own figures suggest that this may be an underestimate: according to Ayer, the value of loans issued by Nathan in this period was in fact £86 million. The equivalent total for loans issued by the Frankfurt house in this period was 28 million gulden (c. £2.5 million). In Paris, James came to exercise a near monopoly over French government finance, issuing seven loans with a nominal capital of 1.5 billion francs (£60 million) between 1823 and 1847.

  In a sense therefore the French journalist Alexandre Weill was not exaggerating when, looking back in 1844, he declared:

  The house of Rotschild [sic] is merely a necessary consequence of the principle of state which has governed Europe since 1815; if it had not been a Rotschild, it would simply have been someone else . . . it is this system . . . dominant throughout Europe, which has created, produced and elevated the house of Rotschild . . . Rotschild reigns and governs on the bourse and in all the cabinets . . .

  This was too deterministic a view, of course. There had been moments in the 1820s when the “principles” governing the European states had come close to calling the Rothschilds back out of existence, and it is hard to imagine any other contemporary financier easily taking their place. But Weill was closer to the mark than Richelieu: if there was a sixth great power in the 1820s, it was no longer Barings, but Rothschilds. Small wonder there was such a hue and cry about them.

  SIX

  Amschel’s Garden

  Oh what joy to be in the open air