The House of Rothschild, Volume 1

by Niall Ferguson

  The debate over whether to increase or diminish this involvement in Spain placed a greater strain on familial harmony than any other issue the Rothschilds had to contend with before 1848; indeed, it is not too much to say that it threatened to break up the partnership between the five houses. Nathan was evidently keen to play a bigger and more independent role in Spanish finances, a position consistently supported by his nephew Anselm and rather less consistently by Lionel. James vacillated endlessly, one day seeing all the advantages, the next day seeing only the risks: “With this country there is a lot of money to be made, but on the other hand, one could lose a great deal of one’s reputation”—this was James’s constant refrain throughout the 1830s. “You know my dear Papa how he [James] is,” wrote Lionel impatiently: “One minute he is for and one minute he is against the Business.” Unlike his own son, Salomon was generally opposed to direct—or, to be precise, overt—involvement, primarily because of the intense pressure to which he was subjected by Metternich. But he too was inclined to waver: “Be so good as to read Uncle Salomon’s letters,” Lionel urged his father sarcastically in March 1834, “the first for the Spanish , the second against, the third for.”

  Nathan’s initial strategy seems to have been to secure some sort of agreement on the old Cortes bonds as the prelude to any new Spanish loan. However, all the Spanish negotiators with whom the Rothschilds dealt carefully avoided giving a commitment on the issue. After exceptionally convoluted and protracted negotiations, Nathan decided to ignore the warnings of Metternich, the Austrian ambassador Apponyi, the Russian ambassador Pozzo and no fewer than three French ministers (Broglie, Rigny and Soult), all of whom strongly advised the Rothschilds to avoid Spain.2 Despite the reservations of James and Lionel, who continued to argue for, at most, a joint and preferably anonymous operation with the Paris consortium, on April 18 Nathan unilaterally proposed to advance the Spanish government 15 million francs to pay the interest due at the end of June on its undeferred bonds. He had obtained no firm guarantee from Madrid that the Cortes bonds would be revalued, merely an empty promise that the issue would be raised when the Cortes met. Nor did he receive any security for his advance when the agreement was signed with the Spanish ambassador in Paris and a representative of the Bank of San Fernando on June 7. As the Carlist-inclined Duke of Wellington sardonically observed, the Rothschilds were now well and truly “in the boat”; and, just as Metternich and the rest had predicted, “the boat” began to sink almost at once. Given the country’s notorious record of default, it is not surprising that Nathan’s decision to involve himself in Spanish finances attracted satirical comment. Two cartoons portrayed him as a “Jew-dish-us cakeman,” standing by his trademark pillar selling a “rice cake” marked “Loan” (see illustrations 13.i and 13.ii). “Who’s for a slice? Who’s for a slice?” reads the caption on the first. “All Hot! All Hot! Take care you don’t burn your Fingers, Plenty of cakes but none like I make.” From his pocket portrudes a bill marked “Spanish.” The second cartoon shows the “cakeman” with his stall under his arm, having sold the cake. “Dat rice cake sold very well—I hope it vill agree wid my customers—I vil make anoder.”

  13.i: Anon., No. 1. CITY POLITICS—JEW-DISH-US CAKEMAN: WHO’S FOR A SLICE? WHO’S FOR A SLICE? (1834 or 1835).

  13.ii: Anon., No. 2. CITY POLITICS—JEW-DISH-US CAKEMAN. DAT RICE CAKE SOLD VERY WELL (1834 or 1835).

  It is not easy to see why Nathan acted as he did. It is possible that he (along with Anselm) was lulled by the announcement of the Quadruple Alliance into thinking that the danger of civil war would fade, though there is no indication of any official nudge in this direction from Palmerston; on the contrary, Palmerston’s man in Madrid, Charles Villiers, indignantly accused Nathan of “doing” the Spanish government with “not very advantageous conditions.” The most likely explanation was that he wanted to pre-empt a rival bid by Thomas Wilson or Aguado and establish himself (or James) as “court banker” to Maria Christina, in anticipation of a major new loan and conversion operation when the Cortes finally met. He plainly had a plan ready to convert the old Cortes bonds and probably also anticipated short-run speculative profits, assuming that the announcement of a Rothschild advance would boost their prices. One (admittedly hostile) Austrian diplomat recalled his saying: “I must grant it [the loan] because if I don’t, somebody else will.” Whatever his motive, the advance was uncharacteristically reckless. As James, Lionel and Anselm had all foreseen, the other French bankers promptly sued James, on the ground that Nathan had acted without due regard to the consortium contract. Only by offering Aguado a new agreement to share any future loan was James able to avert a costly defeat in the courts. Nor did the Spanish government’s promise to bring the question of the deferred bonds before the new Cortes satisfy the Committee of the stock exchange in London. In Paris too the markets were unconvinced by Nathan’s plan: Spanish bonds fell sharply in late June. Worse still, no sooner had the 15 million francs been paid over than a new Finance Minister took over in Madrid who a month later reneged on the agreement, claiming that the Rothschilds had promised to lend twice the amount; this too Nathan had been warned to expect.

  It is not known for sure why the Minister in question, Toreno, was (as James put it) an “enemy.” Partly, he was responding to domestic pressure to deal with Spanish bankers like Ardouin, with whom he concluded an alternative loan agreement for £4 million; more importantly, he was intent on a drastic “reduction” of the existing Spanish public debt—a conversion which would have cut the nominal value of Spanish bonds by as much as 75 per cent—something the Rothschilds regarded as a “declaration of bankruptcy.” To make matters worse, Toreno’s appointment coincided with the return of Don Carlos to Spain and an outbreak of cholera in Madrid. With Apponyi, the Austrian ambassador in Paris, issuing dire warnings as to the consequences of French intervention against Carlos, the price of Spanish bonds plummeted, occasioning suicides and murder threats on the Paris bourse. Yet the Rothschilds, while doing their fair share of selling, could not risk an all-out financial “war” against Toreno, for the top priority in the midst of this débâcle was to retrieve as much as possible of Nathan’s 15 million francs, if only in the form of “those stinking [bonds] with which he is going bankrupt.” It was, as James said, “an awful mess”; and it revealed very starkly the limitations of financial power when confronted by a government unafraid of the international bond market. “All I want you to declare is that we will get our money back and I ask nothing further of you,” James implored the Spanish representative. “My commission is now over,” the latter replied, “I have been recalled.” In vain, James appealed to the ambassador, to the French government and to Toreno himself. “My dear Nathan,” he admitted, putting his finger on the Rothschilds’ fundamental weakness, “we don’t have any troops to force the Government to do that which it does not want to do.”

  All along, the Rothschilds had suffered from a lack of first-hand knowledge of Spanish affairs: none of them had visited Madrid and there was no dedicated full-time employee there until July. This explains why in August 1834 it was decided to send Lionel (accompanied by the lawyer Adolphe Crémieux) to thrash out some kind of agreement with Toreno face to face. The British ambassador was impressed by the young man’s negotiating skills; however, the Rothschild correspondence reveals that Toreno was able to convince Lionel that a fully fledged loan to Spain was now the only way of averting outright bankruptcy and the advent of a republican government. Anselm alone agreed. James and Nathan by now were interested solely in retrieving the money they had advanced to Toreno’s predecessor. In January 1835 they reluctantly agreed to accept the equivalent of 15 million francs as a share of the new loan to be issued by Ardouin. Salomon later estimated their losses on the contract at 1.6 million francs.

  Yet Lionel’s negotiations achieved what proved to be a more important concession from Toreno; for during his stay at Madrid the contract for the Almadén mines fell due for renewal. As we have seen, the Roth
schilds already had a stake in the mines and they had begun to think of increasing their control over the Spanish mercury market during 1834. Indeed, Lionel had explicitly suggested asking for the mines as a guarantee for the 15 million francs advanced. He now outbid four other companies to secure the new contract—essentially by bribing Toreno and the Queen and by offering, instead of a sealed bid, to pay 5 per cent more than the highest rival bid. The following year the contract was renegotiated in such a way that it became rather more advantageous for the Rothschilds. This was the beginning of a long and profitable involvement. According to the Rothschilds’ own estimates, the mines at the time of the 1835 agreement were producing between 16,000 and 18,000 hundredweight of mercury a year. Under the 1835 contract, they paid the government rather more (54.5 pesetas or £2.18 per hundredweight) than they had paid under the previous contract (37 pesetas); but were then able to resell the mercury in London for 76-80 pesetas or to silver refineries in Mexico for as much as 150 pesetas per hundredweight. In sterling terms, that represented a profit of at the very least £13,000 a year, with the possibility of more if the output of the mines could be increased without depressing prices. When production was stepped up in 1838, the Rothschilds’ annual income from the mines rose to £32,000, though this level of output proved unsustainable. That amounted to more than 13 per cent of the total net revenue from the mines—and no less than 38 per cent of the London house’s profits (though half the money was shared with the Paris house). By the 1840s, 20 per cent was James’s target return from Almadén.

  The acquisition of the mercury rights also signalled a radical change of policy. From now on, rather than issue bonds for Spain against effectively worthless paper securities, they would finance the country’s chronically unreliable government by making relatively short-run advances on the royalties they had to pay for the Almadén mercury. Later, similar advances would be made on the basis of copper and tobacco from Cuba. Commodities thus proved to be the best kind of security for loans to unstable states. In his comic poem “Romancero” Heine joked that Mendizábal (who became Finance Minister in 1835) had pawned an ancient pearl necklace “to cover certain / deficits in state finances”; these had duly appeared “at the Tuileries . . . shimmering on the neck of Madame Solomon, baroness.” Contemporaries would probably have recognised the allusion to the “jewels” of Almadén.

  Of course, the Spanish government may have hoped that the mercury deal would lure the Rothschilds into making a full-scale loan. But in this they were sorely disappointed. True, by the spring of 1835 James was feeling more sanguine about Spain following the success of Ardouin’s loan. This, however, proved to be short-lived as the Carlists seemed to gain the upper hand. The key question now became whether any foreign power would intervene to decide the outcome of the civil war. This had always been a possibility: France had intervened in Spain just over a decade before and there had been abortive liberal expeditions in the wake of the 1830 revolution. The Quadruple Alliance also seemed to imply some sort of British action on behalf of Maria Christina’s regime (provided the Whigs stayed in power). But it was only after Toreno had wrecked his financial plans that Nathan became a convert to the idea of military intervention, as did Lionel. James, summoned to London to decide the next move, once again wavered. The experience of the early 1830s had made him deeply suspicious of the more hawkish French politicians, and he was inclined to reinforce Louis Philippe’s pacific inclinations against the projects for intervention hatched by Thiers. On the other hand, he found it difficult to oppose his elder brother on the Spanish issue and gradually came round to supporting intervention. By contrast, their brother Salomon—who had all along had his doubts about getting involved with Spain—now acted energetically to counter Nathan’s arguments for intervention, ultimately going to extraordinary lengths to dissociate himself from his brother’s actions in his correspondence with Metternich.

  Metternich had been kept well informed of Nathan’s actions by the Austrian chargé d’affaires in London, Hummelauer, and a junior official named Kirchner who was supposedly assisting Nathan with his consular duties. He therefore knew that Nathan was arguing for British intervention; indeed, Nathan appears to have admitted it openly to the Austrian ambassador Esterházy. To clear himself of guilt by association, Salomon therefore had to write one of the most extraordinary of all Rothschild letters, addressed to his senior clerk in Vienna, Leopold von Wertheimstein, but explicitly intended for Metternich’s eyes. He began by claiming that the collapse in Spanish bond prices following Toreno’s appointment as Finance Minister had been engineered by the Rothschilds as an act of “vengeance” on Toreno for the losses he had caused them. According to accounts which Salomon enclosed, Nathan had sold no less than £2 million of Spanish bonds, ruining Toreno’s credit and proving that the Rothschilds were now “confirmed enemies of Spain.” Not only that, but Salomon and James had then gone to see Talleyrand, Guizot, Broglie and Louis Philippe himself to argue “that France’s credit would go to the devil if they intervened, and that they would have to face a second and third revolution.” There was therefore no question of the Rothschilds lending “a single farthing” more to Spain. As if to convince Metternich of his sincerity, Salomon’s letter concluded by heaping abuse on Nathan’s head. “My brother Nathan Mayer,” he wrote,

  is one of the ablest men as far as the Exchequer and price movements are concerned but has no special aptitude in other matters . . . [H]e is a child in politics . . . [and] believes that the Powers will be pleased by intervention . . . In other matters that are not concerned with the Bourse, [he] is not particularly bright; he is exceedingly competent in his office, but apart from that, between ourselves, he can hardly spell his own name. This brother of mine, however, is so disgusted with Spain that he can hardly bear himself, just like all of us, only perhaps he feels it more because he realises that he made the advance of 15,000,000 francs without asking any of his partners about it.

  Nor was that all. Salomon even went so far as to suggest that Nathan’s error had put the entire future of the brothers’ partnership in jeopardy:

  I myself do not yet know when we brothers will meet; whether the affair of the Spanish Loan will cause a split we shall see. I am sixty, my brother at Frankfurt is sixty-two; I have only two children and if I live very carefully I can live on the interest of my capital; I have fortunately only to provide for my son, as my Betty is as rich as her father. I do not mean that I intend to give up business but only to see to it that I can sleep peacefully. The Spanish affair has completely ruined my nerves; it is not the loss of money, for even if the whole 15,000,000 francs had been lost my share would have been only 3,000,000, but the unpleasantness which we have had with this business. Now Nathan Mayer Rothschild has four grown-up sons, and Carl has two younger boys, so they manage on the basis of a dozen heads. Because my father has so disposed we shall probably have to remain together, but I must confess that it has all very much tired and exhausted

  Your,

  S. M. v. Rothschild.

  For good measure, Salomon then accused the Russian ambassador Pozzo of slandering James because he had been excluded from a profitable issue of Austrian bonds. This was no mere charade: the Rothschilds’ private correspondence indicates how strongly Salomon felt on this issue. As late as 1840—after Don Carlos had been defeated—James could still tell his nephews:

  [W]e can’t make a loan for Spain under our own name, unless a guarantee is provided by England and by France and . . . nevertheless I tell you, my dear nephews, I don’t want to have anything to do with it . . . [I]t is only if the Governments provide us with the necessary guarantees that we can give the Northern Powers a reason, otherwise I can tell you, my dear nephews, that the first thing which my good Salomon will do will be to withdraw from the business. Do you think that this deal will generate a large enough profit to justify doing something like this?

  It has generally been assumed that on this issue Metternich’s political power prevailed over the Ro
thschilds’ financial interests. Armed with good-quality intelligence and making the most of Salomon’s desire to acquire the title of Austrian consul for his son and nephews, Metternich appears to have succeeded in scuppering the project of an Anglo-French guaranteed loan to Toreno’s mercurial successor, Mendizábal. Like the British ambassador in Spain, Mendizábal assumed that the Rothschilds would back this project, not least because of his business links with James, with whom he had done business in Portuguese bonds.3 But Nathan—apparently responding to Salomon’s pressure—chose to leak the Anglo-French plan to Vienna and more or less deliberately allowed the project to fall through, leaving Mendizábal high and dry. Indeed, he told Palmerston that he had no confidence in the solvency of Mendizábal’s government. When the British Foreign Secretary pointed out that the planned sale of crown lands would raise money, Nathan replied with a characteristically earthy image: “Yes, in time, but not in time for the May dividend. It is like telling me at seven o’clock when I want my dinner [that] there is a calf feeding in a field a mile off.” Contrary to the widespread expectation in diplomatic circles that they were itching to make such a guaranteed loan, in fact Nathan and James were steadily baling out of Spanish bonds altogether.