The House of Rothschild, Volume 1

by Niall Ferguson

  The decisive moment in the civil war coincided with the Frankfurt family “summit” and Nathan’s death. Ultimately, despite pressure from the French government to come to Maria Christina’s assistance, the Rothschilds kept on selling Spanish bonds; indeed, Nathan’s last instructions to his sons were to liquidate all their holdings. After his death, this clear-out continued, so that by 1837 the Rothschilds had more or less withdrawn completely from the market for Spanish bonds. The Spanish Prime Minister was now “that stinking Mendizábal,” whom James had “never trusted”; Spanish bonds—now trading as low as 19—were simply “muck” or “shit.” The fact that Salomon moved so quickly after Nathan’s death to secure for Lionel the Austrian consulship in London also seems to point to the importance of Metternich’s leverage.

  However, although Metternich appeared to have won, the private Rothschild letters show that if France and Britain had intervened militarily—rather than just financially—the Rothschilds might well have resumed large-scale lending to Spain. In ditching Mendizábal, Nathan was not merely bowing to pressure from Vienna. He was acting out of self-interest, in the belief that any loan to Spain was bound to fail in the absence of military intervention: no Spanish government could now afford to pay both the interest on its external debt and an army big enough to beat the Carlists. Despite all that Salomon had said to Metternich, by March 1836 James was privately itching for France to intervene. As he put it to Nathan following an inconclusive meeting with Louis Philippe and Thiers:

  If we should be so fortunate that we, over here, decide to intervene [in Spain], this could make a difference for us of many hundreds of thousands of pounds sterling, and we could earn a great deal of money, because we could then calmly deal in bills, quicksilver and everything else, but, unfortunately, I don’t have any influence, nor indeed, does anyone else have influence over the King . . . I hope to God that they will indeed decide to intervene and you can then imagine how much business this will generate. I spoke so much [in favour of intervention] that my tongue nearly fell out of my throat.

  When the possibility of French intervention surfaced again in July, he and Lionel were again briefly enthused, only to be disappointed at the half-heartedness of the measures taken.4 It was the same story when Thiers failed to overcome the King’s opposition to intervention in the spring of 1837. Nor should it be assumed that the Rothschilds’ refusal to back a full-scale loan to Mendizábal implied a complete withdrawal from Spanish finances. Before long, the practice of making advances on the mercury from the Almadén mines was resumed (despite Salomon’s assurances to the contrary to Metternich), making sums of the order of £100,000 available to the government. James also became increasingly interested in the revenue Spain was earning from Havana. In January 1837 some sort of deal was proposed by Mendizábal involving a buy-back of the deferred Cortes bonds in return for bills on Havana. Interestingly, the Rothschilds—Salomon included—were keen to do this, provided it could be kept secret. They were also continuing to pay the salaries of Spanish diplomats in Paris at this time, an arrangement dating back to 1834. Where they drew the line was at issuing bonds. Even when the idea was put forward for a loan secured on Cuban revenues, they showed little serious inclination to get involved (though this hesitation was probably reinforced by the impact of the 1837 American crisis in Cuba and by the contemporaneous gains made by Don Carlos in Spain).

  Of course, it would have been difficult to retain control of the lucrative mercury business without making any concessions to the Spanish government. A shot was fired across Rothschild bows when, not long after the fall of Mendizábal in August 1837, the Cortes sought to revoke the Almadén contract, arguing that it had been improperly modified two years before. Defenders of the 1835 contract in Madrid warned that, if deprived of the Almadén mines, the Rothschilds might back Don Carlos “for they are the monetary dynasty of Europe, and a new lever in the balance of power, which might decide the success of the Pretender by inclining the scales in his favour.” But only by agreeing to make more (and larger) advances on mercury and Havana bills were the Rothschilds able to retain the contract; and increasingly they had to allow their agent Weisweiller considerable latitude in the granting of such advances to avoid similar challenges, even turning a blind eye to the partnership he struck up with the governor of the Queen’s court, Manuel Gaviria. Of all the threats to their position, the biggest was probably posed by the banker Aguado, who returned to dangle the possibility of a large loan in front of the new Espartero government, with a view—so the Rothschilds suspected—to challenging their monopoly at Almadén. The new Finance Minister Alejandro Mon did his best to convince James that without a loan of £5 million the Rothschilds would lose the mines. But Salomon, with Metternich still breathing down his neck, continued to oppose involvement in any such loan unless it could be done through a “front” like the Bank of San Fernando; and James remained leery of the purely economic risks involved (not least because the Carlists managed to occupy Almadén briefly in the course of April 1838). Once again it proved possible to hold on to the mines by means of large advances, which fluctuated between around £200,000 and £400,000. In 1839, with the Carlist threat more or less dead, there was renewed talk of a loan, but the Rothschilds still declined to be involved, showing much more interest in establishing some kind of tobacco monopoly. As James shrewdly anticipated, the defeat of Don Carlos merely unleashed the Moderado opposition to Espartero, replacing one form of political instability with another.

  The price of this strategy—which gave the Spanish government as much money as a bond issue, if not more—was a good deal of Austrian irritation. Despite their best efforts, the Rothschilds could not hope to conceal what they were up to from Metternich (it was at this point that they began to realise that Kirchner was effectively spying on them). Yet the consequences were not serious: even James’s fears that Lionel might lose his Austrian consulship proved unfounded. Throughout the successive revolutions, coups and pronunciamentos of the early 1840s, Rothschild policy remained consistent: to hang on to Almadén (albeit on rather less lucrative terms), to expand their involvement with the Cuban and Philippines trade, but to eschew bond issues. Politically, their position remained ambiguous: they apparently continued to act as Maria Christina’s bankers even after Espartero had overthrown her, while at the same time leaving Weisweiller to maintain normal service first with Espartero and then with his Moderado successor Narváez. This proved to be the only way of reconciling the sharply conflicting interests of the London, Paris and Vienna houses. The agreement reached in 1843 with the Austrian government for the import of 12 million Havana cigars may be seen as a kind of Rothschild peace-offering, designed to reconcile Metternich to the continuation of such business with Spain and her colonies.

  A quite different diplomatic complication arose in the mid-1840s when the powers began to debate the question of Queen Isabella’s marriage. The French wished to marry Isabella to her hypochondriac (and, they hoped, impotent) cousin Francisco de Asis and her sister to one of Louis Philippe’s sons, the duc de Montpensier; Palmerston, appreciating that this might one day put a grandson of Louis Philippe on the Spanish throne, favoured the inevitable Coburg; while Metternich argued for a marriage between Isabella and Don Carlos’s son Montemolin, to bridge symbolically the dynastic rift. There was an economic subtext, as usual, with France and Britain seeking trade agreements with Spain, as well as the usual talk of internationally guaranteed loans and renewed efforts by the British bondholders to get their unpaid interest. There was a good deal of excitement about this at the time, including fanciful rumours in Madrid that James was refusing to lend money to Spain until Isabella had settled the succession question by having a son. However, the Rothschilds were little more than reluctant onlookers and occasional messengers in all this: it merely hardened them in their resolve to abandon Spanish bonds. When Guizot and his ambassador in Madrid interpreted James’s refusal to back a loan to Narváez and Mon as a vote of no confidence in their mar
riage schemes, they failed to see that this was merely the continuation of a Rothschild policy dating back fully ten years. Once again the great powers’ conflicting interests threatened to impinge on the interests of the Rothschild houses; but this time a position of neutrality was easier to sustain as none of the Queen’s possible spouses posed a threat to the Almadén monopoly. Control of the mines remained the sole object of Rothschild policy in Spain. Nor was it to be their last step away from “pure” finance and commerce, into the very different business of mineral extraction (and later also refining).

  Yet even the commitment to Almadén was not unconditional. On the contrary: when the mercury contract came up for renewal in 1847, the Rothschilds were so unimpressed by the terms the Spanish government was prepared to offer that they began to contemplate withdrawal. This partly reflected their assessment of the world mercury market. Lionel Davidson’s confirmation in 1845 of the existence of substantial mercury deposits in Mexico raised the possibility of discoveries elsewhere in the New World. (The price which the Rothschilds had to pay for the mercury monopoly crept up steadily from 54.5 pesetas in the beginning to 70 pesetas in 1850, while the price at which it could be sold abroad began to slip following these discoveries.) With demand falling especially low in the depressed economic conditions of 1847, the Rothschilds not unreasonably expected the government to improve its terms. For a government which was struggling financially, the choice was between maximising revenue from the mines and securing further cash advances from the Rothschilds. Opting for the former, the Minister elected to publish his offer, effectively ruling out further bargaining. The result was deadlock, with Spanish requests for an advance of £600,000 being firmly refused in the absence of better terms for the mercury contract. As James put it, “If one could earn 20 per cent then I would be all in favour of going ahead with the deal, but as matters stand at present we stand to make only a trivial sum . . . I can’t see the big fortunes we stand to make from this deal, nor why we should invest our money in such a venture in these present times.” By now, as we shall see, James had found more lucrative financial opportunities.

  “That Blasted Country”: America

  The Rothschilds’ interest in Spain not only led them to establish new links with Cuba, the Philippines and Mexico. More by accident than design, it also led them to establish a permanent agency in the country which was to emerge as the dominant force on the other side of the Atlantic: the United States. Yet, despite its phenomenal economic potential and the furious pace of its development after 1820, America—it might as well be said at the outset—was a challenge to which the Rothschilds never quite rose.

  The reason for this has not previously been explained. Of course, it was far away, and in many ways quite different in its business culture from Europe—“very sharp and peculiar” was the phrase once used at New Court, a view echoed and immortalised by Dickens in Martin Chuzzlewit. But the same might easily be said a fortiori of Brazil, with which the Rothschilds developed an enduring relationship. It has been suggested that the American market had been “sewn up” by the Barings before Rothschilds arrived on the scene, and later developed its own home-grown bankers, like J. P. Morgan, who would ultimately eclipse Rothschilds not only in the US but in the world. Yet this too will not quite do: the Rothschilds proved on numerous occasions in the nineteenth century that they had the financial muscle to oust even their most powerful rivals from business they coveted. That they did not do so in America requires a better explanation.

  In fact, the answer may partly lie in the peculiarities of American democracy. The Rothschilds, as we have seen, always gave first place to public finance in their operations, and rarely conducted commercial business in a country without also lending to its government. However, this proved difficult in the US. The federal system meant that the financial needs of the central government were strictly limited, while some of the individual states proved to be among the least reliable creditors of the entire nineteenth century. A second and ultimately more serious obstacle was the American tradition of suspicion towards big banks. The Rothschilds generally liked to have a reliable local partner in their international operations, often a national or central bank in the mould of the Bank of England or the Banque de France. In Spain, that role was played by the Bank of San Fernando. In the United States, however, it proved politically impossible to establish such an institution on an enduring basis. The first Bank of the United States (BUS), set up by Alexander Hamilton in 1791, expired twenty years later when the Republican-dominated Congress refused to renew its charter on the ground that it was unconstitutional. The second BUS, established in 1816 with a capital of $25 million, became the focus of a powerful political campaign against the “money power” which was blamed for the deflationary pressures of the succeeding years. Though it survived a legal challenge by the state of Maryland, the Philadelphia-based bank fell victim to the populist President Andrew Jackson, who recognised the electoral advantages of an attack on the “monster,” identified as it was with his rival Henry Clay. When the BUS’s president, Nicholas Biddle, applied to have its charter renewed in 1832 (four years earlier than was necessary), Jackson vetoed it, vowing: “The Bank is trying to kill me, but I will kill it.” Despite Biddle’s effort to precipitate a financial panic in retaliation, “Old Hickory”—Jackson’s nickname—carried the day, and in 1836 the bank lost its public status, though it continued to exist as a state bank in Pennsylvania. As we shall see, the Rothschilds’ instinct was to do business with the BUS; but Jackson’s attack fatally undermined its position. It should be added that American suspicion of big banks was allied to a suspicion of foreign banks, and especially Jewish ones. No sooner had the Rothschilds appeared on the American scene than Governor McNutt of Missisippi was denouncing “Baron Rothschild” for having “the blood of Judas and Shylock flow[ing] in his veins, and . . . unit[ing] the qualities of both his countrymen.”

  Rothschild interest in the US dates from the early 1830s, when an opportunity arose to arrange the payment of a million pounds owing to the Treasury in Washington from France. This coup led to the Rothschilds replacing the Barings as the federal government’s London agents. At the same time, Nathan and James began to interest themselves for the first time in American state loans and commercial finance. American exports of cotton and tobacco to Europe were advancing by leaps and bounds, and by the mid-1830s the London and Paris houses were doing a considerable volume of business in the bills generated by this trade, advancing substantial sums to a number of American bankers, notably J. L. and S. I. Joseph. In the American financial crisis of 1836-7, they and all the other firms with which the Rothschilds had dealings got into serious difficulties; and it was at this point that the Rothschilds were forced to make a decision about the future of their involvement in the US, and above all about the nature of their representation there.

  The “appointment” of August Belmont (originally Schönberg) as the Rothschilds’ agent in New York was an accident. Belmont had joined the Frankfurt house as an apprentice at the age of fifteen, and had risen rapidly through the ranks, getting up at 5 a.m. each morning to improve his French, English and arithmetic. By 1834 he was acting as secretary to one of the partners, visiting Paris, Naples and Rome; and in 1837 it was decided to send him across the Atlantic. However, contrary to a report in the Allgemeine Zeitung des Judenthums, the intention was definitely not that Belmont should establish himself as the bank’s New York agent. His orders were to take stock of the financial crisis there—to “let us know what is going on and one can then decide accordingly what to do”—and then to proceed to Havana. This planned itinerary reveals that, in James’s view, the family’s interests in Cuba were what mattered: as he put it, quite apart from existing commitments there of around £100,000, “Spain receives all her income from that land and it is one of the most profitable business ventures.” By contrast, he and his nephews had managed to reduce their commitments in the US to just £9,000 by the end of April, and James was prepare
d to write this remainder off as “a lost cause.” The possibility of establishing a Rothschild house in New York was not wholly ruled out, for James recognised the American market’s potential and was convinced that there were bargains to be snapped up from the “shipwreck” left by the banking crisis; but he evidently regarded this as a job far in excess of Belmont’s capabilities. His trip was intended to be of short duration; indeed, there was not even any question of his taking over the Havana office. What James really wanted was for a Rothschild to go to America.

  But who? The debate on this question illuminates the fundamental problem which was to bedevil the Rothschilds’ American policy for decades to come: no one wanted to go there—witness James’s vain attempts to persuade his nephews to accept the mission. Anthony, he claimed, had “long indicated that he would like to go to America [and] would gladly make use of this opportunity:”

  I am strongly urging him to do so without delay. We have so many interests in that country and in Havana that one of us should immediately go over there. However, I don’t believe that you, my dear Anselm, should go there. It is Anthony’s turn to do so. I know very well that it is not a pleasure trip but the business has to be attended to and you, my dear Anselm, can’t go there, firstly, because my brother Amschel is not feeling well enough to remain in Frankfurt with my brother Carl this coming summer. The latter also wants to take the waters . . . and thirdly, you are a married man whereas Anthony is a bachelor so that I can’t see any reason whatsoever why it should not be Anthony rather than you who should go. Well, I don’t have anyone here who knows English . . . I think that it will be possible to earn a lot of money in America. The American funds which one can sell in London will be purchasable in America for next to nothing, for no House has any credit over there and . . . one can earn some very nice profits. Well, once you are in America you can then send Belmont ahead of you to Havana . . . In short, my dear nephew, I urge you to think it over very carefully but whatever plan you decide to proceed with the main thing is that you do it without any delays.