The House of Rothschild, Volume 1

by Niall Ferguson

  You protest in the name of the Jews; well, I protest in the name of the French. And if I may be permitted to say so, something extremely honourable is happening among the Jews. Once the story became public knowledge, their disquiet was apparent all over Europe, and they have handled the affair with a zeal and a fervour that profoundly honours them in my eyes. If I may be permitted to say so, they are more powerful in the world than they pretend to be, and at the very moment, they are lodging complaints at every foreign chancellery. And they do it with a zeal, an ardour that exceeds all imagination. A minister must have courage to defend his agent who is attacked in this way.

  This unleashed a spate of attacks on “the man who owns the splendid mansion on the rue Lafitte . . . who sought at all costs a coup d’état against . . . our consul at Damascus” (the Univers) and “the incredible arrogance” of “Mr Rothschild” (the Quotidienne).

  It is, of course, tempting to dismiss such remarks as an expression of that anti-Semitic streak which periodically surfaced in French politics throughout the nineteenth century. Yet there was a sense in which Thiers had little alternative but to defend Ratti-Menton. The Rothschilds—and James in particular—were determined to undermine his position, though more because of the threat he posed to international stability than because of the threat he posed to the Jews of Damascus (to say nothing of the Jews of France).

  It would be an oversimplification to say that the Rothschilds toppled Thiers from power. Quite apart from the events in Damascus, the summer of 1840 saw a steady worsening of the French position. Rather than accept the Anglo-Russian solution to the problem posed by Mehemet Ali, Thiers sought to engineer a bilateral agreement between Ali and the new Sultan. However, this merely provoked the other powers into signing an agreement (on July 15) to use force if necessary to compel Mehemet Ali to accept their terms, which would have confirmed him as hereditary Pasha of Egypt, given him the title of Pasha of Acre, but entrusted him with no more than the administration of southern Syria for life. It was now beyond doubt that Palmerston put the preservation of British influence in Constantinople before the preservation of the already moribund Entente Cordiale. Nor was Thiers helped by Louis Napoleon’s abortive landing in August and the outbreak of unrest in Paris the following month. In any case, Nat explicitly stated at the height of the crisis that it would be “almost impossible and would indeed be dangerous and altogether unwise, to overthrow him.” On the other hand, when Nat inveighed against the “irresponsibility and . . . nationalistic peasant obstinacy” and the “pseudo liberalism” of “this most arrogant of all parvenus” it was obvious what kind of “happier future” he had in mind. The question is how far the Rothschilds were able to hasten Thiers’ downfall.

  On the face of it, their sole objective in the frenetic months of August and September 1840 was to promote peace through their tried and tested channels of diplomatic communication. Lionel reassured Lord Clarendon that France would not fight; James relayed to Metternich Louis Philippe’s repeated pleas for an Austrian deus ex machina; Lionel sought to involve the King of the Belgians; James visited the bellicose duc d’Orléans; Lionel relayed Nat’s warning to Palmerston not to push the French too far—and so on. But the financial subtext of this diplomatic activity was calculated to undermine Thiers’ position. The key was the impact of the crisis on the price of rentes. On August 3 there had been “a tremendous fall in the price of rentes” which sent Nat and James scurrying back to join Anselm in Paris. It was the beginning of a protracted slide. As the British naval expedition closed in on Ibrahim Pasha and Palmerston intransigently rejected Thiers’ bids for a face-saving compromise, so, inexorably, the price of rentes declined. Three per cents fell from a high of 87 in July to 79 in early August, touching a low of 73.5 in early October. It would, no doubt, be wrong to suggest that the Rothschilds were single-handedly responsible for this fall, which was the product of a generalised panic on the Paris bourse. On the other hand, they did nothing to check it. More importantly, they had no reason to do so. For, unlike comparable crises in the early 1830s, this was costing them nothing. The clue lies in Nat’s comment on August 2: “Thank God the house has scarcely any [rentes].” Quite simply, they had covered themselves in advance of the crisis by clearing out of French government bonds altogether. This was what Guizot, struggling as French ambassador in London, failed to realise. “Do you think he is praying to God for the safety of his money?” he asked the Princess Lieven after a visit from Lionel on September 9. Heine too was taken in by James’s furrowed brow: “The rente, which had opened down two per cent, tumbled by another two per cent. M. de Rothschild, it is said, had the toothache yesterday; others say he had a colic. What does this portend? The storm draws ever nearer. The beating of the Valkyries’ wings can be heard in the air.” In fact, James was play-acting for the benefit of Heine’s readers. Nat’s only regret was that he did not have more liquid funds available to speculate: “I could make a fortune,” he mused.

  Thiers fought back. On October 12, the pro-government Constitutionnel fired a broadside at “M. de Rothschild and his manoeuvres”:

  [According to The Times] M. de Rothschild is a man of finance and does not want war. Nothing could be easier to understand. M. de Rothschild is an Austrian subject and the Austrian consul in Paris, and as such he has little concern for the honour and interests of France. This too is understandable. But what, pray, have you to do, M. de Rothschild, man of the Bourse, M. de Rothschild, agent of Metternich, with our Chamber of Deputies and our majority? By what right and by what authority does this King of Finance meddle in our affairs? Is he the judge of our honour, and should his pecuniary interests prevail over our national interests? We speak of pecuniary interests, but, surprisingly enough, if one can believe highly accredited reports, it is not just financial grievances that the Jewish banker would lodge against the cabinet . . . There also seems to be wounded vanity to satisfy. M. de Rothschild had promised his co-religionists to have our consul-general in Damascus dismissed for the position he took in the trial of the Jews being held in that city. Thanks to the steadfastness of the president of the council [Thiers], these insistent demands of the mighty banker have been resisted and M. Ratti-Menton upheld—hence, the irritation of the mighty banker and the fervour with which he throws himself into intrigues where he has no business.

  This tirade overlooked the fact that, in one fundamental respect, the “King of Finance” was in a position to “meddle” in government policy. If Thiers was serious about making military preparations and ultimately even fighting a war, the question inevitably arose: how was this to be paid for? The only conceivable answer in view of the already stretched budget was by borrowing. Yet the government was in no position to borrow money with the price of rentes slumping. This was the way in which not only the Rothschilds but the financial markets as a whole exerted leverage over a government they disapproved of. The financial crisis effectively destroyed the credibility of Thiers’ foreign policy by depriving him of the possibility of borrowing money. In his reply to the article in the Constitutionnel, James made the point with subtle menace:

  I have never at any time encouraged opposition to the Government, for the simple reason that I have never wished to play a political role. I am, as you state, a financier. If I desire peace, I desire it honourably, not only for France, but for the whole of Europe. Financiers have the opportunity of rendering services to the country under any circumstances, and I think that in this respect I have never been slow to respond.

  The point was that this time James’s services would not be forthcoming. Less than a week later, on October 20, “the little blackguard” resigned. Ten days later a new government was formed by Soult and Guizot in which, as Nat affirmed with satisfaction, “the bourse has the greatest confidence.”

  Of course, it took long months of negotiation to arrange a lasting peace in the Middle East—during which time the symptoms of popular “war fever” persisted not only in France but in Germany too. For the Rothschild
s, however, Thiers’ fall was the turning point in the crisis. As Heine reported in March 1841:

  Monsieur de Rothschild, who seemed somewhat indisposed for a time, is now quite restored and looks sound and well. The augurs of the Stock Exchange, who are experts at interpreting the great Baron’s physiognomy, assure us that the swallows of peace nestle in his smile, that every anxiety about the possibility of war has vanished from his countenance, that there are no electric sparks which forbode storms visible in his eyes, and that therefore the warlike stormy weather, the Kanonendonnerwetter which threatened the whole world, has been altogether dissipated. Even his sneezes, these augurs tell us, portend peace.

  Walls of Jericho

  The aftermath of the Eastern Crisis demonstrated how international tension could be beneficial to the Rothschilds—provided that increased defence expenditure did not lead to outright war. To be sure, the Rothschilds had consistently used their financial power to promote peace throughout the 1830s. But when the great powers had been completely restrained in their foreign policies, as we have seen, the stream of new loan business had begun to dry up. By contrast, when they embarked on policies of rearmament, as they did from 1840 onwards, this was not necessarily detrimental to Rothschild interests.

  The fall of Thiers led almost at once to new business for James. The increased expenditure on armaments which was Thiers’ legacy—particularly on the costly new system of fortifications around Paris—obliged the new government of Marshal Soult to issue a major new loan in 1841. The Rothschilds had every reason to dislike the fortifications project: quite apart from fuelling the bellicose mood throughout Europe, it threatened to reduce the value of Salomon’s villa at Suresnes, which was close to the planned line of defences. Nevertheless, they did not hesitate to meet the government’s needs. Admittedly, James grumbled about the amount and issue-price proposed by the new Finance Minister, Théodore Humann—yet another former banker turned politician, and a man whom James privately regarded as a “rogue” and a “blackguard.” Indeed, the negotiations were characterised by brinkmanship which was extreme even by James’s standards. He bluntly refused to cut short a visit to see Salomon at Gastein and Vienna when Humann requested a meeting in Paris, and on more than one occasion intimated that he would leave the business to others if the terms were not improved. But in truth he had no intention of doing so: as he put it, “We want—indeed have—to make the loan”; and he was confident enough that Humann would not act without him to drive a hard bargain. The 150 million franc loan was duly issued in October more or less exactly on James’s terms.

  To contemporaries, this merely confirmed James’s unrivalled dominance over French finances. However, the real significance of the loan may lie in the peculiar character of the “armed peace” (Guizot’s phrase) which made it necessary. The striking point is that now James and Nat were willing not only to justify but also to finance a policy of rearmament which they had opposed when Thiers had been in power. The new French government, they assured the London and Vienna houses, was arming merely to mollify public opinion. “No cabinet in the last ten years has pursued more peaceful policies than the one formed on Oct[ober] 9, but it has things to take into consideration, susceptibilities to overcome, ardent enemies to contend with.” Once the cost of the increased armaments made itself felt, the popular mood would become more pacific. On March 8 James was able to report “a triumph”: “The Commission dealing with the Budget refused to ratify the establishment of the 36 new Regiments and this is a slap in the face for Thiers who wanted to increase the size of the army and this will result in a saving of 40 million and a genuine disarmament and is proof that they seek to maintain peace. I bought rentes . . .”

  The 1841 loan marked the resumption of “normal service” in Rothschild relations with the French Treasury. Further loans followed in 1842 and 1844 (for 200 million francs apiece), despite challenges to the Rothschilds’ dominant position from Hottinguer, Baring and Laffitte. International tension led to increased expenditure on armaments in the German states too. “As long as France continues arming,” reasoned Anselm, “Germany must follow.” Again, this meant new business for the Rothschilds. Thus, after seven uneventful years, 1841 saw a new Austrian government loan for 38.5 million gulden, shared as usual with Sina and Arnstein & Eskeles. Another loan for 40 million gulden was issued by the same banks two years later. Once the Rothschilds had regarded peace as the sine qua non of financial stability; but an armed peace was more profitable.

  Small wonder, then, that Countess Nesselrode thought James “viceroy and even King” at this time. When he told her that he knew all the French ministers, saw them daily and complained directly to the King if the policies they adopted were “contrary to the interests of the government,” he was not exaggerating. “Comme il sait que j’ai beaucoup à perdre et que je ne désire que la tranquillité, il a toute confi- ance en moi, m’écoute et tient compte de tout ce que je lui dis”: in that sentence, with its subtle reminder of the regime’s financial reliance on the Rothschilds, lies the key to James’s power over the “bourgeois monarch.” When Heine called James a “weathercock,” he was thus underestimating the extent to which he could influence the direction of the wind. Throughout the period from 1840 to 1847, Rothschild financial support for Guizot was effectively conditional on his avoiding outright conflict with Britain—and devoting a rising share of the proceeds to constructing railways rather than fortifications. At times even Nat and his brothers were surprised by the extent of their uncle’s leverage in Paris. When an Anglo-French argument over the Pacific island of Tahiti blew up and then blew over in 1844, Nat remarked, “His Majesty was amazingly polite and almost kissed him so pleased was he,” crediting—erroneously—the Rothschilds with having restrained Peel in London.

  Nevertheless, there were limits to James’s power, just as there had been limits to the Rothschilds’ power in the 1830s. A more serious Anglo-French dispute over Spain gave James a real scare in 1846-7, when it appeared that Louis Philippe’s determination to marry his son to the Spanish Queen’s sister might be seized on by Palmerston as a casus belli. James rushed back and forth, trying to get the French to agree to an Anglo-Spanish trade treaty as a kind of compensation for the Montpensier marriage, but Guizot on this occasion stood his ground. James’s letter to London of September 26 gives a good insight into his unease:

  We are extremely anxious . . . for, as I was told by the English Minister [Lord Normanby], he is very concerned that they may take very firm measures. I can’t imagine that they will immediately issue a declaration of war. The truth is that Montpensier is due to depart [for Spain] on Monday. Well, Guizot said to me that if England were to issue a declaration of war then the wedding will [still] take place . . . Well, my dear nephews, there is a lot of ill feeling. I did not imagine that it would be so bad and I tell you we must be careful because in the end, something or other will happen. The [English] Minister said to me, “We can’t sit by calmly and watch the situation unfold.” Whether he made this comment so that I should then repeat it only God knows . . . I tend to see the future as rather bleak.

  James went so far as to propose to Guizot that Montpensier renounce any claim of his heirs to the Spanish throne. But, as Anthony reported nervously, “Guizot thinks that we have been intriguing against him and you have no idea how careful we must be . . . I assure you I am very anxious—the French do not want war and cannot go to war, but they make things quite as bad as one.” Indeed, Nat declined to relay to Louis Philippe a letter from Lionel which evidently contained some strong Palmerstonian meat:

  The arguments of our worthy uncle in favor of the alliance between England & France are quite conclusive but the suppositions of my Ld Palmerston in the event of the Queen of Spain being poisoned, of her not having any children & of its being the Queen dowager’s interest not to let her daughter breed[,] that the present King of Spain & the D[uc] of Mont[pensier] wd fight & the Ld knows what, wd have a bad effect on our statesmen & make them believe
Ld P . . . had talked a lot of nonsense with you—I should be sorry to be the bearer of such a missive.

  By October 1846 James was in deep gloom, expecting French and Austrian troops to be sent to Spain at any moment and fretting at news of British naval increases. When he went to see Guizot on the 29th, he was told firmly that France would not rule out a future claim by Montpensier’s heirs to the Spanish throne. The nadir came when James sought to defend Normanby’s decision not to attend a reception for Montpensier after his return from Spain. As Nat reported, Guizot was “very angry . . . [and] told him that situated as he was it would be just as well for him to keep his opinion to himself.” James drew the obvious conclusion: “I fear that all diplomatic communications between us here and England will be broken and the Government here is prepared for anything that may happen. Never before have I seen the Government so strong and stubborn. I think that even if this were to lead to an outbreak of war, God forbid, they would still not change their stand.” Even when he sought the assistance of his old friend the King of the Belgians his reception was “cold.”