In two respects, it might be thought, James had to compromise in order to win. Firstly, the Pereires’ dream that the line would terminate at the Gare Saint-Lazare had to be jettisoned, despite the negative impact this had on Saint-Germain shares. Secondly, James’s rivals were allowed to participate in the consortium which founded the company: with the continuing reluctance of Méeus to commit the Société Générale to a major stake in the company, James had no alternative but to allot substantial shareholdings to Laffitte-Blount, Hottinguer and other lesser rivals. Yet in practice these were minor concessions. It would seem that James felt less strongly about having Saint-Lazare as the terminus than Pereire; as for his fellow investors, none of them could pretend that they were anything other than junior partners. Laffitte had hoped to revive his own long-standing ambitions by launching a single, grandiose loan to construct the entire network envisaged by Legrand; in becoming little more than a sleeping partner, he was effectively admitting defeat yet again.
When the contract was finally awarded in September 1845, the Paris and London houses were the biggest shareholders—with a 25.7 per cent stake of the 200 million franc capital, compared with Hottinguer’s 20.15 per cent and Laffitte-Blount’s 19.5—and held the key executive positions. The only real compromises which had to be made related to the specific terms of the contract: the subsidy to be paid per mile of track constructed; the duration of the period during which the company would run it; the level of fares to be charged for the three classes of passenger; and the regularity of services. But these were political rather than commercial compromises, reflecting the need to overcome opposition within the Chamber of Deputies (where an influential group of deputies favoured complete public sector construction and control of railways). Similarly, James’s decision to withdraw altogether from the consortium bidding three months later for the Paris-Lyon concession was designed to ensure that he could make the most competitive bid for the Creil-Saint-Quentin line being auctioned simultaneously.
The winning of the Nord concession needs to be seen as part of a general carving-up of the primary French railway network—a process in which the Rothschilds played a leading role. Although the Nord was the line in which James most visibly interested himself, it was by no means the only one. As we have seen, he had contemplated taking a modest share in the Paris-Lyon line. He had also thought of involving himself in the line to Bordeaux, and in 1844 formed a consortium to bid for the concession. Although the line was awarded to another company, he was soon seeking some kind of partnership with it to finance the connection from Bordeaux to Cette. The Rothschilds also took a substantial shareholding in the company which had won the Paris-Strasbourg concession; and it had a small stake in the Lyon-Avignon concession too. Smaller players vied with one another to see who could win the backing of “the all powerful name of the House of Rothschild” for their companies. All this was part of an early move towards the concentration of ownership within the French railway industry which Saint-Simonians like Enfantin sought to encourage. In fact, though they lacked Enfantin’s grandiose vision, the bankers did not need much persuading. As early as 1844 Hottinguer, Blanc and d’Eichthal were proposing to James that “with respect to the grand affair of the railroad from Calais to Avignon . . . we should all write & endeavour to get the whole line of railroads so as to avoid competition, that we should interest all the different companies & then all of us put together.” By November 1845 the craze for “fusions”—that is, mergers between railway companies—was in full swing. “You have no idea what a quantity of people are in the Counting House for the fusion of Creil & St Quentin à Lyons,” reported Anselm, “which fusion creates such a confusion that our office is rather like an inn in Switzerland where all the tourists run in after a long excursion in the Mountains.” The time-consuming contest for concessions had begun to pall. Increasingly, collaboration seemed more rational than competition.
Geographical concentration was also taking place. In securing the biggest shareholding in the Nord line and a majority of the Creil-Saint-Quentin line’s capital (both in partnership with Hottinguer and Laffitte-Blount), James ensured that he controlled the two major rail links north to Belgium, to say nothing of two important routes within Paris—a total of 388 miles of line. This represented a formidable geographical base for the pan-European railway empire he was beginning to dream of.
The English Connection
The attitude of James’s English nephews towards all these projects was at first, to say the least, ambivalent. James delegated a good deal of the detailed work on railway finance to them—especially to Anthony, who consequently became more expert than his uncle. Yet he and his brothers never wholly lost the suspicion of industrial finance which they had acquired at New Court. “There is nothing new here—but Railroad Companies,” complained Anthony in May 1838, “and there are so many that one gets quite sick of them—there is such a Jealousy on the part . . . of the other Companies that [one?] is a little disquieted.” Nat admitted that the Paris house did “not think much of our poor London house in these [railway] matters”; but he himself never tired of pointing out the disadvantages of the Nord project. “We are continually bored with Pereire & Eichtahl [sic] [trying] to induce us to go largely into the railroad to Chartres,” he complained in the spring of 1842. “The stinking railroads engross all our attention & for my part I wish his . . . Majesty had them all, they only give us trouble & bother & no remuneration . . . I am by no means anxious that the house shd go largely into railroad concerns.” “We are up to our necks in steam,” he grumbled a few weeks later, “& get nothing for all the bother & trouble.” At times he denied that the railways would be profitable: “People are afraid of holding the shares and of travelling by the railroad.” At other times, it was the attendant risks he objected to:
For my part I hope & trust we shall have nothing more to do with the Be[lgia]n railroad than to take a lot of shares which we will be able to sell when good opportunity offers—I am by no means desirous of going up to one’s neck in a stinking railroad & if the least thing happens one [soils?] one’s breeches, whilst others know all about it & when we wish to be acquainted with the occurrence we must address ourselves to Pereire—Besides the bother & trouble with the Govt . . .
But the criticism he most frequently expressed was that becoming involved in operating railways—as opposed to speculating in their shares—could tie up capital in a potentially dangerous way:
I am against the [Belgian railway] affair because I am afraid of the anxiety, bother & trouble which it will surely occasion us—the moral responsibility of it will rest entirely on us, & I wd sooner leave to others the profit which the shares are likely to bring than engage in a concern of such magnitude without the possibility of attending to it properly—Such is my way of thinking & most sincerely do I trust the Baron will remain satisfied with purely financial affairs which we understand & which we can get out of when we think fit.
Nat was delighted when the Nord concession appeared to fall through, and alarmed when it was finally granted. Although less hostile than his brother, Anthony could be almost as unenthusiastic. “As regards the Railroad,” he told Lionel in June 1842, “I think the best thing is . . . not to have anything to do with them.”
These attitudes reveal a fundamental difference of attitude, though how far this was a generational difference and how far a matter of milieu is hard to say: the fact that Anselm, who had spent most of his working life in Paris or Frankfurt, also opposed too much involvement in railways suggests a generation gap of some sort. In admitting that “in these times the conservative feeling has the ascendant over the acquiring sentiment—with me at least,” Nat spoke for all the younger Rothschilds. Like the Journal des Débats, they were inclined to fear that in bidding for the Nord concession James was bidding “for the privilege to ruin himself.” As Nat put it, contemplating the extent of their commitments,
by hook & by crook we shall have lots of shares in the market & probably deeply enga
ged in them all—I have no doubt if things remain as they at present are all share concerns will turn out uncommmonly well, but God forbid if the least political or financial crisis were to take place what wd become of all the shares?
“The Baron,” however, was too embroiled in “wheeling and dealing” with the plethora of new scrip and shares coming on to the market seriously to contemplate such an eventuality.
In this context, Nat’s description of James’s contrasting mood is especially illuminating:
[T]he Baron is in a sort of fever about it, he thinks it a good business, & is afraid of it, he fancies the rival company will get it & then regrets it doubly, on the other hand he trembles head & foot at the idea of having to direct a railroad company of such importance without being able to do without such a pair of jobbers as Eichthal & Pereire.
James knew the risks, in other words, but could not face losing the business to his rivals; his nephews were less furiously competitive. Nat’s view “with respect to the railroad [was] not to be too greedy & not to wish to jouer le grand rôle, we may take a share & a good large one & take our profit thereon but not assume more responsibility than others.” James, by contrast, could not resist playing “le grand rôle.” He had no illusions about the dangers and difficulties involved in “trying to do too much at once,” but nevertheless exhorted his nephews to “apply themselves seriously”:
I urgently beg you to take on several new brokers so that we can do business on an equal footing with the others and try to put some life into the railway business. I feel that the world wants to find something new each year with which to busy itself. At the moment “industry” seems to be the fashionable thing. If that is the case and we decide to enter the fray then we have to apply ourselves seriously to the business and will have to engage in doing business even if there is nothing to be earned only so that we stay busy.
Enfantin was not wrong when he suggested that “playing at railways” had supplanted even playing politics in James’s affections: “Playing at gossip with Thiers, Guizot or Molé—a game which Louis Philippe plays so well—is child’s play for Rothschild, which he scarcely deigns to play; he profits from its ups and downs, but for his part he plays at railways . . . that was the great game for strong men.”
Yet James’s project ultimately depended on the London house, in that only the resources of the London capital market could satisfy the demands of the projected line, even with government subsidies. The Nord would, as Nat saw, only be “a capital concern if we can get some good people in London to go largely into it.” “[I]t is impossible for us to undertake so extensive a line unless backed by English capitalists,” he advised Lionel. In particular, he urged him to involve Glyn’s, the one City house which had interested itself seriously in railways, and George Stephenson, whose engineering expertise would be invaluable. Given the obvious importance of the branch lines from the Nord to the Channel coast, other English businessmen were not slow to become involved, though not all were welcome: the attempts of David Salomons to elbow his way into the business were a source of considerable irritation. The fact that there was so much English interest in the line may explain why Nat’s opposition to involvement diminished during 1843. If nothing else, he came to believe that the shares would jump to a “famous high price” and “go like hot rolls” on issue. Sure enough, French railway shares were a great success on the London market. As Mayer reported:
The people here are quite determined upon entering every undertaking that is brought out in your good country, no matter whether it is a railroad or loan . . . [G]iven the fortune being made here by the share jobbers one has no doubt that, however immense the scheme may appear to be, a very strong party will be made.
Despite their reservations about the long-term profitability of French railways, the London brothers could not help taking pride in the superior capacity of the British market. “I hope that you have sold a good lot of the Northern Shares,” Anthony urged Lionel in September 1845. “Try my dear Rabbi to show that the English people can take off as many shares as the stinking French frogs.” His youngest brother expressed the same feeling the following year: “The more I see, I am convinced the more there is no place like our old New Court; where would all the rubbishy French shares be if we did not support them? I think we may give ourselves a few airs and be as great men as the others.” Such chauvinistic sentiments were another important aspect of the Rothschild generation gap.
The combination of James’s entrepreneurial vision and the London market’s capacity was a recipe for success. As the price of Nord shares soared from 500 francs to 760, his gamble on the line seemed amply justified. Even his London nephews had to acknowledge that its prospects seemed excellent: its daily takings exceeded 20,000 francs as soon as it opened, despite the fact that the line was far from complete and the company was short of capable engine-drivers. Although that was roughly half its projected income, it still promised a respectable return to the operators—and more, with a little fine-tuning. James was soon following his brother Salomon’s example, exploring the possibility of “vertical integration” in the form of further investment in Belgian coal mines. “Everyone thinks that coal is like gold,” he enthused, a view which even the cautious Anselm could not dispute. The 3 million franc investment which the Paris house made in coal mines (in conjunction with the Talabot brothers) would, he was confident, “become with a little time a most capital concern as the consumption of coal becomes stronger day to day owing to so many railroads on the continent and the progress of industry . . .” The Nord could get its coal at a competitive price; by the same token, the transportation of Belgian coal became a staple of the railway line’s revenue.
Those critics who had accused him of being interested only in a quick profit on railway issues now had to recant: like Salomon, James was building up a substantial portfolio of long-term industrial investments, at the core of which was his stake in the Nord. It was a profoundly important departure, not least because the London house chose not to do the same. This was the safer option in the short run, and undoubtedly reduced New Court’s exposure when the market for railway shares slumped in 1847-8; but in the long run it meant that only the Paris house would share in the immense capital gains realised by investors in industry during the second half of the century.
The Impact of Rail
The economic significance of railways can be quantified with some degree of precision. Between 1828 and 1848 around 1,250 miles of track were built in France, with peaks of investment in 1841, 1843 and 1846-7. In the first instance, the railways were financed by a multitude of small companies—between 1826 and 1838 around 500 sociétés en commandite were formed with nominal capital of 520 million francs. In 1845 alone, twenty-eight companies were set up with almost as much capital. The Rothschilds were without question the dominant force in this process. To be sure, their name figures in only four out of thirty-two concessions granted between 1835 and 1846. But of 225 million francs contributed by French banks to railway capital formation between 1835 and 1846, the Rothschilds accounted for 84.6 million—38 per cent of the total, and nearly a tenth of all capital subscribed.
This dominance was in many ways quite natural. Apart from the superior resources of de Rothschild Frères compared with its French rivals, James had the unique advantage of a direct familial link to the London market. This was crucial, for without British capital (and technology), the progress of French railway construction would without question have been slower. It has been roughly estimated that half the capital invested in French railways by 1847 was British, and only a quarter of French locomotives were domestically produced. The role of the state in the railway boom can also be quantified. From 1840, when the first state subsidies began to be paid out by the new Ministry of Public Works, until 1849, around 7.2 million francs were spent annually on railways by the state, between a fifth and a quarter of annual average gross investment. In aggregate terms, this would generally be considered by modern economic histori
ans as money well spent. Problematic though it is to calculate exactly the “social savings” generated by railways (in the form not only of more efficient internal and external communications but also of “backward linkages” to the coal, iron and steel industries), France would unquestionably have been worse off without them.
Yet contemporaries did not tend to assess the Rothschilds’ role in railways in such arid, macroeconomic terms. In general, they were more concerned with the distribution of the benefits generated by the railway boom than with their developmental impact. They were also more concerned with the social costs of railways than modern economic historians. This helps to explain why the cultural and political responses to the railways were in such stark contrast to their macroeconomic impact.
The House of Rothschild, Volume 1 Page 72
