The House of Rothschild

by Ferguson, Niall

  Still, there were successes which kept alive the tradition of Rothschild influence at Vienna, albeit in shadowy form. In 1852 the London and Frankfurt house jointly issued Austrian 5 per cents worth £3.5 million for Baumgartner. In April 1854, faced with a run on the currency, the government turned once again to Anselm, who managed to persuade the other houses to participate in a further credit of 34 million gulden, though nearly half of this was provided by Fould.

  In short, the bond issues generated directly or indirectly by the Crimean War were largely handled by the Rothschilds. Table 2c (which only gives the figures for the London house) provides an overview.

  2c: Principal bond issues by N. M. Rothschild & Sons, 1850-1859.

  Source: Ayer, Century of finance, pp. 42-9

  Of all the great powers, Prussia played the smallest part in the Crimean crisis—to the point that the British delegation at the Paris Congress demanded her exclusion from the peace negotiations. However, Prussian expenditure was in fact rising rather rapidly in this period: in total it was around 45 per cent higher in 1857 than it had been ten years before. Though the Prussian state had more robust sources of revenue than the Austrian, it too still needed to borrow. Here too the Rothschilds were able to rebuild their financial influence. As early as 1851, James went in person to Berlin for talks with the Prussian Finance Minister Bodelschwingh about a new issue of 4 per cent bonds.

  Relations with Berlin in the early 1850s were to some extent disrupted by a silly quarrel precipitated by Bismarck over the German Confederation’s long-standing deposit (the “fortress money”) with the Frankfurt house. As the Prussian delegate to the Confederation, Bismarck saw it as his role to make life as difficult as possible for his Austrian opposite number Count Thun. A proposal by Thun that the Confederation should borrow 260,000 gulden from Amschel on the security of the fortress money, to pay for the now obsolescent German navy, gave him the perfect opportunity. The sum of money involved was insignificant: the real question was whether or not the restored Confederation could be made to work in the old, Austrian-led way. No sooner had Thun, as presiding delegate, secured approval for an initial advance (in January 1851), than Bismarck announced that Prussia regarded this as an illegitimate use of federal funds (despite the fact that the money was not actually being drawn from the fortress account). To his horror, Amschel found himself caught in a crossfire of peremptory instructions from Austrian and Prussian representatives.

  Thun threatened to take the Confederation’s business to another banker; Bismarck said he would transfer the Prussian delegation’s account to Bethmann. Despite all his attempts to ingratiate himself with Bismarck, and despite an explicit instruction from Bismarck’s deputy Wetzel not to pay the money, Amschel felt he had little alternative but to accede to Thun’s instructions, which were formally in order. A sense of the intemperate tone used by both sides in the ensuing row can be gained from Thun’s letter to Schwarzenberg of January 12, in which he denounced Prussia for havingrecourse to such a disgustingly contemptible means as to appeal to a Jew against the Diet. I feel that their action has made the position so acute that an understanding and reconciliation will no longer be possible. The Diet naturally could not accept the position, and if Rothschild had not agreed to pay the money, I could not have left the matter in suspense for another twenty-four hours, even if war would have been the inevitable result.

  “I confess,” he wrote to Bismarck himself, “that so long as I live I shall blush to think of it. The evening when Councillor Wetzel showed me the protest [to Rothschild], I could have cried like a child at the disgrace to our common fatherland.” Bismarck gave as good as he got, however:It is not our fault if, as you say, the Diet has been dragged in the mud though arguments with a Jew; it is the fault of those who have exploited the Diet’s business connection with a Jew in order, in an unconstitutional manner, to divert moneys that were in the Jew’s keeping from the object to which they had been assigned.

  As for Amschel, Bismarck portrayed him in his report to the Prussian Minister President Count von Manteuffel as so “anxious to please the Austrian Government in every possible way ... that he immediately informs the Austrian Delegate of every remittance that he receives for the Prussian Delegation to the Diet”:On one occasion Count Thun actually informed me that the House of Rothschild had been instructed to make such a payment before I had received any official intimation to that effect. The conduct of the House of Rothschild in connection with this protest has caused me to ignore all invitations from the Herr von Rothschild resident here, and in general to give him to understand that his action has been highly displeasing to the Prussian Government ... I cannot but regard it as highly desirable that the business relationship in which the Prussian Delegation to the Diet has hitherto stood with the House of Rothschild should be broken off, and that the business should be transferred to another firm here.

  Both Thun and Bismarck had in fact overplayed their hands. Thun was reprimanded by Schwarzenberg for summarily sacking a Prussian official at the Federal Treasury who had also protested at the proposed Rothschild loan; while in Berlin both Bodelschwingh and the President of the Seehandlung made it clear that Bethmann was no substitute for the Rothschilds, who not only held large deposits for the Seehandlung but had also taken a substantial share of the 1850 Prussian loan.

  These were arguments which Bismarck could understand: much as he enjoyed goading Thun, he always grasped the importance of economic self-interest in politics. Within months of the resolution of the naval dispute (it was agreed to sell the ships off), he had changed his tone completely, and was now speaking up on behalf of the Rothschilds against an Austrian-backed protest by Frankfurt Catholics against the laws of 1848 and 1849 which had conferred full citizenship rights on the town’s Jews.6 Now, when the Frankfurt house requested the title of “court banker” to the Prussian court—a request which Manteuffel was inclined to grant because “Rothschild will thus be to a certain extent diverted from his fervent efforts to improve the Vienna currency, and will be favourably inclined towards a railway loan we are thinking of raising”—Bismarck was in favour, playing down the row over the naval loan with characteristic cynicism:The Rothschilds have never been really guilty of anti-Prussian sympathies ; all that happened was that on the occasion of a dispute that occurred between ourselves and Austria ... they were more afraid of Austria than of us. Now, since the Rothschilds cannot properly be expected to show such courage as would lead the iustum ac tenacem propositi virum [man of firm and righteous will] to resist such ardorem civium prave iubentium [popular clamour for wrong] as Count Thun developed on that occasion, and as the other members of the family have since apologised for the attitude of Baron Amschel, whom they described as senile, I feel that, in view of the services which this financial power is able to render, their mistake on this occasion may be consigned to oblivion.

  Indeed, he went so far as to propose that Mayer Carl be granted a Prussian honour—the Red Eagle of the Third Class—on the ground that this would woo the Rothschilds away from Austria. This generated one of those Ruritanian debates so typical of Central European bureaucracies: would Rothschild goodwill be more forthcoming if the honour were withheld a little longer? Should the honour be redesigned so that the traditional crucifix motif was replaced by some other symbol more suitable for a Jew? But the bottom line was that the Prussians needed the Rothschilds: Manteuffel overruled Bodelschwingh and the title of court banker was granted, to the chagrin of Bethmann, who remained merely Prussian consul.

  This had the intended effect. Mayer Carl shortly afterwards hinted to Bismarck that “he would be exceedingly grateful if he could be shown a possibility of placing his money at 3 1/2 per cent.” When it seemed possible that Prussia too would be drawn into the war in the spring of 1854, Manteuffel sent his adviser Niebuhr to negotiate a 15 million thaler loan with the Rothschilds. It is true that this project fell through, despite prolonged negotiations at Heidelberg, where James and Nat travelled to join Mayer Carl and
Niebuhr, and again at Hanover in June. Bodelschwingh was also able to block the proposal that the interest of all extant Prussian loans be paid through the Frankfurt house. However, Mayer Carl returned to the field in 1856, placing 7 million thalers of a new Prussian loan. Moreover, Bismarck now endorsed the idea of entrusting Prussian interest payments in typically realist style: “We may, of course, assume that the bank has its own reasons for making such a proposal, for it is not going to undertake all the work involved out of devotion to Prussia. The fact, however, that its advantage is identical with ours does not seem to me to furnish any reason why we should ignore ours.” The request was finally granted in 1860, when Bodelschwingh left office. Bismarck defended Rothschild interests in other ways too. When Mayer Carl took exception to being awarded the Order of the Red Eagle—in its third- and then second-class versions, but with an oval design in place of the usual cross—Bismarck was quick to deny allegations that he had nevertheless presumed to wear the Christian version. In 1861 James too received a Prussian order.7

  By the end of the 1850s, then, the Rothschilds had reaffirmed their position as Europe’s pre-eminent lender to governments. Britain, France, Turkey, Austria and Prussia had all issued bonds through one or more of the Rothschild houses. Nor does the list end there. Other important clients of the period included Belgium (though here business had to be shared more than in the past with the new Banque Nationale),8 Hesse-Nassau, whose finances the Frankfurt house more or less monopolised,9 and the Papacy. Here the Rothschilds had made an early move, in the hope of securing concessions to the Roman Jews in return for financing the Pope’s restoration to the city. The negotiations proved much more difficult than had been anticipated, however, for the Vatican strenuously refused to allow the loan to be made formally conditional on even limited measures of Jewish emancipation, though the Pope did give James a separate guarantee that the ghetto would be abolished. 10 The financial terms proved difficult to agree too. While Carl was prepared to advance the Pope only 10 million francs before his return to Rome, the Pope demanded much more. Even Carl’s demand that the loan be secured by a mortgage on ecclesiastical lands was rejected.

  The final terms—which James himself had to hammer out—were exceptionally generous, given the Papal record of insolvency and instability. Altogether, 5 per cent bonds with a nominal value of 50 million francs were purchased in advance of the Pope’s return (April 1850), followed by two more instalments of 28 million francs. Further loans followed in 1853 (26 million francs of 8 per cent bonds at 95) and in August 1857, when an ambitious attempt was made to consolidate the Papal debt and to stabilise the Roman currency. New 5 per cent bonds were floated on the Paris market with a total value of 142.4 million francs—equivalent to around 40 per cent of the total Papal debt (around 350 million francs). The paradox of Rothschild relations with the Papacy was that substantial profits could be made as long as the Holy See did not reform its finances; but if it could not reform its finances, it was unlikely to reform its treatment of the Jews. Given the choice between boycotting the Vatican—thus losing their monopoly over the Pope’s external borrowing—and accepting defeat over the Jewish question, the Rothschilds opted for the latter.

  Besides Russia, which was avoided for obvious reasons, there were two exceptions to this rule of financial dominance. One was Spain, which issued a loan through Mires in 1856, though it is doubtful whether the Rothschilds had any desire to reenter the market for Spanish bonds which they had quit so long ago in preference for the system of advances against mercury. The more important exception—though it was only a partial exception—was the Kingdom of Piedmont-Sardinia.

  In 1849 James had managed to secure control of a substantial loan to Piedmont, using methods which dismayed the ambitious young financier and aspirant politician Cavour. Having trebled its national debt by its two abortive attempts to drive Austria out of Italy, Piedmont was a natural target for Rothschild financial penetration. Cavour could only watch in disgust as James returned in 1850 to negotiate another loan with the Piedmontese Finance Minister Constantino Nigra. Cavour’s critique of Nigra’s “deplorable” dependence on James should be read with some caution: the reality was that Piedmontese credit at this juncture was weak, not that James was deliberately driving down the price of its bonds. On the other hand, there is no doubt that James saw Piedmont rather as a farmer might regard an undernourished cow to be fattened and then milked. The 1850 loan, he gleefully reported to his nephews, was “the most beautiful deal I’ve ever made.” Apart from his 2.5 per cent commission, it was essentially an investment in the future: of the new issue of 5 per cent rentes totalling 120 million lire, James took 20 million à forfait (that is, bought them outright) at a price of 85, agreeing to sell a further 60 million in Paris on the government’s behalf and leaving the rest in Nigra’s hands. In fact, he quickly passed on more than half of the first 20 million to the local bankers in Turin, intending to sit on the rest and await the recovery in Piedmontese credit, which he confidently expected.

  Cavour’s chance soon came. In October 1850 he became Minister for Agriculture, Trade and Shipping, and made his first tentative attempt to challenge the nascent Rothschild monopoly two months later, when he got wind of a further issue of rentes (to reimburse the Turin central bank for its reparations payments to Austria). Eagerly, Cavour sought to find buyers for the new issue in Frankfurt and Vienna, urging his friend De La Rue to approach Goldschmidt and Sina. “It would delight me,” he declared, “to play a trick on that Jew who has us by the jugular.” With Cavour’s appointment as Finance Minister in April 1851 came the opportunity to attempt a complete break. The financial position was daunting: in addition to the 25 million lire owing to James for the various short-term advances with which he had been “drip-feeding” Nigra, he faced a budget deficit of some 20 million lire and other debts totalling 68 million. Cavour therefore had to move swiftly to break the Rothschild grip. Having raised 18 million lire on the Turin money market to tide him over, he ordered his ambassador in London to look for a new banker willing to fund a substantial new Piedmontese loan. “We must at all costs extricate ourselves from the painful position in which we are placed with regard to the House of Rothschild,” he insisted. “A loan concluded in England is the only means whereby we can regain our independence ... If we do not speedily succeed in concluding a loan with London, we shall find ourselves compelled again to pass through the Cau dine forks of the Rothschilds.” To assist the ambassador, Cavour despatched his old rival Count Revel. Revel found Baring reluctant, but the newer house of Hambro was willing to do the business, issuing £3.6 million of Piedmontese bonds at 85.

  There is no question that, as soon as James realised what was afoot, he did everything in his power to stymie the new loan. Cavour firmly believed that James was behind a negative report on Piedmontese finances in The Times; he was undoubtedly selling Piedmontese bonds with all his energy. Indeed, this was the occasion of one of the rather crude (but to contemporaries somehow devastating) word plays which were to become his trademark under the Second Empire: “L‘emprunt est ouvert, mais non couvert” (literally “The loan has opened, but it is not subscribed”). James came close to winning: the bonds went to a discount in Paris and Cavour had some anxious hours. Yet in the end it was beyond him to buck the market indefinitely, especially as he himself had been responsible for making the market for Piedmontese bonds in the first place. “We can do what we like,” he told his nephews, “but we cannot stop the Piedmontese from rising, as it was we who issued them at 85.” Nor was James so economically irrational as to carry on selling when “the world” was set on a rise. By the end of 1851, his own holding of Piedmontese bonds was not much changed at around a million francs: Cavour was wrong when he claimed that James had “sold the lot.”

  Yet it had never been Cavour’s intention “immediately to break with Rothschild, but merely to show him that we can do without him.” For his part, James could not help but admire Cavour; the man, as he put it in one of h
is very rare compliments to a politician, had “character.” Cavour underlined his point in 1852, when Alphonse was sent to Turin offering to take the remainder of Nigra’s 1850 rentes (some 40 million lire) at 92. As soon as the Piedmontese parliament took his hint that he had no need of the money and rejected the offer, he was able politely to turn Alphonse away. But he fully expected to have to turn to the Rothschilds again in the near future; all he had really been trying to achieve was an improvement in his bargaining position. Thus, when James returned in January 1853 to repeat his offer of the previous year, Cavour—now Prime Minister—was able to bid him up from an initial offer of 88 for the 40 million to 94.5. When Cavour then raised the subject of yet another loan, he made simultaneous approaches to Hambro, to Fould in Paris and to James, who despatched Alphonse once again to Turin. For Cavour, this competition was invaluable: the escalating Crimean crisis was driving the price of all bonds down, Piedmontese included: Hambros could offer no more than 65 for the new 3 per cent bonds, Fould would go little higher—but Alphonse, determined to win back his father’s pet client, offered 70 and a commission of 2 per cent. As Cavour said, “the rivalry of Fould was worth several millions,” and James subsequently grumbled about the “considerable loss” he had incurred. At the same time, Cavour needed James to help pay the interest on the Hambro loan during the early phase of the Crimean crisis, until he was bailed out by the British government subsidy paid when Piedmont joined in the war against Russia.