The House of Rothschild

by Ferguson, Niall

  In almost all respects, the Creditanstalt was modelled on the Credit Mobilier; if anything, its charter gave it even more latitude to invest in or lend money against every conceivable kind of asset—industrial shares, state bonds, land and even commodities—and to raise money in every conceivable way—issuing shares and bonds, accepting deposits. The key to the Rothschild revival in Vienna was thus the unabashed adoption of the methods of their arch-rivals.

  In the short run, the Creditanstalt secured the Rothschilds the dominant position they had sought in the developing Central European railway network. In 1856 the Pereires were once again defeated in the contest for the crucial Lombard and Central Italian lines, the defection to the Rothschild side of their former ally Galliera proving fatal to their efforts. It was now that the Rothschilds’ access to the London capital market also began to tell: when the new Imperial Lombardo Venetian and Central Italian Railway Company was launched, £1.2 million of its total £6 million shares were taken by an English group led by the London house, which also issued bonds for the company worth £3.1 million. The Paris house provided just under half the total funds required, the Creditanstalt the rest. This gave the Rothschilds and their associates control of more than 600 miles of Italian railways, of which 260 miles were already in operation.

  Of equal interest were the lines running westwards from Austria into Bavaria. The Frankfurt house had been involved in one of the earliest South German railways, the so-called Taunusbahn connecting Frankfurt to Wiesbaden, which in 1853 had been extended to Nassau. In 1855 it added to its railway interests by joining a consortium with Hirsch, d‘Eichthal, Bischoffsheim and others to finance the Bavarian Ostbahn, linking Nuremberg to Regensburg, Munich and Passau on the Austrian border. There were also moves to extend this line northwards through Schweinfurth to Bebra. It was therefore logical for the Rothschild group to secure the concession to link Vienna, Linz and Salzburg (the Kaiserin Elizabeth-West bahn): this time the Paris and Vienna houses provided 30 million of the 60 million gulden capital. The lines to the Habsburg east were more problematic. Here too the Pereires established an early lead, securing the eastward extension of the Vienna-Budapest line to Szeged and Timisoara (the Franz Joseph Orientbahn), which connected with the state-owned Südbahn. But once again lack of funds proved their undoing. In addition to acquiring the Hungarian Danube Steamship Company (Danagözhajózái Társaság), the Rothschild group struck south into present-day Slovenia and Croatia, acquiring (through Talabot) the line to Agram (Zagreb) and Sisak. There also appears to have been some co-operation with the Oppenheims, who acquired the concession to link Villach and Klagenfurt in Austria to Maribor in Slovenia.

  By August 1858 the thought of “une affaire gigantesque” linking these various strands to Vienna and Trieste by swallowing up both the Franz Joseph Orientbahn and the Südbahn was making James “tremble.” He did it nonetheless: a month later, for 100 million gulden, he and Talabot bought the Südbahn from the Austrian government, then merged it with the Lombard and the Franz Joseph lines to form a single railway giant: the South Austrian Lombardo Venetian and Central Italian railway company. There was also talk of building a rail link from Habsburg Transylva nia to Bucharest in the now autonomous principalities of Wallachia and Moldavia.15 It seemed only a matter of time before the network of lines in which the Rothschilds had an interest would stretch to Constantinople and the Black Sea coast.

  At this point a note of qualification needs to be sounded: from the moment the Creditanstalt was created and the process of railway mergers began, there was an inevitable dilution of Rothschild control. It cannot be assumed that all the steps described above were initiated or even wholly endorsed by James or Anselm. James patently had reservations about the project for a line to Bucharest, the purpose of which (to judge by the proposed route along the Habsburg frontier) was manifestly more military than commercial. In the summer of 1858, Anselm actually threatened to resign from the board of the Creditanstalt “because he [did] not approve [of] the way in which business is being conducted”—a threat he carried out the following year. This did not signify a lasting break between the bank and its founder, for his son Nathaniel took his place in 1861; but it suggests that we should beware of equating Rothschild and Creditanstalt, just as we need to be cautious in using phrases like “the Rothschild group” to describe the loose coalition of investors who took over the Austrian rail system—or, for that matter, the Rothschilds and their business associates in France.

  There was only one major European region which the Rothschilds relinquished to their rivals: Russia. In the wake of the Crimean War, tentative advances were made to the new Tsar’s government regarding the possibility of developing the embryonic rail network. However, James seems to have been content to let the Pereires take the initiative here, having received pessimistic reports of the likely profitability of new lines. This pessimism was vindicated when Barings sought to raise some £2.8 million in London for a new Grande Société des Chemins de Fers Russes to link Warsaw and St Petersburg. The issue was a flop and earned the firm yet more opprobrium from the Russophobe press. Curiously, James seems briefly to have revived the idea of establishing a Rothschild house in St Petersburg in 1858; but when he casually suggested that Alphonse or Gustave might spend “a few years” setting up “an establishment in Petersburg,” it was only because he felt that “it might contribute to the emancipation of the Jews”—not because he was attracted by business possibilities there.

  By the end of 1858, then, the challenge posed to the Rothschilds’ position not only within France, but right across the European continent, had been quashed. This had largely been possible because, while the Pereires’ resources remained fundamentally Parisian, the Rothschilds were an authentic multinational, with a business empire which expanded during the 1850s as far afield as the new goldfields of California and Australia. The Rothschilds’ superior resources made it possible for them to reimpose their dominance over European public finance in the period of the Crimean War. At the same time, their alliance with the Banque de France ensured that when the downturn came in 1856-7, the convertibility of the currency was maintained and reforms which might have eased the Pereires’ overstretched position were rejected. The contest for control of the Central and Southern European railway networks which followed was therefore an unequal one. Yet in order to secure the crucial railway lines linking Austria to Germany, Italy, Hungary and the Balkans, the Rothschilds had to imitate the Pereires by establishing their own versions of the Credit Mobilier in Turin and, more important, in Vienna. The increasing complexity of the Rothschild business empire makes it harder to consider it as a single, integrated entity after this period, though there is no question that James himself considered it still to be one. Before 1859 the Rothschilds had been fortunate in one signal respect: they had lent to the winning side in the Crimean War, not to the loser. The real test would come in the period 1859-70, when they would find themselves repeatedly on both sides of decisive conflicts which were to recast the map of Europe.

  THREE

  Nationalism and the Multinational (1859-1863)

  [T]he loss of Lombardy... is a loss of his rail roads and his dividends on his loan!

  THE EARL OF SHAFTESBURY, 1859

  On the evening of Thursday January 14, 1858, the Austrian ambassador in Paris was dining at Alphonse de Rothschild’s house in the rue Saint-Florentin when a clerk from the Rothschild office arrived with an urgent message. James, who was also present, left the room and returned almost at once—“quite pale,” according to Hübner—to inform the assembled company that Italian terrorists had made an attempt on the lives of Napoleon III and the Empress Eugénie. Did James discern that this would be the catalyst for yet another French intervention in Italian affairs, this time decisively on the side of “the revolution” and against Austria? It seems unlikely; it would have been more logical to expect the unscathed Emperor to react against the Italian nationalist movement—and that was the course he initially appea
red to take.

  Yet even as he acquiesced in the execution of his own would-be assassin, Felice Orsini, Napoleon chose to use him as the channel for a strange communication of sympathy with the nationalist cause: two letters, supposedly by Orsini, were made public before his execution, the first of which declared that “until Italy regains her independence, there can be no certainty of peace for Your Majesty or for Europe.” If he himself did not draft this call to arms, Napoleon undoubtedly intended to answer it. Almost immediately he made overtures to the Piedmontese government; and on July 20 met Cavour at Plombières to discuss nothing less than a redrawing of the map of Italy: in return for Savoy, Cavour suggested, Napoleon should help Piedmont to create a Kingdom of Upper Italy “from the Alps to the Adriatic,” which would then form an Italian federation with the Papal states, the Two Sicilies and the remaining states of central Italy. It was not, in fact, until January 1859 that France and Piedmont reached a formal agreement along these lines, symbolised by the marriage of Victor Emmanuel’s daughter Clotilde to Napoleon’s disreputable cousin Prince Jérôme (Nice was also sacrificed to France for the greater good). But the diplomatic manoeuvres of the intervening months, accompanied as they were by repeated attacks on Austria in the French press, gave James increasing cause for concern—or so it appeared.

  On December 5, James went to see Napoleon to complain about the effect on financial confidence of an article in the previous day’s Moniteur which, unbeknown to him, had been inspired by Jérôme. Napoleon, after an uncomfortable silence, assured him that he had “no intention of making changes in Italy”; despite his objections to Austrian policy, he “protested his pacific intentions.” A month later, however, the most Napoleon would say to Hübner was “that if relations [between France and Austria] were not as good as he desired, that would not affect in the slightest his sentiments towards his sovereign”; this did nothing to reassure James, who visited the ambassador the next day with the English ambassador Cowley in a state of “great alarm.” There was, Hübner reported, panic at the Paris bourse. So James went to see the Emperor once again, who now assured him that he had not intended to offend Hübner. James “returned quite satisfied, and caused the funds to rise on the bourse.” Yet just three days later the market slumped back on the announcement of the marriage between Jérôme and Clotilde; Napoleon himself admitted that, though France was behind him, he did not have the bourse on his side. When James went hunting with the Emperor on January 23, the latter pointedly complained about Austrian military reinforcements in Italy and warned that Austria “might attack Piedmont.” And so the guessing game continued: the following weekend, James asked whether he should undertake a loan to Austria. Napoleon did not object; but James assured Hübner in February that de Rothschild Frères had “refused decidedly to give money to the Piedmontese until all danger of war had disappeared,” despite a direct request from Jérôme. On March 10 there was another panic at the bourse amid rumours that an English attempt at mediation had failed; once again Hübner detected James’s alarm. But when Cavour himself came to Paris two weeks later, following Russian proposals for a congress and an Austrian demand for Piedmontese disarmament, it appeared that the crisis was once again abating. “So, M. le baron,” he was heard to ask James, “is it true that the bourse would rise by two francs the day I resign as Prime Minister?” “Oh, monsieur le comte,” replied James, “you underestimate yourself!” It was at around this time that James delivered himself of another bon mot, a barbed allusion to Napoleon’s famous speech at Bordeaux seven years before:The Emperor does not know France. Twenty years ago a war might have been proclaimed without causing any great perturbation. Hardly anybody but the bankers held stock exchange or commercial securities, but today everybody has his railway coupons or his three per cents. The Emperor was right when he said “The Empire meant peace,” but what he does not know is that the Empire is done for if we have a war.

  “Entente fous,” he concluded darkly, à la Nucingen, “bas de baix, bas d‘embire.”

  It was the same in London, where Disraeli—who owed his ministerial office to Palmerston’s resignation over the Orsini affair—was kept closely informed of developments by Lionel. On January 14, he wrote to Derby, relaying information which doubtless came from New Court:The alarm in the City is very great: “the whole of the Mediterranean trade is stopped.” The reduced value of securities is not less than 60 millions sterling, the greater part in France. Another such week will break the Paris bourse. “And all because one man chooses to disturb everything.” Only one feeling in the City—that the Government will have nothing to do with the affair. “Though the thing were settled in a few days, months will pass before confidence is again restored, and we were on the eve of immense prosperity.”

  Lionel himself called in his election address on April 16 for “a strong government,” whether Liberal or Tory, capable of responding to the “critical” events on the continent. This could be interpreted as an endorsement of the Palmerstonian line of strong support for Piedmont against Austria; but there were some Liberals who suspected Lionel of studied ambiguity, to conceal his own pro-Austrian sympathies. It was the first of many hints that, in the realm of international relations, the Rothschilds still had more in common with the Tories than with the Liberals. Shaftesbury (an opponent of emancipation, and therefore hardly unbiased) described Lionel on the eve of the battle of Magenta as “almost frantic, the loss of Lombardy to [that is, by] Austria is a loss of his rail roads and his dividends on his loan! ... Strange, fearful, humiliating, but so it is, the destinies of this nation are the sport of an infidel Jew!”

  The Finances of “Unification”

  Between 1859 and 1871 a succession of military conflicts in Europe and in the Americas confronted the Rothschilds with new and apparently insoluble dilemmas. Each was presented by one side as a war of unification—the unification of Italy, of the United States, of Germany—and so historians tend to regard their outcomes as in some sense predestined, if only by the “law” of political economies of scale. In reality, they were wars between multiple states, the outcomes of which were far from easy to foresee. Nationalism was not the decisive factor: the “unification” of Poland failed in 1863; the “unification” of Denmark failed the following year; the “unification” of the slave states the year after that; and the “unification” of Mexico in 1867. Nor was it unitary nation states which the politicians intended to create, but federations: Cavour originally planned a North Italian federation; in America, the war was a war about federalism; and in Germany Bismarck resolved in 1866 “to stick more to the confederation of states [model], while in practice giving it [the North German Bund and later the German Reich] the character of a federal state with elastic, inconspicuous but far-reaching forms of words.” Moreover, all the conflicts could have turned out differently if there had been intervention by one or both of the world’s two superpowers, Britain and Russia. As it happened, both elected to stay on the sidelines provided events in Europe had no implications for events in the Near East, to which they attached more significance; but this non-intervention was never wholly certain.

  The choices faced by the Rothschilds were indeed far from easy. When Piedmont went to war with French support against Austria, which side should the Rothschilds support, given their financial involvement with all three states? When the states of the Union and the states of the Confederacy went to war in America, whom should the Rothschilds support? Imports of Southern cotton and tobacco were as much a part of their transatlantic business as investment in the Northern states and railways. When Prussia and Austria fought Denmark, it was perhaps less problematic, though the ties between the British and Danish crowns at times discomfited the London Rothschilds. But when Prussia fought Austria and other members of the German Confederation, yet more conflicts of interest arose; as they did again when war broke out between Prussia and France in 1870.

  The traditional inference drawn from all this is that the wars of the 1860s must have cost the Ro
thschilds dear. To be sure, the diplomats’ diaries from the period are full of references to anxious Rothschilds blanching at this or that piece of bad news: the descriptions quoted above of their responses to the Italian war of 1859 are typical. James himself famously reiterated his family’s traditional aversion to war when he told Bleichröder in 1862 “that it is the principle of our house not to lend money for war; while it is not in our power to prevent the war, we at least want to retain the conviction that we have not contributed to it.” And it seems at first sight logical to infer from the repeated convulsions of the international financial markets that when war did come, it was damaging to the Rothschild balance sheets. Even more persuasive, the unifications of first Italy and then Germany seem to have sounded the death knell for two of the five Rothschild houses. The Naples house was wound up in 1863, just three years after Garibaldi’s redshirts took Sicily from the Bourbons, paving the way for the annexation of their ancient kingdom by the House of Savoy. The firm of M. A. von Rothschild & Söhne limped on for three decades after the Prussian annexation of Frankfurt; but its decline (at least in relative terms) seems to date from 1866, the moment at which Berlin forcibly staked its claim to be the new financial centre of Germany.