The House of Rothschild

by Ferguson, Niall

  There is, however, a defect in this argument, namely that it is substantially contradicted by the available evidence of the Rothschild banks’ economic performance in this period. As table 3a shows, the 1860s and 1870s were two of the London house’s three most profitable decades for the entire period before 1914 (the 1880s was the other).

  Taking all five houses together, their average annual profits rose to unprecedented levels in the years 1852 to 1874 (see table 3b). The later periods 1874-1882 and 1898-1904 were more profitable, but compared with what had gone before, the “unification years” were golden ones.

  Of course, such averages may be misleading, as they lump together periods of war and peace. But even when annual figures are analysed more closely, the results are unexpected. Illustration 3.i shows that the years 18 5 9-6 1 -the years of the wars of Italian unification—were in fact the most profitable years in the history of the Naples house.

  Table 3a: Profits at N. M. Rothschild & Sons, 1830-1909 (decennial averages).

  Source: RAL, RFamFD/13F.

  Table 3b: Average annual profits of the combined Rothschild houses, 1815-1905 (£ thousand).

  Source: Appendix 2, table d.

  Admittedly, the figures for the London house lend more support to the theory that the wars of the period were detrimental to the Rothschilds. In order to make a comparison, illustration 3.ii compares annual profits at New Court with those of two leading City rivals, Barings and Schröders, in each case calculating profits as a percentage of capital at the end of the previous accounting year. This indicates quite strongly that the years 1863—7—the years of the wars of German unification—were bad years for the London house; its most profitable years were years of peace: 1858, 1862 and 1873. It was Barings (and to a lesser extent Schröders) who seemed to thrive in the war-torn mid-1860s—though for Barings these high profits probably had more to do with the return of peace in America than with war in Europe. Nevertheless, it would be absurd to argue that there was no connection between the overall profitability of the period as a whole for the Rothschilds and the recurrence of military conflict. For, as we shall see, it was primarily by financing the European states’ preparations for war and the international transfers which tended to follow the wars of the period that the Rothschilds were able to boost their profits in the years of peace. Far from damaging their position as the world’s leading multinational bank, the wars of the mid-nineteenth century generated unprecedented business for the Rothschilds, just as fifty years before it had been war which had set them on their way to fortune and notoriety.

  The wars of the 1850s and 1860s were fought by states which were, by and large, strapped for cash; this more than anything else explains the importance of the role played by bankers in the period—and the substantial profits they could make. Tax bases remained narrow. Indeed, it might be argued that they were especially restricted in this period, as more and more states followed the British example of trade liberalisation—Austria cutting tariffs and signing a trade agreement with the Prussian-led Zollverein in 1853, France signing a free trade treaty with Britain in 1860—for in the short term the effect of tariff reductions was to reduce revenue until increased trade volumes filled the gap. The Austrian state had the greatest difficulty in rationalising the tax system of its disparate territories and, despite heroic efforts by Bruck in the 1850s, at no point in the period was the budget balanced. The Prussian state, by contrast, had a relatively efficient system of raising revenue, with profitable state enterprises filling its coffers; but the political conflict between the Liberal-dominated parliament and an increasingly conservative monarch made finance almost as problematic. The question of who should determine the military budget—Landtag or crown?—was one of the two fundamental questions Bismarck was appointed to resolve. In addressing the other—who should rule Germany?—Bismarck had to increase the size of that budget substantially. The financial expedients he adopted to circumvent the Prussian parliament were as crucial to the achievement of German unification as the battles of Sadowa and Sedan.

  Even more than in the previous decade, politicians seeking to raise money by means other than taxation had the advantage of a rapidly growing and diversifying international banking system. If the 1850s had been the decade of the Credit Mobilier and similar investment banks, the 1860s saw the proliferation of more enduring institutions, joint-stock deposit banks. In Britain this had relatively limited significance for the Rothschilds, because the majority of deposit banks concentrated almost exclusively on the kind of domestic financial business which the London Rothschilds had always eschewed. Nevertheless, in the wake of the liberalisation of English company law in 1856 and 1862 there were a number of efforts to establish joint-stock banks with foreign ambitions, of which the Anglo-Austrian Bank—set up in January 1864 by George Grenfell Glyn—posed perhaps the most serious challenge to Rothschild interests. These were the kind of newcomers who, in the words of Lionel’s eldest son Natty, did “a great amount of rash business, so much so that Uncle Muffy [Mayer] would do very little or hardly anything with them.”

  In France James had to contend with four important new competitors established in this period: the Credit industriel et commercial (founded in 1859), the Société de depots et comptes courants (1863), the Société Générale (1864) and the Credit Lyonnais (which opened its Paris branch in 1865). In fact, not all of these were strictly speaking rivals. The Société Générale, for example, was established by a group including Talabot, Bartholony and Delahante, who were already linked to the Rothschilds through various railway ventures, and the new bank often acted in concert with the Rothschilds. Relations with the Credit Lyonnais were also cordial. If anything, the new banks posed a more serious threat to the Credit Mobilier, which was itself increasingly acting more like a deposit bank after the limited success of its ambitious investment schemes in the 1850s.1 Even so, their existence served to broaden the bases of French finance, and this could only imply a relative diminution of Rothschild power in Paris. James chose not to involve himself directly in the Société Générale, though he was explicitly invited to “put himself at its head”; plainly, his own desire to establish a joint-stock bank in Paris had waned since the days of the Réunion Financière. In Austria too there were new joint-stock establishments to rival the Rothschilds’ Creditanstalt. The idea of establishing an Austrian version of the Credit Foncier in Vienna was more or less dismissed by James and Anselm when it was first suggested in 1863. However, this left the field open to the Belgian financier Langrand-Dumonceau, who aimed to create an international network of mortgage banks and other institutions, and sought to cast himself as the Catholic alternative to the Jewish Rothschilds.

  All this gave the warring states more choice than had been the case in the past: if the Rothschilds refused to provide them with funds, they could turn to others. There was therefore no longer any real possibility of a Rothschild veto over bellicose policies (if such a thing had ever really existed). Governments might finally lose wars for want of funds, but that did not prevent them from starting them. If there are economic explanations for the defeats of Austria, the Confederacy and France, one is that they were less able to exploit the new sources of finance than Piedmont, the Union and Prussia; or rather that the financial markets were less willing to lend to them. For this was an era in which the increasing integration of the international monetary system gave bankers as a group an unprecedented power, even if no single bank could claim to be as powerful as the Rothschilds had been in the decades before 1848. The combination of free trade and the development of bimetallism as an international monetary system tended to reduce the politicians’ freedom of manoeuvre; small miscalculations—diplomatic as much as fiscal—could lead to swift punishment from investors, the most obvious manifestations of which were, of course, a fall in the price of a government’s bonds or a run on its currency, testing the monetary authority’s commitment to currency convertibility. Table 3c illustrates the financial gravity of the 1858-9 crisis
for Austrian bonds by comparing their performance with those of Britain and France. The fact that the bonds of one of the great powers could lose more than half their value as a direct result of a military defeat speaks for itself.

  3.i: The pfofits of the Naples house, 1849-1862 (ducats).

  3.ii: Pronfits as a percentage of capital at N.M. Rothschild & Sons, Barings and Schröders, 1850-1880.

  Table 3c: The financial impact of Italian unification.

  Sources: Spectator; Heyn, “Private banking and industrialisation,” pp. 358-72.

  From Turin to Zaragoza

  To the diplomats and politicians, the Rothschilds looked worried in 1859. In reality, they were calculating carefully to ensure that both sides in the conflict paid them for their financial services—a point which historians relying primarily on the diplomats’ letters and diaries have naturally overlooked. Thus, while he urged Napoleon to preserve peace, James had no hesitation in subscribing to the French 500 million franc loan of 1858, which was widely regarded as a “war loan.” At the same time, the London house took the lead in organising a £6 million loan to Austria in January 1859, designed to consolidate the fiscal and monetary stabilisation achieved by Bruck since his appointment as Finance Minister in 1855.2 Piedmont was more problematic. In the summer of 1858, after protracted negotiations, James had helped to organise a 45.4 million lire (nominal) Piedmontese loan for Cavour (sharing the bonds between the Paris house and the Turin National Bank) after the government had realised that a public subscription on the domestic market stood little chance of success.

  When Cavour sought to raise a further 30-35 million on the French capital market the following December, however, the situation had changed. He now tried to mend his broken bridges to the Pereires, threatening to deny James that “monopoly over our rentes which he has sought for so many years.” “If, having divorced Rothschild, we marry Messieurs Pereire,” mused Cavour, “I believe we shall make a happy couple together.” But this time the strategy of playing the two rivals off against one another failed: neither party was willing to accept the terms Cavour envisaged, and he was forced to retreat to a limited public subscription, issuing 1.5 million francs of rentes at a substantially lower price than he had proposed to sell them to the banks (79 compared with 86). This outcome reflected not so much a Rothschild refusal to finance war as a general reluctance, which was shared by the Credit Mobilier, to attempt any large scale bond issues in the wake of the poor performance of the Austrian loan. Yet it should be noted that, despite what James said to Hübner, the Rothschilds did participate in Cavour’s last pre-war bond issue, taking 1 million lire when he sold a further 4 million.

  Thus when war finally broke out at the end of April 1859—following a rash ultimatum issued by Austria in the mistaken belief that Russia and Prussia would take her side—the Rothschilds had played at least some role in the financial preparations of all three combatants. To say simply that they sought to prevent the war—to assume that its outbreak was therefore a blow to them—is to make the same mistake which Hübner and others made at the time: to judge James by his words rather than his deeds. He could not stop the war and he knew it; his aim was to minimise his losses on business already undertaken, and to seek to maximise his profits on whatever new business the war might generate. The classic illustration of this is the telegram sent from the London to the Paris house on April 30, 1859—the day Austrian troops crossed the border into Sardinia—which reads: “hostilities have commenced Austria wants a loan of 200,000,000 florins.”

  The war, in any case, stopped of its own accord. No sooner had Austria suffered what looked like a fatal blow at Solferino (June 24) than Napoleon hastily made terms, fearful—and understandably so—of what might follow Prussia’s mobilisation in the Rhineland. At Villafranca (July 12), he struck a compromise with Franz Joseph which seemed to leave Cavour high and dry: Austria retained Venetia and the fortresses of Lombardy, and secured a vague commitment that the other Italian rulers—now menaced by nationalist insurrection—would be restored. Only when it was evident that this was enough to avert a crisis on the Rhine could the conspiracy to unite Italy resume. By the end of December 1859 Napoleon seemed ready to ditch the Pope (whom French troops still notionally defended); by January 1860 Cavour was back in office; and on March 23 the two men updated the Plombières project. In return for Savoy and Nice, France would support a succession of plebiscites in the Italian states, the outcome of which was a foregone conclusion. Now two questions arose. Could Cavour control the revolution he had begun? Only when Garibaldi’s thousand had run out of steam in Naples and Cavour’s army had swept through the Papal states was it clear that he had succeeded, and that the new Italy would be a monarchy in the image of Piedmont. The other question was whether the great powers would intervene once again to preserve the Metternichian order, as they had done repeatedly in Italy. But Prussia would rescue Austria only in return for hegemony in Germany, which Austria refused; while Russia would break with France only in return for the revision of the 1856 Black Sea clauses, which Britain refused.

  It is not easy to say what the Rothschilds collectively thought of the new Kingdom of Italy, formally proclaimed in 1861. James had on two occasions hinted to Cavour that he favoured unification; while some younger members of the family in England were evidently caught up in the prevailing mood of Italophile enthusiasm: Anthony’s teenage daughters Constance and Annie “translated in one short half hour Garibaldi’s hymn of liberty into English poetry” in 1860. On the other hand, James was perturbed by the role played by Garibaldi. This was not to be wondered at, as his invasion of Naples in September 1860 put the Rothschild house there in an acutely difficult position. Adolph opted to flee with the Bourbon King Francis II to Gaeta, north of Naples, but it soon became obvious that neither James nor Anselm was prepared to grant the exiled monarch the loans (of 1.5 and 2 million francs respectively) which he requested. Adolph’s embarrassment may partly explain his sister Charlotte’s animus against Garibaldi, the “Italian rebel” whose “senseless reception” by the Whig elite when he visited England in 1864 she so deplored. Like her later denunciations of Bismarck in 1866, these comments also reveal how far the woman who had enthusiastically hailed the revolutions of 1848 had come to share her uncle James’s attitudes in the intervening years.

  James’s concept was authentically supranational; he was more or less deaf to the rhetoric of nationalism, which he saw as part of a regrettable tendency to democra tise international relations—hence his suspicion of Garibaldi, whose every move seemed to weaken the bourse. In his eyes, it was a sign of Napoleon III’s weakness that he had to take account of popular feeling within France in making his foreign policy; just as later it was a sign of Bismarck’s unreliability that he was prepared to exploit German nationalist sentiment for Prussian ends. There was too much of 1848 in the events of 1860 and 1866 for his taste. On the other hand, James was no inflexible reactionary, wedded to the treaties of 1815. He preferred to think of states as businesses—not such an unreasonable elision considering how many Italian politicians (Cavour and Bastogi, for example) had banking backgrounds. Thus, where historians (following contemporary intellectuals) have seen nation-building, James saw mergers and demergers, and this illuminates his response to Austria’s predicament after 1859. Piedmont’s hostile takeover of Italy made sense and had succeeded; Austria was as financially weak in the wake of defeat as before; therefore she should sell her rights over Venetia or Holstein to the powers which could afford them—Italy and Prussia. It faintly puzzled him that the Austrian Emperor preferred to suffer further military defeats rather than to commercialise Habsburg decline in this fashion. After all, it made no difference to James whether Venetia was governed from Vienna or Turin or Florence; he continued to think of the map of Europe in terms of railways rather than borders. Indeed, as Shaftesbury quite rightly divined, the most important consequence of the Italian war for the Rothschilds was that it transferred a substantial part of the territory o
ver which their Imperial Lombardo Venetian and Central Italian railway line ran from Austria to the new Kingdom of Italy. The crucial clauses of the Treaty of Zurich (November 1859) confirmed the validity of the existing concessions granted by Austria in Lombardy, substituting the new Italian state in the contracts where appropriate, and the same principle was applied to concessions granted by the old Italian states in July 1860. Formally, separate companies administered the tracks on either side of the Italian—Austrian border; in practice, the same shareholders still met in Paris to discuss the affairs of the whole north Italian network under James’s chairmanship.

  It is in this light that we should understand the Rothschild response to Italian unification. James’s initial reaction was to offer his services to vanquished and victors alike. As early as August 1859, the Austrian government was surprised to see the Paris house issuing bonds for Tuscany, though this was in fact the balance of an earlier transaction. In March the following year, James intimated through Anselm that he would be glad to help the Austrian Treasury too as it struggled to finance its deficit. Typically, he took advantage of Habsburg weakness to spell out the first of many conditions. He would subscribe up to 25 million of the planned 200 million gulden loan, provided no other foreign bank were involved. “The Minister has always wanted to avoid entrusting this operation to our houses,” he wrote menacingly, “and he has no idea how much he damages his own credit and jeopardises the success of the undertaking. The public has now grown accustomed to our houses patronising all Austrian [loans?], one way or another.” If the operation were not entrusted exclusively to the Rothschilds, the public would assume “that we are withdrawing and have lost our confidence in Austria’s finances, which will make a very bad impression.”