The House of Rothschild

by Ferguson, Niall

  For days James prevaricated, racked with doubts and gout. In Vienna the delay even became a matter for ribald public comment. Evelina reported that when her father-in-law Anselm went to the theatre “to see a new piece, in which the principal actor is made to say: ‘Wir brauchen Geld, Geld, Geld’ ... the whole audience turned round to look at Uncle A. who felt uncomfortable in consequence of being stared at by the modern argus, the public.”

  Yet Bismarck had not achieved his object; for on October 18 James and his London nephews resolved to go ahead. Two days later, terms seemed to have been agreed for an advance of 49 million gulden or a loan of 90 to 150 million at a price of 68, with a subsidiary deal freeing the Lombard line of the projected tax for twenty years, in return for which James renounced the government guarantee on the bonds of the Trieste and Venice rail networks. The Rothschilds’ private correspondence shows that the railway tax-break—the value of which Alphonse put at 1.4 million gulden a year and Mühlinen at a total of 28 million—was in fact the crucial issue, so much so that James now made it the sine qua non not just of a loan but also of an advance. The Lombard concession had become, as Alphonse said, “the capital point”—“le tout qui nous intéresse sérieusement.” What he and his father did not realise was that by raising the question of Holstein and Venetia they had unwittingly overstepped the mark in the eyes of the Austrian government. By the time Alphonse woke up to the fact that Vienna was becoming, as he put it, “fidgety,” it was too late. At the suggestion of the Vienna banker Samuel Haber, Mühlinen and Becke had established contact with a group of Paris banks including Hottinguer, Mallet and Fould, led by the Credit Foncier. Where James had been making (as Mühlinen put it) “unacceptable propositions” and demanding “real concessions—tax exemption for the Lombard,” the rival banks offered “much more than Rothschild and without asking anything in return.” “It may be objected,” wrote Mühlinen frankly, “that this latter consortium does not have the prestige of Rothschild-Baring. I admit it, and it is for that reason that for seven weeks we have done the impossible at the price of listening to some pretty hard things from the lips of Baron James in order to go along with him.” On November 14 he and Becke concluded with the Credit Foncier consortium. Thus, far from acting in concert with Bismarck to sabotage the Austrian loan, James had merely overplayed his hand. When he and Alphonse realised that the Credit Foncier had outbid them, they were astounded: it struck Alphonse as “so fantastic that I can’t believe it; those gentlemen must have famous chutzpah to risk such a difficult affair.” James was furious with the “Austrian scoundrels,” and accused Becke of having been bribed; Anselm and Ferdinand were “very much disgusted with Mr de Becke’s behaviour,” which they considered “both ungentlemanly and unbusinesslike.” Indeed, Anselm went so far as to threaten to resign from the Reichsrat, though James advised against this (“as the Austrians won’t reappoint a Jew in a hurry”).

  The question remains whether it was his insistence on tax-breaks for the Lombard line, as the Austrians claimed, which had proved the fatal stumbling block. On reflection, James concluded that the Austrians were merely using his Lombard demands as a pretext for what was essentially a political decision in favour of a purely French loan. There are reasons to think he was right about this. For the terms of the Credit Foncier loan were in fact markedly worse than the package James had envisaged: the rival consortium bought bonds with a face value of around 150 million gulden at an effective price of 61.25 so that, after commissions, the Austrian government received just 90 million gulden. As James said, this was usurious when the market quotation for Austrian bonds was 70. By comparison, the Rothschild price for the loan had been a modest 68 or, if one factors in the cost of the Lombard concession, 67.1. It seems more plausible that it was James’s allusion to the possible sale of Holstein and Venetia which persuaded the Austrian negotiators to look elsewhere. When Franz Joseph was informed by his officials in Paris that James regarded the proposed loan as conditional on the recognition of Italy as a kingdom, he scrawled in the margin: “There can be no talk of that.” The fact that Lord John Russell also endorsed the idea of selling Venetia may have added as much to their suspicions as James’s meeting with Bismarck. A loan issued by a purely French consortium with the approval of Napoleon and Drouyn seemed to have fewer strings attached; indeed, it seemed to raise the possibility of luring France into a defensive alliance against Prussia and Italy. When Goldschmidt heard that Becke had accepted the Credit Foncier’s offer, he concluded that “in the Holstein purchase business there is absolutely nothing to be done.”

  In the final analysis, therefore, it was the fundamental Austrian refusal to sell either Holstein or Venetia which was the key—not Bismarck’s intrigues, nor James’s private railway demands. This intransigence is usually blamed on Franz Joseph’s antiquated sense of Habsburg honour (even he himself later called Austrian policy “very honourable, but very stupid”). Yet it is worth asking how stupid it was to reject the various offers made for Holstein and Venice. If 49 million gulden was needed just to satisfy Austria’s creditors in the period to February 1866, the 40 million gulden being offered by Prussia for Holstein perhaps was “too little.” It was not unreasonable for Goldschmidt to suggest that Prussia sugar the pill with either a piece of Silesia (Bismarck himself contemplated the county of Glatz) or the little enclave of Hohenzollern in Württemberg, the ancestral home of the Prussian royal family. (Had not Victor Emmanuel sacrificed his ancestral home of Savoy to France?) Perhaps too Mensdorff was right when he argued that to sell parts of a multinational empire might set a worse precedent than to risk losing them by force of arms. At least in a war there was a chance of victory, however slender.

  The Road to Königgrätz

  We are never more angry with others than when we know we are at fault ourselves. James knew that in raising on Bismarck’s behalf the questions of Holstein and Venetia he had unwittingly scuppered what would have been a useful deal for the Lombard line. Yet, as he and his relatives went back to the drawing board to devise what was to prove a costly and difficult new rights issue for their railway, they did not blame themselves. Nor did they blame Austria, as they might well have. Indeed, negotiations for new advances to Vienna began as early as February 1, 1866. Instead, and with unusual vehemence, they blamed Prussia. For the sake of form, James had sent Bismarck a case of burgundy in November as a memento of his visit to Ferrières; but the Rothschilds’ private view of the Prussian Minister President would take years to recover from the failure of the Austrian loan. On January 16, 1866, Mayer Carl wrote an angry letter from Frankfurt which was little short of a call to arms:The state of things in this part of the world becomes daily more complicated and the behaviour of Prussia assumes a character unheard of in the annals of history and everybody is of [the] opinion that the Prussians deserve a good lesson for the scandalous manner in which she [sic] trifles with the whole of Germany: her way of acting is quite unprecedented & it is useless to form an opinion of what may or will happen but the fact is that Germany at large is opposed to the policy of a Government whose ambitious views must be put an end to.

  It was a sentiment echoed by Lionel’s youngest son Leo in Cambridge: “It seems so brutal of the Prussians that they cannot be satisfied and that they are still anxious to ruin all the minor powers.” In Vienna Goldschmidt too was becoming impatient with Bismarck’s belligerence. James’s mood was not improved when the Prussian ambassador Goltz candidly—and surely without his government’s authorisation —warned him that war with Austria was likely because “Austria has given Prussia a negative answer about Holstein, that she absolutely refuses to sell her rights [there].” For Alphonse, Prussia was the “spectre at the feast”: he saw no hope of the financial markets stabilising so long as Bismarck, with his “policy of annexation,” remained in power. All this helps explain why James was so hostile to the proposition—rejected on March 14 after an approach from Bleichröder’s associate Lehmann and a two hour interview with Goltz—that the Ro
thschilds form a syndicate to buy the government’s remaining 80,000 Cologne-Minden shares for 20 million thalers.

  This refusal is often cited as evidence of a general Rothschild policy “not to lend money for war”; in this case, myth and reality more or less correspond. That famous phrase is in fact taken from a letter of 1862; but James said more or less the same on this occasion. As he told his nephews in London: “I refused Bleichröder’s associate, on the grounds that we cannot give money to make war. Only when we know for sure that the two governments have come to an agreement will we see what is to be done.” James believed with good reason that Bismarck’s position had been seriously weakened by the Landtag commission’s ruling that the earlier Cologne-Minden deal was illegal. Now, he reasoned, Prussia was in real financial difficulties. Had Bismarck wanted the 20 million thalers to make a new offer for Holstein, then James might possibly have been interested; but Goltz had tipped him off that Bismarck now intended a violent solution to the German question. Even Bleichröder admitted this: the most he could say was that “if it had to happen, a rupture [between Austria and Prussia] would not break out before the month of April or May.” Under the circumstances, to have bought the Cologne-Minden shares would not only have defied the explicit will of the Landtag—and we should not underestimate the Rothschilds’ regard for parliamentary sanctions—but would also have amounted to funding Prussian war preparations. Small wonder Bismarck scolded Goltz in a letter of March 13 for showing his hand at such a delicate moment:We wish to postpone making full preparations for war in order first to carry though the financial operations which would necessarily become more difficult when the situation becomes more tense owing to an increase of armaments. In this connection, I would mention in confidence that we had entered preliminary negotiations with the House of Rothschild ... It is in the nature of things that the House should not welcome the possibility of war, and should do everything possible to prevent war from breaking out; I am able more particularly to assure Your Excellency that Baron Rothschild informed our agent [Bleichröder] that a few weeks ago he would not have been averse from carrying through a transaction with Prussia, and that he would perhaps have done so with real pleasure, but that the altered circumstances, and especially a conversation which he had had with Your Excellency, now prevented him from doing so. I feel I ought to mention this fact, since it shows how careful one must be in dealing with Rothschild.

  Anthony, who happened to be in Paris, was dismissive of the Prussian proposal: Prussia might be “very anxious” for war, but “their money is as bad as ever ... the whole country is against it and the Prussian Minister ... has been for the last 2 hours asking the Baron . . . to advance to the gov. for 20 Million of Thalers upon a lot of Railroad Rubbish.” On March 17 Goltz informed the King bluntly “that the House of Rothschild is determined to bring its whole influence to bear to prevent Prussia from going to war.” As the Crown Prince put it, “Rothschild is moving heaven and earth [against] Bismarck.” On this occasion, the cartoonists were right: on May 20 the Munich Punsch ran a cartoon on its cover entitled “Rothschild’s Readiness for War” which portrayed James clinging on to his money-bags and declaring: “I’m not giving anything! I don’t have any money! The only pleasure I get is neutrality. And you surely won’t deny me one pleasure?” (see illustration 4.ii).

  We know that in the end James failed to stop the war; but that should not blind us to the vulnerability of Bismarck’s position at this juncture. When the Prussian ministers met in Berlin on the same day Goltz wrote his letter, their options were alarmingly narrow, as the terse minutes of the meeting indicate: “The procurement of money creates difficulties. The placing of the Cologne-Minden shares can be done only at a loss. Sale of Saarbrücken suggested. Third possibility is to call the Diet and get a loan, but then great German programme and a great German parliament.” The last option seemed to imply capitulation to the Liberals. This was the time of the so-called “Coburg cabal”—a conspiracy to secure Bismarck’s dismissal which supposedly involved Queen Victoria, Russell, Disraeli and the Rothschilds. On March 20 James eagerly relayed rumours from Berlin “that Bismarck is leaving the ministry and peace will be preserved.” Two days later Disraeli told Mayer that Bismarck “ought to be hung!” When Gustave heard that “Bismarck, to extricate himself ... considers convoking an all-German Parliament” it struck him as “the limit” and “unbelievable”—further proof of his desperation. The Prussian premier, wrote Mayer Carl, had “got himself into a terrible mess and thinks that the sword is likely to bring everything round.” As this suggests, the Rothschilds continued to worry that internal pressure might merely increase Bismarck’s desire for war—this was the period when they abused him most vitriolically as a “madcap” and “foaming like a wild boar.“ In James’s words, ”one never knows what he is about to do and if he can only get the King’s support he will declare war as if it were nothing.“

  4.ii: M. E. Schleich, Rothschild’s Kriegsbereitschaft, Ein humoristisches Originalblatt, Münchener Punsch, 19, Nr. 20 (May 20, 1866).

  Even if Bismarck did win the King’s backing, however, the question remained how was he to pay for such a war. Bodelschwingh was down to his last 40 million thalers; and on May 2 the Cabinet ruled out the sale of the Saar mines. Under the circumstances, it did not seem unreasonable to hope for Bismarck’s fall. The disarmament proposals put forward by Austria on April 7 merely added to his difficulties: two weeks later, he had to accept them. As for his decision to don the mantle of revolutionary nationalism by proposing a parliament for the Confederation elected by universal suffrage, this seemed to run counter to everything Bismarck had stood for since 1848. As late as April 27, Bleichröder still did not rule out the possibility that Prussia would give in and Bismarck would resign. The second and third weeks of May saw the Prussian government in disarray: an assassination attempt against Bismarck, the dissolution of the Landtag, crisis on the Berlin bourse, and Roon’s calculation that the cost of mobilising nine army corps would be 24 million thalers with a further 6 million per month as long as it remained on a war footing. On May 18 emergency credit institutes had to be set up and currency convertibility suspended; three days later, when the Seehandlung attempted to sell treasury bills in Paris, James once again intimated his opposition to Goltz. As late as June 9—fully a week after Bodelschwingh’s successor had failed to sell the Cologne-Minden shares to a consortium led by Bleichröder and Oppenheim—Lehmann was sent back to Paris “to ask us if we want to make an advance of gold bars or silver to the Bank, either on Cologne-Minden shares or on drafts on the Seehandlung.” Once again he was turned away. As Alphonse put it, the deal would have yielded “a pretty profit”; but James was “little disposed at this moment” to oblige a government which Lehmann himself portrayed as tottering.

  Not content with denying Bismarck money, James also sought to deny him something he believed Prussia needed just as much: an alliance with Italy. The Italian position was in many ways similar to both the Prussian and Austrian. Rothschild confidence in Italy’s financial stability had declined sharply since the 1850s and James was still selling Italian bonds in August 1865. He and his sons were genuinely shocked when the Italian government announced a deficit of 280 million lire in September 1865. Yet there were good reasons for continuing to do business with Italy. Firstly, if the transfer of Venetia from Austria to Italy was to be achieved peacefully, Italy would require financial assistance to make the purchase. Secondly, and perhaps more important, Italy now controlled a large area of territory covered by the Lombard company’s rail network. The year 1866 therefore saw a second opportunity to secure concessions for the company in return for a loan to the government. The danger was that Italy, like Prussia, might use any money made available to her for war rather than a peaceful purchase of Venetia. When the Italian government approached James for short-term advances totalling 35 million lire in September 1865, he was therefore not averse to obliging; but he continued to watch carefully for evidence of Italian d
isarmament before going any further.

  News of a 150 million lire bond issue in early 1866 at first seemed of minimal significance, as the government initially asked Landau to take just 14 million. In March, however, the government made a new approach, offering the Lombard company a new and more generous contract in return for an advance of 125 million lire. This seemed to give the Rothschilds the leverage they needed, though the announcement shortly afterwards of a tax on government bonds suggests that the Italians intended to use sticks as well as carrots to secure Rothschild co-operation. If the Italians could only be persuaded to adopt a peaceful policy—and ideally to use the proceeds of a loan to purchase Venetia from Austria—then Bismarck would be diplomatically isolated.7 Nigra, the Italian ambassador, alarmed James by telling him that Italy would join Prussia in the event of a war with Austria. However, on March 22 the Italian government unexpectedly invited Landau, the Rothschild agent, to act as an intermediary “to relay propositions for [the purchase of] Venetia and thus to avoid war.” Alphonse’s assessment of this proposition is revealing:It is to be feared that such an initiative on our part might be very ill received and might make our position in Vienna very delicate. We have already made insinuations in this regard on several occasions and we have been given to understand that we should never broach the subject, which awakens all H.M.’s sense of amour propre. Perhaps in the critical circumstances in which Austria finds itself, however, the G[overnmen]t [may?] modify its ideas ... The one thing which can be inferred from the Italian G[overnmen]t’s démarche is that it has decided to take part in the war if it happens but has not yet signed a treaty with Prussia.