The House of Rothschild

by Ferguson, Niall

  Alphonse rightly discerned that if Napoleon could not make up his mind to join the war on the Austrian side—or lacked the military readiness to do so—he was in no position to demand “compensation” from a victorious Prussia. In the Rothschilds’ eyes, the various French bids for territory in Germany, Belgium or Luxembourg were bound to come to nothing; the most that France could do was to persuade the defeated Italians to accept Venetia without demanding anything else. Itching as he was for “Prussia the aggressive to receive a hard lesson at the hands of imperial France,” James’s verdict was damning: “If I were Emperor, I would be ashamed of myself.” For him and his sons, a French war against Prussia had merely been postponed: in the end, Napoleon would be “forced to go to war with Prussia, as these people think Europe belongs to them.” Any peace between France and Prussia would only be “bastard peace.”

  The English Rothschilds too were dismayed by the Prussian victory. To Charlotte, the war of 1866 was not about the unification of Germany, but its division—indeed its defeat—by Prussia. On July 10 she even predicted that Prussian ambition would ultimately necessitate British intervention:The Prussians ... are not at all likely to be moderate in the hour of their triumph. In that event, namely if they wish to swallow up all Protestant Germany, France, perhaps without drawing her mighty sword, will ask for the Rhenish and catholic provinces of the new northern Empire, and without wishing to interfere, and quite in spite of Lord Derby’s unstatesmanlike speech to the effect that the great continental events cannot possibly interest us, we may be drawn into an armed intervention, to prevent the civilized world from being absolutely divided between France and Prussia.

  Of course, as Alphonse said, Napoleon might have acted more decisively if there had been such English support for a French intervention to check Prussia. But it was not to be. Bismarck’s terms—which gave Prussia military control of Germany north of the Main but guaranteed an “international independent existence” for the South German states—were seen as moderate enough in London to preclude a concerted intervention. As Charlotte remarked, in response to a plea from Louise “to ask Mr. Delane for a powerful article in the Times”: “[W]hat does Count Bismarck care for an article in our English papers[?]—He has vanquished the world, even now he would not have consented to peace, had he not obtained for himself an empire quite as large as he can possibly wish for and rule over without fear of revolution and aggression.” The most that Charlotte could do was to join “a committee of ladies, who are willing to collect subscriptions for the poor Austrian soldiers.”

  Yet, for all this, the political significance of Königgrätz outweighed its financial significance; if anything, the swift end to the conflict permitted a general financial recovery, abruptly ending the tight monetary conditions of the preceding months. With this in mind, we should not exaggerate the financial costs of war to the Rothschilds. As we have seen, a sense of the impending storm had prompted James to cut his losses and minimise his exposure weeks before the fighting began. As early as April 9, he gave his London nephews some advice which deserves to be as famous as his more pacific axioms. He told them to sell whatever securities they could, even at a loss. “I am very much afraid of war,” he wrote, “and would rather make a sacrifice in order to keep and maintain my holdings of cash because in a war there is money to be made from having money.” A week before, James had already instructed Bleichröder to start selling Rothschild securities in Berlin as soon as he believed war was certain (though he was angry when Bleichröder started to do so prematurely). On April 10 he was able to report to London that he had “paid off all his Lombard bonds” and would “watch any war with equanimity.” “Now my good nephews,” he wrote, contemplating the “full-scale panic” on the Paris bourse, “the world will not come to an end, and if war does come one will find other ways of making money.” In the final analysis, that was James’s first principle: not peace at any price, but profits under any circumstances, peace or no peace.

  James’s assessment as the war began was the product of a lifetime’s experience of financing war and peace: “In the long run, all securities must fall since everyone will need loans. Italy wants one and no power can sustain war for two months. Perhaps it will therefore be quite short.” His son Alphonse could also see the strictly economic benefits of war, even as he deplored its political implications. As he reminded his cousins in London, receipts on the Lombard line had never been better than during the war of 1859-60 and were likely to soar again as the Austrian government paid the company to transport its troops to Italy. This ability to distinguish between politics and private interest was a family characteristic. Chided before the war began for being “too devoted an Austrian,” Anselm retorted that he was “far more a devoted pro-Rothschild.”

  Moreover, whatever their emotional engagement, the extent of the Rothschilds’ financial commitments to the defeated states was in reality limited. Throughout June they assisted the government in Vienna with small advances and sales of “Anglo-Austrian” bonds in Frankfurt; but that was all. Mayer Carl systematically spurned requests for loans from the other German states which sided with Austria. He refused a 3 million gulden loan requested by Baden in April; a 12 million gulden loan requested by Bavaria in May; and a plea for funds of any sort from Württemberg on June 17—despite the fact that only four months before he had been vying with Erlanger to secure a loan to Stuttgart. Only after much deliberation did the Paris and Frankfurt houses agree to advance the Kingdom a paltry 4 million gulden—and that for just six months.

  To be sure, James continued to ignore all Bleichröder’s arguments in favour of lending to the victor, Prussia: in August he “turned down flat” a request from the Prussian ambassador for 20 million francs. But in the case of Italy James hedged. Under the terms of long-standing agreements, the Rothschilds were supposed to pay the interest on Italian rentes in Paris as well as to pay the government sums relating to the Lombard line; because of the war they seem to have delayed doing either, despite increasingly urgent requests from Florence. On the other hand, James refused to sell his substantial holdings of Italian rentes until late in the day, rightly assuming that Italy would be on the winning side, but failing to see that she might nevertheless be defeated herself. Ironically, then, probably the biggest losses suffered by the French house as a result of the war were on Italian rentes. It was scant consolation to able to exert a measure of financial leverage over Italy during the armistice and peace negotiations, though Alphonse’s terse formulation on July 8 was a classic of its kind: “Certainly as long as peace is not concluded, Italy cannot count on us for money; once peace is signed, then we shall see.” Once again, the Rothschild position was: “One cannot give money to continue the war.” The trouble was, as Alphonse and his father knew only too well, that the most profitable business would be the one concluded before peace was agreed, as after that Italian rentes would rally James was “tempted” when the Italian government offered to accept advance payment of 100 million lire of future payments from the Lombard line at a discount of as much as 40 per cent. But (unusually) he elected not to act without Napoleon’s express approval, and deferred to his wish that nothing be done before an armistice had been agreed, cancelling Landau’s premature offer to advance 25 million lire against rentes. The Italian government responded by repeating its demands not only for Venetia but also for an indemnity and the Tyrol, and turning successfully to other banks (the Credit Foncier and the Sterns). It was therefore diplomatic rather than financial pressure which induced them to rest content with Venetia—and indeed to pay Austria 86 million francs for it.

  Partly thanks to James, Bismarck had fought the war without the means to pay for it. As he later said, he felt on the eve of Königgrätz “that he was playing a game of cards with a million dollar stake that he did not really possess.” This was only too true, and had he lost he really would have seemed “the greatest scoundrel in the world.” Victory, however, promised to solve the fundamental financial crisis of the Pru
ssian state which had brought Bismarck to power in the first place and which had bedevilled the preceding four years. For convention had it that the victor in war could levy indemnities on the vanquished.

  The vanquished included, of course, the Liberal enemy within the Prussian Landtag. Bismarck’s espousal of the kleindeutsch programme split the Liberals; victory over Austria isolated those “Progressives”—who appeared to care more about parliamentary sovereignty than national unity. Their defeat in the elections held on the same day as Königgrätz was almost as important to Bismarck as his triumph over Austria on the battlefield. Yet in one fundamental respect—which is sometimes overlooked—Bismarck too had to compromise. When von der Heydt replaced Bodelschwingh as Finance Minister on the eve of war, he insisted that Bismarck acknowledge that the preceding years’ financial policy had been “without legal basis” by seeking an indemnity act from the Landtag after the war. (An erstwhile Liberal and businessman, von der Heydt himself had resigned as Finance Minister in 1862 rather than breach the constitution.) In agreeing to this, Bismarck effectively abandoned his original commitment to William I that he would assert the monarch’s unqualified control over the military budget; for, although the military budget of the North German Confederation and later the Reich was never voted on annually, it was still voted on periodically. It was this “resolution of the internal question” (heralded by Bleichröder in his letters to Paris and voted through by an overwhelming majority in September) which allowed Prussia to return to financial normality.

  However, Bismarck never intended that Prussian taxpayers alone should pay the costs of victory. From the outset, he fought the war against the other German states in an almost piratical spirit. James heard as early as June 28 that Bismarck had “sent all his generals after [the King of Hanover] in order nicely to take his money, his person and his soldiers.” Perhaps the most revolutionary act of Bismarck’s entire career was the annexation of Hanover and the deposition of its ancient ruling house; his motivation was at least in part financial. The Kingdom of Saxony was left intact, but Bismarck still imposed an occupation levy of 10,000 thalers per day (using the money to fund a hastily formed Hungarian legion) and then a final indemnity of 10 million. So long as Bismarck was only expropriating princes, of course, the Rothschilds could afford to look on with equanimity. Indeed, they found themselves reminded of the distant days when the Elector of Hesse-Kassel had been forced to hide his considerable private fortune from the armies of Napoleon I. When the Saxon minister Vizthum was despatched to Munich to arrange the transfer to neutral territory of his government’s gold and silver reserve (which had hastily been moved there from Dresden), he decided to send the silver—around a million thalers of silver coins which had been packed into bottles—to the Paris Rothschilds. James wanted to convert the money into francs when it arrived in Paris—in return for a commission. But Vizthum was able to remind him of the legend of the Elector’s treasure, which the Rothschilds themselves had done so much to propagate: “The King of Saxony is showing similar confidence in you and I am sure that you will not disappoint him.” Not that James was outwitted: when Prussia fixed the Saxon indemnity at 10 million thalers, he urged Bleichröder to secure a share of the loan required by the Dresden government to pay the money.

  In the same way, the 30 million gulden “war contribution” levied on Austria was advanced by a consortium of thirty banks, including the Vienna house and the Creditanstalt; and there was soon talk of further loans and advances—though, as Alphonse observed, it remained unclear for some time whether Austria would “recover or die.” Württemberg too had to issue a 14 million gulden loan to pay her indemnity; this time the Frankfurt, London and Paris houses took the lion’s share (10 million), though they had to squeeze their own profit margins to outbid the ubiquitous Erlanger. As in the past, post-war indemnity transfers were a lucrative source of business, even if the profits had to be shared with others. Typically, when the Duke of Hesse-Nassau received 8.8 million thalers in compensation from Prussia, Mayer Carl was on hand to advise him how best to invest it. And of course the upheaval, like that over Schleswig-Holstein, had the effect of enlivening the art market: it was at this time that Adolph was able to buy the Grand Duke of Baden’s collection of crystal. The Esterházys were not the only eminent Central European dynasty reduced to selling off the family jewels in 1866.

  This was routine. However, when it became obvious that Frankfurt too would be obliged to pay an indemnity, there was more cause for concern. After all, Frankfurt did not have a princely house: it had the Rothschilds. Any reparations demand imposed by the Prussians would inevitably require personal sacrifices by the town’s richest citizens. Even before the Prussians had made their demands known, Adolph was fretting about the implications. “The Prussians’ behaviour at Frankfurt does upset me,” he wrote to London from the safety of Geneva,also I shall probably lose the income from the lease of my house there; who else would take such a big place as my late father’s in Frankfurt when there will be no more diplomatic corps in that town? and I cannot give it to somebody who might convert it so as to use it as an inn or an Hotel. In addition we shall have to pay taxes. All this is depressing for me and makes me grumpy.

  When the Prussians presented their bill—in the first instance 6 million thalers demanded by Manteuffel, the commander of the Prussian forces, and then a further and apparently additional demand from Bismarck himself for 25 million thalers—the family was appalled. On behalf of the Frankfurt Chamber of Commerce, Mayer Carl immediately protested at the size of this sum and telegraphed in the same sense to Bismarck. To Alphonse, the indemnity on Frankfurt was “barbaric”—“like something out of the thirty years war”—and he fully believed reports that the Prussians intended to starve the town into submission. Charlotte even heard rumours—spread by “that horrid fellow Mr. Erlanger‘—”that Uncle Charles [Mayer Carl] had been put into prison. This I hope and believe is not the case, but the Prussians are perfect monsters.“ When James heard the same rumour, he leapt to his feet and exclaimed: ”A Rothschild? It’s impossible!“ Anselm also signed a petition against ”the colossal war tax“ on Frankfurt, though he doubted whether it would achieve anything as ”Prussian rule by club now prevails.“

  In fact, Mayer Carl’s efforts to achieve “some arrangement ... to ... prevent this dreadful calamity” were partially successful. On July 25 he travelled to Berlin where he appealed to “the King of Prussia to be rather less severe upon the poor Franc forters”; just over a week later he was invited back and had two meetings with Bismarck on August 6 and 7. The terms of the compromise he struck showed once again that, to the Rothschilds, questions of money were more important than questions of borders: in return for accepting annexation by Prussia, it was agreed that Frankfurt would pay only the initial 6 million thalers for the costs of occupation. What Charlotte called “the transformation of the good, old prosperous town of our ancestors into an insignificant addition to Prussian greatness” was patently less of a sacrifice than 25 million thalers. According to one account, “Uncle Charles ... won the 76,000 hearts of the town during the height of the Prussian exactions”; and as a candidate for election to the parliament of Bismarck’s new North German Confederation he took care to remind voters that he had “manfully stood up” to Manteuffel in 1866 when his political opponent, the Liberal journalist Leopold Sonnemann, had fled the town. He won by a landslide, defeating the Democrat candidate, by 6,853 to 311, and duly fulfilled his electors hopes by recouping a further 4 million thalers.

  Yet there was still a price which the Rothschilds were made to pay for their refusal to assist Bismarck financially. On August 14, just over a week before the final Peace of Prague, James finally followed Bleichröder’s advice and made an offer to issue a Prussian loan. The response from Berlin was brusque. Without ceremony, the Seehandlung informed Mayer Carl that the Frankfurt house would henceforth no longer be entrusted with issuing Prussian bonds in South Germany. In September 1865 James had proudly decl
ared that the Rothschilds “did not work for the King of Prussia”; now, it seemed, the King of Prussia did not need the Rothschilds.

  FIVE

  Bonds and Iron (1867-1870)

  [W]e will be forced to go to war, not because of the external danger but rather because of excessive liberties granted too soon and too quickly.

  JAMES DE ROTHSCHILD, FEBRUARY 1, 1867

  On November 15, 1868, at the age of seventy-six, James de Rothschild, the last of Mayer Amschel’s five sons, died. Despite occasional bouts of illness—he complained most frequently of “sore eyes”—he had continued to exhibit a quite phenomenal vitality until the last year of his life. In February the previous year, he had spoken of “wanting to retire,” and assured his sons (in terms which recalled his Napoleonic youth) that “having retired from the field of battle, it is necessary to leave all imaginable powers in the hands of the generals.” But it never happened. It was only in April 1868 that his strength began to fail. “Uncle James has been very ailing,” reported Ferdinand, “he hardly goes to the bureau and sits half the day in his armchair.” Even in these last days James continued to intimidate his younger relatives. “He rather upbraided me for not writing to him,” added Ferdinand nervously, “but until now, I am happy to say, has not yet blown me up.” When the crisis came, it was characteristic that James himself kept his relatives informed of his condition. “The most terrible pains are making me faint-hearted,” he grumbled in early October. “My eyes are poorly and I am suffering very much.” Yet as late as October 31, although bed-ridden, he still had the energy to dictate a letter to his son Edmond on the subject of a loan to Spain. On November 3, despite having passed a “really extraordinary” number of large gall-stones and despite Alphonse’s assurances that it was “becoming difficult to talk seriously with him about business,” James gave his last recorded instruction: to sell rentes. Like his brother Nathan, whom he so closely resembled as a businessman, James died a bear.