Alfred duly assured Harcourt that he “could have found no stauncher supporter of Monometallism than myself” and that he was “strenuously devoted towards maintaining our financial supremacy to which England owes her overwhelming mercantile supremacy.”
Yet Alfred proved incapable of sticking for long to his allotted role as “sane man.” In November he surprised everyone (not least his fellow delegate Bertram Currie) by coming up with his own compromise plan. Though mocked by his enemies in the City and Treasury and probably doomed to fail given the highly polarised mood at the conference, this was in many ways a reasonable attempt to reconcile the bullionists and bimetallists by raising and maintaining the price of silver through a five-year international purchasing agreement without actually giving silver equal status with gold. Had it been adopted, Alfred argued, “time would have been given to the South African mines to prove whether their yearly output would have been sufficient to satisfy the additional demand of the whole world, and time would have been given to India to introduce a gold standard with a gold currency.”7 In the eyes of the “brutal monometallist” Currie, however, this was far from being the “Monometallism with honour” or “euthanasia of Bimetallism” which Harcourt had urged them to bring home; indeed, Alfred’s project had won qualified support from some bimetallists at the conference, though not enough to become a practical proposition.
Moreover, when the issue resurfaced in 1897, there were rumours that Natty too had softened his stance under the influence of Arthur Balfour, who harboured bimetallist urges. He declined to sign a City memorandum against bimetallism circulated by Currie and signed by most of the other leading merchant banks. And, rather to the embarrassment of the new Chancellor Sir Michael Hicks Beach, he was once again willing to contemplate limited concessions to the silver bugs: the reopening of the Indian mints, the conversion of a fifth of the Bank of England’s reserve into silver and the raising of the legal tender limit for silver from £2 to £4 (as opposed to the American bimetallists’ target of £10).
How are we to explain this mild heterodoxy? One historical point to recall is that Natty’s grandfather had been among the critics of the excessively rigid bullionist theory. But Alfred and Natty were doing more than echoing the past. They were also reflecting the views of their French partners who were (in Alphonse’s phrase) “extreme” believers in bimetallism. As regent of the Banque de France, Alphonse had defended the bimetallic system throughout the 1860s against attacks from proponents of paper money (the Pereires) and the Latin Monetary Union. In some ways, this was a monetary conservatism—a banker’s “conventional wisdom”—which mirrored that of his English relations. Just as Natty saw the one-pound note as a threat to the British status quo, so too Alphonse vehemently opposed the introduction of a twenty-five franc coin in 1870. But, as Flandreau has shown, the Rothschilds’ apparently contradictory position was a logical one. Bimetallism only ceased to work because the French government took the political decision in 1873 not to facilitate the German demonetisation of silver by continuing to convert it freely into gold. Prior to 1873 it had worked because “bimetallic arbitrages [by private agents in bimetallic countries] pegged the gold—silver exchange rate within an interval reflecting the costs associated with melting one metal and coining the other one.” The Rothschilds were the key arbitrageurs in this system, which depended on Britain operating the gold standard and France the dual standard. It therefore made sense for the English Rothschilds to favour gold and the French bimetallism for their respective countries; the English Rothschilds never favoured the demonetisation of silver for the world as a whole. Even after the battle for silver was lost, Alphonse continued to argue that bimetallism had offered a more flexible system for Anglo-French monetary policy than gold. Finally, the English Rothschilds had their own private reasons for wishing to avoid the complete demonetisation of silver, given their interests in mercury (the main use of which was in silver refining), even if their private stake in the gold industry was vastly greater.
An Empire Underground
The difficulties experienced by bankers who dealt in Latin American bonds were not new: in many ways they resembled problems the Rothschilds had previously encountered in the 1820s and in Spain and Portugal in the 1830s. Nor was the Rothschilds’ response to these debt crises altogether new. In the 1830s they had acquired control of the Almadén mercury mines in the belief that some kind of tangible asset was necessary if money was to be advanced to a state as unstable as Spain. What happened in the 1880s reflected not dissimilar calculations, but the Rothschilds now involved themselves in mining on an unprecedented scale. Indeed, it is not too much to say that the decision of the London and Paris houses to develop what can justifiably be described as a mining empire was the most important change in their mode of operation since their decision to become involved in railway finance in the 1830s. For just as James had seen that controlling a pan-European railway network was as important as financing the nascent nation states of the mid-century decades, so Natty and Alphonse understood that investing in mines was as important as issuing bonds for Europe’s overseas colonies and economic satellites. Like the railways before them, the mines offered higher rates of return than state bonds; while as assets they were less liable to lose their value (the risks of punitive taxation and even expropriation were real but generally lower than the risks of a government default). Claims that the Rothschilds were a declining force after 1880 rarely take account of this profoundly important change of direction.
We have already seen how the London house was able to re-establish control over the output of the Almadén mercury mines in the 1870s. These continued to provide a steady source of outcome until the 1920s: between 1871 and 1907, for example, the London house made around £900,000 from the mines, 8 per cent of their total yield.8 The Rothschilds’ role in Almadén was relatively passive, however, to judge by the partners’ correspondence, compared with their involvement in the far more dynamic business of gold mining.
Beginning in the 1840s, the London house had taken a keen interest in the discoveries of gold in the New World, which had prompted them to acquire their own refinery in London in 1852. In California and Mexico, in particular, the Davidson brothers had been encouraged to involve themselves closely in the development of the most promising mines. By the 1870s they had acquired new business associates in the area. One was the consultant mining engineer Hamilton Smith, whose report on the EI Calleo gold mines in Venezuela in 1881 persuaded the Rothschilds to invest there too. It was very probably Natty who encouraged Smith to settle in London in 1885 and to establish a partnership with another mining expert, Edmund de Crano. A year later, they became the managing directors of a new company, the Exploration Company. This was to be a crucial vehicle for the Rothschilds’ mining ambitions.
At first the Exploration Company acted as a consultancy, advising its shareholders on mining propositions; but in 1889 it was relaunched as a joint-stock company with a nominal capital of £300>000, and increasingly it acted as a company promoter (in other words, it floated mining companies on the London stock exchange, charging a fee of 20 per cent on nominal capital). In essence, it was a way for respectable City firms to conduct what was widely regarded as a highly speculative kind of business, without directly risking their good names. In addition to the Rothschilds, the twenty founding shareholders of the company included Lord Revelstoke, Everard Hambro, Henry Oppenheim and Arthur Wagg; Horace Farquhar was chairman until 1896. By that time the company’s capital had increased to £1.25 million and its market value to £2.24 million, making it, as the banker Harry Gibbs put it, “the strongest institution of its kind in the world.” For the founders, who were entitled to half the surplus after 10 per cent had been distributed and who retained control of the company by dint of their inflated voting rights, it was an immensely profitable investment. Altogether between 1889 and 1903, it issued shares with a nominal value of £20.7 million for twenty-three companies. Between 1889 and 1895, it paid a total of
265 per cent in dividends on its initial paid-up capital of £30,000, quadrupling the value of its shares, though the dividends fell to 80 per cent in the subsequent decade and just 40 per cent in the period 1905-14. That the Exploration Company was a Rothschild creation is obvious. Together Natty and his brothers held 30 per cent of the stock (though their share declined as the company grew), and from 1889 to 1897 the company actually had its offices in St Swithin’s Lane.
In addition to the profits they made from their investment in the Exploration Company itself, the Rothschilds reaped substantial returns from the various mining companies it promoted. The 1886 balance sheet of the London house shows a total shareholding in mining firms worth just £27,000; within a few years the figure was much larger. In 1891 the Rothschilds held 5,000 £1 shares in Consolidated Gold Fields of South Africa, later increasing their stake to 13,000 shares. When Julius Wernher and Alfred Beit—the pre-eminent “Randlords”—floated Rand Mines in February 1893, the Rothschilds were allotted 27,000 out of 100,000 shares; and when the same company raised a further £1 million in 1897, they took £35>000 of the bonds. This gave them a substantial stake in the huge “Corner House” group which accounted for around 37 per cent of the gold produced from the Rand between 1902 and 1913. The profits to be made from such investments were huge. Shares in Rand Mines rose from a low of £15 10s in 1897 to a peak of £45 in 1899. Similarly, the London and Paris houses bought shares worth £100,000 in the new Marievale and Nigel Gold Mines Estates before it was floated on the stock market in 1895, immediately selling them at a 25 per cent profit. They also had a “call” on 50,000 £1 shares which were worth £4 when the company was floated. The French house was apparently less successful, complaining in early 1894 that its profits on some mining shares were only narrowly in excess of its losses on others.
Gold mines were the Exploration Company’s first love: understandably, given the dramatic expansion of South African gold production following the new discoveries on the Witwatersrand and the successful application of deep mining technology.9 In 1892 the Company launched the Consolidated Deep Level Co. and the Geldenhuis Deep; this was followed by the flotation of Rand Mines and Goldfields of Mashonaland in 1893, and then Jumpers Deep Levels and the Transvaal and General Association in 1894. In all this, the Rothschilds took a keen interest. In early 1892 Carl Meyer was sent to the Transvaal to investigate the various gold mines. His report was euphoric. The fields, he declared, had “an enormous future before them”:[T]he country altogether will for the next 10 or 20 years offer greater scope for European capital than South America and similar countries. Here is a fine country, lovely climate, inhabited by Dutch and Anglo-Saxons [sic], only beginning to be developed and replete with every mineral as well as adapted for every branch of agriculture. I feel that it would pay for the Houses of Rothschild to have a clever representative here who would be able to do plenty of good business.
Although no such “clever representative” was sent, the Rothschilds’ indirect participation in the South African gold boom through the Exploration Company has often been underestimated. Nor did the Company confine itself to South Africa. In 1894 it launched the West Australian and General Association as a regional subsidiary, and this in turn led to flotations for the New Zealand Exploration Company in 1896—though neither of these proved as profitable as their South African counterparts.
The acquisition of major stakes in such a wide range of gold mines was a bold move, predicated on important assumptions about the future of the world gold market. As Alphonse said, the Rand conjured up visions of an “Aladdin’s grotto.” At first sight, it is odd that he expressed no fears about a possible over-supply of the metal (as he would have done had the Rand contained untapped reserves of mercury or copper). The explanation for this is straightforward: the demand for gold seemed likely to remain buoyant as more and more countries adopted it as the basis for their monetary systems. So long as that continued, an increase in the supply of gold would not depress the price, but merely lead to monetary expansion and a general increase in the prices of all assets. It was on the back of such expectations that the so-called “Kaffir boom” in South African mining shares of 1893—4 took off. Small wonder the English Rothschilds encouraged the spread of the gold standard.
The Rothschilds were not monometallists; they were multimetallists. Of increasing importance to them in the same period was copper: a base metal, but one in growing demand in the last quarter of the century with the rapid development of electrical engineering. The French Rothschilds may have been indirectly involved in the first major attempt to corner the copper market by the Société des Métaux and Comptoir d‘Escompte in the late 1870s, but it seems more likely that they moved into copper after that bubble had burst in 1889. In the late 1880s the London and Paris houses added to their Spanish interests by acquiring a controlling interest in the Rio Tinto mines, which at that time accounted for more than 10 per cent of total world copper production. This was an investment of the first importance: by the early 1900s the price of “Tintos” was a benchmark cited almost as often in correspondence between London and Paris as the price of consols and rentes had been half a century before. The London Rothschilds also acted as the company’s banker in 1895, issuing debentures worth £3.6 million (for a £110,500 commission).
This was only part of a wider advance into copper mining and marketing, probably driven by a need to defend the Rio Tinto investment against falling prices as new sources of copper were discovered elsewhere. Also in the 1880s the Paris house acquired a 37.5 per cent stake in the Boleo Company, a Mexican copper mine; and after 1895 the Exploration Company was the principal source of finance for the Montana-based Anaconda Mining Company. These interests gave the Rothschilds a position of real power on the world copper market. Along with Leonard Lewisohn in New York and Brandeis, Goldschmidt & Co. they were members of a marketing syndicate which, beginning in 1895, succeeded in pushing the price of copper back to £50 a ton by direct purchases and output restrictions.10 Nor did they hesitate to add to their copper interests as new sources were discovered. In 1903 the Exploration Company raised £1 million for the Otavi Minen und Eisenbahn Gesellschaft in German South-West Africa. The French Rothschilds also took an interest in the utilisation of copper, investing in companies like the Compagnie Générale de Traction de Paris.
The Rothschilds were equally interested in the extraction of precious stones. Their involvement with De Beers—perhaps the most famous of all their mining ventures—will be discussed below; but it is worth noting that it was not the only investment of this sort they made. In 1889 they also floated the Burma Ruby Mines company after a prolonged tussle to secure a seven-year mining concession from the British government, which had annexed the territory three years before. This proved another profitable enterprise: the price of rubies was still rising strongly four years later (in marked contrast to the price of diamonds).
The French house generally deferred to the expertise of the London partners when it came to gold and precious stones. Typically, it was through the London-based Exploration Company that de Rothschild Frères became shareholders in the Compagnie Française des Mines d‘Or et Exploration (CONFRADOR) in 1895. However, Alphonse and his brothers had their own mining interests which developed just as rapidly in the same period. In the 1880s, for example, the French house began to expand its interest in Spanish silver-bearing lead, which it bought from an agent in Cartagena and purified into merchant lead and silver at its Le Havre refinery. Advised by their equivalent of Hamilton Smith—a graduate of the Paris School of Mines named Jules Aron—Alphonse and his brothers invested 250,000 francs in their French refinery and switched to a system of direct purchase from the Spanish producers, though they were reluctant to follow Aron’s advice to invest directly in a Spanish refinery. It was not until 1880—81 that he was able to persuade them to establish the Peñarroya Mining and Metallurgical Company, which leased the lead mining empire from its Spanish owner. By 1913 the company produced no less th
an 80 per cent of Spanish silver and 60 per cent of its lead. With a 40 per cent stake in Peñarroya and an exclusive selling agency, the French house became one of the biggest single players in the international lead market. At the same time and in much the same way, Alphonse and his brothers acquired a 25 per cent interest in the Nickel Company set up by the Australian entrepreneur John Higginson on the French-owned Pacific island of New Caledonia. The strategy here was ambitious—by 1884 the company had acquired most European nickel rehneries—but the discovery of nickel mines in Canada in 1891 shattered the dream of a nickel monopoly, and forced “Le Nickel” to halve its capital value and enter into a loose market-sharing agreement with the American-Canadian International Nickel Company. The third major mining investment of the period was the Mexican Boleo (copper) Company mentioned above. All told, by around 1900 the French house had an investment in these mining companies with a nominal value of 11.5 million francs (£460,000) and a market value twice as great, equivalent to around 4 per cent of the firm’s total capital.
The House of Rothschild Page 62
