Natty was especially unnerved by the claims of Radical writers like Hobson that the war was being fought on behalf of those who had financial interests in the gold and diamond fields, advising Rhodes to:be careful in what you say regarding the conduct of the war and your relations with the military authorities. Feeling in this country [is] running high at present over everything connected with the war and there is a considerable inclination, on both sides of the House, to lay the blame for what has taken place on the shoulders of capitalists and those interested in South African Mining. It would be a great pity to add fuel to the fire and you would only be playing into the hands of the opposition which I am sure you want to avoid. I hope, therefore, that you will be careful in your utterances and if you have any complaints to make ‘ against the War Office underlings, you will no doubt have opportunities to do so privately.
This helps explain Natty’s letters to Balfour two months later urging him privately that “a good War Minister ... gives his generals twice as much as they ask for”:There was a clever article in the “Daily News” the other day which ended by saying that, unable as His Majesty’s Ministers were to make peace, they were still more unable to carry on war ... It will be far cheaper in the long run to make a big effort now, than to run the risk of the war dragging on for another year ... I think it right you should know both what the public feeling is on the subject and also the anxiety which is felt by some out in Africa that there is a desire to save money and [we may] thus in the end be forced to incur a much larger expenditure.
In short, Natty agreed with Rhodes’s criticisms of the way the war was being waged; but he viewed public expression of such criticisms by anyone with large private interests in the mines of Kimberley and the Rand as highly impolitic.
Yet there was a certain irony in this Rothschild warning against false economy in wartime; for the Boer War was in the process of exposing the Rothschilds’ declining influence over that area of British policy where it had once been greatest: finance. The Boer War was the first time since the Crimean War that Britain had been forced to finance a war by a major net increase in the national debt. But whereas in the 1850s it had been taken for granted that the Treasury would turn to N. M. Rothschild & Sons to meet its borrowing requirement, that was no longer assured half a century on. Natty assumed from the outset, as he told Edward Hamilton, that the Chancellor Sir Michael Hicks Beach “would send for me when he is ready.” But his recommendation that consols be issued with a Rothschild guarantee was rejected in favour of Ernest Cassel’s argument for a “much more dignified” open market sale of Exchequer bonds at a price of 98.5. The “Khaki loan” was heavily oversubscribed and Hamilton discerned with some glee “the jealousy with which the Rothschilds regard Cassel.” When the need for a further loan arose in July, Natty fell in behind Cassel (and against the Bank of England), arguing for a second bond issue, this time for £10 million. But Hamilton struck a second blow against Rothschilds by agreeing with Clinton Dawkins of J. P Morgan and Lord Revelstoke of the revitalised Barings to make an advance placing of half the sum in the US. This infuriated Natty, who had been drumming up subscriptions on the assumption that the London market would have to place the full amount. True, a third issue of £11 million was sold without recourse to the American market, but when the government steeled itself for a much bigger issue of £60 million in consols it once again called on Morgan. Half the total was taken by Morgan, N. M. Rothschild and the Bank of England (£10 million apiece) at a firm price of 94.5. What is more, Morgan secured a commission two times higher than the London banks‘. The modest amount left to smaller firms generated a good deal of resentment among “English circles in the City” who felt, according to Horace Farquhar’s brother Granville, “furious at finding every dirty German Jew in, and themselves left out.” But the fact was that the distinctly un-German and un-Jewish figure of Pierpont Morgan was the principal victor: for the first time in over a century, the British government had been forced to borrow a large sum from a foreign power to wage a war in its own empire. It was an early sign of that shift in the centre of financial gravity across the Atlantic which would be such a decisive—and for the Rothschilds fateful—feature of the new century.
Morgan flexed his muscles again in the spring of 1902, when it was decided to raise a new £32 million loan. Natty—who Dawkins suspected still had “a lot of the last Consol issue ... on his hands at a loss”—argued for issuing a new Transvaal Guaranteed Loan, but Dawkins, backed up by a visit from Morgan himself, prevailed on Hicks Beach to stick to consols. Although the Americans agreed to take only £5 million—leaving Rothschilds with £7 million and Cassel and the Bank with £2 million apiece—they also found themselves able to dictate the issue price (93.5). It was a sign of the ill-feeling generated by this new American rival that Natty pointedly refused to give Morgan’s London house a share of his allocation. Even after the war, the Rothschild bargaining position looked weak. Although the 1903 Transvaal loan for £30 million was sold without American assistance, Natty’s request for a 2.75 per cent coupon was overruled by the Treasury as too low and it was decided to exclude applications for less than £2,000—a change of policy which Alfred angrily denounced as “most un-English.”
Nor did victory in the Boer War represent an unqualified assertion of metropolitan authority in South Africa. Although the Boers were ultimately forced to make peace, it was Cape Town (and Kimberley) rather than London which benefited from the British victory. The final conflicts within the De Beers company between the London board and Rhodes were a microcosm of this. Even as the war in the Transvaal got under way, Rhodes was being exhorted telegraphically by Natty “to extinguish floating debt and free mortgaged consols no dividend even if earned could be paid before this done ... we therefore suggest take advantage of favourable opportunity to create fifty thousand more shares which would be readily absorbed by existing shareholders.” Natty followed this up eight months later with a detailed critique of Rhodes’s accounting methods—and in particular his habit of accumulating large surpluses which he and the other life governors “used for every kind of purpose, some connected with the mines and some with outside investments and ventures.” And Natty continued to oppose Rhodes’s ambition to break the power of the diamond-marketing syndicate in London.
Nevertheless, Rhodes left his successors at De Beers in an almost unassailable position. Annual dividends rose from around £1.6 million (40 per cent a share) in the period 1896 to 1901 to £2 million from 1902 to 1904. Even Natty had to admit that these were “brilliant results.” Moreover, political attacks on the use of Chinese labour in the South African ‘mines—which the Liberals turned into a major campaigning issue in the 1906 election—served to widen the gap. between London and Cape Town. Finally, the Rothschilds’ control over De Beers was dealt a damaging blow when the Inland Revenue sought to extend the tax liability of the company from the dividends of the British shareholders to the net profits of the company as a whole, a move which necessitated the formal dissolution of the London board and confirmed the supremacy of Kimberley over the European shareholders. As an alarmed Natty put it, “if the London Office is closed pure and simple, the De Beers Co. would be a Wernher Beit Co. and ultimately he would acquire the control and you would know absolutely nothing now [about] whatever takes place.”
It was nevertheless the Rothschilds’ reduced role in the financing of the Boer War which was the most ominous development. Just over a decade before, at the time of the Goschen conversion and the Barings crisis, N. M. Rothschild had seemed as financially dominant as ever. Now the dawn of a new century had brought the first unambiguous indication that the Rothschilds’ dominance was coming to an end. Did the Rothschilds themselves sense this? There is one telling piece of evidence to suggest that perhaps they did. On New Year’s eve at the end of December 1900, there was, as Edward Hamilton recorded in his diary,a Rothschild gathering at Mentmore to see the 19th century out. I think we mustered 24 in all—R. [Rosebery] & his 3 unmarried
children, the Crewes, Natty & his two sons, the Leos & their three boys, the Arthur Sassoons ... Rosebery after dinner proposed “prosperity to the House of Rothschild” in a touching little speech, which elicited tears from Natty and Leo.
TWELVE
Finances and Alliances (1885-1906)
At the present moment, [Alfred] is suffering from megalomania, the German Emperor having offered him a high decoration for the part he had played in establishing a better feeling between England and Germany.
SCHOMBERG MCDONNELL TO LORD SALISBURY, JANUARY 1899
No doubt politics and finance often go hand in hand...
LORD ROTHSCHILD
The history of Europe between 1870 and 1914 has often been written as a history of imperial rivalry, leading to the formation of a polarised alliance system and ultimately a calamitous war. Yet there are reasons to be sceptical about this narrative. For if there was a war which imperialism should have caused it was the war between Britain and Russia which failed to break out in the 1870s and 1880s; or the war between Britain and France which failed to break out in the 1880s or 1890s. These three powers were, after all, the real imperial rivals, coming into repeated con-Hict with one another from Constantinople to Kabul (in the case of Britain and Russia), from the Sudan to Siam (in the case of Britain and France). Few contemporaries would have predicted they would end up fighting a war on the same side.
Nor should it be assumed that there were insuperable forces generating an ultimately lethal “Anglo-German antagonism.” Indeed, from the Rothschilds’ point of view, precisely the opposite outcome seemed not only desirable but possible: an Anglo-German understanding (if not an outright alliance) seemed a logical response to the imperial differences between Britain, France and Russia. There is always a strong temptation for the historian to be condescending to diplomatic intitiatives that fail, by assuming or seeking to prove that they were bound to do so. The efforts to secure some kind of understanding between Britain and Germany in the years before the outbreak of the First World War have very frequently been the object of such condescension. The fact that Alfred de Rothschild played such an important role in trying to broker an Anglo-German alliance has only encouraged the tendency to dismiss the enterprise as futile. As we have seen, Alfred was not greatly admired by his contemporaries, and his reputation as a dilettante has inclined later writers to assume that everything he did lacked seriousness—as if he genuinely imagined that an alliance could be achieved “by the simple expedient of inviting Chamberlain and Hatzfeldt (or Eckardstein) to dinner.” The role of Baron Hermann von Eckardstein, the first secretary at the German embassy, has also tended to be discounted by historians, following the disparaging remarks of contemporaries like Edward Hamilton, who dismissed him as “a sort of unofficial go-between on Anglo-German affairs at the beck and call of the firm of Rothschild.” At best, the idea of an Anglo-German alliance has been seen as appealing too narrowly to the bankers of the City of London, particularly those of German and Jewish origin—a view which, of course, Germanophobe contemporaries did not hesitate to express.
Yet the ultimate descent of the relationship between Britain and Germany into the disastrous war of 1914-18 should not be retrospectively “over-determined.” In many ways, the arguments for some kind of understanding, if not a full alliance, were founded on common international interests. This is not to resuscitate the old argument about “missed opportunities” in Anglo-German relations which could have averted the carnage of the trenches, a line which has all too often rested on the wisdom of hindsight and unreliable memoirs; it is merely to suggest that the failure of the Anglo-German entente to develop was a more contingent than predetermined outcome—something which cannot be said of all the diplomatic combinations of the pre-1914 period.
Wars Not Fought
From the moment Egypt was occupied, Britain found herself at a diplomatic disadvantage when trying to check analogous expansion by her imperial rivals. In one case, that of Germany, there was no real attempt to do so; but in the case of Russia and France British diplomacy was less pliant.
The German Chancellor’s map of Africa was, as he said, subordinate to his map of Europe; nevertheless, he enjoyed pretending (as his son told Gladstone) that “there is and can be no quarrel about Egypt if colonial matters are amicably settled.” Natty relayed a similar message from the German ambassador Count Paul von Hatzfeldt to Randolph Churchill in September 1886. The obvious place to look for colonial compensations was in sub-Saharan Africa, where the Belgian King Leopold II had established a vast private empire through his International Association of the Congo. British interests lay further south, but it seemed prudent to establish some kind of indirect strategic foothold by encouraging the reliably Anglophile Portuguese to claim some territory in the Lower Congo: it was the Rothschilds’ tacit approval of this strategy which disinclined them to assist Leopold in his activities. Beginning in 1884, Bismarck used Egypt as the pretext for a series of audacious German interventions in the region, menacing Britain with a Franco-German “League of Neutrals” in Africa, asserting German control over Angra Pequena in South-West Africa and claiming all the territory between Cape Colony and Portuguese West Africa. The British response was to appease Germany by accepting the South-West African colony and conceding further territorial acquisitions in the Cameroons and East Africa. The issue of Zanzibar raised by Hatzfeldt in 1886 was typical: Germany had no economic interest worth talking about in Zanzibar (and indeed exchanged it for Heligoland in the North Sea in 1890); but it was worth asking for such territory so long as Britain was embarrassed by her position in Egypt.
There were at least two regions where Russia could legitimately stake comparable claims: in Central Asia and the Balkans. In neither case was it entirely credible for Britain to resist. For this reason, the Rothschilds were inclined to press for a British policy of conciliation and concession—despite their own growing hostility towards the anti-Semitic Tsarist regime.
In April 1885, in the dying days of Gladstone’s second ministry, an Anglo-Russian conflict threatened to break out following the Russian victory over Afghan forces at Penjdeh. Natty at once sought to avert war by sounding out (at Reginald Brett’s suggestion) the Russian ambassador Count de Staal. When Staal asked what Britain would be “satisfied” with as the basis for a diplomatic compromise, Natty suggested “the immediate recall of the Russian forces from the debated country,” but added: “Do this, and you will get a boundary line not unlike the one which you Russians have drawn for yourselves.” Staal duly responded with a proposal of this sort to Brett, who forwarded it to Gladstone. Usually sceptical about Natty’s initiatives, even Edward Hamilton had to admit that it was “something to have got anything out of the Russian Embassy, however unofficially it may be put forward.” In classic Rothschild fashion, Natty sought to accelerate the process of pacification by inviting Staal to dine with a group of Liberal and Tory politicians, among them Harcourt, now Home Secretary, Brett, Drummond Wolff and the rising Conservative star Arthur Balfour. When Churchill took over the India Office in the summer of 1885, he hastened to tell him the good news that the Russians wished to settle the Afghan frontier issue, and Churchill was able to announce an agreement in a typically flamboyant speech at Sheffield on September 3. This, however, was premature. No sooner had the Liberals returned to office in January 1886 than Alfred had to warn Rosebery that:affairs in Afghanistan are looking very bad for England. The Russians have completely got round the Afghans and ... the position of the English Boundary Commission is one of actual danger. The Afghans are openly hostile to us and whilst our Commission is almost unguarded the Russians have 30,000 men close at hand and are pushing on their railway as fast as possible.
The crisis abated once again, but the Rothschilds continued to keep a close watch on the North-Western frontier. Indeed, in 1888 Edmond travelled under Russian escort to Samarkand, ostensibly to look into “commercial conditions” but more probably to assess the extent of the Russian military threat t
o Kabul.1
It was a similar story when a crisis blew up over Bulgaria in 1885. To the Rothschilds, there seemed no very good reason for Britain to get mixed up in the affairs of Bulgaria at this time of growing diplomatic isolation. If Britain had a right to run the affairs of Egypt, then Russia had every right to prevent the Bulgarian King Alexander from unifying Bulgaria and Eastern Rumelia on his own terms, as he sought to do in September 1885. The only reasons for opposing Russian intervention were dynastic (one of Queen Victoria’s daughters was married to Alexander’s brother Henry) and moralistic (the fate of the Bulgarians had been an emotive issue since Gladstone’s atrocitarian campaign, and the Russian kidnapping of Alexander aroused fresh indignation). Though Natty accepted the need to “keep the Prince of Bulgaria on the throne and keep the minor states like Serbia from helping themselves,” he immediately discerned that Russia meant “to meddle in the Balkans.” His attitude, in essence, was that Britain should tolerate this.
The House of Rothschild Page 65
