As the extent of the government’s commitment to Russia emerged, there were moments when Natty and his brothers tempered their Russophobia. They donated a thousand guineas to a Russian Relief Fund established by Revelstoke in 1907 without specifying that their contribution should be for Jews only. They did not do anything positively to worsen the Russian financial position, for, as Leo said, “however much we may dislike the great Northern power, no one can wish to see a financial disaster on the Banks of the Neva.” At times, Natty even began to speak as if he felt the post-revolutionary reforms might endure. When the Anglo-Russian entente was formally announced in September 1907, he was lukewarm, but worried that excessive criticism in the Radical press might encourage the Russian belief that the newspapers were in Jewish hands and might therefore “be very prejudicial to the fate of our Russian co-religionists.” “Some of our co-religionists will not be over pleased with this rapprochement,” he admitted a few weeks later, “but I always tell them the cause of the Jews in Russia will not be improved if it is supposed that they stir up enmity between England and Russia.” He even seemed prepared to countenance the idea of a Russian loan on the London market (though in the end the loans of 1907 and 1909 were left to Revelstoke and Cassel).
Yet this was a momentary wavering. Taking advantage of a chance meeting at Epsom racecourse in June 1908, Leo buttonholed the King on the eve of his visit to St Petersburg. The upshot of their meeting was a long and carefully worded’ letter signed by all three English brothers. Blaming the recent pogroms on organisations like the Octobrists and the Union of the Russian People—though without denying the involvement of “a certain number of Jews ... in the Anarchical movement”—the Rothschilds complained that little had been done to punish the culprits and that there had consequently been:a recrudescence of the persecution of the Jewish population artificially hidden under legal devices. The Jewish population is again terrified and naturally there are fears both in Russia and elsewhere that emigration may take place on a large and unprecedented scale, which would have the double effect of depriving Russia of industrious and sober workmen and this extra influx of immigrants would certainly disorganise the position and condition of all workmen in many parts of the world.
Through his private secretary Sir Francis Knollys, the King “promised to take the matter into his serious consideration and [to] consult with Sir Charles Hardinge, who accompanies him and with the English Ambassador in St Petersburg what is the best course to pursue.” In the end, it was decided that the ambassador (Sir Arthur Nicolson) should raise the issue with the new Russian premier Stolypin;16 but Natty regarded the latter’s response as “most unsatisfactory”:[I]t is quite true that he promises legislation in a year or two, but it will be very mild legislation and in fact Mr Stolopine [sic] not only blames the Jews themselves for everything which has taken place, but he declares most positively, which is particularly ridiculous, that if the Jews had equal rights they would soon hold all the land in Russia and be masters of the country and that the pogroms in fact were risings of unfortunate debtors against modern Shylocks.
The King (or “Meilach,” as Natty liked to call him, recalling the old days of Hebrew codewords) put a more positive gloss on this response, insisting “that in a short time something will be done for the Jews and he was assured that there would be no Russian Loan this year which he considered a good sign.” But when the charge of ritual murder was revived in 1912 during a trial at Kiev any hopes of progress on the “Jewish question” were scotched, and Natty had to resume his campaign, corresponding publicly on the issue with Cardinal Merry del Val and drawing up a formal letter of protest which was signed by various political grandees including Rosebery and Cromer. Natty continued to hope that the Anglo-Russian entente would founder—if not over the treatment of the Jews, then on some traditional bone of contention like the Straits—but he underestimated Grey’s willingness to appease the Tsarist regime, and the City’s willingness to absorb new Russian bonds. From their low point in August 1906 of 71.5, Russian 4 per cents rose to a peak of 96.25 in December 1910, ensuring handsome profits to compensate Revelstoke and the other Russophiles for their losses on the first post-revolutionary loan.
Austria
It is tempting to conclude, then, that the direction of capital flows in pre-1914 Europe made the Triple Entente with France and Russia the most likely diplomatic combination for Britain. In that sense, the Rothschilds had been swimming against a powerful economic tide in trying to broker some kind of Anglo-German understanding, or in trying to keep Britain and Russia apart. Yet they did not give up. There remained one other possibility which had not been tried since the 1850s—namely, a renewal of the financial links between London and Austria-Hungary. Of course, the London house had been much involved in Hungarian finance in the 1870s and 1880s, so the once vital link between the London capital market and the Habsburg monarchy had not wholly faded from memory. But by the turn of the century Austro-Hungarian finance had become more introverted, reflecting the somewhat autarkic character of the post-1867 Habsburg economy—essentially a protectionist Central European customs and monetary union. As we have seen, the links between the Vienna house and the other Rothschild houses had tended to weaken after Anselm’s death: indeed, the surviving records of the Austrian bank suggest that such links were more or less non-existent by 1900. Moreover, the highly decentralised Austro-Hungarian financial system meant that arms expenditure remained relatively low compared with the other great powers, so that in theory there was less need for foreign loans than in Russia. Nevertheless, stagnating tax revenues, the increased military costs arising from naval construction and the annexation of Bosnia-Hercegovina, as well as the rising cost of governing a fissiparous, multi-ethnic conglomerate, led to recurrent deficits on both the Austrian and Hungarian budgets. “Notwithstanding all the new taxes,” ran one report to Holstein in the late 1880s, “the balancing of the budget is known to be a pium desiderium. Meanwhile they continue to borrow merrily from Rothschilds.”
Throughout the 1890s and into the early 1900s, new issues of Austrian and Hungarian rentes were more or less monopolised by a Rothschild-led consortium whose other members were the Creditanstalt, the Bodencreditanstalt and the Ungarische Creditbank. Indeed, even after 1900 the group was involved either solely or in partnership with Austrian and Hungarian issues worth around 2.8 billion crowns (c. £120 million). This so-called “Rothschild group” offered, even if it did not always deliver, access to foreign capital markets. Could the polarisation of European politics have been arrested by increasing British or French holdings of Austro-Hungarian rentes? The question is not wholly unrealistic. In 1907 and again in 1910 the idea of issuing a major Hungarian loan in Paris was seriously discussed, though in the end it foundered in the face of political opposition. In 1914 the London Rothschilds, in partnership with Schröders, successfully arranged two separate bond issues by Austria and Hungary worth a total of £ 19.5 million.
There were four reasons why the loans of 1914 were too little and came too late to extricate Austria-Hungary from the Dual Alliance with Germany. Firstly, despite repeated efforts to broaden the international market for Austrian and Hungarian rentes, investors in Paris and London were markedly less keen than those in Berlin. For most of the period, such external finance as was required came from Germany, and specifically Mendelssohn and the Darmstädter and Deutsche Banks. Indeed, so close were the links between the Vienna Rothschilds and these Berlin banks that in 1910 the British consul general in Budapest regarded the Rothschild group as “the chain which binds the Dual Monarchy ... nolens volens to Germany.” Secondly, the Rothschild group began to fall apart. Previously, Albert’s dominance had been more or less uncontested: as Alexander Spitzmüller of the Creditanstalt recalled, although he had “absolutely no well-defined influence,” his advice was hard to ignore when major decisions were being taken. This reflected the distinctive system of interlocking directorships which was such an important feature of Austro-Hungarian bu
siness. Albert, Spitzmüller later recalled, was “represented on the board of directors by many personalities from the world of business who were close to him ... [H]e used to make his influence, through the occupation of places on the board of directors, a sort of tyranny ... [and] always appeared to me to be a peculiar mix of gentleman and brutal potentate.” The situation was similar at the Bodencreditanstalt, where Albert “did not have a determining role but his word had weight.” In the eyes of Julius Blum, Albert was always the master of the Rothschild group. But under the leadership of Theodor von Taussig and his successor, the Bodencreditanstalt increasingly pursued a more independent course, as did the Creditanstalt when Spitzmüller took command in 1910. By the time of Albert’s death in 1911, the group had ceased to exist.
Thirdly, and partly because of this disunity, the Austrian and Hungarian governments succeeded in freeing themselves from the dominance of the Rothschild group by tapping new sources of domestic finance. After 1897, a share of any new issues of rentes had to be allotted to the Postal Savings Banks. Six years later, the Austrian Finance Minister Böhm-Bawerk allowed the big non-Rothschild banks like the Wiener Bankverein to participate in a major conversion operation; and in 1908 both Austria and Hungary finally adopted the system of public subscription for new bond issues which by this time was virtually the norm in most West European states. The last vestiges of the Rothschild group’s monopoly were swept away in January 1910 when a new Austrian issue of rentes was sold exclusively to the Postal Savings Banks, leading to the creation of a new and much more broadly based consortium. Despite Albert’s attempt to boycott the new system, the Bodencreditanstalt broke ranks; and although his son and successor Louis was able to construct a new Rothschild-led group embracing the Creditanstalt, the Wiener Bankverein and the Länderbank, it was never able to re-establish the previous group’s role in public finance.
The fourth reason why there was never much likelihood of reviving the old, financially based partnership between Britain and Austria was purely political. “[A]s a matter of course,” wrote Natty to Paris in April 1906, “we do not know if our dear cousin Salbert [Albert] is on speaking terms with the new Hungarian Government.” This was symptomatic of the extreme difficulty of operating in a political system as decentralised and volatile as the Austro-Hungarian. Natty visited Vienna in 1907, but seems to have gleaned little from the visit; and subsequent communications during the crisis-ridden year which followed from Albert were anodyne—sometimes even omitting to mention important financial news. Although the Austrian ambassador in London hoped that Rothschild influence over The Times and Daily Telegraph might moderate the British response to the annexation of Bosnia in October 1908, he was exaggerating Natty’s influence and the scope for generating pro-Austrian sentiment. The truth was that in both London and Vienna the political influence of the Rothschilds was on the wane. “I openly recognise,” Albert told Sieghart in 1910, “that I overestimated the influence of the Archduke Franz Ferdinand.” It was a telling admission, suggesting that Albert had shared Franz Ferdinand’s hostility to the policy of compromise with Russia in the Balkans favoured by Count Aer enthal, the Austrian Foreign Minister between 1906 and 1912. That, in reality, was the right option for Vienna: the more policy came to be characterised by hostility to Russia and subservience to Germany, the closer Austria-Hungary edged towards the disaster of a great power war over the Balkans. The Rothschilds, who had hever cared much for that turbulent region, could do little to prevent this.
In the final analysis, therefore, there were economic forces at work which at least made some combinations of powers more likely than others. To put it simply, there was an important difference between those countries which were net creditors (Britain and France), those which were self-financing but not capital exporting (Austria-Hungary and to some extent Germany), and those which had to borrow large amounts from abroad (Russia and Italy). These financial factors had a bearing on diplomacy. Of all the great powers, Russia relied most heavily on foreign lending in the period before 1914; and the predominance of France as Russia’s main source of external finance had as its corollary a diplomatic rapprochement between the two powers, despite the fact that they had less in common in terms of their internal politics than any other two-power combination, and despite the fact that for most of the nineteenth century they had been diplomatically at odds. This Franco-Russian entente was one of the defining diplomatic developments of the 1890s; and the Rothschilds played a central role in it—despite their strong antipathy towards the Tsarist regime’s anti-Jewish policies. A similar financial gravitation attracted Italy and Turkey towards Germany (though it was not strong enough to ensure diplomatic loyalty from Italy in 1914).
No such financial relationship drew Britain and Germany together, however, despite the strong desire of Alfred in particular to build some kind of Anglo-German entente. Nor did it prove possible to restore the old financial ties between Britain and Austria. In truth, neither Germany nor Austria-Hungary needed much in the way of outside capital; they could manage together, and so they did. By contrast, and despite their colonial disagreements, London and Paris were gradually drawn together after 1900, not just by shared Germanophobia, but also by their common interest as international financial centres in monetary stability: here too the Rothschilds played a key role as agents mediating between and bolstering the Bank of England and the Banque de France. What remained undetermined was the extent of Britain’s military commitment to France, not to mention the extent of her diplomatic commitment to Russia.
With hindsight, it is possible to see that the ideal diplomatic constellation from the Rothschilds’ point of view had been the Crimean coalition of Britain and France against Russia, with Austria and Prussia more or less neutral, but inclining to the West; but this was not to return until almost a century after the Crimean War, under the very different circumstances of the Cold War. The constellation which finally emerged in 1914, by contrast, was almost the worst of all possible worlds.
THIRTEEN
The Military-Financial Complex (1906-1914)
A Democratic form of Government has an unfortunate way of spending more money every year, & fresh sources of revenue have to be found, until & unless the various peoples of the earth, weary of the load they have to carry, agree to a millennium & a general disarmament: that however is a long way off, and under the circumstances one will have to work harder to meet the increased charges.
LORD ROTHSCHILD, 1906.
Really, in all of these things we are having too much Lord Rothschild.
LLOYD GEORGE, 1909
Writing in 1902, Hobson had confidently asserted that “a great war” could not “be undertaken by any European state ... if the house of Rothschild and its connexions set their face against it.” The idea that the Rothschilds and other bankers had the financial power to stop a war which might harm their material interests was hardly new. But it enjoyed something of a vogue in the decade and a half which preceded the outbreak of the First World War. In 1899 the Polish writer Ivan Bloch—himself a banker—had estimated the cost of a war between the principal continental powers at £4 million a day; the rising cost and destructive capability of armaments, he suggested, made a major war almost “impossible.” The English journalist Norman Angell took a similar view: the idea that war could be an instrument of a rational foreign policy had become a “great illusion,” he argued in his book of that name (published in 1912), because of “the delicate interdependence of international finance.” Nor was the notion of a financial opposition to war peculiar to the political left. On the very eve of war in July 1914, the foreign editor of The Times, Henry Wickham Steed, described Natty’s efforts to avert a war between Germany and Britain as “a dirty German-Jewish international financial attempt to bully us into advocating neutrality.”
Why, if the Rothschilds were at once so powerful and so pacific, did a “world war” of unprecedented intensity and destructiveness break out nonetheless? A crude argument, implicit in Hobso
n, is that this war, like the Boer War before it, in some way benefited them and other bankers. According to Lenin, there was no real paradox here: the outbreak of the First World War was a necessary consequence of the internal contradictions of imperialism. The contest between the great powers for overseas markets, spurred on by the falling rate of profit in their domestic economies, could only have ended in a suicidal war; in turn, the social consequences of the conflagration—what the German Social Democrat August Bebel had prophesied as “the twilight of the gods of the bourgeois world”—would precipitate the long-awaited international proletarian revolution. Such views were widely aired during the war, and not just on the extreme left. Shortly after Natty’s death in 1915, the Nation published an article which, looking back on the imperialist conflicts which had preceded the war, lamented “The Nationality of Money”:The broad fact is that, wherever politics can be made the servant of trade, money is forced to develop a national personality. Finance may be in its essence cosmopolitan, but the modern world has compelled it to acquire nationality ... In a world where the practice of Protection and the quest for places in the sun has obliged financiers to constitute themselves into national groups, it is clear that this economic rivalry makes for Imperialism, which itself underlies the whole struggle for a balance of power. The national groups of financiers may not desire war; but they do and must desire that the diplomacy on which they rely for their future expansion shall be strong enough to seize and hold the concession or the sphere of penetration which they desire. This rivalry helped to maintain armed peace, and in due course the armed peace broke out in the world war.
The House of Rothschild Page 72
