The House of Rothschild

by Ferguson, Niall

  An electoral landslide on the scale of the Liberal triumph in 1906 usually owes as much to the exhaustion and disunity of the vanquished party as to the programme of the victor. Central to the Conservatives’ demise were the rising costs of their imperial policies after 1899, and their inability to agree on a way to pay for them. It was not just a question of beating the Boers and building new battleships. The administrative and even physical deficiencies exposed by the war in South Africa prompted widespread criticism—even a sense of national crisis—on both left and right. The Conservatives lacked a coherent response. It was typical that, when asked by Chamberlain to chair a Treasury committee to consider improving the piecemeal system of old-age pensions, Natty made little secret of his scepticism about the possibility of some kind of state contributory system on the German model, and he was even more hostile to any idea of non-contributory handouts to the elderly. Following Chamberlain’s conversion to the idea of increased protectionist tariffs as a solution to Britain’s domestic and imperial problems, the Rothschilds’ response was as ambivalent as that of the party as a whole.

  For most of the second half of the nineteenth century, the family had been firmly committed to free trade. Alphonse’s vitriolic comments on American and French tariff policy in the 1890s show that such attitudes were alive and well even at the turn of the century. “France is going to die from suffocation under protectionism,” he warned in 1896. “The best of socialisms is the free exchange of international production, and were M. Jaurès (the socialist leader) to preach nothing else we would unanimously be of his opinion.” But by 1903 his London cousins were wavering in their allegiance to “the sacred principles of free trade.” On July 3, Natty confessed to Edward Hamilton that he was “rather taken by Chamberlain’s plan”—a remarkable volte face for a man who had once dismissed the Colonial Secretary as “a Radical wolf in Tory sheep’s clothing ... the typical democrat—a spendthrift and jingo.” When Chamberlain resigned from the Cabinet over the issue on September 17, Natty defended both him and Balfour against the complaints of the Duke of Devonshire who “ought to have known at the Cabinet what Chamberlain intended doing, but ... was either asleep or woolgathering.” On October 7, the day after Chamberlain’s curtain-raising call for a policy of “imperial preference” at Glasgow, his keen supporter Harry Chaplin dined with Alfred and two other “City men”:I asked in an innocent way what they thought of the Glasgow Speech in the City and they all burst out at once. Only one opinion!!!!! Some well-known and prominent Free Traders and others who had always been opposed—come round entirely, general satisfaction, followed by a boom—Consols going up 1 or 3/4—the precise details in City matters I can never remember and it doesn’t matter. Alfred R, whom I asked afterwards privately, more than confirmed all this. He has been in the City today, and entirely agreed that there is no doubt as to the impression you have made in those circles, and after all, the City is very important.

  In reality, Chamberlain’s proposals divided the City elite. Lining up behind Chamberlain and alongside the Rothschild brothers were Cassel, Clinton Dawkins of J. S. Morgan, Everard Hambro (who became honorary treasurer of the Tariff Reform League), the Gibbs family, Robert Benson, Edward Stern and Philip Sassoon. Influential names, no doubt; but the opponents included not only Felix Schuster, the increasingly authoritative governor of the Union Bank of London and one of the City’s staunchest Liberals, but also Conservative Free Traders like Lord Avebury and Sir James Mackay (later Lord Inchcape). These were formidable opponents, and it may have been their rejection of Chamberlain which persuaded Natty to row back from his initial support. By the time “Joe” addressed a public meeting at the Guildhall in January 1904, it was becoming apparent that, as Dawkins put it after the speech, “banking opinion [was] on the whole against him”—perhaps understandably, when he tactlessly told his audience that “banking was not the creator of our prosperity, but its creation ... not the cause of our wealth but the consequence.” Significantly, when the Duke of Devonshire addressed a free trade meeting in the same venue two weeks later, Natty was on the platform. This would seem to bear out Hamilton’s snide comment (in relation to another fiscal question) that Natty now thought “it necessary to consult every broker” and had “no idea of having an opinion of his own.”

  Perhaps Natty was not confused; it seems more likely that, like Balfour himself, he was sitting on the fence for tactical reasons, in the hope of maintaining a semblance of party unity. Either way, he could do nothing to limit the damage done by Chamberlain’s campaign. Natty had “no doubt,” even before the voting began in January 1906, that “Sir H[enr]y Campbell-Bannerman [would] have a majority.” What the Rothschilds were not prepared for was the scale of the Conservative rout: the Liberals not only increased their share of the vote from 45 to 49 per cent, but—more important—won an immense majority in the Commons, taking 400 out of 670 seats to the Conservatives’ 157. Given the Liberals’ proximity to the Labour and Irish Nationalist parties on key issues, their MPs (30 and 83 respectively in number) could be regarded as pro-government too. Contrary to Leo’s expectation, even Balfour lost his seat (though it was quickly agreed to install him in place of Alban Gibbs as one of the two City members). It was, as Natty lamented even before the final results were in, a “disastrous” result—“unexpectedly bad.”

  Why had it happened? Besides the obvious point that “the country has had 20 years of Unionist Government & naturally wanted a change,” Natty offered a long list of factors:Education, the Religious Question connected with it, Ultra protes tantism, in some cases orders from the Catholic Hierarchy to their labouring men to vote Radical & for Socialists, Chinese Labour [in South Africa], the Temperance Question, dissatisfaction of the Jewish voters with the Alien Immigration Act, and last but not least the Taff Vale decision ... that Trades’ Unions could be sued for damages caused by a strike, that their funds were not as supposed, inalienable.

  But the key was surely the Tory split over tariffs. Even within the Rothschild family, there was division, with Natty’s son Walter winning Mid Bucks as a Unionist Free Trader, and even going so far as to vote with the Liberal government against the Chamberlainites in March 1906, while in the City of London constituency itself, the Conservative vote split evenly between the Tariff Reformer Gibbs and the Free Trader Sir Edward Clarke. In analysing the results, Natty sometimes sought to play down the significance of the tariff issue. Walter’s large majority, he insisted, was merely a sign of local “loyalty” to the family, rather than a vote for free trade; while the City result “in no way represented ... a feeling for Tariff Reform, & certainly not for Chamberlainism.” But privately he could not deny that the split had been fatal, and his comments on the subject show where his sympathies really lay. “One thing however I feel quite certain of,” he remarked bitterly, “[and] that is that a great many of the Free fooders, & Free traders, like the Duke of Devonshire, are by no means satisfied with the situation they have helped to create.” Natty was obliquely critical of Chamberlain too, contrasting his ambition to “build up a new party & a new policy” with Balfour’s pragmatic desire simply to “increase the power of the opposition just at present.” Both he and Leo agreed that “the late Prime Minister” would have to stay on as Tory leader “because his views on the fiscal question are more in accordance with those of the country than Mr Chamberlain’s.” But they felt closer on the issue of principle to Chamberlain than to Devonshire. Natty’s support for a strategy of “sit[ting] & watch[ing] the course of events” rather than “pro-pound [ing] a policy” was tactical rather than ideological; he evidently hoped that under Balfour’s leadership unity on the tariff issue might ultimately be attainable. Thus in 1910—by which time Balfour had come off the fence in favour of protection—Natty was able to be more open about “the advantages of Tariff Reform.” “[T]he subject is the most popular one for the moment,” he told his French cousins, “and probably will turn the election.”

  Such political misjudgements became
a regular feature of Natty’s correspondence in the Liberal era. He was, it should be remembered, no longer a young man: he was in his seventieth year when he wrote those lines. But the belief that an election could be won on a protectionist platform was not the greatest of his political miscalculations. On a wide range of issues, the Liberals could confidently be expected to disagree among themselves. On Chinese labour in South Africa, they did so almost at once, to his great glee. On education, as Natty said, it was indeed difficult to produce “a measure acceptable alike to the Dissenters, the Church, & the Non Conformists.” There were Liberal businessmen who were bound to oppose a trade union bill which placed the unions “under a different law from the rest of the community.” Above all, there was little reason to expect the issue of Home Rule to be any easier for Campbell-Bannerman than it had been for Gladstone. Yet Natty was wildly over-optimistic in thinking that such divisions might make the government “a very short lived one, & the Unionist Party may be again restored to strength & power much more quickly than they expected.” Of course, the Conservatives could only really recover from the nadir of 1906, and it was reasonable to draw encouragement from local and by-election results. But there were a few subjects which were very likely to unite the Liberals: and one of them was the question of taxation.

  Natty was not unaware of the significance of this. “[T]he chief bone of contention besides the Education question,” he predicted even before the voting had begun in 1906, “will be the Budget, which is to be of a very Radical character.” From an early stage, he recognised that the vociferous contingent of Labour MPs—“the gentlemen who wear red neckties, & are sorry they cannot doff the Phrygian Cap”—would put pressure on the government to consider measures such as “a large & comprehensive scheme of old age pensions, & a square meal once a day for every child in school.” Although he was inclined to think that the government would “not do anything rash or violent,” he grasped that any measures which implied an increase in government expenditure must imply some kind of increase in the burden of direct taxation: after all, the Liberals had been elected as unequivocal Free Traders, and so could hardly be expected substantially to increase indirect taxation.

  To begin with, the fiscal issue lay more or less dormant: the government inherited a surplus and Natty did not expect “any rash experiments in finance ... the difficulties connected with a graduated income tax may be hinted at & the taxation of site values talked of, but probably everything will go on in the same humdrum fashion.” “No doubt there are a good many crude ideas in the air about new forms of taxation . or confiscation,” he airily told his cousins in Paris. “I could not say that the Government would not be inclined to adopt them if they thought they were feasible or likely to bring grist to their mill.” But they would not, because such measures “would defeat their own object & be illusory sources of revenue, besides doing a great deal of harm.” Natty was more or less dismissive of Asquith’s first budget, which had disappointed some commentators who had been hoping for more radical retrenchment. At first, it had been hoped by the likes of Schuster and Holden “that Mr Asquith was going to put on extra taxation in order to buy up the National Debt; and now they heap coals of fire on the Chancellor of the Exchequer’s head” because his budget reduced taxation. Natty put this down to the fact that the deposit banks had large holdings of consols, the price of which they wished to see pushed up; for his part he was more alarmed by Asquith’s decision to set up a Commons Committee “on the incidence of the Income Tax, & various schemes for graduating that obnoxious impost.” But even the prospect of a graduated tax and a surcharge for higher incomes did not worry him much at this stage “as the number of millionaires was very few, they already paid very heavy death duties and a great many of them might send their fortunes to America or elsewhere, where they could not be taxed.”

  Considering the size of the government’s majority in the Commons, Natty’s equanimity was strange. It had two bases. Firstly, he retained the old Rothschild faith that an excessively radical fiscal policy would be punished by the financial markets : capital would be sent abroad to avoid higher taxes and consols would fall, embarrassing a Radical Chancellor into compromising. The already low price of consols when the Liberals came to office seemed to reinforce that argument; it was even more gratifying when they dropped two percentage points in the summer. Natty outlined his views on the subject in a series of letters to Paris:As English securities were dull, I hope it will give the Chancellor of the Exchequer food for reflection & will convince him of the folly of the greater part of the Government’s Radical programme ...[is] the lowest price Consols have been since the war. It is ... an ironical answer to Lloyd George who boasted at Manchester the other day that the Rise in Consols was a proof of the Confidence the country had in His Majesty’s Ministers ... This state of affairs should have a salutary effect at both the Treasury & the Local Government Board; because, whether they like it or not, it would be quite impossible for the County & Municipal Authorities to borrow money, & without money they cannot carry on their Socialistic programme & destroy private enterprise. The Chancellor of the Exchequer will, I suppose, also learn that the Socialistic taxation he talked of is not conducive to public credit ... [N]othing is more likely to defeat socialistic legislation than the depreciation of Home Securities.

  Nor did Natty see this as a peculiarity of British politics. His letters to Paris in this period constantly allude to the parallel between British events and the attempts by left-of-centre French governments to introduce income tax or to increase state control over the railways. He saw it as a general rule of democratic politics in a capitalist economy: financial “nervousness on account of the socialistic tendencies of modern legislative bodies ... is very disagreeable but it is perhaps the best cure for the socialistic tendencies.” And again: “the fear of socialistic legislation is the real cause of the depression in both hemispheres.” Natty constantly hoped that “the small bona-fide holders of English securities ... many of [whom] helped to put a radical government in power” would turn against the government’s fiscal policy en masse. Indeed, he went so far as to outline his argument in an interview with the left-leaning Daily News in October 1907—one of the first occasions a journalist had ever been admitted to New Court, and a calculated bid to reach a wider audience. The message was straightforward: “‘Stocks are low,’ said Lord Rothschild, ‘because Governments all over the world are hitting at capital.”’

  This marked the start of an escalating campaign of public opposition to the government’s fiscal policy. When the government proposed radical reform of the licensing laws—a sop to the Temperance lobby—Natty chaired a meeting of brewery debenture holders to protest at the negative financial consequences. When Lloyd George became Chancellor and hinted at the need to “rob henroosts” to pay for the new non-contributory pensions, he harped on the same old theme. The culmination of his campaign came with the unveiling of Lloyd George’s so-called “People’s Budget” of 1909, the key features of which were an increase in tax on “unearned” income to 1s 2d in the pound, the introduction of a super-tax on incomes above £5,000, an increase in inheritance tax and levies on land values. With the exception of the last item (which implied the first systematic survey of land values for centuries), none of these changes was actually unprecedented: differentiated taxation had been introduced by Asquith in 1907, the principle of graduation had always been implicit in the existence of an income tax threshold and Goschen—a Conservative Chancellor—had been the first to tax inheritances in 1889. Yet the apparently radical intent of the budget as a whole galvanised Natty into a kind of high-profile political engagement which went beyond even his father’s campaign for Jewish admission to the Commons.

  No sooner had the Finance Bill been introduced than he organised the letter to Asquith signed by twenty-one leading City figures (representing fourteen City houses, including Barings, Gibbs, Hambros and J. S. Morgan), which warned that the new taxes—particularly the “great increa
se and graduation of the death duties”—would not only “prove seriously injurious to the commerce and industries of the country” by eating into capital, but would also “discourage private enterprise and thrift, thus in the long-run diminishing employment and reducing wages.” He then called and chaired a protest meeting “representative of all interests in the City, and independent of political associations” at the Cannon Street Hotel on June 23, which passed a resolution that “the main proposals in the Budget weaken the security in all private property, discourage enterprise and thrift, and would prove seriously injurious to the commerce and industries of the country.”2 His own speech at this meeting took a somewhat different tack, arguing that the Chancellor had no historic right to raise a surplus for unspecified purposes and that the taxes on land were an underhand ploy to “establish the principles of Socialism and collectivism.” But, speaking later in the Lords, Natty reverted to his original economic critique, assuring fellow peers that both capital flight and increased unemployment in the building trade were due to the damage Lloyd George had done to “credit” and “confidence.” He was still peddling the same line when it was confirmed that the Tories had failed to secure a majority in the first 1910 election.

  Just as he believed firmly in the power of the City’s banking elite, Natty also remained confident that the House of Lords would be able “to alter considerably or to throw out” any excessively radical measures. As early as January 1906, he had consoled himself with the thought that “it doesn’t matter what takes place in the House of Commons, as the House of Lords will put it all right.” “The Lords play with loaded dice,” declared Leo on the eve of the Liberals’ second session in early 1907, so that if “very many extreme measures [are] brought in ... it is doubtful if they will be passed, at all events in the shape in which they were introduced.” Even if these included, as he expected, “the abolition of the House of Lords, Home Rule for Ireland, a licensing bill, increased taxation with many other socialistic measures,” the Prime Minister would have to “put a good deal of water into his wine.” Nor did they take seriously the possibility that the Lords’ right of veto might be challenged. “I do not think,” declared Natty blithely later that summer, “that the House of Lords is in any peril whatsoever.” Talk in the Commons of “materially diminishing its power & influence” was “looked upon as a farce, & will probably be forgotten in a few days”; he mentioned it to his cousins only “to show how weak our Government must be, if they seriously introduce a plan which has no chance of ultimate success, & which exposes them to the ridicule of everyone, with the exception of their immediate followers.” Natty thus felt no qualms about voting with the other Tory peers to throw out the government’s Licensing Bill in November 1908; and he and his brothers were delighted when their relative and friend Rosebery joined the campaign against the People’s Budget, denouncing it as “the end of all, the negation of faith, of family, of property, of Monarchy, of Empire”—in short, “revolution.” The link between City opposition and the peers’ opposition was deliberately symbolised when Natty presented the Budget Protest League’s petition—carrying 14,000 signatures—to the Lords on November 22.