The House of Rothschild

by Ferguson, Niall

  Lloyd George saw many City bankers in the first week of August, but few impressed him. Sir Edward Holden was one; Natty seemingly another. “Only the old Jew made sense,” he was heard to comment to his private secretary—though “old Jew” became “great Prince of Israel” in the memoirs. Writing in Reynolds Weekly Newspaper in 1915, he enlarged on Natty’s contribution:Lord Rothschild had a high sense of duty to the State, and although his interpretation of what was best for the country did not always coincide with mine, when the war fell upon us he readily and cheerfully forgot all past differences and encounters ... He was prepared to make sacrifices for what he genuinely believed in. It will therefore surprise no one who knew him that he was one of those who recommended the double income tax, with a heavier super-tax, for the war expenditure.

  Asked many years later by his son to name his “ideal cabinet,” he named Natty as Chancellor of the Exchequer, alongside Winston Churchill and Jan Smuts. Haldane left a rather similar impression in his memoirs. Learning (while standing in for Grey at the Foreign Office in 1915) “that a steamer had started from South America and that, although neutral, there was reason to suppose that she contained supplies intended for the Germans,” Haldanemotored to Lord Rothschild’s house in Piccadilly, and found him lying down and obviously very ill. But he stretched out his hand before I could speak, and said, “Haldane, I do not know what you are come for except to see me, but I have said to myself that if Haldane asks me to write a cheque for him for £25,000 and to ask no questions, I will do it on the spot.” I told him that it was not for a cheque, but only to get a ship stopped that I was come. He sent a message to stop the ship at once.

  If all this sounds rather too good to be true—and especially Lloyd George’s image of a heretic recanting his opposition to super-tax—the clue lies in Haldane’s reference to Natty’s physical condition. In fact, both Lloyd George and Haldane were applying something of the obituarist’s rose tint to their recollections. The reality was that the war had plunged the Rothschilds—and indeed the entire City—into a profound crisis. Keynes’s analysis at the time was succinct: “The [clearing] banks ... are depending on the accepting houses and on the discount houses; the discount houses are depending on the accepting houses; and the accepting houses are depending on foreign clients who are unable to remit.” Table 13g shows the extent of the problem and reveals that Kleinworts and Schröders were especially exposed; but N. M. Rothschild was affected too. It was not wholly persuasive when Natty assured Lloyd George on August 6 that he was “perfectly disinterested” in the debate between the Chancellor, the Governor of the Bank and the clearing banks.

  Table 13g: The London acceptance market: liabilities on acceptances at year end, 1912- 1914 (£ million).

  Source: Chapman, Merchant Banking, p. 209.

  The dispute which caused Lloyd George to seek Natty’s advice was a technical one: the big clearing banks wanted a full suspension of gold convertibility as had happened in Britain in 1797, and as had already happened officially or practically in Russia, Germany and France in 1914. This would have allowed them to supply their clients with liquidity at a rate lower than Bank rate (which went back down to 6 per cent on August 6). The Treasury and Bank preferred to follow post-1844 convention and to avoid suspension if at all possible. The compromise which Natty helped to broker was that convertibility should be maintained but Bank rate lowered by a further 1 per cent. A week later, the acceptance market was relieved by a further decision that the Bank would discount all bills accepted before August 4 at the new lower rate. This was a success; there is no mistaking the relief behind the congratulations which Alfred and Leo sent to Lloyd George on August 13. Their “very great appreciation of the most successful manner with which you dealt with a difficulty quite unparalleled in the history of the finances of this Country” was understandable, even if allusions to the Chancellor’s “masterly eye” and “masterly hand” were a bit rich coming so soon after the denunciations of 1909-10. Natty wrote in rather more measured tones more than two weeks later after Lloyd George had effectively rejected his recommendation (on August 27) that the moratorium be ended and the stock exchange reopened.

  Yet the real significance of Natty’s role—compared with his role in the less serious crisis of 1890—was the changed balance of power in the City it revealed. “They can play you a nasty trick,” he told the Governor of the Bank at one stage during the negotiations in Lloyd George’s office. “They are very powerful.” Once that might have been said of the Rothschilds themselves. But Natty was referring to the clearing banks. It is also striking that, despite the steps taken to stabilise the acceptance market, N. M. Rothschild & Sons lost close to £1.5 million in 1914—an immense sum equivalent to 23 per cent of its capital. In terms of their capital, none of the other major City banks was so drastically affected by the outbreak of war.

  To be sure, there was no shortage of cross-Channel business as the British Treasury began to subsidise the French war effort, though communications were difficult during the first week of the war. Indeed, it was not until early 1915 that regular and reliable communications could be established through the diplomatic telegraph service. Nevertheless, an initial loan of £1.7 million from Britain to France was quickly agreed through the Rothschilds, and this was followed by advances against Treasury bills totalling £8 million between October 1914 and October 1917. In the grand scheme of inter-Allied finance, however, this was small beer. All told, France borrowed £610 million from Britain during the war; but even this sum was dwarfed by the £738 million borrowed from the United States, and most of the money lent by Britain was in fact recycled from the £936 million of American money she herself had to borrow. The key to the financing of the war, as very soon became apparent, lay not in London or in Paris but in New York: that transatlantic shift of the financial centre of gravity which had been first been intimated during the Boer War now became a reality. In this regard, it was not without significance that when Edouard had telegraphed J. P. Morgan on August 1 to request a loan to the French government of $100 million he had drawn a blank. Morgan had not forgotten the way his London subsidiary had been refused a share of the South African loan twelve years before. Far more than Lloyd George’s death duties and other taxes, it was the Rothschilds’ poor representation on Wall Street which now condemned them to a period of contraction far more rapid than anything they had hitherto suffered. “In this very painful episode,” Natty wrote to Paris at the outbreak of war, “it is at all events satisfactory to know that you and ourselves are standing shoulder-to-shoulder.” “United on the battlefields, we are also united in finance!” telegraphed Edouard to New Court the following year. But these rallying calls to arms had a very hollow ring; what united the Rothschilds after 1914 was decline—and it was a decline that was to continue for at least half a century.

  III

  Descendants

  FOURTEEN

  Deluges (1915-1945)

  This is indeed a time of terror and tribulation.

  CONSTANCE, LADY BATTERSEA, TO HER SISTER ANNIE YORKE. 1916

  What Churchill called “the world crisis” of the First World War coincided with, and intensified, a deep crisis within the Rothschild family. Between the death of Alphonse in 1905 and that of Alfred in 1918, the generation which had dominated Rothschild finance since around 1875 disappeared. In Paris Gustave died just six years after his elder brother, leaving only Edmond as the last and least business-minded of James’s sons; and although he lived until 1934 he was already sixty-nine in 1914. In Vienna Anselm’s last surviving son Albert died in 1911. Lionel’s three sons Natty, Leo and Alfred died within a few years of one another in 1915, 1917 and 1918. These deaths seemed to many observers to mark the end of an era.

  “The death of Lord Rothschild is an event which not even the war can overshadow,” declared the Western Morning News: This prince of financiers and friend of King Edward probably knew more of the inner history of European wars and diplomacy in general than the greate
st statesman we have ever had. Every great stroke of policy by the nation in the last half-century has been preceded by the brief but all-significant announcement, “Lord Rothschild visited the Prime Minister yesterday.” It was one of the signs for which those behind the scenes looked when big decisions were pending.

  It was, in the words of the Financier and Bullionist, “an open secret ... that he was the confidant of Kings and Cabinet Ministers, and that his invaluable advice was constantly sought and as constantly acted upon.” There were enough senior politicians at the funeral at Willesden to confirm such claims about Natty’s influence. Three Cabinet ministers attended: the Chancellor Lloyd George, the President of the Local Government Board Herbert Samuel and the Lord Chief Justice Lord Reading, as well as the former Tory leader (and future Foreign Secretary) Arthur Balfour. “To me,” Balfour confided to Lady Wemyss, “Natty’s death is a greater blow than most people would suppose, I was really fond of him; and really admired that self-contained and somewhat joyless character. He had a high ideal of public duty and was utterly indifferent to worldly pomps and vanities.” The Chief Rabbi was unequivocal in his memorial sermon a few weeks later: Natty had been quite simply the “foremost Jew of the world.”

  None of those who came to praise Natty, however, could claim that he had been a great banker. The City editor of the New Witness came close to damning Natty with faint praise:He made less mistakes than any financier of his age. His instinct was always right. His sense of honour was acute, he could not do anything that he did not approve just because his firm was likely to make money ... To be head of the greatest business house in the greatest business city in the world; to be consulted by kings and rulers and to control imperial policies and yet to die without an enemy. Is not that a great achievement?

  Possibly; but the fact remained that N. M. Rothschild & Sons under Natty’s leadership had begun to underperform relative to its City rivals—the victim, perhaps, of his own political preoccupations and the complacent attitude towards business he shared with his brothers. Indeed, to some observers, Natty’s death prompted pessimistic reflections about the future of the Rothschilds as a financial force. “In England,” reflected the Daily News,the Joint Stock Banks have entered the field, and there is no longer any question of a Rothschild predominance, still less of a Rothschild monopoly. Not less noteworthy, the whole business of public loans has declined in importance. Modern financial institutions make their vastest profits as well as exercise their weightiest influence in financing industry and commerce. The house of Rothschild has not ignored this form of enterprise, but it has not engaged in it with the same zeal as the great banking houses or companies of the United States and Germany. The effect of these and other tendencies has been to reduce, relatively ... the part of the Rothschilds in the money world.

  The liberal Nation was more blunt: Natty’s tastes, it remarked with disdain, had been “largely those of an English country gentleman ... Did this later conservatism of habit have anything to do with the fact that much of the new business of the world did not get into the Rothschilds’ hands? Certainly, one could not pick out the great financier in any member of the English branch. Great farmers, great collectors, great organizers of social life—yes. But hardly a modern money king.”

  The Fifth Generation

  That phrase was well chosen if it was intended to suggest a comparison with Natty’s grandfather, who had pulled off his most celebrated (and mythologised) coup in the previous world war almost exactly a century before. Natty had been no Nathan. It was symptomatic of the increasingly sclerotic condition of the bank at the time of his death that Joseph Nauheim, one of the bank’s senior clerks, could argue against the introduction of double-entry book-keeping when this was proposed by a committee set up “to enquire into the system of accounts ... to consider what steps, if any, could be adopted to expedite the preparation of the Balance Sheet, and whether any improvements could be introduced into the system of account-keeping with a view to mak[ing] it more efficient and up to date.” It is quite astonishing that a firm with the resources of N. M. Rothschild was still using the single-entry system in 1915. Yet Nauheim opposed the committee’s recommendations—which ranged from the rationalisation of the system of classifying accounts to the abolition of knife erasers and the standardisation of book sizes—on the ground that the changes would be too time-consuming. The committee’s report is unusual for another reason: it is one of the earliest Rothschild documents to have been typed rather than handwritten. In fact, there was only one typewriter at New Court in 1915.

  The real problem, however, lay with the next generation. Writing in the 1870s, Walter Bagehot had foreseen the problem when he asked how long the “large private banks” would be able to hold their own against the joint-stock banks:I am sure I should be very sorry to say that they certainly cannot, but at the same time I cannot be blind to the great difficulties which they must surmount. In the first place, an hereditary business of great magnitude is dangerous. The management of such a business needs more than common industry and more than common ability. But there is no security at all that these will be regularly combined in each generation ... [If] the size of the banks is augmented and greater ability is required, the constant difficulty of an hereditary government will begin to be felt. “The father had great brains and created the business: but the son had less brains and lost or lessened it.” This is the great history of all monarchies, and it may be the history of great private banks.

  It certainly appeared to be the history of the fifth generation of Rothschilds. In 1901 Clinton Dawkins put it bluntly: “The coming generation of the Rothschilds est faire pleurer.”

  Natty’s eldest son Walter had begun collecting animals, stuffed and live, at the age of six and was already a knowledgeable zoologist when he went to study natural science at the University of Bonn and then at Cambridge. In this, he had the more or less unqualified encouragement of his parents; as a twenty-first birthday present his father built him a museum at Tring to house his collection. But the expectation persisted that he would follow in his forefathers’ footsteps and enter the bank, a notion abandoned only in 1908 when it was discovered that “poor fat Walter” had been speculating wildly and disastrously on the stock exchange.1 The sin of financial incompetence was compounded when it emerged that he was vainly trying to pay off a former mistress who had been blackmailing him—one of several scandalous liaisons which belied his awkward manner and bear-like appearance. Although an indefatigable scientist who described 5,000 previously unclassified species in over a thousand publications, Walter was the last person capable of leading the family firm through the storms which loomed ahead, as much out of place in a bank as his zebras were when he drove them as a four-in-hand down Piccadilly. Even as an MP, he contrived to antagonise both Arthur Balfour and Herbert Gladstone in a single speech.

  His brother Charles was better able to accept the burdens of City life and dutifully prepared to inherit a partnership at New Court; it was he who chaired the committee on the modernisation of the bank’s accounting system. But Charles too was a scientist at heart.2 A dedicated amateur botanist and entomologist who published 150 papers and described 500 new species of flea, he was also one of the country’s first modern conservationists who delighted in the woodland around Ashton Wold, where he built himself a picturesque retreat.3 After Natty’s death, it was decided that Charles should succeed his father as senior partner; but two years later he succumbed to the Spanish influenza which swept Europe in 1917-19, contracted encephalitis lethargica (a neurological condition caused by the virus) and after a long, debilitating illness took his own life in 1923.4

  This reorientation of intellectual ability away from business and into science (or the arts, in a case such as Aby Warburg) was a common phenomenon among business families of the fin de siècle, and especially Jewish families, reflecting the great widening of educational opportunities for Jews of that class and generation. In the cases of Walter and Charles, it is tempting to
suggest a further genetic explanation. Throughout the nineteenth century, numerous members of the Rothschild family had evinced predispositions towards collecting and gardening. In Walter and Charles, these tendencies fused to produce an exceptional aptitude for zoological and botanical classification. Their cousin Lionel, Leo’s eldest son, had similar inclinations, devoting much of his life to horticulture (though he also had a fondness for fast cars and boats). His younger brother Anthony was also academically inclined, in a quite different direction: at Cambridge he secured a Double First in history (despite reputedly hunting five days out of seven) and it was often said of him in later years that he would have been happier as a don than as a banker.

  The French house suffered similar problems as the old generation made way for the new. Edmond’s son Jimmy had settled and married in England before the war; he showed no interest in banking, dividing his time between helping his father with his Palestinian schemes, the untaxing duties of a backbench Liberal MP and the Turf. An even less likely prospect—as it then seemed—was Edmond’s second son Maurice who at the age of twenty-six had inherited an immense fortune, including the château at Pregny, from his second cousin Julie (Adolph’s widow). He appeared content to devote his wealth to collecting works of modern art by the likes of Picasso, Braque and Chagall—an investment strategy much underrated at the time. There was therefore a certain piquancy about Jimmy’s decision in 1913 to commission (for his London dining room) a series of panels by Diaghilev’s set-designer Léon Bakst on the theme of The Sleeping Beauty. A number of family members acted as models for these, including Jimmy’s wife Dorothy, his sister Miriam, Edouard’s wife Germaine, Robert’s wife Nelly and Edmond’s wife Adelheid—as well as the Marquess of Crewe and his wife, Hannah Rosebery’s daughter Peggy. Was the choice of subject mere whimsy? It is tempting to suggest that it was an appropriate one; for, in the eyes of many contemporaries, the Rothschilds themselves seemed to be lapsing into a deep slumber.