The House of Rothschild, Volume 1

by Niall Ferguson

Of course, it is easy to detect in all this the influence of the Old Testament; and no doubt many another Jewish (or Calvinist) patriarch before and after Mayer Amschel tried to instil similar values into his sons. Nor was the ideal of familial unity peculiarly biblical: Plutarch relates the parable of Scilurus, who showed his sons that a bundle of arrows could not be broken, but that the individual arrows could. The impressive thing about the Rothschilds, however, is that the sons heeded their father so zealously. This was a point Gentz stressed in his article for the 1827 Brockhaus Encyclopaedia. The first of the Rothschilds’ guiding principles, he suggested:

  obliges the five brothers to conduct their combined businesses in an uninterrupted community [of interest]. That was the rule which their dying father bequeathed them. Since his death, any proposal, no matter where it comes from, is the object of collective discussion; each operation, even if it is of minor importance, is carried out according to an agreed plan and with their combined efforts; and each of them has an equal share in its results.

  In the very first paragraph of his essay, Gentz had in fact already alluded to Mayer Amschel’s last commandment to his sons to maintain “unbreakable unity.” “Never has a father’s last testament been carried out more conscientiously and more profitably,” he observed. “It is a peculiar characteristic of this family, that all its members consult the shade of their father at every important stage of their lives, and when assessing every business deal; remind themselves—often verbatim—of his wise teaching . . . and never mention his name without deep reverence.” In the 1836 edition it was even stated that the brothers “revere their father with such piety that that they refer back to him in the course of all important business undertakings and indeed Nathan usually decides all doubtful cases on the basis of a rule which he attributes to his father.”

  This would not have been worth writing if it had been commonplace behaviour. It clearly was not. Even as late as 1841, nearly thirty years after Mayer Amschel’s death, his eldest son could feel moved to remind all the other partners—including those who had never even met their grandfather—of the same, all-important nexus between unity and success:

  Unity was what our blessed father, with his last words, enjoined me to uphold as [our] first and holiest of duties—our father, who united in himself boundless integrity, the deepest of insights, the wisdom of experience and the pious habits of a sage. It is my conviction, and I am sure it is yours too, that, along with God’s blessing, we owe not only our wealth but also our honourable position in society primarily to the [spirit of] unity and co-operation [that binds together] all our partners, bank houses and establishments. I therefore request most urgently that you, beloved brothers and nephews, will always take care to implant in your heirs the same consciousness of concord and togetherness, so that the same [spirit of] unity and co-operation continues to exist for as long as is at all possible. To do so will be of benefit both to you and to your descendants. It will prevent our business interests from being split up, and will stop others benefitting from our great efforts, our knowledge and the experience [we have] laboriously accumulated over many years. So I ask you, for the sake of ensuring unity, whenever there should be any differences of opinion which might lead to ill feeling, not to make an immediate decision, but to let a few days pass first to allow tempers to cool, in order to avoid any overhasty steps being taken. May the unity, integrity, sympathy and mutual trust of the community of all Rothschild houses be always preserved and forever affirmed.

  In the years between 1812 and 1841, there were, as we shall see, many times when Amschel and his brothers came close to just the kind of breakdown in fraternal unity which their father had warned them against. That they always avoided it—that, even thirty years after his death, they still remembered his dying commandment—is a striking testament to the patriarchal power of Mayer Amschel Rothschild.

  II

  Brothers

  THREE

  “The Commanding General” (1813-1815)

  My brother in London is the commanding general, I am his field marshal . . .

  —SALOMON ROTHSCHILD

  It is an established rule with us that no disapprobation shall be expressed by either of us at the conduct of the other, since as partners we act always for the joint interest and consequently neither of us has the right to blame the other when he has acted for the best.

  —SALOMON ROTHSCHILD

  Napoleon’s celebrated aphorism—“An army marches on its stomach”—left open the question of how that stomach was to be filled. So did the Duke of Wellington’s equivalent: “To gain your objects you must feed.” All the armies which fought in Europe between 1793 and 1815 resorted at times to the age-old practice of requisitioning provisions from civilian populations. To varying degrees, they also relied on their own lines of supply from secure territory. But taking supplies at gunpoint has the disadvantage of making an army unpopular and food scarce, while extended supply lines are a source of vulnerability. In protracted campaigns like Wellington’s in the Iberian peninsula, more sophisticated methods of procurement were necessary. Above all, it was essential to be able to purchase supplies and to pay troops. The truth of Cicero’s maxim was never more apparent than in the years between 1808 and 1815: nervos belli, pecuniam infinitam, or, as Henry Dundas had put it to William Pitt at the outset of the wars with Revolutionary France: “All modern Wars are a Contention of Purse.”

  As early as May 1809 Wellington was complaining to the government in London that he did not have enough of it. In March 1811 he wrote to the Prime Minister, Lord Liverpool, threatening that he would have to halt the campaign altogether because of the lack of cash. A year and a half later, on the eve of the invasion of France itself, the problem was once again acute. The outgoings of his military chest were running at around £100,000 a month, including not only payments to his own troops, but also subsidies to Portugal and Spain (now forcibly won over to the British side). But, as he explained to Earl Bathurst, he was only just able to pay for the subsidies to his allies. In the absence of cash, he was reduced to paying officers in depreciated paper money, while the lower ranks (who refused to accept payment in paper) were not being paid at all. “Unless this army should be assisted with a very large sum of money at a very early period,” he warned the government,

  the distress felt by all the troops will be most severe . . . and it will be quite impossible for me to do anything . . . [The Spanish troops] are in so miserable a state, that it is really hardly fair to expect that they will refrain from plundering a beautiful country, into which they enter as conquerors; particularly, adverting to the miseries which their own country has suffered from its invaders. I cannot, therefore, venture to bring them back into France, unless I can feed and pay them . . . Without pay and food, they must plunder; and if they plunder, they will ruin us all.

  The nadir was reached in February 1813, when Wellington reported that he could “scarcely stir out of my house on account of the public creditors waiting to demand payment of what is due to them.” As it was Wellington’s financial difficulties which provided Nathan Rothschild with the decisive business opportunity of his career, it is worth saying a few words about the cause of them.

  Of all the states of the ancien régime, Britain had the most efficient financial system. The key institutions had evolved in the century after the Glorious Revolution: a relatively cheap and centralised system of revenue collection; a fairly transparent budget-making process in parliament; a more or less stable system of public borrowing, the funded national debt; and an equally stable monetary system revolving around the Bank of England and the convertibility of paper notes into gold. It was this which enabled Britain to wage six major wars in the course of the eighteenth century without succumbing to the kind of political crisis which precipitated the overthrow of the more financially backward French state. But the cost of war rose rapidly after 1789 (partly because the Revolutionary regime was able to field armies of unprecedented size): it has been estimated tha
t the annual cost was five times higher in real terms during the Napoleonic Wars than it had been a century before. Public expenditure in Britain rose sharply between 1793 and 1815, from something like £18 million a year to around £100 million (around 16 per cent of estimated national income). The total cost of war with France in that period was around £830 million, of which some £59 million took the form of subsidies to Britain’s less solvent allies. A host of new taxes had to be created, of which the income tax was the most important, but these only paid for about a quarter of the war’s costs. As a result, the national debt soared from £240 million in 1793 to £900 million in 1815, close to 200 per cent of national income. Moreover, in 1797 the Bank of England felt obliged to suspend gold convertibility, ushering in a period of currency depreciation. The combination of wartime shortages and the growth of paper-money circulation led to inflation: prices roughly doubled in the twenty years before 1815. Wellington’s campaign was therefore being fought at a time of unparalleled fiscal “overstretch.”

  This does not fully explain the Duke’s difficulties, however, which were partly logistical. Even if the Exchequer in London had been overflowing, it would still have been difficult to get money to Wellington in a form that Spanish merchants would accept. Up until 1813 there were two ways in which this could be done. Either bullion (in the form of gold guineas)1 could be shipped to Portugal or Spain, and exchanged there for local coins; or the Duke could borrow from local bankers by selling them bills on London. Given the risks which attended large-scale shipments of gold, it was the latter method to which Wellington more often had recourse. The problem was that by 1812 the Iberian market for bills on London was saturated, and Wellington found that he could sell new bills only at a prohibitively steep discount: “The patriotic gentlemen at Lisbon,” he complained to Bathurst, “will give us no money, or very little, for the draughts on the Treasury.” It was into this breach that Nathan Rothschild stepped.

  War and Peace

  Historians have never adequately explained how an obscure Jewish merchant banker—who only a few years before had been a smuggler, and a few years before that a minor textiles exporter—was able to become the principal conduit of money from the British government to the continental battlefields on which the fate of Europe was decided in 1814 and 1815. Of all the steps in the ascent of the house of Rothschild, this was surely the greatest; yet it is also the least understood.

  Three distinct elements were required to turn Nathan into (as his brothers later said, only half in jest) the “commanding general”—the Napoleon of finance. The first was the absence of competition. This was a matter of sheer good luck, for before 1810 the City of London was not short of able bankers. Harman & Co. (whom we have already encountered among the Rothschilds’ earliest correspondents in London), Reid, Irving & Co., Smith, Payne & Smith and above all Baring Brothers—all might have been expected to assist the government in its financial difficulties. Indeed, the Barings had already been involved in relaying British funds in the form of loans to Portugal. Nor was Nathan the only Jewish merchant seeking to challenge the established banks: Abraham and Benjamin Goldsmid had been doing so since the 1790s, while a succession of German bankers arrived in London in the years after 1802 (notably Schröder, Brandt and Huth) intending to emulate their achievements. As the new Commissary-in-Chief who had been entrusted with the task of providing Wellington with funds observed in November 1813, “Many houses have already offered their services to me.” Indeed, his first instinct was that Barings were “on every score the most proper channel for our money transactions.” Yet it soon became apparent that neither Barings nor any other established firm was in a position to act. In the case of Barings, this was partly because leadership of the firm had only recently passed from Francis Baring (who died in 1810) to his son Alexander. The main reason, however, was that the City as a whole was reeling from two major shocks. The first was the crisis of 1810, partly occasioned by the report of the Bullion Committee, recommending (against the advice of the Bank of England) an early resumption of gold payments. The prospect of a period of tight money—which this implied—led to a slump in the price of government stocks and left the Barings and the Goldsmids holding substantial amounts of the most recent government loan. Barings lost around £43,000. Abraham Goldsmid committed suicide, leading (as William Cobbett remarked with distaste) to “alarm and dismay” in the City and an intensification of the panic. Probably of equal importance was the simultaneous collapse of the Amsterdam market occasioned by Napoleon’s annexation of the Netherlands. This left Barings’ continental partner Hope & Co., which had for some time played a dominant role in Russian finances, a mere “empty shell.”

  The second factor in Nathan’s favour was the appointment of John Charles Herries as Commissary-in-Chief in October 1811. Herries was to be Nathan’s Buderus, his first “friend” in a high place. Himself the son of a minor merchant banker, Herries had risen through the political ranks rapidly since becoming a junior clerk at the Treasury in 1798. Three years later he was appointed private secretary to Nicholas Vansittart, the Secretary to the Treasury, and served Spencer Perceval in the same capacity when he was Chancellor of the Exchequer in 1807-9. It was not only his family background in finance, however, which enabled Herries to identify Nathan Rothschild as the solution to his problem as Commissary. For Herries, unusually, was something of a Germanophile. Not only had he studied in Leipzig; he had even translated Friedrich Gentz’s anti-French tract On the State of Europe before and after the French Revolution. It also seems possible that it was a friendship dating back to his Leipzig days which alerted him to the potential usefulness of the Rothschilds. According to one account, Herries had, as a student, been involved romantically with a woman who was now the wife of an ennobled Leipzig tobacco merchant named Baron Limburger—to the extent that he had an illegitimate child by her. The Limburgers later claimed that it was on their recommendation that Herries had involved Nathan in the financing of Wellington’s campaign; and it seems reasonable to infer something of the sort from the fact that they subsequently felt able to claim between £30,000 and £40,000 as a 1 per cent commission on the money made by Nathan on government business. On the other hand, it was not until February 1814—after Nathan’s first commission from the government—that Limburger wrote to Herries, praising the Rothschilds’ “zeal and prudence,” but at the same time offering his own services as “an upright and prudent individual” to superintend their operations; and Herries was initially cool in his response. On reflection, he did decide to employ Limburger in the way suggested, but he was careful to emphasise that his confidence in Nathan predated Limburger’s involvement. Similarly, it was not until June of the same year that the Rothschilds began to regard Limburger as having influence with Herries.

  It is possible that Limburger was merely one of those unscrupulous and opportunistic conmen who abounded in Napoleonic Europe, and that he was subtly blackmailing Herries on account of his bastard child. As Carl commented sceptically in early 1815, Limburger’s wife was “a great lover of money,” and Amschel suspected Limburger himself of merely “playing the great man.” In the end, the Limburgers had to be paid off with £15,000 in a manner which was more appropriate to blackmailers than partners. Nevertheless, as Carl had to admit, Limburger “had done us a favour,” if only by acting as an aristocratic go-between in the brothers’ dealings with continental governments.

  The third and most important reason Nathan became involved in British war finance was that, unlike his rivals, he had a solution to the problem of how to get money to Wellington. As so often, Nathan subsequently made what he had done sound easy:

  When I was settled in London, the East India Company had £800,000 worth of gold to sell. I went to the sale, and bought it all. I knew the Duke of Wellington must have it. I had bought a great many of his bills at a discount. The Government sent for me and said they must have it. When they got it, they did not know how to get it to Portugal. I undertook all that and I sent it
to France; and that was the best business I ever did.

  And, of course, the story has been embroidered by myth-makers, attributing patriotic motives to Nathan and even imagining James crossing the French lines in woman’s clothing. The reality was very different. At some point before March 1811 the Rothschilds became involved in smuggling gold bullion from England to France. This was technically a breach of the Continental System, but it was tolerated by Napoleon and later actually licensed. The youngest Rothschild brother took care of the business on the other side of the Channel, at Gravelines or Dunkirk, exchanging the imported guineas for bills on London, the prices of which were naturally very low in France at that time and which could then be redeemed at a profit in London. A typical series of six shipments from Nathan to James in April 1812 amounted to some £27,300 in guineas, in return for which James sent Nathan bills from Paris bankers like Hottinguer, Davillier, Faber and Morell with a face value of £65,798. The other Rothschild brothers contributed by relaying suitable bills to James from Hamburg and Frankfurt.

  As with the earlier covert operations on behalf of the Elector of Hesse-Kassel, an unsophisticated code was devised which more or less sufficed to allay French suspicions. Nathan became “Langbein,” London became “Jerusalem,” and the transfers of bullion across the Channel were codenamed “Rabbi Moses” or “Rabbi Mosche.” Incriminating consignments were referred to, variously, as “beer,” “fish” or “children.” Other key figures (no longer identifiable) were known as “the fat man” and “the cursed one.” In addition, to ensure that cross-Channel communications were as secure and swift as possible, agents at Dover were authorised to charter boats for Rothschild business. It was one such vessel which smuggled James himself across the Channel when he visited Nathan in 1813. “Playing hide and seek” with the authorities was becoming second nature to the brothers. Indeed, even their sons were already being taught to attach importance to secrecy: at the age of just eleven Salomon’s son Anselm refused to let his teacher correct a letter he was writing to his father. “My dear mother,” the boy explained, “how can I possibly divulge the secrets which I share with my father to Mr Sachs?”