The House of Rothschild, Volume 1

by Niall Ferguson

  He repeated his misgivings a week later: “I can assure you that if we support Russia against Poland I am not at all certain that I won’t be clubbed to death, because public opinion here is passionately behind Poland.” Nevertheless, he was obviously prepared to risk public hostility if the terms of the loan were sufficiently attractive. It is noteworthy that these discussions took place on the eve of the Poles’ decisive defeat at Ostrolenka. Indeed, Nathan managed to sell some guns to the Russian government just a few days after the battle. James was “extremely happy” at the profit thereby realised; once again, his only concern was to avoid bad publicity:

  I beg you, in God’s name, not to provide your name unless it is absolutely essential, that is, to register that “Rothschild” has sold “guns” and please keep this information under wraps, as otherwise I am liable to be shot, for it will be said that I am selling guns to facilitate the shooting of the Poles. Yesterday a friend of mine who is a newspaper correspondent came to see me and showed me a newspaper article which claimed that we were providing funds to Luxembourg so that they could suppress the Belgians. He had not written the article but believe me, dear Nathan, now that the general feeling amongst the public has veered to liberalism one must be that much more careful. That is why you should make every effort to prevent the information reaching the newspapers.

  The idea of a loan (now for £1 million) resurfaced again at the end of 1832. Again, James felt nervous, this time imagining the English press “tearing us apart, claiming that we are providing the Russian Tsar with loans which will enable him to wage war.” But once again he was prepared to run this risk. After all, “it is not as if one can conquer the world with £1 million.” And to be on the safe side Lionel argued that “in case of war the . . . clause ought to exist . . . that we are not bound to continue our payments” (a device used for other Rothschild loans in this and later periods, as we shall see). However, as James predicted, Kankrin once again “bamboozled” Nathan by using the Rothschild offer merely to secure improved terms from Hope, the Russian government’s traditional banker. The idea that the Rothschilds had been competing to make this loan would have come as a surprise to those French émigrés—supporters of Charles X, who banked on a Russian-led counter-revolution—who were convinced that the Rothschilds had “fallen to a prodigious extent under revolutionary influence” and now served “the revolutionary movement . . . under the leadership of the London [Rothschild], and of Talleyrand.” After all, this was the last opportunity when a Russian intervention might have averted the imposition of the 24 Articles on Holland. It is possible that Nathan and James genuinely believed that if they handled the loan instead of Hope—especially as they envisaged lending a much smaller sum than the Dutch bank—they would be able to exert pressure on Russia not to intervene. Alternatively, Nathan’s warning after the Hope coup that Russia was bent on war was disingenuous. It is tempting to conclude that he was prepared to shut his eyes to the possibility of Russian aggression if he could only win back his influence at St Petersburg.

  James came to feel that his brother was trying too hard to secure Russian business. “As far as I am concerned, Russia can go to the Devil, and we can quite happily do without them,” he wrote when yet another loan was bruited in 1834. “Under no circumstances should you personally write to Petersburg for you have been refused enough times. Don’t give them another opportunity to embarrass you.” “Do you think that we will ever be on friendly terms with Russia?” he asked two years later. He evidently thought not. It is hard to find a better illustration of the limits of Rothschild financial power.

  Even where a partner was resident there were difficulties. In London, the disintegration of Tory power which began with Catholic emancipation and was completed by the failure of Peel’s 1834-5 ministry unquestionably led to a decline of Rothschild influence over financial policy. Althorp, Grey’s Chancellor, was decidedly unimpressed by Nathan when the latter sought to ingratiate himself in December 1830. “The result of a good long conversation,” noted Althorp, “was that I was satisfied he must think me the greatest fool that ever existed or he never would have supposed that he could so grossly deceive me as he appeared to wish to do.” And whatever sympathy Nathan may have come to feel towards Grey’s government, he was never given much inside political information; indeed Grey’s resignation in 1834 took him wholly by surprise. However, the decline of Nathan’s political influence had less to do with the door being “shut in his face” by the Whigs than with the fact that British financial policy largely rendered him superfluous during the 1830s. With only one exception—the £15 million loan to compensate the slave owners in 1835—there were no major borrowings by British governments in this period. Expenditure was tending to fall and revenue, despite continuing piecemeal reductions in indirect tax, was stable. For this reason, Nathan’s leverage in London was much less than James’s in Paris. Although Nathan was ready and willing to act as a channel for inter-governmental messages, he was not really in a position to influence their content. It was a matter of luck rather than Rothschild design that the Whig government was keen to avert war over Belgium.

  By contrast, there is evidence that James succeeded in using financial leverage to discourage an aggressive policy in France, though the strength of his position should not be exaggerated. The revolution had left the Paris house in an extremely vulnerable state, saddled with large amounts of depreciating 3 and 5 per cent rentes and with payments totalling 10 million francs still outstanding to the Treasury for the 4 per cent Polignac loan. On the other hand, the new French government was forced to begin borrowing almost immediately, issuing substantial quantities of treasury bills. James’s immediate reaction to this was characteristic: there were, he told Nathan as early as December 1830, “big deals to be made here,” and it was his intention not to be excluded from them. Despite his heavy criticism of Laffitte’s foreign policy, at no point did he withdraw from the discussions about financing the government’s deficit. His reasons were straightforward. As he explained to his brothers in March 1831, “doing business with the current Government will, I think, bring in its wake a rise in the rentes.” In any case, “the businessmen are all in agreement about the loan here, and I shall go with them, because I don’t want to be out of it.”

  The problem was that some of the money being raised was obviously wanted for military purposes (this was confirmed by “a colonel in the War Ministry who is on my payroll”). Indeed, James and Nathan themselves sold around 28,000 British guns and offered to sell other military supplies to the French government at around this time—a remarkable kind of “hedging,” given their vocal pacifism. There was no real guarantee that French armaments were for purely defensive purposes, except that the higher costs of war would be unfinanceable. James pinned much hope on this idea that “an outbreak of war would be very dangerous [to the French government],” adding: “I assure you that they will have to raise loan after loan to be able to pay the interest.” When Sebastiani talked of France’s refusing to be “bossed about” in February 1831, James was sceptical: “Basically they have no funds in reserve. With what will they wage war? Consequently, I am convinced we will have no war, no matter what others might say.”

  This helps explain James’s support for Périer, for the latter seemed to recognise the fiscal constraint on French policy:

  Périer told me, “. . . If we choose war, we will be unable to meet our debts, and I am therefore not prepared to join the ministry only to see the Treasury slide into bankruptcy the following day . . .” In short, he will not join without first being reassured that we can maintain peace . . . Should Périer not join the government, then I fear that the Treasury here faces bankruptcy for they will have to issue a loan at 5 per cent.

  It therefore made sense to give Périer financial as well as moral support, not least because the combination of peace and a properly funded loan would lead to a rise in the price of rentes:

  I will speak to Périer and may sell a loan on commi
ssion. The Treasury is in need of funds . . . We must assist the government by providing funds, and ensure that the bankers participate, as it is in my interest to provide these people with funds, so that . . . I can make my exit from all this . . . I think that Périer will boost the value of your stocks . . . I want to tell you that we can perhaps do business with Périer.

  But the fact remained that James had no way of preventing the money thus raised from being used to fight a war. He simply lacked the bargaining power to insist on the clause suggested by Nathan “that in case of war those payments that have not been made . . . are not to be enforced.” The most he could do was to hope that Périer would not be “too belligerent [over Austrian intervention in Bologna], as we must of course remember that the people wish to raise a loan.” There is some circumstantial evidence that such financial considerations inclined the French government to avoid war with Austria over the Papal states. Market expectations that the loan would stabilise the fiscal position ran counter to pessimism about the dangers of war. Indeed, the fact that the French Finance Minister Louis exploited a slight rally in April to demand better terms for the loan was regarded by James as a sign of the government’s peaceful intentions. That the ambassadors of potentially hostile powers like Werther (Prussia) and Pozzo (Russia) were personally interested in taking a share of the loan also suggested to Lionel that peace would be preserved. Nevertheless, James’s overwhelming sense in the spring of 1831 was one of impotence. “I am master of nothing,” he confessed to Nathan. “Times are no longer what they were. Previously, we would have taken on [such] a loan . . . by ourselves.”

  In fact, the 1831 loan was not large enough to solve the government’s financial problems, as James realised from the outset. Moreover, the Treasury’s parallel attempt to raise a “National Loan” by public subscription was a failure: only 25 million of a possible 80 million francs were sold, and the rest then had to be sold to the consortium of banks. A more radical government than Périer’s might of course have followed the example of the 1790s, pursuing an aggressive foreign policy by printing money. But, as long as Périer was in office, financial realism prevailed. In August, as the Belgian crisis abated, James was encouraged to hear talk of a new loan of 100 million francs to consolidate the floating debt. Two months later he and Lionel were reassured to hear Périer say that he “would do what Villèle could not, he would make 5 per cents par and then reduce them”—an unambiguous signal of impending retrenchment. The decision to maintain the sinking fund also pleased them. The year 1832 saw James reasserting himself on the French financial market. In May a Rothschild-led consortium successfully bid to underwrite a 40 million franc loan by the city of Paris. This paved the way for another government loan of 150 million francs, again handled by a consortium. Significantly, James insisted on delaying this until after the Dutch had relinquished their claims on Belgium. By this time the idea that France might herself take unilateral military action without the express consent of England was being discounted. When James was approached to consider yet another loan in early 1833, fears of French aggression had faded, as evinced when 3 per cent rentes briefly touched 80 in February. In fact, the government chose to reduce the size of the army and hence the defence budget in preference to borrowing more, and there was soon talk of another conversion project to reduce the cost of servicing the existing debt. The same issue was still being debated four years later.

  In short, the French government was financially constrained, but it was a constraint imposed not by the Rothschilds alone but by all the major banks in Paris. The critical point is that there was no Rothschild monopoly over French public finance in the 1830s, as the loans of the period were undertaken by groups of banks, while sales of treasury bills were even more widely distributed. Many of the visits paid by James to Périer and other ministers were therefore less about exerting financial leverage than about obtaining financially sensitive news. Typically, James spoke in January 1832 of “going with Salomon to see Périer to hear whether he has any news, and to formulate my future actions on the basis of any information he might provide me with, as we are currently holding a large parcel of rentes and we must therefore deal with great caution.”

  It might therefore be suggested that, if Prussia, Russia and France had resolved to go to war in the 1830s over Belgium or Poland, the Rothschilds would have been powerless to avert it. Yet this is to overlook the leading role played in Central and Eastern Europe at this time by Metternich’s Austria: without Austrian participation and, indeed, direction, a conservative crusade against the spread of revolution is hard to imagine. And this brings us to the role played by Salomon in Vienna, which has sometimes been portrayed as decisive in averting war after July 1830.

  As early as November 1830 Salomon intimated to Gentz that, after the heavy losses suffered by himself and his brothers, financing a war was out of the question. In the same way, when Metternich sent Austrian troops into Bologna, James backed up Périer’s threat to intervene with an explicitly financial argument, evidently intended for official consumption. In the event of war, he asked, “how would Austria be able to pay the interest [on her debt]? . . . Better not to risk one’s entire capital.” Yet, like James, Salomon did not occupy a monopolistic position. In the spring of 1830, when the Austrian government had issued a loan of 30 million gulden of 4 per cent metalliques, he had merely been one of a consortium of four issuing houses, along with Arnstein & Eskeles, Sina and Geymüller; and he had failed to wrest control of a planned conversion operation for the old 5 per cent bonds from the Frankfurt house of Bethmann. In the wake of the revolution, he was as little able as his brother to contemplate the idea of a government loan being handled by his rivals. When Metternich requested an issue of 36 million gulden of 5 per cent metalliques to finance intervention in Italy in March 1831, Salomon took a share along with the other three Vienna houses. Admittedly, a clause was inserted stating that the loan would have to be repaid within three months in the event of a war. But Salomon did nothing to oppose Metternich’s covert borrowing of the 20 million francs which had been deposited with the Frankfurt house since the 1815 Treaty of Paris in the name of the German Confederation.6 Nor did he achieve much by a thinly veiled threat to withdraw financial support if Metternich did not ratify the 24 Articles relating to Belgium in early 1832:

  Your Highness is aware that we have subscribed a quarter of the last loan of 50 million and have also purchased securities on the Bourse in order to maintain the price of metalliques, that we are carrying through other important financial operations, and that we are also negotiating new ones. As these are closely affected by the course of political events, and as I would like to see my brother happy and free from worry, I would humbly beg Your Highness to be pleased to let my manager . . . know of your opinion as to the present situation and whether the Austrian Government will recognise Belgium and allow the statement to be ratified.

  Metternich hastened to reassure him “that, as the fundamental attitude and will of the Russian Tsar were very well known to him, he vouched for the fact that these, without a single exception, were as peaceful as those of the Austrian Emperor.” But this was flannel; Austria did not ratify the articles for another three months.

  Salomon’s most explicit use of the financial lever came in June 1832, while he was in Paris. “I do not,” he wrote with uncharacteristic bluntness in a letter he ordered to be passed on to Metternich and Kolowrat, “regard [it] with indifference . . . that Austria should issue a further metalliques loan during the year 1832, which God forbid.”

  You know that, taking the sum of our holdings of metalliques at Frankfurt, Paris, London and Vienna—that is, the holdings of the four banks which really constitute one bank—the total amounts to several millions. Now, you cannot ride two horses at once; if our firm were forced to sell . . . what price could we expect to get? . . . We should be forced to realise our metalliques, whether we wished to or not. What would the capitalists and the commercial world say to the issue of two me
talliques loans in one year, when the payments in respect of the first loan are not due to be completed until December? Such action might produce a sharp fall in metalliques. The government would not be able to get further loans at a low rate of interest, a blow would be dealt to the credit of Austria’s finances and the government would fail to achieve its object . . . Moreover, what would the public say to a new loan? “There will be war—there must be a war, as Austria is issuing another loan.” Even if we were not forced to sell, as we should be, prices would fall sharply and Austria’s credit would be severely damaged . . . [This is] my conviction as to what would happen if there were to be even a whisper of a suggestion that another loan should be issued this year.

  At first sight, this does indeed seem like the exertion of financial pressure with a view to limiting Metternich’s room for aggressive manoeuvre. But it is important to realise that it came at a time of relatively low international tension: the Austrians had by now ratified the 24 Articles and the dispute over Ancona had been resolved. On closer inspection, it looks more like a primarily financial argument to avoid a slump in the price of Austrian bonds which would have been detrimental to the Vienna house’s balance sheet. Salomon was not opposing a loan altogether: for purely technical reasons, he was arguing that “if it is essential to get money, it is much better to issue Treasury bills, and get in twelve millions of silver for the bank . . . a procedure which costs the government hardly anything and provides it with money for six to eight months.” A year later he and the three other Vienna houses were perfectly happy to participate in another issue of metalliques worth 40 million florins, and in 1834 to a lottery loan of 25 million gulden. If these were chains of peace, they did not bind tightly.