visited me a few hours ago and most frankly informed me that at present he does not need anything, however as soon as he does, he is in a position to transmit mortgages as a security to the full amount. I have in my portfolio 1,520,000 gulden drafts upon Eskeles of which 1,185,000 gulden are of Haber, the remaining with good endorsements.
In effect, he and Sina had agreed to bail Eskeles out, just as Salomon had wanted to rescue Geymüller six years previously. This time, however, Salomon had acted without consulting his brothers (remembering perhaps their refusal to agree to the Geymüller rescue). Naturally, he hastened to reassure them that there was no risk involved and that Sina was “caution itself.” He urged Anselm to remain “calm”: “With God’s help we shall remain the Rothschilds.” If his brothers—and son—suspected that a grave mistake had been made, Salomon had no inkling. The full gravity of his error would become apparent within the month.
In Paris, the Banque de France faced a “crisis in the supply of money” (James) from as early as October 1846. On previous occasions (in 1825 and 1836-9), it had been the Banque which had come to the assistance of the Bank of England; now the Bank repaid the debt by selling its counterpart silver worth 25 million francs. As in the 1830s, Rothschild attempts to play a part in this transaction were abortive: although James made a personal visit to London in December, the business was finally arranged by Hottinguer, and James’s subsequent offer of an additional 5 million francs was rejected by the Banque Governor d’Argout. The bad blood between New Court and Threadneedle Street since Nathan’s death had yet to be purged.
Nor was Lionel successful in his attempts to mediate between St Petersburg—rich in bullion from Russian grain exports—and the Banque de France. Benjamin Davidson was packed off via Riga to the Russian capital with several carriages filled with gold, apparently with the intention of establishing a new agency. But his expedition was a failure. Having endured a gruelling journey on snow-covered Russian roads, Davidson found himself effectively unable to do business as a foreign Jew. When the Russian government came to the Banque de France’s rescue by buying 50 million francs of rentes from its securities reserve, the Rothschilds were mere onlookers. In fact, the 1846-8 crisis proved a remarkably good opportunity for the Banque to enhance its power over the French monetary system: it was not sorry to see the collapse of Laffitte’s ambitious Caisse Générale, nor that of the various regional banks of issue Laffitte had encouraged in his time as Banque Governor. Nat summed up Rothschild feelings towards the Banque at this time succinctly: “They are a set of shits & behave to us as badly as possible, but it is not [in] our interest to quarrel with them.”
The position was not very different in London. As James put it in April 1847, with Bank rate climbing inexorably upwards, “Your Bank is the Master and driver of the situation. It is in a position to press its will on the world and so gold will have to be sent back.” Yet the Chancellor of the Exchequer, Sir Charles Wood, was less confident that the Bank would be able to master the crisis without breaching its legal gold reserve requirement. He and the Prime Minister were singularly unimpressed when they sought Lionel’s views on the matter. As Wood told his confidant, Samuel Jones Lloyd, “I saw at Lord John [Russell]’s, Lionel Rothschild & [Joshua] Bates [of Barings] this morning & (low be it spoken) I am utterly confounded at the ignorance they displayed, of facts & circumstances which I should have thought every merchant in the City must have known. They really had little or nothing to say for themselves, & admitted that things were proceeding rapidly.” If Nat’s views give any indication of what Lionel said, the Rothschild position perhaps struck Wood as politically naive. The Bank’s policy, he wrote, was “illiberal—I must say I can not understand their policy, they do all in their power to stop trade & the country will pay very dear indeed for their gold.” Wood knew that; what he wanted to know was how to suspend the 1844 rules without acquiring the reputation of a Vansittart. When he turned for advice (and whitewash) to the architect of the Bank Charter Act himself, Peel agreed that Lionel was not among “those who really understood the question of currency, whose prepossessions were in favour of the principles on which the Bank act was founded—and in favour of the Bank act itself.” It was, Peel told him, not “Rothschild, Masterman, Glyn and the leading men of the City—but . . . those with whom he had conferred in private [who] were the very persons . . . deserving of his confidence in the matter, Jones Lloyd, W. Cotton, Norman and the Governor of the Bank.” This bipartisan depreciation of Lionel’s expertise testifies to the Rothschilds’ loss of influence over monetary policy since Nathan’s death.
Deflationary monetary policies had direct effects on European industry. For the Rothschilds, it was their impact on the French railway companies which was most troublesome. It was not that railway investment and construction ceased: to the extent that these were pre-programmed by political and commercial decisions taken before the crisis, the problem was more that they were difficult to stop.1 The strain was therefore taken by the railway companies’ bankers and investors: as work proceeded, the banks found themselves being asked for loans to finance the inevitable cost overruns, while investors could only watch gloomily as the monetary squeeze drove down railway share prices. In truth, James had been over-optimistic, just as his English nephews had feared. On the very eve of the crisis, he and his son had confidently assured their relatives that, in addition to their economic benefits, the railways tended to make people politically “conservative and pro-government” too. “Every thing is calm in France,” Alphonse told Mayer Carl in January 1846, “there is a strong majority for the administration. Industrialism and the railroads absorb all thoughts and divert from politics. Please God that we may enjoy for many years to come the blissful peace.” Within a matter of months they were singing a different tune. “Well,” James confided in Anselm that August, “I must admit that when I think about the many commitments that the world has taken upon itself for the payments to be made everywhere for the railways, money which will not so quickly return into the hands of the business people, then I find myself trembling.” By October, he was having to reschedule payments due to the government for the Nord concession and to intervene to prop up the share price.
While Nat savoured his own vindication, James’s response to the crisis was to concentrate Rothschild attention on the Nord and extricate himself from the other lines in which he had a smaller interest. “If,” he told his nephews, “we can’t assume that when the railways draw monies from us we will then be able to get it back again, then I view the situation as being potentially very dangerous.” Accordingly, when “that blackguard fellow Talabot” requested additional funds for work on the Avi gnon-Marseille line, he was roundly rebuffed. Shares in other companies were also sold off. Nor did James commit more money of his own to the Nord: when the company required new funds for construction, he appealed directly to shareholders. Like so many malcontents in 1847, the Rothschilds themselves blamed the government for their problems. “The gov. must change their manners of doing business,” complained Anthony, “they have completely ruined their credit by the manner that they have behaved to the Railroad Companies. You can have no idea how every person cries out about losing their money & they all attribute it to the gov. & certainly they are very much to blame.” Of such grievances, multiplied a thousand-fold, are revolutions made.
The paradox was that even as they grew more and more disgruntled with the European governments’ economic policies, the Rothschilds continued—as if reflexively—to act as their lender of first resort. The transmission mechanism which linked the economic crisis of 1847 to the political crisis the following year was fiscal. All over Europe, the combination of rising expenditures (first on railways, then on social palliatives, finally on counter-revolutionary measures) and falling revenues (as earnings and consumption slumped) led inevitably to government deficits. Between 1842 and 1847, for example, the Austrian budget rose by 30 per cent. So deeply ingrained was his habit of lending to the government th
at, when he was approached for a new loan of 80 million gulden in February 1847, Salomon “thanked God” for “an extremely good business.” It was to prove anything but that. Along with Sina and the ailing Eskeles, he had taken on 2.5 and 5 per cent bonds worth 80 million gulden (nominal), in return for which the bankers had to pay the government 84 million in cash in instalments spread over five years. This would have been a good business only if five years of peace and prosperity had been at least probable.
Ostensibly, this loan was needed to finance new railways: that was what Salomon told Gasser when he tried to sell “a considerable sum” of the new bonds to the cash-rich Tsar. By November 1847, however, Austria was arming in preparation for intervention in Lombardy and Venetia, where insurrection seemed imminent. Salomon knew this because Metternich had told him, yet instead of being alarmed, he went so far as to offer more financial assistance. Incredibly, he agreed to lend a further 3.7 million gulden in return for 4 per cent bonds, which he furthermore pledged not to sell on the already stretched market: they would, he promised Kübeck, remain “in his own safe,” in return for interest of 4.6 per cent. With short-term rates in London at this time standing at 5.85 per cent and the price of 5 per cent metalliques already ten points lower than they had been three years before, this was an extraordinary (not to say suicidal) decision. Even as Salomon’s proposal was being discussed, Kübeck was warning that intervention in Italy would lead to “the complete breakdown of our finances.” “We are on the verge of an abyss,” he told Metternich presciently, “and the increasing demands on the Treasury arising out of the measures necessary to combat foreign revolutionary elements have led to increased disturbances within the country, as is indicated by the attitude of the provincial Estates, and by the literary outbursts in the Press of our neighbours.” Metternich was undaunted. When Salomon began to get cold feet in January, he angrily told him: “Politically, things are all right; the exchange is not. I do my duty but you do not do yours.”
As with his advance to Eskeles, Salomon’s undertakings to the government were made without reference to the other Rothschild houses. “We have very curious letters from Vienna,” Nat wrote to New Court at around the same time. “Our good Uncle is full of Austrian Metallics 2[.5]% & 5% & how he will get out on such markets the Lord knows—Prince Metternich takes our good Uncle in so that he may continue his financial operations, I fancy the F’furt house will find a little difference in their balance the next time they make it up.” This was to prove a serious understatement. When the first efforts were made to compute Salomon’s commitments in February 1848, the total approached 4.35 million gulden (around £610,000). That was more than double the capital of the Vienna house in 1844. Notionally, as Nat suggested, the Frankfurt house remained responsible for its Vienna branch; but it too had been accumulating the bonds of other German governments in the course of the 1840s, notably those of Württemberg and Hanover, and there was talk of a new loan to Prussia as late as March 1848! When Anselm finally arrived from Frankfurt to set the Vienna house in order, he was in no mood for filial generosity. His relationship with his father was to be one of the first Rothschild casualties of 1848.
French spending had also been rising steadily. By 1847 the budget was 55 per cent higher than it had been twelve years before, not least because of the various state subsidies to the railway companies. As early as the autumn of 1846 there was talk of a loan to fund the government’s deficit; by the summer of the following year the difficulty of placing treasury bills on the struggling money market made such a new issue of rentes imperative. Needless to say, the Rothschilds had no intention of leaving the business to others, despite the periodic anxieties of James’s nephews about French financial stability. As in Vienna, so in Paris: government loans had become a matter of course, regardless of economic conditions. True, James drove what seemed to be a hard bargain. The terms he secured looked generous: of the 350 million francs nominal to be raised, the Rothschilds took 250 million in the form of 3 per cent rentes priced at just 75.25, some two points below the market price. Indeed, his rivals could with justice have complained of double-dealing. It seems likely that the auction of the new rentes was rigged by the Finance Minister so that James’s bid was exactly equal to the Minister’s supposedly secret minimum. As Nat candidly told his brothers beforehand, Dumon had “let the cat out of the bag”: “[He] said he could not commmunicate his minimum as it was necessary for him to be able to state in the Chamber that his sealed letter had remained a secret for every body, but on pourrait se mettre à peu près d’accord.”
Yet Nat was fundamentally right to regard the loan as “a most dangerous & disagreeable concern.” James was less rash than Salomon, but he did not follow his bearish nephews’ chorus of advice to “get out of our loan famously.” Some of it was sold to investors ranging from the Tsar to Heinrich Heine. But not all of it. According to a number of accounts, he decided to sell only a third at once to the market, holding on to the remaining 170 million francs in the expectation that the price of 3 per cents would rise above 77. Meanwhile, of course, James had bound himself to pay the Treasury 250 million francs in instalments spread over two years. It was to prove another expensive miscalculation.
In England too there was an ill-judged loan on the eve of the storm. The £8 million so-called Irish Famine Loan of March 1847 was raised ostensibly to finance the cost of aid to Ireland, though it may reasonably be assumed that there were other reasons for the government’s deficit in this period. The combination of Britain’s unique credit-rating and the good cause supposedly being funded boded well, and Rothschilds and Barings—who shared the underwriting equally—had no difficulty in finding buyers. Indeed, James himself complained about being given only £250,000. Yet the price quickly fell from the issue price of 89.5 to 85, much to the consternation of the investing public and the embarrassment of the underwriters.
Even in Italy, where the revolution may be said to have begun, the Rothschilds toyed with the possibility of state loans in 1846-7. In Naples, Carl appears to have been keen to agree a loan to the government, and was saved from doing so only by the Bourbon regime’s own chronic indecisiveness. In Rome too there was talk of a loan. After the advances which had been made on the basis of Rothschild loans in the 1830s, the finances of the Papacy were once again in disarray: the deficit for 1847 was double that of the previous year and Roman 5 per cents dropped below par for the first time since 1834. Yet James had been intrigued by the election of Pius IX in 1846—“supposedly a liberal,” as he rather acutely put it—and he ordered a halt to sales of Roman bonds in the expectation of “some really positive changes.” This probably referred to the position of the Jewish community in Rome, whose case for better treatment Salomon once again took up. Only a stark warning from their new Italian agent Hecht “who represents the state of the Papal domains in the blackest colours & thinks that a revolution is at the eve to break out [sic]” deterred the Rothschilds from taking up Torlonia’s proposal of a new loan. When Adolph visited the Holy City in January 1848, he was unnerved by the combination of political debate and military preparation he encountered. For the same reason, the London house’s amazingly ill-timed suggestion of a loan to Piedmont—in January 1848!—was thrown out by Alphonse, who pointed out gently that this was “a country which can be considered as . . . already in full revolution.” The only other country whose request for a loan was turned down at this time was Belgium—ironically, one of the countries least affected by the revolutionary upheavals which were about to begin.
“The Worst Revolution That Ever Happened”
To say that the 1848 revolutions began in Italy is perhaps not strictly true: civil wars in Galicia and in Switzerland were harbingers of the cataclysm, as were the abortive United Diet (Landtag) summoned—in conformity with the 1819 State Debt Decree—by Frederick William IV in Berlin in 1847, and the stirrings of liberal enthusiasm in South Germany. But, though they followed these events carefully, the Rothschilds were not worried by them
. Indeed, the annexation of Cracow by Austria looked like just another Polish partition: as on previous occasions, “the poor Poles” were “very much to be pitied.” “I suppose lots of them will be shot,” remarked Nat dispassionately; his uncle Salomon’s sole concern was that foreign governments should not challenge the Austrian move. It was the outbreak of an artisans’ revolt in Sicily in January 1848 and the granting of a liberal constitution by Ferdinand II which made the Rothschilds for the first time afraid. It was, commented Nat, “stinking news” (which the Rothschilds were, as usual, the first to hear).
Yet he and the rest of the family continued to think primarily in diplomatic terms, wondering whether the Neapolitan crisis would harden the Austrian resolve to intervene (something Salomon anxiously denied). In his letters to Lionel and Alphonse, Anselm joked about Adolph’s hand shaking as he wrote his letters, suggesting that he shared his father’s nervous, not to say pusillanimous temper. But this was just banter. Carl’s initial reaction in fact suggests sang-froid: as early as February 19 he was once again discussing the possibility of a loan to the Bourbon regime. When Anselm commented on liberal attacks on Ludwig I’s government in Munich, he little realised how soon his diagnosis would apply to all Europe: “That is the way it is, alas: in the highest politics just as in the most lowly social relations, the people imposes its will and dictates the law to the higher power.” He could still hope that “the unrest there” would “soon pass”—and with it the slump in the price of the Rothschilds’ “low loans.”
The House of Rothschild, Volume 1 Page 76