The Gold Rush
The significance of such grumblings should not be exaggerated, however. The reality was that, although they were facing increased competition in Europe, the Rothschilds remained in a league of their own as an authentically global operation. Indeed, it was in the continents beyond the reach of the telegraph that they made some of their biggest advances in the 1850s. There was no telegraph link from Europe to North America or India until 1866; no link to Latin America until 1869; and no link to Australia until 1873. In these regions, the Rothschilds’ traditional system of semi-autonomous agents, corresponding regularly but not in daily contact, remained unsurpassed. The European agents continued to do their work, of course: Weisweiller and Bauer in Madrid; Samuel Lambert, having succeeded his father-in-law Richtenberger in Brussels; and newer recruits like Horaz Landau who served in Constantinople and then Italy. But their role as intelligence-gatherers was now less important than it had been, though of course confidential political information remained at a premium and could be obtained if an agent was well enough connected. It was the more remote agents, however, whose role was of greater strategic significance in this period.
The 1848 crisis had exposed the difficulty of conducting business across the Atlantic, particularly when a single agent occupied such a position of independent power in New York. It had partly been with the idea of replacing Belmont with a full Rothschild partner that James had sent Alphonse there in October that year. Betty’s letters to her son demonstrate how serious this intention was. He should, she advised, be patient until he had acquired enough experience of American affairs but thenyou can speak the language of the big boys; respectfully first of all, and, if politeness does not work, then with energy and the dignity which befits your status and rights, and which will put the man in his place. If after that Mr B. still wants to play the lord and let you take it or leave it, well then you’ll be in a position to take up your glove and show this gentleman the door ...
Matters evidently came to a head in the spring of 1849. “The situation with Belmont is no longer tenable,” she wrote on March 24. He hadtoo little merited one’s trust for one to leave him even a pretence of it without failing one’s own interest and one’s dignity ... The question is then: wouldn’t it be a great help to the future of our family to set up a House in New York, a House which would bear our name ... America’s future appears so grandiose to those who choose to reflect on it that I hold fast to the thought with pride, I confess, that you, my son, will be the one to lay the foundations of a House that will bring honour to our name ... [Y]our career would take off .. “ and you will leap to the head of a great House with one step.
Her plan, she told him in May, was “to see you established in America for anything ... and deliver this great future from the stupidity and greed of an agent ... So I repeat: stay in the New World; if the worst comes to the worst, if the old world should fall, which God will not permit, it would become a new fatherland for us.”
The idea continued to be discussed after her son’s (supposedly temporary) return to Europe in 1849. “Alphonse ... has made up his mind to return,” reported Lionel having seen his cousin at Wildbad; “we have spoken in general terms about the American business, but that is all. Uncle James and Alphonse both think a great deal of money is to be made in America and wish to continue that business, so that in any case he will go back.” Alphonse himself spoke of “putting affairs over there on a more convenient footing” when he returned to America, and Castellane was in no doubt that he would soon leave Paris again “to found a house in New York.” Even in New York, it was “everywhere known that Baron Alphonse is coming to the States.”
Yet it never happened; an omission which was arguably the Rothschilds’ single greatest strategic mistake. It is not easy to say why this was. One possibility, strongly suggested by Betty’s letters, is that Alphonse could not bring himself to relinquish the comforts of Parisian life for the less sophisticated ways of New York. It was the mother who had to persuade the son, and she sought to make the idea more appealing to him by suggesting that, after an initial period of two years, the day-to-day running of the projected new house would be entrusted to “a temporary agent up to the time when someone from the family, or later, your brothers, wanted to devote a stay of a few months to it from time to time ... Once the House was founded you could quickly come back to us, dear son, while at the same time overseeing the man who would come to replace you from afar.” Nor were the London partners much enthused, though they continued to suspect Belmont of “speculating with our. money.” According to Betty, Lionel and his brothers took “a dim view of this project.” They were “worried that Paris is getting too much out of it, and would rather see an agent there. But this agent could only be Davidson who works very much in their interest.”
Perhaps the most convincing explanation, however, is that Belmont at last succeeded in persuading James that he could not be replaced. By now he was a well-established figure in the US, whose social standing and political influence were growing almost as rapidly as his personal fortune. In 1849 he was able to announce his engagement to Caroline Perry, daughter of Commodore Matthew Galbraith Perry of the United States Navy and, as Belmont emphasised, a member of “one of our best families.” Four years later, in an unexpected role-reversal, it was Belmont who came to Europe—as the American ambassador to the Hague. These signs of worldly success (which a young, French-educated Rothschild would have taken time to equal) may finally have convinced James to let Belmont be. Even Betty acknowledged that Belmont had “created for himself a strong and independent position; he knows inside-out all the country’s resources; he holds the key to all the wheeling and dealing in the commercial world.” “I would incline to the view,” her husband reluctantly concluded in 1858,that we should leave the management of American business entirely in Belmont’s hands, as we can have complete confidence in him and he understands business there so completely, and if we do so we shall no longer have to put up with endless complaints and questions as to whether or not we will accept bills from this or that banker.
Only seven years before he had been complaining bitterly that Belmont did not let him “see the books” of the New York agency.
Of course, Belmont was only in charge of the East Coast business; that principally meant bond issues by established north-eastern states like New York, Pennsylvania and Ohio and major railways like the Illinois Central. Of increasing allure in the 1850s, however, was the West Coast, where Benjamin Davidson had been sent from Mexico, armed with a blanket credit of £40,000, on the news that gold had been struck in California. Once again, the Rothschilds had misgivings about entrusting their interests to a single individual in so remote a market—“where civil isation is at a very low ebb [and] where affairs are attended with personal risk”; so it was decided to send a clerk named May from the Frankfurt house to join Davidson in San Francisco. James approved of May: he was “a good little chap ... clever and a Frankfurt Jew. I always have a great deal of confidence in such people.” But he was soon disillusioned. Just over a year later, a row blew up when May and Davidson decided to spend between $26,000 and $50,000 on a new house. Davidson’s brother leapt to his defence, pointing out that the Californian agency had made profits of £37,762 in just two years; that its running costs were justifiable given the high cost of living in San Francisco; and that prior to acquiring the new house he had been living in a “shanty built over his vault, like a pig in a sty—which he left to go out & get his meals in fear and trembling lest a cry of fire should call him back & that he should find himself burnt out.”
As in the case of similar disputes with agents, this seems to have blown over, leaving both Davidson and May in situ. Ten years later, they were both still there; indeed, it was now May who requested to be allowed to return home—in a letter which sheds light on the Rothschilds’ relations with their American agents:I am growing every day older, I am now in my 36th year, and it is time for me to make up my mind whether I
should continue to lead this solitary life and spend the remainder of my days far away from my family, or whether I should return and settle at home. This is no Country where a man and particularly a European, even if he should have the least pretensions to civilization and sociability, can remain for many years, it is all very well as long as one is young but the riper age brings on other ideas. You must not suppose ... that I have accumulated so much wealth in this country, which determined me to withdraw from the business ... it is true that the position which you had been kind enough to give me and which kindness I shall never forget and makes me all my life grateful to you, has been to me a great advantage, but ... your interests have never in the least suffered by it and ... your business had always to be considered first and cared for above all.
Later in the 1850s, it was decided to send another Davidson—Nathaniel—to take Benjamin’s place in Mexico, which, for all its political instability, still promised important business opportunities: not only loans to the chronically insolvent state, but also investments in mercury and coal mines and an iron foundry. The importance of this continuing Mexican presence increased in 1860-61, when Mexico became the object of French imperial ambitions. Scharfenberg meanwhile remained in Cuba, which momentarily acquired a political importance when the American government sought to buy it from Spain—a scheme in which Belmont had a hand, but which foundered in the face of political opposition in the US.
Finally, mention should also be made of another traditional Rothschild sphere of interest in the Americas: Brazil. This had been a hobby-horse of Nathan’s in the 1820s, but for two decades business between London and Rio had been limited, partly because successive governments had not had recourse to the London capital market. That changed with the outbreak of war with Argentina and Uruguay in 1851, the costs of which forced Brazil to issue a £1.04 million loan through N. M. Rothschild the following year. The rapid growth of the country’s railway network also created new financial needs. The 1851 loan was quickly followed by a £1.8 million issue for the Bahia and San Francisco Railway Company; another loan of £1.5 million to the government which was also to finance railways (both 1858); a £2 million issue for the São Paulo Railway Company (1859) and another government loan of just under £1.4 million. A currency crisis in 1860 and a slide in the price of Brazilian bonds necessitated a period of consolidation; a new loan of £3.8 million in 1863 therefore mainly served to convert earlier debts dating from the 1820s and 1840s. However, the outbreak of war with Paraguay in 1865 put Brazilian finances under renewed pressure and it was only after protracted negotiations with the Brazilian minister Moriera that Lionel agreed to a new loan of just under £7 million. As the war drew to a close in 1869-70, there was talk of yet another loan. It was just the beginning of an exceptionally monogamous financial relationship between the Brazilian government and the London house which, between 1852 and 1914, generated bond issues worth no less than £142 million.
Brazil and the United States had been areas of Rothschild activity for decades; Asia was more or less terra incognita by comparison. But here too the 1850s were a time of expansion. In the wake of the “Opium Wars” of 1839-42 (so called because the pretext for fighting them was a Chinese bar on opium imports from British-controlled India), Hong Kong had been annexed by Britain and five other Chinese “treaty ports” opened to European traders. This accelerated the process whereby Chinese teas and silks were exchanged for Western silver and Indian opium, and created attractive new opportunities for British business (simultaneously eroding the power of Chinese merchants like Wu Ping-chien, whom one historian has called the Rothschild of the Orient). By 1853 the London house was in regular correspondence with a Shanghai-based merchant firm, Cramptons, Hanbury & Co., to whom it made regular shipments of silver from Mexico and Europe. Silver was evidently the prime concern, though the bank was also interested in Indian opium, some of which found its way westward to Constantinople, and by the later 1850s it was in regular correspondence with a Calcutta firm, Schoene, Kilburn & Co. Peripheral crises like the Chinese rebellions of the 1850s and the Indian Mutiny of 1857 thus had a resonance in New Court which previous Asian upheavals had lacked. For the first time, the bank was becoming involved in the commerce of the British Empire, a field it had previously left to others. It was thus a pardonable exaggeration to say that “the entire universe paid tribute [to Rothschild]; he had his offices in China, in India, in even the least civilised countries.” This was the great difference between the Rothschilds and the Eurocentric Pereires.
The great flow of silver to the East which was such a feature of the mid-nineteenth-century world economy helps explain why discoveries of gold in California and Australia in the 1840s aroused such excitement. The impact of these discoveries can hardly be overstated. In 1846 world gold production was around 1.4 million troy ounces fine, of which more than half came from Russia. By 1855 total production had risen to 6.4 million ounces, with around half the increase from North America and half from Australia. We have already seen how the Rothschilds sought to involve themselves in the Californian gold rush by sending Benjamin Davidson north from Mexico. They were also interested in the Australian fields. No sooner had gold been discovered in New South Wales and Victoria in 1851 than the Rothschilds were being urged “that a branch of your House accredited here with an ample supply of coin at the commencement would form the basis of one of the most extensive and moneyed establishments in either hemisphere.” This advice was not followed to the letter: as in the case of Shanghai and Calcutta it was at first thought sufficient to rely on a separate firm as Melbourne correspondent, though in this case the firm was run by Jacob Montefiore and his son Leslie. However, family ties proved no guarantee of competence. As if to confirm Mayer Amschel’s hallowed disdain for in-laws, Montefiore & Co. went bankrupt in 1855 owing a substantial sum to the London house, and a proper Rothschild agent, Jeffrey Cullen, had to be sent out to act as fireman.
The Cullens had worked for N. M. Rothschild since the time of Waterloo, so Cullen had a good idea of what his employers wanted: even before he had wound up the Montefiores’ tangled affairs, he was eagerly asking for consignments of mercury and other goods in demand in the colony (above all alcohol, whether beer, whisky or port). “If you should make me a consignment of this,” he wrote, unconsciously echoing the tone of Nathan’s letters as a young textile dealer, “you may rest assured of my using all my endeavors to do the business in such a way as to give you satisfaction.” By September he was asking for “a credit of £5,000 or £10,000 by every mail ship” and, in order to enable him to visit the gold diggings in person, the assistance of “a good Financier, as there is not such a thing in the whole Colony, even the heads of the Government are grossly ignorant of their business and upon more than one occasion I have been sent [for by] the Treasury, to explain some trifling matter of monetary affairs.”
If Cullen was at the periphery of the Rothschilds’ nascent gold and silver empire, at its centre lay the various refineries and mints which the family acquired in this period. James had operated his own refinery in Paris since as early as 1827, moving it to a new building in Quai de Valmy and establishing a société en commandite under the direction of Michel Benoît Poisat in 1838. At the same time, he went into partnership with Dierickx, the Master of Paris Mint in 1843, a relationship which lasted until 1860. The new gold discoveries led to an immense increase in the activity of both refinery and mint. It was, in James’s words, “a revolution in the money market.” Thus, when Lionel resolved in 1849 to involve the London house directly in the gold-refining business, he was following his uncle’s lead.
In Nathan’s day, there had been four private refiners in London—Browne & Wingrove, Johnson & Stokes, Percival Norton Johnson and Cox & Merle—in addition to the Royal Mint’s own refinery. Of these, Browne & Wingrove had done the lion’s share of the Bank of England’s refining. However, the discoveries in California and Australia greatly increased the volume of gold coming to the Bank: in 1852 gold purchas
es reached a peak of £15.3 million, over two-thirds of which was in bar form—far more than Browne & Wingrove could handle. It was to fill this gap that Lionel proposed to lease the Royal Mint’s refinery, which since 1829 had been using the sulphuric acid system of parting under its Master, Mathison. From September 1849 he began telling his political allies J. Abel Smith and Lord John Russell “repeatedly” that “a change in the system of the Mint” was necessary, a recommendation duly adopted by a Royal Commission set up to examine its activities. “I hope,” he told his brothers, “the ministers will have courage enough to make the alterations and that we shall be able to get it—it would be a capital business.” As Nat said, “with such large arrivals of specie from California & Mexico it is more necessary than ever.”
Mathison predictably sought to resist this “privatisation,” but in vain; and fortunately for the Rothschilds Percival Norton Johnson did not listen to his new partner George Matthey, who urged him to enter a bid. In January 1852, therefore, Anthony acquired the lease for the refinery, and by December Lionel was in a position formally to ask the Governor of the Bank, Thomas Hankey (another political ally), “to be permitted to present directly to the Bank of England my gold and silver bars, refined and melted under my responsibility.” In its first year of activity, the refinery processed over 300,000 ounces of Australian gold and 450,000 ounces of Californian. It was a sign of its importance that Gladstone—that most ardent of bullionists—paid a visit there in 1862, directly after an “expedition” to the Bank of England. As Flandreau has shown, their control of refining and minting capacity on both sides of the Channel enabled the Rothschilds to operate a unique “system” of arbitrage, with the London house buying American or Australian gold on the French house’s account, relaying these via the London bullion brokers to Paris. The Paris house meanwhile bought silver for New Court, which relayed it via London or Southampton to the East. Not only was this profitable; by the late 1850s it was becoming an integral part of a bimetallic international monetary system.
The House of Rothschild Page 14