The financial markets’ buoyant mood in the late 1860s was further encouraged by the liberal reforms introduced by Napoleon. The first tentative steps away from dictatorship had been taken in 1860 and 1861, which saw modest increases in the power of the hitherto rubber-stamping Legislative Assembly; but it was not until 1867 that Napeolon III began to move rapidly towards a “Liberal Empire.” Deputies in the Legislative Body were given the right to question ministers; and in 1868 restrictions on the press were lifted. In the short run, this merely opened the lid of a Pandora’s box of criticism, at its most vitriolic in the pages of Henri Rochefort’s Lanterne. Perhaps the unfettered opposition’s greatest success was in exposing the extraordinary financial irregularities perpetrated by Georges Haussmann, the prefect of the Seine, to pay for his grandiose reconstruction of Paris, that most tangible achievement of the imperial regime. In the elections of May 1869, despite the best efforts of Rouher, only 57 per cent of votes were cast for the government compared with figures in excess of 80 per cent in the 1850s.
In all this, the Rothschilds played an important though somewhat ambivalent part. As early as December 12, 1866, Disraeli told Stanley he “had received from one of the Rothschild family alarming news as to the state of France. It was thought that people were getting tired of the empire.” James viewed the liberalisation of the Empire with scepticism from the outset: “I find it very difficult to believe,” he told his children in January 1867, “that these liberal alterations can do much good for credit or for the country; indeed, it is a sign of great weakness.” In a remarkable letter to his sons, James set out what was in effect his political testament:You are going to say that your father is changing his way of thinking, and that he is on one side very liberal, in the way I have written to you on the question of Spain, and on the other anti-liberal vis-à-vis France. Let me begin by telling you that, strictly speaking, you are right, but there is within me on one side a man who is political and a liberal and on the other side a financial man, and unfortunately [a country‘s] finances cannot progress without liberties, but [they progress] even less with too many. I turn my thoughts to the past, and to all that we saw during fifteen years of Louis Philippe’s reign, when the government allowed [deputies] to address the house as freely as possible, and granted complete freedom of the press. Where did that lead us? To the overthrow of the government and all the changes and revolutions which have happened since. For unfortunately France is a country of vanity, where an orator can address the house to show off his talent in pretty speeches without thinking about the real interest of the nation. Now I believe that liberties are necessary in this sense, that people should have the right to publish simple articles and that they should be allowed to speak frankly about things which everyone talks about, but it is a long way from that to all the liberties which the Emperor is willing to grant. I tell you candidly that it is a very serious and hazardous thing and that willy-nilly we will be forced to go to war, not because of the external danger but rather because of excessive liberties granted too soon and too quickly. A man who has been in prison a long time cannot easily breathe the air he is eager to enjoy, and when he comes out he takes in too much at once and it takes his breath away and I fear that that is what will happen with the freedom of the press ... I only hope that the law will include in its terms the restrictions which will be necessary to halt the evil that that otherwise might well lead us to war.
Alphonse shared some of his father’s pessimism, though his point of view was not so strictly economic. As he saw it, “one of these days the liberal movement [would] simply become irresistible”; but he predicted “conflicts” and further political upheavals to come. At the end of 1866, he told his mother-in-law Charlotte that he was (as she recorded):convinced that the Empire cannot last, but will be succeeded ere very long by a republic—a republic gratefully accepted by the whole of France as a state of transition, which will allow the most urgent reforms to be introduced, and allow time for the selection of a ruler, King or Emperor from the ranks of the numerous living representatives of the Bourbon and Orléans families.
When his in-laws expressed the hope that Napoleon would continue his liberal policy, he responded bleakly: “What is necessary above all is that one have a policy, for in truth they do not know where they are going, or with whom they are going.” But that did not restrain him from active opposition to the Bonapartist regime now that the opportunity presented itself. In the summer of 1867 he stood for election to the local council of Seine-et-Marne on an anti-government platform. Interestingly, James expressed “a little vexation that his son is counted among the members of the opposition,” and was inclined to deprecate the path of “open opposition.” Indeed, he explicitly assured Napoleon that “he was not of the side of the opposition.” But at the same time he did not restrain his son. “No minister,” he told his son, “will take it upon himself to put us into the Opposition.” In other words, he regarded Alphonse’s activity as a way of putting pressure on the government, in the belief that no French government could afford to risk alienating the Rothschilds.
Nor did James object to the activities of Gustave’s friend Léon Say, whose articles in the journal de Débats in 1865 in many ways initiated the campaign against Haussmann’s Parisian regime and provided the basis for Jules Ferry’s famous pamphlet, Les Comptes fantastiques d‘Haussman. As a member of the boards of both the Zaragoza and the Nord railways, Say was widely regarded as a Rothschild man, if not a Rothschild “servant.” Although he evidently had political ambitions of his own, there is no doubt that in attacking Haussmann he was grinding a Rothschild axe. Since 1860, when the Rothschilds had carried out a minor funding operation for the city of Paris, Haussmann had relied partly on the Credit Foncier to finance his building operations as well as on contractors who were willing to accept IOUs in the form of deferred payments and “delegation bonds.” In exposing the irregularities in the prefect’s accounts—which added up to some 400 million francs of unauthorised debt—Say was therefore dealing an indirect blow to the Crédit Foncier—much to Alphonse’s satisfaction. The Rothschilds had no hesitation in taking a share of the new loan floated to liquidate Haussmann’s less orthodox liabilities. Not surprisingly, then, Alphonse was (tentatively) pleased by the Liberal opposition’s apparent success in the May 1869 elections, even if the “Reds” did rather too well for Gustave’s taste and Nat was mildly alarmed by outbreaks of working class “hub bub.” “It seems to me,” Alphonse wrote to London in July 1869, “that if France wants liberty, she is a lot less revolutionary than before, the conservative sentiment is a lot more developed than it was a few years ago, and I have confidence that we will come though this crisis without tumultuous events and without deep troubles.” Admittedly, there were signs of working class discontent, but he was confident that a broadly based parliamentary regime would be able to cope with these.
This sense of liberal victory undermines the widely held assumption that the Second Empire was sliding politically towards revolution even before the outbreak of war in 1870. On the contrary, by embracing the opposition, Napoleon seemed to turn the collapse of the “Rouhernement” to his own advantage. On January 2, 1870, it was announced that the erstwhile Republican orator Emile Ollivier was to form a new liberal government—a move anticipated by Nat as early as the previous July. Alphonse was not much enamoured of Ollivier, but he remained fundamentally bullish. “Paris is full of the joys of its new ministry,” he reported in early January 1870. “All one sees are contented people and the bourse manifests its liberal sympathies by a resounding rally. All the men in the ministry are wise and sensible, if not of a very exceptional talent. They can count for the moment on a large majority in the Chamber, and there is therefore good reason to believe that confidence in the future will be maintained.” According to Disraeli, who was in touch with Anthony that same month, “the Rothschilds ... were now very confident that things would go smoothly; they thought the Emperor had outmanoeuvred the Orleanists by adopting a
constitutional system, and might look forward with confidence to the future of his son.” Even the unruly scenes caused by Rochefort at Victor Hugo’s funeral did not perturb Alphonse unduly: “When a government has public opinion with it, it is very strong.” “The impotence of the democratic party,” he assured his cousins, was “beyond doubt.”
In the course of the next three months the constitution was remodelled along parliamentary lines, and on May 8 the new regime was endorsed by 68 per cent of voters. The decision to resort to yet another plebiscite initially annoyed Alphonse—it struck him as “a true puerility” and fresh proof of the ineptitude and mediocrity of the new ministers, awakening as it did fears of a second coup by the Emperor or a socialist insurrection in the big cities. But he welcomed the result “as a great victory for the party of order and the liberal party over the party of disorder”—a verdict apparently endorsed by a new upward surge at the bourse.
The problem was that the price of liberalisation was military weakness. Napoleon himself grasped the implications of Königgrätz when he called for reform of the lax system of military service in order to double the size of the army. Charlotte reported as early as August 1866 that the Emperor was “revolving in his head endless plans and projects for new breechloaders and needle guns, and murderous cannon.” Four months later, James heard of the Emperor’s plans to increase the army. But by giving the opposition its head in the Legislative Body he ensured that his Army Bill would be emasculated. As events in Prussia a decade before had demonstrated, liberals tended not to relish the prospect of increased military service, much less the taxes needed to pay for it. The arguments against higher spending seemed all the more plausible in view of the large sums which had already been squandered in Mexico, and which continued to be absorbed by the colonisation of Algeria.
All the government’s efforts in this direction therefore encountered stiff political opposition. The Rothschilds themselves were against French rearmament: as James saw it, it would “make a very bad impression and people will believe in war.” He and his sons therefore shed no tears when the Army Bill was whittled down. Like most contemporaries, they seem to have believed that France was already strong enough to take on Prussia if, as Alphonse put it, Bismarck made “the biggest mistake of all, to give France a pretext to pick a quarrel with him, when the occasion for it seems favourable.” When the organisers of the Paris Exhibition (among them Alphonse) found it hard to borrow works of art from the provinces, a joke did the rounds “that the Prussians might come, and carry them away.” The significance of this is precisely that it was regarded as a joke. As James said, there were “inexplicable contradictions” in the French situation: “[W]e have just put on an Exhibition, we ought to direct all our capital to industrial projects to improve the country; instead we’re forced to borrow to pay for [defence] expenditures.” When the Finance Minister Magne announced a loan in January 1868, its object was as much to stimulate the economy as to finance rearmament.3 Alphonse repeatedly cast doubt on the wisdom of French rearmament in his letters to his cousins: indeed, he seems to have been an early subscriber to the (erroneous) theory that arms races cause wars. Mayer Carl took a similar view in Berlin; he too saw French rather than Prussian policy as to blame. Alphonse reported enthusiastically from Paris in December 1869 that the Minister of Finances had reported “a very prosperous situation with a surplus of 60 millions of which the greater part will have to be used for public works and the rest for reductions in taxes and the improvement of the position of the minor functionaries.” A month later, the talk was of new government subsidies for railway construction.
This fundamental military weakness would not perhaps have mattered if the regime had been capable of pursuing a wholly passive foreign policy. But it was not. And it was as Napoleon cast around for some way of matching Bismarck’s triumph in Germany that the full extent of French weakness became apparent—or should have done.
Latin Illusions
Throughout the nineteenth century, there was a tendency—there are too many exceptions to speak of a rule—for diplomatic ties to be cemented if not actually built on movements of capital. Britain, the first economy capable of generating large enough balance of payments surpluses to allow sustained capital export, had secured most of its allies against Napoleon this way; and after 1815 the formal and informal British Empire was erected on an increasing stream of overseas lending. France was the other nineteenth-century power to export capital on a large scale; indeed, the value of foreign government loans issued in Paris in the years 1861-5 came close to equalling that issued in London. As we have seen, many of the new banks and railways established in countries like Spain, Italy and Austria after 1850 were based on French capital. This process reached its peak in the 1860s. But whatever its economic rationale (and there were many who questioned even that) its diplomatic or strategic benefits proved to be limited. If the Prussian challenge to French power on the continent was to be met, France needed reliable allies. Increasingly, Britain invested outside Europe: between 1854 and 1870 the proportion of British foreign investment which went to the continent fell from 54 to 25 per cent; by 1900 the figure was just 5 per cent. This helps explain Britain’s increasing diplomatic “isolation.” Anthony spoke for both Cobdenite Liberals and isolationist Tories when he declared in the immediate aftermath of the Austro-Prussian war:We want peace at any price. It is the desire of all our statesmen. Take, for instance, Lord Derby. He owes his income of £120,000 to the fact that his estates in Ireland and Lancashire are being covered with factories and factory towns. Is he likely to support a militarist policy? They are all in the same boat. What do we care about Germany or Austria or Belgium? That sort of thing is out of date.
On the continent, meanwhile, French capital tended to flow to states which were either unable or unwilling to reciprocate with anything more than interest (and in some cases not even that).
The striking feature of European economic development after 1866 was the increasing regional segmentation of the capital market. France continued to invest heavily in and to trade with Belgium, Spain and Italy: this helps to explain the viability of the Latin Monetary Union established by France, Belgium, Italy and Switzerland in 1865. Austria, after the calamity of 1866, reorientated herself politically and economically towards Hungary and the Balkans. The proliferating banks of Prussian North Germany, meanwhile, began to invest substantial sums in other German states, Scandinavia and Russia. The implications for French foreign policy were as profound as they were unnoticed. For French capital was flowing to two states which were negligible quantities in the balance of power—Belgium and Spain—and to Italy which, because of the Roman conundrum, could never commit herself unequivocally to Bonapartist France. To be sure of checking Prussia, France needed Russia; or, failing that, an Austria willing to reopen the question answered so decisively at Königgrätz. Diplomacy may partly explain why neither of these alliances was achieved: as long as Bismarck could keep Russia and Austria-Hungary vaguely interested in the idea of a reconstituted Holy Alliance, France was forced to bid high for the support of either; and both Austria and Russia demanded a price Napoleon hesitated to pay—support against the other in the Near East. Yet the French bargaining position would have been much stronger if either Austria or Russia had been recipients of substantial amounts of French capital. Without that, France had only her military power to offer; and that, as we have seen, was doubtful.
The Rothschilds’ role in this process was vital, if to a large extent unconscious. The English Rothschilds shared the prevailing Palmerstonian view that France, not Prussia, was the power which threatened European equilibrium. In August 1866, a week before the Peace of Prague was signed, Charlotte expressed a widespread view when she told her son: “[W]e have known long and well that the Emperor Napoleon was the instigator of the war, and hoped to profit by it.” Lionel did not hesitate to pass on the criticisms of French policy he received from his uncle and cousins to Disraeli.
Nothing di
d more to reinforce British Francophobia than Napoleon’s inept efforts to revive the idea of some sort of territorial “compensation” for France, supposedly as a reward for her neutrality in 1866. Twice in that year, Napoleon had raised this issue only to back down. In March 1867 he tried again. Egged on by Bismarck to present Europe with a fait accompli, he struck a deal with the King of Holland to buy the Duchy of Luxembourg from him: yet another of those abortive real estate transactions which were such a feature of the 1860s. Luxembourg was an anomaly—the personal possession of the Dutch King, it had been a part of the post- 1815 German Confederation and its fortress had been garrisoned by Prussian troops. It was also a member of the Prussian Customs Union. The prospect of its annexation by France therefore aroused the ire of the German National Liberals (whom Bismarck tipped off) and seemed to raise once again the spectre of a Franco-Prussian war. James and Alphonse had not been involved in the negotiations between Paris and the Hague, but when they got wind of them they were predictably appalled, and bombarded London with frantic requests for English mediation. Less than two months after he had made it, James’s prediction that political liberalisation would lead France into a war seemed alarmingly close to being realised. Even when Napoleon once again backed down, the possibility that Prussia would opt for war could not easily be dismissed: Mayer Carl’s assurances of Bismarck’s pacific intentions were flatly contradicted by Bleichröder from Berlin. The war scare ended only when both sides agreed to submit the matter to an international conference in London; there it was decided to neutralise Luxembourg on the model of Belgium since 1839. Even then, the compromise merely seemed a postponement: Anthony was alarmed by the evidence of military preparations on both sides of the Rhine when he visited the continent later that summer. Mayer had formed the impression as early as September that the other German states would side with Prussia “in the event of a French action.”
The House of Rothschild Page 30