The House of Rothschild

by Ferguson, Niall

  An unexpected revelation in this context is the extent of hostility between Mayer Carl and Bleichröder at this time. Contrary to Fritz Stern’s impression, the Rothschilds were increasingly impatient with Bleichröder and regarded Hansemann as their principal business partner in Berlin. Beginning in the autumn of 1868, Mayer Carl complained repeatedly about Bleichröder, whose pretension to be the Rothschilds’ “agent” in Berlin he dismissed contemptuously. “I think it quite ridiculous of Bleichröder to write to you & to Paris wishing you to entrust your interests to him,” he told New Court during the negotiations for a new Prussian loan in 1868: “[H]e has nothing to do with it.” A year later he denounced Bleichröder as “an old fool who wants everybody to think & believe that he is our agent whilst he does business with any one who gives him 1/8 commission.” “I do not see much of him,” he remarked in March 1870,

  He is very jealous of Mr. Hansemann and as he does business with every body whilst he wants to make the rest believe that he is our agent I do not care much about him. He also makes a great fool of himself and runs after fine people, titles and orders, things which have also become a regular mania amongst the members of the Jewish tribe ... Bleichröder is a fool who cares merely for personal distinctions and has not the least influence in these quarters.

  It was same story a few weeks later:Mr Bleichröder takes good care to make every body believe that he is the agent of our house and many persons fancy that whatever he does is for our a/c [account] & with our consent. If you have any business with Berlin I should strongly advise to apply to Mr Hansemann who is first-rate and particularly honest. We do all our business with him & I need not tell you that we have every reason to be particularly satisfied with his services.

  And again in October:You know that we chiefly employ Mr Hansemann for all we have to do at Berlin and never apply to Bleichröder who is a regular busybody & wants the whole world to believe that he is our agent & that nothing can be done without him. Mr Hansemann is very honest & would never think of doing anything without us whilst I am not quite sure that Mr Bleichröder deserves to be viewed in the same light.

  The final reason for Mayer Carl’s confidence in Bismarck’s pacific intentions was a sense that there was no need for war to bring about the accession of the South German states: economic forces seemed to be completing the process of unification unprompted. The period 1867-70 saw Mayer Carl busy not only with Prussian finance, but also with the finances of other German states, including the South German states still outside the Bismarckian Confederation. He participated in a succession of loans to the Kingdom of Württemberg, for example (9 million gulden out of a total of 15 million in 1867, 25 million in 1868); as well as in bond issues for Baden, Bavaria and Saxony. In addition, he was able to arrange loans for a number of smaller German states, notably Brunswick, Saxe-Meiningen, Saxe-Coburg-Gotha and the city state of Hamburg. Often the sums and profits involved in these loans were trifling; but Mayer Carl was a firm believer that “every little helps” and “1/2 an egg is better than an empty shell.” In any case, the real significance of this activity lay in its geographical range: to all intents and purposes an integrated German capital market now existed, with its principal centres in Frankfurt, Berlin and Hamburg, serving an emerging North and South German confederation—the nascent Reich. It is telling that most of these loans were for railway construction, not military purposes: the South Germans might bark at Prussia, but they evidently had no intention of biting. To Mayer Carl, shuttling back and forth between Frankfurt and Berlin, the evidence of German economic unification was unmistakable. Why go to war for it?

  The Russian Option

  With hindsight, only an alliance between France and Russia could really have prevented the unification of Germany on Bismarck’s terms. The obvious diplomatic opportunity for such a combination came in June 1867 when Gorchakov and the Tsar visited Paris “to do business”; but subsequent differences of opinion over the Cretan revolt proved an insuperable obstacle to an understanding. Another obstacle—and here there is a marked contrast with the period after 1887—was the failure of the Paris capital market to establish a dominant position in Russian finances. As we have seen, James had tried and failed to “establish a new Rothschild foothold” in St Petersburg on a number of occasions. Semi-official advances were made to the Paris house in the autumn of 1867; but when James met the Financial Minister Reutern in August 1868, he drew a blank. In the course of a long discussion, James proposed to undertake “a large financial operation,” meaning a large issue of government bonds to finance new railways. But Reutern was uninterested. The government had “no financial operation in view” and certainly had no desire to borrow money in order to leave it on deposit—at a lower rate of interest—with James. Reutern wished to minimise state intervention in Russian railways, not to have the state finance the railways itself. All he could offer James was involvement in the privatisation of the line from Moscow to Odessa. Although there were desultory negotiations on this subject it was not what the Rothschilds wanted. In James’s eyes, direct involvement in private undertakings “in regions so remote from our sphere of action” was too risky.

  This general feeling of wariness only intensified after James’s death. As the Frankfurt house put it in late 1868, “Up until now we have not had much luck with Russia and with all these things we seem to arrive like the mustard after dinner is over, which is neither agreeable nor honourable.” Even when the Russian government seemed to change its mind in early 1869, Mayer Carl felt nervous at the thought of a large loan: “[I]t is impossible to pay close attention to a business of such magnitude by the ordinary way of correspondence ... [but] we have nobody to send to Petersburg and till now we have had so little luck with the Northern Barbarians that we ought to be careful & not let the cat out of the bag for others to reap the harvest [sic].” He declined to go to St Petersburg; as did Alphonse, who suspected that a highly publicised Rothschild visit was merely designed to pressurise Russia’s traditional bankers, Baring and Hope. The project was still in a state of limbo as 1869 drew to a close. Rather as in the United States, the Rothschilds refused repeatedly to establish a familial representation in St Petersburg. In August 1871, Gorchakov urged Mayer Carl that “we ought to have a house at Petersburg,” telling him “that one has no idea how much business there is to be made in Russia. ‘C’est une mine d‘or’ were his words.” This advice was never heeded. Alphonse even opposed the indirect involvement of Anselm or Mayer Carl in an Austro-German joint-stock bank to be established in St Petersburg by the Creditanstalt.

  Such caution, however, was not shared by other bankers in Berlin. “The Berlin Bourse is a capital market for Russian securities,” reported Mayer Carl in May 1868 with detectable incredulity, “and the public buy almost nothing else.” Bleichröder was assiduous in promoting the idea of a Russian Credit Foncier, which was to be the counterpart of the Hansemann-Rothschild—Oppenheim Prussian mortgage bank. Bleichröder and Hansemann were also much more enthusiastic about Russian railways than the Rothschilds. This needs to be seen as part of an early movement of German capital eastwards: the 1860s also saw a variety of proposals emanating from Berlin and Hamburg for loans to Sweden and Finland (which, though ruled by the Tsar, had its own parliament and enjoyed considerable autonomy). The continental Rothschilds were never more than half-hearted participants in these ventures—for example, taking a 5 per cent stake in the 50 million rouble Russian mortgage loan of 1867, but refusing an option when more such bonds were issued two years later and blowing hot and cold thereafter.

  Rather curiously, given their reservations about lending to Russia in 1863, it was the London Rothschilds who proved most convinced of the value of Russian business. Natty was critical of Mayer Carl for failing to go to Moscow at the time of the abortive 1869 negotiations, and it seems to have been at his instigation that the London house pressed the matter to a conclusion that December. The issue of £12 million of Russian 5 per cents at a price of 80 was one of the mo
st ambitious Rothschild undertakings of this period, and a resounding success in all the markets where subscriptions were opened: it was heavily oversubscribed in Paris and Berlin. As Mayer Carl declared, it was “decidedly the greatest success of the day and the Russian Government ought to be particularly grateful to you and will never think of applying to any body else, which I hope will send a large number of other transactions.” It was indeed the first of a succession of five major Russian bond issues in the years up to 1875 (totalling £62 million nominal), though the connection to St Petersburg remained a somewhat fragile one.

  The Rothschilds wanted the Russian government to confine itself to such bond issues and to end the practice of guaranteeing private railway company bonds, but this proved difficult to achieve as long as Bleichröder and others were willing to invest directly in Russian railways. “[I]t is a great pity,” complained Mayer Carl on more than one occasion, “that the Russian Government should allow all these Railways to issue their bonds which are all taken up by the public and spoil our market.” Moreover, as early as October 1870, with the Russian denunciation of the 1856 neutralisation of the Black Sea, Anglo-Russian relations began to deteriorate over the Eastern Question. The Balkan revolts of 1875 led to yet another breakdown in Rothschild—Russian relations, despite the hopes which Alphonse had expressed when he and Edmond visited St. Petersburg the year before. The crucial financial realignments which brought France and Russia and ultimately England together to check the new Germany lay more than a decade in the future.

  II

  Cousins

  SIX

  Reich, Republic, Rentes (1870-1873)

  I hope that now the world will at least appreciate what Germany is.

  MAYER CARL VON ROTHSCHILD, SEPTEMBER 1,1870

  [I]t ought to be added that the French rente is a security which can always find buyers ...

  ALPHONSE DE ROTHSCHILD, AUGUST 22, 1870

  The Franco-Prussian war of 1870-71 was, on the face of it, a disaster for the Rothschilds. For the first time, Rothschild houses found themselves on directly opposing sides in a major European war they could do nothing to prevent. In his memoirs, Moritz Goldschmidt’s son remembered Anselm in 1870 exclaiming petulantly: “I won’t stand for its coming to war! I won’t stand for it, even if it costs me thousands of gulden—I won’t tolerate it!” Still war came. The Paris partners elected to “remain at their posts” in the rue Laffitte, even as the Prussian army swept towards the French capital: despite an early awareness of French unpreparedness and the Bonapartist regime’s culpability in precipitating the war, Alphonse and Gustave nevertheless identified themselves with la patrie. They lent the French war effort their financial support and sought to use their influence in London to further the aims of French diplomacy. At least two of the younger French Rothschilds—their brother Edmond and Nat’s son James Edouard—served in the Garde Mobile. The great symbol of this identification was the occupation of Ferrières by the Prussian army. The arrival there of Bismarck and William I in September 1870 seemed to signify with stark force the advent of a new era in which Rothschild financial power must bow down before Prussian “blood and iron.”

  In Frankfurt, meanwhile, Mayer Carl identified himself even more unequivocally with victorious Prussia, and not only with Prussia but with the new German Reich proclaimed in the aftermath of the French defeat. Here too there was a potent symbol, for Mayer Carl was chosen as one of the parliamentary delegates sent from the Reichstag of the North German Confederation to “pay homage” to the Prussian King on the eve of his proclamation as the “Emperor William” in the Galerie des Glaces at Versailles. Mayer Carl did not, however, stay for the ceremony itself; there is no Rothschild among the cheering soldiers and uniformed officials in Anton von Werner’s great depiction of the occasion, The Proclamation of the German Empire. Again, the Rothschilds seemed dwarfed by the new and ostentatiously military power of Germany.

  Yet perhaps the most striking aspect of the French defeat—apart from the speed with which it was achieved—was the speed with which it was overcome. For a time in 1870 it seemed as if the collapse of the Bonapartist regime would plunge France—or rather Paris—into a revolutionary turmoil comparable with 1792 or 1848. The vain efforts of Republicans like Gambetta to prolong the war by means of a levée en masse seemed to jeopardise all the material achievements of “bourgeois society.” The peace terms, when they were finally accepted in January 1871, seemed crushing not only in territorial terms—the loss of Alsace and Lorraine—but in financial terms—an indemnity of 5 billion francs. All this could have turned the Third Republic into the Weimar Republic of the nineteenth century. Instead, a dramatic financial recovery enabled the French to pay their reparations bill ahead of schedule, thus ending the German occupation of northern French territory in 1873. In the same year, stock market crashes in Vienna and Berlin plunged all of Central Europe into economic depression, raising doubts about the internal stability of the Bismarckian system. The Rothschilds played a decisive role in this financial revanche. As a result, their power in Paris—and in Europe itself—seemed to emerge enhanced rather than diminished.

  There is no question that the Rothschild intelligence system failed badly over the question of the Spanish throne. They knew well enough that one of the candidates being considered by the Cortes in Madrid was Leopold of Hohenzollern-Sigmaringen. But they failed to grasp the significance of Bismarck’s support for his candidacy, which he decided upon as early as February. We know that Bismarck concealed this decision from Bleichröder, allowing his personal banker to continue to believe that “the political realm offers no cause for disquiet” until perhaps as late as July 5. Interestingly, he seems nevertheless to have dropped a hint to the Rothschilds. According to a letter to New Court dated April 5, “Old B” told Mayer Carl, “that the news from Spain are [sic] so bad and that the financial state of that country looks particularly queer.” But if this was a coded warning of an imminent Spanish crisis, Mayer Carl failed to decipher it.

  Equally, Alphonse failed to appreciate the significance of the due de Gramont’s appointment as French Foreign Minister in May. Gramont’s belief in the existence of a de facto Franco-Austrian alliance made him willing to take far greater diplomatic risks than his predecessor, who had considered English support the essential precondition for any reckoning with Prussia; but when Alphonse heard of Gramont’s appointment, he commented: “We will be delighted by it from every point of view, because it is necessary to have at the head of this ministry a man of experience who is wise enough not to want to try to win fame for himself by some brilliant stroke.” A more erroneous character assessment would be difficult to imagine; though the fact that the Duke’s son later married a Rothschild (Mayer Carl’s daughter Margaretha) raises the possibility that he was already a family friend. On July 2 Mayer Carl saw Benedetti, the French ambassador in Berlin, who was leaving (along with the usual throng of grandees, politicians and bankers) to take the waters at Wildbad. He was, Mayer Carl reported to New Court, “very glad to be able to rest a little after all the fatigue of the great Capital. He seems in very good spirits and says that everything is in perfect order and that peace is assured.”

  The Rothschilds were not alone in their complacency: the under-secretary at the British Foreign Office greeted the new Foreign Secretary Lord Granville on July 12 with the unfortunate observation that “he had never during his long experience known so great a lull in foreign affairs.” But Mayer Carl’s letter of July 2 gives us a valuable clue to why bankers in particular were taken unawares by the Spanish crisis. Not only was it the holiday season; as he reported routinely, the Frankfurt bourse, like its Paris counterpart, was “in very good spirits.” It was the eve of the Prussian Credit Foncier flotation—that symbol of Franco-Prussian economic co-operation—and Mayer Carl’s main concern was that “everything [should] go well.” He became concerned about “this Spanish fuss” only on July 7, and even then was confident that it would not “not come to a serious dist
urbance of peace.” An early City of London pessimist like Henry Raphael seemed to be making an uncharacteristic mistake by selling at such a time. Yet, unbeknown to the Rothschilds, both the Prussian and the French governments were already bent on a major diplomatic confrontation, if not outright war.