The theory of the Rothschild system continued to be enunciated regularly. “Where all four Rothschild houses act in their own names,” declared Mayer Carl in 1862, “they truly need no associates.” The best response to increased competition, wrote Alphonse the following year, was “to tighten once again the ties which unite our houses and pull together all our forces with a common thread.” “We must stick together,” James declared in 1865, “but in order to do that each must go hand in hand with the other to be sure that there is no difference between the different parts of the business and that one house encourages the other and keeps it accurately informed about its business and neither one nor the other tries to draw everything to itself.” His will was perhaps the final expression of this philosophy of parternship by one who had imbibed it directly from Mayer Amschel; but it would be easy to cite a score of such affirmations of the old system in the years after his death. As late as 1895, the mantra was still being repeated. “Each house does what it considers best,” wrote Carl Meyer, “but on the other hand they know that the houses are all associated and for this reason no house would do a business which it knew would be against the interests of one of the other houses.”
Practice did not always conform to such confederal principles, however. The first obvious sign of fragmentation was Adolph’s apparently unilateral decision to withdraw from the partnership and close down the Naples house in 1863 on the ground that the Naples market had been “deprived of its importance.” This was an unprecedented event which shocked James and took months of negotiations to resolve. It was a sign of the new mood of suspicion that Adolph initially demanded three months to study the books of the various houses before accepting a definitive settlement, even threatening to open a new, independent bank if he did not get his way. He did. On September 22, 1863, he relinquished his partnership, withdrawing the sum of £1,593,777 as his share—more or less equivalent to the capital of the Naples house (£1,328,025) which was now wound up. However, his efforts to carry on business in Italy in a semi-detached role were evidently stymied by James, who now denounced him as “riff-raff” and a “great lump”; he wanted to tell him “to go to the devil,” he told his sons, “without doing him the honour of writing to him.” In particular, James was furious to hear that his nephew intended doing business in competition with the Paris house in the Turin market. Having abandoned his birthright, Adolph was now privately anathematised, though James was outwardly careful to conciliate his nephew lest he defect to the Credit Mobilier. In the end, Adolph avoided an outright breach by retiring from business altogether, selling the family residence in Naples and frittering away the remainder of his life on his collection of objets d‘art at Pregny.
A second sign of trouble was the increasing autonomy of the Vienna house under Anselm, which actually predated the 1863 agreement. When Adolph announced his withdrawal, Anselm seems to have sought to end the Vienna house’s technical subordination to the Frankfurt house, though he was advised by the family lawyer Rein ganum not to do this (in essence, the problem was that Anselm had a personal 25 per cent share in the combined capital, though the Vienna house itself remained relatively much smaller). The persistence of this imbalance led to a steady deterioration in relations between Anselm and the rest of the family. By 1867 James “regarded the association as illusory given the novel way in which our dear Uncle [Anselm] understands it.” Anselm felt obliged to defend himself, accusing the Paris house of treating him like a mere “agent or correspondent.” To reinforce his point, he repaid all the Vienna house’s outstanding debts to the Frankfurt house two years ahead of schedule, precipitating further friction between himself and Mayer Carl. This was followed by a similar accounting “divorce” between London and Vienna in 1870.
Relations between Paris and the other houses also deteriorated somewhat, and not only because of the political upheaval of 1870-71. In February 1868 Nat felt obliged to warn his brothers in London that “on the day you should come to such an understanding [with other parties] on a matter of business negotiable on our place, the public would be entitled to believe that our long existing association has been severed.” A symptom of growing estrangement was the increasing secretiveness of the Paris partners. Members of the other branches of the family continued to visit Paris quite regularly as of old—Anthony and Alfred in 1867, for example—but they found themselves marginalised in the office, following James from one meeting to another or signing routine letters. Ferdinand was especially put out by his reception in 1871. “I assure you my dear Uncle,” he told Lionel,when one has spent some little time in England and has become accustomed to the cordial and amiable and pleasant manner of the “London” family the great contrast of the Parisian relatives strikes one most forcibly.—Gustave seemed frightened out of his wits that I might discover some of his bureau-secrets and whenever I put a question to him—he answered it in the most evasive and round about manner.
The feeling of distrust was not unreciprocated: criticisms of the Parisians’ business methods were frequent. “In Paris,” grumbled Mayer Carl in a typical letter to New Court, “they will take everything in hand and particularly things what [sic] they do not understand, the consequence being that they must be mismanaged and others reap the fruit of our exertion.” Admittedly, these complaints may have been prompted partly by envy of the relative growth of the Paris house. When Alphonse drew up his balance sheet following James’s death, he was “delighted” (and the other houses not a little dismayed) to find that in the previous five years the Paris house had made “over four Millions sterling.” On the other hand, it gives an insight into Rothschild accounting practices that this came as a shock even to the French partners .24
These sources of conflict—as much as deteriorating Franco-Prussian relations—explain Mayer Carl’s subsequent resolution not “to have anything to do with them,” meaning his Paris cousins. There was no mistaking his Schadenfreude when Ferrières was occupied by the Prussians and the rue Laffitte by the Communards. “[I]f the Paris house insists,” he thundered in 1871, “upon not paying attention to what I say they will face the consequences of their proceedings sooner or later, perhaps too late!” For his part, Alphonse felt that it was he who was trying to maintain the spirit of family unity against the separatist tendencies of the other houses. And he could not resist the occasional dig at Mayer Carl’s relatively poor financial performance. “I know only too well my dear cousin’s habit of putting blame on all the other Houses,” he wrote acerbically in 1882. “The best proof of his superior competence would be to present better balance sheets.” The upshot was that by the end of the 1870s co-operation between the four houses was not much greater than co-operation between each house and its local allies.
All this made the revision of the partnership agreement—necessary as partners died—increasingly difficult. So bad had relations become by the time of James’s death in 1868 that Alphonse sought to avoid holding a family summit to revise the contract, fearing acrimonious exchanges “the moment certain extremely heterogeneous elements of the family come face to face. Won’t M[ayer] Carl and Anselm simply grab one another by the hair[?]” Even before the partners finally met in August 1869, the bickering began, and when Nat died a year later Alphonse once again sought to avoid “striking a new balance sheet.” This time he was successful: negotiations for a new agreement did not resume until 1874 and henceforth such matters were settled by post without the traditional family summits. Even so, acrimony was still liable to erupt. “If the policy which he pursues in Vienna is at all similar to his conduct towards his relatives of late,” grumbled Natty to Alphonse following a row with Albert about Ferdinand’s will, “the only thing I can say is I am astonished there is so little anti-semitic feeling in Vienna.”
The partnership agreements after 1874 had three notable features. Firstly, following the precedent set by Adolph, the partners now began to withdraw substantial capital sums from the partnership rather than living solely from fixed interest. This issue had
first surfaced in 1869, apparently at the suggestion of the London partners, when sums of the order of £500,000 per house were discussed. By 1872 the figure had been increased to £700,000 because (as Alphonse put it) “the Houses are so prosperous that a capital deduction cannot cause any harm.” Inevitably, Anselm was opposed to any reduction in the capital of the Vienna house. His death, however, removed the principal obstacle and the new agreement of 1874—5 allowed no less than £8 million to be withdrawn from the combined capital of £35.5 million. The 1879 contract following Lionel’s death saw a repeat of the procedure: this time £4.7 million was withdrawn, reducing the combined capital to £25.5 million. A further half million came out when James Edouard died in 1881, followed by £3.8 million later the same year. The 1887 contract (following Mayer Carl’s death the previous year) withdrew £3.4 million, the 1888 contract a further £2.7 million, and £2.8 million was withdrawn in 1898, followed by £1.1 million a year later; £6.4 million was taken out when Wilhelm Carl died, £2 million when Arthur died, £1.4 million when Nathaniel died and £4.5 million when Alphonse died.25 Altogether £41.3 million was withdrawn from the partnership between 1874 and 1905. If that money had remained in the business, its capital would have been more than double what it actually was in 1905 (L37 million). That the Rothschilds were able to afford such immense capital reductions is in itself remarkable; that they no longer ploughed their profits back into the family firm is, however, the more telling point.
Apart from the obvious need to settle the wills of deceased partners, the formal justification for this was the need to maintain some sort of equilibrium between the various partners’ shares; yet this was not the effect. Under the terms of the 1863 contract, the shares had been equal: James had 25 per cent, as did Anselm (as Salomon’s heir), the sons of Nathan and the sons of Carl. Under the terms of the 1879 contract, by contrast, the sons of James had 31.4 per cent; the sons of Anselm 22.7 per cent; Mayer Carl and Wilhelm Carl 22.3 per cent; the sons of Lionel 15.7 per cent and the sons of Nat 7.9 per cent. Because Nat’s sons were French by birth and upbringing, they could be expected to side with the Parisians in any dispute, giving the French partners a considerably larger stake than the others, though not an outright majority. The vagaries of inheritance altered these figures somewhat, but without reducing the French predominance. By 1905 the French partners had some 46.8 per cent of the total capital, excluding Henri’s 3.9 per cent; the Austrians 25.9 per cent; the English just 23.4 per cent. These figures nevertheless understated the greater size of the Paris house, which accounted for fully 57 per cent of the combined capital, compared with 22 per cent for Vienna and 20 per cent for London. The discrepancy between personal and institutional shares is explained by the fact that—again as a result of intermarriage and inheritance—the Austrian and English Rothschilds had substantial individual stakes in the Paris house. In this sense, the partnership did remain an integrated multinational entity until it was discontinued (at some point between October 1905 and July 1909).
Secondly, it was necessary after 1874 to distinguish explicitly between active and “sleeping” partners as the number of partners increased (by 1879 there were twelve in all). For example, Lionel and Anthony were adamant that Nat’s French-born sons James Edouard and Arthur should not inherit their father’s full rights as partners with executive power in the London house. It was also firmly asserted in the 1875 contract that, of Anselm’s sons, neither Nathaniel nor Ferdinand would be allowed to play an executive role.26 (Interestingly, this contract attempted to clip the wings of the Vienna house: it was stipulated that Albert would “not undertake any important transaction without having beforehand consulted with the other houses and having obtained the approval of at least one of them.”) Another “sleeping” partner was James Edouard’s son Henri. However, no distinction was drawn between dominant and subordinate partners: in terms of his capital share, Alphonse always had equal status with his brothers Gustave and Edmond; similarly, Natty, Alfred and Leo were treated as equals in the partnership acts, though Natty was unquestionably in charge at New Court. The same was true in Frankfurt, where Mayer Carl was the dominant partner, to the extent that he and his brother Wilhelm Carl were barely on speaking terms—they even erected a partition across the desk they shared to avoid seeing one another when signing letters.
Finally, a seeming paradox should be explained: as the partnership between the various Rothschild houses became in practice looser, it was renewed more and more regularly. This has a prosaic explanation: the introduction of taxes on inheritance necessitated more precise methods of assessment of individual shares in the partnership, so that in 1899 it was decided for the first time to draw up combined balance sheets on an annual basis. There was also probably a legal need to tighten up the somewhat imprecise and irregular form of the partnership: Lord Haldane later recalled how in around 1889 he had “rearranged the Rothschild partnerships which had got into a very vague relation, placing the whole family potentially at the mercy of one dishonest partner.” In its last decade, however, the partnership was in reality little more than an Anglo-French axis, with minimal links to Vienna. Typically, of the £28 million of bills discounted by the London house in 1906, £12 million were for the account of the Paris house. On the other hand, when the Vienna house issued a large Austrian loan in 1908, New Court was not even notified. Under these circumstances, it is not entirely surprising that the partnership was not renewed after 1905.
This date, then—when the London, Paris and Vienna houses established by Nathan, James and Salomon became entirely separate entities—is the real watershed in Rothshild history, for it was at this point that the unique “confederal” system of a multinational partnership, dating back to the 1820s, finally came to an end. As early as 1868, a shrewd French journalist had divined what such a break-up would imply. “The five sons of Mayer [Amschel],” wrote Roqueplan, recalling the origins of the system,establish bet ween themselves a sort of financial equilibrium which is not without a certain resemblance to the continental equilibrium dreamt of by Richelieu. None of the places where the brothers are based is sacrificed to the others and the appeal made by everyone-states and individuals—to their credit and their capital obliges all who borrow to act with restraint, as they find themselves under supervision. This leads to a general entente and a middle way which soothes sources of friction, tempers ambition, diminishes miscalculations ... The house of Rothschild ... becomes the superintendent of the finances of Europe. Divide up the house of Rothschild into a French house, an English, an Austrian, a Neapolitan, and its mediating influence disappears. You have [just another] national bank; you no longer have this universal bank house, where the rivalries between the different European states come to be limited and resolved.
Yet, although it is tempting to explain the problems which beset the Rothschild partnership system in personal terms, structural factors were probably more important. Throughout the period, the principal bone of contention between Vienna and the other houses was the willingness of Anselm to do business with rival banks, including associates of the Pereire brothers, the Credit Foncier and even members of the hated Erlanger “clique.” Part of the difficulty was that the other houses regarded the Creditanstalt as effectively a subsidiary of the Vienna house, whereas Anselm insisted that it was not. Similar conflicts arose with respect to the different railway companies in which the Rothschilds had large but not controlling interests. The fact was that the development of joint-stock institutions—and indeed of other private banks—in all the major financial markets was bound to create conflicts of loyalty. The Rothschilds were no longer so dominant that they could underwrite major bond issues without assistance from other local banks. Increasingly, each house developed informal partners in its own market—Barings in London, the haute banque in Paris, the Creditanstalt in Vienna and the Disconto-Gesellschaft in Germany—and the volume of business done with these soon began to exceed the volume of cross-border business with other Rothschild houses. It was all very well
to accuse the Frankfurt house of having becoming Hansemann’s “satellite,” but the Paris house was not offering sufficient business to keep Mayer Carl in its own orbit.
In a similar way, it became progressively more and more difficult to rely on the traditional system of salaried agents. As the case of Becker & Fuld in Amsterdam illustrated, agents could not be expected to confine themselves solely to Rothschild business when so many other opportunities presented themselves; yet the more they did business on their own account, the more like competitors they became. Natty might talk of “pulling up” agents by “adopt[ing] ... a system similar to the one the Jesuits practise. First of all never leave a man too long in one place and then have a wandering Jew to spy & to report.” But there was no denying that the old agency system was obsolescent. Mayer Carl’s reliance on Hansemann’s Disconto-Gesellschaft and his animus against Bleichröder were part of the same trend.
Even within the offices of the Rothschild houses, the old ways were in decline. “Every moment,” complained Mayer Carl in 1873,one of the clerks leaves the House, either to become the manager of a Bank or for the sake of establishing himself on his own account. Jews with their terrible ambition are the worst employees. I know they merely want to poke their nose everywhere and try to find out as much as they can to cut their stick when it suits their purpose. There is not a good clerk to be had and I assure you it is a perfect nuisance... all these new Banks pay such salaries that no one thinks of coming forward.
The House of Rothschild Page 43