Historians have sometimes wondered why the Rothschilds were slow to seize the opportunity of lending to Japan, the most economically dynamic and self-consciously “Western” of all the Asian countries. It is true that N. M. Rothschild and Parr’s had jointly underwritten a loan for the construction of Japan’s first railway between Edo and Yokohama in 1872, but the connection subsequently lapsed and it was Barings who took the lead when Japan returned to the City in 1898. When, in the wake of the Anglo-Japanese alliance, the Japanese government sought a loan of £5.1 million, Natty was emphatically told that Lansdowne regarded it “as a matter of political importance that Japan should be able to raise in this country rather than elsewhere the money which she requires ... and on reasonable terms.” But he declined to play a leading role and the initiative passed back to Barings and the Hong Kong & Shanghai Bank. The issue was a success. Given the Rothschilds’ continuing aversion to Russia, it seems curious that Natty missed this chance: 1903, after all, was the year of the pogrom at Kishinev (near the Rumanian border) in which forty-five Jews died, and the Germans were quite right to expect this to intensify Rothschild Russophobia. A fresh wave of anti-Jewish violence in 1905 prompted Natty, as one of the four members of the Russo-Jewish Committee, to denounce in a letter to The Times: the unspeakable calamities [which] have befallen the Jews in Russia. They have again become the victims of outrages to which there is probably no parallel in history. At numerous places they have been mercilessly struck down and massacred. Fiendish savagery has characterised the attitude of the ferocious mobs which have been allowed by the official protectors of life and property to perpetrate their work of murder, mutilation and pillage.
To start the process of fund-raising for the victims, New Court matched the £10,000 donation already made by Jacob Schiff of Kuhn, Loeb & Co. in New York. In addition, Natty pressed Balfour—who had now succeeded Salisbury as Prime Minister—to protest on behalf of “the Jewish victims of law and lawlessness in Russia” and to urge the Russian government “to put an end to the atrocious attacks on the Jews.”
The explanation for the Rothschilds’ initial hesitation about Japan would seem to be threefold. Firstly, the Anglo-Japanese alliance was a blow to the strategy of rapprochement with Germany; indeed, it may even be said to have made that strategy redundant. Secondly, the Rothschilds did not imagine that Japan could by herself take on Russia: in December 1903 Leo had a bet with the Duke of Devonshire that there would be no war between Russia and Japan—to the amusement of the Japanese ambassador Hayashi, who told Eckardstein that the Duke would win the bet. Even when Hayashi approached Alfred less than a month before hostilities broke out, the Rothschilds still declined to make a firm financial commitment. Thirdly, when the war began, the Paris Rothschilds found themselves struggling to support the price of Russian bonds, which predictably slumped on the outbreak of hostilities, and fell precipitously as the Russian campaign disintegrated.14 It was therefore only after the war broke out that the Rothschilds took an interest in Japan, participating in a new £5 million loan as part of a consortium led by Kuhn, Loeb and M. M. Warburg. This coincided with an “absolute” refusal “to have anything to do with a Russian loan,” as Walter informed Herbert Gladstone. Even the French Rothschilds now refused their assistance to St Petersburg, albeit less irrevocably. As Alphonse told the German ambassador in Paris in August 1904:The Paris House of Rothschild is hostile to Russia, and at the present time is standing somewhat aloof from Russian operations ... Russia had made fine promises regarding the future treatment of his co-religionists, if only the money were forthcoming, but ... his attitude was that these were empty promises. Since, however, as a good Frenchman he feels that he is more or less called upon to support the Russian Alliance (and that is what I infer), he will possibly soften in the end and open his purse, however unfavourable a view he may take of the present situation.
The Japanese victories at Port Arthur, at Mukden and, decisively, at Tsushima in May 1905 vindicated the decision to back Japan against Russia on economic as well as religious grounds. In the aftermath of the war, the new ties between Britain, the US and Japan were reinforced not only diplomatically but also financially. In 1906 both the London and the Paris houses were involved in another £25 million loan, which this time also attracted subscriptions in France and Germany; and they jointly undertook a further £11.5 million loan the following year. Natty was by now confident of “the future prosperity of Japan, both financially & economically,” assuring his initially more sceptical Parisian relatives that “their dense & intelligent population, their loyalty zeal & intelligence, will soon bring them to the front rank both in commerce & manufacture.” On the other hand, he could hardly deny that “the success of Japanese financial undertakings [was] owing to intermediaries who initiated the world into the value of Japanese Bonds when hardly anyone would look at them.” It was Jacob Schiff who was now the “welcome & much honoured guest at Tokio” and who had “incense ... poured on his devoted head”; and it was “his dear nephew Warburg at Hamburg” who, following the success of the Japanese loan in Hamburg, “resemble[d] the frog in the fable & [was] swollen up with vanity & the belief in his own power to control the European markets, & interest all big houses in any & every syndicate.” They, along with Revelstoke, had appreciated Japan’s potential long before the Rothschilds latched on. It was not quite true to claim, as Natty did in May 1907, that “We have always had great faith in Japan, faith in their military and naval prowess which the late war amply justified, faith in the resources of the country and still greater faith in the wisdom of the Japanese rulers.”
Nor were the wider diplomatic implications of the Japanese victory entirely congenial to the Rothschilds. By discrediting Russia as an imperial power—and plunging the country into revolution—the war removed at a stroke one of the strongest arguments for Anglo-German rapprochment. But it did not (as the Germans had hoped it might) force France to “choose between Russia and Germany or England.” Natty himself saw the 1907 loan to Japan as a way of forging a colonial entente between France and Japan. “I never for one moment thought that the Japanese had any designs on the French Colonies or were imbued with those ambitious designs which were attributed to them,” he explained in two illuminating letters to his cousins:But as a matter of course in order to obtain the object the French Government had in view, it was necessary that a quid pro quo should be offered to the Japanese Government and you can flatter yourself and flatter yourself most justly that by introducing two loans to the French Capitalists you brought about this desired consummation ... No doubt politics and finance often go hand in hand, & if a capitalist is directly interested in the stocks of a country, he is naturally anxious that that country should increase in prosperity & development, which can only occur in times of peace & tranquillity.
Such a rapprochement between France and Japan, coming as it did in the wake of the Anglo-Japanese alliance, implied a convergence of British and French interests; and this was more or less impossible to reconcile with the Rothschilds’ earlier goal of Anglo-German amity.
It was not, in fact, in the Far East that this contradiction made itself most apparent, but in Morocco, where previously the auspices for Anglo-German harmony had been quite good. “Lord Rothschild told me yesterday it was stupid of us to believe England had warlike intentions,” the German ambassador Count Metternich informed Büllow in January 1905. “Such never existed here, and this Government especially wished to maintain good relations with us. Mr Balfour had said this to him a few days before.” But the very fact that such an assurance had to be given was proof itself of how rapidly the two countries were drifting apart. The new pro-French orientation of British policy was confirmed when the Kaiser landed at Tangier on March 31 and demanded an international conference to reaffirm Morocco’s independence. Far from supporting the German arguments for an “Open Door” in Morocco, Lansdowne worried that the crisis might topple Delcassé and end with a French retreat. The British concern now seemed to be to
bolster the French position in Morocco, in order to see off a German bid for an Atlantic port. This Francophile tendency became even more pronounced following the Liberal election victory which brought Henry Campbell-Bannerman to power in January 1906. To Natty, this spelt the end for German policy in Morocco: “[N]o sane person can believe that the Emperor of Germany will wish to oppose the wishes & feelings of a united Europe,” he told his cousins in Paris on January 3, “& much less can he hope for any success at all, now that a Liberal Government in England fully endorses the Anglo French entente.” Natty vaguely hoped for “a compromise which would please both sides & wound the vanity of neither,” and sought to quell fears at the rue Laffitte that Bülow might be contemplating a military solution. But on the substantive issues—the internationalisation of the Moroccan police and a proposed Moroccan bank—he regarded Germany as isolated: as he told Edouard in late February 1906,[O]ur Government is supporting yours on the various questions connected with Morocco, & in fact I may go so far as to say that they think the French proposals both reasonable & moderate ... your Government has the firm support of ours, and ... Mr Rouvier’s wishes find a warm re-echo in Sir Edward Grey’s mind. And no doubt the feeling of this perfect entente will considerably help towards the solution, and probably the feeling of this entente is what most rankles in the minds of those who direct the policy in the Wilhelmstrasse.
Natty declared that he regarded the German police proposals as “most dangerous [and] certain to meet with failure” as they “could never be approved of here.” Yet when this was relayed by Metternich to Berlin, the Kaiser minuted bluntly “darin stehe ich fest”—“he was determined,” in other words, “to hold out on the police question.” This sort of intransigence tended to erode Natty’s patience with the German government, and particularly with “His Teutonic (or Satanic) Majesty.” “If the very conciliatory attitude your Government is now taking does not produce the desired effect,” he told his French cousins, “it will be for the single reason that they are determined on the Banks of the Spree, that no oil should be poured on the troubled waters.” “The line taken at Berlin, or rather the official language of the Wilhelmstrasse,” he wrote a fortnight later, “is somewhat circular: they say Germany has made so many sacrifices, & has shown her good will so much, that it devolves on France to hold out the olive branch & make some concession, but they do not tell us what sacrifices Germany has made.” If a “modus vivendi” was to be found, he added, it would have to be “satisfactory to Teuton arrogance, without interfering with Gallic rights.” In the end, Natty hailed the outcome of the Algeciras conference as “gratifying to French political interests, but also to the financial interests of your country.” In addition to averting war, he concluded, it had “proved the value of the Anglo French Entente & ... demonstrated the solidarity of a Franco Russian Alliance; & personally I should very much doubt the desire of the Emperor of Germany to make war upon France for no reason at all.” This was a very different kind of language from that which had been current at New Court ten years before.
The improvement in France’s diplomatic position was not a purely diplomatic phenomenon, however. As Natty repeated time and again, it was firmly based on financial strength. The entente with Japan mentioned above was not the only French diplomatic initiative reinforced by bond issues on the Paris capital market. In the wake of the Russo-Japanese War, there was a brief moment when it seemed that monarchical diplomacy might undo the achievements of a decade of French foreign policy. This was the meeting between William II and Nicholas II at Björkö in July 1905 at which the two emperors agreed a European defensive alliance—a realignment which would have transformed the international scene if it had been formally ratified. But, as A. J. P. Taylor put it, “the Paris bourse made a stronger appeal than monarchical solidarity.” Russia, in dire financial straits after Tsushima, desperately needed fresh loans to help reconstruct her military capability, and the Paris market was still capable of tapping a deeper pool of savings for foreign issues than that of Berlin, where the insatiable needs of German industry and German government were paramount.
Italy too could be wooed in this way. The conversion of Italian rentes in the summer of 1906 was undertaken by a consortium led by the French Rothschilds, and although seven Berlin banks were members of the syndicate, the German share of the 1 billion franc operation was smaller than the French, and the diplomats in both Paris and Berlin interpreted that as a French success. The agreement was only signed on June 26, after the Algeciras conference had ended; throughout it, Italy had consistently sided with France, marking the effective end of the Triple Alliance which had bound her to Germany and Austria—Hungary.
These aspects of pre-war financial diplomacy are quite well known. What is less obvious is the role of finance in underpinning the Anglo-French entente. The Rothschild archives show how close co-operation was between London and Paris in the period after 1905, especially with respect to monetary policy. As in the past, the Rothschilds acted as private helpmeets to the Bank of England and the Banque de France, facilitating that co-operation between the two financial centres which was so vital to the stability of the pre-war gold standard. Sometimes the role they played had a directly political significance, as when the Rothschilds brokered the secret purchase by the Bank of England of shares in the Constantinople Quay company in 1906—7 (part of a joint Anglo-French bid to acquire a controlling interest in the concern). To Natty, it was self-evident that—even when they were primarily diplomatic in their inspiration—such complex transactions could not be left to the Foreign Office mandarins. “[A]lthough they may be diplomatists,” he observed acidly, “[they] are certainly not men of business.”
More often, however, the Rothschilds’ cross-Channel role was a matter of equilibrating the gold reserves of the two central banks, ensuring that British and French monetary policy did not come into conflict. In November 1906, for example, when Bank rate stood at 6 per cent and large quantities of gold were being withdrawn from London by Brazil, India and other large holders of sterling balances, Natty and Edouard arranged advances of gold sovereigns worth £600,000 from the Banque de France. This “policy of courtesy & of aid” was extremely welcome in London, and as Natty observed: “It is very important to know that in the future, if at any moment it should be thought necessary & imperative, a helping hand will be ready to come forward from the other side of the Channel to the rescue of the Old Lady in Threadneedle Street.” No sooner had this letter been sent than Natty was asked by the Bank to seek a further delivery of £400,000 in sovereigns. This too was promptly arranged, and topped up with a further £600,000 in the course of the month. These exchanges of gold for bills—which totalled £1.4 million in all—may well have averted a further increase in Bank rate, and indeed allowed the Bank to cut it in stages back to 4 per cent by April 1907. The point to be emphasised is that the Rothschilds had stepped in after direct negotiations between the central banks had broken down.
The great test of Anglo-French monetary co-operation came in the second half of 1907, when the crisis which had been gathering in the United States broke, sending waves throughout the international economy. As early as March, Natty and Edouard had exchanged uncharacteristically harsh words following the Banque de France’s decision to raise its own discount rate: plainly Edouard was unimpressed by his relative’s request for a further “2 or 3 millions” of French gold for Threadneedle Street. “I regret very much,” Natty hastened to write in response, “that you should have considered us such ninnies as to suppose that the Bank of France would come forward and stem any depression which might be caused by over-speculation in America.” Natty knew when he was in a tight spot: in the course of April and May, he mutely bowed to French requests that the sovereigns borrowed the previous December be returned to Paris. But in August the position in London began to deteriorate. Natty was forewarned (and so was able to alert his cousins) about the Bank’s decision to put Bank rate back up to 4.5 per cent, but he later complained that h
is advice to tighten policy still further had been ignored. By the end of October, with the American crisis in full spate, Bank rate had to be raised again, and Natty was once again deputed to ask for French gold to replenish the Old Lady’s reserves. This time, he was in no mood for cousinly prevarication: Robert’s objections to a repeat of the previous year’s lending were, he wrote impatiently, “singularly fallacious.” The French Rothschilds felt that a crisis which (in their view) had its roots in President Roosevelt’s misguided attacks on Wall Street did not concern the Banque de France. “It would be just as wise,” retorted Natty, “to lay down as a rule that in no case the fire brigade was to extinguish a fire if it originally arose out of the action of an incendiary.”
On November 4 the Governor, William Campbell, raised Bank rate to 6 per cent and sent for Natty—a testament to the key role the Rothschilds still played in the money market. It was, Natty told his cousins, “unanimously decided to ask me to telegraph to you and ask you to use your best endeavours to renew with the Bank of France the operation which you did last year, and which was so successful then.” This was no sooner requested than done, this time to the tune of £3 million, of which the Rothschilds provided £400,000. Although Bank rate went up another percentage point on November 7—and remained there until the New Year—this once again did much to stabilise the London market: as Campbell wrote to the Paris house, their assistance had “prevented my taking even more stringent means to protect our Gold Reserves.” It was a further proof of the enduring value of the Rothschilds’ cross-Channel link that when J. P Morgan directly approached the Banque de France for assistance for the American market, he was rebuffed—a vindication of Natty’s view, expressed in a blunt telegram to Morgan on November 6, that the Americans should set their own house in order. By contrast, Campbell could count on being able to borrow further gold from Paris through the Rothschilds if the Bank’s reserve fell any lower. Conversely, his counterpart in Paris could discreetly hint that a British rate cut would be welcome once the crisis was over in January 1908; he could rely on the Rothschilds to give him advance warning of any such reduction.
The House of Rothschild Page 70