The House of Rothschild

by Ferguson, Niall

  Walter’s reasons for becoming involved were complex. Shortly before his death, his father had further revised his views on the issue in the light of Herbert Samuel’s Cabinet memorandum on “The Future of Palestine” (January 1915), which argued that Palestine should become a British protectorate, “into which the scattered Jews would in time swarm back from all quarters of the globe, and in due course obtain Home Rule.” This had as much to do with British imperialism as with Zionism; and Walter generally followed his father in regarding the two as now being complementary. Shortly before an important meeting with Sir Mark Sykes at the Foreign Office, Walter wrote to Weizmann, opposing the idea that power in Palestine might be shared between England and France. “England must have sole control,” he argued, and the Development Company which he envisaged running the Palestinian economy was to be firmly “under the tutelage and control of the British administration.” This was the way the editor of the Manchester Guardian C. P. Scott was thinking too: talk of a system of Anglo-French dual control over post-war Palestine had to be resisted, he argued, if there was not to be a repeat of the unhappy experiment with dual control in Egypt. It was presumably this line of argument which attracted Walter’s cousin Lionel. According to Constance that March, even he was “convinced that we shall march upon Jerusalem, and found our protectorate there. When I suggested that Zionism was at an end, on account of Russia’s new and wonderful move [revolution], he said certainly not ...” If nothing else, Lionel realised that the Revolution was unlikely to benefit Russian Jews in practice, despite the Bolsheviks’ anticlerical rhetoric.

  Other members of the London and Paris Jewish “establishments” were more cautious, however; and Lionel himself soon changed his tune. In London the opposition to Zionism was led by Lucien Wolf, secretary of the Conjoint Foreign Committee of the Anglo-Jewish Association (after 1918, the Joint Foreign Committee) and head of the Board of Deputies’ “Special Branch,” who argued that Zionism would tend to fuel anti-Semitism and endanger the position of assimilated Jews in Western Europe. Wolf had influential supporters, including the Liberal Minister Edwin Montagu (who returned to the Cabinet in July 1917) and the Conjoint Committee presidents Claude Montefiore and David Alexander, who wrote a strongly anti-Zionist letter to The Times on May 24, 1917, supposedly expressing the “Views of Anglo-Jewry.” Shortly before his death, Leo intimated that he agreed with Montefiore and Alexander’s view “that it was advisable to adopt a conciliatory tone towards Zionism, whilst maintaining the cardinal points of our own position, viz., that we would not concur in any proposals which implied the idea of nationality for the Jews in Palestine, or the granting of privileges detrimental to the other inhabitants.” After Leo’s death, his widow Marie continued to take this line, as increasingly did Lionel. In Paris a similar line was taken by the secretary of the Alliance Israelite, Jacques Bigart.

  In the end, as Miriam Rothschild has shown, Walter prevailed—and in doing so revealed himself to be a good deal less unworldly than had hitherto been supposed. He shot back a letter to The Times in response to the Montefiore-Alexander letter of May 1917, denying that a Jewish state would undermine the loyalty of Jews to their countries of birth and residence. He then secured (narrowly) a vote of censure against Montefiore and Alexander at the Board of Deputies, which led the latter to resign, and got himself elected vice-president of the Board on July 20.

  The final outcome naturally depended on the balance of forces within the Cabinet, but this too Walter was able to influence. Against the Zionists were Montagu, now elevated to the India Office, and another old India hand, the former Viceroy Earl Curzon, who argued that Palestine’s economic resources were too limited to sustain a Jewish state and that any step in that direction would antagonise the Arabs of the region. It was crucial, therefore, to secure more weighty support, and to this end Walter bent the ears of Lloyd George—now Prime Minister—and the Foreign Secretary Balfour, the latter of whom suggested that they submit a declaration for the Cabinet to consider. After much drafting and redrafting, this was duly done on July 18. Matters moved slowly: pressing military questions inevitably took precedence over post-war pipe-dreams, and it was also now felt necessary to take soundings in Washington. Even at the crucial meetings in October 1917, the future of Palestine was close to the bottom of the Cabinet’s crowded agenda. Finally, however, Lloyd George was converted to the idea of a British-controlled Palestine; he and two other members of the inner War Cabinet—the South African Jan Smuts and Milner—began to worry that (as Walter had persuasively warned) the Germans might get their own pro-Zionist declaration out first, in a bid to win Jewish support in the United States and Russia. Tipped off by Balfour that Montagu was still holding matters up, Walter sent another memorandum to the Foreign Office on October 3, which Balfour followed up in Cabinet the next day.

  Three weeks later, the Cabinet at last authorised Balfour “to take a suitable opportunity of making the following declaration of sympathy with the Zionist aspirations”:His Majesty’s Government view with favour the establishment in Palestine of a national home for the Jewish people, and will use their best endeavours to facilitate the achievement of this object, it being clearly understood that nothing shall be done which may prejudice the civil and religious rights of existing non-Jewish communities in Palestine, or the rights and political status enjoyed by Jews in any other country.

  This text—which had been prepared by Leo Amery, assistant secretary to the War Cabinet—was sent by Balfour to Walter on November 2. Thus the origins of the state of Israel can indeed be traced back to a letter to Lord Rothschild. To underline the Rothschilds’ contribution to this historic breakthrough, a huge celebration was held at the Covent Garden opera house on December 2 at which both Walter and Jimmy spoke. It was, Walter told the excited audience, “the greatest event that has occurred in Jewish history for the last eighteen hundred years.” “The British government,” declared Jimmy, “had ratified the Zionist scheme”:What was wanted from the Jewish people was no longer schemes but deeds, and he hoped that in the near future cohorts of modern Mac cabees would be fighting their way through the hills of Judaea. The Jewish claim was one for justice and that also was the basis of the claims of the Arabs and Armenians, claims which Jews fully endorsed and were pledged to support. Britain stood as the foster mother of the new-born Jewish nation and he looked forward to the day when the nation, steeled in adversity but proud in hope, had proved itself by dint of its work to be a real daughter.

  Yet such portentous rhetoric was far from agreeable to other members of the family. Leo’s widow Marie angrily denounced Walter as a traitor to the assimilationist principles of the family. Within a week of the issue of the declaration, Lionel took the lead in establishing a League of British Jews “to uphold the status of persons professing the Jewish religion; to resist the allegation that Jews constitute a separate political nationality” and “the tendency ... to fix upon the Jews the acceptance of a nationality other than, and in addition to, that of the country of our birth or where we have lived and worked.” He was joined in this enterprise by Sir Philip Magnus and Lord Swaythling, respectively the president and president-designate of the United Synagogue, Reform Synagogue and Federation of Synagogues, as well as another influential anti-Zionist Robert Waley-Cohen. As Waley-Cohen put it in a pointed dig at the Zionists, the aim was to enable “Jews of British nationality, who are at home in this country, and who are proud of their British nationality, to voice their views independently of the Jews of foreign origin who are residing in this country but who feel no strong attachment to their British nationality.”

  In a similar spirit, the Joint Foreign Committee accepted the Balfour Declaration only with the explicit reservation “that nothing in the letter shall be held to imply that Jews constitute a separate political nationality all over the world or that Jewish citizens of countries outside Palestine owe political allegiance to the government of that country.” It is revealing that around this time Waley-Cohen and Swaythling
wrote to Lionel proposing the establishment of a Jewish college as “a permanent War Memorial ... to the Jews of the British Empire who have fallen in the War” in order to “carry on and interpret the Jewish and British traditions and give them their place as the permanent ennobling forces in the lives of future generations of Jewish citizens of the British Empire.” Even Edmond had moments of doubt, fearing that putting the Zionists in charge in Palestine would be “handing over control of the National Home to European Bolsheviks.”

  These disagreements became increasingly acrimonious during the Paris peace conference of 1919. While Walter sought to exclude Montefiore from the Jewish delegation, Weizmann countered the assimilationists’ argument by warning of “subversive and anti-institutional forces in the Ghettos” which would gain the upper hand if the Zionists were thwarted. It was the assimilationists who had the better of the arguments at Paris. In the absence of Walter, who was supposed to represent pro-Zionist Anglo-Jewry, Wolf succeeded in exerting a dominant co-ordinating influence over the various Jewish groups present, especially over the question of Jews’ rights and minority status in the new successor states of Central and Eastern Europe.

  In fact, the Balfour Declaration was less revolutionary than the Zionists claimed and the assimilationists feared. Balfour himself “hope[d] that the Jews will make good in Palestine and eventually found a Jewish state.” Like Lord Robert Cecil, his philo-Semitism had an almost Disraelian quality: as he put it in 1917, the Jews were “the most gifted race that mankind has seen since the Greeks of the fifth century.” But he regarded the Declaration as envisaging “some sort of British, American or other protectorate”; it “did not necessarily involve the early establishment of an independent Jewish state, which was matter for gradual development in accordance with the ordinary laws of political evolution.” Any idea of “a Jewish Government of Palestine,” he assured Curzon in January 1919, was “certainly inadmissible.” Moreover, Curzon’s fears about friction between Jews and Arabs proved all too well founded. Despite the hopes expressed in December 1918 when Walter gave a dinner for the Emir Feisal (attended also by Weizmann, Milner, Cecil, Crewe and T. E. Lawrence) and the agreement between Weizmann and Feisal which was signed the following month, trouble was not slow in coming. Jews and Arabs clashed violently as early as 1921 (which led the British authorities to limit immigration) and again in 1929. Walter was inclined to blame such problems on the high commissioner, Herbert Samuel, whose decision to appoint Haj Amin al Husseini as Grand Mufti of Jerusalem he especially deplored. On the other hand, his efforts to reconcile the Zionists and the assimilationists were undermined when radicals at the World Zionist Conference in July 1921 called for the nationalisation of all land in Palestine.

  By 1924 Walter was beginning to tire of the whole vexed question. Although he had been the first signatory of the Palestine Foundation Fund (Keren Heyesod) in 1920, he declined an invitation to chair the opening of the Hebrew University in 1925. Jimmy remained more active, briefing both Lloyd George and his Conservative successor Bonar Law about the problems not only of Palestine but also of Syria. In 1919, for example, he urged Lloyd George not to allow the Treasury to cut off funds needed for the economic development of Haifa, for fear of alienating the Arab population. As soon as he heard of Lloyd George’s fall in October 1922, he hastened to offer his expertise on Palestine to Bonar Law. Jimmy’s father Edmond also continued his involvement with Palestine, reorganising the old Palestine Committee of the Jewish Colonisation Association as the Palestine Jewish Colonisation Association—an autonomous organisation under his (and later Jimmy’s) control.8 However, Edmond worried that British policy ran the risk of “alienating public opinion in France by favouring the Arabs regarding Syria at the expense of the French ... His only anxiety was the enormous importance of keeping the Anglo-French Alliance intact, as very powerful Catholic influences were doing their best to undermine it.” Even on this issue father and son disagreed: a good illustration of the way the question of Palestine’s future tended to divide the Rothschild family.

  The Doldrums

  Yet it would be a mistake to explain the Rothschilds’ economic difficulties after 1914 exclusively—if at all—in terms of the conflicts of loyalty engendered by the war. The diminution of Rothschild influence had as much to do with the war’s economic consequences as with the generational changes of 1905-18 and the contemporaneous fragmentation of allegiances.

  Although there is no question that the Rothschilds gained in one or two isolated respects from the war—which boosted demand for Vickers’ guns, New Caledonian nickel and De Beers’ diamonds—its net effect was unquestionably negative. It is only a slight exaggeration to say that the world in which the Rothschilds had thrived came to an end in 1914. For one thing, the war finally killed off what remained of co-operation between the Vienna house and its former associates in London and, Paris. More seriously, it severed the ties between the Rothschilds and German banks like Bleichröders, Warburgs and the Disconto-Gesellschaft. The overseas trade which they and other acceptance houses had financed with scarcely an interruption for a century was suddenly disrupted, first by a paroxysm of panic in the major financial markets, then by blockades and submarines. The monetary system based on the gold standard—around which so much Rothschild business revolved—ceased to operate, as most of the major combatants suspended the convertibility of their currencies into specie and imposed exchange controls. The railways they had helped to build across Western Europe were used to transport troops into battle. Moreover, the costs of the four-year slaughter accelerated the process—discernible in the pre-war decade—whereby the European tax systems became more progressive. For the first time, the Rothschilds found themselves paying high taxes on their income and inheritances.

  Table 14a shows the exceptionally sharp contraction experienced by the London house in the war years. It was in 1915 that N. M. Rothschild & Sons were at long last overtaken in terms of capital (by the Midland Bank), after nearly a century of being by far and away the country’s largest bank. By 1918, Kleinworts too had grown larger than N. M. Rothschild, and Schröders were not far behind. The available balance sheets reveal that Barings’ assets outstripped those of N. M. Rothschild in the years 1915-18, and although Schröders was also hard hit by the war, its balance sheet contracted less sharply than Rothschilds. A closer look at the Rothschild balances suggests a very sharp contraction in the bank’s holding of British government bonds.

  Table 14a: The capital of six major British banks, 1913-1918 (£).

  Sources: RAL, RFamFD/13F; RFamFD/13E; Ziegler, Sixth great power, pp. 372-8; Roberts, Schroders, pp. 527-35; Wake,

  Kleinwort Benson, pp. 472f.; Burk, Morgan Grenfell, pp. 260-70, 278-81; Holmes and Green, Midland, pp. 331-3.

  Table 14b confirms that a large part—but not all—of the explanation for this contraction lies in the heavy losses suffered by the Rothschilds in 1913-15. Barings and the Midland did far better; and if profits are expressed as a percentage of capital, the differentials are even wider (though Schröders did even worse overall). The other explanation for the bank’s contraction in terms of capital must be the effect of the three partners’ deaths; in particular Alfred’s decision to bequeath such a large part of his estate outside the family explains the capital reduction of more than £1 million in 1918, despite moderately good profits for the third year running.

  Table 14b: Profits at five major British banks, 1913-1918 (£).

  Sources: as table 14a.

  A puzzle remains, however. For in many ways the First World War was financed in ways which were little different from those which had paid for the wars of the nineteenth century. Indeed, in strictly financial terms the scale of the war relative to the available economic resources was not that much greater than the cost of the Napoleonic Wars, though the latter were fought less intensively over a longer period. Governments raised some money by introducing new taxes, but mostly they resorted to borrowing. To give just three examples: the German natio
nal debt increased by around $19 billion between 1914 and 1919, the French by $25 billion and the British by $32 billion, so that by the end of the war national debts amounted to close to 200 per cent of GNP in each case. When bond yields became prohibitively high, all the combatant governments asked their central banks to print money in return for treasury bills. This was possible on a large scale because, as in the Napoleonic period, the convertibility of paper notes into gold had been suspended to prevent banking crises; as then, the result was inflation, with prices doubling or trebling. Why then did the Rothschilds fail to capitalise on the financial opportunities of the First World War? After all, it had been the Napoleonic Wars which had given Mayer Amschel and his sons their crucial business opportunities a century before.

  The answer is plain enough. The defeat of France in the Napoleonic Wars had been financed to a large extent by British loans and subsidies to Austria, Russia and Prussia. With their establishments in Frankfurt, London and Paris, the Rothschilds had been in a uniquely good position to facilitate these transfers. The defeat of the Central Powers in the First World War also involved transfers (amounting to $9.7 billion) from Britain to her allies; but only in the case of France were the Rothschilds really in a position to play a part, and even then a minor one. Once they had been the principal agents for international transfers between Allied powers; now, with the British war effort so dependent on American credits, it was J. P Morgan who succeeded N. M. Rothschild as the linchpin of war finance—confirming what a strategic error it had been not to establish a Rothschild house on the other side of the Atlantic.