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Isidor Gerstenberg (1821-1876): Founder of the Council of Foreign Bondholders

Alexander Behr

<plain_text><page sequence="1">Isidor Gerstenberg (1821-1876) Founder of the Council of Foreign Bondholders 1 By Alexander Behr ISIDOR GERSTENBERG was the Founder and first President of the Council of Foreign Bondholders whose principal object is the protection of the interests of holders of foreign Government, State or Municipal obligations issued in this country. This organisation developed greatly after his death and has become an institution of national importance. The vast field of its activities and undertakings, and the scope of its achievements can be gauged from the fact that the Council has been concerned in the settlement of debts aggregating over ?1,000,000,000. Similar institutions have been set up in Belgium, France, the Netherlands, Sweden, Switzerland and in the United States of America under Government auspices. Before the formation of the Council defaults were dealt with by ad hoc committees of the Stock Exchange, but their efforts ?fter proved inadequate and they were not sufficiently influential to bring pressure to bear on foreign governments which had failed to meet their obligations to pay capital or interest. The formation of the Council was therefore a turning point in the history of finance in this country. Isidor Gerstenberg has been practically forgotten and his name does not appear in encyclopaedias or other books of reference. The omission has been partly repaired by Mr. Emden in his volume of biographies,2 by Mr. A. M. Hyamson in the list of Anglo-Jewish notabilities3 and, by Lucien Wolf who mentioned him in his list of Worthies,4 merely stating that he was a financier, and by Mr. David Footman in his recent biography of Ferdinand Lassalle,5 in which there is a passing reference to Gerstenberg. My own interest dates from 1913 when I found that he was a school-friend of Ferdinand Lassalle and I linked them up in an article.6 I am now relating the story of his life for the first time. Isidor Gerstenberg was born in Breslau, Germany, on the 18th October, 1821, the fourth child of Abraham Gerstenberg who came from Piontek, a townlet in Russian Poland, where his father was a teacher in a Jewish elementary school and whose birth is traced to 1767. Abraham Gerstenberg appears to have made a comfortable livelihood from the sale of lottery tickets and managed to maintain his large family consisting of five children and supported his step-brother Louis as well as his step-sisters of his father's second marriage. We are indebted for much of the information concerning the Gerstenberg family to Louis Gerstenberg who wrote the story of his life,7 in order, as he points out, to acquaint his children with their origin. In this he pays a handsome tribute to his step-brother Abraham whom he describes as a man of noble character, pious in his religion and endowed with a generous heart, qualities which Isidor appears 1 Paper read before the Jewish Historical Society of England on 7th February, 1951. 2 Jews of Britain, by Paul H. Emden, (1944). 3 "Plan of a Dictionary of Anglo-Jewish Biography, by Albert M. Hyamson, in Anglo Jewish Notabilities (1949). 4 Jewish Worthies, by Lucien Wolf (1888). 5 The Primrose Path. A life of Ferdinand Lassalle, by David Footman (Cresset Press) (1946). 8 Gerstenberg and Lassalle, by Alexander Behr; Jewish World, August 6th, 1913). 7 Autobiography of Louis Gerstenberg (not printed) in possession of the late Max Andrews (Aufrichtig) his great-grandson. t 207</page><page sequence="2">208 ISIDORE GERSTENBERG (1821-1876) to have inherited. Abraham's business in lottery tickets may also have influenced the son's subsequent career in speculative finance. An interesting chapter in the fife of Isidor Gerstenberg is his friendship with Ferdinand Lasalle. Gerstenberg was then eighteen years of age and his friend three years his junior, but already possessed of the remarkable qualities which made him later the leader of German Socialism. Much of the knowledge of Lassalle's early fife we owe to his diary1 which he kept from 1840 to 1841. In this he recorded his thoughts and activities. Side by side with entries about games, boys' pranks and other triviliaties there are passages in which lofty ideas and noble thoughts are expressed which seem incredible for a mere boy of fifteen. There are entries which deal with home life as well as questions of race and religion.2 Isidor figures prominently in the diary, his "real friend" to whom Ferdinand turned in the hour of trouble, and there is a reference to him in the very first entry. The two youths often met, played games together, bought lottery tickets and a genuine and warm friendship developed. Isidor was attracted by the precocious and clever Lassalle (he was then called Lassal) who appreciated his friend's character, cleverness and wit. In a rhetorical outburst Ferdinand speaks of his dream, which he says, he hardly dares to put to paper, to fight for light against the forces of darkness and for intelligence against stupidity. "Isidor should link his fate with that of his friend and with him fight and conquer," but these hopes were not realized for owing to Isidor's love affair, his uncle procured for him a post in Manchester, which was the turning point in his career. When the two youths separated they took different paths leading into opposite directions. Gerstenberg took up finance and ended by protecting the interests of Capital whilst his friend Lassalle became a Socialist leader and championed the cause of the workers. The friendship of their youth is recalled several years afterwards, when Gerstenberg had already become a financier in London and Lassalle was making a name for himself as orator, agitator, author and Socialist leader. In a letter3 which Lassalle wrote to Karl Marx, then residing in London, which, incidentally, he sent through someone proceeding to the Exhibition of 1851, he refers to Gerstenberg whom he describes as a school-friend who can be found on the Exchange. There is also a reference to Gersten? berg in a letter which Marx's wife sent to Engels describing her desperate financial position in which she wrote : "My husband is approaching Gerstenberg in the City and you can imagine what this means to him." Karl Marx himself afterwards referred to his visit with Freiligrath, the poet, then also living in London, to Gerstenberg who handed him a sealed letter of recommendation to Adam Spielmann, the father of Sir Isidore, Sir Meyer and Marion Spielman, in Lombard Street. There are further references to Gerstenberg in a letter from Marx to Lassalle, from 9 Grafton Terrace, Haverstock Hill, in 1859, in which Marx speaks of his desperate need of money. Lassalle replied that he too had no ready cash available and suggested Marx should draw a bill on him and negotiate it through Gerstenberg, referring to him as a broker and a school-friend of Breslau, but Marx in a sarcastic reference to Gerstenberg declined to approach him. After this digression we return to Manchester where Isidor Gerstenberg arrived in 1841, following his uncle Louis, who had preceded him six years earlier, to represent 1 Lassalle's Diary. Edited by Paul Lindau (1891) (in German). 2 "The Judaism of Ferdinand Lassalle, by Alexander Behr. Jewish Review. Vol. Ill, No. 15,) September, 1912. 3 Lassalle's nachgelassene Briefe. Edited by Gustav Mayer (1921) (in German).</page><page sequence="3">ISIDORE GERSTENBERG (1821-1876) 209 Abraham Bauer, a textile merchant of Hamburg, who also came to England and became a banker and merchant. Isidor was barely twenty years of age, but did not find sufficient scope for his abilities in Manchester and only after a few months Bauer appointed him his resident representative in London, showing great confidence in his abilities. Fellow clerks with him in the London office, first at 40 Kings Street, Cheapside, and later at 2 Copthall Chambers, were Philip Gowa and Ellis Abraham FrankHn. The latter joined the firm as junior clerk in 1842 at ?60 per annum, on the recommendation of his father who was a friend of Bauer, and afterwards became one of the original partners of Samuel Montagu and Co. He died in 1909. His youngest daughter is the present Viscountess Samuel. In 1845 Gerstenberg established himself on his own account as a general merchant at No. 3 Copthall Buildings, Throgmorton Street, afterwards carrying on the business of merchant and exchange broker at the same address, with a private residence at 36 Noel Street, Islington. Both Gowa and Gerstenberg married daughters of their former principal Bauer. Gerstenberg was then thirty-eight years of age and resided at 2 Hercules Passage, Old Broad Street, while his bride, Bauer's younger daughter Fanny Alice, aged twenty-three, resided in Dalston, London. The marriage was registered at the Hackney Register Office in 1860, among the witnesses being Philip Gowa and his wife Juliette. The Bridegroom's father, Abraham Gerstenberg (then deceased) is described as a merchant, and the bride's father, Abraham Bauer (also deceased), as a banker. By this time Gerstenberg had already become a well known figure in the City and had been a member of the Stock Exchange since 1852. He became affluent and moved to Stockely House, Regents Park. He was particularly popular in the London German colony whose charities he supported. He was a Governor of the German Hospital from 1852 to 1875. He cultivated the friendship of intellectuals and was on friendly terms with the political refugees who resided in London at the time, including the poet, Ferdinand Freiligrath (1810-1876), who was employed by Huth and Co., bankers in the City, and Lothar Bucher, the publicist. Gerstenberg became a naturalized British subject in 1847.1 The formation of the Council of Foreign Bondholders, with which Gerstenberg's name is associated was beginning to take shape. The necessity for such an organisation to deal with defaulting governments and states became apparent with the great expansion of foreign loans to some European, but chiefly South American states which began with the opening of the nineteenth century. London had then become the chief centre to which the whole world looked for money, and the British public, stimulated by high rates of interest, often also inspired by political considerations and encouraged by interested loan contractors, were induced to invest large sums of money in foreign loans. This practice degenerated in time into mere speculation and gambling, and the results were disastrous when (literally) the day of reckoning came. The history of foreign loans has been described as a record of their failures.2 "Many European and most of the Latin American States have defaulted in some form or another at one time or another," was the verdict of another financial writer.3 Isidor Gerstenberg had had first hand knowledge of the defaults by foreign govern? ments which involved great losses to the investing public and, having a natural impulse to act in the public interest, he was determined to bring order where there was chaos. With his practical experience as a stockbroker and possessing inside information of the 1 P.R.O., H.O.I. Bdle. 25, File 648. 2 Money Powers of Europe in the 19th and 20th Centuries, by Paul H. Emden. * Foreign Securities, by John Madden and Marcus Nadler, New York.</page><page sequence="4">210 ISIDORE GERSTENBERG (1821-1876) workings of foreign loans he was well qualified for the task he was to undertake. His first step was an interview with Thomas Baring, M.P., and he addressed a memorandum to Baring Brothers, then the leading contractors of foreign loans, who were considered to be more important than the Rothschilds. It was said that there were six great Powers in Europe : Great Britain, France, Russia, Austria, Prussia and Baring Brothers.1 In his memorandum to Baring Brothers, dated 1866, Gerstenberg2 states that the history of foreign loans demonstrates that the payment of capital and interest has on various occasions been endangered and even lost from the lack of a proper joint action on the part of bond-holders or their representatives. "These representatives," he writes, "were generally in the form of committees of a temporary and ephemeral character," but perhaps the most remarkable statement in that document is his assertion that the ad hoc committees in their unsuccessful endeavours to protect the interests of bond-holders had allowed the excellent opportunity to escape of acquiring the territory of California for this country. According to Gerstenberg, California had been offered by the Government of Mexico, to whom it then belonged, in part payment of their debt to British bond? holders, but the opportunity, he deplored, was missed. It can hardly be realized today what the consequences would have been had California been, in fact, ceded to Great Britain. Even Hollywood would have been British. But the course of history was not altered. Gerstenberg concludes his memorandum by stating that the plan which he proposes is : ... "one calculated to supply a great public want and likely to confer a boon upon the Bond-holding community of this country," a prediction which was confirmed by subsequent events. Baring Brothers in their reply stated that as con? tractors of foreign loans they were precluded from assisting him, but acting on their suggestions Gerstenberg obtained encouraging support for his idea from individuals as well as from leading financial institutions including the London, Amsterdam, Paris and Berlin Stock Exchanges. The secretary of the London Stock Exchange, Francis Levien, wrote that "the Committee for General Purposes consider that the proposed council is calculated to be of very great advantage to the interests of foreign Bond-holders," and Hyde Clarke, who also warmly supported the idea, became the first Secretary of the Council. After two years of exploration and negotiations a meeting was called at the London Tavern on the 11th November, 1868, at which the foundation of the Council was laid. It was presided over by George J. Goschen, afterwards first Viscount Goschen, the statesman and financier, who is best remembered as the Goschen who was once"forgotten." At this meeting, a resolution was adopted on the proposition of Gerstenberg, seconded by Charles Bell, M.P., that the formation of a Council "for the purpose of watching over and protecting the interests of holders of foreign loans is extremely necessary and desirable." Goschen made a pronouncement on that occasion which remains the Council's guiding principle, namely that in the pursuit of its objects the Council should bring only moral pressure to bear on their own Government and on that of the defaulting state. Goschen's dictum was : "The Englishman lends his money to a foreign govern? ment and gets a high interest, because he incurs a risk."3 Some seventy years later the Prime Minister made an authoritative statement on the subject. Replying to a question by Major Hills in the House of Commons on the 1 Migration of British Capital to 1873, by Leland Hamilton Jenks. 2 Suggestions for forming a Committee?Council of Foreign Bondholders, by Isidor Gerstenberg, 1868 3 Economist, 1868, quoted in leading article.</page><page sequence="5">ISIDORE GERSTENBERG (1821-1876) 211 14th February, 1938, who asked what action His Majesty's Government proposed to take, the Prime Minister (Mr. Neville Chamberlain) said His Majesty's Government view with the gravest concern the loss inflicted, both on individuals and on the country, as the result of defaults on Foreign Loans. They regard the whole subject as one of very great importance and I am glad to have this opportunity of making a statement upon the matter. The Corporation of Foreign Bondholders is an independent statutory body, which was incorporated in 1873 and reconstituted by Special Act of Parliament in 1898. The Government recognise the Council of the Corporation of Foreign Bondholders as the body entrusted by Parliament with the duty of representing the interests of the Bond? holders in all matters arising out of defaults or threatened defaults by foreign Governments, States or Municipalities. The Corporation has throughout its life rendered the most valuable services, and in recent years its activities have been steadily increasing . . . The Council have always maintained the closest contact with the Treasury and the Foreign Office and in the last few years this contact has been continuous. In the case of a default, or threatened default, His Majesty's Government expect the foreign Government or authority concerned to enter into negotiations with the Council. His Majesty's Government always follow such negotiations very closely and give to the Council their fullest support. Where no acceptable agreement is reached they are always prepared to consider that the arrangements which I have described afford the best and most practical means of safeguarding the interests of this country in this matter. The Council was established in 1868 and was incorporated under Licence from the Board of Trade in 1873 to carry on a public object. Gerstenberg's original idea was to form an institution which would earn profits, but this was abandoned because the majority of its leaders supported Sir John Lubbock's view that an institution representing British Capital in die face of foreign debtor governments should be non-profitmaking. And it was so provided when the Corporation was incorporated under Licence by the Board of Trade in 1873. Gerstenberg was the first Chairman of the Council, and T. T. Weguelin, M.P. and Sir John Lubbock, F.R.S., M.P. (afterwards first Lord Avebury) were joint Vice Chairmen. Among the earliest members of the Council was Samuel Montagu (after? wards first Lord Swaytliling), described as foreign banker. It was largely through the efforts of Sir John Lubbock that the Council was incorporated by special Act of Parliament and developed after Gerstenberg's death into the important organisation it is today. Isidor Gerstenberg devoted much time and energy to the Council, but he had to resign as Chairman in 1875, only two years after its incorporation, owing to his illness, although he attended its meetings until April, 1876. His illness was attributed to the shock he sustained when a barge laden with gunpowder accidently exploded in Regents Canal the previous year, causing loss of life and havoc and damaging his house. It was characteristic of Gerstenberg's public spirit that immediately after the accident he addressed a letter to The Times suggesting the opening of a relief fund for the victims of the disaster. In order to recuperate he went to the Continent and on his return journey while crossing from Ostend to Dover on the 20th July, 1876, he met with a fatal accident. An inquest was held at Dover at which a verdict of accidental death was returned by the jury, who recommended better protection for the engine room into which he had fallen. Isidor Gerstenberg was buried at the Willesden Jewish cemetery a few days later, and his wife, who died the following year was laid to rest at his side. The inscription on the tombstones give the dates of his birth and death as October 18th, 1821, and July</page><page sequence="6">212 ISIDORE GERSTENBERG (1821-1876) 20th, 1876, respectively, and that of his wife, January 20th, 1837 and May 9th, 1877, respectively, with the corresponding years in the Jewish Calendar (5582-5636 and 5597-5637). An anonymous donation in memory of Isidor Gerstenberg was made to the Jewish Board of Guardians soon after his death, but I could find no evidence that he was in any way connected with the Jewish Community during his life. After his death, tributes appeared in the general and financial press in the course of which his services, particularly in connection with the formation of the Council, were recalled. The sense of loss which the Council of Foreign Bondholders sustained was expressed in a tribute which appeared in its fourth annual report, which reads : The Council have had to lament the death of Mr. Gerstenberg who had occupied their Chair from the end of 1873 till 1875, at which time he was compelled by ill-health to resign it. He gave unceasing care and thought to the foundation and establishment of the Corporation the idea of which mainly originated with himself .... The Council further decided to perpetuate his memory by appropriating the sum of 500 guineas to a memorial in his name, which at the request of Mrs. Gerstenberg was applied to founding a prize at the London University for the promotion of political science.1 This, she wrote, was a subject in which her husband took a special interest. Sir John Lubbock, who was closely connected with the Council and was also Vice Chancellor of the London University wrote to Mrs. Gerstenberg that "the Gerstenberg Prize will always remind him of one with whom he worked most pleasantly and for whom he entertained a most sincere regard." The income was afterwards supplemented, and it is now awarded annually as the Post Graduate Studentship for Economic Science. Isidor Gerstenberg had one son and two daughters who, on his death, became wards of his solicitor, Lewis Emanuel. Leonora, his younger daughter, married in 1888, John Wynford Philipps, Barrister-at-Law, son of the Rev. Sir James Erasmus Philipps, Vicar of Warminster, whose lineage has been traced to the Emperor Maximus. On his father's death he became the 13th baronet and was elevated to the peerage in 1908 as Baron St. Davids, becoming a Viscount ten years later. Lady St. Davids was a well known hostess, founder of the Women's Institute in Victoria Street, London, and complier of a "Dictionary of Employments to Women." She established the "Arnold Gerstenberg" Studentship at Cambridge University in memory of her brother, Arnold Gerstenberg, a student of Trinity College, who committed suicide in 1877 at the age of 23. Although Lady St. Davids was very young when her father died, she recalled his friendship with Lassalle and the poet Freiligrath. She died in 1915 and shortly afterwards, the two sons, her only children, were killed in action. The elder, Captain the Hon. Colwyn Erasmus Philipps had literary abilities.2 A volume of his verse and prose writings was posthumously published. The younger, the Hon. Roland Erasmus Philipps, M.C., B.A., was a well-known figure in the Scout Movement and the author of "Letters to a Patrol Leader," of which several issues appeared. His memory has been perpetuated by an Institute in the East End of London, known as "Roland House Scout Settlement." In a memoir entitled "Roland Philipps Boy Scout,"3 with a Preface by Lord Baden Powell, his origin is recalled in the following passage : "On his mother's side he had affinities with a race which has, as Matthew Arnold expressed it, a genius for religion .... It would 1 The London University courteously furnished me with records concerning the Gerstenberg prize. 2 Verse and Prose Fragments, by Capt. the Hon. C. E. Phillipps (1915). 3 Letters to a Patrol Leader, by Capt. the Hon. Roland E. Philipps (1939).</page><page sequence="7">ISIDORE GERSTENBERG (1821-1876) 213 be difficult to overestimate what Ronald owed to his mother ... It will be abundantly clear from whence came his deep religious instincts, his shining personality." Viscount St. David's second marriage was to Baroness Strange of Knokin, Hungerford, and de Moleyres, in her own right, who as a descendant of Pellegrin Treves has also Jewish blood in her veins. On his death in 1938 he was succeeded by their son, the second Viscount. In the Council room of the Corporation of Foreign Bondholders in the City of London, there hangs a portrait in oils of Isidor Gerstenberg, presented by the first Lord St. Davids, which shows a man of distinction and refinement with handsome features. He linked up two worlds, that of his grandfather, a schoolmaster who lived in a townlet in Russian Poland in the eighteenth century, and that of his grandsons, sons of a peer who gave their lives for England. He was responsible for the formation of the Council of Foreign Bondholders which is a monument to his initiative and foresight, and he belonged to a fine of foreign Jews who have rendered great services to the country of their adoption. He deserves to be remembered among pioneers and he may even qualify for Hazlitt's definition of greatness : "For the test of greatness is the page of history."</page></plain_text>