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The establishment of the Rothschilds as bankers

S. D. Chapman

<plain_text><page sequence="1">The establishment of the Rothschilds as bankers* S. D. CHAPMAN Some of the best-known names in the history of the City of London financial and commodity markets came from Jewish backgrounds, and of course Rothschilds, Hambros, Warburgs, Seligmans, Raphaels and others are still prominent there. But while the origins of the eighteenth-century Sephardic settlers who shifted the focus of their activities from Spain and Portugal to Bordeaux, Amsterdam and London have been written up with admirable clarity by Dr Yogev,1 the Ashkenazi settlers who migrated in the Napoleonic War period still await their historian. As the surviving firms and their gentile competitors open up their records, it becomes possible to trace the course of this new (or renewed) diaspora in Europe. As we shall see, the rise of the Rothschilds should properly be set in the context of Jewish history in the turbulent years of the French Revolution, French Wars, and post-war conservative reaction against liberalization. There is no singular or simple explanation for the attraction of London for foreign merchants in the first years of the last century. It is necessary to identify a sequence of developments, some economic, some political, others religious-if the latter is a fair label for the renewed violence of anti-Semitism in the post-war reaction. The initial development was simply economic: in the course of the eighteenth century London steadily overtook Amsterdam as the greatest international centre of finance and credit. The Dutch centre finally capitulated at the French occupation in 1804, and became a satellite of its old rival. As Braudel fairly writes, the long history of international trade and finance shows that at any one time there can be only one centre.2 The most ambitious merchants, especially those of the younger generation, tended to desert an old centre for a new one. Frankfurt, too, suffered something of a demise during the French occupation.3 It might be supposed that the other attraction of London for Jews was its toleration of religious and ethnic minorities, but so far as finance is concerned, this aspect has to be carefully qualified. It is true that the Bevis Marks synagogue was an accepted institution of City life, but until about 1810 the congregation generally conversed in Portuguese, and the Sephardic Jews considered themselves an elite quite distinct from Ashkenazi Jews.4 The City Corporation allowed only a dozen Jews to be admitted as sworn brokers,5 while the Bank of England, which at the end of the eighteenth century was the fulcrum of the system, discriminated against Jewish merchants.6 The change came, not from any liberalization of the system, but from a relative decline in the importance of the Bank of England. The fullest and most frank account is * Paper presented to the Society on 10 July 1986. 177</page><page sequence="2">S. D. Chapman provided by Sir Francis Baring, who was the leading City merchant and financier until his death in 1810: Before the [French] Revolution our Bank [of England] was the centre upon which all credit and circulation depended, and it was at that time in the power of the Bank to affect the credit of individuals in a very great degree by refusing their paper [i.e. bills of exchange]. The Bank is still the pivot for circulation but no longer for credit and discount. In the distress of 1793, they committed a fatal error by deciding that all merchants and traders were entitled to their proportion of accommodation, as the Bank was a public body and ought not to discriminate between individuals... they determined that merchants of the first class should never exceed ?50,000 by them and ?50,000 more upon them... The opinion of the Bank is [now] therefore in a considerable degree a matter of indifference, so long as the credit is good in private discount.7 In other words, merchants of standing could survive and prosper without reference to the opinion of the Bank. It was in the period of restructuring the City credit, rather than in the post-war period of anti-Semitism, that the Rothschilds and other Jewish houses were attracted to London. The principal Jewish financiers in the City during the early years of the French Wars were the Goldsmid brothers and David Ricardo. Barings, and their Amsterdam correspondents, Hope &amp; Co., kept an anxious eye on all possible or actual competitors, drawing information from other merchants in every part of the trading world, and their Information Books offer a commentary by the City 'establishment' on the newcomers.8 Goldsmids went bankrupt in 1810, but were reformed and, for a period at least, continued to enjoy excellent credit.9 A confidential report on Goldsmids advised that 'Notwithstanding the preference given here to Christian houses, the Jew house you enquire after... enjoys excellent credit... We would respect his signature for 20,000 and perhaps 30,000 at once but people will not go so far generally, we think, as the prevailing opinion is that when one Jew house fails all the remainder are severely affected by it.'10 The irony of the latter part of this remark is that Barings, Hopes and other gentile houses had suffered a setback from their guarantee of the Scottish firm of Walter Boyd before his bankruptcy in 1798.11 Goldsmid did go into decline, but their Continental partners, Hambros of Copenhagen and Heine of Hamburg, survived the crises of the war years. Hambros eventually moved to London as a result of their losses in anti-Semitic riots after the war.12 M. A. Rothschild of Frankfurt was able to insert himself into this competitive and prejudiced market because of his appointment as Hoffaktor (Court Agent) to the Elector of Hesse at Cassel. The agency not only gave him the opportunity to negotiate loans for various small states in the German Empire but also, because of Court payments in London, the opportunity to import British textiles.13 The foundation of N. M. Rothschild, the most able son, as a Manchester textile merchant, is a separate story; the present theme is that of 178</page><page sequence="3">The establishment of the Rothschilds as bankers the acceptance (however reluctant) of Jewish merchants in London finance.14 In reply to an enquiry about M. A. Rothschild, Bethmann Bros, the leading Frankfurt bankers, replied: 'As for the morality of the Jews, as of the Christians, our century can make no boast; if a man is to work with success he must be honest and true in all his dealings' (1805).15 By 1815, Barings (the leading gentile house in London) were quite happy to syndicate post-war loans to France with Rothschilds, and were quoting the young Rothschild as an authority on the exchange.16 Evidently the changes had little to do with political doctrine or religious freedom; they were simply the tacit recognition of toleration by practical hard-headed men of business in Germany and Britain. For Rothschilds, the opportunity to take advantage of the new openings for Jewish financiers did not come until the last years of the Napoleonic Wars, when several earlier rivals had been ruined or enervated. One of these openings came with the needs of J. C. Herries. Herries' duties as Commissary-in-Chief (1811-16) consisted in providing provisions for British troops serving at home and abroad, including food, forage for horses, cloth for uniforms and blankets, and hospital supplies. British government expenditure for the army in Europe increased sharply from ?100,000 in 1804 to a peak of ?17.9 million in 1813, with consequent strains on suppliers and the system. Towards the end of 1813 the Bank of England was quite unable to furnish an adequate supply of gold and silver coins to meet the army's demands, and Herries had to look elsewhere for support.17 He was not short of offers of help: 'Many houses have already offered their services to me but Baring (who I understand identified with Hope &amp; Co.) appears to me to be on every score the most proper channel for our money transactions', he wrote in November 1813.18 Barings, by now the leading loan contractors in the City, were in partnership with Hopes of Amsterdam and so the most obvious choice, but Reid, Irving &amp; Co., an East India house that had turned to loan contracting, was also eager to participate in the new business.19 In fact, however, both parties failed to rise to the opportunity. Nicholas Vansittart (the Secretary to the Treasury) wrote to Herries in May 1814 that: Reid, Irving, Hope and Baring had consisted to make a joint offer to take the bills of credit and it appeared extremely desirable to deal with so powerful an association or at least to know their intentions more distinctly. I this morning saw Mr. Reid who appeared to have no digested or specific propositions to make but who talked in general terms of the parties whom I have mentioned acting in conjunction. I therefore desired without entering into particulars that they would propose their plan to the Ministers of the Allied Powers at Paris after conferring with you on the subject. It is to be regretted that Baring while he was at Paris did not bring the question under consideration as it might probably have led to a conclusion satisfactory to all parties.20 Francis Baring had died in 1810, and his son Alexander had much less experience and showed less perception. Baring's apparent disinterest was 179</page><page sequence="4">S. D. Chapman followed by Reid Irving &amp; Co.'s incompetence. Herries explained: Reid has been to see me today and with much penitence and dejection has announced to me the inability of the correspondent [in Brussels] he had relied upon to furnish the sum required by the 24 Octob. [1814]_The conduct of Messrs. Brown &amp; Reid (and I understand from Sir R. Kennedy that is not the first instance) is unworthy of a respectable House. Their foolish declaration what they could have done is undeserving of attention; and I have no apprehension that they will be able to do us more harm (by their correspond? ence with Mr Baring) than they have hitherto done us good.21 The bankruptcy of Abraham Goldsmid in 1810 left Rothschild without a formidable competitor in the bullion market. Herries made an approach to N. M. Rothschild in London and together they devised a new plan. Until this time the only way of procuring money for military expenditure on the Continent was by the sale of British exchequer bills by the Commissariat officers; the shipments of specie abroad were so trifling and so precarious that these sales were virtually their only asset. With the dramatic rise in military expenditure, the flooding of the Continent with large quantities of government bills threatened to bring a collapse in the rate of exchange against the pound sterling. The expense of raising money became frightening and the difficulty of procuring adequate quantities of gold and silver coin was most embarrassing, particularly after the British army entered France in the spring of 1814.22 N. M. Rothschild went over to Holland and Germany to superintend the collection of French coin from various places, and the large sums obtained were from time to time quietly put on board warships stationed at Helvoetslays, to convey them to the nearest available port to Wellington's headquarters. The specie was paid for by bills on Rothschild houses in Frankfurt and Paris. The whole operation was conducted as a private mercantile business, mainly to protect the sterling exchange rate, but also because Herries did not want the government to be thought to be in the hands of German-Jewish money? lenders.23 Herries wrote in April 1814: 'Rothschild of this place [London] had executed the various services lately entrusted to him in this line admirably well, and though a Jew, we place a good deal of confidence in him. ... '24 The initial agreement, for ?600,000 purchase of coin, was extended to a total of ?1.244 million, on which Rothschilds were paid 2 per cent, or about ?25,000, not a large sum considering the magnitude and risk of the business.25 The real benefit for the Rothschilds was the connection with the British Treasury, which soon led to more prestige in the money market and hence more profitable business. By the Autumn of 1816 N. M., as he was known in the firm and the family, was already being referred to as the master of the London Stock Exchange.26 However, there can be little doubt that N. M. could not have carried through the bullion operations without large credits provided by his brothers. They benefited from holding the stocks of the Elector of Hesse (who was for the 180</page><page sequence="5">The establishment of the Rothschilds as bankers time being exiled in Prague), but the overall importance of this has been exaggerated, not least by his brothers living in Germany at the time. (Even in 1818 Amschel was reminding his London brother that 'The brave Nathan would have been unable to draw bills amounting to ?132,000 during the [Napoleonic] War and to handle all the [Government's] business if he had not had the co-operation of his brothers_If we had not obtained the big deal of the Elector's stocks in Prague, which I handled, while up to then Nathan did not even know what stocks looked like....'27 Some 1.5 million guilders (?150,000) was borrowed from the Elector, but this was by no means the only source of credit. At the same time Herries placed ?500,000 at Rothschild's disposal for a long period without asking for any interest payment.28 As much as ?500,000 was borrowed in Frankfurt and ?200,ooo-?300,ooo in Paris, with further sums from Augsburg, while N. M. had ?300,000 from Harman, his father's old London agent.29 The main problems were fears of illiquidity in the erratic financial conditions at the close of the War, and it was these fears that generated some bitter and despondent letters between the brothers.30 Herries also assumed responsibility for paying the subsidies promised to Britain's allies under the treaties of 1814-15: Austria ?2.361 million, Russia ?3-333 million, Prussia ?2.716 million, and smaller sums to twenty-nine minor states totalling ?10.938 million in all.31 Having won Herries' complete trust, N. M. easily acquired this business. In August 1814 he was entrusted with the transmission of three monthly sums of ?500,000 on behalf of the British Government, and in the following months more payments were made to Prussia and Russia.32 The magnitude of these operations terrified N. M.'s more timid brothers Saloman and Carl, and they complained bitterly that Nathan's 'wild' scheme would ruin the family. N. M. drew support from his brother-in law Samuel Cohen, but he was accused of being the bad general who, like Bonaparte, insisted: 'I must conquer this place immaterial of what the losses may be.'33 These family quarrels sporadically threatened the future of the partnership, but early success quickly placated the nervous brothers. According to Amshel, the Continental partners alone made ?300,000 in 1814, which he believed was greater than the total capital of Bethmanns, the largest of the Frankfurt bankers.34 This huge sum was not of course earned solely by transmission of the subsidies; the brothers used their inside apprecia? tion of British solidity to invest with confidence in the continuing buoyancy of the pound.35 Already they had reached the first division of European bankers. When it seemed that Europe was settling down to a period of peace, the brothers looked to the possibility of benefiting from their new-found connec? tions and unique experience. 'Now that you are not doing anything for Herries, it might amuse you to deal with all those places [financial centres] on your own account', James prompted Nathan in February.36 But the return of Napoleon from Elba and the formation of the Fifth Coalition brought a further unprecedented increase of opportunities for government business. N. M. explained this to his brothers in April 1815: 181</page><page sequence="6">S. D. Chapman I have been much engaged ever since last post in arranging some plan for our future operations which are likely to be much more considerable than they have hitherto been, but it is not yet fully settled. At present I can only inform you that I have received orders to provide in bills and gold one million sterling per month on account of new subsidies to Austria, Russia and Prussia. It will be necessary for me to remit upon an average ?100,000 in bills every post night, also to purchase ?100,000 in gold and silver weekly which will likewise be forwarded from here to the Continent_In the present operations a very great disadvantage will be removed from that attendant on the former ones, as Government guarantees the whole concern taking all risks upon them? selves.37 Saloman now joined in enthusiastically. Between ?1.6 and ?1.7 million were paid to the British army, including ?700,000 for Wellington's troops at Waterloo, but this was soon dwarfed by post-war payments.38 But after the Allies entered the French capital on 7 July, the 'contributions' had to be shared with other Frankfurt bankers who flocked to Paris. Rothschild brothers were forced to become partners with Gontard, Fortis, Mendelsohn, Thelmar and other Jewish and gentile houses for which they had no great liking.39 James wrote to Nathan at the end of September that: 'This business is ruined completely as there are too many involved in it'.40 Moreover, in the immediate post-war years, the Jews faced a strong anti-Semitic reaction which intensified competition against them. 'We are thought of being ten times richer than we actually are. We have a lot of enemies. They think that we are effecting all business transactions there are', James complained from Paris.41 Remittances to the British army were completed by March 1816; 'Not even a hundred banking houses would have been able to carry out a business transaction of this size within nine months and to show a profit for the Government', Saloman proudly declared.42 The brothers hoped that this service would bring them further government patronage, but Herries' office was abolished in October 1816 while firms like Barings and Reid Irving re-entered the European financial market with renewed energy. The largest and potentially most lucrative post-war business was the payment of the indemnity which the Allies forced on the defeated French, and of course the Rothschild brothers, flushed with their recent successes, exerted themselves to secure the contracts. They could not easily challenge the commanding position still held by Barings, now consolidated by connection with the indefatigable Ouvrard in Paris, so they privately made a direct approach to the due de Richelieu, the French prime minister.43 James also approached Barings with a proposal to form a partnership, but this was declined; it was said that Baring himself would have agreed, but Labouchere (Hope's partner) was against it.44 As is well known, the Baring syndicate won the contract, and for a moment James was despondent,45 but in fact the family won two major concessions in France which granted them effective equality with Barings in London and an ascendancy over all their rivals in Paris. As 182</page><page sequence="7">The establishment of the Rothschilds as bankers there has been some misleading speculation by historians on this event,46 it is worthwhile quoting James's letter to Saloman and Nathan (i i October 1817): We are... negotiating two big deals. Baring came to see us the day before yesterday... I told him that he is wrong in not keeping Rentes high; if he did so he would earn higher commissions all over the world. On this he told me 'Look here Rothschild, to be quite sincere, as long as we have this Syndicate comprised of six houses in which each is playing his own hand, such transactions have to be carried out by one person, not by six partners. Consequently if you agree, let us make a deal. You can be sure you will make money on it_' He explained that eight millions of Rentes are still to be distributed. Of these, Baring and Hope want to take 1.5 millions each, which they would engage themselves not to sell. Of the remaining 5 millions, each [Paris banking] house would take 500,000, i.e Laffitte, GrefTalte, Bagueault, Delessert, and Hottinger. There remain 1.5 millions. We are asked to take these at 64.5 per cent to be paid in five monthly instalments_47 The transaction was concluded four days later. This evidence leaves no doubt that the Rothschilds did not maintain their position by successfully 'bearing' operations (i.e. inducing a fall in the price of stocks) so much as the magnitude of the issue and the necessity of acknowledging their powerful position in the syndicate for the issue. In a later section we shall show that Rothschilds were already richer than Barings; for the moment it is enough to make the point that a City of London duopoly had been established that was to last for much of the nineteenth century. The following month Rothschilds took over the British Government's claims against the restored French King Louis XVIII in respect of the ?200,000 lent to him while in exile. This adroit piece of financial diplomacy not only secured the warm approval of the British Government, but also the personal favour of the French King. James wrote triumphantly: 'We could obtain the title of "the King's Banker" if we wanted to, but it is better to do the King's business without the title. He promised that whatever he received he would place with us.'48 The promise was not an empty one; from this time until the fall of the French monarchy in 1848, James Rothschild was the leading Parisian banker.49 The easy explanation for Rothschilds' exclusion from the official disclosures on the Paris syndicate was the strong anti-Semitic passions that were expressing themselves on the Continent in the early post-war years. But it is equally clear that there was intense competition for government loan contracts and, in the European context, Rothschilds were only one of a dozen or so strong houses. Anti-Semitic prejudice in Germany is well known, but in so far as Rothschild business was concerned it was of greater signficance in Paris, St Petersburg and Vienna.50 The family were evicted from the Russian Court and had to promise a blank credit of ?75,000 in order to retain their place in the Prussian Court.51 In Paris the family were regarded as 'even worse than foreigners' and were blamed for the hawkish Prussian policy on 183</page><page sequence="8">S. D. Chapman reparation payments.52 James professed to hate Paris and the French because everything there was done by intrigue, and he privately accused Baring of using anti-Semitic arguments in his financial diplomacy.53 Meanwhile, Beth mann and Parish, supported by Baring and Hope, took the Austrian loan, and Carl wrote of his disappointment that he and his brothers were not involved at 'the best of all courts'.54 Saloman wondered whether an opposition to the Baring-Hope group should be organized, but discretion urged that they should not antagonize the British Government, 'which gives us our bread and butter' and with whom there was still an open account from the Herries period.55 This period of feverish financial diplomacy was an anxious time for the Rothschild brothers, and there was certainly no easy path to success. In the event they won their bite of the cherry in Berlin, routing Mendelsohn, Benecke, and the local bankers because, as Saloman explained, the Berlin bankers had charged very high rates (7 per cent on 6 months) on previous loans and the Treasury was practically bleeding to death. Carl had negotiated a secret loan to Prussia in August 1816 (1.5 million guilders at 7 per cent), but Prussia now wanted foreign capital brought into the country and some German bankers thought that another domestic loan would depress the price of existing stocks.56 Saloman won the personal support of Prince Hardenberg, the Prussian Chancellor who had become effective head of the Treasury on B?low's dismissal from the Ministry of Finance.57 In the event, the ?3 million loan was dispersed among several European bankers, including the Hamburg bankers Hecksher and Fenisch. When the scramble for other contracts was concluded, similar dispersion deals were made; in particular the Baring-Hope group offered Rothschilds as much of the Austrian loan as they would like to take, and N. M. became Austrian Consul in London, backed by Metternich.58 The Prussian loan of 1818 was an important landmark in the history of merchant banking in London. The Gentlemen's Magazine explained that 'Rothschild may be said to have been the first introducer of foreign loans into this country; for, though such securities did at all times circulate here, the payment of the dividends abroad, which was the Universal practice before this time, made them too inconvenient an investment for the great majority [of men] of property to deal with. He not only formed arrangements for the payment of the dividends on his foreign loans in London, but made them still more attractive by fixing the rate in sterling money, and doing away with all the effects of fluctuations in the exchanges.'59 An unsigned memorandum of 1818 in the Rothschild manuscripts explains the thinking behind the new system, and its relation with the earlier French loan: To induce British Capitalists to invest their money in a Loan to a foreign Government upon reasonable terms, it will be of the first importance that the plan of such a Loan should as much as possible be assimilated to the established system of borrowing for the Public service in England, and above all things that some security, beyond the mere good faith of the Government 184</page><page sequence="9">The establishment of the Rothschilds as bankers requiring the money should be held out to the lender for the punctual discharge of the Interest and inviolable appreciation of the funds assigned for the extinction or redemption of the Capital. Without some security of this description any attempt to raise a consider? able sum in England for a foreign Power would be hopeless; the late investments by British Subjects in the French Funds have proceeded upon the general belief that in consequence of the representative System now establish? ed in that Country the sanction of the Chambers to the National debt incurred by the Government affords a guarantee to the Public Creditor, which could not be found in a Contract with any Sovereign uncontrolled in the exercise of the executive power. Without this species of security there is no probability thatever the high rate of Interest yielded by the French Fund in comparison with the English would have induced any Healthy British Subjects to have embarked in them. The problem was solved by the appointment of an independent commission of seven trustees for the loan, three of them Prussian dignitaries, and four foreign merchants and bankers, and the setting up of a sinking fund so that the debt should be repaid in thirty-six years. Five per cent interest was to be paid and 2.5 per cent to the sinking fund.60 The loan not only commended itself to Hardenberg and the king of Prussia, but also to a range of Continental bankers (Parish, Lafitte, Gontard, Beyfuss, Bethmann, Stern among others), who were glad to take shares in it.61 In the course of the following fifteen years or so nearly all the loan stocks of Continental powers launched in Europe returned to the countries that generated them at 20 or 30 per cent or more above the issue price, with consequent gain to the prestige of Rothschilds, Barings and their clients.62 However, it is not to be assumed that the Prussian loan was immediately profitable to the Rothschilds; indeed all the indications are to the contrary. According to an account in the Baring manuscripts the Prussian loan was originally negotiated by a Prussian coffee-and-sugar merchant living in London called Barandon (or Baranton) who possessed 'first rate connections in that country... but finding his credit would not enable him to succeed in it as he had anticipated, Mr. Rothschild took it off his hands giving him it is said ?30,000 for the transfer'.63 In the post-war anti-Semitic reaction, Rothschilds were evicted from the Russian Court and had to promise a blank credit with N. M. for ?75,000 to stay in the Berlin Court.64 The Rothschilds only triumphed over the local Berlin bankers after a long struggle because the Government needed to call on external (that is, London) funding, and they took the most competitive offer. In the end the Rothschilds kept only ?500,000 out of the ?5 million loan for themselves, 90 per cent being distributed among other bankers and connections across Europe, but particularly in Paris and Frank? furt.65 In all these circumstances, it is difficult to suppose that they made a great profit on the issue, despite all the effort they put into it. The significance of the deal is rather that it reinforced their claim to membership of the elite of 185</page><page sequence="10">S. D. Chapman European bankers. Attaining this position, the profits were to be made elsewhere. The one distinction remaining for the Rothschilds to achieve was the issue of a British Government loan. It was the practice at this period for loans to go out to competitive tender, and in June 1819, N. M. undercut the other prospective contractors, Ricardo Brothers &amp; Co. and Reid Irving &amp; Co., for the ?12 million issue. The terms were so exceptionally advantageous to the Government that it has been supposed that they cannot have been very profitable to the contractor, and a fall in the funds in October must have further reduced the prospect of a profit. However, it seems that for N. M. the winning of the contract was again principally a matter of prestige, and his success signalled his equality with Baring, the other outstanding City contrac? tor of the day. David Ricardo retired to his country estate, while Reid Irving waited their turn to the next year, taking a ?5 million loan on more favourable terms.66 The appearance of bonds payable at a fixed rate of exchange at various offices in Europe allowed a very large circulation though the Continent, or at any rate the more affluent classes there. The bonds were as similar in interest payments as they were in appearance, so it appeared that there was something approaching a species of international government bonds. Bertrand Gille believed that that, at any rate, was the Rothschilds' aim, and he called it the valeur omnium. The idea was taken up again by the Pereire brothers as one of the main policies of their Credit Mobilier, and it is no coincidence that they worked for Rothschilds for a long time.67 The correspondence of the Rothschild brothers leaves no doubt that their accounts were in a muddle until at least the end of 1816 (when they began to adopt double entry), so that it is not possible to define precisely where the profits were made in the 'take-off period (1814-18).68 However it is possible to pick out a few salient features and dispel a few myths, which will help explain the evolution of Rothschilds' policy and merchant-banking practice generally.69 All the indications are that N. M.'s personal capital was relatively modest at the time he moved to London. It is said that his future father-in-law entertained some doubts about the prudence of the match and insisted on having N. M.'s books examined to ascertain that he was worth ?10,000, but the young Rothschild did not mind disclosing that he could not yet manage ?25,000 of his own.70 Towards the end of the hectic Herries period, in July 1816, the brothers started asking each other how much they were worth because (as James expressed it) 'we are going crazy thinking one day that we are terribly rich and the next day that the opposite is true'.71 After some debate they calculated that their collective fortune had now surpassed a million pounds. This appears to have been located in London (?600,000), Frankfurt (?300,000) and Paris (?150,000).72 In 1816 the Rothschilds were not yet involved in the floating of government loans, so these profits were clearly made in, or in connection with, the 186</page><page sequence="11">The establishment of the Rothschilds as bankers payment of the British army and allied governments on the Continent. This is confirmed by a letter from James in which he says that the brothers never made so much profit as in the 'contribution business'. An earlier letter gives the commission allowed by Herries at 2 per cent on ?950,000 (giving ?19,000 profit) and 1 per cent on everything above that sum. N. M.'s total account with Herries for 1815 amounted to ?9.79 million so that the gross profit could have exceeded ?97, 000. There is no real evidence to support the story that the Rothschilds made 'a million' (let alone 'millions') on the Stock Exchange following their early news of the victory at Waterloo, but it is reasonable to suppose that they made about a million through government transactions in the year of Waterloo. The accounts in the records of the Paris Rothschilds show that the brothers were worth only ?136,000 early in 1815, but ?1.77 million by 1818, a further indication of rapid gains at the close of the French Wars.73 N. M. conducted very profitable private operations on the London Exchange from 1808, and more especially from 1810 when the deaths of Sir Francis Baring and Abraham Goldsmid left him without a serious competitor. His brothers bought British exchequer bills sold on the Continent by the Commis? sariat officers at heavy discounts, and these were transmitted to London to be sold at the Exchange or cashed at maturity.74 The ever-changing war situation, and the immobility of capital at the period, constantly created further opportunities for those who could take advantage of sudden shifts in the wind, and it is said that N. M. was the master of this art. 'He never hesitated for a moment in fixing the rate, either as a drawer or a taker, on any part of the world; and his memory was so retentive that, notwithstanding the immense transactions into which he entered on every foreign post day, and that he never took a note of them, he could dictate the whole on his return home with perfect exactness to his clerks.75 In other words, it was N. M.'s facility in arbitrage-taking advantage of fluctuating rates in various international financial centres-that brought him his fortune, more especially in the closing years of the war when poor communications made rates sticky. By 1825 the brothers had a total capital of over ?4 million, ?1.075 million owned by Nathan. The capital of Rothschilds' closest rival in London, Baring Bros, was still less than ?0.5 million at this date.76 This incredible size and growth rate evidently depended on a unique combination of entrepreneurial qualities with his family's financial policy and organization, and this must now be given closer attention. It has been quite reasonably supposed that the remarkable success of the Rothschilds was due in the first place to the financial genius of N. M., and secondly to the settlement of the five brothers in the European financial centres. These salient features are fairly observed, but they require explanation. There were other financial geniuses on the Royal Exchange at this period (including Baring, Ricardo and Goldsmid) and any number of other inter? national houses. It is necessary to examine the Rothschilds as entrepreneurs. 187</page><page sequence="12">S. D. Chapman All the brothers acquired their father's pleasure in business, but N. M. was inseparable from his work.77'I do not read books, I do not play cards, I do not go to the theatre, my only pleasure is my business', he wrote in 1816.78 Saloman and Amschel seem to have had modest ambitions, but Nathan and James were insatiable. 'Are you somebody like David Reiss who feels he is fortunate if he obtains cheap remittances amounting to ?10,000?' Saloman inquired rhetorically. 'No, you want the whole of Frankfurt, the whole of Paris, the whole of Amsterdam... [N. M.] seems rather upset if somebody else does any business transactions with London. He feels that he more or less owns London.'79 James seems to have been a kindred spirit. Thus he writes to his brothers in March 1818: 'As everybody here [in Paris] knows that I am buying, we have to show that we are the masters of the exchange market? I am telling you in confidence that my big deal [the Hamburg claim for 37.5 million reparations payment from France] is three-quarters concluded_It is submitted for signature to the Chief.... You can imagine that I would love to be a sterling millionaire in Paris so as to laugh at the whole world.'80 The next day he adds: 'Thank God, we get all that is due to us without trouble; I never doubted that if we continue in this way we will become the richest people in Europe.'81 N. M.'s ambitions have significance for the whole partnership because his father, recognizing the outstanding ability of his third son, appointed him to succeed as the senior partner, and this was accepted by the other four. Their acquiescence is reflected in one of Saloman's letters in 1818: 'Concerning what you write about our late father, that already in his lifetime he gave you the title "General", I have to tell you that we regard you as Commander-in-Chief and ourselves as Lieutenant-Generals. May God give us good fortune and blessing and success so we all remain generals, for those who (God forbid) have no peace nor fortune cannot even rank as corporals.'82 It is by no means unusual to find successful entrepreneurs with a lust for business, but in the case of Continental Jewish families the psychological need for achievement and the attainment of higher status by innovation and creativity seems to have been greater. Carl writes: 'While I was with Saloman in Paris we talked about business activity. It is needed more in Frankfurt than in other places because in Frankfurt a Jew can acquire prestige only through business.'83 Nathan, who appears to have had little interest in fine clothes, titles, etiquette, art, mansions or entertaining, insisted that 'as long as we have a good business and are rich everybody will flatter us'.84 The brothers' correspondence shows that anti-Semitism made them deeply anxious, and they wanted nothing better than to raise themselves above its odium. This fundamental insecurity no doubt contributed to two other features of the Rothschild business, the insistence on the unity of the family team and the cultivation of royalty and the nobility, both imbibed from their father and regularly repeated in their letters. The founder of the banking business was trained for the Rabbinate, and his oft-quoted sayings seem to have carried an 188</page><page sequence="13">The establishment of the Rothschilds as bankers authority with his sons almost approaching that of Law. It was his death-bed wish that his sons should continue to work together, and the force of his authority in the matter carried them through some divisive situations.85 1 remember what our father, peace be with him, told me on his death bed', the oldest brother reminded the others two years later. '"Amshel, keep your brothers together and you will become the richest people in Germany". This is [already] almost true.'86 There were however problems about how this unity should be signalled to the world of commerce: whether the customary circular announcing the new partnership should state that the dispersed brothers were one firm, or whether there should be a secret compact between them. Neither of these explicit declarations seems to have been accepted, the unity of the house being effectively maintained by N. M.'s leadership down to his death in 1836.87 In the last analysis it was the experience of unprecedented success that cemented the family team together. Inevitably there were tensions and quarrels, not least because Saloman was highly sensitive and Carl a rather weak character, but in Nathan's lifetime the family continued as a single business unit.88 This essential unity has been fairly interpreted as a key element in their achievement. The central role of the Court Jews in the history of Europe has been traced back to the Renaissance, when the rise of strong centralized monarchies made a place for the Jews in the complicated order of its social structure. In most of the 240 territories that comprised the so-called Holy Roman Empire, the Jews were accepted and granted the right to found their own communities, less in any spirit of tolerance of their religion, than as a means of fostering the prosperity of the state. The princes needed experienced financial agents and advisers capable of carrying through their mercantilist programmes and the more successful Jewish moneylenders were not inhibited by Christian ethics and guild and corporation controls. Selma Stern's invaluable work on The Court Jew (Philadelphia, 1950) has identified and defined the type with commendable clarity: Though the Court Jew was a product of his time, a product of the particular combination of Court absolutism, mercantilism and baroque culture, he was nevertheless not merely an automaton created by the ruler and blindly carrying out his will_He possessed a remarkable degree of industriousness and restlessness, a great interest in speculation and action, a strong desire for success, a lust for money and profit, an ambition to climb higher and higher and to assimilate as completely as possible to his environment in speech, dress and manners.... Nevertheless, he remained a Ghetto Jew, whose experience and fate bound him to his community and kept him confined within its religious and social organisation.88 This portrait, though referring primarily to the sixteenth and seventeenth rather than later centuries, fits the Rothschilds and their German-Jewish connections remarkably closely, and their correspondence illustrates and 189</page><page sequence="14">S. D. Chapman elaborates these themes without changing them in any way. Reference is made to the Maier Amshel principle, that everything is to be risked to be able to make contact with a great prince, and it is better to deal with a government in difficulty than one that has good fortune on its side.89 Relations with the courts of Prussia, Austria, Denmark and Britain were cultivated with the conviction that: 6A court is always a court and it always leads to something_Business transactions with royalty always end in a profitable way'.90 It is worthwhile accepting thin profit margins in order to establish a connection, and if 'one wants to stay in business one should not try to make too much profit...in peace time one has to be more than glad for a profit of half a per cent'.91 In the limited space available we can provide only two illustrations of the working of this principle. 'Today [28 March 1816] I concluded a minute transaction with Denmark', James writes; 'I made a profit of ?10 which is really nothing to rave about but thereby I came into contact with the Court? 'A few months later he is writing: 'You are perfectly right in saying that we do not need any new business transactions. If, on the other hand a Minister recommends a transaction one has to take it seriously. We cannot afford to lose the Prussian Court'.92 In England the influence of the Court was obviously much less significant, but N. M. applied the same principles to important officials, notably Herries, Wellington and Lord Stewart, the British Ambassador in Paris, with the quite extraordinary result that his first million pounds was won under government guarantee. In Britain the dividends for government patronage came in the form of increased status and credit standing, rather than royal favours. Already at the close of 1814, N. M. could write: 'My bill in London is better than Bethmann [the leader banker] in Frankfurt because everybody feels honoured to speak to me'.93 Acceptance as a first-class house meant entry to an elite in which it was possible to pick and choose one's clients, not only in Britain, but throughout the rapidly growing international economy which was now increasingly focussed on London. It is at this point that we must emphasize the second distinctive element in N. M.'s success, an element that belonged to his personal genius rather than family tradition. To conduct the colossal accept? ance business that he built up in the decade or so after the Napoleonic War evidently required an almost superhuman mental register of the fluctuating creditworthiness of hundreds of merchant houses throughout Europe. No doubt his total dedication to business contributed much to this achievement, but when proper allowance has been made for this, much must be attributed to facility in instant and accurate judgment. If there is any substance in the journalistic tradition of Rothschild infallibility, it must surely apply to his arbitrage business, for it was well known to contemporaries that he had lost money on some state loans,94 and had made little on others. Arriving in Britain at the opportune moment of unprecedented expansion of overseas trade, and the war-time collapse of a sequence of less qualified enterprises, young Rothschild was able to mould his eminence as a government financier to the 190</page><page sequence="15">The establishment of the Rothschilds as bankers opportunities for financing international trade. He was by no means the first (or last) merchant to be involved in government financing, but most had come to it late in life as the climax of a successful career in trade.95 N. M. came into the orbit of government finance at a relatively early stage of his career-in 1814 aged 37-and spent most of the remainder of his life (1816-36) capitalizing on his breakthrough. Outstanding entrepreneurial success has sometimes been achieved through the linking of two distinct traditions, and N. M. Rothschild's career offers the most dramatic illustration of this phenomenon in the fusion of the long Central European tradition of the Court Jew with the equally distinguished English tradition of the merchant financier. NOTES Abbreviations RAL = Rothschild Archives, London NMR = Nathan Meyer Rothschild Ams a= Amschel Rothschild Jas = James Rothschild Sal = Saloman Rothschild All three were brothers of N. M.'Rothschild. I G. Yogev, Diamonds and Coral Anglo Dutch Jews and Eighteenth Century Trade (Leices? ter 1978). 2 F. Braudel, Civilisation and Capitalism, iSth-i8th Century II, The Wheels of Commerce (1979). 3 [Anon.], Geschichte der Handelskammer zu Frankfurt 1707-1908 (Frankfurt 1908) 176 216. 4 J. Picciotto, Sketches of Anglo-Jewish History (187s) 320. 5 Corporation of London Record Office, lists of sworn brokers. 6 Amsterdam Municipal Archives, Bank Mees &amp; Hope MSS, Information Books PA 735/25 PP- 742-3,4 April 1815. 7 Bank Mees &amp; Hope, Diversen Documenten 1802-08, pp. 211-15. Cf. I. P. H. Duffy, The Discount Policy of the Bank of England during the Suppression of Cash Payments 1797 1821', Econ. Hist. Rev. XXXV (1982). 8 Bank Mees &amp; Hope, Information Books, 5 vols, 1784-1831, PA 735/22-26. 9 S. R. Cope, The Goldsmids and the Development of the London Money Market during the Napoleonic Wars*, Economica N.S. DC (1942). 10 Bank Mees &amp; Hope MSS, PA 735/25 pp. 742-3. 11 S. R. Cope, Walter Boyd. A Merchant Banker in the Age of Napoleon (1983). Despite Dr Cope's extensive research, he misses the full story of City support for Boyd at the crisis of 1798. f80,000 was raised by subscription, including ?10,000 each from Hopes and Bar? ings: Bank Mees &amp; Hope, Henry Hope's Letter Book 1798-1803, PA 735/2, and bundles of letters, 1786-7. 12 Bank Mees &amp; Hope PA 735/26 pp. 200-01. The background is surveyed in B. Bramsen and K. Wain, The Hambros 1779 1979 (1979). Joseph Hambro finally settled in London in 1840. 13 C. W. Berghoeffer, Meyer Amschel Roths? child: der Gr?nder des Rothschild Bankhauses (Frankfurt 1922). 14 S. D. Chapman, 'The Foundation of the English Rothschilds: N. M. Rothschild as a Textile Merchant', Textile History VIII (1977). 15 Bank Mees &amp; Hope PA 735/25 p. 288. 16 Bank Mees &amp; Hope PA 735/25 p. 584. 17 E. Herries, Memoirs of the Public Life of the Rt Hon. John Charles Herries I (1880) 23, 85. P. K. O'Brien, Government Revenue 1793-1815, DPhil thesis (Oxford 1966). 18 RAL T37/1, J. C. Herries (hereafter JCH) to A. Rosenhagen, 25 Nov. 1813. T37 com? prises the Spottiswood collection of Herries letters, purchased for the Rothschild archives. It is much more informative than the parallel PRO series. 19 RAL T37/10, JCH to NMR, 10 March 1814. 20 RAL T37/20, N. Vansittart (hereafter NV) to JCH, 25 May 1814. 21 RAL T37/82, 85 JCH to G. Harrison 18 Sept. 1814, to J. Murray 12 Dec. 1814. Cf. T5/13, NMR to Sal. and Jas., i80ct. 1814. 191</page><page sequence="16">S. D. Chapman 22 E. Herries (see n. 17) 243~5 23 E. Herries (see n. 17) 85-6. T37/35, JCH to Sir Geo. Burgman, 17 March 1815. T37/36, JCH to NMR, 17 March 1814. 24 RAL T37/52, JCH to Burgman, 19 April 1814. 25 RAL T37/37, JCH to Harrison, 17 March 1814. T37/5oJCHtoNMRnJan. 1814. 26 RAL T32A/45. RAL 109/6 Ams to bros, 11 March 1817. 27 RAL 328/3, Ams to NMR. 21 April 1818. 28 T33/25, 50: Carl to his 4 brothers, 15 Oct. 1816, NMR to Salomon 25 Oct. 1816. 29 T29/46, 103, 165, 168. Sal. to NMR, 24 June, 17 Aug. 1814. T29(2)/59, 91, Ams. to his mother, 18 Oct. 1814, Sal. to NMR, 19 Nov. 1814. 30 Numerous references to both cause and effect see e.g. T29(2)/92, Sal. to NMR, 19 Nov. 1814; T29/101, Carito Jas., 16 Aug. 1814. 31 E. Herries (seen. 17) 102, 272. 32 T37/80, JCH to NMR , 4 Aug. 1814. T29/164-8, Sal. to NMR, end Aug. 1814. T29(2)/8, Jas. to NMR, 9 Sept. 1814. 33 T28/28, Sal. to NMR, n.d. T29/166, Sal. to NMR, end Aug. 1814. 34 T30/30, Ams. to NMR, 12 Jan. 1815. 35 T5/13, NMR to Sal., Jas. and M. David? son, 16 Sept. 1814: 'having arranged a good deal with the Government respecting money matters, you may draw [on me] as much as you please as the business I have engaged in will greatly facilitate all our money operations'. 36 T30/22, Jas. to NMR, end Feb. 1815. 37 T5/22-3, NMR to Jas. and Carl, 14 April 1815. 38 T31/79 Sal. to NMR, 17 March 1816. See also note 73, below. 39 T30/54, Sal. to NMR, n.d. (17 Sept. 1815?). T30/72, Jas. to NMR, 30 Sept. 1815. T30/75, 2 Oct. 1815. 40 T30/72, Jas. to NMR, 30 Sept. 1815. 41 T3o/i3i,Jas. toNMR, 2Dec. 1815. 42 T31/79, Sal. to NMR, 17 March 1816. 43 RAL 109/8, Jas. to NMR, 5 Nov. 1817. For background see L. H. Jenks, Migration of British Capital p. 33S. Otto Wolff, Ouvrard, Speculator of Genius 1770-1846 (1962) 137 42. 44 T63(i09/8), Sal. and Jas. to NMR, 8 and 17 Dec. 1817. Cf. T64(i09/9/339), Jas. to Sal. and NMR, 9 April 1818. 45 T61(109/6/33), Jas. to Ams. and Carl, 4 Feb. 1817. T34/2, Ams. to Jas., 16 Jan. 1816. 46 E.g. by Ehrenberg, quoted in Jewish Encyclopaedia, X, 495. 47 T6(i43/2), Jas. to Sal., 11 Oct. 1817. A check on the arithmetic suggests ?2.5 million remaining to be subscribed by other houses, i.e. 31 per cent. The Northampton MSS at Compton Wynyates, Box 7, confirm the cordiality of Baring-Rothschild relations at this period; cf. T62(io9/7), Jas. to NMR, 24 May 1817. 48 T63(io9/8), Jas. to NMR, 3 Nov. 1817. 49 B. Gille, Histoire de la Maison Rothschild I (Geneva 1965). 50 R. Rurup, 'Jewish Emancipation and Bourgeois Society' [in Germany], Leo Baeck Institute Yearbook, 1974. 51 T6i(io3/2), Ams. to NMR, n.d. (March/ April 1817). 52 T6i(i47/2), Jas. to NMR, 26 April 1817. 53 T61/5, Jas. to Sal. and NMR, 1 March 1817. 54 T64( 109/9), Carl to 4 bros, 21 Feb. 1817. 55 T64(i09/9), Sal. to NMR and Jas., 27 Feb. 1818. 56 T32B/91, Ams. to Sal. and NMR, 1 Aug. 1816. T33/85, Carl to four bros, 15N0V. 1816. 57 T64(io9/9), Sal. to NMR, 20-28 Jan. 1818, Sal. to NMR and Jas., 27 Feb. 1818. 58 T64(io9/9), Jas. to Sal. and NMR, 9 April 1818, T64(i09/9) Carl to Sal. and NMR, 6 April 1817. 59 Gentlemen's Mag., NS VI (1836) 327. 60 Box 109/10/4, unsigned draft, 1818. 61 T64(i09/9/i99) Carl to Sal., 7 April 1817. (109/9/207), Carl to NMR and Sal., 17 April 1818. 62 Gentlemen's Mag. (see n. 59). 63 Baring MSS 'Character Book' of c. 1830 (unlisted). The Rothschild Letters show that it was originally planned to launch a Rothschild Barranton Prussian loan. 64 T6i(io3/2, 109/6), Ams. to bros, 4-10 March 1817. T64 (158/2) Sal. to Ams., NMR and Jas., 27 Feb. 1818. T64(io9/9) Sal. and Carl to bros, 12 Feb. 1818. 65 T64(io9/9/339), Jas. to Sal. and NMR, 10 April 1818. 66 P. Sraffa and M. H. Dobb (eds) Works ...of David Ricardo X (19 5 5) 82-90. 67 B. Gille (seen.49) 483. 68 T33/22, Jas. to NMR and Sal., 14 Oct. 1816. 69 The Rothschild family do not permit disclosure of capital and profits entered in the accounts, so surmisal from the period of more regular accounting practices is not possible. 70 L. Wolf, Essays in Jewish History (1934) 31. Gentlemen's Mag. NS VI (1836) 328. 71 T32B/51, Jas. to his four bros, 20 July 1816. 192</page><page sequence="17">The establishment of the Rothschilds as bankers 72 T32B/87, Carl to NMR and Sal., 1 Aug. 1816. 73 T32B/97, Jas. to NMR and Sal., 3 Aug. 1816. T32B/58, Carl to NMR and Sal., 21 July 1816. The accounts of the London Rothschilds were not open to academic inquiry, so the figures cited have been drawn from N. M. V. (third Lord) Rothschild, The Shadow of a Great Man (1982) 22, and B. Gille (see n.49) 458. The Waterloo legend is considered at length in Lord Rothschild's booklet. 74 Cf. Jewish Cyclopaedia X (1905) 494. 75 Gentlemen's Mag. (see n. 70). 76 B. Gille (see n. 73); S. D. Chapman, The Rise of Merchant Banking (1984) 40-1, for comparative data. 77 T28/4, Davidson to NMR, 24 July 1814. 78 T31/25, NMR to bros, 2 Jan. 1816. Cf. T28/3,T32A/73. 79 T29/45, Sal. to NMR, 28 June 1814. T29/107,17 Aug. 1814. CLT31/99. 80 ^1/14(79/2), Jas. to bros, 29 March 1818. Cf. B. Gille (see n.49) H 593-4 for James's devotion to business. 81 T64(i09/9/302), Jas. to NMR and Sal., 30 March 1818. 82 Box 109/10, Sal. to NMR, n.d. (c. July 1818). Cf. T29/4 Sal. to NMR, n.d. (1814). T31/93, Jas. to NMR, 28 March 1816. 83 T32A/73, Carl to NMR and Sal., 19 Sept. 1816. 84 T31/26, NMR to bros, 2 Jan. 1816. Cf. A. Rubens, 'The Rothschilds in caricature, Trans JHSEXKE (1968-9). 85 164(109/9/176), Sal. to NMR and Jas., 27 Feb. 1818. 86 T30/13, Ams. to NMR, 12 Jan. 1815. 87 T33/113, Carl to Sal. and NMR, 12 Dec. 1816 (369/2). (109/6) Ams. to bros, 6 Feb. 1817. 88 Selma Stern, The Court Jew. A Contribu? tion to the History of the Period of Absolutism in Central Europe (Philadelphia 1950) 11. 89 T30/92, Jas. to bros, 25 Oct. 1815. T30/104, Ams. to bros, 14 Nov. 1815. 90 T31/41, Sal. to NMR and Jas., 2 Feb. 1816.T31/45, Ams. to Jas. 8 Feb. 1816. 91 T30/111, Sal. to NMR, 13 Nov. 1815. Cf. T31/79, Sal. to NMR, 17 March 1816. 92 T31/93, Jas. to NMR, 28 March 1816. T31/146, Jas. to NMR and Sal., 1 June 1816. 93 T29(2)/ii5, NMR to Carl, 22 Dec. 1814 (draft). 94 Gentlemen's Mag. (see n. 70). 95 L. Namier, The Structure of Politics at the Accession of George III (1957) 45 ff. The T series of the Rothschild MSS consists of letters translated from Hebrew, German and French, originally referred to by volume and page number. At the time this research was undertaken, T61-64 were not typed or num? bered, but can readily be traced from the authors and date sequence, and also from the box numbers given here. More recently, the original and translators letters have all been put on a computer index, making identification of specific items very easy. 193</page></plain_text>