The Rothschilds

Nathan Mayer Rothschild - The Bonaparte of finance

1. The meteoric rise of a diminutive Corsican (Napoleon Bonaparte) to be Emperor of France and master of the European continent was an event few could have predicted in 1796.

2. Yet an even more remarkable (and more enduring) feat of social mobility was to happen in almost exactly the same timeframe.

3. Within just a few years of Napoleon’s final defeat at Waterloo, a man who had grown up amid the gloom of the Frankfurt ghetto had emerged as a financial Bonaparte: the master of the bond market and, some ventured to suggest, the master of European politics as well.

4. That man’s name was Nathan Rothschild.

5. Master of unbounded wealth, he boasts that he is the arbiter of peace and war, and that the credit of nations depends upon his nod; his correspondents are innumerable; his couriers outrun those of sovereign princes, and absolute sovereigns; ministers of state are in his pay. Paramount in the cabinets of continental Europe, he aspires to the domination of our own. - the Radical MP Thomas Dunscombe, 1828

6. Master of unbounded wealth, he boasts that he is the arbiter of peace and war, and that the credit of nations depends upon his nod; his correspondents are innumerable; his couriers outrun those of sovereign princes, and absolute sovereigns; ministers of state are in his pay. Paramount in the cabinets of continental Europe, he aspires to the domination of our own. - the Radical MP Thomas Dunscombe, 1828

7. Nathan Rothschild was the founder of the London branch of what was, for most of the 19th century, the biggest bank in the world.

8. It was the bond market that made the Rothschild family rich.

9. The 4th Lord Rothschild was Nathans’s great-great-great-grandson.

10. According to Lord Rothschild, Nathan Rothschild was “short, fat, obsessive, extremely clever, wholly focused… I can’t imagine he would have been a very pleasant person to have dealings with.”

11. According to Lord Rothschild’s cousin Evelyn de Rothschild, “He was very ambitious, and I think he was very determined. I don’t think he suffered fools lightly”.

12. Nathan used to write letters to his brothers in almost indecipherable Judendeutsch (German transliterated into Hebrew characters).

13. His letters epitomize what might be called his Jewish work ethic and his impatience with his less mercurial brothers. Here is one:

    I am writing to you giving my opinion, as it is my damned duty to write to you… I am reading through your letters not just once but maybe a hundred times. You can well imagine that yourself. After dinner I usually have nothing to do. I do not read books, I do not play cards, I do not go to the theatre, my only pleasure is my business and in this way I read Amschel’s, Salomon’s, James’s and Carl’s letters… As far as Carl’s letter (about buying a bigger house in Frankfurt) is concerned… all this is a lot of nonsense because as long as we have good business and are rich everybody will flatter us and those who have no interest in obtaining revenues through us begrudge us for it all. Our Salomon is too good and agreeable to anything and anybody and if a parasite whispers something into his ear he thinks that all human beings are noble minded; the truth is that all they are after is their own interest.

14. It was Nathan’s phenomenal drive, allied to innate financial genius, that propelled Nathan from the obscurity of the Frankfurt Judengasse to mastery of the London bond market. Once again, however, the opportunity for financial innovation was provided by war.

15. The son of a moderately successful Frankfurt antique dealer and bill broker, Nathan Rothschild had arrived in England only in 1799 and had spent most of the next ten years in the newly industrializing North of England, purchasing textiles and shipping them back to Germany. He did not go into the banking business in London until 1811.

16. Nathan had acquired valuable experience as a smuggler of gold to the Continent.

17. The brothers had a ready-made banking network within the family - Nathan in London, Amschel in Frankfurt, James in Paris, Carl in Amsterdam and Salomon roving wherever Nathan saw fit. Spread out around Europe, the five Rothschilds were uniquely positioned to exploit price and exchange rate differences between markets, the process known as arbitrage. If the price of gold was higher in, say, Paris than in London, James in Paris would sell gold for bills of exchange, then send these to London, where Nathan would use them to buy a larger quantity of gold.

18. The brothers had taken to calling Nathan the master of the Stock Exchange.

Things before the Battle of Waterloo

1. In 1808, the future Dule of Wellington, then Lieutenant-General Sir Arthur Wellesley went to Portugal, which was invaded by French the previous year. For the better part of the next six years, there would be a recurrent need to get men and material to that place.
2. Selling bonds to the public raised plenty of cash for the British government, but banknotes were not useful on distant battlefields. Wellington needed a currency that was universally acceptable. The challenge was to transform the money raised on the bond market into gold coins, and to get them to where they were needed. Sending gold from London to Lisbon was expensive and hazardous in time of war. Portugese merchants declined Wellington’s bills of exchange. There was no alternative but to ship cash.
3. The British government turned to the Rothschilds in its hour of financial need. In January 1814, Nathan was employed in the most secret and confidential manner to collect in Germany, France and Holland the largest quantity of French gold and silver coins, not exceeding in value 600,000 pounds. These were then to be delivered to British vessels at the Dutch port of Helvoetsluys and sent on to Wellington.
4. It was an immense operation which depended on the brothers’ ability to tap their cross-Channel credit network and to manage large-scale bullion transfers. They executed their commission so well. By May 1814, Nathan had advanced nearly 1.2 million pounds to the government, double the amount envisaged in his original instructions.
5. Mobilizing such vast amounts of gold even at the tail end of a war was risky. Yet from the Rothschilds’ point of view, the hefty commissions they were able to charge more than justified the risks. The fact that these transactions were big enough to affect their price differentials only added to the profitability of the business. In addition, the Rothschilds also handled some of the large subsidies paid to Britain’s continental allies. By June 1814, the British government had effected payments of this sort to a value of 12.6 million francs.

The Battle of Waterloo - some historic facts

1. It was fought on June 18, 1815. On one side, there were 67,000 British, Dutch and German troops under the Duke of Wellington’s command. On the other side, there were an almost equal number of French troops commanded by the French Emperor, Napoleon Bonaparte. It was fought on the fields of Waterloo, not far from Brussels.
2. The Battle of Waterloo was the culmination of more than two decades of intermittent conflict between Britain and France. But it was more than a battle between two armies. It was also a contest between rival financial systems: one, the French, which under Napoleon had come to be based on plunder (the taxation of the conquered); the other, the British, based on debt.
3. Never had so many bonds been issued to finance a military conflit. But this increase in the supply of bonds had weighed heavily on the London market.
4. British troops had been fighting against Napoleon on the Continent since August 1808.

The Battle of Waterloo and the Rothschilds

1. According to a long-standing legend, the Rothschild family owed the first millions of their fortune to Nathan’s successful speculation about the effect of the outcome of the battle on the price of British bonds.
2. In some versions of the story, Nathan witnessed the battle himself, risked a Channel storm to reach London ahead of the official news of Wellington’s victory and, by buying bonds ahead of a huge surge in prices, pocketed between 20 and 135 million pounds. It was a legend the Nazis later did their best to embroider. In 1940, Joseph Goebbels approved the release of “Die Rothschilds”, which depicts an oleaginous Nathan bribing a French general to ensure the Duke of Wellington’s victory, and then deliberately misreporting the outcome in London in order to precipitate panic selling of British bonds, which he then snaps up at bargain-basement prices.
3. Yet the reality was altogether different. Far from making money from Wellington’s victory, the Rothschilds were very nearly ruined by it.
4. Their fortune was made not because of Waterloo, but despite it.
5. After Napoleon’s abdication in April 1814, he had been exiled to the small Italian island of Elbe, which he proceeded to rule as an empire in miniature. It was too small to hold him. On March 1, 1815, he returned to France, determined to revive his Empire. Some of the veterans that fought with him before joined him.
6. Nathan responded to this by immediately resuming gold purchases, buying up all the bullion and coins he and his brothers could lay their hands on, and making it available to the British government for shipment to Wellington. In all, the Rothschilds provided gold coins worth more than 2 million pounds. At the same time, Nathan offered to take care of a fresh round of subsidies to Britain’s continental allies, bringing the total of his transactions in 1815 to just under 9.8 million pounds. With commissions on all this business ranging from 2% to 6%, Napoleon’s return promised to make the Rothschilds rich men.
7. Yet there was the risk that Nathan had underestimated. In furiously buying up such a huge quantity of gold, he had assumed that, as with all Napoleon’s wars, this would be a long one. It was a near fatal miscalculation.
8. After just a few days, Napoleon lost the war.
9. It was a glorious victory for Wellington.
10. Not so for the Rothschilds. The news was anything but good for the Rothschilds. Nathan had expected nothing as decisive so soon. Now he and his brothers were sitting on top of a pile of cash that nobody needed - to pay for a war that was over. With the coming of peace, the armies could be disbanded. This means, no more soldier’s wages, and no more subsidies to Britain’s wartime allies. The price of gold, which had soared during the war, would be bound to fall. Nathan was faced not with the immense profits of legend but with heavy and growing losses.
11. But there was one possible way out: the Rothschilds could use their gold to make a massive and hugely risky bet on the bond market. On July 20, 1815, Nathan had made great purchases of British government bonds. Nathan’s gamble was that the British victory at Waterloo, and the prospect of a reduction in government borrowing, would send the price of British bonds soaring upwards. Nathan bought more and, as the price of British bonds duly began to rise, he kept on buying. Despite his brothers’ desperate entreaties to realize profits, Nathan held his nerve for another year. Eventually, in late 1817, with bond prices up more than 40%, he sold.
12. Allowing for the effects on the purchasing power of sterling of inflation and economic growth, his profits were worth around 600 million pounds today. It was one of the most audacious trades in financial history, one which snatched financial victory from the jaws of Napoleon’s military defeat.
13. The resemblace between victor and vanquished was not lost on contemporaries. In the words of one of the partners at Barings, the Rothschilds’ great rivals, “They are generally well planned, with great cleverness and adroitness in execution - but he is in money and funds what Bonaparte was in war.” Others went still further. German poet Heinrich Heine in March 1841 said, “Money is the god of our time, and Rothschild is his prophet”.

After The Battle of Waterloo

1. To an extent that even today remains astonishing, the Rothschilds went on to dominate international finance in the half century after Waterloo.

2. So extraordinary did their achievement seem to comtemporaries that they often sought to explain it in mystical terms.

3. The Nazis preferred to attribute the rise of the Rothschilds to the manipulation of stock market news and other sharp practice.

4. Such myths are common even today. According to Song Hongbing’s best-selling book “Currency Wars”, published in China in 2007, the Rothschilds continue to control the global monetary system through their alleged influence over the Federal Reserve System.

5. The more prosaic reality was that the Rothschilds were able to build on their successes during the final phase of the Napoleonic Wars to establish themselves as the dominant players in an increasingly international London bond market. They did this by establishing a capital base and an information network that were soon far superior to those of their nearest rivals, the Barings.

6. Between 1815 and 1859, it has been estimated that the London house issued more than half the total issued by all banks in London.

7. Although British government bonds were the principal security they marketed to investors, they also sold French, Prussian, Russian, Austrian, Neapolitan and Brazilian bonds.

8. In addition, they all but monopolized bond issuance by the Belgian government after 1830.

9. Typically, the Rothschilds would buy a tranche of new bonds outright from a government, charging a commission for distributing these to their network of brokers and investors throughout Europe, and remitting funds to the government only when all the installments had been received from buyers. There would usually be a generous spread between the price the Rothschilds paid the sovereign borrower and the price they asked of investors (with room for an additional price “run up” after the initial public offering).

10. A distinguishing feature of the London bond market after 1815 was the Rothschild’s insistence that most new borrowers issue bonds denominating in sterling, rather than their own currency, and make interest payments in London or one of the other markets where the Rothschilds had branches. A new standard was set by their 1818 IPO of Prussian 5% bonds, which - after protracted and often fraught negotiations - were issued not only in London, but also in Frankfurt, Berlin, Hamburg and Amsterdam.

11. In his book “On the Traffic in State Bonds” (1825), the German legal expert Johann Heinrich Bender singled out this as one of the Rothschild’s most important financial innovations:

    At one point, when the Director of the Prussian Treasury, Christian Rother, attempted to modify the terms after the loan contract had been signed, Nathan exploded: ‘Dearest friend, I have now done my duty by God, your king and the Finance Minister von Rother, my money has all gone to you in Berlin… now it is your turn and duty to yours, to keep your word and not to come up with new things, and everything must remain as it was agreed between men like us, and that is what I expected, as you can see from my deliveries of money. The cabal there can do nothing against N.M.Rothschild, he has the money, the strength and the power, the cabal has only impotence and the King of Prussia, my Prince Hardenberg and Minister Rother should be well pleased and thank Rothschild, who is sending you so much money [and] raising Prussia’s credit.’ That a Jew born in the Frankfurt ghetto could write in these terms to a Prussian official speaks volumes about the social revolution that Nathan Rothschild and his brothers personified.

12. Bond issuance was by no means the only business the Rothschilds did. They were also bond traders, currency arbitrageurs, bullion dealers and private bankers, as well as investors in insurance, mines and railways. Yet the bond market remained their core competence.

13. Unlike their lesser competitors, the Rothschilds took pride in dealing only in what would now be called investment grade securities.

14. With success came ever great wealth. When Nathan died in 1836, his personal fortune was equivalent to 0.62% of British national income. By 1899, the combined capital of the five Rothschild ‘houses’ exceeded the capital of the five biggest German joint-stock banks put together.

15. Increasingly the firm became a multinational asset manager for the wealth of the managers’ extended family.

16. As their numbers grew from generation to generation, familial unity was maintained by a combination of periodically revised contracts between the five houses and a high level of intermarriage between cousins or between uncles and neices. Of 21 marriages involving descendants of Nathan’s father Mayer Amschel Rothschild that were solemnized between 1824 and 1877, no fewer than 15 were between his direct descendants. In addition, the family’s collective fidelity to the Jewish faith, at a time when some other Jewish families were slipping into apostacy or mixed marriage, strengthened their sense of common identity and purpose as ’the Caucasian [Jewish] royal family’.

17. Old Mayer Amschel had repeatedly admonished his five sons: ‘If you can’t make yourself loved, make yourself feared’. As they bestrode the mid-nineteenth-century financial world as masters of the bond market, the Rothschilds were already more feared than loved.

18. Reactionaries on the right lamented the rise of a new form of wealth, higher-yielding and more liquid than the landed estates of Europe’s aristocratic elites.

19. As Heinrich Heine discerned, there was something profoundly revolutionary about the financial system the Rothschilds were creating

    The system of paper securities frees… men to choose whatever place of residence they like; they can live anywhere, without working, from the interest on their bonds, their portable property, and so they gather together and constitute the true power of our capital cities. And we have long known what it portends when the most diverse energies can live side by side, when there is such centralization of the intellectual and of social authority.

20. In Heine’s eyes, Rothschild could now be mentioned in the same breath as Richelieu and Robespierre as one of the ’three terroristic names that spell the gradual annihilation of the old aristocracy’. Richelieu had destroyed its power; Robespierre had decapitated its decadent remmant; now Rothschild was providing Europe with a new social elite by

    raising up the system of government bonds to supreme power… [and] endowing money with the former privileges of land. To be sure, he has thereby created a new aristocracy, but this is based on the most unreliable of elements, on money… [which] is more fluid than water and less steady than the air…

21. Meanwhile, Radicals on the Left bemoaned the rise of a new power in the realm of politics, which wielded a veto power over government finance and hence over most policy.

22. The liberal historian Jules Michelet noted in his journal in 1842: ‘M. Rothschild knows Europe prince by prince,and the bourse courtier by courtier. He has all their accounts in his head, that of the courtiers and that of the kings; he talks to them without even consulting his books. To one such he says: “Your account will go into the red if you appoint such a minister.”

23. Predictably, the fact that the Rothschilds were Jewish gave a new impetus to deep-rooted anti-Semitic prejudices. No sooner had the Rothschilds appeared on the American scene in the 1830s than the governor to Mississippi was denouncing ‘Baron Rothschild’ for having ’the blood of Judas and Shylock flowing in his veins, and… uniting the qualities of both his countrymen’.

24. Later in the century, the Populist writer ‘Coin’ Harvey would depict the Rothschild bank as a vast, black octopus stretching its tentacles around the world.

25. It was the Rothschild’s seeming ability to permit or prohibit wars at will that seemed to arouse the most indignation.

26. J.A.Hobson, author of “Imperialism: A Study (1902)” pointedly posed the question: “Does anyone seriously suppose that a great war could be undertaken by any European State, or any great Stage loan subscribed, if the house of Rothschild and its connexions set their face against it?”

27. Though still renowned as one of the earliest liberal critics of imperialism, Hobson articulated a classically anti-Semitic hostility towards finance:

    In handling large masses of stocks and shares, in floating companies, in manipulating fluctuations of values, the magnates of the Bourse find their gain. These great businesses - banking, broking, bill discounting, loan floating, company promoting - form the central ganglion of international capitalism. United by the strongest bonds of organization, always in closest and quickest touch with one another, situated in the very heart of the business capital of every State, controlled, so far as Europe is concerned, chiefly by men of a single and peculiar race, who have behing them many centuries of financial experience, they are in a unique position to control the policy of nations.

28. It might, indeed, be assumed that the Rothschilds needed war. After all, It was war that had generated Nathan Rothschild’s biggest deal. Without wars, 19th century states would have had little need to issue bonds.

29. However, wars tended to hit the price of existing bonds by increasing the risk that a debtor state would fail to meet its interest payments in the event of defeat and losses of territory.

30. By the middle of the 19th century, the Rothschilds had evolved from traders into fund managers, carefully tending to their own vast portfolio of government bonds. Now, having made their money, they stood to lose more than they gained from conflict. It was for this reason that they were consistently hostile to strivings for national unity in both Italy and Germany. And it was for this reason that they viewed with unease the descent of the United States into internecine warfare.

31. The Rothschilds had decided the outcome of the Napoleonic Wars by putting their financial weight behind Britain. Later, they would help decide the outcome of the American Civil War - by choosing to sit on the sidelines.