One Per Cent

On 25 November 1882, Iolanthe; or, The Peer and the Peri was performed for the first time at the Savoy Theatre. In Act II, a restless Lord Chancellor, troubled by lovesickness rather than the expense of his furnishings, cannot sleep. As he wanders through his lodgings, he sings the famous ‘Nightmare Song’. One of the elements of the nightmare is what would now be called a venture capital scheme – to plant retailers as vegetables to get their goods to sprout:

The shares are a penny and ever so many are
                 taken by Rothschild and Baring;
And just as a few are allotted to you, you
          awake with a shudder despairing.

The Lord Chancellor expressed the feelings of many private investors, then and now, who have been victims of market makers, but he was wrong to equate the two banks. By 1882, Rothschild had been much larger than Barings for decades. As early as 1825, as Niall Ferguson shows, the combined assets of the five Rothschild houses were nine times greater than the capital of Baring Brothers. Indeed, for most of the 19th century, the House of Rothschild was the biggest bank in the world by a wide margin, and the fortune of Nathan Mayer Rothschild, founder of the English branch, can be compared with that of Bill Gates today. Nathan Mayer’s only competitor for the title of richest man in Europe was his youngest brother, James, founder of the Paris branch.

Last year was the bicentenary of the arrival of Nathan Mayer Rothschild in England and Sir Evelyn de Rothschild, chairman of N.M. Rothschild and Sons, proposed a history of the House to Ferguson as a fitting way to commemorate two centuries of banking and family history. The World’s Banker is an ‘authorised’ company history like the 1995 history of the Deutsche Bank. Such sponsored histories of large firms, and the historians who write them, have recently been attacked, and their authors charged with ‘selling the past’. Ferguson, facing this accusation at the outset, explains that, with the exception of those covering the last thirty years, he has had free access to all the files. He assures us that no censorship was imposed by the family or firm.

The degree of a historian’s independence must always be a matter of dispute. The selection of evidence itself can be a subtle form of self-censorship, but the sheer volume of new material he brings to light suggests that Ferguson was allowed to use anything and everything he found. The thirty chapters rest on a huge collection of archival material. I did a rough calculation for three chapters (1, 10 and 20) and reckoned that there were 480 footnotes for the 97 pages of text, of which 63 per cent were from primary, mostly Rothschild sources. If one added the citations from contemporary newspapers, journals and published correspondence, the percentage of primary material would be even higher. The sheer mass of new evidence would make this a remarkable achievement, even if Ferguson had simply published the 20,000 letters he used as a documentary collection. This is the first history of the House of Rothschild which rests on access to the private archive.

The Rothschild archive is no ordinary collection: it is the record of a very complex, highly technical business operation as well as the social history of literally hundreds of relatives and friends over two centuries in several different countries. The Rothschilds knew everybody who was anybody at the top of European society during this period. Their business interests came to encircle the globe and their investments stretched from the Cape to Copenhagen and from Brazil to Belgrade. They can only be understood when a full political, economic and social background has been drawn. In order to follow the golden thread of Rothschild activity in the texture of modern history, the historian has to weave a big tapestry.

He or she needs also to master an enormous range of technical procedure in banking. Without that the real skills of the Rothschilds cannot be described. I take one case: how precisely did the Rothschilds get so rich so quickly? Young Nathan Mayer was sent to England by his father, Mayer Amschel Rothschild (1744-1812). He had been born in the Frankfurt ghetto and spoke the Western variant of Yiddish known as Judendeutsch. On arrival in Manchester he began to export English cottons and other textiles from his warehouse there to the Continent. Within twenty years, the father and five Rothschild sons had transformed their operations from conventional broking, factoring and merchant capitalism into the first modern financial group.

They made their breakthrough by financing the British war effort against Napoleon, lending money to the other allies, and by inventing – that is not too strong a word – the international bond market. In 1818, twenty years after N.M. Rothschild founded his modest export company, he was managing the Prussian state loan, the first bond issue by a foreign state denominated in sterling and payable in several European capitals. In its obituary of 4 August 1836, the Times hailed Nathan Mayer as ‘the first introducer of foreign loans into Britain ... by fixing the rate in sterling and doing away with all the effects of fluctuations in exchanges’. A German finance expert in 1825 noted the other crucial feature: ‘Any owner of government bonds ... can collect the interest at his convenience in several different places without any effort’ The five brothers, Amschel (1773-1855) in Frankfurt, Salomon (1774-1855) in Vienna, Nathan Mayer (1777-1836) in London, Carl (1788-1855) in Naples, and James (1792-1868) in Paris, constituted one unit, shunting capital and business opportunities among themselves in the way a multinational concern might do today. It was, as Ferguson shows, the peculiar flexibility of the family’s international position which made them so resilient and effective. Needless to say, they also used contacts, personal favours and their lavish hospitality to cement their positions and here, too, the international network enabled them to serve the powerful in several places at once.

The comparison with a contemporary multinational financial group is not my invention but Ferguson’s, who illuminates financial capitalism in the 19th century by comparing it to our own day. If a comparison can be made, he spares no effort to make it Appendix 1, ‘Prices and Purchasing Power’ is not an arcane technical exercise but an attempt to answer the question: how rich were the Rothschilds? His conclusion is startling: ‘Do the Rothschilds have a modern equivalent? The answer is no. Not even the Saudi royal family has a comparable share of the world’s resources in its possession today.’ He continues the comparison by setting Nathan Mayer against Bill Gates and uses various measures – wealth in relation to GDP, wealth in relation to GDP per head etc – to show that even Microsoft’s founder cannot really be compared to Nathan Mayer. The comparative approach helps us to see the first – and possibly most important – truth about the Rothschild family: the sheer size of their accumulated wealth. The combined assets of the five houses gave the concern a broad basis on which to spread risk and counteract unfortunate developments in any single market. In effect, the unity of the brothers in five different economies kept the entire operation stable.

The constant attempt to compare and contrast illuminates the whole book. Ferguson shows how the Rothschilds profited from ‘the economic consequences of the peace’ by comparing 1815 and 1919, how the two great houses in London and Paris operated like the International Monetary Fund or Bank of International Settlements today in coping with the financial panic of 1907, and sets out a comparison between the 1820s and the 1920s. He compares the economies in which the five houses operated and, within each economy, the financial standing and profitability of the relevant Rothschild operations as against their rivals. Not the least of his achievements is the reconstruction of consolidated profit and loss accounts of Rothschild assets compared to their competitors’.

Ferguson reconstructs complicated deals in very different financial contexts and makes them comprehensible and interesting. There is an elegant analysis of Britain’s return to the gold standard in 1819 and why Nathan Mayer opposed it (rightly, as Ferguson shows); a model explanation of the operations of the commercial bill and the bill of exchange in 19th-century trade; an original account of the impact of the Corn Laws on the British credit contraction in the 1840s; a sharp description of the battle between the French Rothschilds and the Crédit Foncier in the 1850s, and a moving account of the crises of the houses in the First and Second World Wars. Ferguson’s unusual background in economic history and daily journalism has never been more successfully engaged.

The Rothschilds were an enormous family. At the beginning of the book, Ferguson provides a simplified genealogy of the eight generations of Rothschilds from which descendants of female Rothschilds who did not marry members of the family are excluded; even without them it is four pages long. The Rothschilds went in for large numbers of children. Mayer Amschel had ten, Nathan Mayer had seven, James and Carl had five each and Salomon two. They had an unusually high proportion of surviving male children. When, in 1854-55, Amschel, who had no children, considered how to divide his assets among his younger male relatives, he could count no less than 12 nephews.

Family policy excluded female descendants and all sons-in-law from any part in the business. By the agreement of 1810, each partner renounced the rights of his wife to have sight of the accounts and swore to allow only direct male descendants to inherit shares. This rule continued in the London house up to the early Sixties, when non-family partners were admitted for the first time. Family members were expected to marry each other to an extent which would alarm a modern geneticist. The ‘cousinage’ was not a metaphor. Of 21 marriages involving descendants of Mayer Amschel between 1824 and 1877 no fewer than 15 were between his direct descendants. The rigidity of family practice was the precondition of the flexibility of the business operations: the Rothschilds literally ‘kept everything in the family’.

And, of course, the wives or husbands had to be Jewish. In 1839, a catastrophe befell the family when Hannah Mayer, Nathan Mayer’s second daughter, renounced Judaism to marry the Hon. Henry FitzRoy. When Uncle James got the news in Paris, he felt ‘so ill that I did not have the courage to pick up a pen and write about this matter. She has unfortunately robbed our whole family of its pride and caused us such harm that it can no longer be redressed.’

The Rothschilds were proud to be Jews and remained Jews, often Orthodox, throughout the two centuries. They had titles and honours, and estates so grand that when William I and Bismarck commandeered Fernères, James’s country house, in 1870, during the Franco-Prussian War, the old King was dumbfounded. ‘Folks like us can’t rise to this,’ he commented, ‘only a Rothschild can achieve it.’ Bismarck noted with glee how Jewish the Frankfurt Rothschild, Amschel, was:

I like him because he’s a real old wheeling and dealing Jew, and does not pretend to be anything else; he is strictly Orthodox with it, and refuses to touch anything but kosher food at his dinners. ‘Johann, take some pread vit you for the deer,’ he said to his servant, as he went out to show me his garden, in which he keeps tame deer. ‘Herr Paron, this plant cost me two tousand gulden, honestly, two tousand gulden, cesh. You can hef it for a tousand.’

Long after the Rothschilds had lost their Yiddish and their ‘ghetto stoop’, and had risen to the apex of European society, they remained Jewish and shared the fate of Europe’s Jews. Not even they escaped the consequences of Hitler’s obsessions. Their palaces were seized, their art stolen, their companies ‘aryanised’. Those caught by the Nazis were exterminated. As Miriam Rothschild put it, ‘the Holocaust; the war; my parents’ death; the end of the garden. Nothing seemed to matter any more.’

Niall Ferguson describes himself as ‘a Scottish Calvinist’ but he handles these things with great delicacy. He deals with the Rothschilds’ loyalties and uncertainties, divisions within the family on Zionism and religious observance, and the ambivalence they felt as their unwashed, refugee coreligionists fled West before the catastrophes of the Thirties. His two main witnesses, Heine and Disraeli, both frequentlycited, add their own peculiar uneasiness at their Jewish identities to Ferguson’s story.

The richness of the social reality which he conveys has the charm of a novel, perhaps one of those Russian novels with so many characters that the reader needs a guide to keep them straight. Ferguson helps to sort out the Alphonses, Amschels, Anselms, Edmonds, Edmunds, Edouards, Jameses, Lionels and Nathans with both the geneaology and an excellent index. He also paints wonderful pictures of the Rothschild women: the old Gutle Rothschild, who continued to live in her cramped house in the ghetto long after her sons were the richest men in the world, the shrewd letter-writing Charlotte, the beautiful Betty and the unhappy Hannah Mayer.

Yet with all these virtues, the book is a hard read. Ferguson has chosen to keep his narrative so close to the sources that the forward movement of the story is impaired. Even he cannot quite remember how many times he has said that the failure to found a branch in the United States would prove to be ‘the single greatest strategic error in the bank’s history’ or how often he has spoken of the chaotic crowds in James’s offices at 19 rue Laffitte. The quotes from Heine, the extracts from Disraeli’s novels, the citations from Charlotte’s letters, however vivid and informative, become almost too much when read without a break.

Indeed, The World’s Banker left me oddly unsettled. I now ‘know’ the Rothschilds and their story, but I do not know what I think about them. I knew some of them personally. In my banking days with Siegmund Warburg, I went to New Court before the premises and the inhabitants were modernised. I remember the City when it was run by ‘gents’ who arrived at 10.30, lunched for two hours and returned to their rolling acres by about four. I thought they were charming then but now I wonder.

What am I to think about the Rothschild phenomenon? Heine observed bitterly that ‘money is the god of our time and Rothschild is his prophet.’ Should one admire men whose entire reason for existence was the manipulation of markets and the outwitting of others? Whose achievements were measured in balance sheets and whose arrogance and contempt for the less successful and their own employees comes through in these pages? ‘Bleichröder?’ sneered James, ‘he lives from the 1 per cent I give him.’ The Rothschilds can hardly be said to embody ‘capitalism with a human face’.

Then there are the paradoxes. The most modern financial combine of its age resisted such innovations as double-entry book-keeping. They used agents everywhere whom, almost as a matter of policy, they distrusted and undermined. They were pioneers in the construction and financing of railways but ran their own business with antiquated procedures. Even their Jewishness had a curious character. Was Amschel not playing the ‘old Jew’ in the scene described by Bismarck? It was a convenient persona which allowed him and his brothers to be insider/outsiders, in and yet not of the world they served. As subsequent generations assimilated and became French, English or Austrian gentlemen that game got harder and the later generations were indistinguishable from the social élites around them. Only their formal commitments to a Jewish identity remained, the faintest of relics of a vanishing reality.

At the end of this vast enterprise, Ferguson provides an ‘epilogue’ in which he sketches the history of the Houses of Rothschild since 1945, the painful split between Evelyn and Jacob, and the reconstruction of an international group by Evelyn and Guy. Not that much has changed. The present generation still believe that family ties can be used to construct a holding adequate for the world of global markets and instant communications. As in the past, the Rothschilds have gained from an intimate relationship with government: it is as experts in privatisation that they have restored much of their status and profitability in the last two decades.

In 1836, the brothers, shocked by the death of Nathan Mayer, assembled to redraw the family agreements by which they were bound. Ferguson ends the book with a citation from that text. They recalled their father’s exhortation that ‘acting in unison would be a sure means of achieving success in their work’ and how he had recommended ‘fraternal concord to them as a source of divine blessing’. They agreed and solemnly recorded their pious hopes:

May our children and descendants in the future be guided by the same aim, so that with the constant maintenance of unity the House of Rothschild may blossom and grow into full ripeness ... and may they remain as mindful as we of the hallowed precept of our noble ancestor and present to posterity the godly image of love and work.

Niall Ferguson adds a sentence which ends the book: ‘It is remarkable that, two centuries after Nathan first arrived in England, those words should still have a meaningful resonance.’

But is that the conclusion we, too, must draw? The House of Rothschild was not a great tree but a mechanism for accumulating and transferring large sums of money. The ‘noble’ aim of the ‘noble’ ancestor was to make as much money as possible. If the brothers fought, the firm would make less money, so they had to get on. If women or sons-in-law got involved, there would be friction, and they would make less money. Rothschilds had to marry each other to keep the capital in the family and so make more money. The rest was humbug or decoration.