The House of Rothschild (100 page)

There is no sign that Natty or his brothers felt any such relief, however: after all, their views on Ireland were diametrically opposed to those of their ardent Gladstonian cousin. The only possible consolation for the partners at New Court was that, having failed to avert the calamity, they could at least perform the traditional Rothschild role of financing the war effort.

But were they able to do so? Certainly, they were soon called upon by the politicians to assist with the financial consequences of war much as they had been in previous crises. In his
War Memoirs,
for example, Lloyd George poetically recalled how the war had reconciled him with his erstwhile enemy:

Lloyd George saw many City bankers in the first week of August, but few impressed him. Sir Edward Holden was one; Natty seemingly another. “Only the old Jew made sense,” he was heard to comment to his private secretary—though “old Jew” became “great Prince of Israel” in the memoirs. Writing in
Reynolds Weekly Newspaper
in 1915, he enlarged on Natty’s contribution:

Asked many years later by his son to name his “ideal cabinet,” he named Natty as Chancellor of the Exchequer, alongside Winston Churchill and Jan Smuts. Haldane left a rather similar impression in his memoirs. Learning (while standing in for Grey at the Foreign Office in 1915) “that a steamer had started from South America and that, although neutral, there was reason to suppose that she contained supplies intended for the Germans,” Haldane

If all this sounds rather too good to be true—and especially Lloyd George’s image of a heretic recanting his opposition to super-tax—the clue lies in Haldane’s reference to Natty’s physical condition. In fact, both Lloyd George and Haldane were applying something of the obituarist’s rose tint to their recollections. The reality was that the war had plunged the Rothschilds—and indeed the entire City—into a profound crisis. Keynes’s analysis at the time was succinct: “The [clearing] banks ... are depending on the accepting houses and on the discount houses; the discount houses are depending on the accepting houses; and the accepting houses are depending on foreign clients who are unable to remit.” Table 13g shows the extent of the problem and reveals that Kleinworts and Schröders were especially exposed; but N. M. Rothschild was affected too. It was not wholly persuasive when Natty assured Lloyd George on August 6 that he was “perfectly disinterested” in the debate between the Chancellor, the Governor of the Bank and the clearing banks.

Source: Chapman,
Merchant
Banking, p. 209.

The dispute which caused Lloyd George to seek Natty’s advice was a technical one: the big clearing banks wanted a full suspension of gold convertibility as had happened in Britain in 1797, and as had already happened officially or practically in Russia, Germany and France in 1914. This would have allowed them to supply their clients with liquidity at a rate lower than Bank rate (which went back down to 6 per cent on August 6). The Treasury and Bank preferred to follow post-1844 convention and to avoid suspension if at all possible. The compromise which Natty helped to broker was that convertibility should be maintained but Bank rate lowered by a further 1 per cent. A week later, the acceptance market was relieved by a further decision that the Bank would discount all bills accepted before August 4 at the new lower rate. This was a success; there is no mistaking the relief behind the congratulations which Alfred and Leo sent to Lloyd George on August 13. Their “very great appreciation of the most successful manner with which you dealt with a difficulty quite unparalleled in the history of the finances of this Country” was understandable, even if allusions to the Chancellor’s “masterly eye” and “masterly hand” were a bit rich coming so soon after the denunciations of 1909-10. Natty wrote in rather more measured tones more than two weeks later after Lloyd George had effectively rejected his recommendation (on August 27) that the moratorium be ended and the stock exchange reopened.

Yet the real significance of Natty’s role—compared with his role in the less serious crisis of 1890—was the changed balance of power in the City it revealed. “They can play you a nasty trick,” he told the Governor of the Bank at one stage during the negotiations in Lloyd George’s office. “They are very powerful.” Once that might have been said of the Rothschilds themselves. But Natty was referring to the clearing banks. It is also striking that, despite the steps taken to stabilise the acceptance market, N. M. Rothschild & Sons lost close to £1.5 million in 1914—an immense sum equivalent to 23 per cent of its capital. In terms of their capital, none of the other major City banks was so drastically affected by the outbreak of war.

To be sure, there was no shortage of cross-Channel business as the British Treasury began to subsidise the French war effort, though communications were difficult during the first week of the war. Indeed, it was not until early 1915 that regular and reliable communications could be established through the diplomatic telegraph service. Nevertheless, an initial loan of £1.7 million from Britain to France was quickly agreed through the Rothschilds, and this was followed by advances against Treasury bills totalling £8 million between October 1914 and October 1917. In the grand scheme of inter-Allied finance, however, this was small beer. All told, France borrowed £610 million from Britain during the war; but even this sum was dwarfed by the £738 million borrowed from the United States, and most of the money lent by Britain was in fact recycled from the £936 million of American money she herself had to borrow. The key to the financing of the war, as very soon became apparent, lay not in London or in Paris but in New York: that transatlantic shift of the financial centre of gravity which had been first been intimated during the Boer War now became a reality. In this regard, it was not without significance that when Edouard had telegraphed J. P. Morgan on August 1 to request a loan to the French government of $100 million he had drawn a blank. Morgan had not forgotten the way his London subsidiary had been refused a share of the South African loan twelve years before. Far more than Lloyd George’s death duties and other taxes, it was the Rothschilds’ poor representation on Wall Street which now condemned them to a period of contraction far more rapid than anything they had hitherto suffered. “In this very painful episode,” Natty wrote to Paris at the outbreak of war, “it is at all events satisfactory to know that you and ourselves are standing shoulder-to-shoulder.” “United on the battlefields, we are also united in finance!” telegraphed Edouard to New Court the following year. But these rallying calls to arms had a very hollow ring; what united the Rothschilds after 1914 was decline—and it was a decline that was to continue for at least half a century.

III

CONSTANCE, LADY BATTERSEA, TO HER SISTER ANNIE YORKE. 1916

 

 

W
hat Churchill called “the world crisis” of the First World War coincided with, and intensified, a deep crisis within the Rothschild family. Between the death of Alphonse in 1905 and that of Alfred in 1918, the generation which had dominated Rothschild finance since around 1875 disappeared. In Paris Gustave died just six years after his elder brother, leaving only Edmond as the last and least business-minded of James’s sons; and although he lived until 1934 he was already sixty-nine in 1914. In Vienna Anselm’s last surviving son Albert died in 1911. Lionel’s three sons Natty, Leo and Alfred died within a few years of one another in 1915, 1917 and 1918. These deaths seemed to many observers to mark the end of an era.

“The death of Lord Rothschild is an event which not even the war can overshadow,” declared the
Western Morning News:

It was, in the words of the
Financier
and
Bullionist
, “an open secret ... that he was the confidant of Kings and Cabinet Ministers, and that his invaluable advice was constantly sought and as constantly acted upon.” There were enough senior politicians at the funeral at Willesden to confirm such claims about Natty’s influence. Three Cabinet ministers attended: the Chancellor Lloyd George, the President of the Local Government Board Herbert Samuel and the Lord Chief Justice Lord Reading, as well as the former Tory leader (and future Foreign Secretary) Arthur Balfour. “To me,” Balfour confided to Lady Wemyss, “Natty’s death is a greater blow than most people would suppose, I was really fond of him; and really admired that self-contained and somewhat joyless character. He had a high ideal of public duty and was utterly indifferent to worldly pomps and vanities.” The Chief Rabbi was unequivocal in his memorial sermon a few weeks later: Natty had been quite simply the “foremost Jew of the world.”

None of those who came to praise Natty, however, could claim that he had been a great banker. The City editor of the New Witness came close to damning Natty with faint praise:

Possibly; but the fact remained that N. M. Rothschild & Sons under Natty’s leadership had begun to underperform relative to its City rivals—the victim, perhaps, of his own political preoccupations and the complacent attitude towards business he shared with his brothers. Indeed, to some observers, Natty’s death prompted pessimistic reflections about the future of the Rothschilds as a financial force. “In England,” reflected the Daily News,

The liberal Nation was more blunt: Natty’s tastes, it remarked with disdain, had been “largely those of an English country gentleman ... Did this later conservatism of habit have anything to do with the fact that much of the new business of the world did not get into the Rothschilds’ hands? Certainly, one could not pick out the great financier in any member of the English branch. Great farmers, great collectors, great organizers of social life—yes. But hardly a modern money king.”