The House of Rothschild (16 page)

2.i:
The weekly closing price of French 3 per cent and 5 per cent rentes, 1835-1857.

The significance of this should not be exaggerated, of course; on the other hand, it is easy for the modern reader to forget how seriously contemporaries took the complex rituals of nineteenth-century court life--especially, it might be said, at the court of an unpredictable parvenu who owed his throne to a coup d’ état and his legitimacy to carefully managed plebiscites.

Of course, it was not at the Tuileries or at Compiègne (where Napoleon did his hunting), but at the bourse and in the railway boardrooms that James’s fate in the Second Empire was really decided. Here, the Second Empire witnessed what is usually portrayed as one of the great corporate battles of the nineteenth century: the fight to the finish between the Rothschilds and the Credit Mobilier.

Partly because of the coincidence of the foundation of the Credit Mobilier (November 20, 1852) and the formal proclamation of the Second Empire (December 2), the significance of the new bank has often been misunderstood. For example, it is portrayed by many writers as a primarily political challenge to the dominance of the Rothschilds over French public finance—Napoleon III’s response to Fould’s challenge to “free himself” from Rothschild tutelage. A second misconception is that the Credit Mobilier represented a revolutionary new kind of bank, in contradistinction to the “old” private bank personified by the Rothschilds.

In fact, there was nothing fundamentally new about the idea of creating a bank on the basis of publicly raised share capital. Since 1826, joint-stock banks had been legal in Britain, and banks like the National Provincial and the London & Westminster Bank—both established in 1833—had revealed the possibilities of the new form long before the Pereires turned to banking; by the time the Credit Mobilier was founded there were around a hundred joint-stock banks in England and Wales, twice the number of London-based private banks. Nor is it true to say that British joint-stock banks eschewed lending to industry (though they tended not to go in for long-term investment, they often extended overdrafts and discounted bills in ways which were long-term in effect). Long-term industrial investment was not really what the Credit Mobilier did anyway, pace the claims of economic historians like Alexander Gerschenkron and Rondo Cameron that it promoted industrialisation not only in France but throughout the continent. There were precedents for what the Pereires attempted in France too, the earliest (if one ignores John Law’s Banque Générale) being Laffitte’s Caisse Générale du Commerce et de l‘Industrie. Nor, as Landes has argued, were the Rothschilds and other established Paris banks especially old-fashioned in their response to the Credit Mobilier’s challenge: they too saw the rationale of the joint-stock form for longer-term investments. Although their capital differed from the Pereires’ in being entirely their own, the French and Austrian Rothschilds used it in much the same way as the Credit Mobilier used its bondholders’ and depositors’ money—and in the long run more successfully. To make a simple but usually overlooked point: the Credit Mobilier was not even bigger than the Rothschilds. Its initial capital was 20 (later 60) million francs; that of de Rothschild Frères in 1852 was in excess of 88 million francs; and that of the combined Rothschild houses no less than 230 million francs. Of the Credit Mobilier’s initial capital, the Pereires themselves accounted for only around 29 per cent.

In reality, it was not so much what they did as they way they did it which convinced contemporaries, and in turn historians, that there was a profound difference between the Rothschilds and the Credit Mobilier. (Only someone unfamiliar with Paris could lump “Rothschild, Fould and Pereyre [sic]” together as Bismarck did.) The Pereires continued to use their old Saint-Simonian rhetoric about the collective benefits of industrial investment, even as they speculated in rentes and railway shares and pocketed the profits for themselves. The Rothschilds, by contrast, made no secret of the fact that they were speculating and profiting, and regarded their contributions to the wider communities to which they belonged as a charitable activity, distinct from their business. When Castellane met Anthony for the first time in 1850 he was rather shocked by the latter’s complaint that “in London you can make [money] on everything, on cotton as well as rentes, as much as you like, but here [in Paris] you can hardly speculate on anything but rentes.” That was not the way the Saint-Simonians talked: for them it was a matter of mobilising the savings of all France in the pursuit of a steam-driven utopia. It was a difference in style vividly captured by the stockbroker Feydeau in his memoirs. Unlike the Pereires, he argued, James was “simply a solid, intelligent and astute ‘capital merchant’ ”:

As we have seen, doing business with a man like James was a thankless task for small fry like Feydeau. But one needed only to go the offices of the Credit Mobilier to encounter

James evidently relished this contrast, and on one occasion, with that sardonic humour which was to become his trademark under the Second Empire, commissioned Feydeau to undertake a speculation on his behalf—in the form of a purchase of a thousand Crédit Mobilier shares. He did this no fewer than five times, astonishing his broker by actually paying for them in full at the liquidation. When Feydeau expressed his incredulity, James feigned surprise:

Contemporaries—notably the financier Jules Isaac Mires after his fall from grace—sometimes attributed this difference in style to the different cultural backgrounds of the two families. The “Jews of the North,” he suggested, having originated in the harsh, restrictive atmosphere of Germany, were “cold” and “methodical” in their selfish pursuit of wealth, and indifferent to the interests of the state; whereas the “Jews from the Midi” not only had “more noble” “Latin” instincts, but had also benefited from France’s more tolerant treatment of the Jews, and so did business in a more altruistic, public spirited way. Others conceived of the difference in more political terms: Rothschild represented “the aristocracy of money” and “financial feudalism,” while his rivals stood for “financial democracy and an economic ‘1789.’”

In reality, the competition between the two had its origins in the prosaic realm of railway concessions. To say the least, the republic had been an unhappy interlude for the railway enthusiasts. Investment and construction had stagnated as the politicians argued interminably about which concession should be granted to whom; interest rates were high, the bourse depressed, employers wary of labour unrest. Only one major line got under way (the Ouest from Versailles to Rennes). One of the most immediate consequences of Napoleon’s coup was that it ended all this. The very day after the seizure of power, the concession for the Lyon-Mediterranean line was granted, followed two days later by the Paris-Lyon to a consortium of which both the Paris and London Rothschilds were members. The Nord company’s concession was also renegotiated on terms which were singularly favourable to the company. The Empire was a bonanza for rail entrepreneurs: altogether no fewer than twenty-five concessions were awarded between 1852 and 1857, and a further thirty followed in the years to 1870.

In all this, an influential role was played by Napoleon’s illegitimate half-brother the duc de Morny, who saw the new regime principally as an opportunity to enrich himself and argued strongly in favour of merging the many small railway companies into a few big lines. James was in touch with Morny in early 1852, and liked what he heard. Interestingly, the French house’s balance sheet drawn up at this time shows that James held shares in various railway companies worth more than 20 million francs (around 15 per cent of the Paris house’s total assets). The value of these shares was now rocketing as investors reacted to the new regime’s encouragement: Apponyi estimated that James made 1.5 million francs in a single week in April 1852 “without having to pay out a penny.” Given the enormous increases in capital achieved by the Paris house in the 1850s, the figure does not seem improbable. It is worth noting that of all the big six French lines the Rothschild-controlled Nord was the most intensively utilised and most profitable: although it accounted for only 9 per cent of total French network in terms of length, it carried 14 per cent of freight and more than 12 per cent of all passenger traffic. The ratio of fares and freight rates to costs was 2.7: in the 1850s and the volume of traffic more than doubled between the 1850s and the 1860s.

Increasingly, however, James and the Pereires were at odds. The first signs of dissension had manifested themselves in 1849, when the latter had sought to raise money for their proposed Paris-Lyon-Avignon project without reference to the Rothschilds. The process continued apace in 1852, though it is far from easy to say exactly when the decisive breach occurred. An important step towards divorce was taken when James decided to participate in the Paris-Lyon line syndicate, taking around 12 per cent of its stock (other shareholders included Bartholony, Hottinguer and Baring and, although not named as a concessionary, Talabot seems to have played a leading role). This signified an unambiguous rejection of the Pereires’ rival scheme. In an illuminating series of letters, James explained his reasons for doing so to his nephews:

A passing reference to one of the brothers as “an ass” suggests that relations with James were now rapidly deteriorating.

But the partnership was not yet over. Indeed, Isaac Pereire was deputed to act as James’s representative on the new Paris-Lyon company’s board. Moreover, his brother Emile continued to play a leading role as chairman of the Nord board, and was involved in the renegotiation of the Nord’s concession—the other major railway deal clinched in January 1852. The company raised 40 million francs by issuing bearer bonds and used the money to take over the Boulogne-Amiens line and to build new branch lines (for example, to Maubeuge); in return, its concession was extended for ninety-nine years, with an option to the state to buy the company out in 1876. It was not until later in the year that the split came, when James offered his support to Talabot once again.

Talabot’s aim was now to merge the new Paris-Lyon company with his lines to the south—Avignon—Marseille, Marseille-Toulon and smaller lines in Gard and Herault—creating a grand Compagnie de la Méditerranée along lines very similar to those originally envisaged by the Pereires. James’s decision to take 2,000 shares in this ambitious but financially stretched entity left the Pereires out in the cold. (The fact that Morny was another shareholder must cast doubt on the simplistic notion that the Pereires had the new regime’s backing against the Rothschilds.) The final blow came when James refused to provide similar financial support for the Pereires’ Midi company: although his subscription of 3.3 million francs was far from negligible, Alphonse’s resignation from the board was a vote of no confidence. The Credit Mobilier was therefore founded by the Pereires in response to their exclusion from what looked like a new Talabot-Rothschild axis backed by the regime in the person of Morny.