The House of Rothschild (18 page)

Apart from the boom conditions of the early 1850s, one reason for the proliferation of new banks was the revolution in communications brought about by the advent of the telegraph. Though the original discovery can be traced back to the eighteenth century, and successful demonstrations of its application happened in the 1830s, it was not until after 1848 that the telegraph had a real impact on international finance. By 1850 lines were in commercial operation in the United States, England and Prussia, France and Belgium; but it was the Dover-Calais submarine link in 1851 which was the real watershed. Even before the cable had been laid, Julius Reuter
¹
wrote to New Court: “Should you favour our service for the transmission of the Berlin and Viennese exchange rates we would pledge ourselves not to give the service to any other London house and moreover we would refund you for any cable not arriving at the fixed time.” However, any such monopolistic arrangement had long since vanished on the Continent and did not last long in London.

This explains the somewhat unexpected hostility of James to an innovation he might have been expected to embrace. Throughout the 1850s, he repeatedly complained that “the telegraph is ruining our business.” The fact was that the telegraph made it much easier to do what the Rothschilds had managed so ingeniously before, namely to conduct financial business between affiliated houses over long distances. Many of their rivals now sought to imitate their example with the assistance of “the wires”: by the 1860s, Frankfurt families like the Speyers, Sterns and Erlangers had all established branches in London and Paris and, in the case of the Speyers, in New York as well. “It appears,” James complained in April 1851, “that yesterday a great many German scoundrels sold [French] railway shares in London with the telegraph ... Since the telegraph became available, people work much more. Every day at 12 they send a despatch, even for trivial deals, and realise [their profit] before the bourse closes the same day.” Once, the Rothschilds had been able to steal a march on their rivals with their unrivalled system of couriers and carrier pigeons; but now “anyone can get the news.” James could see that there was no alternative but “to do the same,” but it still struck him as a “crying shame that the telegraph has been established.” It meant that even when he went to take the waters for his summer holiday, there was no respite from business: “One has too much to think about when bathing, which is not good.” Such complaints were still being echoed by James’s son as late as the 1870s: although the Rothschilds had no option but to make use of the new technology, they always regretted the way it tended to broadcast financial news, and continued to write letters to one another in their accustomed fashion right up until the First World War.

The significance of such grumblings should not be exaggerated, however. The reality was that, although they were facing increased competition in Europe, the Rothschilds remained in a league of their own as an authentically global operation. Indeed, it was in the continents beyond the reach of the telegraph that they made some of their biggest advances in the 1850s. There was no telegraph link from Europe to North America or India until 1866; no link to Latin America until 1869; and no link to Australia until 1873. In these regions, the Rothschilds’ traditional system of semi-autonomous agents, corresponding regularly but not in daily contact, remained unsurpassed. The European agents continued to do their work, of course: Weisweiller and Bauer in Madrid; Samuel Lambert, having succeeded his father-in-law Richtenberger in Brussels; and newer recruits like Horaz Landau who served in Constantinople and then Italy. But their role as intelligence-gatherers was now less important than it had been, though of course confidential political information remained at a premium and could be obtained if an agent was well enough connected. It was the more remote agents, however, whose role was of greater strategic significance in this period.

The 1848 crisis had exposed the difficulty of conducting business across the Atlantic, particularly when a single agent occupied such a position of independent power in New York. It had partly been with the idea of replacing Belmont with a full Rothschild partner that James had sent Alphonse there in October that year. Betty’s letters to her son demonstrate how serious this intention was. He should, she advised, be patient until he had acquired enough experience of American affairs but then

Matters evidently came to a head in the spring of 1849. “The situation with Belmont is no longer tenable,” she wrote on March 24. He had

Her plan, she told him in May, was “to see you established in America for anything ... and deliver this great future from the stupidity and greed of an agent ... So I repeat: stay in the New World; if the worst comes to the worst, if the old world should fall, which God will not permit, it would become a new fatherland for us.”

The idea continued to be discussed after her son’s (supposedly temporary) return to Europe in 1849. “Alphonse ... has made up his mind to return,” reported Lionel having seen his cousin at Wildbad; “we have spoken in general terms about the American business, but that is all. Uncle James and Alphonse both think a great deal of money is to be made in America and wish to continue that business, so that in any case he will go back.” Alphonse himself spoke of “putting affairs over there on a more convenient footing” when he returned to America, and Castellane was in no doubt that he would soon leave Paris again “to found a house in New York.” Even in New York, it was “everywhere known that Baron Alphonse is coming to the States.”

Yet it never happened; an omission which was arguably the Rothschilds’ single greatest strategic mistake. It is not easy to say why this was. One possibility, strongly suggested by Betty’s letters, is that Alphonse could not bring himself to relinquish the comforts of Parisian life for the less sophisticated ways of New York. It was the mother who had to persuade the son, and she sought to make the idea more appealing to him by suggesting that, after an initial period of two years, the day-to-day running of the projected new house would be entrusted to “a temporary agent up to the time when someone from the family, or later, your brothers, wanted to devote a stay of a few months to it from time to time ... Once the House was founded you could quickly come back to us, dear son, while at the same time overseeing the man who would come to replace you from afar.” Nor were the London partners much enthused, though they continued to suspect Belmont of “speculating with our. money.” According to Betty, Lionel and his brothers took “a dim view of this project.” They were “worried that Paris is getting too much out of it, and would rather see an agent there. But this agent could only be Davidson who works very much in their interest.”

Perhaps the most convincing explanation, however, is that Belmont at last succeeded in persuading James that he could not be replaced. By now he was a well-established figure in the US, whose social standing and political influence were growing almost as rapidly as his personal fortune. In 1849 he was able to announce his engagement to Caroline Perry, daughter of Commodore Matthew Galbraith Perry of the United States Navy and, as Belmont emphasised, a member of “one of our best families.” Four years later, in an unexpected role-reversal, it was Belmont who came to Europe—as the American ambassador to the Hague. These signs of worldly success (which a young, French-educated Rothschild would have taken time to equal) may finally have convinced James to let Belmont be. Even Betty acknowledged that Belmont had “created for himself a strong and independent position; he knows inside-out all the country’s resources; he holds the key to all the wheeling and dealing in the commercial world.” “I would incline to the view,” her husband reluctantly concluded in 1858,

Only seven years before he had been complaining bitterly that Belmont did not let him “see the books” of the New York agency.

Of course, Belmont was only in charge of the East Coast business; that principally meant bond issues by established north-eastern states like New York, Pennsylvania and Ohio and major railways like the Illinois Central. Of increasing allure in the 1850s, however, was the West Coast, where Benjamin Davidson had been sent from Mexico, armed with a blanket credit of £40,000, on the news that gold had been struck in California. Once again, the Rothschilds had misgivings about entrusting their interests to a single individual in so remote a market—“where civil isation is at a very low ebb [and] where affairs are attended with personal risk”; so it was decided to send a clerk named May from the Frankfurt house to join Davidson in San Francisco. James approved of May: he was “a good little chap ... clever and a Frankfurt Jew. I always have a great deal of confidence in such people.” But he was soon disillusioned. Just over a year later, a row blew up when May and Davidson decided to spend between $26,000 and $50,000 on a new house. Davidson’s brother leapt to his defence, pointing out that the Californian agency had made profits of £37,762 in just two years; that its running costs were justifiable given the high cost of living in San Francisco; and that prior to acquiring the new house he had been living in a “shanty built over his vault, like a pig in a sty—which he left to go out & get his meals in fear and trembling lest a cry of fire should call him back & that he should find himself burnt out.”

As in the case of similar disputes with agents, this seems to have blown over, leaving both Davidson and May
in situ.
Ten years later, they were both still there; indeed, it was now May who requested to be allowed to return home—in a letter which sheds light on the Rothschilds’ relations with their American agents:

Later in the 1850s, it was decided to send another Davidson—Nathaniel—to take Benjamin’s place in Mexico, which, for all its political instability, still promised important business opportunities: not only loans to the chronically insolvent state, but also investments in mercury and coal mines and an iron foundry. The importance of this continuing Mexican presence increased in 1860-61, when Mexico became the object of French imperial ambitions. Scharfenberg meanwhile remained in Cuba, which momentarily acquired a political importance when the American government sought to buy it from Spain—a scheme in which Belmont had a hand, but which foundered in the face of political opposition in the US.

Finally, mention should also be made of another traditional Rothschild sphere of interest in the Americas: Brazil. This had been a hobby-horse of Nathan’s in the 1820s, but for two decades business between London and Rio had been limited, partly because successive governments had not had recourse to the London capital market. That changed with the outbreak of war with Argentina and Uruguay in 1851, the costs of which forced Brazil to issue a £1.04 million loan through N. M. Rothschild the following year. The rapid growth of the country’s railway network also created new financial needs. The 1851 loan was quickly followed by a £1.8 million issue for the Bahia and San Francisco Railway Company; another loan of £1.5 million to the government which was also to finance railways (both 1858); a £2 million issue for the São Paulo Railway Company (1859) and another government loan of just under £1.4 million. A currency crisis in 1860 and a slide in the price of Brazilian bonds necessitated a period of consolidation; a new loan of £3.8 million in 1863 therefore mainly served to convert earlier debts dating from the 1820s and 1840s. However, the outbreak of war with Paraguay in 1865 put Brazilian finances under renewed pressure and it was only after protracted negotiations with the Brazilian minister Moriera that Lionel agreed to a new loan of just under £7 million. As the war drew to a close in 1869-70, there was talk of yet another loan. It was just the beginning of an exceptionally monogamous financial relationship between the Brazilian government and the London house which, between 1852 and 1914, generated bond issues worth no less than £142 million.