The House of Rothschild (19 page)

Brazil and the United States had been areas of Rothschild activity for decades; Asia was more or less
terra incognita
by comparison. But here too the 1850s were a time of expansion. In the wake of the “Opium Wars” of 1839-42 (so called because the pretext for fighting them was a Chinese bar on opium imports from British-controlled India), Hong Kong had been annexed by Britain and five other Chinese “treaty ports” opened to European traders. This accelerated the process whereby Chinese teas and silks were exchanged for Western silver and Indian opium, and created attractive new opportunities for British business (simultaneously eroding the power of Chinese merchants like Wu Ping-chien, whom one historian has called the Rothschild of the Orient). By 1853 the London house was in regular correspondence with a Shanghai-based merchant firm, Cramptons, Hanbury & Co., to whom it made regular shipments of silver from Mexico and Europe. Silver was evidently the prime concern, though the bank was also interested in Indian opium, some of which found its way westward to Constantinople, and by the later 1850s it was in regular correspondence with a Calcutta firm, Schoene, Kilburn & Co. Peripheral crises like the Chinese rebellions of the 1850s and the Indian Mutiny of 1857 thus had a resonance in New Court which previous Asian upheavals had lacked. For the first time, the bank was becoming involved in the commerce of the British Empire, a field it had previously left to others. It was thus a pardonable exaggeration to say that “the entire universe paid tribute [to Rothschild]; he had his offices in China, in India, in even the least civilised countries.” This was the great difference between the Rothschilds and the Eurocentric Pereires.

The great flow of silver to the East which was such a feature of the mid-nineteenth-century world economy helps explain why discoveries of gold in California and Australia in the 1840s aroused such excitement. The impact of these discoveries can hardly be overstated. In 1846 world gold production was around 1.4 million troy ounces fine, of which more than half came from Russia. By 1855 total production had risen to 6.4 million ounces, with around half the increase from North America and half from Australia. We have already seen how the Rothschilds sought to involve themselves in the Californian gold rush by sending Benjamin Davidson north from Mexico. They were also interested in the Australian fields. No sooner had gold been discovered in New South Wales and Victoria in 1851 than the Rothschilds were being urged “that a branch of your House accredited here with an ample supply of coin at the commencement would form the basis of one of the most extensive and moneyed establishments in either hemisphere.” This advice was not followed to the letter: as in the case of Shanghai and Calcutta it was at first thought sufficient to rely on a separate firm as Melbourne correspondent, though in this case the firm was run by Jacob Montefiore and his son Leslie. However, family ties proved no guarantee of competence. As if to confirm Mayer Amschel’s hallowed disdain for in-laws, Montefiore & Co. went bankrupt in 1855 owing a substantial sum to the London house, and a proper Rothschild agent, Jeffrey Cullen, had to be sent out to act as fireman.

The Cullens had worked for N. M. Rothschild since the time of Waterloo, so Cullen had a good idea of what his employers wanted: even before he had wound up the Montefiores’ tangled affairs, he was eagerly asking for consignments of mercury and other goods in demand in the colony (above all alcohol, whether beer, whisky or port). “If you should make me a consignment of this,” he wrote, unconsciously echoing the tone of Nathan’s letters as a young textile dealer, “you may rest assured of my using all my endeavors to do the business in such a way as to give you satisfaction.” By September he was asking for “a credit of £5,000 or £10,000 by every mail ship” and, in order to enable him to visit the gold diggings in person, the assistance of “a good Financier, as there is not such a thing in the whole Colony, even the heads of the Government are grossly ignorant of their business and upon more than one occasion I have been sent [for by] the Treasury, to explain some trifling matter of monetary affairs.”

If Cullen was at the periphery of the Rothschilds’ nascent gold and silver empire, at its centre lay the various refineries and mints which the family acquired in this period. James had operated his own refinery in Paris since as early as 1827, moving it to a new building in Quai de Valmy and establishing a
société en commandite
under the direction of Michel Benoît Poisat in 1838. At the same time, he went into partnership with Dierickx, the Master of Paris Mint in 1843, a relationship which lasted until 1860. The new gold discoveries led to an immense increase in the activity of both refinery and mint. It was, in James’s words, “a revolution in the money market.” Thus, when Lionel resolved in 1849 to involve the London house directly in the gold-refining business, he was following his uncle’s lead.

In Nathan’s day, there had been four private refiners in London—Browne & Wingrove, Johnson & Stokes, Percival Norton Johnson and Cox & Merle—in addition to the Royal Mint’s own refinery. Of these, Browne & Wingrove had done the lion’s share of the Bank of England’s refining. However, the discoveries in California and Australia greatly increased the volume of gold coming to the Bank: in 1852 gold purchases reached a peak of £15.3 million, over two-thirds of which was in bar form—far more than Browne & Wingrove could handle. It was to fill this gap that Lionel proposed to lease the Royal Mint’s refinery, which since 1829 had been using the sulphuric acid system of parting under its Master, Mathison. From September 1849 he began telling his political allies J. Abel Smith and Lord John Russell “repeatedly” that “a change in the system of the Mint” was necessary, a recommendation duly adopted by a Royal Commission set up to examine its activities. “I hope,” he told his brothers, “the ministers will have courage enough to make the alterations and that we shall be able to get it—it would be a capital business.” As Nat said, “with such large arrivals of specie from California & Mexico it is more necessary than ever.”

Mathison predictably sought to resist this “privatisation,” but in vain; and fortunately for the Rothschilds Percival Norton Johnson did not listen to his new partner George Matthey, who urged him to enter a bid. In January 1852, therefore, Anthony acquired the lease for the refinery, and by December Lionel was in a position formally to ask the Governor of the Bank, Thomas Hankey (another political ally), “to be permitted to present directly to the Bank of England my gold and silver bars, refined and melted under my responsibility.” In its first year of activity, the refinery processed over 300,000 ounces of Australian gold and 450,000 ounces of Californian. It was a sign of its importance that Gladstone—that most ardent of bullionists—paid a visit there in 1862, directly after an “expedition” to the Bank of England. As Flandreau has shown, their control of refining and minting capacity on both sides of the Channel enabled the Rothschilds to operate a unique “system” of arbitrage, with the London house buying American or Australian gold on the French house’s account, relaying these via the London bullion brokers to Paris. The Paris house meanwhile bought silver for New Court, which relayed it via London or Southampton to the East. Not only was this profitable; by the late 1850s it was becoming an integral part of a bimetallic international monetary system.

For decades, the Rothschilds had regarded a major European war as the greatest of all dangers to their own financial position—worse even than a revolution. In March 1854 war came. Implausibly, the Crimean War had its origins in a dispute between Catholic and Orthodox monks about the so-called Holy Places in Jerusalem. In reality, it was a revival of the old question about how much power Russia should exercise over the waning Ottoman Empire—in particular, the Danubian principalities of Moldavia and Wallachia—and the Black Sea. This time, in contrast to 1840, France and Britain united: the former in order to break up the Holy Alliance, the latter for no reason other than to give the Tsar a beating, which a liberal public felt he deserved for his conduct in suppressing the Hungarian revolution in 1849. The Tsar, who five years before had been the arbiter of Central Europe, found himself deserted by the other members of the Holy Alliance: Austria flirted with the Western powers and all but joined in the war, Prussia continued her policy of impotence and irrelevance. Piedmont jumped on the anti-Russian bandwagon in the belief that any war would weaken the Austrian position in Italy.

Considering how quickly the Russians gave into the demands of this coalition, it was a strangely prolonged war. The first serious military action came in the summer of 1853 when the Tsar ordered troops into the Danubian principalities and the British and French navies approached the Dardanelles. By the time fighting broke out between Russia and Turkey in October, the Russians had effectively dropped their overblown claim to be sole protectors of Christians in the Ottoman Empire; so France and Britain had to go to war over the principalities and the Black Sea. But in June 1854, the Tsar promised the Austrians that he would evacuate the principalities ; the war could then only be about the Black Sea. It was therefore to revise the 1841 Straits convention “in the interests of the Balance of Power of Europe” that French and British troops landed at the Crimea, with the practical objective of capturing Sevastopol. As early as November 1854, the Russian government agreed to this point (again for fear of Austria joining in) but because France and Britain had still to decide what it actually meant, the war dragged inconclusively on. Attempts to find a negotiated agreement following Nicholas I’s death in March 1855 foundered. Instead, the Russians rashly decided to resist any restrictions on their naval power in the Black Sea, goading the Western powers to finish the war off. Sevastopol fell on September 8; the French suggested some new war aims; and finally at the Congress of Paris (February-April 1856) the crisis was concluded. The Black Sea was neutralised; Russia lost a chunk of Bessarabia (modern Moldova); and France and Britain agreed to guarantee the future independence of Turkey. In practice, these terms would last as long as Russia took to recover from her defeat—about twenty years, as it turned out, for it had been a traumatic and costly exposure of the Tsarist system’s administrative deficiencies. The most enduring achievement of the victors was the creation of Rumania by the fusion of the Danubian principalities, which was achieved in 1859—something they had not set out to achieve.

The precise causes and significance of the Crimean War did not concern the Rothschilds much. Why should they? A dispute between Roman and Greek monks over Christian relics held no interest for the builders of the Jerusalem Jewish hospital. Nor did they have any railway interests in the Danubian principalities. As for the international status of the Black Sea, the London house had already taken a conscious decision not to involve itself in grain exports from Odessa for purely economic reasons. What mattered was that a war—any war—between the great powers was bound to have a disruptive effect on the international financial markets. And so it did, as table 2a shows.

Sources:
Spectator,
Heyn, “Private banking and industrialisation,” pp. 358-72.

To diplomatic observers, the Rothschilds looked worried, and understandably so. Their correspondent in St Petersburg had reassured them in June 1853 there would be no war, and had been believed. When the British Foreign Minister Clarendon saw Lionel on September 27—shortly after the government’s instructions to Admiral Dundas to pass the Straits had been leaked—he told him “he never remember[ed] such a day” in the City. In January 1854, with the Western navies finally entering the Black Sea, Hübner found James “completely demoralised.” Amschel gave the same impression. When Bismarck heard the news of the Russian ambassador’s recall from Paris in February 1854, he “considered whom I could best frighten thereby. My eye fell on [Amschel] Rothschild. He turned as white as chalk when I gave him the news to read. His first remark was, ‘If only I had known it this morning’; his second, ‘Will you do a little business with me tomorrow?’ I declined the offer in a friendly way, thanking him and left him to his agitated reflections.” John Bright, one of the most vociferous opponents of the war in London, heard Lionel remark gravely on March 31 that “a country with £800,000,000 of debt should have considered much and seriously before it involved itself in another war.”

Yet far from weakening the Rothschilds’ position, the Crimean War had precisely the opposite effect in that it emphatically reasserted the Rothschild houses’ primacy in the field of public finance. Indeed, it demonstrated that the Rothschilds had for years been exaggerating the financial dangers of war. In reality, wars—and especially short wars of the sort which characterised the period from 1854 to 1871—created financial opportunities which they, with their distinctive multinational structure, were especially well placed to exploit. Even for those powers which did not directly fight in it, the Crimean War increased military expenditure above the level of revenues available from taxation (see table 2b), and therefore forced all concerned—even parsimonious Britain—to go to the bond market. Although their rivals, including the Credit Mobilier, tried, none could challenge the Rothschilds’ traditional pre-eminence in that market.