The House of Rothschild (22 page)

There is no question that, as soon as James realised what was afoot, he did everything in his power to stymie the new loan. Cavour firmly believed that James was behind a negative report on Piedmontese finances in
The Times;
he was undoubtedly selling Piedmontese bonds with all his energy. Indeed, this was the occasion of one of the rather crude (but to contemporaries somehow devastating) word plays which were to become his trademark under the Second Empire: “L‘emprunt est ouvert, mais non couvert” (literally “The loan has opened, but it is not subscribed”). James came close to winning: the bonds went to a discount in Paris and Cavour had some anxious hours. Yet in the end it was beyond him to buck the market indefinitely, especially as he himself had been responsible for making the market for Piedmontese bonds in the first place. “We can do what we like,” he told his nephews, “but we cannot stop the Piedmontese from rising, as it was we who issued them at 85.” Nor was James so economically irrational as to carry on selling when “the world” was set on a rise. By the end of 1851, his own holding of Piedmontese bonds was not much changed at around a million francs: Cavour was wrong when he claimed that James had “sold the lot.”

Yet it had never been Cavour’s intention “immediately to break with Rothschild, but merely to show him that we can do without him.” For his part, James could not help but admire Cavour; the man, as he put it in one of his very rare compliments to a politician, had “character.” Cavour underlined his point in 1852, when Alphonse was sent to Turin offering to take the remainder of Nigra’s 1850 rentes (some 40 million lire) at 92. As soon as the Piedmontese parliament took his hint that he had no need of the money and rejected the offer, he was able politely to turn Alphonse away. But he fully expected to have to turn to the Rothschilds again in the near future; all he had really been trying to achieve was an improvement in his bargaining position. Thus, when James returned in January 1853 to repeat his offer of the previous year, Cavour—now Prime Minister—was able to bid him up from an initial offer of 88 for the 40 million to 94.5. When Cavour then raised the subject of yet another loan, he made simultaneous approaches to Hambro, to Fould in Paris and to James, who despatched Alphonse once again to Turin. For Cavour, this competition was invaluable: the escalating Crimean crisis was driving the price of all bonds down, Piedmontese included: Hambros could offer no more than 65 for the new 3 per cent bonds, Fould would go little higher—but Alphonse, determined to win back his father’s pet client, offered 70 and a commission of 2 per cent. As Cavour said, “the rivalry of Fould was worth several millions,” and James subsequently grumbled about the “considerable loss” he had incurred. At the same time, Cavour needed James to help pay the interest on the Hambro loan during the early phase of the Crimean crisis, until he was bailed out by the British government subsidy paid when Piedmont joined in the war against Russia.

“To do Rothschild justice,” Cavour remarked with wonderful understatement in January 1855, “it must be said that he never asks for money. That is his better side.” What Cavour had demonstrated was that the state which shopped around in the more competitive financial markets of the 1850s was more likely to see that better side. That James was once again in favour at Turin was revealed when, to the dismay of the Pereires, he emerged as the main foreign shareholder in the new Piedmontese investment bank. “Pereire is simply furious,” wrote Cavour in February 1856, whereas “Rothschild seemed delighted. He says that he wants to make an Italian credit, ‘Because, do you see, you must have Italy. Hurry up, for if peace is concluded [between Russia and the Western powers], it is necessary to be in a position to act immediately.’ ” The new bank, he and Cavour agreed, should be “an Italian affair instead of a Piedmontese affair.” With astonishing prescience, James was already preparing to finance the next European war—the war he foresaw between Austria and Piedmont. It was the second time he had hinted to Cavour that he would back him in such a conflict.

The Rothschilds had faced competition during economic upswings before; it was when the downturns came that they tended to see off their rivals. The 1850s were no exception. At a certain point, the demands on the international capital markets from new banks and railway companies, combined with the borrowings of states involved in the Crimean War, could no longer be sustained; and definitely could no longer be reconciled with monetary stability. A slowing-down was detectable even before the war ended; the crash came in August 1857 when the Ohio Life and Trust Co. stopped payments, triggering a domino-like succession of American bank failures. The crisis spread swiftly across the Atlantic to Glasgow and Liverpool, where at least four banks failed, as well as to Hamburg, and might have claimed the Anglo-American house of Peabody & Co. in London had it not been for an £800,000 loan from the Bank of England. As far as can be established, none of the Rothschild houses was badly affected by this crisis. The profits of the London house for 1857 were well down (to a negligible £8,000), but they were still profits; the Naples house did rather better, though it had a bad year in 1858.

French monetary policy in this difficult period was in many ways the key to the Rothschild counter-attack against the pretensions of the Pereires; this has seldom been understood. A vital turning point in their rivalry was the election of Alphonse de Rothschild as a regent of the Banque de France in 1855. Viewed strictly in terms of the Rothschilds’ importance as shareholders in the Banque, it was natural for a member of the family to become, in effect, one of its directors. The Paris house held over.1,000 Banque shares in 1852; Plessis has shown that this number tended to rise, reaching peaks of 1,499 in 1857 and 1,616 in 1864. Moreover, individual family members held up to 200 shares in their own private portfolios. Even allowing for the high level of concentration of share ownership, this made the Rothschilds probably the Banque’s biggest shareholders.

Nevertheless, Alphonse’s election was controversial for a number of reasons. First, despite their large stake, the Rothschilds had not been admitted to the Banque’s Assemblée Générale prior to 1855 (presumably because James remained technically a foreigner). Second, although the convert d‘Eichthal had been a regent before him, Alphonse was the first Jew to become a regent. Third, and most important, his appointment coincided with a potentially crucial debate about the future of the Banque itself. This explains why the meeting of January 22, 1855, at which Alphonse’s name was put forward as a prospective regent, was the best attended in the period: Mires and the Pereires were among the 138 members who voted and—quite exceptionally—the election had to go to a second round before Alphonse obtained an undisputed majority over the other two candidates. Although the regents were not quite the
haute banque
caste of French political legend, Alphonse’s election was an important watershed, finally putting the Rothschilds on a par with the Mallets, Davilliers and Hottinguers. More to the point, it gave the Rothschilds a representative in the Banque at a critical juncture. Alphonse may have made more formal contributions to the Banque’s deliberations in the 1860s. But a Rothschild influence over French monetary policy in the 1850s is unmistakable, and proved crucial in the Rothschild-Pereire conflict.

The question, in essence, was how far the Banque should become more like the Bank of England in the way that it influenced the French money market. It had done much to strengthen its own position during the 1848 crisis, killing off the regional banks of issue; but it remained a relatively small entity—its capital of around 70 million francs in 1852 was rather less than that of de Rothschild Frères—and the Credit Mobilier’s pretensions posed a serious threat. The climax of the banking and railway boom in 1855, combined with the fiscal demands of the Crimean War and a bad harvest, placed the Banque under a severe strain. In August 1855, to replenish its depleted reserves, the Governor was forced secretly to buy 30 million francs of gold and 25 million francs of silver from de Rothschild Frères. A year later, the situation deteriorated so much that the Governor had to request permission to suspend the convertibility of the currency. A substantial number of the regents favoured this move, but Alphonse was not one of them. Supported by the Finance Minister Magne, he and his father successfully argued for an increase in the discount rate and larger purchases of gold and silver—including a further 83 million francs from the Rothschilds themselves—in order to maintain cash payments. Between 1855 and 1857 the Paris house provided the Banque with gold worth 751 million francs, purchased through New Court at a premium of around 11 per cent.

The debate on the renewal of the Banque’s charter thus took place at a time when the Governor was increasingly dependent on the Rothschilds to replenish his reserves. Though Alphonse was absent from the Banque during the first half of the year, it seems likely that his father played some part in these debates, arguing against the Pereires’ schemes for a radical restructuring of the Banque designed to make it more accommodating to the new investment banks with their large portfolios of shares. The final outcome of the debate was essentially a victory for the conservatives: in return for accepting 100 million francs of rentes from the government, the Banque was allowed to double its capital and was freed to raise its discount rate above 6 per cent when monetary tightening seemed necessary. Priority, in other words, was given to maintaining exchange rate stability rather than the liquidity of the domestic financial markets; and this was to prove a real constraint on the Credit Mobilier.

It was while this institutional battle was being fought (in 1856) that James launched the Réunion Financière—essentially a loose confederation of private banks and allied railway financiers like Bartholony, Pillet-Will, Blount and Talabot—with the intention of challenging the Pereires at their own game. In fact, his plan of using the Réunion as the basis for a new joint-stock bank similar to the Credit Mobilier
¹¹
was thwarted by Magne, who imposed a temporary ban on new company formations in early 1856 as part of his effort to cool down the economy and free capital for the government’s own pressing financial needs. This seemed to Mires (whose plans were also affected by the ban) like a victory for the Pereires, and there is no denying that the Réunion group controlled a smaller amount of railway capital than the Pereires and their allies (49 million francs to 94). But the signal had been given: from now on, the French Rothschilds at least were prepared to contemplate the adoption of Pereire-style investment banking.

In fact, it soon became apparent that the restrictions imposed on the domestic capital market, combined with the more restrictive discount policy of the Banque de France, imposed a bigger constraint on the Pereires than on the Rothschilds. Nothing illustrated this more starkly than the Pereires’ failure to prevent the fusion of the Grand Central line with the Rothschild-controlled Paris-Orléans line in June 1857, a setback which prompted anguished allegations from the Pereires about a conspiracy against them and their undertakings. “To reduce us to impotence,” they complained to Napoleon, “they say we are all-powerful.” The reality was that, as the financial crisis of 1857 intensified, it was the Pereires who suffered more. Of all the railway lines, it was the Nord which proved most resilient in the crisis; the Banque de France’s advances to the other railway companies and the Franqueville conventions (whereby the government guaranteed dividends and subsidised the building of unprofitable branch lines) were responses to the weakness of the “new” bank, not the “old.”

This explains why the Pereires tended to come off second best in the great pan-European race for railway concessions after 1856-7. That the railway business became genuinely international in this period is often underestimated as a factor in international relations. It is a myth that railways favoured nationalism by creating integrated national markets: the railway map of Europe very quickly spilled over state borders to become a transnational network, and much of the capital invested in railways in Spain, northern Italy, the Habsburg Empire and Russia was either English or French. This internationalisation of the railways coincided with a dawning awareness among military planners that they could play a vital strategic role in transporting armies as well as goods and travellers. The control of the railways thus became a political as well as a financial question, and one of considerable significance in the events leading up to the “unifications” of Italy and Germany.

The pattern repeated itself with variations in Belgium, Spain, Piedmont, Naples, Austria, the Danubian principalities, Russia and even Turkey. First there were competing attempts to establish Credit Mobilier-style banks in these economies; then, or simultaneously, there was scramble involving much the same people to grab railway concessions. In Belgium the Rothschilds’ old friend King Leopold positively encouraged James to establish a Credit Mobilier-style bank, but James dropped the idea as soon as he was sure that the Pereires had no intention of doing so themselves; he acted only when it was necessary to thwart his rivals. In truth, existing Belgian finan cial institutions like the Société Générale rendered the Pereires more or less superfluous. James was therefore free to extend the influence of the Nord company over important sections of the Belgian rail network, acquiring control of the Namur-Liège line and forming a consortium with the Société Générale for the Mons-Hautmont line. He was also indirectly involved as a director of the Est line in its acquisition of the Luxembourg railways—a vital link between the Belgian ports of Ostend and Antwerp and the Rhineland. In Switzerland there was more of a contest: the Pereires built up a large shareholding in the Western line along Lake Geneva, but the more important Central and North-East lines remained in Swiss hands until the Réunion Financière bought a stake in the latter and merged it with other lines to the south to create the United Swiss Railway Company. In Naples there was a momentary alarm when it seemed that the King might be about to grant the Pereires a bank charter, but this soon passed; the Bourbon regime had an intense suspicion of economic innovation and made even the construction of railways in Sicily well-nigh impossible.