The House of Rothschild (44 page)

Mayer Carl had no doubt that Bismarck remained strapped for cash. “Here there is such a want of money in the treasury,” he reported in May 1868, “that the government would be quite miserable if they thought that a war was likely to take place.” The government’s attempt to issue bonds secured on the tobacco monopoly in the autumn of 1868 was a failure. “Money here is tight,” he reported in April 1869, “[and] the last Prussian loan is flat.” Nowhere are the connections between public finance, private interest and foreign policy more visible than in Mayer Carl’s letters of May the same year:

The most convincing proof of the government’s financial difficulties was the rejection that autumn of its proposal for a 100 million thaler lottery loan secured on the Prussian railways.
¹¹
Only after Camphausen had replaced von der Heydt at the Finance Ministry did Mayer Carl become more optimistic about the financial future.

Yet even as Bismarck tried and failed to secure adequate—and more important, politically uncontrolled—tax revenues for Prussia and the new Confederation, private finance in Germany was booming. This was the first phase of what became known as the
Gründerzeit—
the founders’ era, after the large number of new joint stock companies established between 1866 and 1873. “You have no idea what a competition there is now in business,” reported Mayer Carl in March 1870; “it is more than a mania and a regular disease like Cholera.” In this hectic period, Mayer Carl’s association with Hansemann brought him shares in numerous transactions: loans to the cities of Danzig and Königsberg and to the Silesian, Magdeburg and Cologne-Minden railways. Here too there was cause for optimism about the international situation; for one of the most ambitious new banks established in this period was the Preussische Central-Boden-Credit Aktiengesellschaft, a Prussian mortgage bank modelled on the French Credit Foncier. Originally Abraham Oppenheim’s scheme (though not according to Mayer Carl), the project was taken up by Hansemann in earnest in 1870 and brought to a successful conclusion. The domestic political appeal of the project from Bismarck’s point of view was obvious: here was a way to reconcile the East Elbian landowners to the new liberal era—through cheap credit. As Mayer Carl commented, “The King’s great wish is to have a Prussian Credit Foncier to please the new nobles who are in great awe of it.” For our purposes, however, it is the international significance of the scheme which is noteworthy: for it was from the outset intended to be a Franco-Prussian undertaking, the Paris Credit Foncier taking a leading share, along with the Banque de Paris and the French Rothschilds.
¹²
Once again, it is probably unnecessary to infer a Machiavellian motive on Bismarck’s part. Although he was well aware of the imminent Spanish crisis when Bleichröder informed him of the Credit Foncier’s new issue on June 26, his silence on the subject was not designed to syphon off French capital on the eve of war; Bismarck simply wished the French Rothschilds to continue playing their now well-established role in Prussian finance. The real significance of the issue is the immense success it enjoyed in Paris: surely the ultimate folly of the Bonapartist bourse.

An unexpected revelation in this context is the extent of hostility between Mayer Carl and Bleichröder at this time. Contrary to Fritz Stern’s impression, the Rothschilds were increasingly impatient with Bleichröder and regarded Hansemann as their principal business partner in Berlin. Beginning in the autumn of 1868, Mayer Carl complained repeatedly about Bleichröder, whose pretension to be the Rothschilds’ “agent” in Berlin he dismissed contemptuously. “I think it quite ridiculous of Bleichröder to write to you & to Paris wishing you to entrust your interests to him,” he told New Court during the negotiations for a new Prussian loan in 1868: “[H]e has nothing to do with it.” A year later he denounced Bleichröder as “an old fool who wants everybody to think & believe that he is our agent whilst he does business with any one who gives him 1/8 commission.” “I do not see much of him,” he remarked in March 1870,

It was same story a few weeks later:

And again in October:

The final reason for Mayer Carl’s confidence in Bismarck’s pacific intentions was a sense that there was no need for war to bring about the accession of the South German states: economic forces seemed to be completing the process of unification unprompted. The period 1867-70 saw Mayer Carl busy not only with Prussian finance, but also with the finances of other German states, including the South German states still outside the Bismarckian Confederation. He participated in a succession of loans to the Kingdom of Württemberg, for example (9 million gulden out of a total of 15 million in 1867, 25 million in 1868); as well as in bond issues for Baden, Bavaria and Saxony. In addition, he was able to arrange loans for a number of smaller German states, notably Brunswick, Saxe-Meiningen, Saxe-Coburg-Gotha and the city state of Hamburg. Often the sums and profits involved in these loans were trifling; but Mayer Carl was a firm believer that “every little helps” and “1/2 an egg is better than an empty shell.” In any case, the real significance of this activity lay in its geographical range: to all intents and purposes an integrated German capital market now existed, with its principal centres in Frankfurt, Berlin and Hamburg, serving an emerging North and South German confederation—the nascent Reich. It is telling that most of these loans were for railway construction, not military purposes: the South Germans might bark at Prussia, but they evidently had no intention of biting. To Mayer Carl, shuttling back and forth between Frankfurt and Berlin, the evidence of German economic unification was unmistakable. Why go to war for it?

With hindsight, only an alliance between France and Russia could really have prevented the unification of Germany on Bismarck’s terms. The obvious diplomatic opportunity for such a combination came in June 1867 when Gorchakov and the Tsar visited Paris “to do business”; but subsequent differences of opinion over the Cretan revolt proved an insuperable obstacle to an understanding. Another obstacle—and here there is a marked contrast with the period after 1887—was the failure of the Paris capital market to establish a dominant position in Russian finances. As we have seen, James had tried and failed to “establish a new Rothschild foothold” in St Petersburg on a number of occasions. Semi-official advances were made to the Paris house in the autumn of 1867; but when James met the Financial Minister Reutern in August 1868, he drew a blank. In the course of a long discussion, James proposed to undertake “a large financial operation,” meaning a large issue of government bonds to finance new railways. But Reutern was uninterested. The government had “no financial operation in view” and certainly had no desire to borrow money in order to leave it on deposit—at a lower rate of interest—with James. Reutern wished to minimise state intervention in Russian railways, not to have the state finance the railways itself. All he could offer James was involvement in the privatisation of the line from Moscow to Odessa. Although there were desultory negotiations on this subject it was not what the Rothschilds wanted. In James’s eyes, direct involvement in private undertakings “in regions so remote from our sphere of action” was too risky.

This general feeling of wariness only intensified after James’s death. As the Frankfurt house put it in late 1868, “Up until now we have not had much luck with Russia and with all these things we seem to arrive like the mustard after dinner is over, which is neither agreeable nor honourable.” Even when the Russian government seemed to change its mind in early 1869, Mayer Carl felt nervous at the thought of a large loan: “[I]t is impossible to pay close attention to a business of such magnitude by the ordinary way of correspondence ... [but] we have nobody to send to Petersburg and till now we have had so little luck with the Northern Barbarians that we ought to be careful & not let the cat out of the bag for others to reap the harvest [sic].” He declined to go to St Petersburg; as did Alphonse, who suspected that a highly publicised Rothschild visit was merely designed to pressurise Russia’s traditional bankers, Baring and Hope. The project was still in a state of limbo as 1869 drew to a close. Rather as in the United States, the Rothschilds refused repeatedly to establish a familial representation in St Petersburg. In August 1871, Gorchakov urged Mayer Carl that “we ought to have a house at Petersburg,” telling him “that one has no idea how much business there is to be made in Russia.
‘C’est une
mine
d‘or’
were his words.” This advice was never heeded. Alphonse even opposed the indirect involvement of Anselm or Mayer Carl in an Austro-German joint-stock bank to be established in St Petersburg by the Creditanstalt.

Such caution, however, was not shared by other bankers in Berlin. “The Berlin Bourse is a capital market for Russian securities,” reported Mayer Carl in May 1868 with detectable incredulity, “and the public buy almost nothing else.” Bleichröder was assiduous in promoting the idea of a Russian Credit Foncier, which was to be the counterpart of the Hansemann-Rothschild—Oppenheim Prussian mortgage bank. Bleichröder and Hansemann were also much more enthusiastic about Russian railways than the Rothschilds. This needs to be seen as part of an early movement of German capital eastwards: the 1860s also saw a variety of proposals emanating from Berlin and Hamburg for loans to Sweden and Finland (which, though ruled by the Tsar, had its own parliament and enjoyed considerable autonomy). The continental Rothschilds were never more than half-hearted participants in these ventures—for example, taking a 5 per cent stake in the 50 million rouble Russian mortgage loan of 1867, but refusing an option when more such bonds were issued two years later and blowing hot and cold thereafter.

Rather curiously, given their reservations about lending to Russia in 1863, it was the London Rothschilds who proved most convinced of the value of Russian business. Natty was critical of Mayer Carl for failing to go to Moscow at the time of the abortive 1869 negotiations, and it seems to have been at his instigation that the London house pressed the matter to a conclusion that December. The issue of £12 million of Russian 5 per cents at a price of 80 was one of the most ambitious Rothschild undertakings of this period, and a resounding success in all the markets where subscriptions were opened: it was heavily oversubscribed in Paris and Berlin. As Mayer Carl declared, it was “decidedly the greatest success of the day and the Russian Government ought to be particularly grateful to you and will never think of applying to any body else, which I hope will send a large number of other transactions.” It was indeed the first of a succession of five major Russian bond issues in the years up to 1875 (totalling £62 million nominal), though the connection to St Petersburg remained a somewhat fragile one.