The House of Rothschild (78 page)

It is in this light that the Rothschilds’ attitude towards Léon Gambetta, the Republican hero of the war of 1870, becomes intelligible. The Rothschilds were perfectly prepared to encourage Gambetta, despite his reputation dating back to the Belleville programme of 1869 as a
fou furieux,
provided he concentrated on giving France an imperial policy. There is a famous account of a dinner during Gambetta’s brief premiership (1881-2) at which he and Alphonse were spotted

The point of this anecdote was, of course, to suggest that Gambetta had sold out on achieving power. However, the domestic policies which Gambetta was simultaneously pursuing—though far from socialistic—were less palatable to the Rothschilds than the conquest of Tunis. Firstly, Gambetta envisaged a massive conversion operation of some 6 billion francs of 5 per cent rentes. It was a sign of
haute banque
opposition to this that Say refused to accept the portfolio of Minister of Finance under Gambetta. Indeed, according to police reports, Alphonse told journalists in December 1881: “I want an all-out campaign; it is necessary to demolish Gambetta before he demolishes us.” We have already seen how the collapse of the Union Générale contributed to that demolition. Secondly, Gambetta seemed to intend some kind of railway nationalisation. It was only after his fall that an agreement was reached which granted the companies a further thirty years before the state exercised its right to repurchase the lines. A politician of the left like Gambetta might be almost as ready as a politician of the right to pursue imperialist policies; but the Rothschilds, for primarily domestic political reasons, preferred their imperialism to be conservative. On the other hand, they were wary—with good reason—of the chauvinistic tendencies of the French right. They disliked the agitation in support of General Boulanger following his dismissal as Minister for War in May 1887, which (like Bonapartism before it) combined domestic political radicalism and a foreign aggressiveness which the Rothschilds saw as incommensurate with France’s strength; it was only after the “useless” and “incompetent” General’s fall in 1889 that they began to act as his private bankers.

The rise of trade unions and socialist parties was apparently viewed with more alarm by the French Rothschilds than by the British, though this probably reflected France’s greater historical susceptibility to revolutionary politics. In 1892 Edmond wrote with alarm of the increasingly vocal socialist attacks on the “plutocracy” and warned of impending “anarchy,” while Alphonse predicted that the “socialist epidemic” would be more “dangerous” in France than in England. When he discussed industrial relations with Rosebery in 1892, Alphonse stressed that he was opposed to any intervention by the state in labour disputes. He evidently regarded Rosebery as something of a conundrum, noting wryly after their meeting: “[T]here are no radicals in our country living in grand manors and with a yearly income of £100,000.” “For my part,” Alphonse told the writer Jules Huret in 1897, “I don’t believe in this working-class movement”:

It may be that Huret misquoted Alphonse, but his letters to London suggest that this was more or less what he thought: an uncompromising, not to say crass,
laissez-faire
view of the labour market of the sort routinely expressed by many industrialists of the period. Equally run-of-the-mill was Alphonse’s defence of economic inequality:

This complacent apologia spoke volumes for the social and political isolation of the Rothschilds as the new century approached—and with it a new era in which political power would no longer be so easily confined to the dining rooms of clubs and country houses.

CECIL RHODES TO LORD ROTHSCHILD, 1888.

 

 

I
n 1889 the Chancellor of the Exchequer George Goschen undertook to convert £500 million of 3 per cent consols into 2.5 per cents—an operation involving nearly half the national debt. The conversion seemed to symbolise the extraordinary virtuous circle which had been established in Britain whereby imperial expansion was combined with fiscal retrenchment. With the national debt falling steadily towards its lowest absolute level since the Napoleonic Wars, the Victorians appeared to have achieved empire without overstretch.

Goschen’s conversion also testified to the continuing dominance of N. M. Rothschild & Sons in the London bond market. Loyal though he was to his old master Gladstone, Edward Hamilton (now at the Treasury) had no hesitation in recommending that Goschen “take Rothschilds ... into his confidence” as well as Barings. Hamilton was surprised when Natty refused to “look at” the Treasury’s offer of 20-25 million 2.5 per cents at a price of just over 99, dismissing “the possible margin of profit” as “wholly out of proportion to the risk run” and persuading the more accommodating Revelstoke to insist on a price no higher than 97.5. To Hamilton, this seemed bizarrely tight-fisted at a time of steadily falling interest rates. It was only a year later that Natty’s prudence would become all too intelligible.

Historians have long debated how far “trade followed the flag” in imperialism, or vice versa. In Egypt the flag had followed debt (though debt had followed trade); but the transition from investment to invasion was not an inevitable one. In other overseas markets, the interests of European investors were never the pretext or justification for the imposition of external political control. The classic illustration of this point is the case of Latin America where, after the promulgation of the Monroe doctrine, European imperial influence was more or less bound to be “informal” and therefore largely economic rather than “formal” and political. (The exceptions to the rule were the British, French and Dutch colonies of Guyana.) The events of 1890—which saw Baring Brothers brought to the verge of bankruptcy by bad loans to Argentina—illustrate the disadvantage of the informal approach to empire. Had Argentina been a Middle Eastern or Asian state, her political instability might well have prompted political intervention in the interests of a major bondholder like Barings. The peculiarly neutralised status of Latin America precluded such a solution.

The story of the Barings crisis has been told often enough; in the context of a history of the Rothschilds, three questions need to be addressed. First, is there any truth in the contemporary claim that “the finger of the Jew”—meaning the Rothschilds—in some way triggered the downfall of their oldest rival? Second, what calculations ultimately prompted Natty to participate in the rescue of Barings? And third, why was it that no similar disaster befell the Rothschilds themselves? For their commitments to the neighbouring and no less politically unstable state of Brazil were comparable in scale to Barings’ Argentinian commitments.

Barings’ involvement in Argentina grew steadily in the decades after 1850, and was on the whole so successful—profits averaged 13 per cent of capital between 1880 and 1889—that by the late 1880s a fatal overconfidence had set in. Others saw the clouds gathering. As early as 1888, the
Bankers Magazine
was expressing doubts about the stability of the Argentine Confederation; the
Statist
was warning of an “inevitable” crash by mid-1889. Though Randolph Churchill later claimed that Natty had told him (probably in 1889) that Barings were “all right and nothing the matter with them,” this was mere discretion on a delicate subject; in truth, the Rothschilds anticipated the Barings crisis at least two years before it broke. As Alphonse remarked in October 1888, Argentina “would have to grow rapidly very rich indeed” to be able to service her accumulating debt burden. Gustave predicted an imminent “crash in Argentine funds with a bad reaction on all the other markets,” and hoped—vainly as it proved—that the prospect of this might “calm down the zeal of Messrs. Barings, the Banque de Paris and others with regard to all of this Argentine business.” (In fact, they themselves were not wholly uninvolved in Argentina: in 1889 Wilhelm Carl was appointed the government’s financial agent in Frankfurt.) The rise in the Bank of England discount rate from 4 to 6 per cent in the second half of 1889 was seen as a sign of “nerves” on the part of the Governor, William Lidderdale, about the Latin American situation. Indeed, the fear of a gold drain in the event of a crisis there prompted Goschen to propose the issue of one-pound notes.

There were numerous different Argentine securities in the Baring portfolio by 1890, including many
cedulas,
bonds issued by Argentine banks against mortgage loans to landowners. The fatal deal was the huge £2 million share issue which Barings floated for the Buenos Aires Water and Drainage Company, set up to modernise the city’s water and sewerage system. Not only did the bank fail to place more than £150,000 of these with the public—despite resorting to “market devices” which were subsequently the subject of much criticism—but when John Baring visited Buenos Aires at the end of 1889, he was alarmed to find work on the new water system progressing slowly, the company the object of fierce political criticism, and householders avoiding paying the hard currency rates which were supposed to guarantee shareholders a respectable dividend. Even if political conditions had remained stable Barings would have got into trouble; but the crisis was precipitated in July 1890 when the Finance Minister resigned over President Miguel Celman’s inflationary policies. The exchange rate slumped and a revolution supported by naval officers forced Celman to flee. “Anarchy” loomed, and with it default.

Yet the scale of the problem remained hidden until the eleventh hour. When Edward Hamilton dined with Natty on October 8—the day after Bank rate was raised once again to 6 per cent—the latter “confessed to being very uneasy about the present state of things in the City”; but Hamilton added that “nobody knows exactly why an uneasy feeling should prevail: beyond that there is a sort of general apprehension that certain big houses are not in a very comfortable or easy position, mainly due to the Argentine crisis & the general fall in securities ...” The initial estimate by Bertram Currie of Glyn, Mills when he was approached by Revelstoke for an immediate loan on October 13 was that there was a gap between Barings’ acceptances and the bills in its portfolio of £1 million, which could easily have been filled: Currie immediately advanced three-quarters of the sum. As late as November 2, the mood of the handful of bankers who knew about this loan—including Natty—was relatively sanguine. It was only later that the size of the hole was revealed. When the books were scrutinised by Currie and the former Bank of England Governor Benjamin Buck Greene, they found the difference between bills payable (£15.8 million) and bills receivable (£7 million) to be far larger than had previously been indicated. And that was only part of the problem. Barings’ total liabilities were close to £21 million (including large Russian government deposits which had begun to be withdrawn in late 1889), whereas the bank’s assets included £4 million of Argentine securities held jointly with the Buenos Aires firm of Samuel Hale & Co.

Considering that the capital of Baring Brothers in 1890 was just £2.9 million, these were disastrous figures: a ratio of capital to liabilities of just 14 per cent should be compared with an average figure for N. M. Rothschild of 39 per cent for the 1880-89 period. To have accumulated a portfolio of Argentine securities larger than the firm’s entire capital was folly on a grand scale. It was, as Lidderdale put it, “haphazard management, certain to bring any firm to grief.” The Times agreed, when the crisis finally became public: Barings had “gone far beyond the bounds of prudence.” Under the circumstances, it is not therefore surprising that Natty initially argued for letting Barings go under when he was approached by Everard Hambro on the morning of November 8; dismissed Lidderdale’s suggestion that Rothschilds could somehow influence the Argentine government to support “the enormous mass of discredited South American securities which were weighing on the Stock Market”; and opposed Currie’s suggestion that they and “three or four others should lend the Barings four millions to tide over their difficulties.” It was not a matter of enmity—though there was undoubtedly some personal and professional rivalry between Rothschild and Revelstoke—so much as genuine dismay at the extent of the bank’s insolvency.
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