The House of Rothschild (68 page)

In two respects only was the London house “representative” of the City as a whole. North and South American issues accounted for almost exactly the same proportions of its business as they did for the total market. And the Rothschilds shared the City’s relative lack of interest in domestic private sector finance, which accounted for just over 1 per cent of all Rothschild issues (though the Rothschilds had the reputation of being especially indifferent to domestic industry). When Sir Edward Guinness sought to float his Irish brewing company on the stock market in 1886, the London house refused to handle the £6 million flotation, which was snapped up by Barings. The shares and debentures proved immensely popular (they were oversubscribed nearly twenty times) and Barings made a profit on the issue of around £500,000. Yet, when asked by a journalist if he regretted turning the business down, Natty replied: “I don’t look at it quite that way. I go to the House every morning and when I say ‘No’ to every scheme and enterprise submitted to me, I return home at night carefree and contented. But when I agree to any proposal, I am immediately filled with anxiety. To say ’Yes’ is like putting your finger in a machine: the whirring wheels may drag your whole body in after the finger.” This is often seen as epitomising the caution of the fourth generation. Thus, while others reaped substantial profits from financing the construction of the London underground rail network, the Rothschilds kept their distance. Even the idea of a Channel Tunnel—which appealed to the French Rothschilds as a way of increasing the traffic on their Nord line—left Natty cold. “You can take it from me quite positively,” he told his cousins in 1906, “that this measure [the Channel Tunnel Bill] would be rejected by an enormous majority in the House of Lords and it is certainly not worthwhile for you to waste your time or your money on it.”

Source: Davis and Huttenback,
Mammon,
p. 46.

There were some exceptions to this rule of abstention, admittedly. Perhaps seeking to emulate Barings’ success with Guinness, Natty undertook four successive share and debenture issues for the Manchester Ship Canal between 1886 and 1891, worth a total of £13 million. But, as Edward Hamilton commented, the failure of the first of these issues led to “an invidious comparison” being drawn in the City between “Rothschild’s water” and “Baring’s beer.” Even in partnership with Barings it proved impossible to make the second issue a success. Similarly, having been pioneers of rapid communication in the early part of the century, the Rothschilds might have been expected to grasp the significance of an innovation like the telephone. Indeed, they themselves began to experiment with the telephone as a way of communicating between Paris and London as early as 1891. But a share issue of £488,000 the following year for the New Telephone Company was a trifling affair, and it is remarkable that the London and Paris partners continued to communicate with one another by handwritten letter just as their fathers, grandfathers and great-grandfather had done.

All this helps explain why historians have often characterised the Rothschilds of this generation as “conservative” in their approach to finance. (The obvious contrast is with the French house, which remained a major shareholder in railway lines like the Nord.) Yet this critique rests on a misunderstanding of the Rothschilds’
modus operandi
and their role in the process of late-nineteenth-century globalisation. There was, for example, one domestic industrial sector in which the Rothschilds did enjoy some success: predictably, perhaps, it was the sector most closely linked to government—derence. And of far greater importance than any involvement in domestic industry and transport were the Rothschilds’ interests in foreign mining and the international market for metals and precious stones (which are discussed in the next chapter).

The Rothschilds’ role in the economics and politics of imperialism should not therefore be caricatured as part of a wider teleology of decline. In many ways, imperialism did not represent a dramatic break with their past success. Foreign public sector investment remained their principal interest, with “home” government borrowing in second place, in so far as France, Austria-Hungary and to a lesser extent Britain were all forced to continue to issue new bonds to finance the rising costs of defending their empires. Here, in the international bond market, the Rothschilds had few if any real equals. Their role in foreign private sector finance (especially railways) was more modest, as was their acceptance business. But their international mining interests, as we shall see, were vast.

As in the past, the Rothschilds continued to have an interest in the continuation and expansion of a global economic system in which capital, goods and indeed people could move as freely and as securely as possible. However, if this could be achieved without political intervention, they were content: thus the long history of Rothschild involvement in Brazil shows that they did not regard formal imperial control as a precondition of profitable capital export. Only where important bonds appeared to be in jeopardy as a result of political instability in the borrowing territory did the Rothschilds support direct political intervention. Their mining interests in Spain and Mexico did not require foreign intervention, despite the recurrent instability of politics in those countries; whereas it is hard to imagine their investments in Burmese ruby mines or New Caledonian nickel mines in the absence of direct European control. The South African case illustrates the ambivalence of Rothschild attitudes to imperialism as personified by Cecil Rhodes: though strongly attracted to gold and diamond mining, they were suspicious of Rhodes’s wilder schemes to extend British political influence north of the Cape colony. Nor is there any sign of a preference for railways in imperial territory.

Generally, the Rothschilds backed British empire-building only when they felt confident that this could be achieved without precipitating conflict with other European powers, or (less often) when they felt that a rival power would impose a more economically restrictive colonial rule if Britain did not act (it was usually assumed that a French or German regime would be more protectionist than a British one, though in reality French and German tariffs were not vastly higher). The desire to avoid international conflict explains the Rothschild preference for what might be called multinational imperialism, where economic interests were guaranteed by more than one European power. The classic illustration is the case of Egypt, where the Rothschilds sought to reconcile conflicting British and French political interests in the shared interests of bondholders of both nationalities. (The Rothschilds were less interested in Greece and Turkey, where such multi-national financial guarantees were also used.) In China too they favoured co-operation between the European powers.

There was, it should be stressed, a certain instinctiveness about all this: while critics like Hobson had theories of imperialism, the imperialists themselves did not. “[I]t is a curious thing,” wrote Natty to Paris in May 1906, “how investors & capitalists dread the stocks of their own countries particularly if they live in Europe.” He had a hazy notion that investors were attracted to “exotics” by their higher yields, and that these reflected the higher risks of investing overseas; but his own preferences for particular regions or sectors appear to have been based in large part on unspoken assumptions. Yet his assumptions about the politics of imperialism were far from unspoken: no member of the family before or since has been more politically active. Here there was an important discontinuity. In the past, the Rothschilds had tended to view politics through the prism of their own financial interests: nearly all James’s interventions in the realm of diplomacy had been based on business calculations. This cannot be said of the members of the fourth generation. Economic self-interest was still paramount; but sometimes Natty and Alfred took positions for “purely” ideological or party political reasons which were unrelated to the portfolio of N. M. Rothschild & Sons, just as they had private interests in areas where imperial control was never a serious possibility. Natty in particular thought of himself as “wearing different hats”: there was one for New Court and one for Westminster (or, as he would have said, one for the East End and one for the West End). The full-time politicians tended to think the same way, though in neither case was the distinction between private and public interest perfectly maintained.

In fact, the politics of imperialism took precedence over economic considerations more often than the Rothschilds themselves may have realised. Although it is undeniably true that they profited from high levels of capital export, in particular cases the fourth generation often allowed national political considerations to take precedence over the collective economic interest of the Rothschild houses. The fact was that the reorientation of British finance away from continental Europe made the Rothschilds’ network linking London, Paris, Frankfurt and Vienna somewhat obsolescent. At the same time, colonial conflicts of interest between France and Britain presented the Rothschild houses with difficult choices. It was in this period that the various houses began to operate more and more independently of one another: these Anglo-French disagreements, and the Austrian indifference to the world outside Europe, help to explain why.

The best-known example of Rothschild involvement in British imperialism is the case of Egypt. Famously, it was the London house which advanced £4 million to Disraeli’s government in 1875, allowing the British crown to acquire a substantial shareholding in the Suez Canal Company. Quite apart from the romantic penumbra which surrounds this transaction, this is often seen as the first step down the road towards the British military occupation and financial control of the country after 1882, a process which the Rothschilds also helped to facilitate. Yet the roads to and from the Suez share purchase were far from straight; in many ways the Rothschilds’ role in Egypt illustrates the ambiguities and contingencies which lie behind a historical construct like “imperialism.”

To understand the significance of the hectic events of 1875, it is necessary to know something of Middle Eastern finance. In the aftermath of the Crimean War, both the Sultan in Constantinople and his vassal the Viceroy or “Khedive”
⁵
in Cairo had begun to accumulate huge and ultimately unsustainable domestic and foreign debts. Between 1855 and 1875, the Ottoman debt increased from around 9 million Turkish lire to around 251 million. In relation to the financial resources of the Ottoman government, this was wholly unsustainable: as a percentage of current revenue, the burden rose from 130 per cent to around 1,500 per cent; as a percentage of expenditure, interest payments and amortisation rose from 15 per cent in 1860 to a peak of 50 per cent in 1875. The Egyptian case was similar: between 1862, the date of the first Egyptian foreign loan, and 1876, the total public debt rose from 3.3 million Egyptian pounds to 76 million, roughly ten times total tax revenue; in addition, the Khedive Ismail owed around 11 million pounds on his own private account. The 1876 budget showed debt charges at more than half (55.5 per cent) of all expenditure.

It is worth setting these figures into some sort of comparative perspective, if only to establish an approximate notion of what constituted sustainable borrowing in the nineteenth century. For most of the century (until 1873), the British national debt had been more than ten times total public tax revenue; while debt charges accounted for around 50 per cent of gross expenditure from 1818 until 1855. However, the trend for Britain from the 1840s until 1914 was more or less uninterruptedly downwards, so that by the eve of the First World War, total debt was just over three times total revenue and debt charges accounted for a mere 10 per cent of total expenditure. Moreover, the British economy grew at historically unprecedented rates. In the Turkish and Egyptian cases, debt ballooned in the two decades to 1875 relative to the state budgets, yet economic activity stagnated. Compared with other major borrowers on the international market (such as Brazil or Russia), Turkey and Egypt were out of control. Brazilian and Russian debts were never much more than three times greater than total tax revenue, while debt service typically accounted for less than 15 per cent of total spending. In fact, the closest parallel to the Middle Eastern experience was that of Spain, which also defaulted in the 1870s (see tables 9e and 9f). In the context of the general financial crisis which afflicted all the European markets after 1873, a Middle Eastern debt crisis was thus inevitable.