ELEVEN
[T]ake Constitution Jesuits if obtainable and insert English Empire for Roman Catholic Religion.
CECIL RHODES TO LORD ROTHSCHILD, 1888.
In 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.
The Risks of Informal Empire: The Barings Crisis
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, theBankers 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.1
It was also nonsense to suggest (as Revelstoke’s brother Colonel Robert Baring did) that the Rothschilds were in any way responsible for the Russian government’s massive cash withdrawals from Barings which brought the crisis to a head. There is no question—as the letters from Paris to New Court show—that the Rothschilds intended to make “the greatest efforts to forestall a catastrophe,” provided these did not jeopardise the position of any other bank. As this suggests, Natty was unwilling to make any commitments until he was sure that not only the Bank of England but also the Treasury were willing to give their support to a rescue operation. The fact was, as Natty explained to Reginald Brett on November 29, that some of the Russian deposits withdrawn from Barings had ended up at New Court. “They now have a large sum belonging to the Russian Government,” Brett reported:
No doubt they are alarmed at the Barings’ speculations in Argentine, as the Barings formerly held all the securities of the Russian Government. The moment there was a suspicion of the Barings’ house, Staal received a telegram ordering him to withdraw the Russian deposits. Had Natty supported B. Currie’s original proposals, that order would have extended to the Rothschilds—it might have commenced a run upon them—a debacle.
There was thus an element of self-interest in Natty’s calculations.
Credit is usually given to the “the Sinbad of Threadneedle Street”—as Goschen’s successor Harcourt called the Governor of the Bank—for saving Barings from oblivion and the City from “a panic of unparalleled dimensions.” This, as Lidderdale himself acknowledged, is to understate Natty’s role in persuading the government to act. Goschen’s initial reaction—seconded by the First Lord of Treasury, W. H. Smith—was to refuse Lidderdale’s request for £1 million, arguing that “la haute finance” would have “to find its own solution.” The most he was prepared to offer, he told Lidderdale on November 11, was authorisation to suspend the Bank Act if the drain on the Bank’s reserve grew too great (an offer which was refused). But, as Goschen warned Salisbury, “the Rothschilds [were] sure to put the screws on”; and when the Prime Minister sent for Natty on November 12 they were put on with a vengeance. The Barings, Natty told Salisbury contemptuously, were finished; at most the partners would be left with £10,000 a year apiece and might “prefer to cut up their remaining capital and retire into the country on 4 per cent a year ... each.” The danger was that their losses were so great as to threaten “a catastrophe [which] would put an end to the commercial habit of transacting all business of the world by bills on London.” Natty subsequently made a similar point to Brett: if Barings had “been allowed to collapse, most of the great London houses would have fallen with them.” His conclusion was that nothing but government intervention could avert a crisis greater even than that of 1866. As would happen again in 1914, a crisis on the London acceptance market was presented as a crisis for the City as a whole, and hence for the country.
The most Natty was willing to do in the absence of government support was to help the Bank of England find the gold it would need as news of the crisis spread. In time-honoured fashion, he had already sent an immediate request to Alphonse for a three-month loan of £2 million in gold from the Banque de France to its counterpart in Threadneedle Street. On November 12 Lidderdale asked Natty to arrange for a further £1 million to be sent; this too was immediately done, with consols accepted by the Banque as security pending an appropriate issue of treasury bills.2 The effect was to ease pressure on the Bank, helping to boost its reserve from the low point of £11 million on November 7 to £16.6 million a month later. As Alphonse pointed out, however, this could not be “considered as a solution of all the difficulties.” The key remained to bring Salisbury on board, which meant overcoming the opposition of Goschen. Already on November 12 Natty had gained half a point: after his meeting with Salisbury, the Cabinet agreed to pass a bill of indemnity if the Bank of England were forced to violate its charter by lending to Barings on “Argentine securities ...provided they obtained Gladstone’s consent.” This helps explain why Natty had found his interview with Salisbury “rather satisfying”: he felt he was overcoming the government’s obduracy. The next day, apprehension of “some serious contingency” (as the banker John Biddulph Martin put it) began to spread, and “the many rumours that had been in circulation concentrated themselves with more and more persistence on the name of Baring Bros.,” though when Biddulph left the City “everything [was still] going on as usual.” It was only on Friday the 14th that dangerously large numbers of bills on Barings began to be brought to the Bank of England for discount; and it was this which decisively strengthened the case for direct government action. That afternoon, with Goschen on his way to a routine speaking engagement in Scotland, Salisbury and Smith agreed to bear half of any loss arising from Barings’ bills taken in by the Bank during a twenty-four period beginning at 2 p.m. that day.
The next move was to set up a guarantee fund to spread the costs of any loss which might be left when Barings’ assets were finally liquidated. This was achieved at a meeting in the Governors’ Room at the Bank between members of the Bank’s Committee of Treasury and the leading merchant bankers. Again the negotiations were delicately balanced. Lidderdale opened the bidding by saying that the Bank itself would pledge £1 million on condition that at least £3 million was guaranteed by other City firms. Currie promptly offered £500,000 on condition that Rothschilds do the same. Once again, the fate of Barings was in Natty’s hands. According to Tom Baring (no unbiased party) he hesitated and was only “shamed” by Currie into agreeing. Currie himself recorded more reliably that Natty “hesitated and desired to consult his brothers”—that old Rothschild device to buy time—“but was finally and after some pressure persuaded.” That pressure, according to Edward Hamilton, took the form of Lidderdale telling Natty: “We can get on without you.”
Perhaps they could have; but Natty’s assent, however reluctantly given, made the task immeasurably easier: thereafter, the guarantee fund grew rapidly as all the leading merchants joined the list of contributors, followed by the joint-stock banks the following day. By the end of the twenty-four-hour “window,” £10 million had been accumulated (the figure later rose to £17 million, though only £7.5 million was actually needed)—proof, as Alphonse commented,
that the English houses perfectly understand their responsibility and by preventing the catastrophe threatening the house of Baring they are acting in their own self-interest, in as much as the house of Baring just now is the keystone of English commercial credit. The downfall of this house would bring forth a terrific calamity for English commerce all over the world.
More important, the news of the government guarantee and the formation of the syndicate reassured holders of bills endorsed by Barings that they would get their money. Still, this was far from being the happy ending of the story; and the ramifications of the Barings crisis show just why Natty had hesitated at the crucial moment. The possibility still existed of a general Argentine default, which would at a stroke have wiped out the value of a fifth of Barings’ assets. Even as things stood, Argentine securities were down to 40 per cent of their March 1889 value by July 1891. Natty now found himself chairman of a committee of bankers entrusted with the task of defending the interests of all British bondholders in Buenos Aires.3 Although he favoured the imposition on the government of a programme of currency stabilisation based on the hypothecation of customs revenues, a more piecemeal approach ended up being adopted. In 1892 it was agreed to advance the government a new loan in order that it should buy the waterworks and thus liquidate one of Barings’ most onerous obligations; but that merely increased the Argentine external debt to £38 million and a further loan in 1893 pushed the total up still further. The condition of this second loan—the so-called Romero agreement—was financial control over the Argentine rail network. It was not in fact until 1897 that the Argentine government fully resumed interest payments.
This delay inevitably slowed down the winding up of the old Barings’ partnership which, as Alphonse pointed out, was the key to “the whole question”: “[I]t is not enough to have prevented a momentary suspension of the house of Baring,” he wrote on December 29, “worse has yet to be forestalled by the liquidation of the ... affairs that have caused the embarrassment.” In April 1893, with the sale of Barings’ assets proceeding more slowly than expected, the bankers’ guarantee had to be extended (albeit on a reduced scale) to November the following year. Although Cecil Baring remarked that Natty was “very humane” when a new company—Baring Estate Co.—was set up to liquidate the remaining Argentine bonds, there is no doubt that the Rothschilds resented the continuing claim on their resources which the Barings guarantee entailed. It was only in 1894 that the reconstituted Barings finally repaid the advances made by the guarantors.
All this helps to explain why Natty’s standing in official circles was enhanced by the Barings crisis. It was not just that Revelstoke was brought low; the Rothschilds themselves had played a pivotal role in averting a potentially acute financial crisis. Before the crisis, Edward Hamilton had been rather disdainful of the Rothschilds. In April 1889, at the time of a minor Treasury operation in exchequer bills, he had written in his diary: “Though I always think it well to keep clear of them in the East End I actually lunched in New Court.” When the Liberals came back in, however, Natty was closely consulted by the new Chancellor Harcourt on the complex question of stock exchange stamp duties. Ten years later, on the eve of the next Liberal government, Hamilton named Natty—along with Ernest Cassel and the second Lord Revelstoke—as one of the “first counsellors” and “representative [City] men” to whom any new Chancellor of the Exchequer should be introduced.
What had happened in 1890 was that a bank which, according to the formal rules of the financial market, should have failed was bailed out by a collective intervention initiated by the Bank of England, underwritten at the critical juncture by the government and paid for by a broad coalition of other City houses under the leadership of Currie and Rothschild. For the government and hence the taxpayer, it was a cheap solution: cheaper, at any rate, than sending a gunboat or an invasion force, as might conceivably have been done if Argentina had been a Middle Eastern defaulter. The price the banks paid was low too: it amounted to little more than the cost of tying up money in advances to Barings’ creditors, which was much less than the cost of letting Barings fail. Yet one question remains: why did the Rothschilds themselves not also go the way of Barings? For in many ways they were as heavily engaged in Latin American finance. Comparing Barings’ experience with that of the Rothschilds in Brazil helps to clarify the relative costs and benefits of informal empire.
On November 1890 Natty had told Salisbury that he “was quite indifferent ... he had no liabilities.” This was sheer bluff. In reality, the Rothschilds had been grap pling for some time with their own Latin American debt crisis. We have already seen how Lionel revived the old Rothschild connection with Brazil in the 1860s. There was a lull in Brazilian government borrowing in the 1870s after the end of the Paraguayan War—the only major issue was a £5.3 million loan in 1875—but the 1880s saw a fresh bout of activity in which once again the Rothschilds acted as the government’s sole issuing agent in London. Altogether, the Rothschilds were responsible for Brazilian government bond issues totalling £37 million between 1883 and 1889, as well as £320,000 for the Bahia-San Francisco railway company. In addition to helping consolidate the existing floating debt and convert earlier bonds to a lower rate of interest, this money was used to finance interest payments to existing railway companies and to subsidise shipping companies, so that it was at least partly being used for developmental and especially infrastructural investment. All seemed to be proceeding well—slavery was abolished in 1888 and the currency regained its gold parity the following year—when the Emperor Pedro was overthrown by a republican revolution backed by the army. This appears to have taken the Rothschilds completely by surprise. As in Argentina, there was a run on the currency and a slump in the overseas quotation of Brazilian bonds. By 1893 the country was in a state of civil war, with both the navy and monarchists in the south of the country defying the new government. Signs of stabilisation in 1895 were illusory: in 1896-7 a new revolt flared up among the peasants of the north-east.
Why did this not lead to a Rothschild crisis in parallel to the Barings crisis? One obvious answer is that in absolute terms the London house lost “only” around £740,000 between 1890 and 1893. This was partly because the Rothschilds did not hold large quantities of Brazilian bonds themselves: in 1886, for example, they accounted for just 2.4 per cent of the London house’s total assets. Secondly, as mentioned above, the Rothschilds maintained a far higher ratio of capital to liabilities than the Barings: even at its lowest point in the period (1890) it was still 19.5 per cent. They were therefore better placed to cope with crises of the sort which happened in 1889. Finally, and perhaps most obviously, the capital of the London house was £5.9 million in 1890, compared with £2.9 million for Barings, to say nothing of the capital of the other Rothschild houses. The losses they suffered were therefore relatively much smaller.
Rothschilds were not Barings; nor was Brazil Argentina. Despite the political instability of the decade after 1889, it was not in fact until 1898 that the government declared a moratorium on its external debt. The ability of the government to maintain debt service until this point had surprised Alphonse, but it was really not so remarkable. Compared with many other major debtor states of the period, Brazil was not highly geared: even at its peak in 1898-9, total public debt was just 400 per cent of tax revenue. Interest and amortisation of the external debt generally consumed a relatively small percentage of total government expenditure: the average figure of 10.5 per cent for the years 1890-99 was markedly lower than comparable figures for other borrowing states. In fact, it was not until after the 1898-1900 stabilisation that a real debt problem began to develop. Between 1890 and 1914, the London house issued a staggering £83 million of Brazilian public sector bonds and a further £5.8 million of private sector securities. In addition, Natty and his brothers became heavily involved in a parallel expansion in Chilean borrowing, issuing Chilean bonds worth £33 million between 1886 and 1914. These accumulations of debt far exceeded the economic growth which these countries were capable of achieving, even with world demand rising for their staple exports (coffee and rubber in the case of Brazil, guano and copper in Chile). Between 1890 and 1913, the total Brazilian debt (in sterling) rose by a factor of 3.5; real gross domestic product grew just 2.7 times. Moreover, the rapid expansion of coffee production in the state of São Paulo—it quadrupled between 1870 and 1900—led to a crisis of excess supply.
Plainly, the Rothschilds had substantial financial leverage over Brazil. When the government suspended service on its existing bonds in 1898, the London house effectively dictated the terms of the necessary rescheduling (which essentially postponed all sinking fund payments until 1911). The new Funding Loan issued by Rothschilds to consolidate the state’s various obligations was secured, Ottoman fashion, on the customs receipts and the government was compelled to pursue a rigorous programme of retrenchment, spelt out in a stern letter from New Court to the President-Elect Campos-Salles, which was published in The Times for all to read. This policy led to a rapid appreciation of the currency (the milreis) from 7/4d to 16d in 1913, a trend which intensified the already acute crisis in the coffee industry by pushing up Brazilian costs as world market prices were falling.
However, there were limits to the amount of control which could be exercised through such informal imperialism. For one thing, growing competition in the international capital market inevitably began to erode the dominance which the Rothschilds had enjoyed for most of the nineteenth century over Brazilian external finance. By 1906 the Rothschild position was under attack in both Chile (from the Speyers and Deutsche Bank) and Brazil (from Schröders). When in 1905 the state of São Paulo sought financial assistance for a coffee-stockpiling scheme which it was hoped would shore up the falling price of the state’s main product, Alfred dismissed the “valorisation” scheme out of hand as “an artificial & mad speculation” which would end in disaster. Natty was equally dubious about the federal government’s simultaneous effort to regulate the milreis-sterling exchange rate by creating a new Caixa de Conversão. However, Schröders and Kleinworts put together a syndicate of New York, Hamburg and Le Havre coffee merchants and proceeded to buy up no fewer than 8 million bags between the autumn of 1906 and May 1908—equivalent to more than half annual world consumption. When Schröders sought to enlist Natty’s support for the £15 million loan needed to liquidate the syndicate’s advances to São Paulo, Natty’s immediate response was blunt: “Certainly not for that damned swindle.” Had he persisted in his refusal, Schröders would have been dangerously exposed: without Rothschild backing, there could be no guarantee from the Brazilian federal government, and without that the loan might well have failed, leaving Schröders with a sixth of its capital in advances to São Paulo and nothing but coffee beans as collateral. Natty chose to draw a somewhat Jesuitical distinction between directly financing the valorisation scheme and lending to the Brazilian state (even if it then used the money to pay for the valorisation scheme). Having made Schröders squirm, he finally agreed to take a share in the loan, but his instinct that such schemes were unlikely to have an enduring success was right. In 1910 competition from the East Indies caused a sharp collapse in the price of rubber which no amount of stockpiling could cushion and the resulting foreign exchange crisis overwhelmed the Caixa de Conversão. The effect of the crisis was to puncture the already declining market for Brazilian bonds, leaving 94 per cent of the £11 million loan issued by Rothschilds in 1913 with the underwriters. A new loan was about to be agreed, which would have been conditional on foreign control of the Banco de Brasil, when war broke out in Europe in 1914.
Informal imperialism—by definition—generally lacked the ultimate sanction of government intervention. It was a very different thing, as French investors found in 1888-9, to put money into a canal in Panama as opposed to one in Egypt, where French influence had been considerable, even if ultimately subordinate to that of Britain. The choice in Latin America seemed to be between American control or no control. When the Brazilian government appeared to be contemplating the annexation of Trinidad in 1895, for example, Natty urged Salisbury’s principal private secretary Schomberg McDonnell to make diplomatic representations in order that Brazil should submit her claims to arbitration. McDonnell told Salisbury “that it was for the Rothschilds to prove . . . the policy of withdrawing and that, if they could effect this, the main difficulty in the way of arbitration would be removed ... There is no doubt the Rothschilds can do this; but they naturally want to make us do it.” In practice, that meant that it was up to Natty whether he wished to cable the Brazilian Minister of Finance on the subject; as far as the government was concerned, Brazil was literally the Rothschilds’ affair. The limits of the British bankers’ influence became manifest when not only Brazil but also Argentina and Chile began to spend substantial sums on their navies. Despite warnings of “financial ruin,” it proved impossible to arrest the Latin American arms race—not least because British shipbuilders were the recipients of lucrative orders as a consequence of it. As Natty rather ingenuously remarked when seeking to rein in Brazilian railway building, “it is always a delicate matter to question the policy of a government.”
“Staunch Monometallists”
The enormous levels of capital export from Britain which characterised the late nineteenth and early twentieth centuries were to some extent facilitated by the development of a global monetary system: first the bimetallic (silver and gold) system and then, from the mid-1870s, the gold standard, which fixed the exchange rates of most major currencies in terms of gold and hence tied them to sterling, the world’s reserve currency. Until recently, the role the Rothschilds played in this process has generally been understated and often misunderstood.
It has traditionally been assumed that the Rothschilds were firm proponents of the transition from bimetallism to the gold standard. Indeed, to American Populists, the Rothschilds personified the “international gold ring” which they believed was behind the demonetisation of silver. It is easy to see why this was. They still had their refining and broking business;4 and, as we shall see, their interests in gold mining grew rapidly in the last two decades of the century. Moreover, many of the bond issues handled by the Rothschilds in this period were linked to the recipients’ adoption of the gold standard. This was most obvious in the case of the United States, where they and their agent August Belmont played a major role in financing the resumption of specie payments (which had been suspended during the Civil War).
In July 1874 the London house, in partnership with the New York banker Joseph Seligman, agreed to underwrite a US bond issue worth $45 million of 5 per cents with a six-month option on $123 million. When this proved unsuccessful, Junius Morgan’s group and the First National Bank of New York was brought into the syndicate for a second issue of $25 million, of which the Rothschilds took 55 per cent. Altogether, N. M. Rothschild was involved in issuing no less than £267 million in US bonds in London and New York between 1873 and 1877. These loans were designed not only to stabilise American finances but also to enable the US to adopt the gold standard in the foreseeable future. However, when the 45th Congress met in October 1877, a bill was drawn up which would have restored the “free” coinage of silver and its status as legal tender—a measure which Belmont furiously denounced as “open theft” and “blind and dishonest frenzy.” Only when it was stipulated that silver would be allowed to circulate in strictly limited quantities and would not be used to pay off the interest due on outstanding bonds did the Rothschilds relent. The Secretary of the Treasury John Sherman then negotiated a new loan of $50 million in gold coin through Belmont in 1877 which allowed the adoption of the gold standard to go ahead at the beginning of 1879. This was accompanied by a further bond issue, though this time Junius Morgan’s ambitious son Pierpont sought to exclude the Rothschilds, to the irritation of Lionel and Natty who (as he told Herman Hoskier of Brown, Shipley & Co.) refused “to join any American Syndicate and be at their mercy or command, and would only take it up if we were given the lead to work it our own way with a group of friends around us.”5 Continuing doubts about the American commitment to gold may help to explain why the Rothschilds played such a small role in the great boom in American railway shares and bonds of the post-Civil War era.6
The issue was still politically open as late as March 1893, when Grover Cleveland attempted to raise a $50-60 million gold loan to maintain convertibility at a time of rapidly diminishing US gold reserves. Though Morgans were willing to act jointly, Natty, Alfred and Leo hesitated: Alfred remained “greatly opposed” even after Cleveland secured the repeal of the Sherman Silver Purchase Act which had continued to give silver a limited circulation. Finally, an agreement was reached which proved highly lucrative (a tribute, perhaps, to the brothers’ negotiating skills, rather than proof of the Morgan view that they were excessively cautious). $62.3 million of US 4 per cent bonds were taken by the bankers at 104.5 and sold to eager investors for 112.25 (the price later rose to 119). Tales of profits of $6 million being made in the space of twenty-two minutes were grist to the Populist mill, of course, and helped ensure that William Jennings Bryan rather than Cleveland was chosen as the Democrats’ presidential candidate in 1896. However, Bryan’s defeat by the Republican William McKinley set the seal on the American transition to gold.
The American stabilisation was part of a wider process. In 1868 only Britain and a number of its economic dependencies—Portugal, Egypt, Canada, Chile and Australia—had been on the gold standard. France and the other members of the Latin Monetary Union, Russia, Persia and some Latin American states had been on the bimetalliç system; most of the rest of the world, including most of central Europe, had been on the silver standard. Forty years later, only China, Persia and a handful of Central American countries were still on silver. The gold standard was, in effect, the global monetary system, though in practice a number of Asian economies had a gold exchange standard (with local currencies convertible into sterling rather than actual gold) and a number of “Latin” economies in Europe and America did not maintain convertibility at all. In a number of major European states—Germany (1871-3), France (1878) and Russia (1897)—the Rothschilds played a key role in facilitating the monetary transition, though in Italy Hambros rather over-ambitiously stole a march in 1881-2. Thereafter, the London and Paris houses acted as vital auxiliaries to their respective central banks, sending specie across the Channel in large quantities at times of crisis in one or other market. This in itself was a profitable business. At the same time, the gold standard ensured that foreign bonds denominated in gold-based currencies were proof against exchange rate fluctuations and therefore marketable to more cautious investors, who might otherwise cling to consols and “home rails.” Monetary integration encouraged the growth of the international bond market because convertibility “signalled a country’s commitment to sound budgets, balanced external payments and sustainable volumes of foreign borrowing.” It was thus good for the Rothschilds’ main business.
It is not to be wondered at, then, that the English Rothschilds were often heard to defend bullionist orthodoxy in the renewed bimetallist debates of the early 1890s. For example, Alfred “strongly opposed ... any radical change as regards the metallic circulation of Great Britain” in a private report he wrote for the Governor of the Bank of England in 1886; and four years later Natty firmly opposed Goschen’s proposal to introduce a one-pound note, a reform which in fact represented an innocent modernisation of the 1844 system and a sensible response to the growing demands on the Bank of England. When Gladstone and his Chancellor of the Exchequer Harcourt were casting round for a suitable British delegate to veto American bimetallist plans at the International Monetary Conference held at Brussels in 1892, Alfred thus seemed the ideal choice. As Harcourt put it,
The name of Rothschild will carry a weight which no other could command in the monetary world.—I have not the advantage of knowing Alfred’s opinions on these subjects, but I take it for granted that he is a good staunch monometallist (What Mr Gladstone calls a “sane man‘) who will uphold to the death the single gold standard ...
Alfred duly assured Harcourt that he “could have found no stauncher supporter of Monometallism than myself” and that he was “strenuously devoted towards maintaining our financial supremacy to which England owes her overwhelming mercantile supremacy.”
Yet Alfred proved incapable of sticking for long to his allotted role as “sane man.” In November he surprised everyone (not least his fellow delegate Bertram Currie) by coming up with his own compromise plan. Though mocked by his enemies in the City and Treasury and probably doomed to fail given the highly polarised mood at the conference, this was in many ways a reasonable attempt to reconcile the bullionists and bimetallists by raising and maintaining the price of silver through a five-year international purchasing agreement without actually giving silver equal status with gold. Had it been adopted, Alfred argued, “time would have been given to the South African mines to prove whether their yearly output would have been sufficient to satisfy the additional demand of the whole world, and time would have been given to India to introduce a gold standard with a gold currency.”7 In the eyes of the “brutal monometallist” Currie, however, this was far from being the “Monometallism with honour” or “euthanasia of Bimetallism” which Harcourt had urged them to bring home; indeed, Alfred’s project had won qualified support from some bimetallists at the conference, though not enough to become a practical proposition.
Moreover, when the issue resurfaced in 1897, there were rumours that Natty too had softened his stance under the influence of Arthur Balfour, who harboured bimetallist urges. He declined to sign a City memorandum against bimetallism circulated by Currie and signed by most of the other leading merchant banks. And, rather to the embarrassment of the new Chancellor Sir Michael Hicks Beach, he was once again willing to contemplate limited concessions to the silver bugs: the reopening of the Indian mints, the conversion of a fifth of the Bank of England’s reserve into silver and the raising of the legal tender limit for silver from £2 to £4 (as opposed to the American bimetallists’ target of £10).
How are we to explain this mild heterodoxy? One historical point to recall is that Natty’s grandfather had been among the critics of the excessively rigid bullionist theory. But Alfred and Natty were doing more than echoing the past. They were also reflecting the views of their French partners who were (in Alphonse’s phrase) “extreme” believers in bimetallism. As regent of the Banque de France, Alphonse had defended the bimetallic system throughout the 1860s against attacks from proponents of paper money (the Pereires) and the Latin Monetary Union. In some ways, this was a monetary conservatism—a banker’s “conventional wisdom”—which mirrored that of his English relations. Just as Natty saw the one-pound note as a threat to the British status quo, so too Alphonse vehemently opposed the introduction of a twenty-five franc coin in 1870. But, as Flandreau has shown, the Rothschilds’ apparently contradictory position was a logical one. Bimetallism only ceased to work because the French government took the political decision in 1873 not to facilitate the German demonetisation of silver by continuing to convert it freely into gold. Prior to 1873 it had worked because “bimetallic arbitrages [by private agents in bimetallic countries] pegged the gold—silver exchange rate within an interval reflecting the costs associated with melting one metal and coining the other one.” The Rothschilds were the key arbitrageurs in this system, which depended on Britain operating the gold standard and France the dual standard. It therefore made sense for the English Rothschilds to favour gold and the French bimetallism for their respective countries; the English Rothschilds never favoured the demonetisation of silver for the world as a whole. Even after the battle for silver was lost, Alphonse continued to argue that bimetallism had offered a more flexible system for Anglo-French monetary policy than gold. Finally, the English Rothschilds had their own private reasons for wishing to avoid the complete demonetisation of silver, given their interests in mercury (the main use of which was in silver refining), even if their private stake in the gold industry was vastly greater.
An Empire Underground
The difficulties experienced by bankers who dealt in Latin American bonds were not new: in many ways they resembled problems the Rothschilds had previously encountered in the 1820s and in Spain and Portugal in the 1830s. Nor was the Rothschilds’ response to these debt crises altogether new. In the 1830s they had acquired control of the Almadén mercury mines in the belief that some kind of tangible asset was necessary if money was to be advanced to a state as unstable as Spain. What happened in the 1880s reflected not dissimilar calculations, but the Rothschilds now involved themselves in mining on an unprecedented scale. Indeed, it is not too much to say that the decision of the London and Paris houses to develop what can justifiably be described as a mining empire was the most important change in their mode of operation since their decision to become involved in railway finance in the 1830s. For just as James had seen that controlling a pan-European railway network was as important as financing the nascent nation states of the mid-century decades, so Natty and Alphonse understood that investing in mines was as important as issuing bonds for Europe’s overseas colonies and economic satellites. Like the railways before them, the mines offered higher rates of return than state bonds; while as assets they were less liable to lose their value (the risks of punitive taxation and even expropriation were real but generally lower than the risks of a government default). Claims that the Rothschilds were a declining force after 1880 rarely take account of this profoundly important change of direction.
We have already seen how the London house was able to re-establish control over the output of the Almadén mercury mines in the 1870s. These continued to provide a steady source of outcome until the 1920s: between 1871 and 1907, for example, the London house made around £900,000 from the mines, 8 per cent of their total yield.8 The Rothschilds’ role in Almadén was relatively passive, however, to judge by the partners’ correspondence, compared with their involvement in the far more dynamic business of gold mining.
Beginning in the 1840s, the London house had taken a keen interest in the discoveries of gold in the New World, which had prompted them to acquire their own refinery in London in 1852. In California and Mexico, in particular, the Davidson brothers had been encouraged to involve themselves closely in the development of the most promising mines. By the 1870s they had acquired new business associates in the area. One was the consultant mining engineer Hamilton Smith, whose report on the EI Calleo gold mines in Venezuela in 1881 persuaded the Rothschilds to invest there too. It was very probably Natty who encouraged Smith to settle in London in 1885 and to establish a partnership with another mining expert, Edmund de Crano. A year later, they became the managing directors of a new company, the Exploration Company. This was to be a crucial vehicle for the Rothschilds’ mining ambitions.
At first the Exploration Company acted as a consultancy, advising its shareholders on mining propositions; but in 1889 it was relaunched as a joint-stock company with a nominal capital of £300>000, and increasingly it acted as a company promoter (in other words, it floated mining companies on the London stock exchange, charging a fee of 20 per cent on nominal capital). In essence, it was a way for respectable City firms to conduct what was widely regarded as a highly speculative kind of business, without directly risking their good names. In addition to the Rothschilds, the twenty founding shareholders of the company included Lord Revelstoke, Everard Hambro, Henry Oppenheim and Arthur Wagg; Horace Farquhar was chairman until 1896. By that time the company’s capital had increased to £1.25 million and its market value to £2.24 million, making it, as the banker Harry Gibbs put it, “the strongest institution of its kind in the world.” For the founders, who were entitled to half the surplus after 10 per cent had been distributed and who retained control of the company by dint of their inflated voting rights, it was an immensely profitable investment. Altogether between 1889 and 1903, it issued shares with a nominal value of £20.7 million for twenty-three companies. Between 1889 and 1895, it paid a total of 265 per cent in dividends on its initial paid-up capital of £30,000, quadrupling the value of its shares, though the dividends fell to 80 per cent in the subsequent decade and just 40 per cent in the period 1905-14. That the Exploration Company was a Rothschild creation is obvious. Together Natty and his brothers held 30 per cent of the stock (though their share declined as the company grew), and from 1889 to 1897 the company actually had its offices in St Swithin’s Lane.
In addition to the profits they made from their investment in the Exploration Company itself, the Rothschilds reaped substantial returns from the various mining companies it promoted. The 1886 balance sheet of the London house shows a total shareholding in mining firms worth just £27,000; within a few years the figure was much larger. In 1891 the Rothschilds held 5,000 £1 shares in Consolidated Gold Fields of South Africa, later increasing their stake to 13,000 shares. When Julius Wernher and Alfred Beit—the pre-eminent “Randlords”—floated Rand Mines in February 1893, the Rothschilds were allotted 27,000 out of 100,000 shares; and when the same company raised a further £1 million in 1897, they took £35>000 of the bonds. This gave them a substantial stake in the huge “Corner House” group which accounted for around 37 per cent of the gold produced from the Rand between 1902 and 1913. The profits to be made from such investments were huge. Shares in Rand Mines rose from a low of £15 10s in 1897 to a peak of £45 in 1899. Similarly, the London and Paris houses bought shares worth £100,000 in the new Marievale and Nigel Gold Mines Estates before it was floated on the stock market in 1895, immediately selling them at a 25 per cent profit. They also had a “call” on 50,000 £1 shares which were worth £4 when the company was floated. The French house was apparently less successful, complaining in early 1894 that its profits on some mining shares were only narrowly in excess of its losses on others.
Gold mines were the Exploration Company’s first love: understandably, given the dramatic expansion of South African gold production following the new discoveries on the Witwatersrand and the successful application of deep mining technology.9 In 1892 the Company launched the Consolidated Deep Level Co. and the Geldenhuis Deep; this was followed by the flotation of Rand Mines and Goldfields of Mashonaland in 1893, and then Jumpers Deep Levels and the Transvaal and General Association in 1894. In all this, the Rothschilds took a keen interest. In early 1892 Carl Meyer was sent to the Transvaal to investigate the various gold mines. His report was euphoric. The fields, he declared, had “an enormous future before them”:
[T]he country altogether will for the next 10 or 20 years offer greater scope for European capital than South America and similar countries. Here is a fine country, lovely climate, inhabited by Dutch and Anglo-Saxons [sic], only beginning to be developed and replete with every mineral as well as adapted for every branch of agriculture. I feel that it would pay for the Houses of Rothschild to have a clever representative here who would be able to do plenty of good business.
Although no such “clever representative” was sent, the Rothschilds’ indirect participation in the South African gold boom through the Exploration Company has often been underestimated. Nor did the Company confine itself to South Africa. In 1894 it launched the West Australian and General Association as a regional subsidiary, and this in turn led to flotations for the New Zealand Exploration Company in 1896—though neither of these proved as profitable as their South African counterparts.
The acquisition of major stakes in such a wide range of gold mines was a bold move, predicated on important assumptions about the future of the world gold market. As Alphonse said, the Rand conjured up visions of an “Aladdin’s grotto.” At first sight, it is odd that he expressed no fears about a possible over-supply of the metal (as he would have done had the Rand contained untapped reserves of mercury or copper). The explanation for this is straightforward: the demand for gold seemed likely to remain buoyant as more and more countries adopted it as the basis for their monetary systems. So long as that continued, an increase in the supply of gold would not depress the price, but merely lead to monetary expansion and a general increase in the prices of all assets. It was on the back of such expectations that the so-called “Kaffir boom” in South African mining shares of 1893—4 took off. Small wonder the English Rothschilds encouraged the spread of the gold standard.
The Rothschilds were not monometallists; they were multimetallists. Of increasing importance to them in the same period was copper: a base metal, but one in growing demand in the last quarter of the century with the rapid development of electrical engineering. The French Rothschilds may have been indirectly involved in the first major attempt to corner the copper market by the Société des Métaux and Comptoir d‘Escompte in the late 1870s, but it seems more likely that they moved into copper after that bubble had burst in 1889. In the late 1880s the London and Paris houses added to their Spanish interests by acquiring a controlling interest in the Rio Tinto mines, which at that time accounted for more than 10 per cent of total world copper production. This was an investment of the first importance: by the early 1900s the price of “Tintos” was a benchmark cited almost as often in correspondence between London and Paris as the price of consols and rentes had been half a century before. The London Rothschilds also acted as the company’s banker in 1895, issuing debentures worth £3.6 million (for a £110,500 commission).
This was only part of a wider advance into copper mining and marketing, probably driven by a need to defend the Rio Tinto investment against falling prices as new sources of copper were discovered elsewhere. Also in the 1880s the Paris house acquired a 37.5 per cent stake in the Boleo Company, a Mexican copper mine; and after 1895 the Exploration Company was the principal source of finance for the Montana-based Anaconda Mining Company. These interests gave the Rothschilds a position of real power on the world copper market. Along with Leonard Lewisohn in New York and Brandeis, Goldschmidt & Co. they were members of a marketing syndicate which, beginning in 1895, succeeded in pushing the price of copper back to £50 a ton by direct purchases and output restrictions.10 Nor did they hesitate to add to their copper interests as new sources were discovered. In 1903 the Exploration Company raised £1 million for the Otavi Minen und Eisenbahn Gesellschaft in German South-West Africa. The French Rothschilds also took an interest in the utilisation of copper, investing in companies like the Compagnie Générale de Traction de Paris.
The Rothschilds were equally interested in the extraction of precious stones. Their involvement with De Beers—perhaps the most famous of all their mining ventures—will be discussed below; but it is worth noting that it was not the only investment of this sort they made. In 1889 they also floated the Burma Ruby Mines company after a prolonged tussle to secure a seven-year mining concession from the British government, which had annexed the territory three years before. This proved another profitable enterprise: the price of rubies was still rising strongly four years later (in marked contrast to the price of diamonds).
The French house generally deferred to the expertise of the London partners when it came to gold and precious stones. Typically, it was through the London-based Exploration Company that de Rothschild Frères became shareholders in the Compagnie Française des Mines d‘Or et Exploration (CONFRADOR) in 1895. However, Alphonse and his brothers had their own mining interests which developed just as rapidly in the same period. In the 1880s, for example, the French house began to expand its interest in Spanish silver-bearing lead, which it bought from an agent in Cartagena and purified into merchant lead and silver at its Le Havre refinery. Advised by their equivalent of Hamilton Smith—a graduate of the Paris School of Mines named Jules Aron—Alphonse and his brothers invested 250,000 francs in their French refinery and switched to a system of direct purchase from the Spanish producers, though they were reluctant to follow Aron’s advice to invest directly in a Spanish refinery. It was not until 1880—81 that he was able to persuade them to establish the Peñarroya Mining and Metallurgical Company, which leased the lead mining empire from its Spanish owner. By 1913 the company produced no less than 80 per cent of Spanish silver and 60 per cent of its lead. With a 40 per cent stake in Peñarroya and an exclusive selling agency, the French house became one of the biggest single players in the international lead market. At the same time and in much the same way, Alphonse and his brothers acquired a 25 per cent interest in the Nickel Company set up by the Australian entrepreneur John Higginson on the French-owned Pacific island of New Caledonia. The strategy here was ambitious—by 1884 the company had acquired most European nickel rehneries—but the discovery of nickel mines in Canada in 1891 shattered the dream of a nickel monopoly, and forced “Le Nickel” to halve its capital value and enter into a loose market-sharing agreement with the American-Canadian International Nickel Company. The third major mining investment of the period was the Mexican Boleo (copper) Company mentioned above. All told, by around 1900 the French house had an investment in these mining companies with a nominal value of 11.5 million francs (£460,000) and a market value twice as great, equivalent to around 4 per cent of the firm’s total capital.
Similar in style was the French Rothschilds’ involvement in the Russian petroleum industry. This had been an interest since the 1860s, when the French house had begun to import petrol from America, and in 1879 they had gone into partnership with the refiner Deutsch de la Meurthe to manufacture kerosene in Spain and later to establish a new refinery at Fiume. The search for oil to supply this refinery led to the first Rothschild soundings of the rapidly growing Russian oilfields around Baku. (The Austrian house also had some interests in the Galician oil industry, but no collaboration seems to have been contemplated.) When the Paris house’s proposal of a partnership with the Nobel Brothers Petroleum Co. was rebuffed in 1883-4, the Paris partners took the decision to buy another firm, the Batum Oil Refining and Trading Company (usually known by its Russian acronym BNITO). They also built up a substantial fleet of over 2,000 oil tank cars as well as “immobilising vast capital” in a refinery at Novorossiysk and an oil depository at Odessa. McKay has estimated the value of the Paris house’s investments in Russian oil by the turn of the century at around 58 million francs (£2.3 million). At peak, around a third of Russian oil output was Rothschild-controlled.
The 1890s were a period of frantic growth in the world market for oil. The Rothschilds’ Russian kerosene was sold in Europe (in much the same way as Spanish lead) through their Industrial and Commercial Caspian and Black Sea Kerosene Company (Société Industrielle et Commerciale de Naphte Caspienne et de la Mer Noire). Later, they also went into partnership with a Russian shipping firm (Pollack & Co.) and the International Bank of St Petersburg to form a new company called Mazout in order to expand their sales to the Russian domestic market. This meant they were competing not only with the Nobels, but with the American giant Standard Oil. A similar competition developed in the Asian market. In 1891 the London-based brothers Marcus and Samuel Samuel acquired the right to market BNITO’s kerosene east of Suez, using their pioneering tanker ships—the origin of the Shell Transport and Trading Company formed in 1897. Their principal Asian rival was the fast-growing Royal Dutch company, based in the Dutch East Indies.
As competition drove prices down, the customary efforts were made to end the “oil wars” by forming a profit-sharing cartel (1893-5). However, the negotiations with Standard Oil came to nothing and the tendency was for the Rothschilds to participate in the gradual merger between Shell and Royal Dutch. The Rothschilds took a third share of the Asiatic Petroleum Co. created by the two oil firms in 1902, and in 1911 exchanged their entire Russian operation for shares in Royal Dutch and Shell, making them the largest shareholders in each. Even at the time, this seemed a good deal as the Rothschild stakes in BNITO and Mazout were valued at £2.9 million, while their new shares in Royal Dutch/Shell promised healthy returns. Just six years later, the wisdom of the Rothschild retreat from Baku would become clear.
Mercury, gold, copper, lead, silver, diamonds, rubies and oil: by 1900 the Rothschilds occupied a remarkable position in the world market for non-ferrous metals, precious stones and petroleum. Not only did they raise capital for new mining companies directly or through the Exploration Company; they also invested substantial sums of their own in mining shares and took a close interest in efforts to cartelise or otherwise regulate the international raw-materials market. This was hardly the strategy of a business in decline. On the contrary, the London and Paris houses had shrewdly discerned a way of developing one of their traditional lines of business in response to fundamental structural changes in the world economy.
Rhodes and the Rothschilds
Aside from its generally high profitability, part of the appeal of the mining empire the Rothschilds acquired in the 1880s and 1890s lay in its apparent freedom from political control. Once a concession had been granted or a piece of territory sold, mining companies seemed to enjoy something close to complete autonomy, especially when the mines were in remote locations, as they often were, or in parts of the world with relatively rudimentary state structures. Yet this kind of imperialism could never entirely be separated from the formal imperialism of national flags and dotted lines in maps; least of all in the mind of Cecil Rhodes.
The origins of the Rothschilds’ relationship with Rhodes can be traced back to 1882, when Natty sent the firm’s former San Francisco agent Albert Gansl to Kimberley—the main diamond mining centre—to report on the affairs of the Anglo-African Diamond Mining Company, which had a claim in Dutoitspan, one of the four major “pipes” in the area (the others being Kimberley, Bultfontein and De .Beers). Within a few months, Gansl had concluded that the numerous small companies—there were more than a hundred altogether—were ruining one another by over-production, and argued strongly for amalgamation. However, despite the creation of an Amalgamation Committee in London and plans to issue shares worth £3.5 million in a merged diamond company, the scheme foundered on the jealousies of the shareholders and directors of the rival firms. In addition to the difficulty of reaching agreement on the value of existing shares (which, in an amalgamation, would have been exchanged for new ones), the slump in diamond prices in 1882-3 probably also put the Rothschilds off. The French Rothschilds certainly grumbled about their losses on the Anglo-African shares which their London cousins had recommended.
It was the Exploration Company which, albeit indirectly, revived the Rothschilds’ interest in diamonds when it recruited another American engineer, Gardner Williams, to report on mining prospects in South Africa. By this time, the process of amalgamation was further advanced than it had been five years before: the Kimberley claims were virtually under the sole control of Kimberley Central, which had a market value of around £2.45 million in 1887 and a yield of 1.3 carats per load. The next biggest operation was the De Beers Mining Company, which was worth around £2 million and had a slightly lower yield. The question in the mind of Cecil Rhodes—a director and major shareholder in De Beers, and a promiscuous Kimberley company promoter—was which of the two would succeed in merging with the Compagnie Française, one of the last independent firms on the Kimberley pipe.
Rhodes had begun to realise that, given the limited financial resources of both De Beers and Central, the key to victory in the impending takeover battle lay in London, and that whoever secured the financial backing of a major City house would win. Identifying Williams (whom he had first met on a steamer to London in 1885) as his entrée to New Court, he hastily offered him the job of general manager at De Beers; and two months later set off for London for his first interview with the famous Lord Rothschild. Natty drove a hard bargain. On August 4, Rhodes cabled to Kimberley the details of a plan which would give De Beers the money to buy the Compagnie, but at a steep price. Essentially, Rothschilds advanced £750,000 in cash in return for 50,000 new De Beers shares at £15 each, plus £200,000 in debentures. For this, they received a commission of £100,000, but also half the difference between the £15 price paid for the De Beers shares and their London market price on October 5, 1887. According to Turrell, this implied an additional £150,000, so that “the Rothschild syndicate was paid £250,000 for advancing £750,000 for the purchase.” After negotiations in Paris which dragged on into September, the directors of the French company accepted the merger terms, which converted French shares into De Beers shares at a ratio of 100:162.
Yet this was far from being a victory for Rhodes. It is true that a counter-bid by the Central for the Compagnie was seen off, but it would seem that this was achieved only by a promise to sell the Compagnie to the Central for £656,000. Because all but £100,000 of this was paid in the form of Kimberley Central shares and stock, historians used to think Rhodes had cleverly acquired a stake in the Central; in fact, all that had happened was that the Central had acquired the Compagnie at a bargain price, and it was generally expected that De Beers would now be swallowed by the Central. Rhodes envisaged buying up stocks in the remaining independent mines in Bultfontein and Dutoitspan and completing the De Beers-Kimberley Central merger, but to do this he needed the agreement of the chairman-director of the Kimberley Central, Francis Baring-Gould, and its biggest shareholder, the ebullient Barney Barnato. Had both resisted—as legend has it they did—Rhodes would in all likelihood have lost.
In the event, only Baring-Gould proved hard to get; Barnato saw the opportunity to make a killing, and secretly committed himself to Rhodes. In November de Crano wired from Kimberley that Rhodes needed a new loan of £300,000 to buy up Central shares, suggesting strongly to the Rothschilds that, if they did not provide the money, Rhodes’s associate Alfred Beit would do so. It was at this point that Natty acquired 5,754 shares in De Beers for himself, making him one of the company’s biggest shareholders (Rhodes himself had only 4,000). This strategy continued throughout 1888, while Rhodes and Natty sought to overcome the resistance of Baring-Gould. On March 13, 1888, Rhodes formally registered De Beers Consolidated with a capital of £3.1 million and a further £1.5 million in debenture stock, but still Baring-Gould and a minority of Central shareholders held out. Apart from the prospect of hefty profits on both Central and De Beers shares, which soared in the first half of 1888, a decisive factor in bringing Barnato round was the offer of a “life governorship” of the new company, an extraordinary concession which Natty evidently disliked.11 Even so, the merger continued to be impeded, first by a legal challenge from Central shareholders who objected to the blanket terms of the trust deed defining the new company’s objectives, then by a fearful fire in the De Beers mines, which killed 202 men. It was not until January 1889 that the liquidation of Kimberley Central was finally concluded, by which time De Beers had acquired 93 per cent of its rival’s capital, so that the final purchase of the Central cost less than a tenth of its valuation at £5.3 million. Thereafter, it was a relatively easy matter to mop up the remaining small companies.
Throughout this protracted struggle, Natty’s main role had been to help Rhodes find the money for his share purchases, issuing £2.25 million first debenture stock so that De Beers could pay off its old debts and acquire leases in Dutoitspan and Bultfontein. The total cost of the merger was plainly more than he had expected; but like many others Natty was not immune to Rhodes’s melodramatic charm. “The whole case depends whether you have any confidence and trust in myself,” Rhodes appealed to him on one occasion in 1888. “Perhaps someone else can do it better. I really do not know. You know my objects and the whole case is a question of trust[.] I know with you behind me I can do all I have said. If however you think differently I have nothing to say.” This relationship continued after the merger was completed. It was the Exploration Company, for example, which issued £1.75 million De Beers Consolidated Mortgage Debentures in 1889, 17.8 per cent of which were taken by the London Rothschilds; and in 1894 the London house itself issued De Beers debentures worth £3.5 million. All this meant that the Rothschilds had acquired a substantial stake in the new firm and thus a substantial financial hold over Rhodes, who felt more than a little uneasy at the high level of gearing the takeover battle had necessitated. Carl Meyer’s appointment to the board of the new De Beers was the most visible sign that Natty intended to keep a weather eye on its progress. By 1899 N. M. Rothschild & Sons were the second biggest shareholder in De Beers (with 31,666 shares), only slightly fewer than Barnato’s nephews the Joel brothers (33,576). Rhodes had only 13,537; Beit 11,858. It was to prove a superb investment.
As the smoke dispersed in the boardrooms, the question immediately arose as to how the new De Beers Consolidated—which now controlled 98 per cent of South African output—was to establish its authority over the international diamond market. Schemes for a syndicate had been discussed since 1887, though it was not until March 1890 that De Beers concluded an agreement with a combination of five friendly firms led by Wernher, Beit & Co. As this was the kind of thing the Rothschilds had traditionally done to maintain the price of mercury and were also doing with copper, the syndicate soon received Natty’s blessing, though the Rothschilds’ own participation in it was limited. The one strategy which the Rothschilds firmly opposed was any kind of hoarding of diamonds by De Beers. As Natty told Rhodes in July 1891, he had “no right to speculate in diamonds, but were bound to sell as best you could.” “[A]s regards the disposal of the diamonds,” he concluded, “the more I think of it the more I feel convinced that you cannot do better than follow the ordinary laws of supply and demand and avoid, as far as possible, all artificial means, combinations, accumulations, etc, etc.” When it transpired that the Kimberley directors had nevertheless covertly established a “secret reserve” to bolster their depressed share price—one of a number of acts of defiance by the men on the spot—Carl Meyer denounced it as “immoral.” In the event, the device proved superfluous: from 1896 onwards the diamond market rallied, and De Beers’ annuals dividends reached 40 per cent (£1.6 million) over the next five years, pushing the share price up after the initial sticky start. As Natty told Rhodes in 1900, “The history of the De Beers Company is simply a fairy tale. You have established a practical monopoly of the production of diamonds, you have succeeded in establishing a remarkably steady market for the sale of your productions, and you have succeeded in finding machinery capable of carrying this through.” In other words, what more did Rhodes want? Nevertheless, Rhodes continued to chafe at the restrictions imposed on him regarding the sale of diamonds, travelling to London in 1898 to complain about the marketing syndicate’s excessive profits.
Establishing De Beers as the dominant power in the Kimberley diamond fields had little or no political ramifications, given that Kimberley and the surrounding land (Griqualand West) had been annexed by Britain in 1871. But from the outset Rhodes’s ambitions extended far beyond British territory. It was not just the gold discoveries on the Boer-controlled Witwatersrand which whetted his appetite to expand British influence north of Cape Colony. In fact, Rhodes had been rather unsuccessful in his investments on the Rand and his company, Consolidated Gold Fields, was soon looking further afield for as yet undiscovered gold reserves (when it was not investing in De Beers shares). To be precise, he wanted to strike northwards beyond the Transvaal into the kingdom of the Matebele King Lobengula.
In January 1888, Rhodes wrote a long letter to Natty seeking his support for the new concession he had just secured from Lobengula to develop the “simply endless” gold fields on the other side of the Limpopo River. It is clear from this that, though he hoped the Rothschilds would “take a share” in the venture, Rhodes was more interested in their political influence than their money. There was, he reported, “a good deal of opposition at home to the size of our concession,” principally from the rival Bechuanaland Exploration Company, established by Lord Gifford and George Cawston, as well as from the Portuguese government. He was especially worried to hear talk of replacing his pliant friend Sir Hercules Robinson as the British high commissioner in Cape Colony, for reasons which made his own long-term objectives absolutely plain:
I feel the danger of any new change of policy and he [Robinson] has managed so well during the last 8 years, for whilst keeping the confidence of the Africaner [sic] party, he has steadily fought out the expansion Northwards and completely surrounded the [Boer] Republics, it is almost entirely due to him that we have extended from the Vaal River to the Zambezi and if you look at the map, you will see that by his policy he has completely shut in the Transvaal Republic so that it cannot expand. If we leave matters now quietly to work, with the development of the gold in the Transvaal, we shall gradually get a united S. Africa under the English flag. The [gold] diggers eventually will never endure a purely Boer Government, the whole matter is simply a question of time, but it would all be ruined if we had a new man with a brand new policy of antagonism to the neighbouring republics and basing his policy on the Mackenzie pro-native ideas it would lead to endless friction. There are endless questions now cropping up—for instance the future of Swazieland [sic] and the mode of dealing with the Matabele King all of which if not ably handled may lead to endless rows and I think Sir Hercules with his eight years[‘] experience is still the best possible man.
Later the same year, Rhodes wrote to Natty in a similar vein, now imagining De Beers as “another East India Company ... with the enormous back country daily developing,” and outlining more of his “visionary dreams”:
[T]he Matabele king . . . is the only block to Central Africa, as, once we have his territory, the rest is easy, as the rest is simply a village system with a separate headman, all independent of each other ...
[T] he new East Africa Company at Mombassa ... should work down through Tanganyika to the Zambesi to join our development from the South, getting in between the Germans and the Congo State ... All I want is at present to stop being cut off ... There is another connecting link in the Lake Company, or Nyanza, which trades up the Shire from the Zambesi, but of course the key is Matabele Land, with its gold, the reports as to which are not based solely on hearsay . . . Fancy, this Gold Field [in Matabele Land, which] was purchasable, at about £150,000 two years ago, is now selling for over ten millions. I proposed to Beit and Robinson we should buy the whole length, about 30 miles and leave out nothing, and the documents were actually drawn [up], but, unfortunately, I had to leave, and after I left the plan fell through.
It is difficult not to see a direct line from these schemes to the fiasco of the “Jameson Raid” in December 1895, and perhaps even to the outbreak of war with the Boers in 1899. Rhodes was bent on a programme of encirclement and expansion which was incompatible with the independent existence of the Boer republics; and he expected Natty to support him.
So convinced was he that Natty would help realise his vision that in June 1888 he revised his will in order to leave him all his property bar 2,000 De Beers shares (which he left to his brothers and sisters). To leave several hundred thousand pounds to one of the richest men in the world might seem perverse; but in a letter accompanying the will Rhodes intimated to Natty that this money should be used to found what his biographer has called “a society of the elect for the good of the Empire.” “In considering question suggested take Constitution Jesuits if obtainable,” Rhodes scribbled, “and insert English Empire for Roman Catholic Religion.” It is highly unlikely that Rhodes (much less Rothschild) had ever read the Jesuit constitution drafted by St Ignatius in 1558; this was just shorthand for the kind of dedicated brotherhood which was his ideal. What is striking is that—like that other very different visionary of the period, Theodor Herzt—Rhodes saw the legendary Lord Rothschild as the one man with resources capable of making his dream a reality.
It is usually assumed that Rhodes’s expansionist aspirations must have been shared by the Rothschilds: why else tell Natty so much about them? There is, however, a need for caution. To be sure, Natty and his brothers were not opposed to the idea of an enlarged British South Africa. When Rhodes joined forces with Gifford and Cawston of the Bechuanaland Company to create a new Central Search Association—to spearhead his plans for Mafabeleland—Natty was a major shareholder, and increased his involvement when this became the United Concessions Company in 1890. He was also a foundation shareholder when Rhodes established the British South Africa Company in 1889, and acted as the company’s investment adviser free of charge.12 More important, as a letter of January 1892 shows, Natty had no illusions about Rhodes’s ambitions. “[O]ur first and foremost wish in connection with South African matters,” he told Rhodes, “is that you should remain at the head of affairs in that Colony and that you should be able to carry out that great Imperial policy which has been the dream of your life.—I think you will do us the justice to admit that we have always loyally supported you in the carrying out of that policy, and you may rest assured that we shall continue to do so.”
Indeed, Natty would no longer willingly listen to criticism of Rhodes. When the increasingly unstable Randolph Churchill returned from South Africa in 1891 denouncing the prospects of Mashonaland and declaring in the press that “no more unwise or unsafe speculation exists than the investment of money in [mining] exploration syndicates,” Natty was incensed—especially as he had financed Churchill’s trip. Sir William Harcourt’s son Lewis (“Loulou”) described in his diary an extraordinary confrontation between Natty and Churchill at Tring in early 1893, when the latter:
attacked Rhodes & S Africa & Mashonaland most bitterly, said the country was bankrupt & [Cecil] Rhodes a sham and that Natty knew it and Rhodes could not raise £51,000 in the City to open a mine etc. All this was to Natty’s face and made him furious—so much so that he went out of the room for a few minutes to cool himself.
Nor did the Rothschilds have any qualms about Rhodes’s use of force against the Matebele and other black African tribes who got in his way. Writing from Paris in October 1893, Arthur de Rothschild made the classic imperialist connection between “a little spurt in the shares of the Chartered Co.” and “a sharp engagement having taken place with the Matabeles, 100 of them having been killed, whilst there was, I am happy to say, hardly a single casualty on our side.” The senior partners in the Paris house were equally enthused, not least by Rhodes’s autocratic style of governing the Cape after he became its Prime Minister in 1890.
Yet there was always a substantial gap between Rhodes and Rothschild with respect to the means of extending British influence from the Cape. Philosophically, Rhodes was always closer to Liberal imperialism than to the policy of the Salisbury governments, which tended to subordinate the ambitions of white colonists on the periphery to the diplomatic interests of the metropolitan government. He was in favour of Home Rule, for example, the litmus test of late-Victorian politics. Having expected so much from Natty, Rhodes was quickly disillusioned. He was frustrated by the Rothschilds’ inability to persuade the Portuguese government to cede Delagoa Bay, the principal sea port on the Mozambique coast and therefore the strategic key to the future of the Transvaal. Negotiations on this subject dragged on, but although Natty talked optimistically of buying the land from Portugal, diplomatic obstacles proved insuperable. Rhodes felt Salisbury had “treated [him] very badly over the Portuguese business,” a charge which Natty was at pains to dispute. “You must not forget,” he explained to the impetuous empire-builder,
that at that time public opinion all over Europe was very much in favour of Portugal, and it would hardly have been wise for Lord Salisbury to incur the reproach, on the part of friendly Powers, that this country was going to crush weak little Portugal for the sake of a no doubt important but underdeveloped region in Central Africa. After all, could you have expected more, or as much from a Liberal Government?
When Rhodes tried again with a direct approach to the Portuguese envoy Luiz de Soveral, he felt Natty’s support was lukewarm. “It appears that you take Soveral’s view that nothing can be done,” he complained in May 1893:
I thought that you would do all you could as for several years you have felt and rightly so, that the Delagoa is the key of our position in S. Africa ... I am afraid that we are going to buy Delagoa Bay. We want it and are prepared to pay for it. With the growth of the Transvaal the longer we wait the more we shall have to pay and with the completion of the Delagoa line we shall probably never get it.
In this, as in much else, he was moving too rapidly for the Rothschilds, who grew weary of explaining that the Portuguese government had no intention of selling the territory in question. As early as February 1891, Rhodes confided in Reginald Brett that he regarded Natty as “honest but without sufficient brains.” It was not long before he revised his will once again, appointing a second trustee of his fortune alongside Natty. “The thought torments me sometimes,” he declared, “that if I die all my money will pass into the hands of a man who, however well-disposed, is absolutely incapable of understanding my ideas. I have endeavoured to explain them to him, but I could see from the look on his face that it made no impression ... and that I was simply wasting my time.”13
For his part, Natty was perturbed by the cavalier way in which Rhodes set about using De Beers Consolidated to advance his designs in Matabeleland. The first bone of contention was Rhodes’s determination that De Beers should be a major shareholder in the British South Africa Company, usually referred to in correspondence as “the Charter.” Natty’s view was “that De Beers should not hold so speculative a security,” a view strongly supported by Carl Meyer, always “a great pessimist about the Charter.” In January 1892 Natty spelt his views out in “perfectly frank” terms:
[Y]ou are the only judge as to whether the Cape Government ought to take over the Northern Territories; that is not our business and we do not wish to offer any opinion on the subject. You must know how far your Charter would meet with the approval of Her Majesry’s Government. But what we do say is, that if that is your policy, and you require money for the purpose, you will have to obtain it from other sources than the cash reserve of the Debeers [sic] Company. We have always held that the Debeers Company is simply and purely a diamond mining company ... and if it became known that the Debeers Company lent money to the Chartered Company, some Debeers shareholders might move for an injunction, and get up an agitation to turn out the Board and put in their own nominees, which would be most undesirable. Apart, therefore, from the question whether it is right or wrong to use the funds of the Debeers Company in this way it would be very injudicious, and might do a great deal of harm to the credit and reputation of the Company and its Directors.
To Rhodes’s complaint that the Charter Company needed money, Natty replied:
that sooner than let the Debeers Company subsidize the Chartered Company, we would prefer your getting a small export tax on diamonds; no doubt there would be some grumbling at first, but eventually the trade will get accustomed to it. And this raises the point if the time has come for you to consider whether the Cape Government should take over the Diamond Mines and buy out the shareholders; not, of course, at the high figures of a few years ago,.but at a fair and equitable price. Let that idea pass through your fertile brain and tell me what you think of it.
It is not difficult to imagine what Rhodes thought of the idea of submitting De Beers and the Charter to such direct political control.
In such negotiations, Natty was always careful to avoid antagonising the volatile Rhodes: “[Y]ou know I do not like to interfere in their [De Beers‘] internal administration,” he assured him in July 1892, “and only hope that the company will be able to pay good dividends in the future and gradually diminish their indebtedness.” There were in fact a number of occasions when Rhodes was able to disregard “orders” from London (for example when he insisted on buying the Premier or Wes selton mine). But Natty did not disguise from Rhodes that the big De Beers shareholders on the London board held the purse strings. Such conflicts between the London board and the life governors flared up again in 1899, when Rhodes wished De Beers to invest money in Rand gold mines and railways at a time when it was having to borrow to pay its dividend. Natty’s opposition to this and his criticism of the system of life governorships prompted Rhodes to complain that “the whole of my policy in connection with De Beers has been opposed by the London board almost ever since it was created” and to subject Carl Meyer to “violent abuse.” Yet he could not get around the fact that Natty together with “the majority of the French shareholders ... represent[ed] the larger portion of the Company’s capital,” and in the end they were able to insist on the the abolition of life governorships. It is also worth noting that Rhodes himself owed the Rothschilds substantial sums on his own account: in mid-1895, when he was premier of Cape Colony, he owed them as much as £16,515, though he was by this time a millionaire in his own right, mainly thanks to his holdings of De Beers shares. This was far more than Randolph Churchill owed them when he was in office.
Quite apart from the specific role of De Beers, Natty’s vision of South Africa’s future differed in many essentials from that of Rhodes. It is hard to believe, for example, that Rhodes welcomed his offer in 1891 to subsidise the passage and settlement of hundreds of families of Russian Jews fleeing Tsarist persecution. A more serious source of friction was Natty’s refusal to recognise that Rhodes’s plans ruled out peaceful coexistence with the Boer republics. In May 1892 Rhodes was curtly informed that the London house was contemplating floating a £2.5 million loan for the Transvaal government to enable it to expand its own railway network, a possibility which had been raised earlier that year by President Paul Kruger during a visit by Carl Meyer to Johannesburg. Kruger, Meyer had reported to New Court, was “a queer old Boer, ugly, badly dressed and ill-mannered, but a splendid type all the same and a very impressive speaker.” And he added a political observation: “The relations between the old Boer party and the new mining industry population are getting much better than they have been hitherto.” It was not by chance that these talks had taken place while Rhodes was himself in London.
It is, of course, arguable that the aim of the 1892 loan was to establish an informal imperial control over the Transvaal—something Rhodes might have been expected to welcome. When Natty raised the issue with Lord Salisbury he pointedly stressed that he had been able to whittle down Kruger’s original plan for a larger loan to acquire the Portuguese Delagoa Bay line. And when he wrote to Rhodes on the subject he emphasised that “in drawing up the contract we were careful to reserve to ourselves a voice in future borrowings, as you suggested,” and that he intended pointing out “the necessity for coming to an arrangement with the Cape Railway when the time comes”: “We also told them that we cannot agree to their borrowing more money for the Natal extension, and as you will see from the prospectus, we insisted upon the money being spent exclusively within the limits of the Republic. Naturally we shall never let them think that we are acting at your suggestion.”
As this indicates, Rhodes’s first thought had been that by building their own railway links southwards, the Boers would be in a position to dictate terms to the gold mines. Natty evidently wished to reassure him, but as he himself admitted, “we could not very well dictate to the Government what tariff they were to charge when the line will be completed.” As Chapman has shown, the Boers had no intention of being intimidated by their new bankers. When New Court wrote its customary admonition that the money raised “be used with the very greatest prudence and economy” and “that every expenditure ... be subjected to a strict and efficient control,” Pretoria replied fiercely that no “control can be allowed, that the Government prior to the several drawings being made cannot state for which purpose the money will be used, and further that the Government cannot consent to the money remaining deposited with you until it is required.” The success of the Transvaal bonds on the London market was therefore a blow to Rhodes. The issue was predicated on peace between the Cape and the Boers, whereas by late 1895 plans were already afoot in Cape Town to overthrow the Kruger government in the name of the non-Boer “Uitlanders” in the Transvaal. 14
The Jameson Raid—an abortive invasion by what was, in effect, Rhodes’s private army in Bechuanaland—appalled the Rothschilds, who had no inkling of the plans for a coup. Although Rhodes had discussed the idea of fomenting Uitlander revolt with Joseph Chamberlain—who had joined Salisbury’s government as Colonial Secretary in the summer of 1895—he apparently had said nothing of the kind to Natty; and he in turn was not sufficiently close to Chamberlain to be tipped off (as was The Times’s Africa correspondent). In the wake of the débâcle, Natty sought to patch up relations between London and Pretoria, urging Kruger to come to London in terms which could hardly have disavowed Jameson more explicitly. “By accepting invitation without conditions,” he assured Kruger, “you will obtain the independence of the Republic. We hope nothing will be done to strengthen hands of opponents of Transvaal Government here and it is also absolutely necessary to prevent the growth of hostile feeling to Boer Government, for up till now public opinion has been in your favour and everything will be done to make your task easy.” Hobson was in the wrong when he claimed the “financiers” had profited from Jameson’s escapade: the opposite was true.
The Pitfalls of Formal Empire: The Boer War
The failure of the Jameson Raid merely postponed the conflict with the Boer republics, however. Within a year of arriving in South Africa as high commissioner in 1897, Alfred Milner became convinced that the only way to establish British control over the republics’ external policy was by war. He readily took up the cause of Uitlanders’ franchise, and Chamberlain felt bound by party political considerations to back him up. These two had sufficient leverage to dissuade Natty from issuing a second Transvaal loan in November 1898;15 but it was awkward from Milner’s point of view that the informal diplomacy of the Rothschilds nevertheless aimed at defusing the quarrel with Pretoria. In June 1899 Alfred telegraphed directly to Kruger in terms which cannot have been dictated by the Colonial Office, though Chamberlain had been consulted beforehand:
[N]either the Country nor the Government wants war, but one can never foretell what may happen and what public opinion might force the Government to do ... The crux of the situation is that the Uitlanders should have some direct and immediate representation in the Volksraad parliament whereas the defect of Your Excellency’s proposition is that every change is postponed for so long a time that it does not in any way affect the present situation.
Kruger was not deaf to such appeals. On July 6 Chamberlain heard from New Court advance news of a concession from Kruger: the Uitlanders were to be offered a “seven years’ retrospective and retroactive franchise” which “would be accepted with acclamation by the non-British Uitlanders who it is feared expect Lord Salisbury to go to war.” Natty was able to confirm this to McDonnell twelve days later, prompting Chamberlain to describe the crisis as “ended.” As late as August 25, Carl Meyer still “persist[ed] in believing that a modus vivendi [would] be found for this time—though I admit Kruger is trying the Govt’s patience and ... there is a smell of gunpowder in the air which is dangerous.” This was also the view taken by Cecil Rhodes, who remained confident until the eleventh hour that “the Boers [would] give in at last.” As it became apparent that this time Kruger did not intend to back down, the Rothschilds made one last effort to achieve a peaceful solution. At the suggestion of Hartington (now the Duke of Devonshire), a telegram was sent to Samuel Marks, a business associate in Pretoria, which—without the authorisation of either Chamberlain or Salisbury—effectively reformulated British policy:
Government of Great Britain are anxious Peace. If agree to 5 Years Franchise without conditions Government of Transvaal have no reason to fear friendly discussion subsequently arranging details. Positive no further demands shall ... be sprung. War occur now it is his [Kruger‘s] fault not Government of Great Britain ... We are assured byNM Rothschild & Sons Government of Great Britain and England or the British do not wish interfere integrity Transvaal ... Most strongly urge you to do utmost secure franchise without conditions. In our opinion only way war can be prevented.
It was a proposal which was not only rejected by the Boers but which would in any case probably have been repudiated by Salisbury. He feared that such “subterranean negotiations” might lead to “serious entanglement” and asked Natty “very earnestly” to desist from “any further communication of this kind with Pretoria.”
The Rothschild view was not based on any deep sympathy for Boer self-government: as Natty told McDonnell, Samuel Marks was confident that, if peace were preserved, “In 15 years the Transvaal will be British.” “Kruger is the last of the old Boer Toryism,” argued Marks’s partner Lewis, and “he is also the last President of the kind that the Transvaal will ever have.” Moreover, once war had broken out, Natty unhesitatingly involved himself in the war effort, suggesting that Boer supplies through Delagoa Bay be immediately cut off. The obligatory patriotic rhetoric came readily when local soldiers returned to Buckinghamshire from the war, while Alfred contributed in his own way by organising a spectacular gala evening at Covent Garden. Natty also remained on good terms with Milner and wrote warmly to congratulate him—albeit “in my wife’s name”—“on having firmly established His Majesty’s Dominions in South Africa.” Yet privately he deplored the “wretched guerrilla warfare” the British army found itself having to wage. Within two months of peace being concluded, Alfred was promoting reconciliation between British and Boer generals around his dinner table.
Natty was especially unnerved by the claims of Radical writers like Hobson that the war was being fought on behalf of those who had financial interests in the gold and diamond fields, advising Rhodes to:
be careful in what you say regarding the conduct of the war and your relations with the military authorities. Feeling in this country [is] running high at present over everything connected with the war and there is a considerable inclination, on both sides of the House, to lay the blame for what has taken place on the shoulders of capitalists and those interested in South African Mining. It would be a great pity to add fuel to the fire and you would only be playing into the hands of the opposition which I am sure you want to avoid. I hope, therefore, that you will be careful in your utterances and if you have any complaints to make ‘ against the War Office underlings, you will no doubt have opportunities to do so privately.
This helps explain Natty’s letters to Balfour two months later urging him privately that “a good War Minister ... gives his generals twice as much as they ask for”:
There was a clever article in the “Daily News” the other day which ended by saying that, unable as His Majesty’s Ministers were to make peace, they were still more unable to carry on war ... It will be far cheaper in the long run to make a big effort now, than to run the risk of the war dragging on for another year ... I think it right you should know both what the public feeling is on the subject and also the anxiety which is felt by some out in Africa that there is a desire to save money and [we may] thus in the end be forced to incur a much larger expenditure.
In short, Natty agreed with Rhodes’s criticisms of the way the war was being waged; but he viewed public expression of such criticisms by anyone with large private interests in the mines of Kimberley and the Rand as highly impolitic.
Yet there was a certain irony in this Rothschild warning against false economy in wartime; for the Boer War was in the process of exposing the Rothschilds’ declining influence over that area of British policy where it had once been greatest: finance. The Boer War was the first time since the Crimean War that Britain had been forced to finance a war by a major net increase in the national debt. But whereas in the 1850s it had been taken for granted that the Treasury would turn to N. M. Rothschild & Sons to meet its borrowing requirement, that was no longer assured half a century on. Natty assumed from the outset, as he told Edward Hamilton, that the Chancellor Sir Michael Hicks Beach “would send for me when he is ready.” But his recommendation that consols be issued with a Rothschild guarantee was rejected in favour of Ernest Cassel’s argument for a “much more dignified” open market sale of Exchequer bonds at a price of 98.5. The “Khaki loan” was heavily oversubscribed and Hamilton discerned with some glee “the jealousy with which the Rothschilds regard Cassel.” When the need for a further loan arose in July, Natty fell in behind Cassel (and against the Bank of England), arguing for a second bond issue, this time for £10 million. But Hamilton struck a second blow against Rothschilds by agreeing with Clinton Dawkins of J. P Morgan and Lord Revelstoke of the revitalised Barings to make an advance placing of half the sum in the US. This infuriated Natty, who had been drumming up subscriptions on the assumption that the London market would have to place the full amount. True, a third issue of £11 million was sold without recourse to the American market, but when the government steeled itself for a much bigger issue of £60 million in consols it once again called on Morgan. Half the total was taken by Morgan, N. M. Rothschild and the Bank of England (£10 million apiece) at a firm price of 94.5. What is more, Morgan secured a commission two times higher than the London banks‘. The modest amount left to smaller firms generated a good deal of resentment among “English circles in the City” who felt, according to Horace Farquhar’s brother Granville, “furious at finding every dirty German Jew in, and themselves left out.” But the fact was that the distinctly un-German and un-Jewish figure of Pierpont Morgan was the principal victor: for the first time in over a century, the British government had been forced to borrow a large sum from a foreign power to wage a war in its own empire. It was an early sign of that shift in the centre of financial gravity across the Atlantic which would be such a decisive—and for the Rothschilds fateful—feature of the new century.
Morgan flexed his muscles again in the spring of 1902, when it was decided to raise a new £32 million loan. Natty—who Dawkins suspected still had “a lot of the last Consol issue ... on his hands at a loss”—argued for issuing a new Transvaal Guaranteed Loan, but Dawkins, backed up by a visit from Morgan himself, prevailed on Hicks Beach to stick to consols. Although the Americans agreed to take only £5 million—leaving Rothschilds with £7 million and Cassel and the Bank with £2 million apiece—they also found themselves able to dictate the issue price (93.5). It was a sign of the ill-feeling generated by this new American rival that Natty pointedly refused to give Morgan’s London house a share of his allocation. Even after the war, the Rothschild bargaining position looked weak. Although the 1903 Transvaal loan for £30 million was sold without American assistance, Natty’s request for a 2.75 per cent coupon was overruled by the Treasury as too low and it was decided to exclude applications for less than £2,000—a change of policy which Alfred angrily denounced as “most un-English.”
Nor did victory in the Boer War represent an unqualified assertion of metropolitan authority in South Africa. Although the Boers were ultimately forced to make peace, it was Cape Town (and Kimberley) rather than London which benefited from the British victory. The final conflicts within the De Beers company between the London board and Rhodes were a microcosm of this. Even as the war in the Transvaal got under way, Rhodes was being exhorted telegraphically by Natty “to extinguish floating debt and free mortgaged consols no dividend even if earned could be paid before this done ... we therefore suggest take advantage of favourable opportunity to create fifty thousand more shares which would be readily absorbed by existing shareholders.” Natty followed this up eight months later with a detailed critique of Rhodes’s accounting methods—and in particular his habit of accumulating large surpluses which he and the other life governors “used for every kind of purpose, some connected with the mines and some with outside investments and ventures.” And Natty continued to oppose Rhodes’s ambition to break the power of the diamond-marketing syndicate in London.
Nevertheless, Rhodes left his successors at De Beers in an almost unassailable position. Annual dividends rose from around £1.6 million (40 per cent a share) in the period 1896 to 1901 to £2 million from 1902 to 1904. Even Natty had to admit that these were “brilliant results.” Moreover, political attacks on the use of Chinese labour in the South African ‘mines—which the Liberals turned into a major campaigning issue in the 1906 election—served to widen the gap. between London and Cape Town. Finally, the Rothschilds’ control over De Beers was dealt a damaging blow when the Inland Revenue sought to extend the tax liability of the company from the dividends of the British shareholders to the net profits of the company as a whole, a move which necessitated the formal dissolution of the London board and confirmed the supremacy of Kimberley over the European shareholders. As an alarmed Natty put it, “if the London Office is closed pure and simple, the De Beers Co. would be a Wernher Beit Co. and ultimately he would acquire the control and you would know absolutely nothing now [about] whatever takes place.”
It was nevertheless the Rothschilds’ reduced role in the financing of the Boer War which was the most ominous development. Just over a decade before, at the time of the Goschen conversion and the Barings crisis, N. M. Rothschild had seemed as financially dominant as ever. Now the dawn of a new century had brought the first unambiguous indication that the Rothschilds’ dominance was coming to an end. Did the Rothschilds themselves sense this? There is one telling piece of evidence to suggest that perhaps they did. On New Year’s eve at the end of December 1900, there was, as Edward Hamilton recorded in his diary,
a Rothschild gathering at Mentmore to see the 19th century out. I think we mustered 24 in all—R. [Rosebery] & his 3 unmarried children, the Crewes, Natty & his two sons, the Leos & their three boys, the Arthur Sassoons ... Rosebery after dinner proposed “prosperity to the House of Rothschild” in a touching little speech, which elicited tears from Natty and Leo.