II
SIX
I hope that now the world will at least appreciate what Germany is.
MAYER CARL VON ROTHSCHILD, SEPTEMBER 1,1870
[I]t ought to be added that the French rente is a security which can always find buyers ...
ALPHONSE DE ROTHSCHILD, AUGUST 22, 1870
The Franco-Prussian war of 1870-71 was, on the face of it, a disaster for the Rothschilds. For the first time, Rothschild houses found themselves on directly opposing sides in a major European war they could do nothing to prevent. In his memoirs, Moritz Goldschmidt’s son remembered Anselm in 1870 exclaiming petulantly: “I won’t stand for its coming to war! I won’t stand for it, even if it costs me thousands of gulden—I won’t tolerate it!” Still war came. The Paris partners elected to “remain at their posts” in the rue Laffitte, even as the Prussian army swept towards the French capital: despite an early awareness of French unpreparedness and the Bonapartist regime’s culpability in precipitating the war, Alphonse and Gustave nevertheless identified themselves with la patrie.They lent the French war effort their financial support and sought to use their influence in London to further the aims of French diplomacy. At least two of the younger French Rothschilds—their brother Edmond and Nat’s son James Edouard—served in the Garde Mobile. The great symbol of this identification was the occupation of Ferrières by the Prussian army. The arrival there of Bismarck and William I in September 1870 seemed to signify with stark force the advent of a new era in which Rothschild financial power must bow down before Prussian “blood and iron.”
In Frankfurt, meanwhile, Mayer Carl identified himself even more unequivocally with victorious Prussia, and not only with Prussia but with the new German Reich proclaimed in the aftermath of the French defeat. Here too there was a potent symbol, for Mayer Carl was chosen as one of the parliamentary delegates sent from the Reichstag of the North German Confederation to “pay homage” to the Prussian King on the eve of his proclamation as the “Emperor William” in the Galerie des Glaces at Versailles. Mayer Carl did not, however, stay for the ceremony itself; there is no Rothschild among the cheering soldiers and uniformed officials in Anton von Werner’s great depiction of the occasion, The Proclamation of the German Empire. Again, the Rothschilds seemed dwarfed by the new and ostentatiously military power of Germany.
Yet perhaps the most striking aspect of the French defeat—apart from the speed with which it was achieved—was the speed with which it was overcome. For a time in 1870 it seemed as if the collapse of the Bonapartist regime would plunge France—or rather Paris—into a revolutionary turmoil comparable with 1792 or 1848. The vain efforts of Republicans like Gambetta to prolong the war by means of a levée en masse seemed to jeopardise all the material achievements of “bourgeois society.” The peace terms, when they were finally accepted in January 1871, seemed crushing not only in territorial terms—the loss of Alsace and Lorraine—but in financial terms—an indemnity of 5 billion francs. All this could have turned the Third Republic into the Weimar Republic of the nineteenth century. Instead, a dramatic financial recovery enabled the French to pay their reparations bill ahead of schedule, thus ending the German occupation of northern French territory in 1873. In the same year, stock market crashes in Vienna and Berlin plunged all of Central Europe into economic depression, raising doubts about the internal stability of the Bismarckian system. The Rothschilds played a decisive role in this financial revanche. As a result, their power in Paris—and in Europe itself—seemed to emerge enhanced rather than diminished.
There is no question that the Rothschild intelligence system failed badly over the question of the Spanish throne. They knew well enough that one of the candidates being considered by the Cortes in Madrid was Leopold of Hohenzollern-Sigmaringen. But they failed to grasp the significance of Bismarck’s support for his candidacy, which he decided upon as early as February. We know that Bismarck concealed this decision from Bleichröder, allowing his personal banker to continue to believe that “the political realm offers no cause for disquiet” until perhaps as late as July 5. Interestingly, he seems nevertheless to have dropped a hint to the Rothschilds. According to a letter to New Court dated April 5, “Old B” told Mayer Carl, “that the news from Spain are [sic] so bad and that the financial state of that country looks particularly queer.” But if this was a coded warning of an imminent Spanish crisis, Mayer Carl failed to decipher it.
Equally, Alphonse failed to appreciate the significance of the due de Gramont’s appointment as French Foreign Minister in May. Gramont’s belief in the existence of a de facto Franco-Austrian alliance made him willing to take far greater diplomatic risks than his predecessor, who had considered English support the essential precondition for any reckoning with Prussia; but when Alphonse heard of Gramont’s appointment, he commented: “We will be delighted by it from every point of view, because it is necessary to have at the head of this ministry a man of experience who is wise enough not to want to try to win fame for himself by some brilliant stroke.” A more erroneous character assessment would be difficult to imagine; though the fact that the Duke’s son later married a Rothschild (Mayer Carl’s daughter Margaretha) raises the possibility that he was already a family friend. On July 2 Mayer Carl saw Benedetti, the French ambassador in Berlin, who was leaving (along with the usual throng of grandees, politicians and bankers) to take the waters at Wildbad. He was, Mayer Carl reported to New Court, “very glad to be able to rest a little after all the fatigue of the great Capital. He seems in very good spirits and says that everything is in perfect order and that peace is assured.”
The Rothschilds were not alone in their complacency: the under-secretary at the British Foreign Office greeted the new Foreign Secretary Lord Granville on July 12 with the unfortunate observation that “he had never during his long experience known so great a lull in foreign affairs.” But Mayer Carl’s letter of July 2 gives us a valuable clue to why bankers in particular were taken unawares by the Spanish crisis. Not only was it the holiday season; as he reported routinely, the Frankfurt bourse, like its Paris counterpart, was “in very good spirits.” It was the eve of the Prussian Credit Foncier flotation—that symbol of Franco-Prussian economic co-operation—and Mayer Carl’s main concern was that “everything [should] go well.” He became concerned about “this Spanish fuss” only on July 7, and even then was confident that it would not “not come to a serious disturbance of peace.” An early City of London pessimist like Henry Raphael seemed to be making an uncharacteristic mistake by selling at such a time. Yet, unbeknown to the Rothschilds, both the Prussian and the French governments were already bent on a major diplomatic confrontation, if not outright war.
There is no question that Bismarck set out to back the Hohenzollern candidacy with the intention of provoking France. As early as July 8, he spoke of “mobilising the whole army and attacking the French.” This was at least partly because he saw a foreign policy crisis as a way out of the internal deadlock over the financial question and the South German opposition to unification on Prussian terms. On July 10, for example, he confessed that “politically a French attack would be very beneficial to our situation.” Bismarck’s difficulty was in overcoming the reluctance of Leopold’s father Karl Anton and, more important, the unwillingness of William I to quarrel with France over the issue. In fact, Leopold had declined the candidacy on April 22, and it was only after much persuasion that Bismarck overturned this. A further difficulty arose when a cipher clerk in Madrid incorrectly decoded the Spanish envoy’s message conveying Leopold’s acceptance; this meant that instead of remaining in session to elect Leopold, the Cortes was dissolved, creating an unforeseen delay.
It was a war of crossed wires: when they met at Bad Ems on July 9, William intimated to Benedetti that he would not be opposed if Leopold once again withdrew, but the more conciliatory part of the latter’s telegram to Paris was rendered indecipherable by climatic interference during transmission. Still, when Benedetti returned to pester William the next day, he was granted an audience. Although William refused to ask Leopold to withdraw, on the ground that it was purely a matter for the Hohenzollern-Sigmaringens, he instructed Werther, his ambassador in London, to assure Gramont of Prussia’s peaceful intentions. On July 12 Karl Anton declared that his son would not, after all, be a candidate. At their meeting outside the Kurgarten the next morning, William famously declared to Benedetti: “Eh bien, voilà donc une bonne nouvelle qui nous sauve de toutes difficultés.” That afternoon he went further, telling the ambassador that he approved Leopold’s withdrawal “in the same sense and in the same degree in which he had given his approval to the acceptance,” that is, “entirely and without reservation.”
While all this went on at Ems, Bismarck was to some extent “out of the loop,” though he was already preparing the German press for some sort of démarche. He regained control of events only on July 13, when he received the famous telegram from Ems relating the gist of William’s encounters with Benedetti. Bismarck’s rewriting of this telegram for publication in the press correctly stated the King’s view that he could not undertake “in perpetuity never again to give his consent” to a renewed Hohenzollern candidature, but made it seem that William had subsequently refused to see Benedetti because the French demand had been offensive to him. This was not at all the sense of the original, and was calculated to affront Gramont. Bismarck proceeded to use the doctored telegram as the basis for an anti-French propaganda campaign directed at both domestic and foreign opinion.
Thus Bismarck made Prussia’s policy more aggressive than his supposed master would have wished. Nevertheless, the blame for the war cannot be laid exclusively at Prussia’s door. The French had been signalling their opposition to a Hohenzollern candidacy from March 1869 onwards. When the news of it broke in Paris on 2—3 July, the immediate reaction was bellicose. Gustave summed up the French mood. The markets were “cool,” but:
you cannot imagine the effect which this news this morning has had on the public as much as on the government, not to allow at any price that the prince should be named King of Spain and that in order to prevent this one will not recoil from war with Prussia. Never, it is said here, and it is the opinion of the Emperor, will there be a better occasion to make war on a more popular issue than this.
Accordingly, on July 6, the French government approved a highly inflammatory declaration drafted by Gramont to be read in the Legislative Body. As Gustave discerned, Gramont’s “violent” language was a true reflection of the government’s position: nothing less than an “absolute veto by the king” of the Hohenzollern candidacy would satisfy them, and if Leopold were to accept the crown it would be regarded as “a declaration of war.” “Here,” he repeated, “one is all ready to make war, and one considers that one will never have a better and more popular occasion to do so.”1 When Gustave saw the French Prime Minister Ollivier, he was warned that France would use “every means” to stop the candidacy, “even war, and under such circumstances it will be a war of enthusiasm as in 89.” “The Emperor is going to get what he wants,” Gustave predicted, “war imposed by a parliamentary vote.”
The crucial French step in this direction was Gramont’s insistence on July 12—after Leopold had withdrawn—that Benedetti demand from William a gratuitous and uncalled-for “assurance that he shall not again authorise this candidacy.” It was never likely that William would give such an assurance and Gramont’s repeated insistence that Benedetti ask for it was obviously designed to provoke Berlin, as was the request for a letter of apology to Napoleon. In the same reckless way, instead of resting content with William’s last conciliatory words to Benedetti, Gramont seized on the Ems telegram as a casus belli and secured French mobilisation on the afternoon of July 14—though not before Napoleon had once again dusted off his dog eared solution to all diplomatic difficulties: a congress. It was too late. On July 15 Ollivier and Gramont presented the Chamber with a version of the events at Ems just as distorted as Bismarck‘s, and war was declared. It was not until after the news of this reached Berlin that William agreed to Prussian mobilisation. “France is determined to pick up [sic] a quarrel,” concluded Mayer Carl. It is hard not to agree, even if it was a quarrel which was welcome to Bismarck and fatal for France. According to Gustave, the French view was “that if we have to have war, if it is inevitable, it is better to have it now rather than in six months.”
It was the fact that France not only appeared to be more aggressive than Prussia but actually was the aggressor which determined British non-intervention. As in the Luxembourg crisis of 1867, the Rothschilds acted as a channel of communication between London and the potential belligerents. On July 5 Napoleon had asked Alphonse to relay a message to Gladstone asking for his support in securing the withdrawal of the Hohenzollern candidature. Natty delivered this to Gladstone at his home at 11 Carlton House Terrace early on the morning of July 6 and, finding him on the point of leaving to see the Queen at Windsor, drove with him to the railway station. According to Morley, “For a time Mr. Gladstone was silent. Then he said he did not approve of the candidature, but he was not disposed to interfere with the liberty of the Spanish people to choose their own sovereign.”2This has sometimes been interpreted as a blow to the French Rothschilds’ hopes; but it seems just as likely that this is what they wanted to hear. A lukewarm response was what was needed if the increasingly reckless Gramont was to be restrained. Gustave wanted England “to preserve the peace”: that meant putting pressure on France as much as on Prussia.3 “We hear that your government has put a good deal of pressure on ours to accept [a compromise],” he wrote on July 11, “but in the meantime unfortunately the public mood and the Chamber are becoming aroused.” Thus, when the Hohenzollern candidature was withdrawn on July 12, the Paris house sent another telegram to London stating optimistically: “The French are satisfied.” Gladstone saw it late that night. This was the cue for Granville to telegram to Lyons, the ambassador in Paris, that France should indeed “accept as satisfactory and conclusive the withdrawal of the candidature of Prince Leopold.”
British pressure had some effect in Paris: when Lyons delivered his message, General Leboeuf’s demand that reservists be called up was rejected by the council of ministers, and it was decided not to regard Gramont’s demand for a guarantee of non-renewal as an ultimatum. At this point the Rothschilds’ informal mediation appeared to have contributed once again to the maintenance of peace. “Half an hour later,” wrote Gustave on hearing of William’s unqualified endorsement of Leopold’s withdrawal on July 12, “and war would have been declared, although it may not be in accordance with the ideas of the Emperor, who wanted war, but he is obliged to be satisfied with that response. Thus peace is made, or rather the war is adjourned, for I do not believe that relations between the two countries will remain good.” Mayer Carl’s relief was less qualified: “[E]verything is settled in a satisfactory manner and the dreadful calamity of a European war is spared. Thank God for that ...” Disillusionment the following day was profound; and they had no doubt where the blame lay. On the very day war broke out, Gustave raised the possibility that France might revive her earlier designs on Belgium. Nothing did more to discredit the French case in London.
The financial consequences of the crisis have been neglected by historians but deserve attention; for they too help to explain British non-intervention. In the first months of the war, German and French financial markets were more or less equally affected. Things were bad in Paris: the price of rentes had begun to slide as soon as the news broke of the Hohenzollern candidature, from 74.83 on June 4 to 71.25 on July 9; the outbreak of war saw a sharp fall to 67.05. But these figures were little different from those in Frankfurt and Berlin, where the recently issued Prussian 4.5 per cent bonds slumped from 93.5 to 77.3—if anything, the German crisis at the outbreak of the war was worse. Though the flight for liquidity was enough to plunge a number of banks on both sides into difficulties, the Rothschilds were more or less untroubled. Apart from a substantial sum (35 million francs) owing to Russia, the French house seems to have had relatively few problematic liabilities, and the Frankfurt house almost none. Even if he had missed a Bismarckian hint, Mayer Carl had “taken [his] precautions in time.” As accurate news of the first French reverses at Spicheren and Froeschwiller filtered back, of course, it was the French market which collapsed, while the German markets rallied. The British market, by contrast, was barely affected throughout: the biggest fall was 3.6 per cent between May and August 1870. The contrast with 1866, when the war between Austria and Prussia coincided with an acute financial crisis in London, is marked. (What seems to have happened in 1870 is that French capital began to flow to London from a fairly early stage in the conflict—one of the best indicators that, for all the government’s rhetoric, there was a vein of pessimism in Paris.) It is not without significance that Gladstone himself bought consols worth £2,500 at a price of 90 on 18 July: a private and well-founded vote of confidence in British non-intervention.4
The English Rothschilds therefore viewed events on the continent with something more like neutrality than had been the case in 1866, when Prussia had seemed the villain of the piece. True, there was a flicker of Francophile sentiment on the news of the French defeat at Sedan, prompted by the presence in London of Alphonse’s wife Leonora; hence, perhaps, Lionel’s request for details of Prussian atrocities and his later role in transferring money raised abroad for French war-wounded and prisoners-of-war. And before Sedan the London house did more for the French war effort than for the Prussian: French purchases of biscuits and salt pork in England were financed by the London house, though the government’s bills were discounted on less than generous terms. In addition, New Court initially offered to subscribe to any French war loan and to send gold if it were required by the Banque de France, though these offers were not taken up as the French government financed the first phase of the war by selling treasury bills on the domestic market. By the time the government brought out a proper war loan in late August, however, the London house was less keen. When the Government of National Defence sought to raise a £10 million loan in London in the autumn of 1870, it was to the minor American firm of J. S. Morgan & Co. that it had to turn.
By contrast, offers from Mayer Carl of Prussian war bonds, which were ignored at the outset of the war, led to talk of a subscription of 1 million thalers by the London house in October. The following month, Hansemann was sent to London to arrange an issue of five-year treasury bonds worth 51 million thalers; the short duration of the bonds was a signal of the intention to impose reparations on France, though not necessarily the extent of any indemnity. Mayer Carl made a persuasive case for Rothschild participation in this operation:
The position of the Fft House is not pleasant as the Government has the right to expect our support and is sure not to forget it if we do not assist them and leave the task to others. On the other hand we do not mean to do any thing that might be disagreeable to you or place you in a false position towards our Paris friends. I hope therefore that if Mr Hansemann pays you a visit you will receive him kindly and tell him exactly what you would like me to do ... [I]f we lose the opportunity of showing ourselves useful to [the government] others will jump at the opportunity of putting us aside and I in particular must suffer from the effect ... I should not have troubled you with all these details if the chief question was not to get the money from England: and to hear from you how this could be managed to conciliate the interest of our houses with the views & wants of the Government. I own that I should be very sorry if Schröder who I dare say represents Erlanger & all that clique were to take hold of the Prussian business as I have every reason to believe that all the other Prussian houses who are interested in the [North German] Confederate bonds would join him, delighted at the idea of having turned us out.
The London house hesitated to be publicly identified with the new loan, but evidently put Hansemann in touch with the Bank of London; Mayer Carl likewise used the Seehandlung as a kind of front for his participation. New Court also helped to replenish the Seehandlung’s silver reserve—one of the main objectives of the loan.
These financial factors partly explain why Britain declined to play the mediating role which the French Rothschilds hoped for. From the outset of the war, Alphonse and Gustave urged the British government to intervene to broker an early peace, hoping that they and their cousins once again could act as the channel for pacific communications. But the only thing which would have prompted such an intervention would have been a French victory, with its implicit threat to Belgium; and once that possibility evaporated Gladstone and his ministers were more or less content to let events take their course. The other potential danger—that Russia and Austria-Hungary would also become embroiled in a “general war”—was never real: Gorchakov and Beust stuck to their policy of non-intervention (agreed as early as September 1869), announcing their neutrality on July 13 and 20 respectively. Even Disraeli’s criticism of Gladstonian inaction was a mere reflex action: he saw no real reason to resist the “German revolution,” and as for saving Napoleon III, had he not just dedicated his novel Lothair to the Orléanist duc d‘Aumale? It was especially irksome for Alphonse that The Times—whose editor Delane’s friendship with Lionel was well known—came out strongly against France in its early coverage of the war. In particular, the paper’s publication of the draft treaty Benedetti had given Bismarck in 1866 seemed to confirm suspicions that France had designs on Belgium.5 In October 1870 Gladstone himself published an anonymous article in the Edinburgh Review in which he declared that the “new law of nations... censured the aggression of France.” There were those who believed that the Rothschilds were responsible when The Timeschanged its tune in the same month, arguing for intervention to prevent the annexation of Alsace and Lorraine. But in truth any Rothschild attempts to find a basis for English mediation were bound to come to nothing. The assumption that the war would be long and indecisive may also have encouraged a policy of wait-and-see in London.6
For the Rothschilds on the continent, neutrality was never an option. Mayer Carl had no hesitation in subscribing 1 million thalers to the initial Prussian war loan; when this public subscription raised only half the 120 million thalers sought by the government—another sign of German nervousness in the early stages of the war—he readily joined the Hansemann-led syndicate to underwrite a further 20.7 million thalers (of which the Frankfurt house took 3 million). Once news of Prussian successes began to reach Frankfurt, he could not resist basking in Bismarckian reflected glory. “I should think that the people at Paris will be rather astonished,” he wrote gleefully after Froeschwiller, “particularly as they most likely did not fancy that the Germans could lick them so easily. Here and all over the country there is a great enthusiasm and I need not tell you that everybody is quite delighted.” “I have not the least doubt,” he wrote a week later, “that the German troops will be victorious and that a durable peace will be made. Meanwhile there is a good deal of business and every one speculates thinking that we are likely to have a great life.”
As the military news got better, so his tone became more strident: “I think that the French have no chance of success,” he exclaimed on August 27, “and will learn to know what it is to compete with the German nation and with one Million of men.” Like so many Germans, he was exhilarated by the news of Sedan and eagerly increased his holdings of government bonds. ‘There is not the least doubt,“ he declared on November 23, ”that the [German] Government is called upon to be first fiddle in the future European concert“; ”Germany strong and united will be able to do more for the peace of the world than any other nation.“ To be sure, he and his family had no illusions about the human costs of the conflict: his English-born wife Louise and their children worked ”day and night“ in the hospital they established for wounded soldiers. But he had no doubt about the justice of the Prussian cause. Despite his grumblings about the discomfort of the journey, Mayer Carl was only too proud to be invited along with other parliamentarians to ”pay homage at Versailles to the German Emperor.“
Identification with one’s native land cut the other way in Paris. James’s sons, unlike their father, were French citizens and they were punctilious in their patriotism. On July 19, for example, Alphonse resigned his post as consul-general of the North German Confederation in France. They subscribed for at least 50 million francs of the August war loan. From the outset, he and Gustave expressed the hope that “the first clash would be favourable to French arms.” At first this was primarily because they believed it would precipitate English diplomatic mediation; but as the war proceeded, anti-Prussian feeling began to generate a less dispassionate patriotism. By the time Ferdinand arrived in Paris, he found his cousins “very excited and pour[ing] out volumes of wrath on the Prussians, Bismarck and Cie.” “They are all extremely French in their views and feelings,” he reported to London, “plus catholique que le pape.” Edmond and Nat’s son James Edouard, as noted above, served in the Garde Mobile; and Alphonse did his bit guarding the ramparts of Paris on the eve of the Prussian siege, as did Nathan James, who may have fought in Trochu’s abortive “sortie” to the south of Paris on November 30. On August 6 Mérimée heard of “a Rothschild” leaving Paris in August “with his bag and a baguette on his back, travelling in a third class compartment of the Nord railway, in which his house has twenty million shares.” Though it is undeniable that Anselm returned to Vienna before Sedan and James Edouard’s brother Arthur was in Brussels in late 1870, that story has the whiff of malicious gossip. In reality, the Rothschilds stood their ground and risked their lives in the crisis, unlike many wealthy Parisians.
The difficulty for those in France was that from a very early stage they were confronted with alarming intimations of defeat. Anselm happened to be in Paris when the war broke out, and he made no secret of his views: “The French are full of enthusiasm but the Prussians have a better military organisation and their army is much superior in number.” Alphonse too was pessimistic. “The wine is poured,” he declared on July 20, “and it is unfortunately necessary to drink it. It will be pretty bitter.” An early sign of French mismanagement in Rothschild eyes was the response of the government to the economic consequences of the war. Talk of the suspension of gold convertibility by the Banque de France and heavy-handed attempts to prevent specie from leaving Paris infuriated Alphonse, who favoured relying on increases in the discount rate. On August 4 some 2 million francs of silver which the Rothschilds were sending to Belgium in exchange for gold on behalf of the government were seized by the police in the belief that they were being smuggled out of the country. By the 12th, the Banque had effectively been forced by the government to suspend convertibility and this was followed by a moratorium on bills of exchange: the only reason Alphonse did not resign his post as regent over these measures was, as he put it, that it would be “to desert one’s post at the moment of combat.” More alarming still was the request of a “senior military personage” to send a small packet of his securities for safekeeping in London house. As Alphonse commented, “Such a recommendation on his part, as you may imagine, has awakened our suspicions, and we intend to follow his example ...” They began to do so three days later. On August 11 James Edouard sent over his collection of rare books and drawings. As the crisis deepened, securities were sent to Lambert, the Rothschild agent in Brussels. On the day of Sedan, at Bleichröder’s recommendation, the Paris house sold the shares it held in the Cologne—Minden railway—at a handsome profit.
Measures to stop capital flight were, however, the least of Alphonse’s worries. From a remarkably early stage—well before news of reverses at the front—he and his brother feared that war would trigger a revolution in Paris. As early as July 19, Gustave was reminded of 1848; a week later, his brother was detailing the steps being taken to combat the “desperate efforts” of “the Left” to stage a “coup de main” in Paris. At that stage he was still confident that the government had the situation under control; but by the first week of August he felt that in its efforts to combat capital flight the government itself was allowing itself “to be drawn down the revolutionary slope. Once it was the nobles who were regarded as suspect; today it is businessmen.” “The danger comes from the interior rather than from the Prussians,” he wrote sombrely on August 3. “We have no military force here [in Paris], and if by some mischance we were to suffer some reverse, who knows to what excesses the fury of the populace could lead.” The Finance Minister seemed unable to resist “the propensities of certain members of the Cabinet who believe themselves back in the time of the French Republic.” If a military victory did not come soon, warned Alphonse on August 6, “the revolutionary party would gain the upper hand.” Just three days later, revolution no longer seemed merely possible, but distinctly likely in the absence of a military victory. When the Legislative Body met there were calls not just for Ollivier’s resignation but for the abdication of the Emperor, who was frantically trying to mobilise a new army at Châlons. As far as Alphonse could see, the fall of the Empire was now “a fait accompli.”
This prescience of revolution is easy to explain. To the Rothschilds (as to Metternich), modern history’s most important lesson had always been that a French revolution might lead to a European war, and that conversely a war involving France might lead to a French revolution. This fear had influenced Rothschild calculations time and again since 1815, but had never been exactly fulfilled. In 1830 and 1848 there had been revolutions without wars. In 1855 and 1859 there had been wars without revolutions. In 1870 history at last fitted the Rothschild model. Indeed, that may be why the Rothschilds came out of the 1870-71 crisis so unscathed.
At the same time, there was also a genuine desire on Alphonse’s part for a limited republican revolution to get rid of the Bonapartist regime, which his parents had always viewed with such suspicion and which he himself had overtly opposed during its final liberal phase. Alphonse’s letter to London of August 13 indicates that he was already in contact with moderate republic leaders—“certain persons who under the present circumstances could be called on to exercise an influence on events”—and that they had reassured him of their commitment to maintaining order. At least one member of the new Government of National Defence—Cremieux—was an old Rothschild associate, and Alphonse was quick to reassure his cousins of the new regime’s good intentions. “As the republic has been proclaimed,” he reported on September 4, “it is probable that popular anger will be disarmed and that there will be no serious disorder on the street.” Any possibility of a Bonapartist restoration or regency (something Bismarck would not have been averse to) Alphonse vehemently opposed. There is some evidence, admittedly, that he and Gustave would have welcomed a monarchist restoration, whether of the Bourbon or Orléanist dynasties. But in the immediate crisis of military defeat, they embraced the Republic without equivocation, even if privately they hoped it would be a transitional regime.
Bismarck at Ferrières
The most poignant symbol of the French Rothschilds’ share in the French defeat was without doubt the occupation of the château and park at Ferrières. This was an eventuality which Alphonse had anticipated with trepidation even before Sedan. On September 14, a week after the advance on Paris had begun, it happened.
It was at Ferrières that the first tentative and unsuccessful steps towards peace were taken by the new French government; and at Ferrières that Bismarck and Moltke openly quarrelled over strategy. Therein lies its principal historical importance. Yet the occupation of Ferrières can be seen to have had another significance: the “irony” of having the Prussian King and his Junker Chancellor installed at the château which was the most extravagant statement of Rothschild and therefore Jewish wealth. For Stern, the “raucous” conduct of the Germans was an expression of anti-Semitism with ominous significance. The difficulty is in deciding how improperly by contemporary standards the occupiers actually behaved.
The first Prussians to arrive, according to an account later written by the estate manager Bergman for Alphonse’s wife Leonora, were Generals von Eupling and Gordon and their respective staffs. Relations with the Rothschilds’ domestic staff certainly got off to an unpromising start. On September 17 General Gordon ordered the head butler to arrange dinner for fifteen; when thirty-two guests turned up there was not enough food to go around (though sixty-five bottles of wine were consumed) and Gordon had one of the servants locked up in the stables overnight as a punishment. The next morning Gordon left, and the 19th saw the arrival of William I, accompanied by Bismarck, the Chief of the General Staff Moltke, the Minister of War Roon, numerous other senior officers and around 3,000 men. (Others who stayed there included the Grand Dukes of Baden and Mecklenburg-Strelitz.) To some at least of these uninvited guests, Ferrières was a revelation. With its Mentmorian exterior and exotic interiors, it seemed “fairylike, magnificent”; yet the fact that it was the creation of a Jew—of the “Judenkönig,” as Roon called him—tempered their admiration with disdain. The initials JR—James de Rothschild’s —which recurred on the ornate walls and ceilings were translated with laboured humour as “Judaeorum Rex.”
Perhaps mindful of James’s efforts to thwart his plans in 1866, Bismarck himself seems to have taken an especially malicious pleasure in the situation. “Here I sit under a picture of old Rothschild and his family,” he wrote to his wife on September 21 from what had been James’s suite of rooms. “Negotiators of every sort hang on to my coat-tails like Jews round a market trader”—a significant choice of image. It was Bismarck who threatened to beat a servant who refused to serve him wine from the Rothschild cellars. And it was Bismarck who went out shooting pheasants in the chateau grounds, grumbling that the gun he was given was too small, with too few cartridges and inadequate shot. It was probably also Bismarck who arranged for a complaint about Rothschild inhospitality to be placed in the German press. Later, when asked whether he would be prepared to negotiate peace terms with a republican regime, Bismarck replied snidely that he would recognise “not only the Republic, but, if you want, a Gambetta dynasty... Indeed, any dynasty, whether Bleichröder or Rothschild.”
On the other hand, Bismarck’s feelings of animosity were not shared by his royal master. “Folk like us can’t rise to this,” William was heard to comment on seeing Ferrieres; “only a Rothschild can achieve it.” Anxious not to give offence to the family, he specifically ordered that there should be no requisitioning from the estate and that game and wine cellars should be left intact. As Bergman reported, “The sojourn of the King went off well, he had his own kitchen and kitchen staff, the estate had to provide for everything necessary, game, fruits and flowers; he gave 2,000 francs for the staff of the château.” He also took “good care to obtain a written statement that after his departure nothing was missing in the château” and left seventy-five men behind to guard it. No doubt there were some departures from these royal self-denying ordinances. “The soldiers billeted at La Taffarette [part of the estate],” grumbled Bergman,
fished all the ponds, but that wasn’t enough for them, so they decided one night to open the sluice-gates in order to find lots of fish stranded the next morning. When I was given warning of this, I went with several of my men and a locksmith arrived to close the gates, but at that very moment the cavalrymen arrived to water the horses. Terrible disappointment, no water! The soldiers thought it was I who had had the water drained and they dragged me to the General.
After the King’s departure on October 5, several houses and the chateau cellars were “pillaged” and blankets and mattresses were requisitioned for nearby field-hospitals. On January 1, 1871, Bergman lamented:
There is no more livestock on the farms, we have no coal, [though] we have still got some fire wood. The game of the outer park has been killed by the Prussians and by poachers; the grounds are reserved for the Prussians, the Commandant has it patrolled at night, the pheasants and flowers are reserved, the gamekeepers were disarmed the day the Prussians arrived ... [T]here’s no money left in our cashbox, we pay with bread coupons, the farms are used as barracks ... In short they treat Ferrieres with respect, there are 25 officers at the chateau at present, they have their own cook paid for by the château but they are very hard to please. Finally the requisition expenses of the estate and of the village approximately amount to 200 to 250,000 francs ... [T]he château [is] very dirty indeed.
Yet we should not exaggerate the significance of an old retainer’s hand-wringing. Prussian troops remained at Ferrières until the end of August 1871. Naturally, the French Rothschilds were only too keen to find fault with the conduct of the occupiers. But when Anthony visited the château on September 1, “to see what the Prussians had done [and] whether everything was as it was when the poor Baron left it,” he was pleasantly surprised. According to his account,
there is not the least damage either to the House [or] the Park [or] the trees, there are as many pheasants in the Park as formerly—they have a great many more partridges & all their birds are there—not a thing injured in the gardens so that the King’s orders were obeyed—they have even sent back all carriages that they took to Versailles—they drank all the wine that was in one cellar—the other one was finished up ... They took a few little things not worth speaking [of], Bismarck took 250 sheep. Of course the carpets [are] a little spoilt ... but when one considers that all the Prussian Army passed by ... I think it wonderful that not a thing should be hurt ... & they all ought to thank His Majesty & hold their tongues ... So much for Ferrières—& I think that with all their Houses—Boulogne & Ferrières—nothing damaged by the war[,] nothing taken by the communists, no person hurt or wounded[,] that they ought to thank God that they got off so well.
Even allowing for his evident impatience at the griping of his French relatives, Anthony’s account would seem to explode the idea of Teutonic depredations. Gustave himself admitted that the estate was “in as fair a state of things as could be expected” when he visited the chateau later the same month.
On reflection, the notion that the Prussians indulged in looting and pillaging may have been a construct inspired by the peace terms outlined by Bismarck at Ferrieres. The French regarded these as excessively harsh; they were therefore inclined to think of the German armies as ruthless plunderers at the local level too. The Rothschilds’ role in the peace negotiations was so important that it was perhaps inevitable that they began to equate the fate of France with the fate of Ferrières, and to exaggerate the burdens imposed on the latter.
We have already seen how quickly Alphonse and Gustave accepted the need for a moderate republican regime in the aftermath of the defeat at Sedan, while continuing to express forebodings about the danger of a full-blown Jacobin revolution in Paris. When reading their letters to London in 1870 and 1871, it is important to remember that their original objective had been to secure swift English intervention to end the war and establish a moderate peace. To some extent, therefore, warnings of impending revolution had a diplomatic purpose. As Alphonse wrote to London on August 8, “If Europe does not want France to become a hotbed of anarchy, it is necessary that it be ready and resolved to intervene seriously and without wasting time after the first big battle.” Five days later, he insisted that effective English peace-making was also the condition of political stability in a new French republic. Even at this early stage Alphonse was unequivocal about the kind of peace which would be acceptable, so much so that it becomes hard to distinguish his own views from those of the moderate Republican leadership. In fact, Alphonse’s first letter to London on the subject predated the fall of the Empire by some weeks. On August 13—in a carefully phrased resume which was obviously intended to relay republican views to Gladstone—he stated the terms which a new republican regime would be willing to accept on the assumption of a French defeat:
Any dismembering of France would be opposed to the last and any pretensions of that nature raised by Prussia would encounter a desperate resistance. Even a war indemnity would be a difficult condition to accept, but influential forces would exercise themselves in that sense ... for if we were beaten it is evident that it would be necessary to submit to a certain extent to the laws of defeat. It would nevertheless be necessary for the [other] powers to be ready to intervene very swiftly, and mediation to happen immediately, for otherwise any loss of time could only increase the mood of exasperation and compromise the results of mediation. One would therefore agree to give some money, but one would go no further.
He repeated that formulation on September 4, the day the news reached Paris of the débâcle at Sedan:
One will sign a peace without hesitation, no matter how miserable and humiliating it may be, if it can be obtained by a sacrifice of money. But no one here will dare to sign a peace that entails a cession of territory. You will say to us that in the present state to which we are reduced France cannot defend itself, that we have no more army and no ammunition. That may be true, but the public sentiment is so strong that the country would rather allow itself to be ruined and broken into pieces than have to cede territory. That would mean the destruction of France and I believe that the foreign powers have a big enough interest in not allowing the balance of Europe to be completely overthrown by Prussia to prevent such a fatal result. The moment to intervene has arrived. Any action must be immediate and energetic.
Jules Favre’s famous “not an inch of territory” statement of September 6 thus can have come as no surprise in London. Alphonse saw Favre that very day, and once again anticipated his argument: “One can consent to every sacrifice except that of a cession of territory ... because a cession of territory will render all government impossible ... I am perfectly convinced that the present government has only one thought: to make peace. But it is in the interest of Europe to intervene in order that this peace should not be ephemeral.” Later, Gustave was critical of Favre’s tactics, blaming them on General Trochu; yet it is evident from the Rothschilds’ own correspondence that his brother had a major hand in them and regarded Favre’s statement as “worthy and clever.” Indeed, to judge by Alphonse’s letters, it was he as much as Favre who was making French foreign policy in September 1870. On the 11th, for example, his letter to New Court contained threats and promises intended to secure English mediation which it is hard to believe were authorised by the government as a whole:
It is in the interest of all Europe ... to render peace possible and not to throw France into a state of anarchy such that an occupation, so to speak on a permanent basis, becomes necessary [as that] would inevitably lead sooner or later to the most serious complications and could even cause Prussia to lose the positive results of her victory. That is not a threat, it is the truth of the situation. No one will dare to sign a peace with cessions of territory, and it will be necessary for Prussia to govern the country, which will not be easy, for in every town in France which has not been occupied by the enemy, there will be revolutionary movements ... Be assured that one will accept here all the conditions that will be demanded to obtain peace except a cession of territory. A war indemnity, part of the navy, even the French colonies and even more so Luxembourg.
Alphonse was, of course, right to anticipate a German demand for territory as well as money. As early as August 15, Mayer Carl relayed to London the mood on the Frankfurt bourse: “I dare say France will lose her old German provinces, a large portion of her fleet & besides she will have to pay a very large amount of money: this is generally thought.” A few days later he added more in the same vein: “The struggle is a national one and the great victories of the German arms claim everything that can possibly be expected. You have no conception of the enthusiasm which exists here & all over Germany and the humiliation of France must be exemplary to satisfy public opinion. Everything is getting up & the German loan is [at a] 7% premium and will no doubt go higher still as the French must pay for everything.” “The Germans,” he predicted darkly, “will take good care to impose conditions which will assure the peace for a long time.” By August 26 he was able to offer more detail:
The French must be humiliated which is the only way for us to be preserved from further wars & I have no doubt that the French must give up Alsatia, the Lorraine, a good part of their fleet & at least one hundred Million Sterling as war contribution. Strasbourg & Metz must become Federal fortresses this is the general opinion & old B is sure to make the best of it.
Mayer Carl also justified the annexation of Alsace-Lorraine on nationalist as well as strategic grounds: “[I]t is foolish to think that the German nation will give up the struggle without keeping those old German provinces which had been conquered ...”
But the new French government’s hope that England would intervene to moderate the German demands was, for reasons described above, unrealistic. “We have received your letters,” Alphonse wrote dolefully to New Court on September 6, “and we see with great regret that England is not disposed to intervene.” Not that he immediately abandoned hope of swaying British policy: he was in regular contact with the British ambassador Lord Lyons and was evidently involved in the diplomatic efforts of Thiers, who set off in search of support in London and St Petersburg. Nor was it wholly unrealistic to hope for more sympathy from Gladstone, who strongly disapproved of the unilateral annexation of French territory and privately considered the transfer of Luxembourg to Prussia “an ingenious idea.” However, he was riled by a Rothschild letter on this subject which seemed to assume his support on this point and (fatally) to make “very cool assumptions ... about the interests of Belgium.” Indeed, by the end of September Gladstone had begun to suspect the Rothschilds of “twisting the words” of some of the intelligence they were relaying to him.
Any possibility of effective intervention was buried when the Russians seized the opportunity presented by the crisis to reopen the question of the Black Sea’s neutralisation. 7 At this point Alphonse ceased to discount rentes for the government, instead converting his remaining cash into drafts on the Banque de France which were sent to London for safety. With the Prussian army closing in on Paris and no sign of an imminent armistice, it was a moment for understatement in the great Rothschild tradition. “There is no need for me to say,” he concluded, “that this extremity is most disagreeable for us, but the government has informed us in a proclamation that we are ready to be buried beneath the walls of Paris, and the prospect is not an alluring one.” On September 17, the day before Favre secured an interview with Bismarck at Ferrières, Lyons gave Gustave advance warning of the German position. Bismarck had told him “that he had no need of money, that they had more of that than they wanted, and that what really was required was to have Metz and Strasbourg ... If that is refused, which is probable, he [Bismarck] will enter Paris, cut off our business communications and put the city to fire and sword without respite.” “That will be agreeable,” was Gustave’s parting comment in what he plainly expected to be his last letter to London for some time. “Goodbye my dear cousins, the ambassadors, including Lord Lyons, are leaving this evening after which we are going to be living without knowing what will become of us—a very pretty prospect.” Favre’s interviews on the 18th thus merely confirmed what the Rothschilds already fully expected. Although Favre went so far as to offer Bismarck 5 billion francs if France could retain Strasbourg and Alsace, “old B” responded memorably: “We will talk about the money later, first we want to determine and secure the German frontier.”
Communications were not wholly severed. Occasional letters were sent across the lines by balloon and were relayed by telegraph to London but it proved extremely difficult to send letters into Paris during the siege. On December 10, for example, Alphonse received a letter from his cousins dated October 21; and it was not until February 3, 1871, when a New Court courier arrived with a large hamper, that regular correspondence resumed. To all intents and purposes, then, the Parisians were on their own for four harrowing months, and even after the armistice of January 28 communications remained erratic until June. Because they ceased to write letters in the period of the Prussian siege, we know little about their experiences; but it seems safe to assume that they endured at least a measure of the cold, hunger and terror which everyone did who remained in the besieged city. When the food package arrived from London in February, Alphonse and his relatives “fell like children on all the excellent things you sent us.” Once again, Bismarck’s mood was vindictive, relishing the thought of the Rothschilds brought low. On January 30, two days after an armistice had at long last been signed, he indulged in more anti-Rothschild jokes. On hearing that a Rothschild was intending to leave Paris, Bismarck suggested he should be arrested as a franc-tireur (sniper). “Then Bleichröder will come running and prostrate himself on behalf of the whole Rothschild family,” exclaimed Bismarck’s cousin. “Then we will send both to Paris,” jeered Bismarck, “where they can join the dog hunt”—a reference to the wretched diet of those who had been trapped in the city.
“Le Pivot d‘une Combinaison”: Reparations
A fundamental question arises, and it is the question historians have much more often asked about the peace terms which were formulated in the same place nearly half a century later, when the tables were turned and Germany was the defeated power. Were the peace terms excessively harsh? Another question—also more often asked about the peace of 1919—is whether or not it was right to try to resist them by continuing to fight, even at the risk of precipitating internal revolution and civil war. The paradox is that the territorial demands—the cession of Alsace and Lorraine—were not unreasonable: Austria after all had surrendered territory following both her defeats in 1859—60 and 1866. Yet these were the demands the French found intolerable. The monetary demands, by contrast, were remarkably harsh. Yet from the outset the French were more willing to countenance these. It was in many ways futile for Gambetta to balloon out of Paris and drum up his levée en masse: although the new armies raised did inflict unforeseen casualties on the Prussian occupiers, they never stood a chance of winning a real victory over them. The price of thus postponing peace was also high from the point of view of internal stability and did nothing to modify the Prussian terms.
Yet the parallel with the experience of the Weimar Republic after 1919 is a suggestive one in four ways. Firstly, a futile attempt at military resistance may have served to scotch or at least weaken the nascent “stab in the back” theory advanced by the far left in Paris after Sedan. No one could doubt by 1871 that France had been defeated “in the field”; without a myth of republican pusillanimity it was difficult for the diverse factions of the Right to unite. Secondly, the descent of Paris into anarchy and the subsequent repression of the Commune in the summer of 1871 may have had a salutary effect in banishing for generations the spectres of Jacobinism, Blanquism, Proudhonism and Marxism: moderate republicans were united by their common aversion to the extreme left in a way which never happened in Weimar Germany. Thirdly, the continuing occupation of large parts of France by Prussian troops after 1870 gave the moderate republicans an incentive to pay reparations which was lacking for Germany in the 1920s; France tried to occupy German territory after default, instead of occupying in advance of payment.
Finally, and crucially, a determined and sincere attempt to pay reparations could count after 1870 on the wholehearted support of the European capital market, led by the Rothschild houses. During the early 1870s the French paid substantial sums for their defeat—ironically, a good deal more than they had been willing to pay for adequate military preparation before the war. The financial markets rewarded them by advancing the money needed to make the fastest possible transfer of reparations at a relatively low cost: it was, quite simply, the biggest financial operation of the century, and arguably the Rothschilds’ crowning achievement. By contrast, Germany in the early 1920s set out to avoid paying reparations and in the process inflicted not only hyperinflation on herself but massive currency depreciation on foreign lenders; the markets reacted by never trusting the German government again, and the subsequent attempt to pay reparations in a long series of small instalments failed miserably. The Third Republic survived for seventy years; the Weimar Republic for less than fourteen. The key to that difference may lie in the peace of 1871.
Of course, one should not lose sight of the differences between the two cases. The war of 1870 was short and cost far less in life and treasure than the war of 1914-18. Consequently, France embarked on paying reparations with a lower level of national debt and far less serious fiscal and monetary problems. Even so, the payment of the German indemnity remains one of the great financial feats of modern times.8 Between June 1871 and September 1873, France paid Germany 4,993 million francs, around 8 per cent of gross domestic product in the first year, and 13 per cent in the second. These figures need to be seen in the context of the existing level of national debt (which was a good deal higher than in 1815). As a percentage of GDP, French public debt was already 44 per cent in 1869, before the war, and 59 per cent in 1871, before most of the indemnity had been paid. So the total internal and external debt burden in 1871 was in the vicinity of 80 per cent of GDP. This was approximately half the size of the total debt burden Germany laboured under in 1921 (when the reparations total was belatedly fixed). On the other hand, the German reparations schedule in the 1920s was intended to stretch over decades, so that the annual burden of debt service and amortisation averaged less than 3 per cent of GDP during the 1920s. For France to pay an average of more than 10 per cent of GDP in two successive years was an astonishing achievement. Even more astonishing, the transfer was made with the minimum of exchange rate depreciation and domestic inflation. The history of how this was achieved deserves to be better understood.
The Rothschilds first began to consider the question of the French indemnity as early as August 1870. As we have seen, Mayer Carl cited a figure of £100 million—2.5 billion francs—as a possible total. As early as November, Anselm was trying to work out how such a large sum could be paid. He suggested to Lionel that, following the precedent of 1815, new 5 per cent rentes would have to be issued, and envisaged the Rothschilds playing the role Barings had played then, as intermediaries for the transfer of money from Paris to Berlin. This, as Lionel objected, was premature, though it proved quite prescient. According to Bismarck, Favre mentioned a sum of 5 billion francs when the two met in September, though this was intended to be conditional on the retention of Alsace-Lorraine. When the Germans insisted on territorial cessions, negotiations were once again suspended and war went on. It was not until February 1871 that work on the indemnity question could be resumed.
From the beginning, German bankers assumed that the spoils of their government’s victory would include their control of the collection of reparations. Bleichröder believed he had stolen a march on his rivals when he was summoned (along with the industrialist Henckel von Donnersmarck) to advise Bismarck at Versailles; and in the wake of this trip he badgered the Paris Rothschilds with proposals for floating a French loan on the Berlin market. Needless to say, Mayer Carl was against involving Bleichröder, arguing that any transaction should be handled in tandem with Hansemann and the Seehandlung. However, Alphonse seems to have determined from an early stage to exclude as far as possible all the German bankers—including even his own cousins in Frankfurt and Vienna.9His plan was to create two allied and Rothschild-led syndicates in Paris and London, the former including all the older private banks (the so-called haute banque) but not the joint-stock banks; the latter to be composed solely of N. M. Rothschild and Barings. This strategy had a dual significance: it was designed to punish the German banks on what may be interpreted as patriotic grounds; but it was also designed to strike a blow for the “old” banks against their joint-stock rivals in France and England. To this end, earlier rivalries among the private banks were forgotten—in particular the rivalry between Rothschilds and Barings which dated back to the financing and transfer of the last French indemnity.
The first round of the struggle for control of the operation was fought over the payment of 200 million francs demanded by the German occupiers from the city of Paris in February. At this early stage, needless to say, tension between the French and German sides was high. If the Germans had been willing to accept French banknotes, the matter would have been straightforward: it was easy for the Banque de France to advance 210 million francs to the provisional city commissioners (one of whom, it should be said, was Léon Say). But, anxious that the French currency might depreciate, the Germans insisted on being paid in coin. This seemed so unreasonable to Alphonse that he assumed they were merely looking for a pretext to break off negotiations, end the armistice and march into Paris itself. In the end, despite the continuing difficulties of regular communication with London, Alphonse managed to hammer out a compromise: 50 million was to be paid at once in French banknotes; 50 million in gold or silver coin as soon as possible; and the remainder in commercial bills on London and Berlin. The operation was guaranteed by a Rothschild-led syndicate of French private banks and carried out with the assistance of the London house.10 Most of the bills bought and handed over to the Germans (63 million out of 100) were in fact short-dated (one- or two-week) bills on London; the two bills for 2 million thalers which Alphonse gave to a dazzled Bleichröder were exceptional. This was the first sign that Alphonse intended London rather than Berlin to be the nodal point of the reparations process. Indeed, Alphonse made a hurried visit to New Court on February 21-2 to discuss how the same operation could be repeated on a larger scale for the impending national indemnity. As he had expected, the action of buying so much “London” weakened the franc slightly against sterling, though the Germans were protected against this depreciation under the terms of the agreement (as were the bankers: the Paris authorities had agreed to a fixed rate). At the same time, he foresaw the problems the Germans could create in London if they sought to convert their sterling bills into gold at one fell swoop.
The Paris contribution was merely an appetiser; the final total of the indemnity to be imposed had still to be decided. This proved less than easy. Figures bandied around at Versailles ranged from 3 to 8 billion francs; a “peevish” Bismarck himself initially proposed to Thiers a sum of 6 billion, which Thiers—leaping to his feet “as if he had been bitten by a mad dog”—denounced as “une indignité.” Even when he reduced this to 5 billion, the French continued to dismiss the figure as “exorbitant.” Still more galling to the French negotiators was Bismarck’s assurance that Bleichröder and Henckel had “devised a procedure by which this tribute, so burdensome in appearance, will be paid by you without your being aware of it.” As Favre remarked bitterly, the two German financiers “did their best to prove to us how much they wanted to carry out a colossal operation with our billions.” It was in order to head this off that Thiers requested the return of Alphonse from London to represent the views of both the Paris and London Rothschild houses. On February 25, with the two sides apparently deadlocked, Alphonse was summoned to Versailles. He was given an ominously frosty reception by the German Chancellor when he arrived that evening.
If Bismarck hoped that, as the son of a Frankfurt Jew, “Rothschild” would somehow be able to arbitrate, then he was disappointed. To be sure, Alphonse dissuaded the “exasperated” Thiers and Favre from “breaking off the negotiations and throwing themselves into the arms of Europe.” But when the German representatives proposed to him an initial annual payment of 1.5 billion francs, half in specie, half in bills, he “declared that he had no brief to discuss these [technical] questions as the French negotiators were not in agreement even on the first principles” of the peace. After an hour of inconclusive discussion, Bismarck appeared: “He was pale with anger and demanded what proposals we had agreed on. I replied that I had not been able to examine the questions since the two governments were not in agreement on basic principles. I thought Bismarck was going to devour me; he shouted, ‘But in that case peace is impossible!’ ”
Alphonse returned to discuss the next step with Thiers and Favre, but Bismarck was not finished: “A little later [he] reappeared with the following proposal. A billion payable within a year, the rest in three years ...” It was now ten o‘clock at night, and time for Alphonse to return to Paris. The final discussions, as he recalled in the letter he dashed off the next morning, had been “extremely lively and Bismarck had come close to saying that if war was resumed he would wage it horribly, as it had never been seen before.” Even Bleichröder confessed to being shocked at Bismarck’s “monstrous brusquerie and intentional rudeness.” Had anyone ever spoken in this fashion to a Rothschild? With magnificent understatement, Alphonse summed up his position as “difficult”:
Under a political façade they really wanted me to intervene in order to be the pivot of a financial combination which appears ruinous ... It is not necessary to make a group of bankers intervene directly in a political matter, thereby bringing upon themselves all the opprobrium of a negotiation, the moral responsibility of which they ought not to bear.
In one sense, Bismarck’s bluster had worked. The next day, as Alphonse anticipated, Thiers and Favre agreed to the 5 billion franc figure. To be precise: under the terms agreed on February 26, France was to owe Germany 5 billion francs, with interest accruing at 5 per cent, less the value of the French railways in Alsace and Lorraine and not including the Paris indemnity and other occupation charges already levied.11 The schedule of payment was tight: 500 million was due in the first month after the definitive peace treaty was signed (May 10); 1 billion by the end of 1871; then 500 million by May 1872; and a further billion due each March during the succeeding three years. These were terms which Alphonse could only regard as “disastrous” and “shameful”: 5 billion, he exclaimed, was a “fabulous figure” and “scarcely possible to pay within three years.” Rather like Keynes in 1919, he vehemently and repeatedly disputed the possibility of paying the sum demanded; at first he regarded even 2 billion as “absurd,” though he was later prepared to contemplate 2.5 billion. And like Keynes he warned cleverly that excessive reparations not only would plunge the defeated country into economic chaos but would disrupt the European economy as a whole: the difficulty of effecting such a large unrequited transfer would create turmoil on the international financial markets. But unlike Keynes Alphonse failed to persuade anyone. When the French government reluctantly accepted the peace terms, there was no serious intention to default on the indemnity payments in the way that there was in Berlin throughout the 1920s. Indeed, within days of warning his English cousins of the impossibility of paying 5 billion francs, Alphonse himself was hard at work preparing the ground for the transfer of the first instalment.
The best explanation for this shift from despair to action is that Alphonse had in fact won important concessions at Versailles, though at the price of bearing the brunt of Bismarck’s wrath. The retention of the fortress of Belfort was one. More important, the possibility was recognised of discounted payment in advance of the envisaged time-limit; and if that proved possible, the phased German evacuation of the occupied départements of north-eastern France would also be speeded up.12 Above all, Alphonse ensured that, although the Germans fixed the reparations total and set a time-limit for its payment, it was agreed that—within certain limits13—the French would be free to organise the payment themselves. As he had explained to Thiers at Versailles, Bleichröder and Henckel wanted “to link a large financial operation to the conclusion of the peace treaty.” But Alphonse’s view was that:
the two governments ought to agree on the size of the indemnity to be paid and the time in which it had to be paid, but that the French Government ought to reserve for itself absolutely the right to effect the payments as it saw fit. For otherwise that would lead to a confusion of particular interests with general interests and from every point of view that could have the most regrettable consequences.
Alphonse was his father’s son; for this was a classic Rothschild stroke. It was presumably this which persuaded Thiers to drop his objections to the 5 billion figure the next morning. Moreover, it ensured that the Rothschilds rather than the German bankers secured control of the financing of the indemnity.
At least six technical questions had to be answered if the indemnity were to be paid and the occupation ended. First, how far could payments be made without detrimentally affecting the French exchange rate in the way that the Paris payment had? Second, and closely related, should the Banque de France, which had suspended the convertibility of the franc into silver and gold during the war, aim to return to the bimetallic standard? Since Sedan, the French government had been relying heavily on short-term advances from the Banque against treasury bills to meet its financial needs.14Clearly, the initial payments to Germany would have to be funded in the same way; but further issues of money against treasury bills risked, as Alphonse repeatedly warned, a “descent into paper money,” just as the need to convert francs into currency acceptable in Berlin risked an exchange rate crisis. The third question followed logically from this: how soon could rentes15 be floated in French and especially foreign markets in order to raise the money needed for the indemnity (and for the government’s own needs) in a non-inflationary way? Fourth, would it be possible to introduce new taxes and control internal government expenditure in such a way that the new debt incurred in this way could be serviced? This in turn raised the question of the form of any new taxation: should France now belatedly follow England in introducing an income tax; or should it revert to a policy of imposing duties on raw materials; or should the stock exchange itself bear some of the brunt of the costs of defeat in the form of a new stamp duty on securities transactions? Finally, what of those largest and most visible private concentrations of capital, the railways? Might their assets and revenues in some way be utilised, whether by taxing them or by using them as a guarantee for the debt to Germany?
These were extremely difficult questions for a government born of defeat to answer. From the point of view of the government’s financial advisers, the Rothschilds, their implications were complex and ambiguous. The chance to control the great indemnity transfer held out the promise of large profits, but these might be negated if it all failed, or if the price of success proved to be taxes on the Rothschilds’ own assets. Above all, it was an immense risk to become identified with paying such large sums of money to Berlin. The Jewish bankers and politicians who became identified with the policy of “fulfilment” in Germany in the 1920s paid dearly for doing so; it is extraordinary, with hindsight, how little contemporary criticism Alphonse incurred for playing a similar role in the 1870s (though in the 1880s, as we shall see, that changed).
Nothing illustrated the difficulties involved more starkly than the collapse of the new government’s authority in the city of Paris itself between March and May 1871, just as preparations were getting under way for the payment of the first instalment of the indemnity. Although Alphonse repeatedly reassured his cousins that the majority of Frenchmen were conservatively inclined—a view endorsed by the monarchists’ victory in the elections to the National Assembly held on February 8—the threat from the “parti rouge” in the capital had been real from the moment the perennial “red” Auguste Blanqui and the rest had emerged from hiding or imprisonment after the fall of the Empire. Twice they had led “the mob” to the Hotel de Ville following military reverses: on October 31, 1870, and again on January 19. By March the stage seemed set for a re-enactment of 1848; even the cast was unchanged, with moderate republicans led by Thiers and Grévy and the radical left represented in the Assembly by Louis Blanc, Delescluze and Ledru-Rollin. When, on March 18 Thiers sought to disarm the National Guard—enlarged and at the same time politicised during the war—history duly repeated itself, though as another tragedy rather than a farce. Heavily outnumbered, the government troops opted to fraternise with the crowds. Rather than risk further defections, Thiers decided to pull all his forces out to Versailles, leaving Paris in the hands of the Central Committee of the National Guard.
On March 26 a new municipal government was elected, the Commune—its name redolent of 1792—and this was soon under the control of the Blanquists and Jacobins. Fighting broke out in early April and another full-scale siege was soon in progress. Reading from their crumpled historical script, the Communards set up a Committee of Public Safety on May 1, revived the old revolutionary calendar and began to put one another on trial. This time, however, the Terror was inflicted on the revolutionaries rather than by them. In the Bloody Week which ended on May 28, around 20,000 people died, around half of them Communard prisoners lined up and shot at the orders of the army commanders in improvised “abattoirs.”
For the French Rothschilds, the advent of the Commune proved to be the most serious threat to property, if not to life, of the entire period between 1815 and 1940. On March 26 Alphonse advised Gustave to leave Paris for Versailles, but intended to remain in the rue Laffitte himself. However, on his way back after paying his brother a visit on April 1, he was warned by the train driver that the Commune had ordered communications with Versailles to be severed and that the train he was travelling in would be the last into the city. He disembarked and returned to Versailles. This was a sensible decision; if he had proceeded to the city centre he might well have ended up a hostage and would unquestionably have found himself caught up in some of the most brutal street-fighting of the nineteenth century. It was only by a hair’s breadth that Rothschild offices and houses avoided being burnt down; to Alphonse’s relief, the Gare du Nord also escaped serious damage, unlike the Banque de France and the Finance Ministry. When Alfred visited Paris in late June, he was able to report cheerfully that:
the various shots that found their way into this house, have only knocked off a corner of the ceiling in the smoking room and the only souvenirs of the revolution are a brush with which the blackguards were going to petrolize (a new verb) the house, and various photographs of these ruffians whose great pleasure was to be immortalized in various positions.
Even so, Ferdinand was shocked by the effect of the crisis on his cousins’ physical condition: he found Alphonse and Gustave “painfully green and yellow” when he met them in Paris in August—and disconcertingly secretive.
From the point of view of the indemnity payment, the descent of Paris into civil war was a setback, bringing financial activity to a near standstill. There were compensations nonetheless. Events in Paris could be portrayed as a threat to the governments of all countries, and further evidence of the unwisdom of a Carthaginian peace. Moreover, once military discipline had been re-established within the regular army, it gave the government a chance “to get rid of all those vermin, veritable gallows fodder who constantly threaten society”—to “purge France and the world of all these rogues.” Evidently, Alphonse shared the violent antipathy towards the Parisian “dangerous classes” which was at the root of the Bloody Week.
It is tempting to add that there was one further benefit: the defeat of the Commune reinforced Thiers’ position as President. But was this really advantageous? One of the puzzles of the early 1870s is the nature of the relationship between Thiers and the Rothschilds. Early on, Alphonse referred to Thiers as “our friend” and seemed happy to see him as “master of the situation”; and there is no question that he stood four-square behind him and the moderate republicans during and immediately after the “war against Paris.” To Alphonse, Thiers seemed the only man capable of reconciling republican Paris with the monarchist provinces. But “our friend” was a Rothschild euphemism devoid of emotional content. In truth, Alphonse had reservations about Thiers which soon resurfaced. Thiers, after all, had been no friend of Alphonse’s father in the days of Louis Philippe; and the old man evidently made Rothschild fils feel uneasy, perhaps on account of this. “It is really difficult to converse with him,” complained Alphonse after one encounter, “especially for people like me whom he knew as children.” Was Alphonse just a little afraid of Thiers? Alfred noticed that he “rather dreaded calling upon the little President of the great Republic.” More often, Alphonse articulated this sense of unease by criticising Thiers’ dictatorial tendencies (especially towards the Banque), or his fondness for political double-dealing. “A Proteus who, despite his great stature, always slips through our fingers” was his curious verdict. As early as June 1871, Alphonse predicted that, if Thiers were to fall, he would most probably be replaced by the duc d‘Aumale, paving the way for an Orleanist restoration.16
Nevertheless, Thiers had one quality which the Rothschilds did not underrate: he grasped the primacy of finance over all other factors under the circumstances of 1871—3. “Above all,” Alphonse told Thiers in early June, “the political situation must be clarified and for the present it must be completely subordinated to the financial questions.” Subsequent events were to confirm that Thiers accepted this. Despite his seniority, the President generally deferred to Alphonse’s advice on these financial questions. And despite repeated efforts by rival banks to challenge the Rothschilds’ position, he never really questioned the need for their leadership in the payment of the indemnity. This in turn may explain why, as he later told Gambetta, Alphonse acted to keep Thiers in power when his position seemed to be threatened in late 1872. According to one account, Alphonse told Gambetta:
that he liked M. Thiers but that Thiers had nonetheless unjustly accused him of having been his enemy. For a whole year, he refused to see him. Thiers said: “It was Rothschild who overthrew me.” “He said that to me too,” Gambetta interrupted. “It isn’t true!” replied Alphonse de Rothschild vehemently ... “I obviously had a certain influence with quite a large number of deputies and I enabled Thiers to hold on for six months longer than he would have lasted without me. I told my friends in the Chamber, ‘Don’t overthrow Thiers; that would be a national disaster ... At least let the great loan operations finish, for on them depend the credit and fortune of France.’ I never said anything else.”
Whatever their suspicions about one another, the two men were united by bonds of interest, though in the strictly financial sense of both words.
Could other banks have handled the indemnity payment just as well—perhaps even more cheaply? It is arguable. Three per cent rentes looked undervalued in the first half of 1871 at prices of 50—53 francs. Bleichröder was far from being the only European banker who saw the opportunity for netting large profits from the “great operation,” not only in the form of commissions, but in the form of capital gains if the rentes could be taken firm at such low prices; given the track record of the rente as an investment since 1815, a substantial rise seemed inevitable. He and other German bankers swarmed around Paris in May, trying to secure a share of the action. Nor were they alone. The Banque de Paris also attempted to outbid the Rothschilds, and there was also competition from J. S. Morgan, who had taken the risk of financing the French war effort in October 1870.
However, none of the Rothschilds’ rivals could claim to match their international reach as an issuing house: as Mazerat of the Credit Lyonnais put it, “Rothschild’s great European relations and the power of his capital resources create for him an absolutely exceptional role.” This was the key. In order to raise the maximum amount of hard currency from the issue, Thiers and the French Finance Minister Augustin Pouyer-Quertier wished to sell as many of the new rentes as possible outside France, and ideally in London. The fact that Alphonse could legitimately present himself as the spokesman not just of the Parisian haute banque but also of New Court was his trump card. “Our opinion, I have no doubt,” he reported to London, “will have a very great influence over the decisions which the [Finance] Minister is in the process of taking and our attitude must necessarily be very influenced by yours.” “The minister has addressed himself to no one other than us,” he added later, “and I have no doubt that you can be assured of the conduct of the entire operation in England.” Alphonse also recommended that the issuing of rentes in Germany be handled through the Frankfurt house, rather than by Bleichröder and Hansemann, “particularly as it seems to me that it would be difficult for the government to open a subscription directly through German bankers, whereas the house of Rothschild has a cosmopolitan name.”17 Small wonder the Rothschilds’ rivals grumbled: as Mazerat put it, Alphonse had become “the pivot of all the financial combinations which are going to emerge. It is impossible to keep abreast of his projects.”
With the government thus committed to Rothschilds, all that remained to be agreed were the mechanics of the operation. Alphonse’s letters of June 1871 give perhaps the best insight available into the way such negotiations were conducted. The points at issue were numerous: the timing of the issue (before or after the elections of July 2?); the amount to be issued (2 billion francs or more?); the respective shares of the French, English and other markets; the interest and amortisation payable on the bonds; the issue price (figures discussed ranged from 80 to 85); the timing of subscription payments (how many monthly instalments?); the bankers’ precise role (should they take the bonds firm or underwrite part or all of the issue?); the size of their commission, brokerage and other charges; and finally the exchange rate for interest payments to foreign subscribers (should this be pegged against future depreciation of the franc?).
The answers arrived at after days of haggling were as follows: subscriptions for 2.6 billion francs worth of 5 per cent rentes were to be opened on June 26 at an issuing price of 82.5, though with the timing of subscription payments such that the net price was around 79.5. The exchange rate for English interest payments was fixed at 25.30 francs to the pound. The two syndicates led by the Rothschilds in London and Paris were formally underwriting only 1,060 million of the total issue, in return for which they received a commission worth 2 per cent of the nominal value (21.2 million francs), so that the effective price of their subscriptions was more like 77.5 (Alphonse calculated the figure as 77.7). There was, admittedly, a catch of sorts. Technically, the syndicates were underwriting not the first billion of the issue (as the Berlin bankers had expected) but the second billion. If the issue went badly, their chances of being left holding large quantities of rentes were therefore higher. On the other hand, if the issue went so well that the public bought the lot, the bankers would have to rest content with their commission. The Berliners thought this “flatly unacceptable.” However, the French government concluded a secret oral agreement with the Rothschild houses to the effect that they would be allowed to hang on to some or all of the rentes they underwrote. The Rothschild share was therefore 410.5 million francs—more than a third of the total amount underwritten or 16 per cent of the total issue.18 It is therefore a matter of straightforward arithmetic to calculate the profits they earned. The commission alone was worth 8 million francs; but that overlooks the large capital gains involved. If the London and Paris houses held on to all the rentes for which they had paid an effective price of 77.7 and sold them all at the market’s next peak in November 1871 (97.1), they would have made a profit of around 80 million francs (c. £3 million).19
It was typical that Alphonse regarded this as rather less than might have been achieved. It had proved impossible to achieve a complete Rothschild monopoly. Not only had the French joint-stock banks managed to secure a small share, but the markets other than London and Paris had been effectively “free for all,” so that brokers began trading unofficially in Brussels even before the subscriptions were opened. “I confess it’s a veritable muddle,” grumbled Alphonse, whose opinion of the inexperienced Pouyer-Quertier had never been high, “but I assure you that it is not our fault; to prevent it we would have had to become Ministers of Finance ourselves.” Yet within a few days, as the full extent of the loan’s success became apparent, such complaints faded. At first, subscriptions were said to be double the amount issued; by July 20 Alphonse estimated a factor of eight. Not only that, but the French joint-stock banks had been successfully squeezed out, as they were again when the city of Paris issued a loan of its own through the Rothschilds not long after. As Mazerat of the Credit Lyonnais complained:
In all the affairs which have been contracted since the war, the house of Rothschild and, under its aegis, the haute banque group, have played an almost exclusive role ... It was Rothschild and his friends, with the support of the Banque de France, which advanced the 200 million francs necessary for the city of Paris to pay its war contribution; it was the same group which reserved for itself the 2 billion loan and it was only as a favour that the credit establishments were able, at the last minute, to obtain for themselves an insignificant share of the commission of 20 millions which the Rothschild syndicate had earned for itself ... Now the next loan for the city of Paris is announced on the same terms ...
With Alphonse now one of the dominant regents at the Banque de France and the Rothschilds’ “long-standing intimate friend” Say now Prefect of the Seine, the joint-stock banks saw themselves as the victims of political discrimination. On August 5 they therefore signed an agreement which was little short of an anti-Rothschild alliance. As Mazerat put it, deliberately casting aspersions on Alphonse’s patriotic credentials, the joint-stock banks had united “as French establishments” to lay claim to “the place which they must legitimately take in French affairs.”
The objective of cutting the German banks out of the operation had also been achieved—though how far this was the fault of bad communications, timidity in Berlin or malice aforethought in Paris is hard to say. It is worth noting that this exclusion extended not only to Bleichröder, Hansemann and Oppenheim but to the Rothschild houses in Frankfurt and Vienna as well. Anselm applied for as much as 31 million francs of the new rentes and the Creditanstalt for 47 million, but by the time these applications reached Paris subscriptions were already closed. Mayer Carl only just managed to secure a subscription for 2 million francs. Not for the first time, the fault lines dividing the European capital market were breaking up the traditional co-operation between the Rothschild houses, leaving only an Anglo-French axis intact. That this did not concern Alphonse is plain. “I do not regret,” he wrote with a hard-edged satisfaction, “having been able to demonstrate to these gentlemen, despite all our goodwill, that when we are engaged in a transaction, we can do without them, just as we can do without the Berlin types who have missed the chance to make a pretty nice profit.” Triumph though it was for the English and French houses, the first Thiers rente also marked a further step towards the disintegration of the Rothschilds as a united pan-European force.
This, of course, was only the first phase: there remained the question of how the money raised by the rentes issue should be transferred to the German government. The obvious way of proceeding was for the government to buy bills on London—the most popular of liquid financial instruments—and hand them over to Berlin. Something like a third of the first 1.8 billion francs was indeed paid in this way; to Alphonse’s annoyance, it proved impossible to establish a monopoly on the French government’s purchases of bills. However, the Germans now began to make difficulties, insisting that they would rather receive gold or German thaler bills than long-dated sterling bills.20 As usual, Bleichröder sought to inflate his own importance by relaying the views of his “friend” on this issue to Paris. But Alphonse was unimpressed. “These gentlemen may be great [military] victors,” he commented acerbically, “but they are certainly pretty bad financiers. They are locking up the money we remit them and do nothing to facilitate the payments.” The transfer difficulties precipitated a mild currency crisis in the last months of 1871, coinciding as they did with a poor harvest (and therefore a need for French grain imports), a speculative surge at the bourse and the first serious arguments about tax policy. To protect its reserve, the Banque de France had to issue new small-denomination notes and pressurised the government to reduce its large floating debt. This burst the bubble on the bourse: the price of rentes peaked in November then fell about five percentage points, in the first half of 1872 (see illustration 6.i). As a consequence of all this, discussions of the next payments due in Berlin by May 1872 had to be deferred until the New Year.
The French government’s difficulties gave the Rothschilds’ rivals a fresh opportunity to tout for business. It was the Banque de Paris which led the challenge, acting as a front (so Alphonse suspected) for German interests, notably Henckel von Donnersmarck. The “Paribas”21 director Soubeyran had got the better of Alphonse in the scramble for bills in the summer of 1871 and on the question of the 300 million francs due by May Alphonse was forced to give ground: after much wrangling, he and the other private bankers guaranteed half the sum, leaving the other half to the joint-stock banks. This was but a foretaste of the bitter competition for control of the remaining 3 billion still to be paid. Once again Bleichröder kept trying to force the pace, having made contact with Pouyer-Quertier when the latter visited Berlin. He pestered Alphonse with more or less hare-brained schemes, all designed to secure for himself a bigger share of the next big operation: a new Franco-German joint-stock bank should be set up in Paris to handle the next loan; the 3 billion should be guaranteed by French railway shares (in other words, French railway shareholders would exchange these for rentes and hand over control of the French rail network to Berlin). Like Henckel von Donnersmarck’s proposal for a lottery loan, all these German schemes were ultimately irrelevant: a sudden upsurge of patriotic feeling in France itself—an impatience to end the occupation as soon as possible—made it highly likely that the 1871 rente operation would be repeated. The only question was whether the Paris and London Rothschilds would be able to repeat their earlier coup of controlling the new issue.
5.i: The weekly closing price of French 3 per cent rentes, 1860-1877.
At first, Alphonse was sceptical about the possibility of paying the 3 billion ahead of schedule in view of French political instability and the slight deterioration in Franco-German relations which happened in the spring of 1872. By the end of June, however, fear that the Paribas group might steal a march on him galvanised him into action. It was inevitable that the government would be less generous the second time around. In order to secure a repeat of the underwriting system, the bankers had to promise to provide the government with 700 million francs in hard currency. As Alphonse said, this was necessary only “in order to be able to justify a bigger commission.” The price of the issue was also set higher—it was offered to the public at 84.5, though the effective net price to the underwriters was 80.5. It was probably also inevitable that the joint-stock banks would succeed in securing a larger participation. Yet once again Alphonse had the best of the bargaining. As in the previous year, only a billion of the total issue of 3.5 billion francs was guaranteed: of this billion, the Rothschild group (that is, the Paris and London Rothschilds, Barings and the haute banque firms) took 64.3 per cent, leaving slightly less than a third to the joint-stock banks; the same proportions applied to the 700 million franc foreign currency advance. The two Rothschild houses alone accounted for 282 million of the guaranteed billion and 197.5 million of the 700 million advance—28 per cent of the total in each case.
Despite the fact that most of the transfer in 1872 and 1873 was paid in thaler bills, the German banks continued to play a minor role. Bleichröder even came to Paris in person to combat what he saw as a sinister conspiracy to corner the German market by Hansemann, but neither was really on the inside track: altogether, German subscriptions amounted to just 3 million francs.22 As for Mayer Carl, he could only grumble: “[W]e know nothing and have only the pleasure of seeing empty letters from our Paris friends with long phrases pour tout potage.” For the lucky insiders, the profits involved were once again substantial. The commissions amounted to 1.5 per cent on the guaranteed billion (15 million) and 25 million on the 700 million francs of foreign exchange, implying 11.2 million francs for the two Rothschild houses alone. That excludes the large capital gains made as the rentes rose rapidly above the purchase; it seems reasonable to assume that the Rothschilds themselves invested in the issue as well as underwriting it.
Mayer Carl evidently would not have been sorry if the loan had flopped; in fact, as Alphonse had foreseen, the guarantee was even more superfluous than in the previous year, though even he was taken aback at the extent of oversubscription: a factor of around eight. This struck him as “ridiculous,” and in the short term that view seemed to be confirmed. Once again, transfer problems depressed the exchanges in late 1872 and rentes sagged to a new post-war low. This time, it was the German government’s objection to being paid in bills on Hamburg which caused the difficulty.23 Yet the oversubscription of July reflected a far from unrealistic market assessment of the rente’s medium-term prospects: in the three and a half years between December 1872 (81.5) and March 1877 (107.88), the 5 per cent rente rose more or less uninterruptedly by more than 25 percentage points, prices last seen on the very eve of the Empire’s fall.
Nothing could better illustrate the lack of correlation between French financial and political strength in the crisis of 1870-71. We are bound to ask: if France could so swiftly “win the peace” by paying off reparations worth 5 billion francs in the space of just over two years, why had she been so woefully unable to win the war? Why were the French more willing to pay for defeat after the fact than to pay for the chance of victory before war broke out? The only logical conclusion is that the Bonapartist regime should have issued 5 billion francs of rentes to finance rearmament in the late 1860s; could have done so financially, but was unable to do so because of its own political deficiencies.
Soll und Haben
Thus were the spoils delivered to the victor. But what would the victor do with them? From an early stage in the indemnity transfer, Alphonse had expressed doubts about the financial competence of the recipients of reparations. “The Berlin market is in a shocking state,” he exclaimed in December 1872. “Where then are the 5 milliards we have paid to these gentlemen? It is said no profit derives from ill-gotten wealth.” The crisis which swept through the Central European financial markets in the summer of 1873 seemed to vindicate him entirely. “Our 5 billions have cost them dear,” he noted with satisfaction that September.
On the other side of the political divide, Mayer Carl had also had some doubts about the sustainability of the Gründer boom, which resumed with a renewed vigour in the wake of Sedan. In particular, he was disturbed by the proliferation of new joint-stock banks throughout Germany. Of course, his objections to this trend were self interested. “All these banks,” he grumbled in January 1871, “are too glad when they have an opportunity of investing money and showing that they are the only parties who make loans and push us aside.” On the other hand, he was right to recognise symptoms of economic overheating, even if he had no real idea of their cause. “The wild speculation in all the new bank shares,” he reported in October 1871, “continues to be the chief topic of conversation & nobody understands the mania shown in favour of all these new rubbishing schemes which absorb a good deal of money.” “The mania for starting new Banks and Credit Mobiliers is becoming a regular nuisance,” he added a month later, “and will no doubt end by a catastrophe as nobody knows what all these establishments are to do with the money of [their?] subscribers.” By May 1872 Mayer Carl was explicitly predicting “a monetary crisis which is not unlikely to take place in consequence of all the rubbishing shares which have been issued and what are floating about and seen to be perfectly unfal lable [sic].”
On the other hand, the sheer volume of business in the new Reich more than compensated for the nuisance of increased competition. Even as the new Reich was being proclaimed in January 1871, Mayer Carl was busy with a loan to Württemberg, though on this occasion he was defeated by “Erlanger and all his rubbishing banks.” He was more successful when Baden too turned to the capital market in the same year, and also arranged a small loan for the municipality of Ratisbon. Munich, on the other hand, eluded him. Plainly, the old Rothschild dominance in South Germany was a thing of the past. It was therefore of vital importance to Mayer Carl to develop his links to Hansemann and the Disconto-Gesellschaft, and through him to the burgeoning Berlin market. Hansemann, he reminded his English cousins with Victorian over-emphasis, was:
a fine and great friend of the house much more so than Bleichröder who is merely a vain and ambitious fellow hunting after personal advantages & distinctions which may be of service to him but which cannot be of consequence to our personal interests ... Mr Hansemann is so sincerelyattached to me that he would never do anything directly or indirectly to injure our interests which you may depend upon ... Unless you keep up a friendly understanding with him you will never be able to do any business here with the Government as he is particularly in favour & his influence is greatly increasing. I can therefore only repeat what I said so often that if we want to act cleverly we ought to be on the best footing with Mr Hansemann & I have every reason to believe that he never does anything without me but that he expects the London & Paris houses to be equally on good terms with him.
It was through Hansemann that Mayer Carl became involved in a number of profitable railways, including the Cologne-Minden line. “I am sure that you will be more than satisfied,” he reported to New Court, which evidently had a share in this business, “& think that old Charly is not so stupid as he looks”—a nice indication of the sense of financial inferiority the Frankfurt partners were beginning to feel. His involvement in South German railways also seems to have been linked to Hansemann. It seems that in the early 1870s Mayer Carl was increasingly acting as a satellite of the Disconto-Gesellschaft, the more so with each fresh sign of neglect from London or Paris.
It would be too much to posit a direct causal link between the French indemnity and the crash which brought German finance to a standstill in 1873. After all, it was in Vienna rather than Berlin that the crisis began on May 8—9. Nevertheless, there is no question that German fiscal and monetary policy in the period the indemnity was paid did nothing to check the post-war “mania.” “I saw the Finance Minister in the [upper] house,” wrote Mayer Carl in March 1872, “& he asked me if I could make use of money as he has so much that he did not know what to do with it.” This was a pardonable exaggeration: still, if we accept that the war had cost Germany 220 million thalers, it had in effect generated a budgetary surplus in the form of reparations worth 1.3 billion thalers (5 billion francs). The German government used this money in a number of ways which tended to fuel the stock market boom. Granted, 120 million thalers were put in a “war chest” in the Julius Tower to await the next war—as effective a sterilisation of the money as could have been achieved. But the Germans spent around 60 million on grandiose building projects in newly imperial Berlin, and much of the rest on reducing the debts of the Reich’s member states and the North German Confederation. This created additional liquidity in an already buoyant economy.
A related difficulty was the uncertainty about Germany’s monetary arrangements. Within the new Reich in 1871 there were at least seven coin systems, mostly silver-based. However, the Liberal bankers like Ludwig Bamberger who took the lead in the monetary debate after 1870 favoured the adoption of an altogether new German currency based on gold, partly because of the fall in the price of silver relative to gold. The first legislative steps towards this were taken as early as October 1871, but it was not until July 1873 that a Coinage Law was passed, and not until March 1875 that a central bank, the Reichsbank, was created to manage the new currency. By that time, the bubble had long since burst. The available statistics point to an increase in the money supply of around 50 per cent in the period 1871-3 and price inflation of a similar order. The crash of 1873 wiped out those gains and drove thousands of firms into bankruptcy.
Was this nemesis after the hubris of Versailles? Alphonse thought so. Yet the financial crisis of 1873 and the subsequent onset of the so-called “Great Depression” —the decline in primary product prices which continued into the 1890s—did not spell the end of French strategic vulnerability. As early as January 1874, just four months after the last German troops had left French soil, Thiers’ successor the duc Decazes was accusing Germany of planning a new war against France. The following year, Bismarck’s mouthpieces in the German press asked “Is war in sight?” unleashing panic on French markets.
The alarm proved to be a false one; possibly Bismarck had never intended anything more than to beat the militarist drum for domestic political reasons. To the Rothschilds, however, what was crucial was the decision of Disraeli and Gorchakov to put aside their differences in Central Asia in the interests of peace in Europe. At least, that was how Disraeli presented it to them. “Last evening,” reported Charlotte to her son, “[Dizzy] paid a flying visit to your father, and told him of his immense success in negotiating for the maintenance of peace on the continent.” The Prime Minister was, of course, indulging in his customary hyperbole. Still, the difference between his conduct and Gladstone’s in 1870—71 can hardly have escaped Lionel’s notice. The events of those years revealed two things: that conflicts between the great powers, though hazardous to them as a family, were not unprofitable to them as bankers; and that the key to international stability lay not in Paris, nor in Berlin—but in London.