Byron went on to discuss—with remarkable insight—that ascetic materialism which, as we have seen, was such a distinctive early Rothschild trait. Indeed, it seems not unreasonable to suggest that the poet’s reflections on “gaunt Wealth’s austerities” may have been inspired by Nathan himself:

That Byron could suggest—even satirically—that Nathan Rothschild held, along with Alexander Baring, “the balance of the world” requires some explanation. The name of Baring was, of course, well established. Like the Rothschilds the family hailed from Germany (Francis Baring had emigrated from Bremen in 1717); and, like Nathan, Francis’s son John had made his fortune in the textiles business, as a wool manufacturer, before his sons established the merchant bank of Baring Brothers in 1770. However, as Lutherans the Barings had easily been absorbed into the social elite of Exeter and later London. John’s younger son Francis had been an MP since 1784, a member of the board of the East India Company since 1779 and a baronet since 1793. Alexander, his son and successor at the bank, also became an MP in 1806. By contrast, only a few years before Don Juan, the Rothschilds’ role in the financing of the war against Napoleon was still largely a secret, known only to political and financial insiders. Even the Paris banker Jacques Laffitte was better known as Governor of the Banque de France between 1814 and 1820 and one of Napoleon’s financial backers in the Hundred Days. What happened in the years after the upheaval of Waterloo to catapult Nathan to such celebrity—and notoriety—that he could be said to “reign” over royalists and liberals, “rouse” Spanish patriots and “keep the world, both old and new, in pain / Or pleasure?”

The Rothschilds evidently hoped that the financial provisions of the peace—which implied a new and potentially lucrative series of international transfers, this time from Paris rather than London—would provide them with plentiful opportunities to recoup the losses of the Hundred Days. At first, there were grounds for optimism, at least as far as relations with the recipient states were concerned. Gervais as usual promised to hand Rothschilds the better part of Russia’s share, and Herries was likewise expected to secure a large tranche of the British. However, it quickly became apparent that any business arising from the French “contributions” would have to be shared with other bankers, who now rushed to challenge the Rothschild monopoly on international transfer payments. Only by entering into loose partnerships—with Mendelssohn in Berlin, Bethmann and Gontard in Frankfurt, Arnstein & Eskeles in Vienna and Parish & Co. in Hamburg—were Salomon and James able to participate in the initial payments to Prussia and Austria. Even the British and Russian contributions could not be taken for granted.

Partly, the problem was one of declining influence. Dunmore, Herries’s representative in Paris, was less “friendly” than Herries himself, while the Russian minister Count Nesselrode had reasons for favouring Gontard. It was a serious setback when first Gervais and then Herries left office. To make matters worse, some of the other officials they found themselves dealing with—the Russian Merian and the Prussian Rother—declined to accept bribes. But the real problem was that peace had brought competition. As James complained, contemplating profits of 1.5 per cent and less, there was “not much joy to be had from the contributions business, because there are too many people here.” Salomon was especially irked by the Austrian representatives, who “run from one house to the next for the sake of an extra sou.” Ultimately, he and James became almost fatalistic: “There are no big, brilliant deals to be made here. But now that we’re here, we’re happy to take all that we can to prevent it going to anyone else.” The only consoling thought—frequently repeated—was that contacts with courts, no matter how unprofitable, might lead to business in the future. The brothers never turned up their noses at small-scale transactions and gladly advanced the contributions due to the smaller German states and the minor compensation payments which Russia had to make for damage to private property by Russian troops.

Far more disappointing, however, was James’s failure to win a share of the business generated on the other side of the reparations equation. That France would be able to pay reparations and the costs of occupation only by means of a large loan had become obvious by late 1816. Despite efforts to cut spending and raise taxes, there was no realistic way of achieving an annual surplus in excess of 170 million francs, not least because of the unhelpful attitude of the ultra-royalist “Incredible Chamber” which—like most nineteenth-century assemblies elected by income or property tax payers—showed little enthusiasm for raising direct taxes. Indeed, the 1816-17 budget showed a deficit of over 300 million francs, which was financed only with the greatest difficulty by short-term borrowing. Moreover, the Paris capital market by itself was far too weak to absorb unassisted the new issues of rentes which were inevitably going to be needed. With the price of 5 per cent rentes down as low as 50, the government had little option but to look abroad.

In the immediate aftermath of Napoleon’s defeat, the Rothschilds’ prospects of influence at the French court had been good. Not only had they been responsible for relaying a British loan to the returning French King, but Dalberg, the former Prince-Primate of Napoleon’s Rhenish Confederation and Grand Duke of Frankfurt, had emerged as a member of the French provisional government—one of a number of opportunists (the most famous being Talleyrand) who managed to survive yet another change of regime by a well-timed defection.³ However, the resignation of Talleyrand and the formation of a new government under the duc de Richelieu appear to have weakened the Rothschild position. James made every effort to cultivate Richelieu’s secretary, who evidently provided valuable inside information on French intentions. But, when the question of a loan was raised in the autumn and winter of 1816, the Finance Minister Corvetto elected to give the business to Baring and Pierre-César Labouchère of Hope & Co.,⁴ who had successfully been wooed by Gabriel-Julien Ouvrard, another survivor of the imperial era. An agreement was reached in early 1817 whereby, in return for a 2.5 per cent commission, Baring provided the French government with an initial 297 million francs in return for 5 per cent rentes. Because the bonds were issued over a period of several months in three tranches at prices of 52.5, 55.5 and 61.5, this meant that the French government had increased its national debt by around 534 million francs for the sake of less than 300 million francs in cash—or to put it another way, it was paying interest at an effective rate of around 9 per cent, nearly double the nominal rate on its rentes. Contrary to later mythology, the Rothschilds found themselves more or less excluded from this immense operation, “to prevent,” so Baring claimed, “a selling race at the exchanges with resulting depreciation.”

This was a bitter blow to James, who had expended considerable energy on his own plans for a loan, and who believed up until the eleventh hour that, at the very least, he would be able to participate in some kind of consortium. “Depressed” and angry, he railed at Baring’s duplicity, claiming that his rival had bribed the French government to exaggerate its inability to pay and thereby secure a six-month breathing-space. His anger was redoubled when a last-ditch effort (in partnership with Laffitte and Parish) to join the Baring group for the third issue of rentes in July 1817 came to nothing. Salomon, returning to Paris from London, could not help but admire the way his brother had been outmanoeuvred:

Whatever the truth of these allegations, Baring was in a strong enough position to exclude James again when the negotiations began for a final loan to pay off the remainder of the indemnity. Although rentes with a face value of 290 million francs were issued directly to the public in May 1818, the government appears to have taken fright at the frantic speculation these attracted (the issue was oversubscribed almost ten times, pushing prices up to a peak of 80 compared with an issue price of 66.5), and a second issue of 480 million francs (nominal) in the same month was entrusted to Baring. When James—along with the other Paris banks Baguenault, Delessert, Greffulhe, Hottinguer and Laffitte—was offered a mere 10 million francs, to be shared with David Parish, he was disgusted, fulminating at the “abominable” way he had been treated. He and the others had to content themselves with shares of a 31 million franc loan to the city of Paris. As the Duke of Wellington reported to Lord Liverpool, “The fact is that Baring, having the French finances in his hands, and French loans being in fashion in England, has to a certain degree the command of the money market of the world. He feels his power, and it is not a very easy task to succeed in counteracting him.” If there was ever a moment when Barings deserved to be called “the sixth great power” (a probably apocryphal phrase attributed to Richelieu), then this was it.

There were admittedly arguments for limiting the brothers’ direct involvement in a large-scale loan to France. After the trauma of the Hundred Days, Nathan had good reason to doubt the stability of the restored Bourbon regime. Salomon might reassure him that, according to best sources in Paris, there would be “no more revolution in France,” but he added the important rider: “at least not in the foreseeable future, and if there is something, it is certainly not be feared in the next three months.” After all, as he admitted, there was “no way of insuring against the hot heads of the French,” and a future default could not be ruled out. Such comments suggest that he had no more confidence than Nathan in French funds. This pessimism was reinforced by “talk of war” which James heard in Paris in May 1816. A few months later he was even more alarmed by news that the British government might favour replacing Louis XVIII with the duc d’Orléans, which James warned would lead to civil war. Widespread social unrest in 1817 caused by a bad harvest and high food prices reinforced such anxieties.

On the other hand, the financial position of the restored Bourbon regime was less shaky than it appeared, and this helps explain the rapid rise in the price of rentes during 1817 and the first half of 1818 which made the loan so profitable for its contractors. Because of the great assignat inflation of the 1790s, France—unlike Britain—had more or less wiped out the accumulated debts of the eighteenth century. Its total public debt in 1815 stood at just 1.2 billion francs, roughly 10 per cent of national income—so much less than the equivalent figure for Britain that it amounted to a clean slate. It was therefore easy, once Baring had started the ball rolling, for France to issue further loans without in any way depressing the price of rentes. As the price of rentes rose, Baring was getting, as James ruefully observed, “money for nothing.” France’s resources were in reality “formidable” and the political situation stable: “If the Allies withdraw, France will remain quiet. Be assured that there is no party left here which could put up resistance to the Government, at least not soon.”

The Rothschilds’ failure to secure the 1817 and 1818 reparations loans was therefore a costly defeat. The implication was clear: if they had stolen a march on other bankers in early 1814, now they had to face a determined effort by the Barings and Bethmanns to reclaim their earlier predominance in European public finance, as well as new competition from less established figures like Gontard and the Bavarian financier Adolph d’Eichthal.⁵ As Carl had put it in 1814, “The main thing is that people are hostile towards us because we have the business.” “We have enemies aplenty,” James lamented a year later, “though it is more a matter of envy than enmity. Every five minutes someone else is going to the [Prussian] minister and asks: ‘Why does Rothschild get given everything?’ ” It had been easier before, commented Carl, when the risks were greater, because there had been less competition. Indeed, James even acknowledged that, in seeking to exclude them from the reparations payments, the Viennese bankers were only “doing what the Rothschilds had done” over the subsidies. Baring seemed to pose the biggest threat at this stage. Not only did he and his associates “want to subject all of France according to their will so that they can do what they like”; they also posed a threat to Nathan’s position in London. As Amschel said, Nathan seemed to be “rather upset if somebody else does any business transactions with London. He feels that he more or less owns London.” It cannot have pleased him to hear it said “that [because of Baring] you don’t play any longer the first [role] on the Stock Exchange and that you are unable to fix the quotation” of stocks. However, the growth of competition was just as marked in smaller financial markets like Kassel, where the end of the war and the return of the Elector led to frenetic efforts to end the Rothschilds’ near-monopoly over his finances, built up during his years in exile, and to win a share of the Rothschilds’ “mountains of gold.”⁶ As James put it in early 1818, “The whole world is jealous.”

The Rothschilds did not suffer competitors gladly. Indeed, they had a wide range of abusive terms for them, such as Schurken (scoundrels), Bösewichte (rogues) and Spitzbuben (rascals). Even before Waterloo, there had been much talk of “putting spokes in wheels” of rival “scoundrels” and “sharpshooters,” and dealing them “blows where it hurts.” The question in 1818 was how best to “hurt” Baring and Labouchère. Tradition has it that the brothers did so by means of a huge intervention in the market for rentes. First, they invested heavily in the new rentes being created under the Baring scheme. Then, just as the great powers met at Aix-la-Chapelle to negotiate the final reparations payments, they allegedly turned from bulls into bears, dumping rentes on the market with devastating consequences for prices. In this way, they decisively weakened Baring’s position, forcing him to call off the final loan which he had been on the point of making on behalf of France. There is no doubt that we need an explanation for the remarkable speed with which the Rothschilds outstripped their more established rivals. And it is true that Baring was acutely embarrassed by the sharp drop in rentes to a nadir of 60, and was saved only by the fact that so many of the ministers present at Aix—including Nesselrode, the Austrian Chancellor Prince Metternich and his Prussian counterpart Prince Hardenberg—had themselves taken shares, and therefore had a common interest in cancelling the final loan.⁷ However, no archival evidence has come to light to support the notion that the Rothschilds were directly responsible for the crisis.

The brothers undoubtedly sought to join in the bull run in the French bond market after 1816. James held rentes worth 3 million francs (nominal) at the beginning of March 1817, and by the end of the month he had acquired a further 7 million, all bought on the assumption of a sustained rise. Soon he was inundated with orders to purchase rentes for Nathan and his London relatives too, though he himself still felt “in the dark” as to how long the rise could be sustained. It also seems quite likely, as Ouvrard later claimed, that James took advantage of the system of part-payment to maximise his speculative purchases. But there is no evidence of a concerted policy of selling at any time in 1818. When James did take profits, he took care that his sales should not be noticed, precisely to avoid weakening the market as a whole; and when rentes did weaken in the summer of 1817, the brothers actually made purchases to support the market. Indeed, it is from this period that we can date that keen preoccupation with the health of the rente, and any news which might affect it, which was to be a feature of his correspondence for the next fifty years. A year later, in July 1818, he saw no reason to question Laffitte and Delessert’s assumption that rentes would reach par by the end of the year.

None of this should surprise us. The Rothschilds would have been taking a grave risk if they had sought to subvert the final “liquidation” of the French indemnity. In February 1818 Salomon explicitly argued against an attack on Baring: it would be counter-productive if people were able to say, “The Rothschilds organised a diversion, the loan fell through, the troops can’t be withdrawn.” In any case, Baring was an MP and had already asked enough awkward questions about Herries’s activities as Commissary-in-Chief. There were good reasons not to antagonise him. The best explanation for the downturn in the price of rentes during the Aix conference in fact lies in the policy of the Banque de France, which had fuelled the surge in rente prices after May by lending over-generously to the Paris banks. When a run on its reserves alerted the Banque to its mistake, it over-compensated by tightening its discounting terms. It was this contraction on the money market which temporarily halted the speculation in rentes and depressed prices. Once the Banque had been persuaded to relax its policy again, rentes recovered rapidly, though it was not until 1821 (with prices at 87) that sufficient confidence had been recovered to float the final reparations loan. Moreover, if the Rothschilds had hoped to benefit from Baring’s retreat from the French market, they were disappointed: the 1821 loan went to the Paris bankers Hottinguer, Delessert and Baguenault.

In reality, it was British consols, not French rentes, which the Rothschilds sold, and they did so at the end of 1817, not in late 1818—making a profit in the process which more than compensated for any losses they may have suffered in the summer of 1815. As we have seen, at the end of that year Nathan had, at Herries’s recommendation, made substantial purchases of 3 per cent consols at prices of 61.1 and 61.5 as well as £450,000 of Omnium stocks at 107. Throughout 1816 he ignored his nervous brothers’ repeated advice to take profits, so that by the end of that year he held altogether £1.2 million (nominal) worth of consols. This must have been very nearly equivalent to the entire capital of the firm. Family opinion on this strategy was divided: cautious as ever, Amschel regarded it as “stupid . . . to invest one’s whole fortune in one single security” and continued to urge that Nathan sell, especially as he and Carl found themselves increasingly strapped for cash in Frankfurt. James was more enthusiastic—as he said, this single investment had already earned them “as much as a loan”—but he questioned Nathan’s assessment that consols would reach 80, and by April 1817 he too was urging a halt. Those closer to New Court, however, joined in Nathan’s “spec” with their own private savings. Caroline, Salomon’s wife, had evidently caught the bug while staying with her brother-in-law: by August 1816, she was actually having dreams about consol prices reaching 86!—a revealing insight into the indirect participation of the Rothschild women in the family business in this period. In May of 1817, when the upward trend was momentarily checked, Nathan finally gave in to his brothers’ pleas by selling around £600,000, but he evidently did so with the greatest reluctance and moved quickly to reinvest even more before the rise resumed the following month. By July, with consols leaping to above 82 and a total holding of £1.6 million (nominal), Salomon had to acknowledge that his brother had pulled off another business “masterwork.”

It was at this point that Nathan began to sell, realising profits of more than £250,000. Interestingly, this was five months ahead of the market’s final peak at 84.25 in December 1817 (see illustration 4.i) and this may explain why he delayed slightly before relaying the advice to sell to others. Even his brothers-in-law and his oldest client in the market, the Elector of Hesse-Kassel, were not tipped off until after Nathan had sold. As it became apparent that the market had indeed peaked—by 1820 prices were back below 70—Moses Montefiore hailed his brother-in-law’s coup:

What had made Nathan decide to dispose of his consols at the end of 1817? Part of the reason may have been a premature alarm sounded by his brothers in Paris about the possibility of war over Spain: not for the last time, the brothers interpreted any threat of armed conflict between the great powers as an argument for selling government bonds. But of greater importance was the invaluable inside information he was receiving about changes in British fiscal and monetary policy. This was the fruit of Nathan’s growing proximity to the Chancellor of the Exchequer, Nicholas Vansittart, as well as his brothers’ first direct contacts with the Duke of Wellington—“old Stiff-back”—in Paris. As the Rothschilds hastened to point out, it was not only they but the British government too which had benefited from the rise in consols. The surplus funds in the military chest which had been left over after Napoleon’s defeat had also been used to purchase £650,000 (nominal) of consols at 62 in 1816. Now that consols stood at over 82, the Treasury stood to make a profit of around £130,000. This good turn was clearly felt to deserve another: Nathan was tipped off about a funding operation—involving the issue of £27 million in new 3.5 or 3.25 per cent government stocks—which was bound to depress the market for 3 per cents. As Salomon’s letters at this time show, it was this inside information more than anything else which determined Nathan’s move:

In fact, the operation Vansittart mentioned to Nathan ran into trouble because of mounting political opposition to the Chancellor’s financial policy. Indeed, Nathan’s sale of consols at the end of 1817 may have been one of the abuses which Vansittart’s critics had in mind when they accused him of being “at the Mercy of the Money Market” and fuelling “the inordinate spirit of gambling.” Vansittart’s task was in many ways a hopeless one. As noted in the previous chapter, the British public debt had grown to immense proportions—£900 million, or roughly 200 per cent of national income—as a consequence of the wars against France. But in 1815 the House of Commons defied the government by refusing to renew the wartime income tax (and the malt tax), causing an immediate loss of over £14 million in revenue. Faced with annual debt service charges of over £30 million, to say nothing of the continuing costs of the army and navy, the government had little option but to increase indirect taxes—of which the duty on imported corn or “Corn Law” was to become the most controversial—and to carry on borrowing.

Vansittart’s strategy in 1818, which aimed at concealing the extent of the deficits he was running in order to boost consol prices, was to borrow short term by issuing exchequer bills, in order to continue making payments to Pitt’s sinking fund. This hand-to-mouth system undoubtedly suited those, like Nathan, who bought and sold both bills and consols. But it was criticised, given the inflationary consequences of issuing exchequer bills to redeem consols, by those political economists who regarded the continuing depreciation of paper money and the exchange rate in terms of gold as the principal post-war problem. Led within the government by William Huskisson and supported (after initial doubts) by Robert Peel, the proponents of the resumption of gold or “cash” payments by the Bank of England gradually gained the upper hand over Vansittart and the directors of the Bank itself. With the setting up of the “Secret Committee on the Expediency of the Bank Resuming Cash Payments” under Peel’s chairmanship in 1819, the “bullionists” had effectively won.⁸ Dismayed, Nathan sought to dissuade Liverpool from going back on to gold, even pursuing ministers into the country to make his case. But the Prime Minister’s mind had been made up, as he indicated to Vansittart in October 1819:

Given the ultimate triumph of the gold standard in the nineteenth century, it is easy to dismiss Nathan’s position as special pleading. Yet Nathan’s opposition to cash payments was far from unjustifiable, and it was an error on the part of the bullionists and radicals to assume that he was motivated solely by self-interest. Nathan never opposed the resumption of cash payments as a matter of theoretical principle: he and his fellow bankers made a practical argument that the short-run effects of a deflationary policy would be economically destabilising, and that this might tend to run counter to the government’s goal of fiscal and monetary stabilisation. The Treasury official George Harrison was right to worry in October 1818 about the consequences of tightening monetary policy at a time when the budget remained unbalanced. As he said to Vansittart,

In fact, as we have seen, Nathan had already done most of his selling. But his brokers and their clients felt the effects of the government’s deflationary policies when he issued a new loan of £12 million for the government in the summer of 1819. The decision to stick to 3 per cents more or less precluded a rapid rise in the new stock at a time when consol prices were already in the doldrums not far above the issue price of 69. It was this link between monetary tightening and the continuance of government borrowing which he had sought to point out to Liverpool, who preferred to believe Baring that there would soon be “a reaction” (that is, a recovery) in consol prices. Similarly, in his evidence to the Committee of Cash Payments in 1820, Nathan did not deny for a moment that the depreciation of sterling and outflow of specie into foreign bonds was due in part to the suspension of gold payments. The key point was that the combination of tight money and a mountainous government debt was a perilous one for the economy as a whole:

This was no exaggeration. Events would amply demonstrate that in embarking on monetary stabilisation before resolving the post-war fiscal crisis, the government was sailing into uncharted and potentially dangerous waters. As Nathan’s brother-in-law Abraham Montefiore shrewdly observed in 1821, defending the record of “the poor inoffensive Old Lady, Mr. V[ansittart]”: “The only really effective plan would be a good property tax properly and judiciously levied to reach only the opulent and those that can afford to spare part of their income, but unfortunately it so happens that these very persons are the law-makers themselves and their patriotism does not go so far as to reach their pockets.” The attempt to balance the budget with virtually no direct taxation at a time of monetary deflation would prove a recipe for instability.

The first major post-war loan which the brothers succeeded in making was to Prussia, which had ended the Napoleonic period with a debt burden of around 188 million thaler (£32 million) and continued to run large deficits in 1815, 1816 and 1817. Although the Frankfurt-based Rothschilds had arranged a small Prussian loan of 5 million gulden (£450,000) in early 1817 (much of which they placed with the Elector of Hesse-Kassel), the size of the floating debt reached 20 million thaler by the autumn, and the government began to contemplate raising a loan in London. The idea for such a loan in fact originated with the representative of the Prussian Seehandlung bank in London, a merchant named Barandon, who came close to scuppering the entire project when he rashly published details of Nathan’s proposed terms in January 1818. As these were singularly tough—the issue price was to have been 60, implying an interest rate of 8.33 per cent—they provoked an outcry in Berlin, where the local bankers hastened to put together a better offer. Berating Nathan for having involved Barandon, whose reputation in Paris was that of a bankrupt small-time commodities dealer, Salomon hastened from Paris to Koblenz for fraught talks with the Prussian State Chancellor Hardenberg, and then proceeded to Berlin, where he and Carl managed to undo at least some of the damage. With the connivance of the Prussian minister in London, the great educational and political reformer Wilhelm von Humboldt, Barandon was quietly sidelined—though it was not until after five days of continuous bargaining with the finance official Rother (now Director in the new Prussian Treasury) that an agreement was finally secured in London at the end of March.⁹

Historians have long claimed that the Prussian government’s decision to raise a loan in London was intended to avoid the need for political concessions—such as the summoning of an assembly of the estates (Stände) or the creation of an independent judiciary—which the recourse to domestic sources of finance might have necessitated. However, the Rothschild correspondence tells a different story. From the outset of the negotiations, Nathan argued that any loan would have to be secured by a mortgage on Prussian royal domains guaranteed by the Stände of the domains concerned. When Hardenberg demurred, Nathan spelt out his reasons for wishing such a guarantee in a remarkable memorandum:

Moreover, Nathan’s insistence on some kind of political guarantee had important political implications. There is an obvious link from Nathan’s negotiations with Rother to the subsequent Clause 2 of the “Decree for the Future Management of the State Debt” of January 17, 1819, which imposed a ceiling on the state debt, earmarked revenues from the royal domains to service it and declared: “If the state should in future for its maintenance or for the advancement of the common good require to issue a new loan, this can only be done in consultation with, and with the guarantee of, the future imperial estates assembly.” Drafted by Rother himself, this meant that any future loan by the Prussian state would automatically lead to the summoning of the estates; in other words, it conceded the link between public borrowing and constitutional reform. Only by raising loans indirectly through the notionally independent Seehandlung could the Prussian state henceforth borrow money without summoning the estates. This explains why, of all the German states, Prussia borrowed the least in the 1820s and 1830s and why, when the policy of retrenchment broke down in the 1840s, the consequences were revolutionary.

Whatever its significance for Prussian politics, the 1818 Prussian loan was without question a watershed in the history of the European capital market, as contemporaries came to recognise. For Nathan’s demand for some kind of political security was, in financial terms, probably the least important of the conditions he attached to the loan. Firstly, the loan was to be not in thaler, but in sterling, with the interest payable (half-yearly) not in Berlin but in London. Secondly, there was to be a British-style sinking fund to ensure the amortisation of the loan (though Rother managed to get rid of Nathan’s initial stipulation that it take the form of £150,000 of British consols). This deliberate Anglicisation of a foreign loan was a new departure for the international capital market. The Baring French loans had paid interest in francs in Paris, with attendant inconvenience and exchange rate risks for British investors. Now it was much easier to invest in foreign funds; and the fact that throughout the century all foreign government bonds paid higher yields than British consols meant that people did. The Times did not exaggerate when it later described Nathan as “the first introducer of foreign loans into Britain”:

Although the terms of the loan were heavily criticised in Berlin (not least by the bankers there), Humboldt and Rother were impressed. Nathan, Humboldt reported to Hardenberg, was not only “the most enterprising businessman here”; he was also “dependable . . . fair, very upright and understanding” in his dealings with governments. Rother went further: “The Rothschild in this country . . . has an incredible influence upon all financial affairs here in London. It is widely stated, and is, indeed, close to the truth, that he entirely regulates the rate of exchange in the City. His power as a banker is enormous.” His reputation in Berlin firmly established, Nathan was able to secure a second loan (to the Seehandlung) in 1822 for £3.5 million.

In one respect, Rothschild activity in Germany was far from innovative. Hesse-Kassel was one of those states which had emerged intact from the Napoleonic period, and Amschel was careful to continue cultivating the special relationship his father had developed with the Elector. Now that he had been restored to his lands, however, William needed the Rothschilds less, and the family’s old rivals in Kassel hastened to reassert their influence at court. The Rothschilds continued to manage some of the Prince’s financial affairs, collecting his reparations from France, selling his English stocks (as we have seen) at a healthy profit, trying to sort out his tangled Danish investments and involving him in their post-war loans to Prussia. Amschel even indulged his old coin-collecting enthusiasm. But there was no doubt that the days of mutual dependence were over, especially when Buderus had ceased to be the dominant force in the Kassel bureaucracy. Although the brothers lent considerable sums to William’s spendthrift son, their hopes that these highly unprofitable transactions would bring more lucrative business after he succeeded his father were disappointed when this finally happened in 1821. Apart from two large loans in 1821 and in 1823 for a total of 4.3 million gulden (£390,000), business in Kassel dried up.

On the other hand, Hesse-Kassel was only one of thirty-nine German states which had emerged from the Napoleonic upheaval and were now grouped together as members of the loose German Confederation. And because the Confederation’s Diet met in Frankfurt—in a rented hall in the Thurn und Taxis palace—it was easy for Amschel and Carl to establish contact with senior diplomatic representatives of all the member states. This led to a stream of relatively small-scale loans to minor German states and princes—including the neighbouring Grand Duchy of Hesse-Darmstadt, as well as Schaumburg, Homburg, Saxe-Weimar, Anhalt-Coethen and Nassau-Usingen—throughout the 1820s. Though the individual loans only rarely exceeded 500,000 gulden (£45,000), taken together they represented a substantial amount of business. Between 1817 and 1829 total loans of this sort by the Frankfurt house amounted to more than 24.7 million gulden (£2.2 million). While some were little more than personal loans to petty princes, others took more sophisticated forms, like the Hesse-Darmstadt lottery loan of 1825, one of many premium-bond-style loans issued in this period. On occasion, the Rothschilds also acted as bankers to the Confederation itself. Twenty million francs—paid by France under the terms of the Peace of Paris for the construction of fortifications in Germany—were deposited with the Rothschilds in 1820, pending a decision by the Confederation to proceed with building them. Given the slowness with which such decisions were reached in Frankfurt, this turned out to be a long-term deposit; but it was never certain how much notice would be needed for its withdrawal, nor indeed who had the right to request it. The difficulties this created for the Rothschilds may explain why they never did much to attract similar deposits.

Real power in Germany, however, lay not in Frankfurt, but in Vienna, the capital of the Confederation’s dominant member: and it was the Austrian court more than any other which the Rothschilds sought to cultivate in the 1820s. As we have seen, the Austrians had been reluctant to leave the payment of their British subsidies to the Rothschilds in the later stages of the war against France, preferring to deal with Viennese houses like Arnstein & Eskeles,¹¹ Fries & Co. and Geymüller & Co.; they had driven hard bargains over the French reparations payments too. Only in partnership with the Frankfurt banker Gontard were the brothers able to handle the minor payments Austria had to receive in the wake of the peace from Russia and Naples. But Vienna needed cash just as badly as the other continental states if it was to consolidate its large floating debt and stabilise its heavily depreciated currency. Although its first major post-war loan of 50 million gulden was concluded—to Rothschild chagrin—with the Anglo-Hanseatic Parish brothers in partnership with Baring, Bethmann and Geymüller, it was obvious, with annual expenditure running above 100 million Austrian gulden, that more would soon be needed. The breakthrough came in 1820, when Salomon jointly organised two lottery loans worth 45 million Austrian gulden (c. £4.8 million) in partnership with David Parish—a transaction so profitable that, despite the hostile comment it aroused, Salomon resolved to remain in Vienna on a more or less permanent basis.

The final coup which completed the Rothschilds’ emergence as “bankers to the Holy Alliance” came in 1822, with the loan to Russia. Here, as in Prussia and Austria, the war had generated acute fiscal and monetary problems: public spending had roughly quadrupled between 1803 and 1815 as had the circulation of paper roubles, leading to the inevitable inflation and currency depreciation. And despite having allowed the Rothschilds to handle so much of her wartime subsidy payments and subsequent reparations contributions, Russia too turned first to others for assistance with stabilisation: it was Baring and Reid, Irving who handled the 1820 loan, for example. This, however, was no great disappointment, as the Russians at this stage were still refusing to follow the Prussian example of issuing a loan denominated in sterling and with interest payable in London. Two years later the Russians, like the Austrians before them, had come round. In the summer of 1822 a loan of £6.6 million was issued by Nathan in 5 per cent bonds priced at 77, which he had no difficulty in selling at prices of 80 and more to his network of London brokers, led by his brother-in-law Moses Montefiore.

Thus by the end of 1822 the Rothschilds could justifiably be regarded as bankers to the Holy Alliance—“la haute Trésorerie de la Sainte Alliance.” Indeed, when the itinerant German Prince Pückler-Muskau first described Nathan in a letter to his wife, he introduced him as “the chief ally of the Holy Alliance.” There is unquestionably a sense in which it was the Rothschilds who gave the alliance substance. When the Austrian Emperor remarked to his envoy in Frankfurt that Amschel was “richer than I am,” he was not being wholly facetious. The Times correspondent reported from St Petersburg that the mere appearance of James Rothschild at the bourse was expected to boost Russian bond prices. Without the financial support which Nathan in particular could provide, it would have been harder to make the Austrian strategy of “policing” Europe effective in the 1820s. Political critics of this strategy recognised this. Nathan was caricatured as the “Hollow Alliance’s” insurance broker, helping to prevent political fire in Europe. In 1821 he even received a death threat because of “his connexion with foreign powers, and particularly the assistance rendered to Austria, on account of the designs of that government against the liberties of Europe.”

From the Rothschild viewpoint, however, the instability of Restoration Europe was not only a source of potential new business; it was also a threat to the stability of financial markets. Existing loans to regimes which suddenly looked vulnerable slumped as alarmed investors sought to sell their bonds. Even successful armed intervention, by throwing the Austrian and French budgets into deficit, had similar negative side-effects. On the other hand, the emergence of new states in those regions where revolutions actually succeeded created a source of new business too. In particular, the creation of independent states in Brazil, in formerly Spanish America and in Greece led to numerous new bond issues as fledgling regimes rushed to the London and Paris capital markets. For that reason, the role of the Rothschilds’ financial power was ambivalent.

On the Italian peninsula, matters were relatively straightforward: the Rothschilds supported Metternich’s policy of divide and rule by lending to the various monarchical regimes which had his backing. As early as December 1820 Metternich wrote to Salomon from Troppau alluding suggestively to a transaction involving 25 or 30 million francs “with respect to the future fate of the Kingdom of Naples.” The banker’s initial response was positive. “Even our financiers, led by Parish and Rothschild,” so the Austrian Finance Minister Stadion assured Metternich at Laibach in January 1821, “are only anxious to see our troops across the Po at the earliest possible moment, and marching on Naples.” Nevertheless, Salomon was unenthusiastic when Metternich and Nesselrode invited him to Laibach to discuss possible loans, the purpose of which was evidently to pay for intervention. “My presence there,” he explained to Nesselrode, “might give rise to numerous and probably highly inaccurate newspaper reports. Persons with base motives might unearth the fact that a loan to the most gracious monarchs was being discussed; rumour would be piled upon rumour, and this would not be at all agreeable in the highest quarters.” Firstly, the prospect of a new Austrian loan would depress the Vienna market, already shaken by the Italian crisis. Secondly, the Rothschilds had no desire to make their role in financing the Holy Alliance so public. Instead, Salomon insisted to Stadion that any loan should be raised by Ferdinand I only after his restoration to power, the proceeds to be used to reimburse the Austrian government for the costs of intervention. In the meantime, he offered Stadion short-term advances to finance General Frimont’s advance south. As in the Napoleonic Wars, the Rothschilds used their extensive banking network to make cash available at reasonable rates to an army on the march. And, as before, one of the brothers—this time Carl (“un petit frère Rothschild,” as he seemed to Stadion)—had to be sent to the scene of the action to ensure that all ran smoothly. In March 1821 Carl set off from Vienna to join Metternich and the exiled Neapolitan king at Laibach.

To Metternich, the Neapolitan campaign was nothing less than a counter-revolutionary crusade: “We have embarked,” he told Stadion,

At this point, a conflict of interests emerged: the Austrian government wished to exact the maximum sum possible, but the Rothschilds had a low opinion of Neapolitan creditworthiness, and were willing to lend to the restored regime only at punitive rates, while the Bourbon regime itself faced the prospect of renewed unrest if it was burdened with onerous new debts. The first Neapolitan loan was a hard-won compromise, with Carl being forced to improve his initial offer to head off competition from a rival Milanese banker: instead of 10 million ducats at a discounted price of 54, he agreed to lend the government 16 million (around £2 million) at 60. To help meet the costs of the continuing Austrian occupation, a second loan was issued in November 1821, of 16.8 million ducats, underwritten at 67.3. Two more loans followed for 22 million ducats in 1822 and £2.5 million in 1824, increasing the state’s debt to around £13 million in all. Nevertheless, the price of Neapolitan securities rose in Paris from 65 to 103, and in London there was considerable enthusiasm for the sterling-denominated bonds. This successful stabilisation partly reflected the good relationship which had developed between Carl and the new Neapolitan Finance Minister, Luigi de’ Medici, whose claim that the Austrians were unnecessarily prolonging the occupation and overcharging for their presence Carl was inclined to support. Even before the Congress of Verona in late 1822, it was obvious that the Austrians intended to recoup the costs of the invasion in full: of 4.65 million gulden which Metternich demanded in August 1821 as payment for the actual invasion, 4 million had been received by the following February, and to this were added occupation costs of 9 million ducats per annum. By 1825 Medici was accusing the Austrian government of deliberately profiting from the occupation and threatened to resign unless more than 1 million ducats were repaid. When the Viennese authorities stalled, Carl advanced the money to Medici—to Metternich’s evident irritation.¹²

The Austrian intervention in Naples provided a classic illustration of the difficulty of maintaining good relations with both sides in a bilateral international transfer. Nevertheless, Carl had probably struck the right balance between Austrian and Italian interests. While his establishment in Naples flourished on the strength of his ties with the Bourbon regime (and also did some business with the Grand Duke of Tuscany), Metternich continued to turn to Salomon for financial assistance over other Italian matters—notably the complicated 5 million lire loan organised to provide for the children of the Archduchess Marie-Louise, the Habsburg Princess who had briefly been married to Napoleon, and who had been established after his fall in the duchies of Parma, Piacenza and Guastalla.¹³ Another such case concerned the finances of Napoleon’s former Governor in Illyria, Marshal de Marmont, the Duke of Ragusa. At the same time, the Austrian government found itself once again having to turn to the Rothschilds to satisfy its own burgeoning financial needs. For no matter how much could be squeezed out of Naples, the costs of the military intervention there far exceeded what Stadion could raise in current revenue. There was no alternative but another loan; and although some officials were minded to reject the initial Rothschild bid, the government ended up bowing to the inevitable, although it managed to secure improved terms.¹⁴

Vienna’s dependence on the Rothschilds was further increased in 1823, when the British government, in an attempt to exert pressure on Vienna to end its occupation of Naples, raised the question of outstanding loans—now notionally totalling £23.5 million including interest—which had been given to Austria in the early stages of the war against France. Once again Austria turned to the Rothschilds, pressing Salomon to use his brother’s influence in London to get the debt scaled down—the first of many occasions when the Rothschilds would act as an unofficial channel for Metternich’s diplomatic communications. When this had finally been achieved, the Rothschilds offered to organise yet another loan, in partnership with Baring and Reid, Irving, to pay the agreed sum of £2.5 million. Thirty million gulden of new metalliques were taken by the banks at an underwriting price of 82.33, and were soon trading at 93, yielding a substantial profit to the banks. Another 15 million gulden loan followed in 1826. Ultimately, the Austrian policy of intervention in Italy had yielded multiple profits for the Rothschilds.

By contrast, the outbreak of revolution in Spain raised more serious dilemmas. For two years after 1820, the gout-ridden despot Ferdinand VII endured the Cortes constitution, and in that period the liberal government raised a number of loans (which were needed to compensate for the shortfall in revenues caused by the revolution). Although the Rothschilds—as Salomon hastened to reassure Metternich—were not at first involved in these, they were preparing to take a hand when, in July 1822, Ferdinand and his Ultra-royalist supporters unexpectedly attempted to overthrow the Cortes, calling for foreign intervention when their coup failed. At this point James became involved in an attempt by the Spanish financier Bertran de Lys to forestall an invasion by reconstituting the government on less “exalted” (that is, radical) lines.¹⁵ It was too late, however; in April 1823, a French expedition analogous to the Austrian invasion of Naples was launched under the leadership of Louis XVIII’s surviving nephew, the duc d’Angoulême, and with the enthusiastic support of revanchist diplomats like the vicomte de Chateaubriand.

Ever the pragmatist—and anxious not to be out-flanked by that seasoned military paymaster Ouvrard—James now offered his services to the French Prime Minister, the comte de Villèle: just as his brother had supplied the Austrian army in Italy with cash, so he now made himself “useful” to d’Angoulême, even raising the ransom money needed to buy Ferdinand VII’s release.¹⁶ And just as military intervention had necessitated a new loan in Vienna, so too in Paris the government was obliged to fund its military adventure by borrowing: in 1823 James was at last able to overcome the suspicion of the Restoration regime and secure a major French loan. Worth 462 million francs (nominal) or £18.5 million, it was the biggest single issue of rentes by a French government between 1815 and 1848 and had been preceded by a smaller issue of 120 million in 6 per cent treasury bills, also handled by James. Given the importance of such issues throughout James’s long career in Paris, it is worth noting how he pulled off this deal. Rather as his father had initially squeezed out his rivals in Kassel, James won his first rentes issue by outbidding Lafitte and three other Paris bankers, offering a price (89.55) which was actually above the current market rate. This was more than enough to beat the rival group’s offer of 87.75, but it did not leave James out of pocket: the success of the operation quickly pushed rentes up above 90 and by the end of 1823 they had reached 100.

The difference between Naples and Spain was that after the restoration of the Spanish Bourbon (which had been achieved by the end of 1824), the Rothschilds declined—after contemplating a joint operation with Baring and Reid, Irving—to lend to his neo-absolutist regime without guarantees which the French government was unwilling to give.¹⁷ There were three reasons for this: the regime’s refusal to recognise and redeem the bonds issued by the Cortes, its refusal to repay France the costs of the invasion and, finally, the bankers’ suspicion that any money lent to Ferdinand might be used in a last and probably vain attempt to recapture his former colonies in South America, which had been fighting successfully for their independence since 1808. After all, had not the 1820 revolution begun with a mutiny by soldiers about to be sent across the Atlantic? And were not Ferdinand’s advisers convinced that recovering the American colonies would solve all his financial problems? It was the South American dimension which particularly concerned the British government. While London had been prepared to put up with the French expedition into Spain, despite its implicit negation of Wellington’s victory in the Peninsular War, the notion that this might be the prelude to some kind of reconquest of Latin America, with whose fledgling republics Britain was rapidly forging close economic ties, was wholly unpalatable. As the Austrian ambassador in Paris reported to Metternich: “Although the House of Rothschild may pretend that their sympathies are purely monarchist, the recognition of the engagements entered into by the Cortes Government, and the independence of the Spanish colonies, would provide a far wider field for his [Nathan’s] financial enterprises and afford political security, the value of which they do not fail to appreciate.” In short, the Rothschild role in Spain had been ambivalent: initially showing signs of interest in the Cortes government, then financing the French invasion, but declining to bankroll the restored regime. James, Salomon and Nathan all came under conflicting pressures from the governments in Paris, Vienna and London; but the final outcome was a united and carefully calculated policy of non-commitment, which was continued throughout the decade. As James put it succinctly in 1826, “Spain’s bankruptcy is uppermost in my mind.”

The Rothschilds kept a safe distance from the numerous bond issues by the former Spanish colonies which were generating such speculative enthusiasm in London at the time of the French intervention. The years 1822-4 were the time of the great South American “bubble,” as investors rushed to lend to new republics like Chile, Colombia, Buenos Aires and Guatemala. Even as unlikely a figure as Gregor MacGregor, a Scottish adventurer and former general in the Venezuelan army, was able to raise £200,000 by styling himself the “Caique of Poyais” and persuading investors that the malarial swamp in Honduras which he claimed to rule was ripe for development. With a bravado it is impossible not to admire, MacGregor even wrote to Nathan outlining a project for an independent Hebrew colony in his “kingdom” on an island called Ruatan. From all this the Rothschilds remained aloof, with one exception: Brazil. There were two reasons for this preference. Firstly, Brazil remained closely linked to Portugal and therefore enjoyed close commercial ties with Britain; secondly, it retained a monarchical form of government even after gaining independence in 1825. (Indeed, the fact that the Brazilian Emperor was married to an Austrian princess inclined some contemporaries to regard Brazil as a kind of American representative of the Holy Alliance, though this exaggerated Austrian influence.)¹⁸ Nathan’s first step in this direction came in 1823, with a loan of £1.5 million to Portugal, secured on Brazilian revenues. This once again demonstrated his willingness to lend to a constitutional regime, as the Portuguese King had accepted a Spanish-style constitution drafted by the Lisbon Cortes on his return from Brazil in 1822. The water for Brazilian bonds proper was tested in 1824 by a City group led by Thomas Wilson, which sold over a million pounds’ worth of 5 per cent bonds at an issue price of 75. When these rose to 87, Nathan took over, issuing a further £2 million in 1825 at a price of 85. As Heinrich Heine later joked, Nathan was now “the great Rothschild, the great Nathan Rothschild, Nathan the Wise, with whom the Emperor of Brazil has pawned his diamond crown.” Though it fell into disuse during the middle decades of the century, the relationship with Brazil was to prove one of the firm’s most enduring.

By the summer of 1825, therefore, the Rothschilds had succeeded triumphantly in establishing themselves as the leading specialists in European public finance—and not only European. One by one, the powers of the Holy Alliance had followed the British lead, entrusting their loans to Rothschilds: first Prussia, then Austria, then Russia. Finally, France too had to abandon her preference for more established Parisian houses. In the space of three years, the brothers had provided the crucial financial assistance which enabled Austria to suppress revolution in Naples, and France to restore royal absolutism in Spain. Yet their contemporary image as “bankers to the Holy Alliance” was in some respects a caricature. It understated what might be called their political agnosticism, their tendency to assess business opportunities in financial rather than political terms. James neatly summed up the Rothschild attitude to Restoration politics in an exuberant letter to Nathan in late 1826:

The attraction of counter-revolution, in other words, was not that it restored despots, but that it generated new financial needs. Nor were conservative regimes given preferential treatment. As the conditions attached to the 1818 Prussian loan show, Nathan in fact saw constitutional structures for controlling government finance as preferable to the extravagance and inefficiency which often characterised absolutist regimes, and which in any case tended sooner or later to generate revolutionary pressures. Ultimately, that was why he was unwilling to lend to absolutist Spain without a guarantee from constitutional France. Such views would also condition the Rothschilds’ attitude to the increasingly reactionary drift of French policy under Charles X, who succeeded his brother in September 1824. And if, on the other hand, the Rothschilds preferred to lend to a constitutional monarchy like Brazil rather than a republic like Colombia, events would soon confirm the economic rationality of that preference. Where Laffitte, the follower of Saint-Simon, was “truly liberal” (in Byron’s phrase), Rothschild was more politically ambivalent, a conditional supporter of the Holy Alliance at best.

In France, when Villèle proposed to convert 2,800 million francs of 5 per cent rentes into 3 per cents issued at 75, the bondholders’ reaction took a different form. The arguments for conversion were the same as in England: more than a third of the French budget was being consumed by the costs of servicing the state’s debt and, with 5 per cents rising from 93 to a peak of 106, the time for such an operation seemed right.¹⁹ But the proposal became mixed up with the vexed question of compensation for losses suffered by royalist émigrés during the Revolution and was narrowly rejected in the Upper House following spurious claims by Chateaubriand and others (notably financiers like Casimir Périer who had been excluded from the deal) that it was an Anglo-Austrian racket to defraud the humble French rentier. A second, heavily modified scheme—which offered to convert 5 per cents on a voluntary basis in return for tax breaks—was pushed through in 1825, but only 30 million francs’ worth of bonds were exchanged, leaving James with a substantial sum on his hands at a time when the market price was falling. Ouvrard later claimed that the Rothschilds had doubly insured themselves against the possible failure of the first conversion scheme by not only insisting on an official safety net of 100 million in treasury bills (to be issued if the banks were left with large quantities of rentes on their hands), but also surreptitiously selling both 5 per cents and 3 per cents. Suspicions that the Rothschilds were cutting their losses by selling rentes—which were justified in 1825²⁰—brought to an end the brief period of harmonious relations with Villèle which had begun in 1823. In the wake of the conversion fiasco, the French premier made a concerted effort to direct government business back to James’s rivals in Paris, organising Laffitte and the Receivers-General into a syndicate to undertake a loan to Haiti and to issue 1,000 million francs of 3 per cent rentes for the benefit of the dispossessed émigrés.

Yet the reality was that the Rothschilds had enjoyed a lucky escape. As Nathan’s well informed Times obituarist remembered:

The 1825 crisis had in many ways been prophesied by Nathan and the other opponents of the decision to resume gold convertibility six years before. Between 1818 and 1823 the Bank of England’s note circulation fell by around a third, a dramatic contraction. In 1824 a temporary influx of gold generated a big expansion in the note issue, but this was followed by an equally sharp contraction in 1825. At the same time, though fiscal policy was gradually being brought under control following Vansittart’s resignation in December 1822, the enthusiasm of Huskisson at the Board of Trade for cuts in import duties made balancing the budget harder than it might have been. The medium-term aim of these first steps towards free trade was to increase the volume of commercial activity, in conformity with the principles of the political economists; but the short-term effect was to reduce revenues. Even with sharp cuts in expenditure, the government still found itself having to resort to both short- and long-term borrowing. Moreover, as Nathan complained, Huskisson’s policy was also giving rise to a trade deficit: as he told Herries in April 1825, “The consequence of admitting foreign goods (which had not been met by any corresponding liberality on the other side of the water) was, that all the gold was going out of the country. He had himself sent two millions within the last few weeks; the funds fell rapidly, and no advantage is gained by any human being.” It was this outflow of gold which lay behind the sharp monetary contraction of 1825. Under these circumstances, the high prices which had been reached on the London stock exchange during the 1822-4 bubble could not be sustained. In April 1825 the market began to slide. The heaviest falls were experienced by British industrial securities and Latin American bonds: the Brazilian bonds which Nathan had issued at 85 were down to 81.25 by July and just 56 by March of the following year.²² But the bonds of the formerly Spanish republics fared even worse: Mexican, Colombian and Peruvian all fell below 20. Even the best paper—British 3 per cent consols—was affected, falling below 75 compared with a peak of more than 97 the previous year. Such a severe asset-price deflation was bound to bring a banking crisis in its wake.

There is an old anecdote which describes Nathan threatening to exhaust the Bank of England’s reserve by bringing an immense number of small denomination notes to its counter and demanding gold. This is another Rothschild myth which is diametrically opposed to the truth. In fact, Nathan’s relations with the Bank of England were close and mutually beneficial. Beginning in the summer of 1823, when he borrowed 3 million silver dollars to finance his first loan to Portugal, he set out to establish a direct line of communication with the Governor with the intention of circumventing the Bank’s established bullion brokers Mocatta & Goldsmid. It worked, though his parallel challenge to Mocatta & Goldsmid’s position as the East India Company’s sole bullion brokers and his later efforts to deal directly with the Mint were thwarted. Thereafter, Nathan’s dealings with the Bank were regular, as he later told the 1832 Committee on the Bank Charter (with characteristic oversimplification): “You bring in your bank notes, they give you the gold.” Much of the time, Nathan was a buyer or borrower of gold and silver. In December 1825, however, it was the other way round: the Rothschilds gave the Bank their gold, supplying the “Old Lady” of Threadneedle Street with enough specie from the continent to avert a suspension of cash payments. James had in fact been sending substantial quantities of gold across the Channel since the beginning of 1825, if not earlier. In the first week of January alone, he had sent gold worth nearly £500,000, which he expected to “impress your Bank” (meaning the Bank of England). By the middle of the month, he was talking about “our old established practice” of “buy[ing] some gold whenever we can find any.”

It was at the end of the year, however, that his assistance mattered most. As a succession of banks stopped their payments—six failed in London alone—the Governor of the Bank informed the government that a suspension of cash payments might be the only way to avert a general financial collapse, as he would be unable to meet the demand for gold likely when exchequer bills fell due. Liverpool and his colleagues were determined not to sanction this, suspecting the Governor of exaggerating the shortage of bullion to undo the work of the 1819 Committee. On the other hand, the Bank’s reserve of coined gold which could be used immediately was running out fast, and the Cabinet was sufficiently alarmed at the prospect of an unauthorised suspension by the Bank that “orders had been given to the regiment of Guards to remain in the City in case of disturbance.” Some City insiders—notably Henry Thornton, who was battling to rescue Williams & Co.—had already realised that “the Jew King of the City, Rothschild” had a stock of gold in reserve, and according to one account, “by dint of a little persuasion and exhortation [by Alexander Baring] the Jew was induced to bring out his gold, first charging 2½ per cent commission, then saying he did it out of public spirit, and lastly begging that they would never tell it or he would be besieged night and day.”

The government, however, may have hesitated to approach Nathan because of his well-known antipathy towards Huskisson, whose policies, as we have seen, he held responsible for the crisis. On December 17 - the turning point of the crisis—the wife of Charles Arbuthnot, the Joint Secretary of the Treasury, recorded in her diary “the detestation in which Mr Huskisson is held in the City” as well as their “utmost contempt” for the Chancellor, Robinson. The feeling was evidently mutual. According to her informant, Nathan’s old friend Herries (now Financial Secretary to the Treasury),

Nathan had done two things that evening: firstly, he had advised the government to intervene in the money market itself by purchasing exchequer bills to inject liquidity into the market; secondly, and more important, he had delivered gold to the Bank, beginning with £300,000 of sovereigns, and continuing with larger sums in the succeeding weeks until confidence had finally been restored. In fact, the reserve touched its lowest level (just over a million pounds) on December 24; however, Nathan was still delivering gold a year later, pledging a million pounds in the course of March 1826 and a total of £10 million by September. His principal source was James in Paris (as he later reminded Nathan, “I emptied my coffers for your gold”). But, as Nathan recalled, “there was a good deal [of gold] supplied from the whole world; I imported it, and it was imported almost from every country; we got it from Russia, from Turkey, from Austria, from almost every quarter in the world.” The Bank’s ledgers describe the influx of myriad kinds of gold coin from France, Italy, Holland and Germany.

The crisis of 1825 had come close to being another 1797 (the year when the Bank had last suspended cash payments), a monetary crisis with the potential to destabilise the British economy as a whole. As it was, 73 out of 770 country banks failed and, as Huskisson himself admitted, the country came within forty-eight hours of “putting stop to all dealings between man and man except by barter.” Looking back in 1839, Wellington had no doubt who had averted disaster: “Had it not been for the most extraordinary exertions—above all on the part of old Rothschild—the Bank must have stopped payment.” Of course, Nathan would not have made such immense deliveries of gold without asking for a generous commission in return. The operation has to be seen as part of his campaign to establish himself as the dominant force in the London bullion market. On the other hand, there is no reason why he should have bailed out the Bank and the government free of charge, when the crisis was so manifestly the product of policies he had advised against. The rescue of the Bank was a remarkable achievement which owed everything to the international nature of the Rothschilds’ operations. In effect, the brothers were establishing that system of international monetary co-operation which would later be performed routinely by central banks, and on which the gold standard came to depend. Increasingly, their position in the international bullion market was becoming as dominant as their position in the international bond market.

Byron was therefore not far wide of the mark when he suggested in Don Juan that Baring and Rothschild reigned over both royalists and liberals, and that their loans could “seat a nation or upset a throne.” He erred only in regarding the two bankers as financial equals. In 1815 they had been. By 1825 they were not. As early as August 1820 the Bremen delegate to the German Confederation’s Diet in Frankfurt had a conversation with his Austrian counterpart Count Buol which acutely identified the unrivalled extent of the Rothschilds’ political influence in Europe:

The Frankfurt banker Simon Moritz von Bethmann echoed this judgement in a letter written at around the same time: