This was especially obvious in Prussia, where the need for new loans had more or less been eliminated. With revenues rising from the new Customs Union (Zollverein) founded in 1834, and expenditure static or falling, Prussia was able to halve the proportion of total expenditure which went on debt service from 22 per cent in 1821 to 11 per cent in 1850. Having been more than three times the size of total annual revenue, public debt was just twice as much by mid century. Thus, when negotiations resumed in 1844 to complete the process of converting the old 1818 sterling loan into lower-interest, thaler-denominated bonds, Rothschild hopes that this might pave the way to a new loan were unrealistic. Their old friend Rother no longer needed them.

In Britain too, the period before 1848 saw public borrowing dwindle to nothing. The 1835 loan to compensate the slave-owners in the West Indies was the last major loan issued by a British government before the Crimean War. This reflected above all the liberal reformation of British public finances associated with the career of Sir Robert Peel as Conservative leader. In the years after 1835, the Whig government came under scathing attack from Peel for running what were, in view of the economic circumstances of the mid-1830s, very trifling deficits. Altogether in the five years 1836 to 1841 the government’s net borrowing came to around £4 million. However, there was a hand-to-mouth quality to the way this was done which strengthened Peel’s case, as did the fact that much of the excess of expenditure over receipts could be blamed on a variety of overseas “adventures.” The 1839 funding operation involving £5 million of exchequer bills, which the London Rothschilds happily monopolised, was a case in point. Peel’s remedy on coming to power after his sweeping election victory in 1841 was the product of two decades of reflection on the fiscal and monetary implications of liberal doctrine, and had four aspects. Firstly, and most conventionally, he carried out a conversion operation, reducing the interest on £250 million of stock from 3.5 to 3.25 per cent. Secondly, and unprece dentedly, he secured the reintroduction of income tax (at a flat rate of 7d in the pound on incomes above £150), hitherto regarded as a wartime expedient. Thirdly, developing a conception of monetary policy which dated back to the 1819 committee he himself had chaired, he redrafted the Bank of England’s Charter in an effort to perfect the working of the bullionist system. Finally, following the practice initiated by Huskisson in the 1820s and in conformity with the classical economists’ principle of laissez-faire, he stepped up the pace of trade liberalisation, reducing the number of duties on imports. Altogether 605 import duties were repealed between 1842 and 1846 and a further 1,035 were reduced. The logical culmination of this process was the repeal of the Corn Laws, a step which the majority of Peel’s own backbenchers, with their pronounced agrarian interests, regarded as a betrayal of commitments made by them to their rural constituents during the 1841 election campaign.

With hindsight, this programme of reforms was less coherent than it appeared to Peel at the time. Quite apart from its politically self-destructive quality (by no means unique in nineteenth-century British history), its economic consequences were far from comfortable, even by the standards of what has been called the “Age of Atonement.” Theoretically, lower import duties, by increasing the volume of trade, were supposed to generate additional income. But this was unlikely to happen under the depressed conditions of the 1840s, which the Bank Charter Act tended to aggravate by restricting domestic banknote circulation as the Bank of England’s gold reserve declined. As a result, the income tax—supposedly a temporary measure—soon began to look more like a permanent fact of life, even if Peel’s ideological heir, Gladstone, never quite gave up hope of doing away with it. Nor was Peel able to set the nation on the course of debt redemption which he had intended: it was not until 1844-5 that the government was able to eliminate the deficit, and it proved possible to run surpluses for just three consecutive years before the 1847-8 crisis put the government back in the red. Nevertheless, there was no denying the “soundness” of Peelite finance at the time: indeed, it set the benchmark of fiscal and monetary orthodoxy for the rest of the nineteenth century. The price of 3 per cent consols rose from 87 in October 1841 to 101 just over three years later, a clear indication of City approval.

It was still possible, on the other hand, for bankers to grumble about the medicine they were being given, even when they knew it was doing the nation’s finances good. It is significant in this context that, as early as 1830, Peel had conceived a revived income tax as a way of “reach[ing] such men as Baring, his [Peel’s] father, Rothschild, and others, as well as absentees [from] Ireland . . . to reconcile the lower with the higher classes and to diminish the burthen of taxation on the poor man.” The Rothschilds were less than pleased when they were duly “reached” in 1842. Of course, they had other reasons for feeling hostile to Peel’s government. Not only were the Tories opposed to Jewish emancipation, but the advent of a Tory ministry threatened to revive the possibility of an Anglo-Russian alliance against liberal France. Still, Rothschild opposition to Peel’s fiscal policy was pronounced from the outset, and the main reason seems to have been the income tax.

While Nat could see the advantages of balancing the budget, and rightly foresaw the rise in consols which would follow it, he disliked the means Peel had adopted. He anticipated practical difficulties in assessment, for example. “How will it be possible,” he mused shortly after Peel’s Chancellor Goulborn had unveiled his first budget, “for the tax collectors to ascertain the real incomes of merchants & bankers who by and large do not know themselves what they can term their income until their balances are made?” A year later he candidly asked his brothers whether, in preparing their tax return, “you value all the stock at the market price and add the increased price to your profit or whether you take unrealized stock at the valuation of last year & pay only upon realized profits & real income?”—a question which reveals some of the difficulties inherent in taxing men like the Rothschilds, whose approach to accounting had always been quite cavalier. “It is a most disagreeable business with yr stinking tax gentlemen,” he wrote in early 1844, “& particularly if you have to show yr books to the commissioners—let me know how yr balance is, I recommend your taking no profit in the account upon unsold stock.”

This is not to suggest that the Rothschilds contemplated tax evasion: on the contrary, Nat advised his brothers “most strongly to give [the Commissioners of the Income Tax] an exact amount of the profits . . . a few hundred pounds more or less [in] charges is of little consequence, whilst it would be terribly disagreeable to be fined or even blamed by the gents in offices.” They were only too well aware that “the amount in question” would be one “of serious import to the Revenue.” Rather, their anxieties related to the possible unintended side-effects of the new tax. Their biggest concern was that, if earnings from foreign investments were taxed, bondholders would switch to domestic investments—a worrying prospect for a bank which specialised in capital export. “I think my dear Lionel,” Nat urged from Paris, “you ought to make strong representations to the government about charging the income tax upon all coupons of foreign bonds paid in London . . . it is a great pity & will in a good measure stop business.” At the very least, the fact that British (but not foreign) holders henceforth paid tax on their income from foreign bonds seemed likely to tempt some clients to do business through the Rothschilds under bogus foreign names. The advent of income tax—a model which James feared would soon be adopted in other countries—seemed to herald an end to the golden age when governments had borrowed from capitalists like the Rothschilds and their clients, rather than taxing them.

Even in Austria and France, where such an overhaul of the fiscal system was only a remote possibility, the years from 1834 to 1841 were relatively lean for the Rothschilds. In Austria, public spending remained more or less constant and there were no new loans. It was even possible to repay the “fortress money” which had been borrowed from the Rothschilds in the name of the German Confederation in 1831. The same was true in France: although the July Monarchy experimented with public works schemes, these were financed out of taxation before 1841. Indeed, total expenditure was slightly lower in 1839 than it had been in 1831 and the national debt was actually reduced by 169 million francs. The most Molé could offer was yet another conversion, an operation which James regarded with little enthusiasm in the light of past experience.

The financial position of Russia was altogether different, though the net effect was essentially the same from the Rothschilds’ point of view. Russian public spending continued to rise in nominal terms from 1833 until 1839, but this was to some extent a monetary phenomenon as recurrent deficits were financed by the printing of paper roubles. The resulting inflation was halted—albeit temporarily—by Kankrin’s reforms of the currency in 1839 and 1843, which replaced the paper rouble with a new “hard” rouble backed by a gold and silver reserve. This reform raised the possibility of a stabilisation loan to establish the new currency’s bullion reserve. James eagerly proposed floating such a loan simultaneously in London and Paris. “It should not be too difficult to impress upon the Russian Government the advantage of this,” he wrote revealingly,

Even when the possibility of a 40 million rouble Russian loan resurfaced in the more tranquil conditions of 1841-2, the negotiations foundered. This time it was Salomon’s turn to sound the note of caution. Evidently having been briefed by Metternich, he argued that Kankrin’s stated intention of investing the money in railways was merely a cover for increased expenditure on the army. He also echoed Amschel’s argument that a Russian loan was unlike a loan to any of the other great powers: “In the case of a loan for England, France or Austria the money remains in circulation, and quickly returns from the government’s coffers to the public. With Russia, the money that flows in is buried, poured away into the colossal European and even Asian [domains?] of this empire.”

Once again, the Rothschilds pitched their terms too low to break the Hope monopoly, refusing to buy more than a small proportion of the proposed loan firm (“à forfait” in contemporary parlance) as opposed to selling it in commission (with the option to return any unsold bonds). Subsequent desultory talks with St Petersburg in 1844 and 1846 were no more conclusive. Once it had seemed that the Rothschilds no longer needed the great powers; now it began to seem that the powers no longer needed the Rothschilds.

From the Rothschilds’ point of view, such loans to even the medium-sized German states were relatively minor transactions; yet they often took just as much time to arrange as loans to great powers (in some cases because of the growing pressures from representative bodies on previously more or less autonomous financial bureaucracies). On the other hand, the volume of business evidently compensated for the effort involved—witness the profitability of the Frankfurt house in this period. Amschel and the nephews who assisted him in Frankfurt were apparently indifferent to the political character of the German states they did business with: while Baden (for example) was a “model” constitutional monarchy, Hanover—after the abrogation of its constitution by King Ernst August in 1837—was among the most conservative regimes in all Germany.

From the point of view of the German states, it was becoming harder and harder to raise a loan without going to the Rothschilds, so dominant were they in the German capital market. This was especially true in south-west Germany. Not only in Frankfurt, but in other commercial centres like Cologne, the Rothschilds were able to exercise all the influence of a central bank: local people talked of “Rothschild shipments” of specie and “Rothschild money.” This dominance inevitably aroused comment, most of it hostile. As in the 1820s, the Rothschilds were seen by liberals as shoring up reactionary regimes. “Many of the smaller German Governments,” reported one Austrian diplomat, “have recourse exclusively to the House of Rothschild, and . . . refuse to be influenced by the dissatisfaction frequently expressed by their subjects.” This dissatisfaction was to come to a head in a matter of years. When the Hanoverian liberal Johann Stüve came to power in 1848, for example, he sought to avoid “dirty transactions with Rothschild,” which he associated with the era of Metternich.

Quite apart from floating bonds for medium-sized German states, the Frankfurt house also made good profits from loans to minor German princes such as Prince von Bentheim-Tecklenburg and Prince Viktor zu Isenburg (to name just two), as well as to major aristocratic landowners like Count Hugo Henckel von Donnersmarck. In many ways this represented a continuation of business dating back to the time of Mayer Amschel. What was novel in the 1840s was the extension of such business to the non-German parts of the Habsburg Empire. Between 1843 and 1845 loans to the value of 12.3 million gulden were issued by Salomon and his Vienna associates to a group of Austro-Hungarian noblemen notable for the size of their estates and the extent of their political influence, all but one of whom—the Habsburg Archduke Karl Ludwig—were Hungarian. Much the largest loan, to Prince Paul Esterházy, was, of course, far from being the first Rothschild loan to that powerful family. But the sudden spate of loans to other eminent Hungarians is striking. The likes of Count Móric Sándor, Count Joseph Hunyady and Count Lajos Széchényi, eldest brother of the multi-talented Magyar reformer Istvrán Széchényi, were at the apex of Hungarian society. In principle, these transactions were little different from the lending facilities provided by West End banks like Coutts & Co. to the English aristocracy. (Indeed, Esterházy had a close counterpart in the Duke of Buckingham, another land-rich but cash-poor grandee.) But this new involvement with the Magyar elite was to prove a source of political as well as financial embarrassment to the Rothschilds when, just a few years later, Hungary was plunged into a secessionist war with Austria.

In Italy, the Rothschilds pursued the same strategy of diversification. They continued to play a leading role in the finances of the Bourbon regime in the Two Sicilies, though James and his nephews worried that local bankers would sooner or later challenge Carl’s dominant position there. Here, as in Spain, there was a shift away from conventional bond issues in the 1830s. For example, the state-owned Sicilian sulphur mines were considered as a possible source of guaranteed revenue against which advances might be made to the government. Another possibility raised was that of a lottery loan, an idea which James disliked because such loans had been prohibited on the Paris bourse. It is evident from their private correspondence that the Rothschilds had a low opinion of the Neapolitan government (which was to be famously excoriated by Gladstone in 1850). On the other hand, they had no scruples about continuing to do business with “His Macaroni Majesty.” “Your Finance Minister is not a man you can reliably count on,” James told Carl after a visit to Naples in 1839. “He is a real blackguard. He is afraid to speak with the King and if one wants to accomplish anything at all in Naples, the only man who can do so is the King himself and [sic] the Minister of the Interior, who is a very smart fellow.”

Relations with the Papacy had a similar character: a fundamental contempt for the Roman government was no barrier to a profitable business relationship. As in the case of Naples, the mid-1830s saw attempts by rivals to break the monopolistic position over Papal finances which the Rothschilds had established after 1830. These were successfully seen off, and the management of the Papal debt remained firmly and profitably in the hands of their Roman partner Torlonia. This gave the Rothschilds a degree of leverage over the Papal government: on at least two occasions Salomon protested through Metternich against ill-treatment of the Jewish community of Rome, reinforcing the widespread belief that (in the words of Alfred de Vigny) “A Jew now reigns over the Pope and Christianity.” However, this aspect of the relationship should not be exaggerated: the primary concern was profit from, not reform of, the Papal regime.

It proved rather more difficult to establish financial relations with the state which was to pose the most successful challenge to Habsburg power in Italy: the Kingdom of Piedmont-Sardinia. In 1834 the Paris house was invited by the government in Turin to bid for the management of a £1 million loan it was proposing to make. From the outset the competition for the business was fierce and Lionel was sent to Turin in an attempt to clinch the deal. The correspondence between him and his uncle James during this mission sheds light not only on Rothschild negotiating techniques but also on the difficulties of dealing with an essentially absolutist regime. Finding the Piedmontese Finance Minister impossibly obtuse, Lionel sought to strike a behind-the-scenes deal with his secretary, but was unable to overcome the King’s preconceptions about how the loan should be arranged. “If,” James advised,

This expansion into new areas explains why, by the early 1840s, many observers had begun to see the Rothschilds as more than merely allies of the European states: they now appeared to have acquired a unique power of their own which was independent of the great powers and nearly universal. In his essay “Rothschild and the Finances of Europe” (1844), Alexandre Weill—one of many writers of Jewish origin who were fascinated by the Rothschild phenomenon—made the point succinctly: while “Rothschild” had needed the states to become “Rothschild,” he now no longer needed them. In 1842, the liberal historian Jules Michelet declared in his journal that James knew “Europe prince by prince, and the bourse courtier by courtier” (see the epigraph to this chapter). This was barely an exaggeration. Leaving aside the two outstanding Rothschild failures—Portugal and the United States—and the exceptional case of Spain, where control of the country’s mercury mines took precedence over the floating of loans, the list of states for which the Rothschilds raised money in the decade or so before 1848 is impressively long. Conservative states borrowed to avoid parliamentary influence over financial policy, often the necessary corollary of tax reforms. More progressive states borrowed to pay for public works, notably railways, when the private sector seemed unable or unwilling to fund investment. Few did not at least contemplate employing the Rothschilds as bankers and underwriters. The benefits of this widening of the financial net were obvious. The risks would only become apparent in 1848.

In directly involving itself in railway (and canal) construction, the Belgian government was to some extent breaking with the established British practice whereby the financing of railways was at first left more or less entirely to the private sector. But it was a precedent which other powers would soon follow. What the Belgians had appreciated was the strategic significance of possessing a railway network—an insight which owed much to their strained relations with Holland and, in particular, the need to avoid dependence on the established network of canals and rivers in the Low Countries which the Dutch controlled. From the Rothschild point of view, there were obvious advantages to such a policy: it always struck them as less risky to issue state bonds than private railway shares. More importantly, the development of the Belgian railway system dovetailed neatly with plans for a railway link between Paris and Belgium in which James had already expressed an interest. On the other hand, the Belgian strategy of industrial development would have made little sense if it had not been accompanied by a parallel development of the country’s own banking system. Having created three new institutions in partnership with the Société Générale (the Société de Commerce de Bruxelles, the Société nationale pour entre-prises industrielles et commerciales and the Banque foncière), James had done his best to maintain his dominant position. But the Banque de Belgique (founded in 1835 with largely French capital) was a genuine rival and James had to decide whether to resist the challenge to his position or to join forces with it. In the boom years of the mid-1830s, the Paris house worked closely with the Société Générale in floating a succession of Belgian mining companies on the Paris bourse. But in the sphere of government finance, as the inconclusive negotiations over a conversion operation in 1837 revealed, even the Société Générale had to be regarded as a rival as much as an ally. Intimate though their relations were with King Leopold, the Rothschilds were never able to rest on their laurels as the financiers of independence, especially in view of the suspicion with which they were viewed by sections of the Belgian parliament and press. Moreover, the possibility could not be ruled out that the Belgian government might one day seek to make military use of its railway network, or indeed of the money it was borrowing to pay for it. The government spent roughly three times what it spent on railways during the 1830s on building up an army.

All these conflicting factors had to be taken into consideration when the Dutch-Belgian question returned to the European diplomatic agenda in 1838-9. In essence, the question now arose whether or not the Belgian government would abide by the terms of the 1832 articles and evacuate Luxembourg and Limburg, in return for a Dutch recognition of Belgian independence. Quite apart from the territorial sacrifice, the 1832 articles entailed a financial sacrifice, because they envisaged a roughly equal division of the pre-1830 Dutch debt between the two states. It so happened that the resumption of negotiations coincided with a new Belgian proposal for a 36 million franc loan (and a parallel Dutch request), giving the Rothschilds more than usual diplomatic leverage. Despite the small sum involved, James was extremely eager to secure this new loan, partly because he expected it to be relatively easy to float, but mainly because it would be the first major Rothschild bond issue since Nathan’s death. It was a chance, in other words, for him to assert not only the Rothschilds’ continuing dominance of the bond market, but also his own leadership within the firm. If the terms were right, he declared in May 1838, “I will immediately say yes, despite all the political problems, because there won’t be any war. Belgium will have to yield and the world is so keen to do business that one really has to hurry.” The Belgians might huff and puff, James reasoned, but without French support they could do little.

Momentarily, when Prussia occupied Luxembourg in order to force the Belgian government into submission, James hesitated: “the sound of cannon fire” had its usual effect on the Paris bourse. But, when it appeared that even this would not provoke a French intervention on the side of Brussels, he went ahead swiftly with the loan, aiming to issue it as quickly as possible in London, Paris and Brussels, before there could be any deterioration in the diplomatic position. Although the bonds proved slightly less easy to market than James had anticipated, the issue went ahead smoothly. The fact that the Belgian coal bubble also burst in 1838 may have strengthened James’s position, as the sudden slump in industrial shares very nearly broke the Banque de Belgique and put even the Société Générale itself under pressure. Now it was James who stepped in to bail the two banks out.

James was right to anticipate that the negotiations might sooner or later run into difficulties, though fortunately for him this did not happen until the new Belgian bonds had largely been placed. There was considerable political opposition in Belgium (and in France) to the reimposition of the 1832 settlement. Yet the fact remained that the Belgians lacked the wherewithal to resist, for, although the bonds for the new loan had by now been sold, the Rothschilds had not yet finished paying over the money raised. To make the position unambiguously clear, in December 1838 James requested that a clause be inserted in the loan agreement to the effect “that if war were to break out or if any disputes were to arise then we would be at liberty to annul our contract.” Somewhat optimistically, the Belgians continued to negotiate with the Rothschilds in the hope of securing additional funds in the form of an advance against treasury bills. “Well, the Belgians are asses,” James commented on hearing reports of military preparations in Brussels. “I am not at all pleased to see all the troop concentrations, and they are quite capable of turning a joke into a serious affair, although as long as the major powers are opposed to war, they can’t do anything.” The request for an advance was turned down flat. Playing, as usual, on Metternich’s hostility to “revolutionary” regimes, Salomon (who was in Paris during the crisis) sent Apponyi a copy of his instructions to Richtenberger, the Rothschilds’ agent in Brussels:

Lest there be any doubt in Austria about Rothschild policy, he followed this letter up with another to his Vienna office “for Prince Metternich’s information” detailing Richtenberger’s conversations with the Belgian government:

It was, of course, as much the lack of a pro-Belgian government in Paris as the lack of 4 million francs from the Rothschilds which obliged the Belgians to give way. Still, the leverage which the Rothschilds were able to exert in Brussels had been considerable. Moreover, it seemed to present a perfect opportunity to consolidate Rothschild dominance in Belgian finance. Even before the treaty had been signed, James was urging his nephews that “a Belgian security is always marketable and I would suggest that one of you . . . should go to Brussels to make the acquaintance of the new Minister in order to establish a close relationship with him and to tell him that you are [now] prepared to make all the loans and to receive treasury bills”—something which had previously been refused. What James now aimed at was nothing less than a monopoly. As he put it bluntly: “[T]he arrangement of the Belgian question is going to be followed by a need for money and this will be a moment we ought to exploit in order to make ourselves the absolute masters of the finances of this country.” Even by Rothschild standards, this was strong stuff; but in many ways the position subsequently achieved was not far short of mastery over the government’s borrowing, even if it had to be shared with the Société Générale. In early 1840, when James travelled to Brussels to discuss the terms of a new loan of 60-80 million francs, he found the government “very well disposed”: “I left all the people there exceedingly pleased with my visit, and I lectured them about how to put themselves on a better footing, at least for a while. They are content enough to let us guide them, now that I have pointed out to them all the mistakes they have made in attempting to act without us.”

After protracted discussions, a loan was duly agreed in November, and another (for 28.6 million francs) followed two years later. Whether to pay its indemnity to Holland or to embark on new railroad projects, the Belgian government seemed addicted to borrowing, and its reliance on the Rothschilds to find buyers for its bonds was almost complete. Typically, when James fell out with a Belgian minister in 1842, he requested Lionel “to go to Windsor on Sunday to see the King of the Belgians”:

Nor was it only Belgian finance which the Rothschilds now sought to control. In October 1840 Anselm visited the Hague, where the Dutch government was demanding the payment of a capital sum from the Belgians (as opposed to the annuity of 5 million francs they had agreed to pay in 1839). When the Dutch blamed their deficit on the fact that the Belgians were delaying these payments, Anselm obliged with a modest advance. Two years later, when an agreement was reached with Belgium to capitalise the money in the form of bonds, it was the Rothschilds who then offered to cash them (at a substantial discount) for the Dutch government. It was entirely typical of the Rothschilds to act on behalf of both parties in such an international transfer.

In both Belgium and Holland, there was considerable opposition to the role played by the Rothschilds in public finances. For example, the Rothschilds were closely identified with the French government’s abortive scheme for a customs union with Belgium. Protectionists in Brussels detected a sinister French plan for economic annexation, though there is in fact no evidence that the Rothschilds supported the scheme. Anselm feared similar attacks by the liberal press in Holland when the possibility was raised of a conversion of the Belgian bonds given to Holland in 1841. The Dutch Finance Minister, he complained, was as

Although Anselm was able to retain Rothschild control over the transfer of the 40 million guilders still owed by Belgium to Holland, both the Dutch and Belgian governments now sought to emancipate themselves from the Rothschilds in their capacity as underwriters by selling Belgian bonds by public subscription. Needless to say, the Rothschilds viewed this development with extreme hostility, fearing a precedent which (like the British income tax) other governments might follow. Nat was characteristically fatalist: “I fear folks have become too clever everywhere & governments will not pay commission when they can manage without.” “If the govt. succeeds,” he told his brothers gloomily, “which is most probable, they will be able to do without us at present & in future—We can not oppose them openly.” But his uncle James never gave up business without a fight. “The Baron wishes the thing not to succeed,” Nat reported, “& consequently avoids helping the minister thro”—cer tainly it is against our interest that the Government should make open loans & if we can prevent them so doing it is our duty to act accordingly.”

It would seem that James’s aggressive view prevailed. “The Belgian Finance Minister will not find it a very easy job to get rid of his loan by subscription,” Nat wrote some days later. “I think he will be obliged to have recourse to us after all which will very much delight us all—Try & make Belg[iu]m flat by selling a few 1840 or 1842 bonds for the J[oint] A[ccount], it will be a good thing if they write to Brussels from every where that the market is flat.” This was a classic Rothschild tactic—selling off bonds to embarrass a recalcitrant government. The aim was to force the Belgian government to return to Rothschilds, cap in hand. This appears to have had its effect; for, although the public sale of the Belgian 4.5 per cents went ahead, it was not long before the government once again had to turn to Rothschilds. Meanwhile, Anselm’s indefatigable negotiations in the Hague had won over the new Dutch Finance Minister to the view that Rothschilds should after all handle the sale of the £6 million Belgian 2.5 per cents he wished to realise. In 1845 the Belgian government returned contritely to the Rothschild fold and James was able to exact tough conditions for relatively modest advances in 1846 and 1847. Without Rothschild, reported the French ambassador in Brussels, the Belgian government had “realised that it would be impossible for it to find a penny on any bourse, domestic or foreign.” This was only a slight exaggeration. To all intents and purposes, the Rothschild monopoly on Belgian public finance was complete—though the abortive attempt to sell bonds directly to the public was an intimation of how that monopoly might be challenged in the future.

In fact, James had never really stopped worrying that international developments might lead to a change of government in Paris. “Rentes will fall because Thiers is in favour of a policy of intervention [in Spain],” he warned when it was rumoured that the latter might be about to return to government in April 1837, recalling his efforts to send troops across the Pyrenees the previous year. Indeed, the very thought of another Thiers ministry was enough to convince James of the need to “get out of the [French] funds, for the end will not be good.” “A good ministry,” according to James’s definition, was essentially one which would pursue pacific policies abroad and balance the budget at home: he liked the Molé ministry which ultimately emerged that April precisely because it was “weak.” When Molé survived the elections held the following November, James regarded them as having “gone well”; and he urged the government “to stay united and convince themselves that they are strong and powerful,” promising “firm and steadfast support” when Thiers mounted a new challenge in December 1838.

The Rothschilds were nervous when Molé’s position finally crumbled following the elections of March 1839, fearing a ministry “composed of the Thiers party” and the doctrinaire liberals. “It is a very bad thing according to my opinion,” wrote Anthony uneasily, “and the King is obliged to give way & to do everything as Thiers wishes—I assure you that we become a little frightened.” As it turned out, Thiers’ insistence on a more aggressive foreign policy was still too much for Louis Philippe to accept and another moderate government was formed by Marshal Soult. But this proved short-lived, and on March 1, 1840, Thiers was at last back in office. His seemingly irresistible rise made James pessimistic:

The issue which led to open war between the Rothschilds and Thiers is usually referred to as the “Eastern Question”: could the sprawling Ottoman Empire, which notionally encompassed most of North Africa, much of the Balkans and nearly all of the Middle East, be preserved intact? If not, what should take its place? Economically backward, religiously divided, administratively ramshackle and politically despotic—the Ottoman Empire was all of these things. So, of course, were the Romanov and Habsburg empires; but less so, and they were Christian states—hence the effective exclusion of Turkey from the “pentarchy” of European great powers in the modern period. At this time, four of the “big five” had interests in the areas where Ottoman rule appeared to be in decline. Austria and Russia, for obvious geographical reasons, had the longest history of territorial conflict with their southern neighbour; while Britain and France were becoming more and more interested in the region for a mixture of commercial, strategic and religious reasons.

In the course of the nineteenth century the future of Ottoman rule came to hinge on the interaction of these powers: the consistent theme which links all the various Eastern crises is that, while each power had her own distinct objectives, none could achieve these alone. The Rothschilds came to play a vital role in the diplomacy of the Eastern Question mainly because, whether the status quo was preserved or new structures created, money was needed; for one of the fundamental problems of governing the region was the chronic narrowness of its tax base. There was, however, a second and very different reason why the Rothschilds took an interest in Ottoman affairs: the position of their “co-religionists.”

As we have seen, it was the successful Greek bid for independence which had first involved the Rothschilds in the Eastern Question. Once the diplomatic wrangles over the extent and constitution of the Greek state were over, they were only too happy to help provide the funds required to indemnify the Turks and set the new government in Athens on its feet. The loan looked at first sight a relatively straightforward business, as the Greek bonds were to be guaranteed by three of the interested powers, Britain, France and Russia. However, James had to fight hard in Paris to secure a satisfactory share from Aguado and d’Eichthal, who was in a position to dominate the transaction because of his close links—as a fellow Bavarian—with the new Greek King. Moreover, the execution of the transaction proved a good deal more difficult than had been anticipated. Essentially, 60 million francs were supposed to be issued, a third guaranteed by each of the powers. Of the money raised, 11 million francs were to be paid to Turkey through the Rothschilds, while the rest went to the Greek government via d’Eichthal.

Renewed tension in the region almost immediately disrupted these arrangements, however. In November 1831 Mehemet Ali, ruling Pasha of Egypt, revolted against Sultan Mahmud II on the ground that he had been inadequately recompensed for his military efforts against the Greeks in the Balkans. Ali—himself an Albanian by birth—sent his son Ibrahim to invade Syria, the territory he most coveted. Within a matter of months he had taken possession of Gaza, Jerusalem and Damascus itself. The Sultan initially sought to enlist British support against his rebellious vassal, but Palmerston rejected the advice of his man in Constantinople, Stratford Canning, and refused assistance, seeking instead to broker some sort of compromise. The Sultan therefore turned to Russia, accepting the Tsar’s offer of military assistance in February 1833. Five months later, to British and French dismay, a treaty (that of Unkiar Skelessi) was concluded between Turkey and Russia which included a secret article binding the Sultan to close the Straits of the Black Sea to warships of all nations “au besoin”—in effect, if Russia requested it. The Russian diplomatic triumph was complete when Austria and Prussia endorsed the treaty at Münchengrätz.

To the Rothschilds, all this was at first just another of many threats to European peace. Salomon hastened to warn James on Metternich’s behalf that France should not retaliate by backing Mehemet Ali, whose Napoleonic public image in Paris was further enhanced by his apparently progressive economic policy of state monopo lies. The financial implications of the crisis were, however, less clearcut because the French guarantee for the Greek loan had yet to be ratified, while the indemnity payment to Turkey was now due to be paid. Under the strained diplomatic circumstances, it was predictable that these transactions were plagued by (ostensibly) technical difficulties. The Greeks delayed sending the necessary bonds to London, for example, while the Turks refused to admit a Greek delegation to Constantinople if they arrived in a warship. Nat had set off for Constantinople fantasising about the exotic decorations he would receive from the Sultan in return for facilitating the indemnity payment. By the time he left, however, he was “sick & tired of the Turks and their shameful double dealing & regret exceedingly that I ever came here to do business . . . [in] this detestable place.”

There were further difficulties in 1836-7, when the Greek government threatened to default on the interest payments due on its loan, a crisis which put the international guarantee to a test it only just managed to pass. In an operation similar to that which the Rothschilds had to carry out for Portugal at around the same time, new bonds were issued to raise the cash for the dividends on the existing bonds; but the financial markets quickly learned to value the various Greek bonds differently, preferring those guaranteed by Britain to those guaranteed by France and Russia. The problem persisted into the 1840s, with the guarantor powers seeking to pay only the interest due, without the Rothschilds’ commission.

It was at this moment that French and British policy on the Eastern Question began to diverge. The period 1836-7 saw the resumption of French colonisation of another formerly Ottoman fiefdom, Algeria—a project initiated in the dying days of the Bourbon regime and now brought to a successful military conclusion. Palmerston, on the other hand, was now steering British policy in a more pro-Turkish direction, in the hope of undermining the dominant Russian position in Constantinople. When war broke out again between the Sultan and Mehemet Ali in April 1839, the French government gradually found itself isolated in its support for the latter. In the course of tortuous diplomatic manoeuvring, an Anglo-Russian deal was struck whereby the Treaty of Unkiar Skelessi would be replaced by an international agreement on access to the Black Sea, while Mehemet Ali would be forced to quit Syria but allowed to keep the fortress of Acre. In October 1839 the Soult government rejected this proposal, but there was very little it could do. It was, as the Paris house reported to New Court, “in a rather embarrassing position. In effect . . . the French government either will be obliged to accept [Lord Palmerston’s proposals] too or may well find itself completely isolated in its view of Eastern affairs.” Coming so soon after the government’s inert response to the Belgian crisis, this diplomatic reverse seemed a compelling argument for giving Thiers’ more aggressive approach to foreign policy a chance.

Up until this point, the Rothschilds had done little more than monitor diplomatic developments. Then, on February 5, 1840, something happened in Egyptian-occupied Damascus which dramatically altered the complexion of the crisis. Under circumstances which remain obscure, a Sardinian Capuchin friar named Father Tommaso and his servant Ibrahim went missing without trace. As they had last been seen in the city’s Jewish quarter, allegations soon began to circulate that they had been murdered there. Egged on by the French consul, the comte de Ratti-Menton, who wished to assert France’s responsibility for Catholics in Damascus, the Egyptian Governor arrested a number of Jews and subjected them to torture. One Jew who alleged that he had seen Tommaso in the Muslim market was arrested and tortured to death, as was his servant. After 500 lashes, a Jewish barber alleged that he had seen Tomasso with two rabbis and seven leading members of the Jewish community, including one David Arari. They were all arrested, along with a third rabbi. When they protested their innocence, the unfortunate barber was whipped again, whereupon—in return for immunity—he claimed that the suspects had offered him money to murder the monk so that his blood could be used to make unleavened bread for Passover. Although he had refused, the barber claimed to have witnessed Tomasso’s “ritual murder” at Arari’s house.

After torture and a promise of immunity, Arari’s servant confessed to the murder, and what were supposed to be Tommaso’s remains were duly “found” in a sewer, whereupon the seven suspects were tortured until they “confessed” their guilt. One of them—who converted to Islam to save himself and his family—confirmed the ritual murder story: Tommaso’s servant had, he said, been murdered in the same way. As with early modern witch-hunts, the more bizarre the story grew, the greater the number of people who were implicated. Altogether some seventy people were arrested, and almost as many children were taken hostage to force those “suspects” who had fled Damascus to give themselves up. Throughout, the French consul played the role of witchfinder-general, exploiting not only the anti-Semitism of the Catholic community but the social divisions within the Jewish community.

It was the arrest of Isaac de Picciotto, a Jewish merchant who also happened to be an Austrian subject, which transformed the witch-hunt into a major international incident. Determined to prevent his suffering the same fate as Ratti-Menton’s other victims, the Austrian consul, Caspar Giovanne Merlatto, protested to the Damascus authorities and asked his superior in Egypt, the consul-general Anton Laurin, to do the same in Alexandria. On March 31 Laurin—who regarded the whole notion of ritual murder as spurious—not only complained to Mehemet Ali, but also sought to get his French counterpart in Alexandria to restrain Ratti-Menton. For good measure, Laurin simultaneously took the somewhat unusual step of sending copies of his own reports and some of those he had received from Merlatto directly to the Austrian consul-general in Paris. The latter should, Laurin suggested, press the French government to “issue a strong order . . . seriously rebuking the consul in Damascus” and “hold[ing] the government there responsible . . . [lest] the animosity of the non-Jewish population develop into a real persecution of the Jews.”

The Austrian consul-general in Paris and the author of the letter quoted above was, of course, James de Rothschild, and Laurin’s was only one of a number sent to him and to other members of the Rothschild family seeking support for the Damascus Jews, as well as those of Rhodes who were experiencing similar persecution. On March 15 letters on the subject had reached the Dutch Jewish leader Hirsch Lehren from a Beirut Jew who urged that they be passed on to the Rothschilds so that they might “speak to the kings and to their ministers.” Two days later another letter from an English businessman based in the Middle East prompted Lehren to write to James, arguing that only “the renowned Rothschild family . . . has the power to save the brethren suffering persecution.” On March 27 the Constantinople community had sent letters from Damascus and Rhodes to Salomon, Carl and Lionel, appealing to “the tie which so strongly binds together the whole Jewish community.”

James did as Laurin suggested. However, the French Foreign Ministry merely ordered that their vice-consul in Alexandria should investigate Ratti-Menton’s conduct, which, as James divined, was “only a temporising measure, since the vice-consul is under the consul, so that he has no authority to call the latter to account for his actions.” “In such circumstances,” he informed Salomon on April 7,

This was only the beginning of the Rothschilds’ involvement in the campaign to secure the release of the Damascus prisoners. In London, Lionel was present when the Board of Deputies met to discuss the affair on April 21 (as was Crémieux), and he was also a member of the delegation which Palmerston received nine days later. Six weeks later it was Nat who suggested that Crémieux write an official letter addressed to Lionel and the British Board of Deputies, “& that will afford you an opportunity of addressing Lord Palmerston on the subject”; and it was Nat who suggested that Lionel “get up a good subscription to pay the expenses of sending Crémieux there [to the Middle East] fast.” This led directly to the idea of the highly publicised expedition to Alexandria by Crémieux and Sir Moses Montefiore, the purpose of which was to clear the prisoners’ names and secure their release. The Rothschilds contributed a substantial sum—at least £2,500—towards the costs of this venture, as well as acting as treasurers for the Damascus Jews’ fund. In Vienna, Salomon meanwhile persuaded Metternich to press the Vatican about rumours that Tommaso was in fact alive and hiding in a monastery (he was not). In Naples, Carl loaded Montefiore’s ship with provisions, gave him some negotiating tips and later helped him in his fruitless attempts to persuade the Catholic church to expunge the allegation of murder on Father Tommaso’s supposed gravestone. In Paris, Anselm received regular communications from Laurin, detailing the progress of Montefiore’s negotiations in Alexandria.

It has usually been assumed that, in taking up the cause of the Damascus Jews, the Rothschilds were motivated by sincere outrage at the way their fellow Jews were being treated. Heine—one of the journalists James tipped off—contrasted James’s altruism with the indifference of other French Jews, and in particular his rival in the sphere of railway finance, Benoît Fould. James, Heine observed, had “shown a nobler spirit in his sympathies for the House of Israel than his learned antagonist.” There is no question that all the Rothschilds sincerely sympathised with their co-religionists. It was, said Nat, “an unpleasant business, but one must exert oneself to prevent such calumnies being spread against our religion & such horrid tortures being practised on our unfortunate brethren in the East.” The aim, he added a few days later, was “to show people generally that the day is gone by when any religious sect may be neglected with impunity.” The French government’s attempts to defend the conduct of Ratti-Menton enraged Nat: “[W]hen the Prime Minister of France declared in the Chamber that he thought the Jews committed murder for the sake of Christian blood to be used in a Hebrew religious ceremony . . . it strikes me that such a calumny upon all those who have any Jewish blood in their veins ought not only to be contradicted but proved to be false.” He and the rest of the family shared the widespread Jewish jubilation at the success of Montefiore’s mission in securing not only a solemn firman from Mehemet Ali himself denying the existence of ritual murder as a Jewish practice (August 28), but also the “honourable discharge” of the prisoners a week later. All this gave the lie to the charges which had been levelled at the Rothschilds in the 1830s of indifference to the fate of their fellow Jews. “Who can come forward,” the editor of the Allgemeine Zeitung des Judenthums Ludwig Philippson had demanded to know in 1839, “to say that these people have done anything substantial for Judaism, for its external or inner emancipation, for its civil or spiritual elevation?” Like the American writer who had claimed that James did not “care [about] the barren seacoast of Palestine,” Philippson had to eat his words after the Damascus affair—or, alternatively, conclude that they had been heeded.

On the other hand, the extent of the Rothschilds’ ambitions for the Jewish communities of the Middle East should not be exaggerated. Even before 1840 it was an idea frequently canvassed in the press and elsewhere that the Rothschilds had some sort of design to reclaim the Holy Land for the Jewish people. As early as 1830, an American journal (Niles Weekly Register) suggested that “the pecuniary distress of the sultan” might lead him to sell Jerusalem to the Rothschilds:

What is more, a number of members of the family had reservations even about the way the campaign for the release of the Damascus prisoners was conducted. It appears from Nat’s letters that Lionel was uneasy about the “rumpus” being made by Crémieux and some of the more vociferous British Jews. They had, he felt, shown “rather too much warmth of feeling.” Indeed, one reason for suggesting that Montefiore accompany Crémieux to Alexandria was “to moderate [the latter’s] zeal.” Nor, it seems, did Nat or Anselm expect the expedition to achieve its objectives. When it did succeed, Anselm was “decidedly against any public demonstration” and deplored the hero’s welcome which Crémieux was accorded in Frankfurt and elsewhere. The Damascus agitation galvanised Jews throughout Western Europe, and led to a variety of schemes for improving the condition of the Jews in the Holy Land, notably the plan for a Jewish hospital in Jerusalem devised by Philippson. At first the French Rothschilds seemed willing to follow the lead of Montefiore, who supported the scheme; but they made their contribution conditional on the founding of a secular school alongside the hospital. When the Jewish community in Palestine vetoed this, the Rothschilds withdrew, and it was not until 1853-4 that the hospital scheme was revived.⁴ The Rothschilds continued to try to use their influence to improve the condition of Jewish communities elsewhere (in Russian-controlled Poland for example), as they had in the past; but their efforts were always regarded with suspicion by more radical Jews who aimed at something more than economic amelioration.

For the Rothschilds, the real significance of the Damascus affair can be understood only when it is set in its diplomatic context. Sympathetic though they undoubtedly were to the Damascus prisoners, James and Salomon in particular attached more importance to the diplomatic ramifications of their plight. For the Damascus affair presented James with an ideal opportunity to undermine the position of Thiers, who had become premier a matter of weeks after the supposed “murder” of Father Tommaso. In essence, the affair tended to accentuate the problem of French diplomatic isolation which had helped bring Thiers to power. The British government had its own reasons for backing the campaign for the release of the Jews. Having decided to break the power of Mehemet Ali and isolate France, Palmerston was only too delighted to portray the Egyptian regime in Syria as barbaric. Similarly, Metternich welcomed the chance to challenge the French claim to defend the interests of Catholics in the Holy Land. Thiers, on the other hand, could hardly be seen to criticise Mehemet Ali’s regime in Syria, much less disown his own consul. Instead, he went on the offensive. In early May he told James “that the case is based on truth; and we had better let the matter rest . . . [as] the Jews in the East still maintain such superstitions . . .” He said much the same to Crémieux. On June 2, in response to a speech by Fould in the Chamber of Deputies, Thiers sarcastically called into question the patriotism of the French Jews:

It is, of course, tempting to dismiss such remarks as an expression of that anti-Semitic streak which periodically surfaced in French politics throughout the nineteenth century. Yet there was a sense in which Thiers had little alternative but to defend Ratti-Menton. The Rothschilds—and James in particular—were determined to undermine his position, though more because of the threat he posed to international stability than because of the threat he posed to the Jews of Damascus (to say nothing of the Jews of France).

It would be an oversimplification to say that the Rothschilds toppled Thiers from power. Quite apart from the events in Damascus, the summer of 1840 saw a steady worsening of the French position. Rather than accept the Anglo-Russian solution to the problem posed by Mehemet Ali, Thiers sought to engineer a bilateral agreement between Ali and the new Sultan. However, this merely provoked the other powers into signing an agreement (on July 15) to use force if necessary to compel Mehemet Ali to accept their terms, which would have confirmed him as hereditary Pasha of Egypt, given him the title of Pasha of Acre, but entrusted him with no more than the administration of southern Syria for life. It was now beyond doubt that Palmerston put the preservation of British influence in Constantinople before the preservation of the already moribund Entente Cordiale. Nor was Thiers helped by Louis Napoleon’s abortive landing in August and the outbreak of unrest in Paris the following month. In any case, Nat explicitly stated at the height of the crisis that it would be “almost impossible and would indeed be dangerous and altogether unwise, to overthrow him.” On the other hand, when Nat inveighed against the “irresponsibility and . . . nationalistic peasant obstinacy” and the “pseudo liberalism” of “this most arrogant of all parvenus” it was obvious what kind of “happier future” he had in mind. The question is how far the Rothschilds were able to hasten Thiers’ downfall.

On the face of it, their sole objective in the frenetic months of August and September 1840 was to promote peace through their tried and tested channels of diplomatic communication. Lionel reassured Lord Clarendon that France would not fight; James relayed to Metternich Louis Philippe’s repeated pleas for an Austrian deus ex machina; Lionel sought to involve the King of the Belgians; James visited the bellicose duc d’Orléans; Lionel relayed Nat’s warning to Palmerston not to push the French too far—and so on. But the financial subtext of this diplomatic activity was calculated to undermine Thiers’ position. The key was the impact of the crisis on the price of rentes. On August 3 there had been “a tremendous fall in the price of rentes” which sent Nat and James scurrying back to join Anselm in Paris. It was the beginning of a protracted slide. As the British naval expedition closed in on Ibrahim Pasha and Palmerston intransigently rejected Thiers’ bids for a face-saving compromise, so, inexorably, the price of rentes declined. Three per cents fell from a high of 87 in July to 79 in early August, touching a low of 73.5 in early October. It would, no doubt, be wrong to suggest that the Rothschilds were single-handedly responsible for this fall, which was the product of a generalised panic on the Paris bourse. On the other hand, they did nothing to check it. More importantly, they had no reason to do so. For, unlike comparable crises in the early 1830s, this was costing them nothing. The clue lies in Nat’s comment on August 2: “Thank God the house has scarcely any [rentes].” Quite simply, they had covered themselves in advance of the crisis by clearing out of French government bonds altogether. This was what Guizot, struggling as French ambassador in London, failed to realise. “Do you think he is praying to God for the safety of his money?” he asked the Princess Lieven after a visit from Lionel on September 9. Heine too was taken in by James’s furrowed brow: “The rente, which had opened down two per cent, tumbled by another two per cent. M. de Rothschild, it is said, had the toothache yesterday; others say he had a colic. What does this portend? The storm draws ever nearer. The beating of the Valkyries’ wings can be heard in the air.” In fact, James was play-acting for the benefit of Heine’s readers. Nat’s only regret was that he did not have more liquid funds available to speculate: “I could make a fortune,” he mused.

Thiers fought back. On October 12, the pro-government Constitutionnel fired a broadside at “M. de Rothschild and his manoeuvres”:

Of course, it took long months of negotiation to arrange a lasting peace in the Middle East—during which time the symptoms of popular “war fever” persisted not only in France but in Germany too. For the Rothschilds, however, Thiers’ fall was the turning point in the crisis. As Heine reported in March 1841:

The fall of Thiers led almost at once to new business for James. The increased expenditure on armaments which was Thiers’ legacy—particularly on the costly new system of fortifications around Paris—obliged the new government of Marshal Soult to issue a major new loan in 1841. The Rothschilds had every reason to dislike the fortifications project: quite apart from fuelling the bellicose mood throughout Europe, it threatened to reduce the value of Salomon’s villa at Suresnes, which was close to the planned line of defences. Nevertheless, they did not hesitate to meet the government’s needs. Admittedly, James grumbled about the amount and issue-price proposed by the new Finance Minister, Théodore Humann—yet another former banker turned politician, and a man whom James privately regarded as a “rogue” and a “blackguard.” Indeed, the negotiations were characterised by brinkmanship which was extreme even by James’s standards. He bluntly refused to cut short a visit to see Salomon at Gastein and Vienna when Humann requested a meeting in Paris, and on more than one occasion intimated that he would leave the business to others if the terms were not improved. But in truth he had no intention of doing so: as he put it, “We want—indeed have—to make the loan”; and he was confident enough that Humann would not act without him to drive a hard bargain. The 150 million franc loan was duly issued in October more or less exactly on James’s terms.

To contemporaries, this merely confirmed James’s unrivalled dominance over French finances. However, the real significance of the loan may lie in the peculiar character of the “armed peace” (Guizot’s phrase) which made it necessary. The striking point is that now James and Nat were willing not only to justify but also to finance a policy of rearmament which they had opposed when Thiers had been in power. The new French government, they assured the London and Vienna houses, was arming merely to mollify public opinion. “No cabinet in the last ten years has pursued more peaceful policies than the one formed on Oct[ober] 9, but it has things to take into consideration, susceptibilities to overcome, ardent enemies to contend with.” Once the cost of the increased armaments made itself felt, the popular mood would become more pacific. On March 8 James was able to report “a triumph”: “The Commission dealing with the Budget refused to ratify the establishment of the 36 new Regiments and this is a slap in the face for Thiers who wanted to increase the size of the army and this will result in a saving of 40 million and a genuine disarmament and is proof that they seek to maintain peace. I bought rentes . . .”

The 1841 loan marked the resumption of “normal service” in Rothschild relations with the French Treasury. Further loans followed in 1842 and 1844 (for 200 million francs apiece), despite challenges to the Rothschilds’ dominant position from Hottinguer, Baring and Laffitte. International tension led to increased expenditure on armaments in the German states too. “As long as France continues arming,” reasoned Anselm, “Germany must follow.” Again, this meant new business for the Rothschilds. Thus, after seven uneventful years, 1841 saw a new Austrian government loan for 38.5 million gulden, shared as usual with Sina and Arnstein & Eskeles. Another loan for 40 million gulden was issued by the same banks two years later. Once the Rothschilds had regarded peace as the sine qua non of financial stability; but an armed peace was more profitable.

Small wonder, then, that Countess Nesselrode thought James “viceroy and even King” at this time. When he told her that he knew all the French ministers, saw them daily and complained directly to the King if the policies they adopted were “contrary to the interests of the government,” he was not exaggerating. “Comme il sait que j’ai beaucoup à perdre et que je ne désire que la tranquillité, il a toute confi- ance en moi, m’écoute et tient compte de tout ce que je lui dis”: in that sentence, with its subtle reminder of the regime’s financial reliance on the Rothschilds, lies the key to James’s power over the “bourgeois monarch.” When Heine called James a “weathercock,” he was thus underestimating the extent to which he could influence the direction of the wind. Throughout the period from 1840 to 1847, Rothschild financial support for Guizot was effectively conditional on his avoiding outright conflict with Britain—and devoting a rising share of the proceeds to constructing railways rather than fortifications. At times even Nat and his brothers were surprised by the extent of their uncle’s leverage in Paris. When an Anglo-French argument over the Pacific island of Tahiti blew up and then blew over in 1844, Nat remarked, “His Majesty was amazingly polite and almost kissed him so pleased was he,” crediting—erroneously—the Rothschilds with having restrained Peel in London.

Nevertheless, there were limits to James’s power, just as there had been limits to the Rothschilds’ power in the 1830s. A more serious Anglo-French dispute over Spain gave James a real scare in 1846-7, when it appeared that Louis Philippe’s determination to marry his son to the Spanish Queen’s sister might be seized on by Palmerston as a casus belli. James rushed back and forth, trying to get the French to agree to an Anglo-Spanish trade treaty as a kind of compensation for the Montpensier marriage, but Guizot on this occasion stood his ground. James’s letter to London of September 26 gives a good insight into his unease:

James went so far as to propose to Guizot that Montpensier renounce any claim of his heirs to the Spanish throne. But, as Anthony reported nervously, “Guizot thinks that we have been intriguing against him and you have no idea how careful we must be . . . I assure you I am very anxious—the French do not want war and cannot go to war, but they make things quite as bad as one.” Indeed, Nat declined to relay to Louis Philippe a letter from Lionel which evidently contained some strong Palmerstonian meat:

By October 1846 James was in deep gloom, expecting French and Austrian troops to be sent to Spain at any moment and fretting at news of British naval increases. When he went to see Guizot on the 29th, he was told firmly that France would not rule out a future claim by Montpensier’s heirs to the Spanish throne. The nadir came when James sought to defend Normanby’s decision not to attend a reception for Montpensier after his return from Spain. As Nat reported, Guizot was “very angry . . . [and] told him that situated as he was it would be just as well for him to keep his opinion to himself.” James drew the obvious conclusion: “I fear that all diplomatic communications between us here and England will be broken and the Government here is prepared for anything that may happen. Never before have I seen the Government so strong and stubborn. I think that even if this were to lead to an outbreak of war, God forbid, they would still not change their stand.” Even when he sought the assistance of his old friend the King of the Belgians his reception was “cold.”

Such open conflict between France and Britain inevitably placed a strain on cross-Channel relations within the Rothschild family. Alphonse obviously felt resentful of Palmerston’s aggressive style of foreign policy. When he heard Lionel argue the British case during a visit to Paris in early 1847, he sarcastically asked him if French policy should be “to kiss humbly the British lion’s claws.” Hannah was somewhat embarrassed to find both Anselm and Carl taking the French side when she visited Frankfurt at around the same time. “I now and then have rather a strong conversation with our friends,” she reported to Lionel, “particularly Anselm who is an enthusiast in favour of Guizot.” Anselm also took issue with James’s unhappy efforts to play the mediator, advising his uncle tersely “not to mix personally in the evolution of great historical events.”

As so often in the diplomacy of the 1830s and 1840s, the war which everyone feared failed to break out: by the end of February 1847 James was able to report that the Spanish affair was as good as settled: “Apponyi is here with me now and he says that it is now out of the question even to think of war any more. Normanby invited him and Guizot to visit him on Tuesday week. So peace will be made over a bottle of champagne and I and my dear wife will be present to witness it, God willing.” Yet the champagne cork was scarcely out the bottle when Palmerston seized on a new bone of contention: Greek arrears on British-held bonds. This was the cue for another Anglo-French war of words, with the Rothschilds once again acting as reluctant messengers. “Guizot told the Baron,” reported Nat wearily in April 1847, “that England would be alone in her proceedings against Greece . . . & if she (England) were to kick up a row about the stupid business . . . [Guizot] wd be able to return the compliment & get his country into such a state that it wd be very hot for every body—do not repeat this at all events in these terms or as coming from us.”

And even if war never came between the powers, there was a second danger—one which the Rothschilds were inclined to overlook. For the tendency for so many European states to run deficits in the 1840s meant more than just good business for their bankers. It was also a symptom of a fundamental political malaise within those states. Military expenditure was not, in fact, the sole cause of the deficits of the mid- 1840s. Of similar importance, as we shall see, were state subsidies for railway construction, combined with stagnant or declining tax revenues—a little-regarded side effect of slackening economic growth. As the Rothschilds insatiably added one state after another to the list of their clients, they could congratulate themselves on the diplomatic influence this gave them. The crises over Belgium and Syria really did seem to suggest that war could be averted by discreet manipulation of the European states’ purse-strings. But financial power was not absolute. Above all, it depended on the internal stability of the European states. When that could no longer be maintained, the Rothschilds proved almost as vulnerable as the princes and ministers whose purse-strings they held. In the end, it was not a war which brought the defensive walls of the July Monarchy tumbling down but a revolution; and against that threat the fortifications round Paris offered no protection.