Bank of Europe
As insiders and outsiders, the brothers rothschild created a financial powerhouse

Author: By Dietrich Orlow

Date: SUNDAY, December 27, 1998

Page: L1

Section: Books

If Bill Gates personifies immense wealth for our own times, the Rothschild brothers evoked much the same image in 19th-century Europe. Five brothers and partners heading separate but linked banking houses in Frankfurt, London, Paris, Vienna, and Naples, they were not only reputedly the wealthiest family in Europe but, through their close relations with the continent's dominant rulers, the holders of immense political power as well.

The Rothschilds' story has, of course, been told before; in fact, accounts of the family's meteoric rise would fill a medium-sized library. Why, then, yet another biography of the family?

The author promises that the recent availability of several new collections of sources about the Rothschilds make it possible, finally, to separate myth from reality. He is certainly right about the new sources: The recently opened Russian archives provide insight into the Rothschilds' dealings with the czarist empire. More important is the voluminous correspondence of the brothers with one another. Until recently, much of this was inaccessible to most scholars because the brothers wrote in Judendeutsch, a German text written with Hebrew letters. The House of Rothschild in London has made transcriptions of these documents available, and Ferguson was one of the first beneficiaries of this project.

Ferguson also makes excellent use of older and somewhat more controversial types of sources, notably fictional accounts of the Rothschilds and their activities. James de Rothschild (the ``Paris Rothschild'') appears as a fictional character in several of Honore de Balzac's novels. The same is true for Nathan Rothschild and his son Lionel (the ``London Rothschilds'') and the novels of Benjamin Disraeli.

The author had a unique relationship to the present-day Rothschilds. Ferguson emphasizes that while he received every cooperation from the Rothschilds, this is in no way an authorized biography. The family did not insist upon censoring his text, though they did reserve the right to comment upon the book.

Ferguson is well qualified to write a revisionist book about the Rothschilds. Something of an enfant terrible in the historical fraternity (he has just published a book that is severely critical of British policies during World War I), he has also written extensively on the economic history of 19th-century Europe.

``The House of Rothschild'' is a well-written, superbly illustrated, and unabashedly personalist account of the Rothschilds' phenomenal success. The founder of the family, Mayer Amschel Rothschild, was a moderately successful coin dealer from the Jewish ghetto of Frankfurt. His five sons in less than two decades had established a Europe-wide financial network.

There were a number of reasons for the family's astounding success. One was the ``unity'' rule laid down by Mayer Amschel. A legal agreement (which was revised every four or five years) committed the brothers to act as an interlinked partnership, sharing the profits and losses of their far-flung operations. (Incidentally, it was an iron-clad rule in the family that only the direct male descendants could become full partners in the business; all daughters were resolutely excluded from decision-making roles in the banking houses.) It was also of the ``greatest significance'' that the Rothschilds practiced endogamy to the largest extent possible. Rothschilds were encouraged to marry Rothschilds, and marriages between first cousins, which were not prohibited under Jewish law, became the rule rather than the exception.

As they acquired wealth and power, the Rothschilds became the consummate outsiders as insiders. Unlike many other well-to-do Jews in the Europe of their time, the Rothschilds did not convert to Christianity, but remained true to their Jewish faith. In fact, when Hannah Rothschild, one of the daughters of Nathan, married a British peer and converted to Christianity, she was systematically ostracized by the family.

The ultimate reason for the Rothschilds' success, however, was their financial acumen. They were among the first bankers to recognize the importance for the post-Napoleonic era of what would now be called the international bond market. Twenty years of war had devastated the treasuries of the belligerent powers, and the Rothschilds eagerly marketed and underwrote the various issues of public debt that small and great powers alike offered. For its services the family earned significant commissions; more important, their ability to transfer the bonds between the various houses enabled them to profit from the often sizable differences in monetary exchange rates.

Not surprisingly, the Rothschilds soon developed mutually beneficial relationships with the movers and shakers of post-Napoleonic Europe. The differences between public and private finance was not nearly as well established then as it is now, and the Rothschilds (no less than their rivals) freely offered bribes, gifts, and preferable terms for private investments to obtain favors from the rulers, including insider information on political decisions that the Rothschilds used to good advantage.

In the final analysis, however, none of this would have been possible if the five brothers had not had a genuine passion for finance. Nathan's confession, ``My only pleasure is business,'' was to one degree or another true for all of the brothers. Surprisingly, the practice of endogamy does not seem to have resulted in any ill effects, such as an increase in hereditary diseases. On the contrary, the gene for financial acumen (if there is such a thing) passed untarnished through the generations.

The Rothschilds also recognized that in the financial world early knowledge often means bigger profits. Their private courier service made it unnecessary for them to use the slow and unreliable postal services of the time. In fact, their courier services acquired such a reputation for speed and reliability that they were routinely used by friendly diplomats as well. As a result, the Rothschilds often obtained inside information on political decisions long before their rivals could have access to it.

As they gained success and power, the Rothschilds became the objects of increasingly hateful and openly anti-Semitic attacks. They were portrayed as power-hungry financial despots who used their immense influence to advance the power of Jews and Judaism. It is an important asset of this book that it humanizes the Rothschilds. Far from being all-powerful geniuses with a Midas touch, the brothers experienced failures as well as successes. Surprisingly, perhaps, the family was slow to recognize the importance of the Industrial Revolution. Having been very successful in the bond business, they largely left the financing of industrial developments to others, at least until the 1840s or so. Even then, only James in Paris and Salomon in Vienna developed a genuine passions for railroad building, the 19th-century equivalent of high-technology industries in our own day.

As consummate insiders the Rothschilds were also reluctant to appreciate that the quality of public bonds is directly related to the stability of the governments that issued them. As a result, the Continental houses lost heavily in the Revolutions of 1830 and 1848, requiring substantial transfers from the London house (where there were no revolutions) to keep them afloat.

Finally, as Ferguson notes, the Rothschilds' biggest mistake of all was not to establish a branch in the United States. There were a number of reasons for this failure, including the Americans' distrust of big banks and the Rothschilds' distrust of free-wheeling, especially Jacksonian, democracy, but in the end it came down to the unwillingness of any of the male Rothschilds to settle in America permanently.

Part of the appeal of this book is that it is a social history of the Rothschild family as much as the story of their financial dealings. In fact, the chapters on the evolving lifestyle of the Rothschilds are particularly well done. The author effectively demolishes the myth that the Rothschilds were mere parvenus and Philistines, though both Nathan and James could be extremely boorish and vindictive to clients and family relations. At the same time the brothers, and even more their progeny, were genuinely interested in art, education, and music. (Rossini, for example, was a longtime friend of the family.)

Still, the picture of the Rothschilds that emerges from this book is that of a family for whom business always came first. Typical in this regard were their efforts toward the emancipation of Europe's Jews. There is no doubt that the Rothschilds attempted to do as much as possible for ``our nation,'' but it is also true that they were certainly no Zionists. Moreover, their endeavors ended when going further would have endangered their relationship to the post-Napoleonic powers. Similarly, their reputation as stalwart supporters of counterrevolution was not entirely undeserved. The Rothschilds were not against political reforms, but they did not want such reforms to have a negative effect on bond prices.

All in all, this is an excellent book that is well worth reading for both the general reader and specialist. The author's slight tendency toward breathless revelations (the ``now it can be told'' and ``you read it here first'' school of historiography), like the occasional typographical and translation errors, are minor distractions from a superbly written work.