The Rothschilds and the Rise of Bonds

What I learned from reading The House of Rothschild: Money's Prophets by Niall Ferguson.

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A business can only be managed well if one pays as much attention to the smaller business transactions as one does to the larger ones.

All banks have histories, only the Rothschilds have a mythology. 

Ever since the second decade of the nineteenth century, there has been speculation about the origins and extent of the family's wealth; about the social implications of their meteoric upward mobility; about their political influence, not only in the five countries where there were Rothschild houses but throughout the world.

Unlike modern multinationals, however, this was always a family firm.

Perhaps the most important point to grasp about this multinational partnership is that, for most of the century between 1815 and 1914, it was easily the biggest bank in the world. 

In terms of their combined capital, the Rothschilds were in a league of their own. The twentieth century no equivalent.

What exactly was the business the Rothschilds did? To answer these questions properly it is necessary to understand something of nineteenth-century public finance; for it was by lending to governments or by speculating in existing government bonds-that the Rothschilds made a very large part of their colossal fortune.

It was war and the preparation for war which generally precipitated the biggest increases in expenditure.

It was in this highly volatile context that the Rothschilds made the decisive leap from running two modest firms—a small merchant bank in Frankfurt and a cloth exporters in Manchester—to running a multinational financial partnership.

The system they developed enabled British investors (and other rich "capitalists” in Western Europe) to invest in the debts of those states by purchasing internationally tradeable, fixed-interest bearer bonds. The significance of this system for nineteenthcentury history cannot be over-emphasised. For this growing international bond  market brought together Europe's true “capitalists": that elite of people wealthy enough to be able to tie up money in such assets, and shrewd enough to appreciate the advantages of such assets as compared with traditional forms of holding wealth (land, venal office and so on). Bonds were liquid.

The Rothschilds spent so much time, energy and money maintaining the best possible relations with the leading political figures of the day.

They constantly strove to accelerate the speed with which information could be relayed from their agents to them. They relied on their own system of couriers and relished their ability to obtain political news ahead of the European diplomatic services.

The primary concern of this book is therefore to explain the origins and development of one of the biggest and most unusual businesses in the history of modern capitalism.

The history of the firm is inseparable from the history of the family.

Inevitably, there were conflicts between the collective ambitions of the family, so compellingly spelt out by Mayer Amschel before he died, and the wishes of the individuals who happened to be born Rothschilds, few of whom shared the founder's relentless appetite for work and profits.

There are few major political figures in nineteenth-century history who do not feature in the index of this book.

"I see in Rothschild," he went on, "one of the greatest revolutionaries who have founded modern democracy": Rothschild destroyed the predominance of land, by raising the system of state bonds to supreme power, thereby mobilizing property and income and at the same time endowing money with the previous privileges of the land. He thereby created a new aristocracy.

All the copies of the outgoing letters from the London partners were destroyed at the orders of senior partners.

Nathan was a fiercely ambitious and competitive man.

The merchants who are well organised are the ones who get very rich, and the ones who are disorganised are the ones who go broke.

In a market crowded with numerous small businesses, subject to rapid fluctuations in prices and interest rates and almost completely unregulated, it took a combination of burning aggression and cool calculation to survive and thrive. Nathan Rothschild possessed both in abundance.

Nathan felt himself almost at war with his business rivals.

Nowadays everybody calls himself 'Excellency.' I remember, however, what our father used to say, With money you become an Excellency.

Father used to say, If you can't make yourself loved, make yourself feared.

We owe not only our wealth but also our honourable position in society primarily to the spirit of unity and cooperation that binds together all our partners, bank houses and establishments.

Playing hide and seek with the authorities was becoming second nature to the brothers. Indeed, even their sons were already being taught to attach importance to secrecy.

Nathan had only one concern: business.

Nathan gloried in his ascetic: After dinner I usually have nothing to do. I do not read books, I do not play cards, I do not go to the theatre, my only pleasure is my business.

Our old established practice of buying some gold whenever we can find any.

Contemporaries found Nathan Rothschild an intimidating man: coarse to the point of downright rudeness in manner.

Such bruising encounters in the office were later distilled into the famous "two chairs" joke, probably the most frequently reprinted Rothschild joke: An eminent visitor is shown into Rothschild's office; without looking up from his desk, Rothschild casually invites him to "take a chair." "Do you realise whom you are addressing?" exclaims the affronted dignitary. Rothschild still does not look up: "So take two chairs.”

To give mind, and soul, and heart, and body, and everything to business; that is the way to be happy. I required a great deal of boldness and a great deal of caution to make a great fortune; and when you have got it, it requires ten times as much wit to keep it.

Stick to one business, young man. Stick to your brewery and you may be the great brewer of London. Be a brewer, and a banker, and a merchant, and a manufacturer, and you will soon be bankrupt.

When a guest at the same dinner expressed the hope "that your children are not too fond of money and business, to the exclusion of more important things. I am sure you would not wish that," Nathan retorted bluntly: "I am sure I should wish that."

This man is really a complete original.

He and his brothers recognised that there might be a conflict between higher education and a successful business apprenticeship.

I advise you not to let him study more than another two years so that he should enter the business when 17 years old. Otherwise he would not be deeply attached to business.

No one could conceive that the man who, since the death of his father in 1812, had been the unquestioned leader of the house of Rothschild, might die at the very height of his powers.

All that mattered was that they should hold together in unity.

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