In his delightful memoirs, the art historian Kenneth Clark recalls that Lord Cunliffe, governor of the Bank of England, came to lunch with his father on August 2, 1914. “There’s talk of a war,” said Lord Cunliffe, “but it will never happen; the Germans haven’t got the credits.” Almost a century earlier Gutle Rothschild, widow of Mayer Amschel Rothschild, is supposed to have said of a dispute between England and Prussia, “It won’t come to war; my sons won’t provide money for it.” Niall Ferguson’s extraordinary book is both a history of the world’s most powerful banking dynasty and an attempt to understand the role of high finance in an international system about which such statements could be made and be believed.

In the nineteenth century the power and wealth of the Rothschilds fascinated their contemporaries, not least because their trans-European business remained a family firm. An American observer of the 1830s portrayed the five sons of Mayer Amschel as “peering above kings, rising higher than emperors, and holding a whole continent in the hollow of their hands…. Not a cabinet moves without their advice…. Baron Rothschild…holds the keys of peace or war.” When Amschel’s son James de Rothschild died in 1868, he was reported to have left a personal fortune which came to just over 4 percent of France’s GDP. (Today the equivalent fraction would make it about $50 billion.) Ferguson’s own calculations yield a significantly lower figure.

Unaccountable power always breeds resentment, especially when it is money power. The Rothschilds were demonized in Europe in much the same way as J.P. Morgan was in the United States—only more so, because they were Jewish. The myth of their omnipotence, in which they themselves sometimes believed, bred a virulent anti-Semitism, which fastened onto a uniquely visible Jewish family. To conservatives the Rothschilds were a standing threat to the establishedhierarchy; to socialists they stood for unbridled exploitation of the worker. Long after their power had disappeared, Hitler combined the two strands into a lethal cocktail, when he referred to the “rapacity of a Rothschild, who financed war and revolutions and brought the peoples into interest-servitude through loans.” The origins of Auschwitz can be traced in part to this fateful coupling.

Ferguson has taken to heart Fernand Braudel’s maxim that “the history of the great merchant families is…every bit as valuable as the history of princely dynasties in the study of political fluctuations….” The central historical question raised by his book is the extent to which high finance shaped the politics of the nineteenth century when, as he says, the Rothschilds were “the world’s banker.”

Although it was published as a single volume in England, Viking has split up Ferguson’s long history into two books for the American market. The first, published in the US last year, takes the story up to 1848. It tells how Mayer Amschel’s five sons, led by Nathan, spread out from the Frankfurt ghetto in which they were born to become the leading merchant bank of Europe and Europe’s richest family. What enabled their spectacular rise was the final breakdown, under the impact of the French Revolutionary Wars, of the continental feudal order which had confined most European Jews to urban ghettoes. Ferguson shows how the Rothschilds were the first to exploit the financial opportunities opened up both by the Napoleonic Wars and the long, but uncertain, peace which followed. They made their initial fortune through several different kinds of activity. They smuggled textiles and bullion from England to the Continent, managed the investments of exiled German rulers, transferred the cash needed to buy food for Wellington’s armies in Spain and to subsidize Britain’s Continental allies, and speculated in British government debt. Between 1797 and 1818 their capital grew from å£10,000 to å£1.77 million.

Peace brought new opportunities: to arrange the loans needed to settle debts and indemnities left over from the wars, to finance the fiscal needs of the Holy Alliance and the Ottoman and Spanish empires. Except in England, nineteenth-century governments had tiny sources of revenue; they continually needed to borrow, and were unreliable debtors. What the Rothschilds did was to create an international bond market. Nathan Rothschild’s loan to Prussia in 1818 set the pattern for future loans. It was a fixed-interest sterling loan, with investors being paid in London, not Berlin; this removed both the risk of loss owing to changing exchange rates and the inconvenience of collecting interest from abroad.

In addition, Nathan insisted that the “good faith” of the borrowing government had to be underpinned by a ceiling on state debt and a special mortgage on the royal estates, the first time that such conditions had explicitly featured in contracts between moneylenders and sovereigns, and anticipating the modern concern with the problem of debt sustainability. “Without some security of this description,” Nathan wrote to the Prussian state chancellor, “any attempt to raisea considerable sum in England for a foreign Power would be hopeless.” In Ferguson’s words, the Rothschildsdeveloped a system that


enabled British investors (and other rich “capitalists” in Western Europe) to invest in the debts of…states by purchasing internationally tradable, fixed-interest bearer (that is, transferable) bonds. The significance of this system for nineteenth-century history cannot be over-emphasised.

In the first half of the nineteenth century, the Rothschilds—especially the London house—were the dominant force in European bond issues. In 1844 their capital was å£7.78 million, ten times that of their chief rivals, the Baring brothers.

In helping to create a capitalist world market, Jewish firms like the Rothschilds enjoyed an initial comparative advantage, deriving from their original legal disabilities. Their financial innovations were built on two highly functional traditions. The first was that of the Hofjuden, or “Court Jews,” moneylenders to German princelings. Arranging loans through the international bond markets was merely an extension of this older occupation, with the important difference that the balance of power had shifted toward the lender. It is significant that the five Rothschild banks were established in political, not trading, centers: London, Paris, Vienna, Frankfurt, Naples. The decline and eventual closure of the latter two were the direct result of the political unification of Germany and Italy, which transferred the seat of government to Berlin and Rome respectively.

The Rothschilds aimed to be as close as possible to the political centers of power, geographically and socially, in order to harvest and transmit political intelligence for the firm’s benefit. As Ferguson says, their uniquely fast communication system, based on private couriers, was used by European statesmen as an express diplomatic service. In concentrating on government finance they differed from, say, the Hamburg-based Schroeders, whose firms were initially set up in ports to finance the Baltic trade. The Rothschilds understood that “a Court always leads to something.” In the Rothschild case it led not just to wealth but to ennoblement. The five brothers were given Austrian baronies in 1817, admittedly a devalued currency. In England, Nathaniel Rothschild had to wait till 1885 for his peerage: “To make a Jew a peer,” Queen Victoria told Lord Granville, “is a step she cd. not consent to.” She did in the end.

There were two large gaps in the Rothschild multinational network, to the detriment of both their profits and influence. They never opened a bank in New York. Even though James Rothschild glimpsed America’s potential in the 1830s, no Rothschild wanted to emigrate to a land without a royal court. So they missed out on the post-Civil War boom. The Rothschilds’ failure to establish themselves in the United States, Ferguson writes, “proved to be the single biggest strategic mistake in their history.” As important politically was the fact that establishment of the founder bank in Frankfurt meant there was no Rothschild bank in Berlin. This cut the family off from continuous contact with Bismarck, the manager of the European state system in the second half of the nineteenth century. Bismarck had his own “Court Jew,” Gerson Bleichröder, to manage Prussian state, as well as his own personal, finances. Their relationship has been wonderfully explored by Fritz Stern.* The lack of a Rothschild in Berlin removed a crucial link from the financial circuit which bonded the European nations.

The second tradition that the Rothschilds brought to their new businesses was that of family connection. In laying the bank’s foundations, Mayer Amschel insisted it must be a family partnership, and his wish was law for a century. “The family,” wrote James Rothschild in 1851, “is everything: it is the only source of…happiness,…it is our unity.” Here too the Rothschilds were able to turn a legal disability into a business asset. Dispersed nations have always relied on strong and cohesive family structures to protect them from outright hostility and inadequate redress in their host countries. Their family circuits promoted exactly the business qualities—mutual trust, pooled resources, and information—so advantageous for cross-border trading operations, which were subject to large uncertainties.

The function of dispersed nations in the development of capitalism is starting to be studied seriously again. Contemporaries had no doubt about its importance. As early as 1712, the English journal the Spectator could write:

They [Jews] are so disseminated through all the trading Parts of the World, that they are become the Instruments by which the most distant Nations converse with each other and by which mankind are knit together…. They are like the pegs and nails in a great building, which, though they are little valued in themselves, are absolutely necessary to keep the whole frame together.

The same could be said, though less universally, about Armenians, Chinese, and Indians. Family networks, located in diasporas, helped to supply international credit facilities before the formal legal and institutional structures were put into place. They still do today, in many of the emerging markets. In the development of the international economy, trust comes before law, and kinship before state.


Admittedly, the Rothschilds carried the dynastic principle to extreme lengths. Of twenty-one marriages involving the descendants of Mayer Amschel between 1824 and 1877, fifteen were between his direct descendants. These endogenous alliances, which went together with excluding daughters and sons-in-law from partnerships, were designed to “fortify the cohesion of the financial partnership.” Despite the usual fraternal quarrels, they achieved this. For many years family and religious cohesion—for the Rothschilds never renounced their Jewish faith—was the most potent factor in the Rothschild success.

Endogamy, though, had the unexpected consequence of creating, in effect, a Jewish royal family. The Rothschilds became “Kings of the Jews” as well as “the Jews of Kings.” And with kingship came kingly responsibilities, not just philanthropic, but as spokespersons for their dispersed Jewish kingdom all over Europe. Theodor Herzl offered the Rothschilds the throne of Israel if they would support Zionism.

Already, then, by the time Ferguson’s first volume ends, one can see the seeds of decay in the very factors which brought the Rothschilds their preeminence. With the improvement of state revenues, the development of deposit and joint-stock banking, and the growth of domestic capital markets, there was less demand for the financial services supplied by the “Jews of Kings.” And their dynastic principles doomed the Rothschilds to the inevitable problem faced by all family firms: lack of energetic new blood.

How they managed, for a time, to circumvent these problems is told in Ferguson’s second volume. It shows how the Rothschilds fought off challenges such as that of the French Pereire brothers, founders of the joint stock bank Crédit Mobilier; how they diversified from court finance to investment in railways and minerals, and from Europe into Latin America, South Africa, and the Middle East; how they tried—and usually failed—to use financial leverage to stop wars and combat anti-Semitism (especially in Russia); how the family partnership system was eroded and finally ended (in 1905) by the centrifugal pulls of nationalism—and how the third and fourth generations lost their business energy, and consequently their firm’s financial leadership.

Some crude financial figures tell the tale. The combined capital of the Rothschild banks shot up from å£7.78 million in 1844 to å£22 million in 1862. There was another leap forward to å£34 million in 1874. Thereafter capital accumulation virtually came to an end—partly because the Rothschilds took profits out of the business for family consumption, partly because the profitability of the business declined. Although N.M. Rothschild was still the biggest private bank in London in 1914, its profits on capital declined from a peak of 9.8 percent in 1870-1879 to 3.9 percent between 1900 and 1909, a decade in which Baring Brothers earned 27.1 percent. Individual Rothschilds were not nearly as rich as American tycoons.

There was one crucial compensation. As Ferguson puts it, “by continuing to play safe, the Rothschilds were safe.” Ironically, it was the Barings, who prided themselves on “character” and “sound judgment,” who went bust on an Argentinian bond issue in 1890 and had to be bailed out by a consortium which included their arch rivals, the Rothschilds, whom they despised for their supposed lack of these qualities. (History repeated itself when they were taken in by another plausible rogue, Nick Leeson, a hundred years later.)


Any history of the Rothschilds is bound to encourage speculation about the role of the Jews in modern capitalism, the power of finance in nineteenth-century politics, and what made the international economy of the nineteenth century work. Ferguson has interesting and important things to say about all three.

Serious sociological analysis of capitalist entrepreneurship starts with Max Weber, who claimed that Protestant theology promoted a “worldly asceticism” which was the driving force behind capital accumulation. In The Jews and Modern Capitalism (1911) Werner Sombart replaced Protestant with Jewish, adding the twist that the Talmud encouraged Jews to accumulate money through usury—making money from the loan of money—which he called the “root idea of capitalism.” So widespread had this stereotype become that even Keynes could write in 1930 that

Perhaps it is not an accident that the race which did most to bring the promise of immortality into the heart and essence of our religions has also done most for the principle of compound interest and particularly loves this most purposive of human institutions.

When an American academic pointed out to him that immortality had anextremely unimportant part in Jewish theology, and that civic insecurity had made many Jews “extravagant” and prone to “reckless gambling rather than painful accumulation,” Keynes apologized for having been thinking along “purely conventional lines.”

None of these hypotheses gets us very far. The truth is that the Rothschilds, like all successful entrepreneurs, were driven by a variety ofmotives:desire to escape from lowly origins, resentment over exclusion, desire to impose themselves on their age, a fascination with business itself. Nathan Rothschild happened to be brilliant at moneymaking. He was also a typical example of the joyless ascetic, whose sole pleasure, as he repeatedly said, was his business. But such is true of driven people the world over. Ferguson comments sensibly:

Probably membership of a tightly knit “outsider” group helped when it came to constructing credit networks. And perhaps there was a kind of business ethic derived from Judaism. But these points can be made with equal force about other religious minorities…. The least unsatisfactory answer [to the question of why Jews specialized in moneymaking] is that, at a time when most fields of economic activity were closed to them, Jews had little alternative but to concentrate on commerce and finance.

Two further points can be made. First, the idea that the Rothschilds pulled the world’s money strings was always a distortion of reality, and became seriously so as the century wore on. Both philo-Semites like Disraeli and anti-Semites like Drumont circulated the myth. But the latter were much more numerous than the former.

Secondly, the third and fourth Rothschild generations were neither particularly gifted at business nor particularly interested in it. Mayer Amschel’s two sons Nathan in London (who died in 1836) and James in Paris (who lasted till 1868) made the family fortune; thereafter the family settled down to enjoy life. They became risk-averse, built themselves grand houses, collected works of art, joined the aristocracy, dabbled in politics, and multiplied their arts of philanthropy. There was a family tradition of interest in botany and horticulture, a reaction, Ferguson suggests, to the cramped quarters of the Frankfurt ghetto. The French Rothschilds bought two famous vineyards: Château Branc-Mouton and Château Lafite. Their huge houses—Mentmore in England, Ferrières in France—were predictably sneered at for their vulgarity. But this was the ostentation of princely wealth, not of Jewishness.

Bismarck called Ferrières “an overturned chest of drawers.” But all plutocrats have been accused of bad taste. The Rothschild houses were functional, like the royal palaces they aped—“advertisements,” as Ferguson puts it, “for Rothschild power…centres for corporate hospitality.” But while the Rothschilds entertained like princes, their business stagnated. “It is quite astonishing,” writes Fergu-son, “that a firm with the resources of N.M. Rothschild was still using the single-entry system [of bookkeeping] in 1915” and had “only one typewriter.” So much for the “pure spirit” of capitalism.

How much power did the Rothschilds have? Dazzled by their money, some people, not all of them ignorant or malign, attributed to them a commensurate power over peace and war. The Rothschilds themselves occasionally talked as if they had this power. They saw themselves as the pacifiers of Europe. A French journalist in 1868 claimed that Rothschild money maintained the European balance of power. The popular English economist and journalist J.A. Hobson claimed in 1902 that “a great war” could not “be undertaken by any European state…if the House of Rothschild and its connexions set their face against it.” The reaction against this view, when it came, was extreme. In his brilliant diplomatic history, The Struggle for Mastery in Europe 1848-1918, published in 1954, A.J.P. Taylor claimed that the European balance of power worked like clockwork for most of the nineteenth century. There is no hint in his work that finance may have helped maintain the balance, and therefore the peace: the Rothschilds don’t get a mention.

The truth is more subtle than either view. The Rothschilds were tethered to international politics through their role in the bond market. This does not mean that the bond market determined international politics. As a trans-European enterprise, the Rothschilds, like the Vatican, disliked having to choose between nations, and this tended to make them pacific. This does not mean that they kept the balance of power. Stalin once brutally remarked: “How many divisions does the Pope have?” And the same question could have been asked about the Rothschilds.

Still, in prenationalist (that is, pre-1848) Europe, international finance (which then meant the Rothschilds) probably did help to keep the peaceof Europe. After 1848, the bankers’ power weakened as nationalism came to the fore, as other banks started competing with the Rothschilds toadvance funds, and as governments’ fiscal positions strengthened. With England’s example before them, the Rothschilds understood that constitutional monarchies were more likely than absolute ones to repay debt, and tried to make constitutional reform a condition of loans—for example, to Austria in 1859. But the spread of constitutional government had a paradoxical consequence. By making states more efficient in collecting taxes it weakened their need for international bankers.

Ferguson argues that the Rothschilds’ role as diplomatic go-betweens helped avert war by miscalculation. Obviously the case cannot be proved. History is about wars that happened, not about wars that might have happened. But it is a plausible view. However, there is another reason for downplaying the role of bankers as peacemakers. This is that their interest in peace was at best equivocal. The Rothschilds certainly talked as if they had a vested interest in peace. They reiterated that “it is the principle of our house not to lend money for war.” Yet a glance at their balance sheet shows that they made most of their money by “financing… preparations for war and the international transfers which tended to follow [them].” The “golden age” of the Rothschilds, from 1852 to 1874, spanned the Crimean War and the four wars of Italian and German unification. The reason is clear: the wars of the 1850s and 1860s were fought by states which were, by and large, strapped for cash. Wars and war scares might depress the prices of existing bonds, but they greatly increased the yield—and hence attractiveness to investors—of new debt. On April 30, 1859, the London house cabled its Paris partner: “hostilities have commenced Austria wants a loan of 200,000,000 florins.” With the proliferation of new banks, the Rothschilds knew that they had no “veto on bellicosity.” If they failed to underwrite loans to states, others would. The fatal weakness of banking pacifism was that profits came before peace.

The Rothschilds were indirectly drawn into “lending money for war” by their involvement in railway bond issues. The railway lines which linked Austria to Germany, Italy, Hungary, and the Balkans, paid for by the Vienna Rothschilds and their subsidiary, the Creditanstalt, were largely built for military purposes. In the “war of the railways” in the 1850s, the multinational resources of the Rothschilds triumphed over the national resources of their Parisian rival, the Pereire brothers. But their railways were thereafter hostage to state policy.

All this suggests that it is wrong to think of the Rothschilds as a kind of international financial government capable of taming the rivalry among nations. This is brought out clearly by the failure of James Rothschild’s grand design to head off the Austro-Prussian war of 1866. James thought of states as businesses. Where historians see nation-building, James saw mergers and breakups of mergers. The Austrian Empire was virtually bankrupt. James’s solution to its problems was for Austria to sell Holstein to Prussia and Venetia to Italy. The states concerned should, he suggested, raise the money by selling or mortgaging their railways; Austria and Italy would get Rothschild loans in return for tax breaks on the Rothschild-owned Lombard railway, which ran through both states. James dreamed of “a complex of interdependent transactions designed to liquidate Austria’s unsustainable empire without the need for an economically disruptive war.”

But Austria would not accept thepolitical condition for a loan. It went to war to defend its “property” and was rapidly defeated at Königgratz. To the extent that anyone controlled the plot it was Bismarck, not Rothschild. As compensation, “post-war indemnity transfers were a lucrative source of business….” James Rothschild’s blindness to nationalism was echoed by Mayer Carl in Frankfurt at the end of the 1860s. Bismarck, he argued, did not need a war with France to bring about German unification, economics was already doing it. Once again the statesmen ignored this logic, but the Rothschilds again made a large profit by helping France, after its defeat in 1871, pay reparations ahead of time. This “was, quite simply, the biggest financial operation of the century, and arguably the Rothschilds’ crowning achievement.” The pattern was established. The bankers could make money out of the policies of states. They did not control them.

In the quarter-century before World War I, nationalist and imperialist rivalry broke up the cosmopolitan ideal and practice of the Rothschilds and other bankers. The Rothschilds became patriots and their banks became national banks. Far from the bankers calling the tune, as Hobson supposed, it was governments which used private finance to cement political alliances. The French loans to Russia, the German loans to Austria-Hungary and the Ottoman Empire, and the competition of German and French finance in Italy are the main examples. In 1890 the French foreign minister, Alexander Ribot, ironically told Rothschild Frères “not to make the bourse available to [Italy]…until she has properly learnt the lesson she is learning at the moment about the benefits of the Triple Alliance.” When the Russian finance minister, Sergei Witte, asked for a loan in 1898, “Natty” Rothschild informed Prime Minister Salisbury that “it would neither be in accordance with the interest nor inclination of Ld. Rothchild to encourage M. de Witte unless Y[our] L[ordship] thought it desirable that he should do so.” Salisbury affirmed that it was “not in our interest to encourage the borrowing operations of Monsieur de Witte. But it may by some unforeseen turn of events, become so: & therefore it would not be prudent to show reluctance to help him too manifestly.” Ferguson comments that this reply “perfectly illustrates how the bond market and diplomacy interacted.” What, of course, it shows is that the bond market had become an instrument of diplomacy.

Partly because they hated tsarist Russia for its state-sponsored anti-Semitism, the English Rothschilds tried hard to promote an Anglo-German alliance. At a famous dinner in March 1898 Alfred Rothschild brought together the Conservative leaders Ar-thur Balfour and Joseph Chamberlain with the German Ambassador Count Paul von Hatzfeldt to discuss Anglo-German cooperation. This was the start of what Ferguson calls “a protracted period of diplomatic toing and froing between Berlin and London in which the Rothschilds played a pivotal role.” But apart from a minor Anglo-German agreement over China, their efforts were fruitless. Equally significant was the failure of financial leverage to stop Russia’s persecution of the Jews. Whether the Rothschilds used the carrot of loans or the stick of refusing them, Russian policy continued on its haphazardly brutal way.

In continents peripheral to the European balance of power, finance was able to play a more independent role. As their European bond business fell off, the English Rothschilds started lending heavily overseas, especially to Egypt and Brazil, and investing in extractive industries. “Mercury, gold, copper, lead, diamonds, rubies and oil: by 1900 the Rothschilds occupied a remarkable position in the world market for non-ferrous metals, precious stones and petroleum.” It was this diversification that made them players in the imperial game. Like other banks involved in overseas investment, the Rothschilds favored cooperative solutions; their ideal was what Ferguson calls “multinational imperialism.” And where the bankers had a relatively freehand, consortiums were easy to arrange. But the Rothschilds could not avoid getting caught up in the imperial adventures of Disraeli in Egypt and Cecil Rhodes in South Africa. Except possibly in independent Latin America, finance remained the instrument of European power politics.

As Ferguson’s account brings out, the Rothschilds were in a position to set financial but not political conditions for lending. In the last analysis, finance was the servant of politics. It is true that “financial realignments… brought France and Russia and ultimately England together to check the new Germany”; but this was a case of finance tracking diplomacy, not leading it. Competitive nationalism broke the trans-European links between the London, Paris, and Vienna houses. In World War I the Rothschilds fought on both sides. Lenin got the true situation upside down when he talked of “monopoly capitalism” driving the nations to war. States used finance much more than finance used states. Nineteen-fourteen made it crystal clear that “the banks could not stop a war, but war could stop the banks.”

This does not mean that international finance did not importantly discipline economic life in the nineteenth century. Its effect was particularly felt in the fiscal and exchange rate policies of states, just as it is today. Although the merchant banks were rivals, they could agree on what made a particular state credit-worthy. It was their business to do so, for had they not been able to secure their loans, no one would have invested in them. So the bond markets played a crucial role in promoting “sound finance.” The bankers were equally ardent advocates of “sound money.” By the end of the nineteenth century, Rothschild loans were usually made conditional on their recipients joining the gold standard. Here Ferguson opens up an important line of inquiry: How did the Rothschilds, and other merchant banks who dealt in bullion, lubricate the working of that mysterious, but highly successful, system?

Ferguson’s book is not easy to read. It is too densely packed for that. Was so much financial detail really necessary? It will fascinate aficionados of the bond market, and much of it helps to show the relationship between financial and political events. As Ferguson writes, in a particularly felicitious passage, the bond market was the nineteenth century equivalent of opinion polls. “If investors bid up the price of a government’s stock, that government could feel secure. If they dumped its stock, that government was quite possibly living on borrowed time as well as money.” But a clearer explanation of how the underwriting system worked would have been worth a mass of financial statistics.

Another snag is that multigenerational Rothschild family history, with its huge cast and a tiny number of first names, is apt to become very confusing, despite the help given by the genealogical tables. The shape of the story is sometimes overwhelmed by the richness of the historical archives, most of them being used for the first time, and by the detailed background given for each financial operation.

But these are minor quibbles. Taken together, Ferguson’s two volumes are a stupendous achievement, a triumph of historial research and imagination. No serious historian can write about the connection between the politics, diplomacy, and economics of the nineteenth century in the same way again. And, as any good work of history should do, it constantly prompts us to ask questions about our own age, when once again we have embarked on the grand experiment of a world economy without a world government. How did it work the first time around? And why did it end in a world war?

This Issue

December 16, 1999