Making Money From War And Peace, Too


The World's Banker, 1849-1999

By Niall Ferguson

Viking 658pp $34.95

In the annals of business, no name--not Morgan, not Rockefeller, not Gates--is as resonant of power and mystery as Rothschild. In building the mightiest private bank the world has ever seen, the Rothschilds amassed the largest private fortune in the history of capitalism. A proudly Jewish family, they attained their first prominence at a time when most of Europe's Jews were confined to ghettos. Moreover, the family had reached the peak of its influence--as bankers to the European political elite--before most of the countries that sought their counsel had seen fit to legally emancipate Jews.

Given the family's improbable, outsize achievements, it is no wonder that over the past two centuries the House of Rothschild should have become the object of a great deal of mythical lore, much of it rank with anti-Semitism. With The House of Rothschild, British historian Niall Ferguson has made a long overdue attempt, as he puts its, "to supplant Rothschild mythology with historical reality." This, the second and final part of The House of Rothschild, is, like its predecessor, an exhaustively researched, artfully mounted work of historical scholarship.

The Rothschilds' ascent from ghetto obscurity to moneyed preeminence was the subject of Ferguson's first volume, subtitled Money's Prophets. This book, The World's Banker, recounts the House of Rothschild's long commercial prime, from 1848 to 1880, and a period of gradual decline brought to an abrupt end by World War I. The author uses a wide-angle lens but focuses his attention on the elaborate interplay between the family's private interests and the national agendas of the great European powers in an era of epic technological and political upheaval.

Ferguson is the first writer to obtain unfettered access to the archives of the London branch of the House of Rothschild, and he also unearthed long-lost documents in Moscow. Although he drops no revisionist bombshells, he does make effective use of his stockpile of fresh ammunition to correct and modify the historical record. The cumulative portrait that emerges is of a family with a positive genius for turning virtually any geopolitical crisis to its own business advantage. At the same time, they come across as deserving of more credit than generally given for their attempts to reconcile self-interest with the public good.

Yes, it is certainly true that the Rothschilds made enormous profits from financing armed conflict. However, Ferguson shows that family members, wielding their political influence, generally went to great lengths to try to defuse hostilities between nations. This does not make them pacifists, to be sure. But as the keepers of the international bond market, the Rothschilds recognized that, in the long run, they had far more to gain from financial stability than from deficit-financed military adventurism.

Never was the Rothschilds' financing prowess put to more constructive use than in the aftermath of the Franco-Prussian War of 1870-71. Victorious Prussia demanded huge reparations from France. If the latter had proved unwilling or unable to pay, further bloodshed would have resulted. But the payment demanded was so massive that it threatened to bankrupt France. The Rothschilds defused the situation by raising most of the funds from outside investors at relatively low rates of interest--all without unsettling exchange rates. This was, Ferguson concludes, "the biggest financial operation of the century, and arguably the Rothschilds' crowning achievement."

The Rothschilds' unrivaled financing capability was rooted in a distinctive supranational structure. In its heyday, the family owned banks in Frankfurt, Vienna, Naples, Paris, and London, and it oversaw a network of agents that spanned the world. These were not branches of a single firm but full-fledged merchant banks bound together by cross-ownership, intermarriage, and a deeply embedded sense of family destiny and Jewish identity.

In Ferguson's view, decline set in with the fourth generation, which lacked the ambition and aptitude of their predecessors and were altogether too enamored of their art collections and country houses. At the same time, European capital markets fragmented along regional lines. This undermined the Rothschilds' original structural advantage and caused each of the banks to set an increasingly independent--and vulnerable--course.

With the outbreak of World War I, the family paid dearly for its failure to establish a major presence in the U.S. It was all but shunted to the sidelines in financing the Great War, as the world's money center shifted from London to New York City. The 1920s and 1930s were dismal decades for the Rothschilds, and yet, writes Ferguson, "it was precisely at this time of their greatest weakness that the myth of Rothschild power reached its zenith"--as epitomized in Nazi propaganda.

Ferguson's book is not without weaknesses. His writing is a model of clarity but not of literary style. The narrative bogs down at times in digressive accounts of Rothschild involvement in British politics and in the diplomatic maneuverings of the Victorian age. Some of these pages would have been better devoted to the inner workings of the House of Rothschild. But these are quibbles in the face of Ferguson's achievement. With The House of Rothschild, he has given one of history's most important families its due at last.

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