Written By: Daniel O | Posted: Tuesday, June 8th, 2010
Thus we are told that his father [Nathan Rothschild] had made money in the Peninsular War, then "resolved to emigrate to England, with which he had in the course of years, formed considerable commercial connections. He arrived here... with his large capital. He staked all on the Waterloo loan; and the event made him one of the greatest capitalists in Europe." After the war, he and his brothers lent their money to the European states -- "France wanted some; Austria more, Prussia a little; Russia a few millions" -- and he "became lord and master of the money-market of the world." -- from British Prime Minister Benjamin Disraeli's famous book Coningsby (1844)
In modern times, The Rothschild family is often referred to as archetypal capitalists who were Europe's wealthiest family from 1820 onward and gained this position through their ability to exploit the capitalist system -- this widely held view is completely false. The Rothschild family was indeed the Continent's wealthiest family throughout the nineteenth century but they gained this position through the exploitation of governments. Therefore, The Rothschilds should not be labeled as capitalists but rather another group of people in bed with governments, at an enormous scale.
200 years later, this misnomer not only still exists but is one of the most pervasive and deleterious aspects of modern economic thought. People continue to blame society's problems on freedom while neglecting the incessant cronyism, corporatism and government expansion that permeates the economy. This notion was repugnant in the early years of American society as proven by President Andrew Jackson's public support in successfully abolishing The Bank of The United States (BUS), which was the main reason why the Rothschild family failed in penetrating The US market.
Traditionally, The Rothschild family conducted business in countries where they had strong relations with the governments of those nations; otherwise they refused. In the 1830s and 40s, this presented a huge dichotomy to the five Rothschild brothers who were scattered across Europe's financial cities because they also recognized the large economic growth taking place in the United States indicating enormous potential for profits. Not only did the family lack a strong relationship with the federal government but The United States was also in the midst of major financial reform revolving around the collapsing BUS.
In the 1998 widely acclaimed book "The House of Rothschild: Money's Prophets 1798-1848" by Niall Ferguson, the author notes:
"The Bank of the United States had employed Barings as its European agent but the relationship broke down in 1836-7, and the Rothschilds hurried to offer their services. Biddle (the bank's head) had ambitious-sounding plans, including "a business with a guarantee of two million pounds sterling to provide advances for goods and stocks, " and a scheme for a quasi-monopoly on cotton exports. It seemed to James (Rothschild) like a financial marriage made in heaven: these were, he enthused, "the wealthiest people in America" and "no less solid" than the Banque of France. At once, he began to imagine "flooding the American market" with his Spanish mercury "so that in six months we will be masters of the market"." p 373
This alliance never came to fruition as Nicholas Biddle's power and credibility later dwindled coupled by other large problems that arose within America's financial system.
"In October 1839 the BUS (Biddle's bank) suspended payments and in 1841 finally collapsed. Its failure coincided with a rash of defaults by states... In the wake of this fiasco, which saddled the London and Paris houses with a large quantity of thoroughly bad debts, the Rothschilds were content to hand back to Barings the position of bankers to the federal government. "You may tell your government" James was reported as telling representatives of the US Treasury, "that you have seen the man who is at the head of finance of Europe, and that he has told you that you cannot borrow a dollar, not a dollar." The experience with the BUS had made James wish he had "never become involved with [America]." In future, he concluded, unless the federal government were "prepared to guarantee all the States and make the payments with us" and to set up an officially backed central bank, he would keep his distance." pp 374-375
Presidents Andrew Jackson and Thomas Jefferson were strongly opposed to a central bank, largely because they had witnessed the corruption surrounding central banks and the way in which large banking institutions profit from wars.
A large portion of wealth that the Rothschild family accumulated derived from interest charged to governments. Between 1818-1846, only 16.2% of loans from the London house were issued to the private sector while the remaining 83.8% were issued to governments. Ferguson explains that:
"Between 1818 and 1832, it was estimated that [Nathan] Rothschild accounted for seven out of twenty-six loans contracted by foreign governments in London, and roughly 38 per cent (£37.8 million) of their total value. This was more than twice the value of their nearest rivals, B. A. Goldschmidt. Moreover, the bank's own figures suggest that this may be an underestimate: the value of loans issued by Nathan in the period was in fact £86 million. The equivalent total for loans issued by the Frankfurt house in this period was 28 million gulden (£2.5 million). In Paris, James (Rothschild) came to exercise a near monopoly over French government finance, issuing seven loans with a nominal capital of 1.5 billion francs (£60 million) between 1823 and 1847." p 162
The United States Federal Reserve Bank was not officially established until 1913 and therefore the Rothschild family never established a firm relationship with the federal government. Although they did closely monitor the activities in the US economy and took part in activities such as the gold rush and post Civil War financing.
In fact, subsequent to The Civil War, large banking conglomerates in the US began to emulate Rothschild practices by pushing hard for a central bank and exploiting the federal government in various ways. JP Morgan was the most obvious example.
JP Morgan, like the Rothschilds, helped to provide funding for weapons during war (The Civil War). In the 1890s, JP also provided huge sums of gold to the Federal Government. JP later helped to form Chase Manhattan Bank which is now one of the worlds largest banking conglomerates, under the name JPMorganChase.
Similarly, over the past 100 years, Chase has maintained very close ties to the US government and other governments throughout the globe. The bank has been very successful at loaning money to governments through various means such as its close affiliation with Worldbank and The IMF.
The head of Chase, David Rockefeller, maintained close relationships with many global leaders during the bank's period of internationalization during the 1960s and 70s. David also maintained intimate relationships with members of the US government such as Henry Kissinger and the Dulles brothers during the 1950s, 60s and 70s. In addition, he has also worked very closely with the former head of the New York Federal Reserve, Timothy Geithner and Fed Chairman Paul Volcker, a longtime Chase executive.
It is precisely this type of cronyism which was detested by Jefferson while being mastered by the Rothschilds in Europe. The Rothschild family was constantly engaged with Europe's major political figures such as Benjamin Disraeli, Otto Von Bismark, Napoleon III and the Franz Joseph of Austria.
"Perhaps most importantly, this is a political as much as it is a financial history: there are few major political figures in nineteenth-century history who do not feature in the index of this book. From the very earliest days, the Rothschilds appreciated the importance of proximity to politicians, the men who determined not only the extent of budget deficits but also the domestic and foreign policies which so influenced the financial markets; and politicians soon came to realize the importance of proximity to the Rothschilds, who at times seemed indispensable to the solvency of the states the politicians governed and could always be relied upon to provide up-to-the-minute financial news." p 9
The Rothschilds used their political intelligence and political influence to push out many aspects of their agenda. For example, Nathan Rothschild (in London) was able to make a huge profit by speculating on the stock market as he was the first to receive news of Napoleon's defeat at Waterloo. In the middle of the century the family also came to dominate the continent's railroad industry through negotiations with governments -- most importantly, Austria.
The Rothschild family was also very effective at influencing monetary policy throughout Europe's major financial cities as they were closely linked to the central banks and they also dominated the world's precious metals market -- specifically gold. Given the sheer quantity of gold the family had acquired they were able to manipulate the continent's money supply. Without the existence of central banks their manipulation tactics would not have been possible.
"James had in fact been sending substantial quantities of gold across the Channel since the beginning of 1825, if not earlier. In the first week of January alone, he had sent gold worth nearly £500, 000, which he expected to "impress your Bank" (meaning the Bank of England). By the middle of the month, he was talking about "our old established practice" of "buy[ing] some gold whenever we can find any."." p 136
The family was obsessed with gold and imported it from all across the globe including South America, Russia, Turkey and Australia. Their perception and understanding for the value of gold is very much in line with that of modern-day Austrian Economists -- it is the best store of value.
However, as the family always invested in gold, they did not always support the notion of gold to be upheld as a currency in circulation. Often times, they preferred the gold for themselves while allowing paper to circulate in the economy by encouraging their political associates to print notes.
Paper notes and govt bonds were much easier to manipulate, especially with greater political intelligence and political influence than any other banker in the market.
They also used faulty scare tactics such as "the fear of deflation" and a contracting economy as a means to keep paper in circulation (similar to some modern-day "economists").
"Taking it for granted that the new bank would maintain an inadequate reserve, James [Rothschild] predicted that if it got into difficulties the government would have to choose between "a general bankruptcy" or the suspension of gold and silver convertibility. These were exaggerated fears designed to intimidate Louis Napoleon." P 61 (volume 2)
"In 1819, the "bullionists" had effectively won... .Dismayed, Nathan sought to dissuade Liverpool from going back on to gold, even pursuing ministers into the country to make his case...Nathan never opposed the resumption of cash payments (linked to gold) as a matter of theoretical principle; he and his fellow bankers made a practical argument that the short-run effects of a deflationary policy would be economically destabilizing, and that this might tend to run counter to the government's goal of fiscal and monetary stabilization." p 120-121
The family controlled so much gold that when they moved huge quantities of bullion from one central bank to another they were able to flood the market causing inflation and prices to then rise. Throughout a boom period ending in 1824, the family was able to generate huge profits. Afterward, Nathan and other bankers began to remove huge quantities of gold from England at the end of the boom in 1825. In 1825, a bust period occured and asset prices across the market dropped significantly.
The Bank of England then became responsible for fixing the economic crises in 1825, and The Rothschilds were granted the role of "lender of last resort to the lender of last resort" because they had excess gold.
""Had it not been for the most extraordinary exertions -- above all on the part of old Rothschild -- the Bank must have stopped payment." Of course Nathan would not have made such immense deliveries of gold without asking for a generous commission in return. The operation has to be seen as his campaign to establish himself as the dominant force in the London bullion market... The rescue of the Bank was a remarkable achievement which owed everything to the international nature of Rothschilds' operations. In effect, the brothers were establishing that system of international monetary co-operation which would later be performed routinely by central banks, and on which the gold standard came to depend. Increasingly, their position in the international bullion market was becoming as dominant as their position in the international bond market." p 137
Many parallels can be drawn between the practices of the Rothschild family and our modern-day financial system. Although much revenue came from charging interest to governments, they were also engaged in many other areas of the economy. They bought and sold government bonds; traded enormous sums of foreign currencies; invested heavily in certain industries such as textiles and railroads; and they also dominated the commodity industry, globally.
In 2010, banks remain engaged in many of the same practices as the Rothschild family. Banking and finance are indeed a very important aspect of the economy and perfectly acceptable in a free market economy. However, it is when banks collude with governments and exploit the population for their own benefit that the term capitalist gets distorted.
In a free society, the role of government must be limited thus preventing cronyism at a grand scale, as in the case of the Rothschilds. Figures like Jefferson and Jackson acknowledged corruption within government which is why they pushed so hard to separate government and monetary policy by opposing a central bank.
Had Andrew Jackson not succeeded in abolishing The Bank of the United States, perhaps the Rothschild family could have made even greater fortunes by exploiting The U.S. political establishment.
Unfortunately, cronyism and corporatism are probably more rampant today than any other time in American history, as it has become accepted. And it is continuously mislabeled as capitalism.
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