the world of private banking

THE RISE OF tHE ROtHScHILDS
seems to have been the case for all the houses. In 1828, credits to the other house
amounted to 31 per cent of the assets of the Paris house.
The most striking point of all is the sheer size of the Rothschilds’ bank. In
1815, the combined capital of the Rothschild houses in Frankfurt and London was
at most £500,000. In 1818, the figure was £1,772,000, in 1825 £4,082,000 and in
1828 £4,330,333. The equivalent figures for the Rothschilds’ nearest rival, Baring
Brothers, were £374,365, £429,318, £452,654 and £309,803. 10 To take a single year
– 1825 – their combined resources were nine times greater than the capital of Baring
Brothers and eleven times larger than the capital of James’s principal rival in Paris,
Laffitte. They even exceeded the capital of the Banque de France (around £3 million
at this time). 11 Nor did the Rothschilds lose momentum in the succeeding years. In
1836 – the next time the partners met to settle accounts and renew their contractual
agreement – the capital had increased again to £6,007,707. Barings’ capital in that
year was £776,650. Eight years later, the Rothschilds had increased their capital
to £7,778,200; Barings’ had shrunk to £501,944. The main explanation for this
dramatic disparity is not just that the Rothschilds made bigger profits. In relation to
its capital, the Barings’ bank was significantly more profitable on average than the
London house. 12 But the Rothschilds ploughed the bulk of their profits back into the
business, whereas the Barings tended to distribute profits to the partners (even in
years when the bank made a loss) rather than allow capital to accumulate.
How did the Rothschilds make their money? Primarily, the answer is from
government finance. Between 1818 and 1832, it has been estimated that N.M.
Rothschild accounted for seven out of 26 loans contracted by foreign governments in
London, and roughly 38 per cent (£37.6 million) of their total value. This was more
than twice the value of their nearest rival. 13 Moreover, the bank’s own figures suggest
that this may be an underestimate: according to Ayer, the value of State loans issued
by Nathan in this period was in fact £76 million, though £8.6 million was shared
with non-Rothschild banks. 14 The equivalent total for loans issued by the Frankfurt
house in this period is 28 million gulden (c. £2.5 million). 15 In Paris, James 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. 16 Table 1.4
CPHDCM, 637/1/6/34–42, Bilan de MM de Rothschild Frères, 30 June 1828.
10
P. Ziegler, The Sixth Great Power: Barings, 1762–1929 (London, 1988), p. 374.
11
Gille, Maison Rothschild, vol. I, pp. 163–6, 450f.
12
Ziegler, Sixth Great Power, appendix.
13
S. Chapman, The Rise of Merchant Banking (London, 1984), p. 20.
14
J. Ayer, A Century of Finance, 1804 to 1904: The London House of Rothschild
(London, 1904), pp. 14ff. Ayer included not only bond issues but various short-term loans
against treasury bills; this may account for the discrepancy.
15
C. W. Berghoeffer, Meyer Amschel Rothschild: Der Gründer des Rothschildschen
Bankhauses (Frankfurt am Main, 1924), appendix.
16
F. Braudel and E. Labrousse, Histoire économique et sociale de la France, vol. III:
L’avènement de l’ére industrielle, 1789–1880 (Paris, 1976), pp. 364–71.