the world of private banking

THE WORLD OF PRIVAtE BANKING
example. 21 The Bethmann Brothers had also developed a system of ‘partial
obligations’ to help market the Austrian public debt in Frankfurt and Amsterdam. 22
But the Rothschilds introduced a number of innovations which greatly facilitated
capital export, especially from London to the continental powers and to overseas
States. The watershed in this respect was the 1818 loan to Prussia which was
issued not only in London but in Frankfurt, Berlin, Hamburg and Amsterdam,
and featured a number of striking conditions designed to attract investors. First,
the loan was to be not in thaler, but in sterling, with the interest payable not in
Berlin but in London. Second, some of the proceeds of the loan (£150,000) were
to be immediately reinvested in English funds, to accumulate interest with a view
to the loan’s ultimate redemption. Third, the loan was to be secured on Prussian
State revenues and certain royal domains. 23 In themselves the sinking fund and the
mortgaging of revenues were not novel, of course; but the fact that the loan was
denominated in sterling and the interest paid in London marked a new departure
for the international capital market. Now it was much easier to invest in foreign
funds; and the fact that throughout the century all foreign government bonds
paid higher yields than British consols meant that people did. The Times did not
exaggerate when it later described Nathan as ‘the first introducer of foreign loans
into Britain’:
for, though such securities did at all times circulate here, the payment of
dividends abroad, which was the universal practice before his time, made them
too inconvenient an investment for the great majority of persons of property
to deal with. He not only formed arrangements for the payment of dividends
on his foreign loan in London, but made them still more attractive by fixing
the rate in sterling money, and doing away with all the effects of fluctuation in
exchanges. 24
The next step – which the Rothschilds were uniquely placed to take – was to
create a completely international market. In his The Traffic in State Bonds of
1830, the German jurist Bender identified this as one of the Rothschilds’ principal
contributions to modern economic development:
21
L. Neal, The Rise of Financial Capitalism: International Capital Markets in the
Age of Reason (Cambridge, 1990).
22
M. Jurk, ‘The other Rothschilds: Frankfurt private bankers in the 18th and 19th
centuries’, in G. Heuberger (ed.), The Rothschilds: Essays on the History of a European
Family (Sigmaringen, 1994), pp. 37–50.
23
The Times, 4 Aug. 1836; F.G. Dawson, The First Latin American Debt Crisis
(London, 1990), p. 20; D. Kynaston, The City of London, vol. I: A World of its Own, 1815–
90 (London, 1994), p. 45f.; W.O. Henderson, The Zollverein (London, 1939), p. 31; B.
Gille, La banque et le crédit en France de 1815 à 1848 (Vendôme, 1959), p. 225.
24
The Times, 4 Aug. 1836, p. 3.