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