------------ EH.NET BOOK REVIEW --------------
Published by EH.NET (February 2007)

Herbert H. Kaplan, _Nathan Mayer Rothschild and the Creation of a 
Dynasty: The Critical Years, 1806-1816_. Stanford: Stanford 
University Press, 2006. xxiv + 194 pp. $45 (cloth), ISBN: 
0-8047-5165-X.

Reviewed for EH.NET by Brandon Dupont, Department of Economics, 
Western Washington University.


There is no better example of the potential for meteoric rise that 
underlies financial capitalism than the story of the Rothschild 
dynasty. Yet much of the true story of their rise remains shrouded 
behind some enduring inaccuracies.

In just 177 pages of text, Herbert H. Kaplan manages to correct a 
number of myths that have grown up around the rapid ascent of Nathan 
Mayer Rothschild. Kaplan also draws on papers from the Royal Mint, 
the British Treasury and the British commissary-in-chief to provide 
details of just how important Rothschild's financing was to the 
British defeat of Napoleon and to the post-war subsidies paid by the 
British government to its wartime allies.

These corrections are, in themselves, important to understanding the 
Rothschild dynasty. Moreover, as Niall Ferguson wrote in _The House 
of Rothschild_, the economic history of capitalism is incomplete 
until we at least make an attempt to correctly understand their 
success. Mostly, this is because of the sheer magnitude of the 
fortune they created -- a fortune which exceeded anything owned by an 
individual today as a percentage of total world wealth.

In 1806, Nathan married Hannah Cohen, the daughter of a successful 
Amsterdam diamond merchant. Kaplan shows that Hannah Cohen's marriage 
settlement, contrary to Niall Ferguson's findings, was not added to 
Nathan's capital. According to Kaplan, "the money was intended for 
Hannah's use and there is no evidence that it was used by Nathan 
Rothschild" (p. 10). This alone is important as Kaplan casts doubt on 
the prevailing wisdom that the marriage provided Nathan with access 
to his wife's capital. Of course, the marriage was not without 
financial benefit to Nathan because the Cohen family connections did 
allow Nathan access to extensive Jewish commercial networks 
throughout Europe.

Both the extent to which Nathan was financially dependent on the 
Cohens and the importance of reputation in the financial transactions 
of this period are, I believe, important aspects of the story with 
which Kaplan deals in the book. Given the significance of reputation 
from the beginning of the Cohen-Rothschild connections, I was left 
wanting more details on this important aspect of these transactions. 
We are, however, told that Nathan's less than stellar reputation 
forced him to rely on the bills of exchange of L.B. Cohen & Company, 
which were readily accepted in international exchange when his own 
bills of exchange were not because of his well-documented shoddy 
business practices.

More details concerning the importance of reputation to these 
transactions would probably have been better than some of the 
minutiae that Kaplan does include. On page 24, for instance, Kaplan 
tells us where Nathan collected his mail after moving from Manchester 
to London. He also tells us the first time Nathan's principal clerk 
sent mail to him at his new London address. While the reasons for 
Rothschild's move to London are relevant (Kaplan speculates it was 
due to Nathan's hope that he would take over the Cohen business after 
Levy Cohen's death), the details of his address and mail collections 
are not.

On more substantive topics, Kaplan takes issue with the view that 
Nathan used the Elector of Hesse-Kessel's funds for his own 
operations and that the ensuing profits were important in his 
financial rise. The view that Nathan had somehow misused his position 
with respect to the elector's investment began with Corti's 
interpretation of the events in his _The Rise of the House of 
Rothschild_ but was also carried forward in Ferguson's work. Kaplan 
explains that this misconception is probably based on a ???189,500 
certificate that took an inordinate amount of time to be delivered to 
the elector even though a letter written to him from his financial 
adviser on April 1811 indicated that, "Young Rothschild is actually 
on his way to London to fetch the certificates of title regarding 
your investment of capital" (p. 33). Despite this assurance, and 
after considerably more time had passed, the elector had still not 
received his documents, which prompted another round of letters. 
Kaplan casts doubt on whether the "Young Rothschild" referred to in 
the correspondence was actually Nathan and presents evidence that it 
was more likely one of Nathan's brothers.

Kaplan describes in some detail how Nathan's mercantile career 
skyrocketed in early 1809. In Chapter 3 he describes how Nathan 
purchased ???80,000 worth of 3 percent consols through Harman & 
Company, which purchased, sold and shipped specie and commodities for 
Nathan and purchased and sold securities for both Nathan and his 
father. These consol purchases were critical to the success of his 
mercantile career and are thus an important part of Kaplan's 
analysis. One of the fruits of Kaplan's meticulous study of the 
archival records is his discovery of a document confirming this 
consol purchase. There was also an additional purchase of consols 
from Harman & Company, for which Nathan remitted cash and bills of 
exchange to Harman & Company. Kaplan argues that the funds used in 
these consol purchases were not ill-gotten but rather were from his 
recent entry into the specie and bullion trade and from his father. 
Nathan used his father's advances to pay for the specie and bullion 
he shipped to Amsterdam and Frankfurt but, until his invoices became 
due, "Nathan parked some of this money temporarily in safe 3 percent 
Consols" (p. 38).

Kaplan also presents a fascinating discussion of how Nathan created a 
niche in the international specie and bullion trade despite the 
significant risks of his smuggling operations during Napoleon's 
continental blockade. Nathan exploited arbitrage opportunities by 
purchasing specie and bullion in England and selling it on the 
Continent. Despite the considerable risks and complexities involved 
in these operations, "Nathan Rothschild understood this market 
mechanism quite well and exploited it to the fullest. He never simply 
accepted the quotes from dealers, brokers, and bankers but bargained 
and bullied his way through every transaction" (p. 52). While 
Kaplan's detailed description of the arbitrage opportunities so 
effectively mopped up by Nathan Rothschild is of considerable 
interest, it is also the most difficult part of the book. More 
general readers, who should be interested in the process by which a 
shrewd financial player might exploit price differentials, will 
probably be lost in some of the more technical passages in this 
section of the book.

It was Nathan Rothschild's sizable overseas bullion and specie 
operations (more precisely, his illegal smuggling operations) that 
prompted commissary-in-chief John Charles Herries (whose job was to 
acquire funds for the British armies in Spain and France) to turn to 
him rather than to what may have been initially more likely sources 
of financing like Baring Brothers or Hope & Company of Amsterdam. 
Nathan's understanding of the fluctuating prices and exchange rates 
and his business presence in St. Petersburg were all viewed as 
helpful to the British government. The Russian market was a lucrative 
one so the British may have viewed this as holding some potential for 
future business dealings. It also turned out that Nathan's skills at 
maintaining secrecy, likely developed in his smuggling experiences, 
contributed to his ultimate success.

Whatever the reasons, the January 11, 1814 contract between 
Rothschild and the British government not only helped in Wellington's 
defeat of Napoleon but, along with his work on the postwar subsidies 
to Britain's wartime allies, also cemented Nathan's position in 
financial history. Kaplan presents evidence that Rothschild's role in 
the British victory was even more important than previously 
recognized. In Chapter Five we are told of contracts for several 
secret commissary services that Nathan provided the British 
government even before his contract to supply Wellington with specie 
in the spring of 1814. These services, according to Kaplan, reveal 
just how central Rothschild was to the efforts of the 
commissary-in-chief.

_Nathan Mayer Rothschild and the Creation of a Dynasty_ is certainly 
worthwhile reading for those interested not just in the Rothschild 
dynasty but more generally in the operations of financial capitalism 
early in the nineteenth century. It presents an interesting portrait 
of the dynamics of entrepreneurship in the early nineteenth century 
and is a welcome addition to the literature on entrepreneurial 
activity and the economic history of capitalism in this period.

References:

Corti, E. (1928). _The Rise of the House of Rothschild_, New York: 
Cosmopolitan Book Corporation.

Ferguson, N. (1998). _The House of Rothschild: Money's Prophets, 
1798-1848_, New York: Viking.


Brandon Dupont is Assistant Professor of Economics at Western 
Washington University. His most recent publication is "Bank Runs, 
Information and Contagion in the Panic of 1893," which is forthcoming 
in _Explorations in Economic History_. He is currently working on a 
number of research projects including the development of private 
banking in the nineteenth century.

Copyright (c) 2007 by EH.Net. All rights reserved. This work may be 
copied for non-profit educational uses if proper credit is given to 
the author and the list. For other permission, please contact the 
EH.Net Administrator ([log in to unmask]; Telephone: 513-529-2229). 
Published by EH.Net (February 2007). All EH.Net reviews are archived 
at http://www.eh.net/BookReview.

-------------- FOOTER TO EH.NET BOOK REVIEW  --------------
EH.Net-Review mailing list
[log in to unmask]
http://eh.net/mailman/listinfo/eh.net-review