------------ 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