Born in Frankfurt in 1777, Nathan Rothschild led his family to be recognised as one of the most famous European banking dynasties. Having amassed such a vast fortune and embraced an inclination for secrecy, speculation still cloaks the true character of the Rothschild bloodline.

It started with an emblem. In 1743, a goldsmith named Moses Amschel Bauer opened a counting house in Frankfurt. Over the door, Bauer placed a sign depicting a Roman eagle on a red shield and the company became known as the ‘red shield’ firm – in German, ‘rotes-schild’. When his son, Mayer Amschel Bauer, inherited the business, he changed his name to Rothschild; the renowned bloodline title – and the legends surrounding it – began.

Initial lessons

Mayer Amschel Rothschild fathered five sons (and, perhaps less well known, five daughters). This article centres on Mayer’s third son – Nathan Rothschild. Having arrived in England in the early 1800s, Nathan, undaunted by initial language barriers, spent his first years on English soil as a cloth merchant based in Manchester.

Although separated from his family since the move, they were always linked in business. Indeed, shared commercial ideas for the cloth trade had always been part of the Rothschild plan. Nathan’s father’s strong business connections across Europe helped gain knowledge that a war with Napoleon was imminent. Aware that the majority of fabric for British Army and Navy uniforms came from Germany, Nathan was dispatched to buy up ample stock. When manufacturers were given contracts by the British Government, they inevitably found stock was in short supply and, thus, were obliged to buy from the Rothschilds. Manchester manufacturers were in uproar over Nathan’s underhand tactics, and his subsequent departure for London in 1805 is probably best described as ‘fleeing’.

Nathan’s time in the north of England proved insightful for the family; cloth dealings revealed that efficient communication was key to outperforming competitors. After Nathan’s move to London, the Rothschilds avidly sought out ‘inside’ information across the continent and employed the fastest couriers in order to stay ahead of competitors. Such advantage was achievable since, when merchants faced trade disruptions from the Napoleonic wars – where dependence on traditional access to overseas markets was no longer profitable – Nathan figured out ways around the blockades imposed across Europe. Not only did Nathan diversify into trading indigo, pearls, tortoise shell and ivory, he, along with other merchants of the day, also engaged in smuggling. At a time when communication systems and trade routes were practically non-existent or painstakingly slow, the family’s private courier system – which consisted of a network of men, sailboats and, later, carrier pigeons – was especially innovative.

Pioneering international finance

In 1808, Nathan seized the opportunity of escalating market prices of gold and silver and was the first of his brothers to branch out into the financial services business. The firm, based in London, is today known as N M Rothschild & Sons.

To understand how the Rothschilds made their fortune it is beneficial to know something of the financial environment during the 19^th Century. During this time, a majority of European countries ran sizeable budget deficits – that is, their fiscal policies were usually insufficient to meet expenditures. Borrowing proved expensive as most countries were considered unreliable creditors and charged high interest rates. As a consequence these deficits were difficult to finance and so very often were funded by either the sale of royal assets or through inflation.

The British state was an exception to this rule. Since the latter part of the 17^th century, the country had developed a system of public borrowing (the national debt) and monetary management (the Bank of England) that was quite sophisticated for the age. Mayer Amschel Bauer had taught his sons that lending to government officials would produce far greater profits than lending to individuals as they were always secured from public taxes.

With brothers in major European cities (Frankfurt, Naples, Vienna, France, and London), the Rothschilds established an international financial service. The system enabled British investors, and other rich capitalists in Western Europe, to invest in the deficits of countries by purchasing internationally tradable, fixed-interest transferable bonds. It invented – or at any rate popularised – the government bond. Allowing investors to buy chunks of the states’ debts was attractive because, as prices fluctuated in relation to the performance of the issuing government, shrewd investors could make colossal profits. For the governments, bonds were beneficial as they enabled enormous sums of money to be raised. The Rothschilds, of course, got a cut of everything and became somewhat indispensable to the solvency of certain states.

Financing wars

From their five European bases, the Rothschilds were able to finance significant parts of the Napoleonic war. A risk, taken by Nathan in 1811, of sending money to the Duke of Wellington in Spain gained the trust of John Charles Herries, the British official responsible for financing Wellington’s efforts. Although sending large shipments of gold into war-torn regions was risky, Nathan was able to ship the gold because of his prior knowledge of smuggling routes and the family’s unsurpassed communication links. The respect earned from Herries resulted in other government accounts being directed towards the Rothschilds.

Between 1813 and 1815, Nathan almost single-handedly financed the British war efforts; and over a 12 month period he provided the British government with nearly £10m (approximately £6.5bn today). Meanwhile, however, his four brothers financed the French war effort – N M Rothschild & Sons were receiving interest from both sides of the Napoleonic war. Napoleon’s defeat in June 1815 did not result in the culmination of international financial services provided by Nathan and his brothers – in fact, quite the reverse. Indemnities and debts created by the war needed to be settled. Fiscal cutbacks and monetary stabilisation in Britain required new investment and, for those who became accustomed to high-yielding bonds during war years, it remained an attractive prospect.

Rothschild fortune

For the best part of 100 years, between 1815 and 1914, N M Rothschild & Sons was the biggest bank in the world. The Rothschilds were in a league of their own and the 20^th century offers no comparison – no international banking group today shares the supremacy that N M Rothschild & Sons once enjoyed, nor does any individual today own as large a share of the world’s wealth as Nathan and his brother James once did (in the mid-1820s until the 1860s). Secrecy, however, was paramount to the Rothschild family so the exact figures remain elusive.

Such wealth enabled the dynasty to famously ‘bail out’ the Bank of England (BoE) in 1826, preventing the collapse of the entire banking system. The previous year had seen hordes of English firms investing in newly-independent Latin American countries. When the countries defaulted on their loans some 3,000 firms went under and, as the BoE had supplied those companies with their finances, Nathan rescued the bank before bankruptcy caused it to close its doors.

The legend of the puppeteer

Despite being involved with such high profile ‘rescues’, all of the Rothschilds have, for one reason or another, been the subject of suspicion. The main accusation that surrounds the Rothschild dynasty centres on Nathan’s alleged early knowledge of British victory at the Battle of Waterloo. At a time when markets, uncertain whether Napoleon would succeed (undermining the value of government bonds in Britain) or be defeated (thus, sending the value of British bonds soaring), legend suggests that Nathan engineered a situation that enabled his company to make an impressive fortune.

The theory is that his private courier system alerted Nathan of Napoleon’s defeat before official news reached London, supposedly facilitating his circulation of false rumours. By tricking the London stock market into believing Napoleon had won, Nathan could depress the market – only for his employees to buy up stock before news of the real outcome emerged.

The story only surfaced years after the battle, however. The earliest account on record, published by Georges Dairnavaell, claimed that Rothschild gained a 24 hour head start on official news, allowing him to net an estimated £135m. Although Dairnavaell’s allegations are marred by his demand to Nathan’s brother, James, for money in return for not publishing the story, further articles followed. So, is there any truth to the claims?

Family records admit that Nathan did, because of their efficient communication system, have access to early knowledge of the victory. The Rothschild version, however, maintains that Nathan tried to inform Lord Castlereagh, the British Foreign Secretary, before making the most out of the opportunity on the stock market without trickery.

Although it would have been possible to gain a significant head start on official news by riding directly from Waterloo at the moment of victory, modern historians believe the claims that Nathan made millions lack credibility. It is more likely that the family business made its huge profits from governmental finance and bond speculation over a much longer period. In fact, their investments had bet on a prolonged military effort and victory would have caused some disruption to the business.

Nathan’s significance

While Nathan Rothschild did make money by financing arms, his breakthrough had been years prior to the hostilities – operating with sophistication in high-risk bond price speculations and commissions during a time when few others dared to. During hostilities, he dealt with the contradiction of his business (countries mainly borrowed money to wage war which was actually detrimental to a stable bond market) and avoided lending to belligerent nations.

“It takes a great deal of boldness, mixed with a vast deal of caution, to acquire a great fortune; but then it takes ten times as much wit to keep it after you have got it as it took to make it,” said Nathan’s father. Dying before bearing witness to the Rothschild dynasty’s true success, the founding father couldn’t have predicted his son’s strengths better. Leaving aside the fanciful tales and narratives interspersed with speculation, then, Nathan Rothschild introduced concepts of rapid communication, high volumes and diversification into the financial world on his ascent to power. He understood, before most, that time and information meant money.