☆ Rise of the Rothschilds: A Legacy of Lessons
Image source: AI-driven art using Midjourney with prompts by Peter Verbica, 2023.
Below, Peter Coe Verbica observes important lessons on managing money and relating to gov’t (take note, ‘24 city/county candidates). In this Opp Now exclusive, Verbica breaks down “The House of Rothschild,” which tells the story of Europe’s preeminent, elusive Ashkenazi Jewish finance family.
“With money in your pocket, you are wise,
and you are handsome, and you sing well too.”
~ Jewish Proverb
Smuggling, bribery, secret pacts, coded messages, tax evasion, forgeries, inbreeding, and mercenaries. The reader will discover these intrigues and more in Niall Ferguson’s book on the Rothschild family. It ranks as one of ten best books of the year, according to Business Week.
Ferguson is an academician’s academician, so be forewarned. There are times when you may feel like a detainee being held in the back stacks by an overzealous research librarian. But the primary sources used by the author re-animate 19th century merchants, dealers, and bankers; they allow the reader to follow the Rothschilds' enterprise in Frankfurt, Vienna, Paris, London, Naples, Glasgow, and St. Petersburg. Ferguson avoids gross generalities.
If you are interested in learning how the Rothschilds made and increased their fortune decade after decade; if you are interested in learning how the Rothschilds triumphed over obstacles through shrewd decision-making, courting political favors, delivering on promises, and outbidding competitors; if you are interested in opening oysters in search of translucent wisdom, this book is worth the effort. Ferguson is history’s gardener, and he digs into the proverbial weeds.
Thanks to citations from original letters, we hear a patron balancing criticism with encouragement as he guides his sons. You can almost smell the old banker’s breath and hear his cane tap on wide-planked floors. You hear the song of business as refrains are sung by subsequent generations. See for yourself the ink being blotted on the ledgers. Despite The House of Rothschild’s length, be encouraged to sally forth and read it.
That said, in case there are other demands for your time, here is a “cheat sheet.” What one might consider a legacy of lessons. Takeaways from the Rothschild family biography include the following:
1. Be organized, especially with respect to financial records.
As Mayer Amschel advises his son via letter, “…the merchants who are well-organized are the ones who get very rich.” (Whether the family’s business required tracking two sets of books, one for the family and one for governmental authorities, Ferguson leaves to speculation.)
2. Cash and quick payments allow for better negotiations.
Nathan, Mayer Amschel’s son, writes that “a person with ready money may sometimes buy 15 to 20 per cent cheaper.” In addition, paying quickly often compounds a purchaser’s securing better terms from a vendor.
3. Vertical integration.
According to Investopedia, “Vertical integration is a strategy that allows a company to streamline its operations by taking direct ownership of various stages of its production process rather than relying on external contractors or suppliers.” With respect to textiles, Nathan writes, “…I soon found that there were three profits – the raw material, the dyeing, and the manufacturing.” His expansion from merchant to merchant banker also embodies this principle.
4. Lower markups allow for increased market shares.
Paying quickly and in cash allows for cheaper procurement, enabling the re-seller to pass along the savings. Competitive pricing’s side effect is an increase in the number of customers. As Nathan admonished a buyer, “You cannot find any person in Manchester who will serve you with so small a Profit as myself.”
5. Extend credit to increase customers.
Being able to secure or produce goods at lower cost enables a supplier to extend credit as a way to increase business: according to Ferguson, “the more credit he [Nathan] could give his customers, the more customers he attracted.”
6. Maintain positive relationships with bankers.
Thomas Jefferson writes, “I believe that banking institutions are more dangerous to our liberties than standing armies.” George Washington may have had a different view: when in dire need of funds, the realist sent for the financier, Haym Salomon. The Rothschilds believed that good relationships with those who extend credit helps to ensure business continuity.
7. Be wary of embezzlement.
Early on, the Rothschilds learnt of the potential of embezzlement. Initially, the pace of success outstripped oversight, but having been stung by a trusted insider helped curtail freewheeling practices. Accounting and the organization of the House’s assets became more rigorous. As an example, Mayer Amschel’s son, James, advocated for a double-entry bookkeeping.
8. Diversify your suppliers, customer base, and credit facilities.
Instances abound of the Rothschilds making efforts to search for diverse supplies, customers, and financiers. Such diversification provided a hedge against turmoil, such as during the Napoleonic Wars.
9. Use your bargaining power to speed deliveries and drive terms.
If fast payments and cash are the carrots, capitalists in the family were also willing to employ the stick of potentially moving their business elsewhere.
10. Keep your friends close and the government closer.
Courting politicians and the military allowed for a greater understanding of regulations, early insights into policy changes, and underwriting and asset management opportunities. The Rothschilds’ early success was built upon treating the Elector of Hesse fairly and with integrity; such loyalty gained notoriety and helped the family secure prestigious and trusted relationships with those in power. In addition, the family hedged their bets by building relationships with a variety of sovereigns, whether British, French, Russian, or Austrian.
11. Scale up: bigger borrowers make for bigger business opportunities.
A day laborer may need a small advance, a farmer or shop owner more. Petty aristocrats borrow some, but kings who fight wars borrow more. Courting relationships with those in power ensured that when governments needed to finance another battle, the Rothschilds were well-positioned to help underwrite the endeavor. Modern bank syndicates take a similar tack, whether financing a project in South America or on the continent of Africa.
12. Repackaging can generate profits.
Conversely, reducing large loans into smaller increments allows an opportunity for a larger pool of investors, and the potential for higher premiums. To put it figuratively: the Rothschilds bought steers but knew that higher profits came from selling ribs and steaks.
13. Be realistic.
By way of example, be dispassionate and honest with the value of your assets, such as credit that you have extended to others; if the debt or the inventory is bad, be clear-eyed and write it down.
14. Adapt.
The Rothschilds adapted through blockades, seizures, wars, prejudicial laws, and other vicissitudes. Though initially merchants, they morphed into merchant bankers, from agents to underwriters, continuously reassessing where profits could be secured more reliably.
The burgeoning markets for government bonds provided a new form of “movable wealth,” something to be cherished in turbulent times and of interest to those who historically were precluded from owning a “fee” interest in real estate.
Another well-known side effect of Jewish culture is literacy, as evidenced by the study of the Torah, Talmud, and Midrash; one might consider literacy and education as additional forms of “movable wealth.” James’ confidence, according to Ferguson, stemmed, in part, from his education. The Rothschild family’s comprehension of multiple languages, including Judendeutsch, gave it both a cosmopolitan and competitive edge.
15. Be discreet.
An ousted autocrat who entrusted the Rothschilds depended on the family’s closed lips and stewardship when the new administrators looked to repatriate assets. These qualities survive and thrive. As US Secretary of State George Shultz writes, “trust is the coin of the realm.” Ferguson cites instances where the Rothschild family’s knack for inscrutability — while under a government or competitor’s scrutiny — reaps robust dividends from its wary clients.
16. Work in concert.
Though Rothschild siblings had their disagreements, they would harken back to their patron’s desire for harmony and peace. Per Ferguson, the patriarch Mayer Amschel advised his oldest son, “…keep your brothers together and you will become the richest people in Germany.”
17. Allow your capital to accumulate.
The Rothschild family distinguished itself from competitors with a preference for accumulating capital reserves, rather than diluting resources by returning the lion’s share of profits to respective partners.
18. Plan for intergenerational management and wealth transfer.
The Rothschilds, like many families during the 19th Century, restricted business ownership and management to their direct male heirs; outsiders, including sons-in-law, were reportedly excluded from the House’s governance. (This is not my suggestion to exclude the females from inheritance, but rather an example of how wealth remained concentrated.) Other qualities associated with intergenerational management and wealth transfer included mentorship by the older males, diversification of holdings across different countries, an eye towards longer-term rather than short-term profits, and keeping the family’s financial activities in confidence.
19. Philanthropy is your friend.
The Rothschilds’ management of the family’s “brand” included philanthropy, both to Jewish and Christian causes. Good deeds never fully douse the flames of envy, but they do slow their advancement.
20. Take calculated risks.
Many of the qualities described supra, such as information advantage, capital wherewithal, political access, favorable alliances, timely products, and diverse markets, allowed the Rothschilds to take calculated risks.
Undoubtedly, if you read The House of Rothschild, you will reap additional insights. Please be sure to share them with me. As the best teachers advise, together we know more than any of us do separately.
Arguably, much of the above could be distilled into the Rothschild family’s motto: “Concordia, Integritas, Industria,” or “harmony, integrity, industry.” Whether you are a mother, father, or principal of a business, these values still ring bright and true.
In closing, wishing you and yours the Merriest of Christmases, Happiest of Hanukkahs, and a Wildly Prosperous New Year,
Peter Coe Verbica
Managing Director
Silicon Private Wealth
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