How the Rothschilds became the richest and most powerful family in the world -- and how it all eventually fell apart.

Related Links

• Geoffrey Wheatcroft Reviews 'The House of Rothschild: Money's Proph... (Dec. 20, 1998)
• First Chapter: 'The House of Rothschild: Money's Prophets, 1798-1848'
• First Chapter: 'The House of Rothschild: The World's Banker, 1849-1... Audio
  
• Niall Ferguson in an interview about 'The Pity of War,' April 20, 1999

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By SYLVIA NASAR
As long ago as the 1930's, a member of the American History Association invoked Walter Scott's Dr. Dryasdust to warn that professional historians were losing touch with readers beyond the academy. More recently, new quantitative techniques and the splintering of subjects into ever narrower specialties have revived fears that narrative history -- the readable kind -- is fast becoming, well, history.

Niall Ferguson's brilliant and altogether enthralling two-volume family saga of the Rothschilds proves that academic historians can still tell great stories that the rest of us want to read. Despite its rigorous and sophisticated treatment of the intricacies of finance, economics and diplomacy, ''The House of Rothschild: The World's Banker, 1849-1999,'' the second volume of Ferguson's history, has all the grandeur and sweep of a 19th-century three-decker novel.

Like the fictional Buddenbrooks, Pallisers and Forsytes, the Rothschilds are eminently fascinating subjects. For nearly a century, they were the world's richest family and its most powerful bankers. As one contemporary put it, ''There is but one power in Europe and that is Rothschild.'' Imagine a family firm with the financial muscle of Merrill Lynch, Morgan Stanley, J. P. Morgan, Goldman Sachs and the International Monetary Fund rolled into one.

Whereas many other wealthy European Jews converted, the Rothschilds always remained ''confidently Jewish.'' They were ''the nearest thing the Jews of Europe had to a royal family,'' and were referred to by other Jews as ''Kings of the Jews'' and ''Jews of the Kings.'' Like the royals, they mostly married each other; as one Rothschild put it, ''For us Jews, and particularly for us Rothschilds, it is better not to come into contact with other families, as it always leads to unpleasantness and costs money.''

Their dizzying ascent from Frankfurt's squalid Jewish ghetto after the French Revolution has never been matched in the annals of moneymaking. In amassing what may have been the greatest private fortune in history, the Rothschilds created the first global bond market and the first truly multinational bank, with houses in London, Paris, Frankfurt, Vienna and Naples. Commanding unparalleled resources, they operated as the ''lender of last resort to the lender of last resort,'' bailing out the Bank of England. They acted as private money managers for heads of government like Otto von Bismarck and were lenders to the pope.

Their story owes its immediacy to the remarkable resemblance between the Rothschilds' 19th-century world and our own. Then as now, international capital movements dwarfed national economies and the financial resources of governments. Communications dramatically accelerated the speed at which business could be done, and unregulated financial markets were dangerously volatile. The Rothschilds, Ferguson concludes, prospered not so much by maximizing profits during the booms as by riding out storms that sank less prudent and well-capitalized rivals.

Initially scorned as the very embodiment of New Money, the Rothschilds soon acquired the trappings and tastes of monarchs: grand estates and gardens, Dutch masters, entire menageries. A typical Rothschild shopping spree included, among other purchases, a Rubens, a chimney piece by Inigo Jones, a Reynolds, and ''last though not least Mr. Russell's long promised Japanese or Chinese collection.'' One of their less impressive estates boasted among its novelties a ''private circus ring, bowling alley, ice-skating rink, indoor swimming pool and Indian pavilion.''

They soon became masters of the political universe. They dined with Disraeli and Gladstone, hunted with the Prince of Wales and helped engineer Napoleon III's impetuous marriage to the adventuress Eugenie de Montijo. At the same time, they devoted considerable energy to charitable activity and used their growing influence to advance the civil and political rights of Jews. Indeed, as Ferguson recounts, ''the origins of the state of Israel can . . . be traced back to a letter to Lord Rothschild.''

In this second volume of ''The House of Rothschild'' (the first is subtitled ''Money's Prophets, 1798-1848''), Ferguson portrays the family at the zenith of its power. But just as in Thomas Mann's chronicle of the rise and fall of a Hanseatic merchant family and firm, ''decadence is detectable in the third generation and fatal in the fourth.''

In fact, the Rothschild myth peaked just as the family's fortune and power were at a low ebb, in the poisonous political atmosphere of the 1920's and 30's. The family's advocacy of the gold standard in the wake of Black Thursday and the Creditanstalt crisis -- which triggered an enormous flight of American capital from Europe -- helped turn a financial debacle into the decade-long Great Depression.

They had made other strategic blunders before that one. The greatest, according to Ferguson, was an inexplicable failure to establish the bank where opportunity increasingly lay -- in America. At one point, a prescient Rothschild mother wrote to her son, who was working in New York: ''Stay in the New World; if the worst comes to the worst, if the old world should fall, which God will not permit, it would become a new fatherland for us.'' Yet it never happened. J. P. Morgan had already eclipsed the Rothschilds as the linchpin of war finance by the time of World War I, and after the war the Rockefellers took center stage.

Meanwhile, new rivals -- joint stock banks that drew on the savings of small investors -- were stealing the march on the Rothschilds in Europe. And they were being overtaken by new technology as well. Like a Wall Street old-timer bemoaning after-hours and Internet trading today, James Rothschild, as early as 1851, was complaining: ''Since the telegraph became available people work much more. Every day at 12 they send a dispatch, even for trivial deals,'' making their profit ''before the Bourse closes the same day.'' Once upon a time, the Rothschilds had controlled the flow of information as well as money, beating their rivals to the news through a network of couriers and carrier pigeons so effective that Europe's heads of state relied on it. With the telegraph, James ruefully observed, ''anyone can get the news.''

BOOK EXCERPT
"For all his youthful vigour, James [Rothschild] nevertheless remained deeply imbued with the familial ethos of his father's day. Even before 1848, he had been worried by the signs of dissension between the five houses. Disagreements about the accounts, he warned Lionel in April 1847, were leading 'to a state of affairs that in the end everyone deals for himself and this then creates a great deal of unpleasantness.' 'It is only the reputation, the happiness and the unity of the family which lies close to my heart,' he wrote, echoing the familiar admonitions of Mayer Amschel, 'and it is as a result of our business dealings that we remain united. If one shares and receives the accounts every day, then everything will stay united God willing.'"
-- from the first chapter of
'The House of Rothschild'

A gradual loss of entrepreneurial vigor and financial aptitude played the biggest role in the House of Rothschild's decline. By the fourth generation, ''the aesthetic had taken over from the ascetic.'' Asked if he had a formula for financial success, Natty Rothschild habitually replied, ''Yes, by selling too soon.'' Aesthetic diversion and risk aversion went hand in hand.

Privately, ''the mores of the previous century were preserved as if in aspic,'' Ferguson writes. ''While Lionel indulged his passion for horticulture with the aid of up to 400 gardeners at Exbury, Edouard had his beloved racehorses at Chantilly. . . . Philippe built himself a seaside villa at Arcachon, the better to entertain other men's wives.'' Interest in their country houses soon overtook their interest in the House in the City. Back at the bank, cousins and brothers arrived at 11 and left at 2. The industrious habits of the early Rothschilds had degenerated into the lifestyles of the rich and famous.

What a pleasure to read a book in which adroit turns of phrase and witty asides -- as well as the unfolding drama -- make one want to turn the page. But more than a tasting menu, this is a substantial repast. An Alan Greenspan can feast on artfully presented data on bonds and episodes of financial contagion. A connoisseur of politics can savor the machinations of a Neville Chamberlain or Winston Churchill.

Ferguson, who teaches history at Jesus College, Oxford, has decoded thousands of remarkably frank letters written by family members to one another in Judendeutsch (a mix of German, Hebrew and Yiddish) with Hebrew characters to frustrate prying eyes. Equal to Ferguson's mots are the Rothschilds' own, as when they complain about being ''stared at by the modern argus, the public,'' dismiss Queen Victoria's writing as ''ten tho