06/21/07 - war and bonds

In today's excerpt - the Rothschilds and other nineteenth century financiers were painfully aware of how bad war is for a given country's financial markets. War increases a state's expenditures as well as reduces tax revenues and disrupts trade. Thus, lowering tax revenues for all governments. The Rothschilds, in particular, were Europe's most powerful bankers -- financing kings and countries in the age before the full ascendance of the central bank:

"The biggest crisis on the European bond market in the nineteenth century occurred during the two months after the outbreak of the 1848 revolution in Paris. ... Thus, we find James de Rothschild assessing the implications of the revolution in France in October 1830: 'You can't begin to imagine what would happen [to financial markets] should we get war, God forbid.' ... As James's nephew Nat put it, during a later French crisis, 'In general when troops begin to move, bondholders are frightened. ...'

"Towards the end of his career, James de Rothschild's tendency to assess political events in these terms had become the stuff of bourse legend. 'So M. le baron', the Piedmontese premier Cavour, was heard to ask James a month before his country's French-backed war against Austria in 1859, 'is it true that the bourse would rise by two francs the day I resign as Prime Minister?' 'Oh, monsieur le comte', replied Rothschild, 'you underestimate yourself!' Rothschild responded similarly to Napoleon III's inflammatory speech at Auxerre on May 6, 1866, in which the Emperor denounced the treaties of 1815. Once Napoleon had assured France's neighbours, 'L'Empire c'est la paix' (The Empire means peace). But now, declared Rothschild, 'L'Empire c'est la baisse': literally 'the Empire means a falling market.' "


Niall Ferguson


The Cash Nexus: Money and Power in the Modern World 1700 - 2000


Basic Books a member of the Perseus Books Group


Copyright 2001 Niall Ferguson


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