Looks like we found our modern day Rothschild (we just don’t know who it is)
[Links which end with * are in french]
Much has been said about the ability of entrepreneurs to turn disasters into opportunities. Less attention has been given to finance as the underlying force behind these creative destruction processes. Nathan Mayer Rothschild — the man responsible for his family’s proverbial wealth — saw the end of his forefathers’ world as an opportunity to seize control of whatever came next. A larger-than-life character living in troubled times, he built a financial hegemony which, for all its amorality, miraculously prevented Europe from collapsing into systemic war throughout the 19th century. Today, we all stand puzzled in the face of our century’s troubled youth,one that looks increasingly familiar. The bad news is, the world our parents and grandparents built appears to be falling apart. The good news is, we might have found our Rothschild to cope with it.
Stage One : Collapse
Europe — year 1810.
The previous century had ended in the 1789 climax, projecting both revolutionary rage and reactionary fears on times to come. Soon enough, the entire continent was thrown into upheaval. In a desperate effort to nip the revolution in the bud and save their agonizing world, the forces of status quo engaged in onerous wars, and emerged as pyrrhic victors.
The Napoleonic wars resulted in the 1815 Vienna Treaty, which provided European monarchies with a conservative equilibrium that would effectively contain the forces of revolution for the coming century. But two decades of fighting had crippled all the belligerent States’ finances. As a consequence money was scarce, precisely when it was most needed : the old world had been largely destroyed, and a new one was in the making. Both reactionary and revolutionary agendas implied phenomenal investments.
The Western World — year 2008.
The previous century ended in the 1989 climax, projecting both liberal hubris and conservative anxiety on our times. Soon enough, the global financial infrastructure we had built for decades - thanks to the work of Nathan Rothschild - was thrown into upheaval. In a desperate effort to nip the revolution in the bud and save their agonizing world, the forces of status quo have engaged in onerous rescue missions (besides previous onerous wars, that is), and emerged as pyrrhic victors.
The financial crisis has resulted in a sweeping wave of ruinous bailouts, followed by a toughening of banking regulations. This has allowed Western States to prevent a global financial apocalypse, but the crisis and its regulatory aftermath have crippled both States’ finances and banks’ lending capacity. Money is scarce precisely when it is most needed : the old world is falling apart, and a new one is in the making. Both corporatist and disruptive agendas imply phenomenal investments.
Stage Two : Byzantine Generals
London — year 1818.
Behind the political noise, a technological revolution had taken over. The rise of steam engines had crushed communication and trade’s time spans. Soon enough, a network was designed to take full advantage of the new technology environment.
N. M. Rothschild was born in Frankfurt am Main, not London. His presence in Great Britain had not been a personal career choice, but rather an assignment by the family’s patriarch, Mayer Amschel Rothschild. Born in 18th century Frankfurt’s Jewish Ghetto, the latter had traded his way up to of the local prince’s court, whose finances he managed. His ambition unaltered by this success, he sent his five sons across Europe to blossom the family business. This genius intuition laid the transformation of a family of legal parias into, arguably, the most decisive network of the century (considering its role* in financing the other contender : railroads)
Throughout the Napoleonic wars, the Rothschild brothers had set up a daring smuggling scheme based on their presence on both fronts of the conflict. Essentially, Mayer’s five sons scammed French authorities into sponsoring them to finance British troops. By the time the fighting was over, Nathan had become London’s most influential lender. He was now remarkably wealthy. But more importantly, he had acquired a personal fleet and a continental network of informants — thanks to his brothers who respectively settled in Naples,Vienna, Paris and Frankfurt, then Europe’s financial hubs. The Rothschilds were a family business and a transnational corporation.
The big story starts in 1818. At this point, the war effort had brought virtually all belligerent states on the brink of bankruptcy. Nonetheless, peripheral fights still had to be fought on behalf of the newly-born Holy Alliance.
European States had long-ago developed a simple way to solve this : bonds. But this time was different. Europe’s debt infrastructure had been utterly destroyed. The French revolutionaries, once in power, declared the new Republic to be unbound by the old Monarchy’s huge debt. Following this, two decades of counter-revolutionary war effort had ruined European monarchies. The Amsterdam market, formerly Europe’s financial center, had been all but wiped out. In 1804 Austria had repatriated its debt payments from Amsterdam to Vienna, and decided to deliver them through paper money. The Austrian currency collapsed, throwing the country into bankruptcy. Russia had managed to avoid this fate, only by renegotiating its debt twice and suspending payments for two years in the process.
The fundamental issue was one of trust. The European States’ reliability as borrowers had proven fragile in the face of political instability. In the absence of a financial center of gravity, sovereign debts were increasingly subject to dramatic unilateral moves from their issuing States. This meant investors were likely to be betrayed. Today, one might call this a Byzantine Generals Problem :
A group of generals of the Byzantine army [are] camped with their troops around an enemy city. Communicating only by messenger, the generals must agree upon a common battle plan. However, one or more of them may be traitors who will try to confuse the others. The problem is […] to ensure that the loyal generals will reach agreement.
Or, in the simpler words of venture capitalist Marc Andreessen :
The B.G.P. poses the question of how to establish trust between otherwise unrelated parties over an untrusted network.
Nathan Rothschild understood this, and realized his family of exiles offered him with a twofold solution.
First, he would centralize issues and payments in London, under his personal watch — providing investors with transparency (most importantly on a fixed currency and spatio-temporal framework for bonds) and a de facto authority to rely on in the event of an Austrian style borrower betrayal. This exclusiveness in design allowed him to bring all players under his control — much like Louis the XIVth had done creating Versailles.
Untrusted network : check.
Second, his brothers would issue bonds in all of Europe, offering borrowers a continent of potential lenders. The Rothschilds’ blood ties, financial and political leverage, as well as their channels of communications both safe and fast, guaranteed the network’s trustworthiness and coordination. Investors in Naples could be reasonably sure they were sung the same song as their London counterparts. This inclusiveness in design reassured them that physical distance would neither prevent them from accessing valuable information, nor be taken advantage of to rob them.
Unrelated parties : check.
Nathan and his brothers had effectively turned Europe’s financial system into a reliable network of byzantine generals led by none but himself and his four lieutenants.
Somewhere in the world, behind a computer — year 2008.
Behind the political noise, a technological revolution has taken over. The rise of the Internet has crushed communication and trade’s time spans. Soon enough, a network was designed to take full advantage of the new technology environment.
As the financial crisis unfolded, both high-level investors and ordinary depositors suddenly questioned the reliability of our financial system’s trust bearers : banks. This resulted in a now well-known chain of events : asset fire sales triggered bank runs, which triggered bailouts, which triggered popular rage and credit crunch. The reason is simple : our generals cannot be trusted anymore.
In a 2008 whitepaper, pseudonymous author Satoshi Nakamoto introduced the world to the Blockchain. Whoever that was, he/she/they understood the problem, and realized our world of digitized masses offered a twofold solution.
First, the financial infrastructure had to be centralized into a single, open and natively digital ledger (the blockchain), providing market players with a global yet transparent financial infrastructure, one that was radically removed from the physical world. This exclusiveness in design allows users to short-circuit the usual middlemen and trust-bearing authorities (mostly, banks). This means opening the platform to anyone and creating direct interaction between global individual otherwise strangers to one another.
Unrelated parties : check.
Second, trust-bearing generals had to be atomized into a global army of lieutenants. This was achieved with mining — ie users who contribute with their computing power to reliably validate each and every transactions get a financial reward. Anyone can trade virtually anything with anyone else, and the rest of the crowd has a strong incentive to make sure the two traders are loyal generals. This inclusiveness in design allows users to seize control of their financial system, providing them with a sense of knowledge, power, and ultimately trust.
Untrusted network : check.
The blockchain is effectively turning our financial system into a reliable army of Byzantine generals, led by none but watched by all.
Stage Three : Leviathan
The free city of Frankfurt — year 1836
Some 40 years after he was sent to England to trade textiles with little capital and no connections, Nathan had just died in his birth town as the richest, and possibly the most influential man on earth. Born in one of Europe’s oldest, most hermetic ghettos, his son would soon be the first Jew to sit in the House of Commons. His grandson,the first one to sit in the House of Lords.
The news of his death, carried to London by a pigeon, had immediately caused market fluctuations and, more lastingly, increased London bankers’ cautiousness— perhaps precipitating the US 1837 panic. The Byzantine leadership was vacant.
Nonetheless, he had left behind an institution that would survive his death by almost a century, and a financial instrument that lives on to this day — it’s called eurobonds*.
Nathan Rothschild possessed seemingly infallible financial instincts, most famously illustrated by his active management of market fluctuations during the battle of Waterloo. But his historical role was that of an architect, rather than a trader.
This idea was brilliantly formulated in Karl Polanyi’s 1944 book The Great Transformation. The Austrian born economist sought to explain how European States had managed to contain their self-destructing pulsions throughout the 19th century, thereby allowing for decisive technological breakthroughs which led to the rise of global empires — until the entire thing collapsed into the 1914–1945 bloodbath.
Europe’s fragile equilibrium consisted in balancing the benefits of economic competition with the risks of political rivalry. Mercantile States were allowed to blossom, but “The Great Powers” were forbidden from reaching hegemonic domination. Conflicts did emerge, but in the form of cathartic, Cold War-style proxy wars fought over peripheric territories such as Greece (1821–33) or the Crimean peninsula (1853–56).
As Polanyi explains, this was all made possible by none other than Nathan Rothschild and his tentacular channels of influence. His monopoly on financial violence had made him the incarnation of what the scholar called, after a French expression, Haute Finance :
An institution sui generis, peculiar to the last third of the nineteenth and the first third of the twentieth century, [which] functioned as the main link between the political and the economic organization of the world. It supplied the instruments for an international peace system, which was worked with the help of the Powers, but which the Powers themselves could neither have established nor maintained.
[K. Polanyi, The Great Transformation]
In other words, Nathan had created, and incarnated while he lived, a 19th century financial version of Hobbes’ Leviathan, overseeing a continental commonwealth of interests :
For by art is created that great Leviathan called a common-wealth, or State, (in latine civitas) which is but an artificial man ; though of greater stature and strength than the natural, for whose protection and defence it was intended; and in which, the sovereignty is an artificial soul, as giving life and motion to the whole body.
[T. Hobbes, Leviathan]
Haute finance was modern Europe’s first supranational institution, an artificial soul that gave life and motion to a political body so powerful, our world is just getting over its many triumphs and final collapse.
Anywhere in the world — Right now
Here’s the big question mark : will the blockchain be able/willing to translate its vertiginous economic potential into political leverage ? Throughout the 1830’s, the Rothschild brothers actively prevented a war* over Belgium’s independence, personally threatening hawkish statesmen with financial sanctions. Can the blockchain do that kind of stuff in any foreseeable future ?
Right now, the answer is no. But Leviathans are only as powerful as the masses they control. In a way, the Rothschilds merely absorbed the economic power of countless individual investors. One can reasonably assume the blockchain will soon “eat the world” the way software did. The reason for this is one last common point with Rothschild’s network (and the TCP/IP protocol as well) : Blockchain respects the robustness principle :
Be conservative in what you do, be liberal in what you accept from others [J. Postel]
Put differently, the blockchain has this fractal trait to it that makes it childishly simple in principle, while allowing for mind-boggling complexity in potential applications. Both robustness and fractality are determining drivers of scalability (ie massive adoption potential) for networks of all kinds. Which is probably why mainstream finance is now investing so frantically in blockchain-driven innovation.
Provided the blockchain and its seemingly infinite applications (Bitcoin is the tip of the iceberg) can achieve quasi-universal adoption, that’s only half of the problem. It means the blockchain can gather a politically significant commonwealth of interests. But does it want to go political ?
Nathan Rothschild was certainly a product of his time. However, his family story and personal character are both fundamental in explaining any of his many achievements. He lived in a society of individuals. That is, individuals were seen as History’s primary subjects and agents. And individuals make decisions.
After countless Batman-style unveilings have all been debunked, we’re still unsure who “Satoshi Nakamoto” really is. This anonymity would not have been possible in Nathan’s times. Now it is, because we don’t really care for individuals anymore.
We are transitioning into a society of the multitude. This matters, because beyond making daily life a bit less annoying and making lots of money in the process, the age of the multitude’ political decision making capacity has yet to be proven. Self-destructive passions will inevitably emerge in the future, as they have in the past. When they do, will “the multitude” turn into a positive political force ? After witnessing the political consequences of taking the political battle to the social media arena (thanks for nothing, Twitter), after years of despairing over the grim aftermaths of the “2.0” arab revolutions, tech enthusiasts should maybe calm down for a minute.
Some guidance from the past is perhaps in order. The Discours de la servitude volontaire is a timeless piece of genius from a 16th century frenchman living through a ferocious civil war, and trying to figure out how “multitudes” (his word) are driven into blindly obeying the few. Here’s the short answer :
Ils ne sont grands que parce que nous sommes à genoux. [They are only as great as we kneel.]
