Wars are the most pivotal points of history. They literally decide where a society will head towards in future. Who will become the king and who will be turned into slavery. Who will rule and who will be ruled. And if you can influence the outcomes of wars, you surly are the most significant person around.
Genius of a banker again made itself relevant even in the most undesirable situation for someone who deals with money. By figuring out an innovative way to gather finance, bankers have become as important, in the context of a war, as the warriors themselves.
Financing a war through public debt or what we call today the bond market was, like so much else in financial history, an invention of the Italian Renaissance. ‘War’, said the ancient Greek philosopher Heraclitus, ‘is the father of all things.’ It certainly was the father of the bond market when in 15th century city states of Tuscany were fighting among each other. These wars were fought as much by money as by men. And rather than requiring their own citizens to do the dirty job of fighting, each city hired military contractors who raised armies to conquer land and loot treasure from its rivals. These contractors would fight for anyone who paid them. And to pay such fighters, cities of that time decided to take loans from their own people by issuing them a contact known as a bond.
The most significant use of this technique was made in early 19th century by England when a young French army leader, Napoleon Bonaparte, emerged by winning two battles against Austria. For the next two decades, he posed a great threat to the security and financial stability of the British Empire. Britain had to defeat him to truly become a global power but doing so would require a mountain of public debt to be raised.
The Battle of Waterloo was climax of more than two decades of conflict between Britain and France. But it was more than a battle between two armies, it was also a contest between two rival financial systems. One, used by French, which under Napoleon was based on plunder. Heavily taxing people and illegitimately occupying their wealth to fund the war. The other, used by Britain, based on debt. The method used by Britain was more sophisticated and caused less trouble as Britain raised ample cash to wage the war. Never had so many bonds been issued before to finance a military conflict. Between 1793 and 1815 the British national debt increased by a factor of three. But there was one problem; banknotes were of little use on distant battlefields.
To provide for troops and pay Britain’s allies, Wellington needed a currency that was universally acceptable. The challenge was to transform the money raised from the bond market into gold coins, and to get them to where they were needed. Sending gold coins overseas during the time of war was expensive and extremely risky. The man who solved this problem and helped Britain in defeating Napoleon at Waterloo was, you guessed it right, a banker. The master of the bond market and European politics a gentleman named Nathan Mayer Rothschild.
The Rothschild
Financial history is incomplete without mentioning of the Rothschild. Their contribution to banking and their influence on politics was so significant that 19th century is often referred to as ‘The age of the Rothschild’. Just like Medici, Rothschild banking family also used its financial power to influence political affairs. Only difference was that influence of Medici was redistricted to Florence, Rothschild on the other hand had influence over entire western world.
Grown up in Frankfurt ghetto, the son of a moderately successful Frankfurt antique dealer, Nathan Rothschild arrived in England only in 1799. It was not long when he started to make his presence felt. Along with his brothers, Nathan setup banks in four countries across Europe. He himself operated from London, his brother Amschel from Frankfurt, another, Carl, from Amsterdam, the youngest, James, from Paris and Salomon travelling wherever Nathan wanted him to be. Like this, these brothers developed the first ever multinational bank within family that provided them with great strategic advantages.
Scatter around Europe, the five Rothschild brothers were perfectly positioned to exploit price and exchange rate differences between markets. For example, if the price of gold was higher in London than in Amsterdam, Nathan in London would sell gold for cash and then send these to Amsterdam, where Carl would use them to buy a larger quantity of gold. The advantage they had for their presence in multiple countries brought in a lot of profit for the business.
This readymade network of banks was what made Rothschild so suitable for the job of providing gold coins to Wellington’s army at the battle field. Also, Nathan had previously build channel of smuggling gold to different European countries as part of his business which proved crucial to carry out this risky task. The job was done so well that soon Wellington wrote back to express his gratitude for ‘ample supplies of money’. This service by Nathan brought him close to the British government and soon the prime minister referred to him as a ‘very useful friend’. He was also found saying that ‘I do not know what we would have done without him’.
Another way battle of waterloo benefited Rothschild was due to their gamble on the bond market. Part of Nathans banking network was his extremely rapid courier system developed so brothers spread across Europe could communicate and coordinate with each other. Taking advantage of his strategic position, Nathan received the news of victory of Wellington at waterloo 48 hours before the official news. Having tons of gold already at his disposal, which he bought to provide for war that was over, Nathan made a bet at bond market. He knew that as the war was over, price of gold which was soaring due to war would come back to normal. To protect his wealth, he converted all the gold in exchange for bonds. According to a legend, Nathan purposefully spread a rumour that Britain had lost the war which resulted in fall in price of bonds. Buying up all the bonds he could get his hands on at lowest price possible, Nathan was set to make huge profits when the official news came. It is natural for price of bond to fall if a country loses a battle and rises if a country wins a battle. It is estimated that he multiplied his wealth 20 times as a result of this bet.
This made Rothschild family so rich and their influence grew so strong that it became impossible for someone in Europe to successfully wage a war without the support of Rothschild. Like Cosimo de’ Medici of 15th century, Nathan Rothschild in 19th century had ministers of state on his pay. He boasts that he is the arbiter of peace and war, and that the one he supports during a war is the one who wins. One German poet declared that ‘if money is the god of our time, Rothschild is his prophet.’
Significance of battle of Waterloo
Battle of Waterloo was not a regular battle fought between two nations. Its influence and impact exceeded not just to the other countries in Europe but to the entire world. Wellington’s victory here put an end to Napoleonic wars, which killed around six million people, and made it clear that no power on earth now equalled or even threatened Britain’s power.
Following the battle, Britain got hold of territorial possessions, such as modern day South Africa, Trinidad and Sri Lanka, which become strategic naval bases the U.K. subsequently used to control its vast colonial empire. France had been the world’s superpower for centuries, with it out of the way, there was no one to compete with Britain.
Having played such an important role at such a crucial point in history, bankers have proven their importance yet again. Had Britain lost this war, they may not have become the superpower they became and we might be living in a very different world then the one we currently live in.
Napoleon might have been a better military leader but he did not have the financial system available to raise funds for the war. He may have been better at skills but his resources were exhausted while Britain still had plenty up their sleeves. Napoleon lost not because of military expertise, but because of lack of financial resources. “Fighting is possible only if you can raise the money to pay for it.” And to raise money, bankers are your go to guys.
Read Next: Making of empires
Originally published at haq.life, Financial Innovations series is an essay divided in 7 parts which should be read in sequence for better understanding. Click on the links below to navigate to other parts of this series:
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