The House of Rothschild (98 page)

It must be added that Natty’s arguments against higher income taxes and death duties have not worn well. “[D]iminished incomes,” he reasoned, “mean a diminution of money to spend and a diminution of employment, increased death duties mean a diminution of capital and less Income Tax, increased Income Tax means less money to save and less Capital liable to death duty.” As a justification for leaving the rich in peace to enjoy their largely unearned and inherited wealth this was weak stuff. In an increasingly democratic system, a policy of “making the Income Tax ... still more disagreeable to the capitalists & to the wealthy” had undoubted and not easily refutable attractions. Even if Natty was not wholly wrong that relatively modest increases in death duties represented the thin end of a wedge, he was doomed to lose the debate—especially when he admitted the force of the argument that “the burden of taxation should fall on the shoulders of those best able to bear it.” In just the same way, the Rothschilds’ arguments against land reform to increase the number of small proprietors in the British Isles were economically reasonable, but sounded at the time like the special pleading of big landowners. It was to stretch the antiquated principle of virtual representation too far to justify the Lords’ opposition to government measures on the basis of Opposition by-election successes. To be sure, the Liberals saw their commanding majority in the Commons shrink as a consequence of the 1910 elections. But in the end it was the Lords who lost their power to veto finance bills. And of course Lloyd George’s taxes were ultimately put in place. “I cannot suppose,” Natty mused in January 1910, “that ... the masses ... can have any sympathy for the rich men who are to be taxed.” It was as if this had only just dawned on him.

To make life easier for the Liberals, Natty had also unwittingly handed the government the perfect stick with which to beat him even before the People’s Budget was unveiled. It would undoubtedly have been hard for the government to justify new taxes if the surpluses which had characterised its first two years in office had continued. And it might just have been credible to oppose higher direct taxes if the budget had been unbalanced by “Old Age Pensions and various other sops which [the government‘s] democratic supporters are clamouring for.” But the reality was that a large part of the hole Lloyd George was trying to fill was due to the increased defence spending; and this was something Natty and his associates in the City had vehemently supported. Natty had publicly endorsed Richard Haldane’s programme of army reforms (though he privately opposed the conversion of the old militias into the Special Reserve).
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He and Leo had been even more enthused by the decision to increase expenditure on the navy (not least because it put the Radicals’ noses out of joint). But Natty’s involvement in the campaign for eight rather than four dreadnoughts in early 1909 was a grievous tactical blunder. When he explicitly admitted that “a large expenditure had been incurred, and he supposed a good deal more would be be necessary” if the navy were to be kept “in the highest state of efficiency,” he was giving Lloyd George the perfect opening. And when the Chancellor hit back at “the inevitable Lord Rothschild” in a speech at the Holborn Restaurant—the very day after the anti-budget meeting at which Natty had accused him of “Socialism and collectivism”—he did not miss his chance:

This was characteristically strong, not to say demagogic stuff (especially if the other countries alluded to implicitly included Russia); but it struck the Rothschild campaign at its weakest point. Natty had wanted more dreadnoughts. How did he propose they should be paid for, if not partly from his own pocket?

Lloyd George knew when he had an opponent on the run. Speaking at a meeting at Walworth Hall in London on December 18, he warmed to his theme:

As has often been pointed out, there was a fairly unmistakable anti-Semitic connotation to this last jibe (reminiscent of Thomas Carlyle’s allusion many years before to King John’s treatment of the Jews and of Gladstone’s swipes at Disraeli during the Bulgarian agitation). On this occasion, the lack of taste did not much diminish the effectiveness of the attack. Nor did Natty have much of an answer when a Jewish member of the government—the Chancellor of the Duchy of Lancaster Herbert Samuel—reminded him of the House of Lords’ ignominious role in opposing his own father’s admission to Parliament. Natty’s unconvincing response at an election meeting in the East End was that he was opposing “the new bureaucracy which the Government wish to introduce in this country”—a bureaucracy “similar” to the one which members of his audience had “fled from Russia to escape”! As they trundled around the country from one speaking engagement to the next, the abuse he and Lloyd George hurled at one another grew steadily cruder; the difference was that Lloyd George was winning the argument.
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Never in the history of the house of Rothschild had a partner put himself in such a politically exposed position.

Yet within five years, the tables were turned. Lloyd George’s “ruinous financial policy” might not frighten the markets as much as it financed the Rothschilds; but by the summer of 1914 the Liberal government’s majority in the House of Commons had been so whittled away at by-elections that the Chancellor suffered a humiliating defeat: the rejection of his Finance Bill. “Mr Lloyd George,” Natty gloated on July 10, “is ... even a discredited person in the eyes of the Government’s own supporters.” Moreover, the Chancellor was about to be engulfed by a financial crisis of such magnitude that he would be driven to seek the assistance of none other than the despised Lord Rothschild.

The cause of the crisis was an unforeseen and little regarded event in Sarajevo.

War was not a certainty in 1914; neither imperialism, nor the alliance system, nor any other impersonal forces made it inevitable. But it was a possibility. The question was what kind of war there would be. Another Balkan war? A continental war involving Russia and Austria, and therefore probably also France and Germany? It is important to remember that the third possibility—a world war involving the British Empire—was, of all the possible scenarios, one of the least likely. To most observers in London, including the Rothschilds, a civil war in Ireland seemed a more imminent danger.

Even as the financial and constitutional conflict between Lords and Commons had raged in 1909 and 1910, Natty had not lost sight of the old questions of land reform and Home Rule in Ireland. By putting the Irish MPs in a pivotal position at Westminster—the two big parties were almost exactly matched—the 1910 elections resurrected the Irish question. Partly for that reason, Natty became suddenly more cautious in his attitude to the constitutional question. He was willing to do a great deal to get the Conservatives back into power, even offering to lend to a minority Balfour government if it was denied supply by the Liberals in the Commons—an extraordinary proposal. But like Lansdowne and Balfour he feared a drastic inundation of Liberal peers. No sooner had Parliament reconvened than the previous year’s battle over the budget was put to one side as a lost cause; the older and more bitter question of Ireland, by contrast, seemed as winnable as ever—provided the Unionist majority in the Lords could be preserved. There was therefore a need to restrain the “hot-headed young bloods and old bloods too, who do not weigh the consequences of their action.”

The question which has sometimes been asked is whether Natty was himself hot-headed on the subject of Ulster. Was he in any way associated with those in the Conservative party who encouraged the Ulster Unionists to contemplate armed resistance to Home Rule? According to one account, he “personally contributed at least £10,000 to support the Ulster Volunteer Force resistance.” The evidence in the Milner papers on which this assertion based is, however, problematic: it is not inconceivable that Natty was the individual identified by the letter “D” on a list of contributors to an Ulster defence fund. What makes it seem unlikely is that in his letters to his Paris cousins Natty was anything but militant. “It is very unpleasant, disagreeable, I may even say painful,” he told his cousins on March 19, 1914,

A few months later, he insisted that the view of “the great majority of Unionists can be summed up in a few words—‘It is our imperative duty to do everything which will in all probability prevent Civil War”’ By the beginning of July, he was optimistic : “[T]he ‘Peace barometer’ is decidedly rising,” he was able to report to Paris; there was now “a belief in City circles that civil war will be avoided in Ulster” and that “the Ulster question will be settled, at all events for the time being.” Natty “sincerely hoped” this would be the case and that “the shadow [of civil war] which has been hanging for so many months over the Country” would be lifted.

The truth was that, quite apart from the damage he had done to his relations with the Liberals, Natty was no longer being kept closely informed by the Conservative leadership by 1914. Balfour had been a close friend; his successor, the Glaswegian Bonar Law, was not—hence Natty’s “pain” when Balfour decided to resign the leadership in November 1911. Natty, barely knew Law and a handful of meetings in 1911 and 1912 did not change that. Personal and perhaps political differences can also be detected. According to the Conservative chairman Sir Arthur Steel-Maitland, the family contributed “£12,000 a year and large sums at Elections and subscribe [d] very largely to the L[iberal] U[nionist]s also,” as well as controlling at least one parliamentary seat at Hythe. But the Rothschilds’ favoured candidate for this seat—Philip Sassoon—no longer met with the leadership’s approval.
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When Herbert Gibbs approached Natty about raising additional funds in the City for Central Office in October 1911, Natty did not even reply; when Gibbs suggested that Bonar Law be invited to explain his financial policy to the City, Natty opposed the suggestion.

This froideur was more than merely personal. Under Bonar Law, the Conservatives not only became more aggressive on the Ulster question; they also became more aggressive on matters of foreign policy, and especially where Germany was concerned—a mood encouraged by the increasingly Germanophobe Tory-supporting press. It may seem odd that a man who in 1909 advocated an enlarged dreadnought programme should still have cherished hopes of preserving peace between Britain and Germany; but Natty evidently did. (He had after all emphasised that “in advocating a very strong Navy [he] had no intention of urging an aggressive policy.”) In 1912, Natty published a heartfelt essay in a collection entitled
England and Germany
which reveals his enduring Germanophilia: “What have we ... not got in common with Germany?” he asked. “Nothing perhaps except their army and our navy. But a combination of the most powerful military nation with the most powerful naval nation ought to be such as to command the respect of the whole world, and ensure universal peace.” With the benefit of hindsight this seems almost pathetic. Yet 1912—the year the Germans effectively abandoned the naval race—saw the beginning of a renewed effort to promote Anglo-German co-operation by Paul Schwabach, who remained in regular communication with the Rothschilds up until August 1914.