Published by EH.Net (February 2015)

Miguel A. López-Morell. The House of Rothschild in Spain, 1812-1941. Farnham, UK: Ashgate, 2013. xviii + 449 pp., $145 (hardcover), ISBN: 978-0-7546-6800-8.

Reviewed for EH.Net by Adoración Álvaro-Moya, Department of Economics and Economic History, CUNEF (Colegio Universitario de Estudios Financieros), Madrid.

Very few dynasties have been such a great source for conspiracy theories as the Rothschild family. Beginning as money changers in mid-eighteenth century Germany, this family became a leading financier of the European industrialization of the nineteenth century, engaging both in industrial projects and governmental finance.  It is still, as The Rothschild Group, one of today’s largest international banking groups. Niall Ferguson, in his two books on the The House of Rothschild (Money Prophets, 1798-1848 (1998) and The World’s Banker, 1848-1999 (1999)), offers a fascinating narrative of the origins and evolution of both the family and its businesses worldwide, clarifying, for instance, the strategies behind the family’s success and its relationships with European governments and other financial groups. We still know little, however, about these bankers’ activities in many of the countries where they fueled economic and industrial development (with the major exception of France). And even though the scale and scope of the Rothschilds’ operations suggest that they had to be relevant, the real impact of their investments in these host markets has not been quantified either.

The book reviewed here, The House of Rothschild in Spain, 1812-1941, is a valuable step in this direction. The author, Miguel A. López-Morell, is associate professor of Economic History at Universidad de Murcia (Spain), and has considerable research experience in finance and mining, two industries that, as the Rothschilds’ businesses show, were intimately related in the nineteenth century. In the book, a revised and extended version of his thesis dissertation and previously published in Spanish (La Casa Rothschild en España (1812-1941), Madrid, Marcial Pons, 2005), López-Morell examines the operations of the family in Spain, a traditional net importer of capital, from the early 1800s, when they started to be engaged in the country’s public finances – curiously after having financed the Duke of Wellington’s army in his attempts to expel the troops of Napoléon from Spain – until the early years of World War II, when these Jewish bankers’ last industrial stakes were liquidated in a context of general anti-Semitic persecution across the whole of Europe. This long-term study is based on archival information of the British and French branches of the family, as well as a broad range of both corporate and public archives in Spain, Britain and France.

In the first ten chapters, López-Morell examines thoroughly, following a chronological order, the Rothschilds’ investment model in Spain in the period aforementioned. Although public finances were their traditional core activity, their operations moved towards industry, mainly railways and mining, in the last quarter of the nineteenth century. The arrival of a new generation is part of the story behind this decision, but also the great opportunities that both sectors implied for investors (particularly mining, due the abundant and varied mineral deposits of the country and the lack of domestic savings and know-how to exploit them). This model, however, began to decline with the new century. Both corporate and environmental changes explain it. On one hand, the Rothschilds suffered from the management problems that typically characterize the generational transition within a family firm, as a result of which their traditional time-honored system of agencies (their main competitive advantage) entered into crisis. On the other, the rise of economic nationalism, which reached its peak with the authorization regime that followed the Spanish Civil War (1936-1939), and the emergence of a new, increasingly influential local economic elite, meant that these bankers’ industrial interests began to be repeatedly attacked by the government and public opinion, attacks which ultimately ended with nationalizations or withdrawals from the late 1920s onwards.

Of particular interest are the two final chapters of the book, where the author analyzes the factors explaining the Rothschilds’ long presence in Spain (chapter 11) and the impact of their activities in the country’s economy (chapter 12). The “fundamentals” of this family’s success relied, first, on an effective transfer of information across their many agencies. This system of agencies, as Ferguson highlighted before, was an international network based on trust and family loyalty, values which avoided the problems of asymmetric information and opportunistic behavior typical from agency theory. Second was the financial house’s great capacity to raise capital quickly, whatever the volume needed, and at a competitive cost. The Rothschilds, in addition, succeeded in diversifying their businesses and controlling the markets where they operated. They, finally, were able to adapt the group’s management style to the idiosyncrasy of each business, a strategy enforced with the recruitment of local technicians and political partners.

What was the contribution of the Rothschilds’ activities to the Spanish economy? Although we have to be extremely careful when quantifying historical capital flows, the overwhelming evidence collected by the author gives a convincing picture. The Rothschilds were among the largest foreign investors in nineteenth century Spain. Their investments, for instance, represented up to half of the total inward foreign investment in the booming years of the railways and mining industries. They also played a key role in public finances, as illustrated by the fact that their loans reached nearly half the total Treasury debt in the 1860s and 1880s (and a significant share in the rest of the period analyzed). The industrial companies in which they were engaged were, furthermore, among the largest in their respective industries. The extensive primary sources used in this research also clearly show that, contrary to the traditional view of the Spanish historiography, foreigners did not impose on the local government the favorable conditions they enjoyed in their ventures in the country. Just the opposite, the eagerness to attract foreign capital (common to all the cabinets of the period under study) made the government offer such attractive conditions.

Any comment on this book is overwhelmed by its scope and scholarship. However, the reader will miss a more systematic comparison of the Rothschilds’ activities in Spain with those carried out in other countries. For instance, how did the remuneration they received for their operations in Spain compare to the compensation received elsewhere? Furthermore, how does the Spanish case contribute to our understanding of the operations of the whole group and its internationalization strategy? Was its behavior and strategy consistent with the most accepted internationalization theories? The author gives some clues about these issues throughout the book, but a comprehensive examination of all them would have been of great interest. And regarding the economic impact of the Rothschilds’ activities in the country, were there spillovers to local industry? How much did their local partners learn from them? The author, for instance, judges at the end of the book that “their business conglomerate in Spain mobilized idle resources, provided and accelerated access to technology, and increased the human capital stock in the country” (p. 404). Certainly this group, as other foreign firms, provided the capital and technology needed to develop strategic industries such as transportation and mining. But the transfer of knowledge to the host market (that is, this increase in the human capital stock the author refers to) deserves to be analyzed more in-depth, looking systematically in the long-term at how each of the Rothschilds’ businesses (and other foreign groups’) were managed. All these questions, far from criticizing the quality and significance of López-Morell’s scholarship, show the interest generated in the reader by this book. In fact, I encourage researchers to investigate more, in a comparative long-term perspective, into the House of Rothschilds’ activities in the many countries where they operated. López-Morell’s work will be a mandatory starting point for them, as well as an insightful book for any scholar interested not only in nineteenth-century finances and international business, but also in the details of European industrialization.

Adoración Álvaro-Moya is the author of “The Globalization of Knowledge-Based Services: Engineering Consulting in Spain (1953-1975)” Business History Review (2014) and “Internationalisation and Political Bargaining under Oligopoly: International Harvester in Spain (c. 1900-1980)” Business History (2010).

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