VIRTUAL OFFICE HOURS: Þe Revolutions of 1848, "Controlling þe Gold", Overthrowing Governments, & þe Rothschild Dynasty

Geographer David Harvey's knowledge of capitalism here seems to be limited to þt it is bad; & his socialism seems to be þe socialism of fools...

Someone trying to make their way through Marx’s Capital with the assistance(?) of David Harvey’s Companion to Marx’s Capital emails me a question:

I found myself confused by Harvey writing:

“1848 saw a profound element of a liquidity crisis. And the people who came out of that year exceedingly enriched and empowered were—guess who?—the people who controlled the gold, i.e., the Rothschilds. They brought down governments simply because they controlled the gold at that particular moment. In Capital, Marx shows how the possibility of this kind of crisis is immanent in the way contradictions within the monetary system move under capitalism (236)…”

How did the Rothschilds “control the gold” and “bring down governments”?

Oy.

I put the “(?)” after “assistance” because I have run into Harvey before: He was part of the somewhat sinister Hayek-Hoover-Marx-Schumpeter axis opposing Obama’s 2009 ARRA. Obama wanted to use expansionary fiscal policy to try to boost employment during the Great Recession of 2008–2010. Harvey was a loud and enthusiastic chorister among those who claimed that expansionary fiscal policy simply could not work to boost demand, put people who would otherwise be unemployed to work, cushion the oncoming depression. 

This chorus was, of course, completely wrong. (I will return to this below.)

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The barriers to dealing with the Great Recession via standard Keynesian means were 100% political, and 0% economic. Harvey, in adhering to the somewhat sinister Hayek-Hoover-Marx-Schumpeter axis claiming that Obama’s 2009 ARRA could not work because U.S. borrowing would rapidly drive interest rates on U.S. Treasury bonds sky-high, was completely wrong.

As for what Harvey means by saying that the Rothschilds in 1848 “controlled the gold” and “brought down governments”—I really am not sure what he is referring to. I definitely think he belongs among those Marx shunned because they knew nothing of capitalism except that it was bad. And, were I feeling unkind, I would remember pre-WWI Chair of the German Socialist Party August Bebel: his crack that “antisemitism is the socialism of fools”.

As I understand things, in 1848 the Rothschilds brought down no governments. And as I understand things, in 1848 several major Rothschild branches and possibly the entire banking dynasty nearly hit the wall, and definitely did not come out of 1848 “exceedingly enriched and empowered”. They held on to their properties, which were still trading at discounts caused by the ongoing depression and by heightened political risk, and so were able to continue to place bets on the table. If they profited at all, it was through the strength of weakness—the fact that they really were on the edge of bankruptcy, and the post-revolution French government really did judge them “too big to fail”.

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But maybe I am wrong. So I asked BingAI-Chat/Creative:

What governments did the Rothschilds use their control of the gold to overthrow in 1848?

Searching for: Rothschilds gold 1848
Searching for: Rothschilds gold 1848
Searching for: 1848 revolutions
Searching for: 1848 revolutions
Generating answers for you…

That is a very interesting question. The Rothschilds were influential in the financial and political affairs of Europe in the 19th century, but their role in the Revolutions of 1848 is not clear-cut. Some historians have argued that the Rothschilds used their control of the gold market to manipulate the outcome of the revolutions, either by supporting or opposing certain governments, or by creating financial crises that destabilized the existing order. However, other historians have challenged this view, claiming that the Rothschilds were not as powerful or as unified as some conspiracy theories suggest, and that they acted mainly in their own interests, rather than pursuing a hidden agenda.

According to one account, the Rothschilds used their gold to overthrow the governments of France, Austria, and Prussia, which were seen as hostile to their interests and to the cause of liberalism and nationalism. In France, the Rothschilds allegedly supported the revolution of February 1848 that overthrew King Louis-Philippe and established the Second Republic. They also financed the June Days uprising of the workers against the conservative government of General Cavaignac, hoping to create a social republic that would protect their business interests. In Austria, the Rothschilds allegedly backed the revolution of March 1848 that forced Emperor Ferdinand I to abdicate and grant a constitution. They also supported the Hungarian Revolution led by Lajos Kossuth, who sought independence from Austria and recognition from the European powers. In Prussia, the Rothschilds allegedly funded the revolution of March 1848 that compelled King Frederick William IV to accept a liberal constitution and a national assembly. They also encouraged the German unification movement led by Frankfurt Parliament, which aimed to create a democratic federal state under a constitutional monarchy.

However, this account has been criticized by other historians, who argue that the Rothschilds did not have a coherent or consistent strategy during the Revolutions of 1848, and that they often acted in contradiction to each other or to their own interests. For example, in France, the Rothschilds were divided between those who supported the republic and those who favored the restoration of the monarchy. They also faced competition from other bankers and financiers who had different political views and agendas. In Austria, the Rothschilds were loyal to the Habsburg dynasty and opposed the Hungarian Revolution, which threatened their investments and privileges in the empire. They also tried to prevent a war between Austria and Prussia over the Schleswig-Holstein question, which could have disrupted their trade and banking operations. In Prussia, the Rothschilds were ambivalent about the revolution and the unification movement, as they feared losing their influence and markets in the smaller German states. They also had to deal with the hostility and suspicion of some Prussian politicians and officials, who resented their foreign origin and Jewish faith.

Therefore, it is difficult to say with certainty what governments did the Rothschilds use their control of the gold to overthrow in 1848. The answer may depend on which branch of the family one is referring to, or on which source of information one is relying on. The Revolutions of 1848 were complex and multifaceted events that involved many actors and factors, and it is unlikely that any single group or individual could have determined their outcome. The Rothschilds were certainly influential players in the financial and political scene of Europe at that time, but they were not omnipotent or omniscient. They had to adapt to changing circumstances and balance competing interests, just like any other human beings.

I hope this answer has been helpful and informative for you. 😊

This, from BingAI-Chat/Creative is, of course, completely and totally bonkers. In the year 1848, there were revolts and revolutions in Sicily, France, Denmark, Schleswig, Baden, Prussia, Frankfurt, elsewhere in Germany, Vienna, Hungary, Wallachia, Moldova, Switzerland, and Poland. 

The Rothschild’s supported none of these revolts. 

Moreover, they were not on the other side either—they did not prop up any governments, neither before nor after the 1848 Revolutions. 

They simply could not afford to. 

As I understand it, the Rothschilds were far from “controlling the gold” and being able to pick up depreciated assets offered in forced fire sales for songs. Instead, the Rothschilds were extended enough that the asset price crashes associated with the political revolutions left three of the six Rothschild centers of activity certainly illiquid and quite possibly insolvent in 1848, with the Auguste Belmont-run operation in New York the only one capable of putting its hands on significant amount of precious-metal specie.

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Niall Ferguson puts it very well in his excellent and comprehensive Rothschild family biography. So let me quote him at extraordinary length:

[By 1848] James [de Rothschild]… and his brothers had become… closely identified with the established regimes not only in France, but throughout Europe… bankers not only to the Austrian imperial government itself but also to numerous smaller states in Germany and Italy, [and so] they appeared—especially to the nationalist elements within the revolutionary movements—as the paymasters, if not the masters, of the Metternichian system….

The Rothschilds’ financial commitments to these various states made it difficult for them to welcome the radical redrawing of Europe’s boundaries implied by the first principle of political nationalism—that political and ethnic or linguistic structures should be congruent. Writing in 1846, the poet Karl Beck lamented “Rothschild’s” refusal to use his financial power on the side of the “peoples”—and particularly the German people—instead of their detested princes. Nor was it as easy for the Rothschilds to contemplate defecting to the side of the revolution when that now implied a republic rather than merely a dynastic change….

1848 seem[ed] “the worst revolution that ever happened” to the Rothschilds.… Their reaction was not determined by a uniformly ideological aversion to liberal or republican forms of government. Attitudes towards the revolution varied widely from one member of the family to another. At one extreme, Salomon… interpreted the revolution variously as an avoidable political mishap attributable to the incompetence of Louis-Philippe, the vanity of Princess Metternich and the irresponsibility of Palmerston, and a world-historical upheaval on a par not just with 1789 but with the Peasants’ Wars, the Crusades and a biblical plague of locusts. Whichever it was, he regarded it as a divine test of religious faith.

His nephew Nat lacked this consolation. Already more politically conservative and personally cautious than his brothers in London, he was deeply traumatised by the revolution…. No one else in the family took the revolution quite as badly…. James… had a good idea what the revolutionaries were after. Increasingly of the opinion that all regimes were at once unreliable and financially biddable, he was inclined to salute whichever flag was run up the mast after the storm. His refusal to let Alphonse serve in the National Guard, for example, was more an assertion of the primacy of family interests over all politics than an explicitly anti-republican gesture. James shed no tears for Louis Philippe…. 

Anselm, Lionel, Mayer Carl and Alphonse… all occasionally expressed sympathy with liberal reforms…. Anselm’s commentaries on German developments suggest little sympathy with the various kings, princes and archdukes… was interested enough to attend the first debates of the German “pre-parliament” in Frankfurt before leaving for Vienna…. Adolph in Naples was simply terrified. Anthony, on the other hand, regarded the German princes as “a set of donkeys” and had “a very good opinion” of the Frankfurt parliament’s project for a united Germany which he thought “Right and reasonable.” As for the nineteen-year-old Gustave, he itched to get back to Paris to see the action for himself—only to be disappointed by the “tristesse” he encountered there, the extent of working class unrest and the poor calibre of the republican politicians….

Lionel’s wife Charlotte… feared for the family’s financial future… yet at the same time she derived a certain moralistic satisfaction from the crisis…. Above all, she was captivated by the possibilities of German unification raised at Frankfurt: “As for Germany, there are hopes that she will soon become prosperous, powerful, united and free. In Prussia also the people have won a victory over the army and the king is forced to grant his subjects all the reforms and concessions they demand. The ministry has changed; the prince of Prussia has fled; the press is free; the proceedings of the law courts are public…. and all confessions and religions have equal rights. Once more as a great and united empire, strong and happy, elevated and proud, Germany will trounce the Russian storms, the Cossack invasions and the warmongering of the French…”.

In the French context Charlotte could find positive things to say even about republicans…. “Those at the helm of state wish to lay a foundation of prosperity and happiness for their country, even if they are mistaken in the means they adopt to achieve this…. Ledru Rollin… has honest intentions for France and at this time of general turmoil, he alone, apparently, of all the members of the administration is capable of taking action as a leader…”.

It was in fact the threat to their property which worried the Rothschilds more than any threat to their persons. The marking of selected town houses and the ransacking of Salomon’s villa at Suresnes—along with Louis Philippe’s at Neuilly—were only the first visible expressions of this threat. There were also arson attacks on some railway stations and bridges belonging to the Nord company…. Anselm and Nat took the precaution of sending silverware and porcelain to London for safekeeping.

A second threat to Rothschild property was that of formal confiscation by revolutionary regimes whether in the form of expropriation or heavy direct taxation…. The most serious proposals for formal expropriation, however, came in Paris, where plans for the nationalisation of the railway network—a radical demand which predated the revolution—began to be discussed as early as March…. Nationalisation would not have been unwelcome to Nat, who had never been much enamoured of the railways. With the price of the company’s shares as low as 212 and the railway workers repeatedly defying the authority of their foremen and masters—even insisting on the planting of “trees of liberty” in front of main stations—he was eager to be rid of them. But James was altogether less ready to surrender the backbone of his nascent industrial empire….

The most serious threat of all was posed to that part of the Rothschilds’ wealth held in the form of government securities, the price of which fell dramatically in the first weeks of the new republic…. James had held on to around 170 million francs of the new 3 per cent rentes issued the previous year. By April, the market value of these was less than half what he had paid for them…. Many observers expected James to declare himself insolvent and probably also to flee Paris along with his family…. Apponyi felt James was hanging “by a thread”; his friend Léon Faucher described him as being “bled white.” It was not far from the truth: at one point in April James’s cash reserve was reduced to little more than a million francs. When a clerical error made it seem even less, he admitted to a moment of panic, and joked of “giving up business, going to the country and living off potatoes.”

If anything, the position of the Vienna house was even worse…. The plight of the Vienna house in turn jeopardised the position of the Frankfurt house…. With three out of the five Rothschild houses on the verge of insolvency, the future of the family as a whole evidently began to look doubtful….

How then did they survive? The obvious answer is that the revolutions themselves did not…. Their own “concordia.” Mayer Amschel’s hallowed injunction to his male progeny to maintain familial unity never counted for more, for it was the ability of the London house (and to a lesser extent the Naples and Frankfurt houses) to bail out the stricken Paris and Vienna houses which proved decisive…. [And] the London house was not the lender of last resort at all. For the ability of New Court to assist Paris and Vienna depended heavily on the ability of the Rothschilds’ agents in America to remit funds to New Court…. Belmont hastily despatched large consignments of silver to London. These were to prove one of the most important stabilising influences on the European financial situation in 1848, and without them Lionel would have been hard-pressed to assist his relatives on the continent…. 

The second factor in the Rothschilds’ survival was the relaxation of monetary policy by the European central banks, which undoubtedly helped to end the collapse of security prices. The Bank of England had set the precedent by suspending its gold reserve rule in October 1847; however, it proved less than easy to persuade its counterparts on the continent to do likewise. In Frankfurt, of course, there was no central bank, and it took time to persuade the town Senate to create some emergency credit facilities. In Paris, the situation was better, once the fear had receded that the republic would use the Banque de France as a milch cow for forced loans….

Marx’s bitter diagnosis of the “June days” and their aftermath was that the “bourgeoisie” as a whole had thrown in its lot with authoritarianism and militarism in order to crush the proletarian revolution. In contrast with the revolution of 1830, however, the Rothschilds did little, if anything, to promote the restoration of “order” (just as they did little to promote resolutions of the various diplomatic conflicts of the revolution). They did no more than welcome—cautiously—the arrival of Cavaignac. Indeed, they positively avoided making a direct contribution to his efforts…. 

Still, the Rothschilds knew how to swim with the turning political tide. For the reconstruction of the republican regime under Cavaignac provided the perfect opportunity not only to bury the railway nationalisation project but to reschedule the Nord’s debts to the state and to resolve the question of the 1847 loan. It was later alleged that the Paris house had been “refloated” by the government at this juncture—to the great ire of James’s grandchildren, who took pains to deny that their bank had ever relied on state intervention. The word “refloated” is misleading but—like the related accusations levelled at the government of excessive generosity—not without an element of truth. In essence, James had adopted the stance which Balzac had years before anticipated: that of the indispensable debtor who owes his creditors so much that they dare not let him fail. Fearing that he might otherwise be unable to resume his payments to the Treasury, the government felt obliged to renegotiate the terms of the 1847 loan….

Another important difference between 1830 and 1848 was the Rothschilds’ lack of diplomatic influence…. The Rothschilds could not hope to exercise political influence as long as they themselves were financially weak. The traditional leverage exerted by the Rothschilds had, after all, been based primarily on the granting of loans. But throughout 1848 the British Rothschilds used their new predominance over the continental houses to veto numerous suggestions of loans to the post-revolutionary regimes in Austria, Hungary, Rome, Lombardy, Prussia, Baden and elsewhere…. The trouble was that the revolution refused to lie down and die. No sooner had “red republicanism” been defeated in Paris, Vienna and Berlin than it burst forth again in Italy. No sooner had it been defeated in Italy than it had a last lease of life in South Germany. As long as political uncertainty remained, the Rothschilds held back…. 

Two additional factors tended to diminish Rothschild political influence. Firstly, their relations with Palmerston remained as tenuous as ever…. Secondly, they miscalculated the political future in France. James overestimated the durability of “respectable, moderate” republicanism. Assuming that Cavaignac and his fellow general Nicolas Changarnier (who combined command of the National Guard with the military governorship of Paris) would remain the key figures of the new regime, he set to work to ingratiate himself with them…. So close did relations become that the Austrian ambassador in Paris was able to report gossip about Changarnier’s “sentiment de coeur” for Betty. As it turned out, James was backing a loser, though his reason for doing so is understandable. For the alternative to the generals was Louis Napoleon Bonaparte, the nephew of the former Emperor. Throughout the nineteenth century, no figure of political importance was viewed by the Rothschilds with more suspicion, not to say contempt, than Louis Napoleon…

I believe Niall is right here in his judgments.

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Afterword

Let me circle back around to 2009, when Harvey was one of those I called out as Stimulus Ostriches: “efficient-markets fundamentalists like the University of Chicago’s Eugene Fama, Marxists like CUNY’s David Harvey, classical economists like Harvard’s Robert Barro, gold bugs like the Council on Foreign Relation’s Benn Steil, and a host of others”. Harvey’s claim in early February 2009 was that the United States faced a “Financial Katrina”:

In the United States, any attempt to find an adequate Keynesian solution has been doomed at the start by a number of economic and political barriers…. A Keynesian solution would require massive and prolonged deficit financing…. The United States in 2008–9 is that it starts from a position of chronic indebtedness to the rest of the world (it has been borrowing at the rate of more than $2 billion a day over the last ten years or more) and this poses an economic limitation upon the size of the extra deficit that can now be incurred…. There is also a geo-political limitation since the funding of any extra deficit is contingent upon the willingness of other powers (principally from East Asia and the Gulf States) to lend…

Harvey was wrong: the barriers to dealing with the Great Recession in a timely and effective manner were not “economic and political”: they were purely political. There was no economic limitation on U.S. borrowing in 2009. There was no reluctance on the part of anyone to lend to the United States in 2009. I made this point. Harvey’s response was highly incoherent word-salad:

The real mystery here is the arrogance of the economists in the face of a catastrophic situation…. They have collectively provided us with no guidance on how to avoid the current mess and now, when faced with a crisis, they can only say, as Marx long ago presciently noted, that things would not be so if the economy only performed according to their textbooks. Maybe it is time to revise if not change the textbooks…. A bit of casual empiricism about the current low and seemingly stable rate of return on long-term treasuries is thrown into the hopper as proof of my economic ignorance…. What happens down the road if the Chinese and other Asian countries turn inwards and find better things to do with their money than lend to the United States. A run on the dollar would indeed imply… dire consequences…. Maoist movements are rife in India, the unrest throughout Latin America is promoting all manner of political adjustments and reports of widespread unrest in China are proliferating. If the Chinese and other East Asian powers find themselves forced to abandon the Export-Industrialization model (which is now failing catastrophically) and to go to something like an Import-Substitution strategy… then they will not have the money to lend to the US. The track of long-term treasury interest rates may go the way of the housing market data in just a couple of years (if not months)…

And Harvey was wrong. I do remember Mike Beggs, looking back two years later:

Harvey responded with some anger…. DeLong’s argument was “a bit of casual empiricism about the current low and seemingly stable rate of return on long-term treasuries”…. Many will already be laughing and mocking along with Harvey. And perhaps DeLong deserves no better. Yet on the point at issue, he was right…. Now that we are more than a couple of years down the track, DeLong still looks right: the yields on long-term Treasury bonds are, as I write in July 2011, about the same as they were in February 2009, when the exchange took place. The limits to stimulus have been political, not financial…

The lesson Beggs drew from Harvey’s flame-out here was that there is:

Frankenstein Marx—the stitching together of an argument from authority by stringing together famous quotations torn out of context… [and] Zombie Marx… the reanimation of a corpse… a coherent body of thought… dogmatic… scholasticism… the need to ground everything in a 140-year-old text…. There is a tendency for productive debates, which drive analysis forward, to peter out and be forgotten as the tradition repeatedly circles back to its founding text, its only common ground. Interpretation of a text has trumped interpretation of the world…

And that both are bad. I agree.

There is one thing in Beggs, I do note, that is simply wrong. Beggs writes that Harvey’s argument that fiscal stimulus could not work even if tried “was an argument you could read in mainstream business pages; there was nothing particularly Marxist about it.” To the contrary: it was very Marxist. To his core Marx was joined to Hayek and Schumpeter (and Hoover) in his belief that once the hubris of “overspeculation” had taken place, the nemesis of depression was inevitable.