HELLO and welcome to How to Take Over the World. This is Ben Wilson.

‍

So I was thinking of doing an episode on the richest person of  all time. Because being really rich sounds nice and I’d like to learn how to do it. But first I had to figure out who IS the richest person of all time. And as I was reading up on different arguments for different people, I read this really interesting story:

‍

The story goes that it’s the middle of the 1800s and clouds of war are forming over Europe. France and Germany are at each other’s throats once again, and people are just braced for war, waiting for it to break out.

‍

In the middle of this situation, there is an old grandma sitting in her attic on her rocking chair. A friend comes to visit her and they are chatting about the news, and the friend says “This situation is horrible, I’m so worried, it looks like war is going to break out again.” And the old grandma says “Oh don’t worry, war won’t break out. My sons won’t allow it.” And she’s right. Despite everyone’s fears the year comes and goes without a war. 

‍

Now, that’s pretty impressive. Obviously my ears perked up when i heard that because if you’re interested in people who have taken over the world, that sounds like it fits the bill. Apparently these sons were so powerful, they could control nations, they could decide who went to war and who didn’t.

‍

So who were these guys? They were the Rothschild sons. And the Rothschilds are a family of Jewish bankers who originated in Frankfurt, Germany in the late 1700s and spread out across Europe and eventually into the United States. And they were very, very wealthy, and some people argue that they were the wealthiest family of all time.

‍

Now that story. It’s apocryphal, in all likelihood, it never actually happened. And in all honesty, the story is an exaggeration. They couldn’t really stop two world powers from going to war. But while maybe it wasn’t impossible to make war without the consent of the Rothschild brothers, by the mid 1800s, the Rothschilds were making decisions on a geopolitical level. At least one country owes its existence to the Rothschilds, arguably two. You could make the case, and many people have, that in the early 1800s the Rothschild family decided the outcome of the greatest war the world had ever seen up to that point: The Napoleonic wars. You could say that it was really him that beat Napoleon.

‍

Obviously, I have profiled Napoleon on this podcast, and the volume of his accomplishments is astonishing and impressive. As a military commander he went 54-8-2. And of those 8 defeats, only 2, Waterloo and Leipzig, were real defeats. The kind he so often inflicted on his opponents. But we also know he died completely defeated and out of power. How do you win that much and still lose? The Rothschild is a big reason why.

‍

Their financial capabilities were just as important to that war as the strategic abilities of any general. We’ll get into the details of all that later. But that to me, is power.

‍

So I wanted to study the Rothschild family for two reasons: One is because they were extravagantly wealthy, perhaps the wealthiest family of all time, and so I wanted to discover the secrets of that wealth. And secondly because they were able to turn that wealth into real power.

‍

As I read the story of the Rothschild family, it became very clear that the strategies to becoming extremely wealthy have not changed in 200 years. And the strategies for turning that wealth into power have not changed. You can see a lot of similarities between them and the great financiers and great wealth generators of our day. And i’ll point out those similarities as we go. But suffice it to say if you are looking to be the world’s first trillionaire, this is a pretty good story to learn about. 

‍

Now before we start: One disclaimer: The Rothschilds were powerful. So powerful, that they have sparked the imagination of conspiracy theorists all over the world, then and now. Some conspiracy theorists claim that today, in 2019, the Rothschilds secretly run a one world government and they use their illuminati pawns to control all the world’s governments and all that kind of stuff. People claim they are the puppet masters who really control the strings. A lot of these conspiracies are pretty anti-semitic. It’s the scary JEWS with their JEW GOLD that are hypnotizing the world and making world leaders do their bidding.

‍

That is not the case. The Rothschilds are still a wealthy family to this day, which is pretty remarkable, it’s been a couple hundred years. And the Rothschild bank is still a functioning firm that does pretty well for itself. But they are far from the richest people in the world these days. There is only one Rothschild billionaire, and he’s worth just over one billion dollars. By comparison, Jeff Bezos was worth well over $100 billion.

‍

So if you do extra research and read some of the conspiracy stuff. Don’t buy it. Don’t believe it.

‍

I should note my sources. I mainly relied on two excellent books for this episode: The first is a biography called “Founder” by “Amos Elon” and the second is an economic history of the family and its financial firm, “The House of Rothschild Volume 1 Money’s Prophets”, and it is by Niall Ferguson. And I should also note the help on this episode of my wonderful research assistant Jack Tingey.

‍

Okay. Let’s get into it. This episode is going to focus on the man who started it all, a man by the name of Mayer Amschel Rothschild. I’m going to cover the rest of the family in later episodes.

‍

But to talk about Mayer, I want to start with a mental exercise. 

‍

Imagine it is the early 1800s, and you are a wealthy merchant headed to Frankfurt, Germany and you have an appointment to meet Mayer Rothschild. At this time, he isn’t the wealthiest man in the world, but he is a very successful banker with considerable wealth.

‍

You’re on a boat on the Main river. Most traders arrived by boat. And as you’re first arriving at Frankfurt for the first time, you’re navigating the busy waters and you notice a large mural on an exterior wall of the city.

‍

As you look carefully, to your shock you realize that it is a depiction of a large fat pig, with Jews nursing from it and eating its excrement. Since the man you are going to meet, again, one of the richest in the world, is himself Jewish, you find this not only revolting, but extremely shocking.

‍

You pass the mural and reach the docks. The docks are chalk full of merchants, loading and unloading barrels and bags of every commodity imaginable. As you pass by these, you notice the wide city walls, which have been turned into promenades, walking paths. You also notice the signs saying “No Jews Allowed” outside these walking paths.

‍

Next you notice the enormous cathedral. It looms over the city. Here, the Holy Roman Emperor has been elected for hundreds of years in solemn ceremonies. Passing by it, you cross the main street, and see some of the beautiful, enormous homes. Your mind begins to race. You start scanning the houses to see if you can figure out which one is Rothschild’s, and obviously you’re looking for the biggest one.

‍

You ask a man on the corner which house mister Rothschild lives in. Rothschild? He says. He lives in the Judengasse, the Jewish Quarter. He points you in the other direction and so you start walking toward the Judengasse. You smell it and hear it before you see it. Ten thousand people packed into a single block.

‍

The Judengasse isn’t really just a city block, it’s a world within a world. It is completely walled off, and you have to enter through a gate. As you pass through the gate, a guard tells you to be out before nightfall, when the gates are locked, shutting the Jews in for the night. As you get your first glimpse inside, you can barely believe how many people there are.

‍

The Judengasse had grown significantly over the years in terms of population, but it had not been allowed to grow at all in terms of space. The consequence was a truly extraordinary level of overcrowding. The skinniest houses you have ever seen are squeezed in next to each other all along the street. There are houses on top of those houses, and houses behind houses where their backyard should be. There were no more yards in the Judengasse. Every last inch of the neighborhood is filled with houses, shops, and people.

‍

And so you ask someone on the street where the Rothschilds live. They point you toward a home, pretty much like any of the others. Nice? Yes. Comfortable? Yes. But not significantly different from many other homes found on the Judengasse.

‍

You walk in to the bottom floor of the house to find the banking operation. Mayer is there, very much involved in the day to day affairs, and his wife and daughters are helping keep the books. He’s also employed a few local Jewish boys to help out, at least one of them from less fortunate circumstances. Mister Rothschild greets you personally, and that’s where we will leave this mental exercise. I’ll leave it to you to imagine the deals you make and the untold fortunes that you eventually reap from it.

‍

Now that contrast is obviously pretty surprising. It is like if Jeff Bezos were African-AMerican and he still lived in a predominantly black neighborhood in Birmingham, Alabama or something like that. Except it’s also 1950 and Jim Crow laws are still on the books.

‍

As I read more and more about this story, I was blown away that the Rothschilds were able to fight such oppression to be able to achieve the heights that they did.

‍

The Rothschild family had lived in the Frankfurt ghetto for hundreds of years. They probably should have come from somewhere else. Really from anywhere else. Frankfurt was terribly oppressive toward Jews at the time. 

‍

They were forced to pay higher taxes than their Christian neighbors. They were forced to pronounce loyalty oaths that proclaimed them members of a cursed race. They were not allowed to farm, or trade in most types of commodities. And if a Jew was walking on the street and someone said “Jew, pay your dues.” they had to take off their hats, step aside, and bow. They wore insignia marking them out as Jews, yellow patches for men and veils for women.

‍

This is at a time in Europe, the mid 1700s, when the idea of natural human rights was sweeping through Europe. And yet Ludwig I of Bavaria, Holy Roman Emperor, defined the Jews of Frankfurt’s status this way “You are ours in body and possession. We may make, do, and deal with you as it pleases us.”

‍

And by the way, this was not typical. I mean it when I say the Rothschilds probably should have come from any other city. It’s not like every European city or even every German city treated its Jewish inhabitants this way. Frankfurt was known for its harsh treatment of Jews. Indeed, they WANTED to be known for their hatred of Jews. 

‍

You can see it in that mural I was talking about at the beginning of the episode. This was one of the most prominent pieces of public art in the city and it is a mural of Jews eating excrement from a pig. So this is not a city that was quietly anti-semitic, it was very upfront about it. Proud of it even.

‍

Mayer Amschel Rothschild is born into this environment in 1744.

‍

In terms of physical appearance, Elon describes him as “tall with large penetrating eyes, a high forehead, sensuous lips, and a good-natured, ironice (some may have thought sly) smile.”

‍

His family had only recently acquired the name Rothschild. The name means Red Shield, or red coat of arms. The family had lived in a house that had a red sign out front and therefore had come to be known as the Red Shield family. The Rothschild family. You can hear the resemblance in English. English is a Germanic language after all.

‍

Mayer’s father was a small-time money lender and merchant. They weren’t wealthy. Virtually all of the houses in the Judengasse were split between multiple families, and the Rothschilds were no exception to that: Their family had a part share of a house and shared their home with other families.

‍

Rothschild received a typical Jewish education as a young man, which was virtually entirely religious. And he carried this devotion with him his entire life, he visited the synagogue and prayed almost every single day.

‍

His father died when he was 11, and his mother when he was 12. He was raised thereafter by his older siblings and other relatives. But they didn’t have to do it for too long.

‍

When he was 13 years old Mayer was apprenticed to a wealthy merchant named Oppenheimer in the German city of Hannover. This was a stroke of good luck. It was a nice placement for him. Mayer learned the ins and outs of international trade and money-exchanging. And he was learning from a good source: Oppenheimer was one of the most successful Jewish bankers in Germany. And by the way, I say Germany, but there was no concept of Germany at the time. It was not governed as a whole and the people living in the area we know now as Germany felt little-to-no patriotism or kinship with one another. The cities were independent, free cities, often with little in common.

‍

For example, Frankfurt was really terrible toward Jews, and Hannover, where Mayer apprenticed just 160 miles away, was one of the most tolerant cities in Europe. In Hannover he had many of the basic freedoms that were missing in Frankfurt.

‍

Imagine growing up in the conditions that Mayer did, and all of the sudden having your entire world opened to you. You go from living your entire life in one loud, smelly, dark block, to being able to go wherever you want. And no one is making you wear a yellow patch or bow to Christians on the sidewalk or any of that other stuff.

‍

And yet, when he was done with his apprenticeship, Mayer returned to Frankfurt, married a girl from Frankfurt, started having children in Frankfurt, and stayed there for his whole life.

‍

He was always incredibly close with his tight-knit Jewish community in Frankfurt, and as far as I can tell, never considered leaving.

‍

In Frankfurt, Mayer goes joins his older brother Calmann in business and becomes a small-time lender and merchant. This is in 1763, Mayer is 19 years old. This isn’t exactly high-falutin’ international banking. This is really basic stuff. But he achieves quite a bit of success from the get go.

‍

And why does he have so much success from the get go? You might remember from the Caesar episodes that my theory is that the #1 common attribute among the great ones is not intelligence or charisma. It’s energy. People who achieve great things have tons of energy.

‍

So of course I was not surprised to see this as the second sentence in the Elon biography. Again, this is the second sentence in the whole book: “Rothschild was a man of seemingly inexhaustible energy.” 

‍

So again, this is just more proof, if you’re looking to identify people who are going to achieve greatness, ask yourself who is the one with inexhaustible energy. Who is the one that can keep going and going and going?

‍

Okay so what is Rothschild doing with all this boundless energy? He would love to be an international banker like the man he just apprenticed for, but that’s not an opportunity available to him at this moment in time. He doesn’t have the connections or even more importantly, the necessary capital, the money. You have to have money to lend money.

‍

But Mayer is a pretty smart guy and he has a plan. He needs money and connections, and he figures out a way he can get both at the same time. He starts to specialize in dealing in rare coins and medals. At the time, the nobility of Europe loved to collect that kind of stuff. And Mayer develops a really smart business model.

‍

He basically creates a mail-order business before there was such a thing. He created beautiful catalogues. People remarked on them at the time. They were incredible. Remember he’s selling to the nobility, and really only the nobility that is in central Europe pretty close to Frankfurt. This is a limited customer base. He doesn’t have to mass print these catalogues. So they are bound books with gold embossed lettering on the front and they’re really beautifully crafted.

‍

Uncommonly for this day and age, these noblemen could look through the catalogue, and then choose the medals and coins they were interested in based on the description provided and Rothschild would send them the medals and coins for free! They could then look them over, choose which ones to keep, send back the rest, again, free of shipping, and only then was payment required from them. You can see similarities to these internet direct-to-consumer businesses that do so well today. Almost like a Warby Parker or Casper mattresses or something. 

‍

This is one of the most fascinating parts of Rothschild’s career to me because it is SO relatable to our current day. He understood his customers well, he knew what they wanted, and he provided value. And he got a successful business for it. And the business was not just successful for the money it was bringing in, which was good but pretty modest, but it was more important for the people it was connecting him with. There is some truth to the saying “It’s not what you know, it’s who you know.”

‍

I would just add “It’s not who you know, it’s how you know them.” And Rothschild is meeting some really important people, German princes and dukes, and he’s meeting them in a really important way. He’s given the opportunity to do work for them. They know he is reliable, trustworthy, hard-working, and that he’s giving them good deals. All these dukes and princes now know that they can trust Mayer Rothschild. So if your ultimate goal is to do international banking for these guys, well that’s a pretty good start, right?

‍

And by the way, his friendly relations with these ruling elites is getting him the ability to travel freely and freedom from many of the restrictions placed on his fellow Jews.

‍

At the same time as he’s gaining a little bit more money, he’s also starting to trade commodities like cotton, coffee, and sugar, and doing some small-time banking.

‍

Now during this venture, he has the good fortune of selling coins to someone named Wilhelm, the Landgrave of Hesse-Kassel. Landgrave is not a word we hear a lot today, but it was a noble title that was basically the equivalent of Duke. And Willhelm is one of these great characters. He’s a larger than life guy.

‍

Willhelm occupies this unique spot in that he’s not quite as powerful as a king when it comes to land, armies, and prestige. However, Wilhelm did have a fortune that could rival that of any king. He was thought by many to be the richest man in Europe and he may well have been. He had inherited a bunch of money, but he also did a lot himself to make even more. He was a shrewd and enthusiastic businessman.

‍

The book, Founder refers to Wilhelm as one of the best examples we have of a “pure capitalist.” This guy loved getting money for the sake of getting money. Like an ebenezer scrooge type. Although I must say, he fathered something like a dozen or so children out of wedlock, so it wasn’t just for the sake of getting more money. He apparently enjoyed other activities.

‍

But Willhelm, as you might guess, was not exactly a paragon of charity and virtue. He was very cut throat. He was suspicious and unyielding. But, one good thing about Wilhelm was that he was not prejudiced at all. 

‍

He wasn’t some open-hearted guy who was a true believer in religious and racial tolerance. At least there’s nothing in the historical record to indicate as much. But if you could help him make money, he didn’t care if you were Christian, Jewish, black, white, or whatever. He liked you. Willhelm’s territory was very close to Frankfurt, and so this is an ideal partner for Mayer Rothschild:

‍

Here is a guy who has a huge fortune that he’s trying to invest. He needs help doing it. He’s not prejudiced against Jews. And he’s close by. So Rothschild wants to be a banker for him. But that’s easier said than done. Wilhelm already has bankers. And at this point, Rothschild is just someone who sells him coins and medals from time to time.

‍

Something happens that helps to change that in 1776. If you’re American, the significance of that year is probably pretty obvious to you. It’s the beginning of the American revolution.

‍

You may remember that there were some foreign troops fighting along the British. The Hessian mercenaries. Well these are Willhelm’s troops, he is the ruler of Hesse. He was basically renting them out to the British. And the British empire was extremely wealthy and paid A LOT of money for these troops. But then the question arises, if you are the British King, how do you pay Willhelm for his troops?

‍

You can’t send him British money, British pounds, because what’s he going to do with that? He can’t buy anything in Germany with British pounds. And you don’t want to send him a local German currency, because you don’t have any, if you’re the British. 

‍

So what ends up happening is that Britain sends Willhelm promissory notes that can be redeemed for British pounds. He then has to sell those to intermediaries at a discount, who sell them to other intermediaries, who redeem them for British pounds.

‍

Are you with me? So let’s say Willhelm sells his soldiers to Britain for a million pounds. They give him ten thousand pieces of paper that say “This is worth 100 pounds” or whatever. He then sells those papers to local bankers for maybe 90% of their value. Those bankers auction them off to merchants for let’s say 95% of that value, and those merchants do the work of actually travelling to Britain and redeeming the notes for British pounds for full value.

‍

It’s basically a big game of telephone where everyone takes a little cut as the British pounds make their way back to London. That’s a little bit of a simplification but it will work just fine for our purposes. This is called discounting. And for a talented banker, this business could be very profitable.

‍

So Rothschild starts with rare coins, but he really wants to help Wilhelm to discount these notes. However, Willhelm already has well-established bankers to do this. He likes Rothschild well enough for selling him coins and medals, but he’s got no reason to give him this big banking deal. But Rothschild does get some smaller pieces of the business. Willhelm is having big established banks do 95% of the work, but he’s giving Rothschild a tiny slice.

‍

In this state, Rothschild is doing well, he’s getting wealthier and wealthier. He’s one of the richest Jews in the Judengasse but not the richest, and his wealth was certainly nothing to be remarked upon. This continues until he is 40! These things take time. He’s 40 and he’s not even the richest guy in his neighborhood yet. That’s one of the things you realize about these people, they are all patient and let their wealth slowly build over time.

‍

But then everything changes for Mayer Rothschild. And why? What do you think happens? Think about this, what could it be that takes someone from being a very successful businessman to one of the richest men in the world and founding a financial dynasty the likes of which the world had never seen? What is that change? Let me introduce it this way:

‍

Just this weekend I was reading an article called “How to be successful” by a guy named Sam Altman. Same is the President of Y Combinator, which is a seed accelerator, it’s kind of like an early-early stage venture capital firm that invests in companies that are just starting. And they have helped launch companies like DropBox, Airbnb, Reddit, Stripe… their companies are worth more than $80 billion total.

‍

So this guy has seen what it takes to found some of the most successful businesses in the world. And in his article “how to be successful” he lays out 13 things you have to do to be exceptionally successful. I want to read from #1, the most important principle.

‍

“1. Compound Yourself. Compounding is magic. Look for it everywhere. Exponential curves are the key to wealth generation. You want to be an exponential curve yourself—you should aim for your life to follow an ever-increasing up-and-to-the-right trajectory. It’s important to move towards a career that has a compounding effect—most careers progress fairly linearly.”

‍

So how does this relate to our good friend Mayer? The thing that makes him so successful is that he literally compounds himself. His sons start coming of age, and he incorporates them into the business right away. He was always a very devoted father, he focused really hard on raising them the right way, making them work hard, and all five of his sons turn out to be little mini-me’s. They are just about as intelligent and energetic as their own father.

‍

So this is the time when his oldest son, Amschel is now 16, and his second oldest Salomon is 15. And they are able to take on enough responsibility from the main business that it frees up Mayer to do some new things.

‍

First, he starts a transportation and forwarding business. It starts doing really well, and it also pays dividends in information. They are receiving and forwarding mail across Europe, and this gives them great access to the news of the day.

‍

And by the way, if you want to see a parallel to the modern day, check out Michael Bloomberg. He’s worth more than $50 billion. And how did he become so wealthy? International finance, much like Rothschild, and he started Bloomberg News and other financial news related businesses because he knows what Rothschild knew, immediate access to information is crucial for good investing. So Rothschild’s forwarding business is kind of like the Bloomberg news of its day he’s using it to get news from all over Europe and make intelligent investments from that.

‍

A cool story demonstrates just how important rapid information was to Rothschild. Eventually, he establishes bank branches in other cities, and of course they would use their own forwarding service to communicate information between branches. And he uses this information to invest.

‍

Well a problem arises when the local officials decide that Jews can’t be trusted, and all their mail needs to be held for a day, read, and inspected before it can be picked up. So what does Rothschild do? He instructs his foreign agents to send him mail in colored envelopes and comes up with a coding system. A red and white striped envelope means the pound is going to rise. A blue and white striped envelope means the pound is going to fall. Etc.

‍

Then at the end of the day they would finally get the actual letter and be able to read it, but in the meantime he could act on the basic information and make wise investments based on it. That just goes to show how important good, fast information is.

‍

This forwarding business helps the firm to quickly grow, and then something else happens that helps make Rothschild even more wealthy. As mentioned at the beginning of the episode, he was hugely influenced by one of the other historical figures profiled on this podcast: Napoleon Bonaparte.

‍

In 1792, the war of the first coalition begins. This is France against a coalition that included Austria, Britain, and a few other kingdoms. Willhelm, who remember, is the landgrave of Hesse, the ruler of Hesse, weighed whether he should remain neutral or join the coalition. In the end, he chose to join the coalition. One reason for doing so is that the British offered him a huge cash subsidy to do so.

‍

Rothschild gets hired to provision the allied army. Not just Willhelm’s men but men from elsewhere in the Holy Roman Empire. This means both acquiring supplies like wheat, horses, and uniforms, and also distributing the soldiers’ wages.

‍

And why does Rothschild get this contract instead of some other rich Christian banker?

‍

Two reasons: The writer Christian Willhelm Berghoeffer, writing in the 1920s with access to original documents from the era, wrote: “At this time of the greatest money shortage, Rothschild appeared more resourceful and more efficient than the banking house which occupied the prime position not only in Frankfurt but throughout Germany.” 

‍

Okay, so the first reason is that he’s just more efficient and resourceful. He’s young and hungry and able to negotiate better deals by being smarter. Bottom line. But he also has an air of dependability. Here’s another quote, this one from a contemporary Lawaetz, “Herr Rothschild always struck me as unusually solid, prompt, and fully worthy of confidence. Envy may speak against him, but he is a good man who deserves respect.”

‍

It’s amazing how much the small stuff has a big effect. Simply being reliable and prompt made a big difference for Rothschild.

‍

Okay so back to provisioning the armies: This is a huge, complicated task. Rothschild frankly doesn’t have the money for it. But he gets the contract and then he makes deals with other Jewish bankers in his network to help him front the capital necessary to supply the coalition army.

‍

This would be a huge source of income for Rothschild for the next couple decades. In 1800, Mayer became an official Crown Agent for the Austrians, and throughout the Napoleonic Wars continued to aid the anti-Napoleon cause.

‍

Then disaster struck. In 1806, Napoleon defeated the fifth coalition at the battle of Jena. After the Battle of Jena, Napoleon decided to punish Wilhelm for this show of insolence. His territory was promptly invaded, and Wilhelm fled into exile. 

‍

Rothschild remained in Frankfurt, under great risk. Remember, this is a man who was helping to fund, clothe, and arm the armies that had been opposing the French. Now the French have taken them over. Rothschild could lose everything if they decided to confiscate his wealth.

‍

But that’s not what happens. Instead, the French invasion is what truly makes Rothschild his money.  

‍

Willhelm secretly turns over all of his assets to Rothschild before leaving. This demonstrates the immense trust that Wilhelm must have had for Mayer. Wilhelm was one of the wealthiest monarchs in Europe, and to leave his huge estate in the hands of a single agent, was risky. Nevertheless, Wilhelm had little choice. The French military governor of Frankfurt was suspicious, of course, of Mayer’s ties with Wilhelm and kept a close eye on the Jewish banker. At times, Rothschild’s house was searched and he was interrogated for hours by French soldiers.

‍

But Mayer was extremely skillful at keeping up the deception and hiding his management of the Landgrave’s affairs. He kept an entire second ledger, but this one was falsified. It didn’t include any of the Landgrave’s assets and managed to explain away any income from those assets.

‍

He went so far as to have a secret basement installed in his house. This basement had a false wall with a secret passageway that led to a neighbor’s basement, so that even if the French authorities discovered the basement, he could move money and documents to the neighbor’s basement before they could search it. And by the way, this happened. Multiple times.

‍

Now that Rothschild is fully managing one of the largest estates in Europe, he’s playing with a lot of capital, and he can make himself some real money. And this is another lesson. People who are really successful have a “Heads I win, tails you lose.” Strategy. 

‍

If the coalition had beaten Napoleon, Rothschild would continue to supply them, fund them, and make money off of their war effort. When Napoleon won instead, Rothschild got to manage Willhelm’s estate and get money that way. 

‍

The writer and investor Nassim Taleb calls this being antifragile. If you have a fragile strategy, it collapses when there is a shock. So for example if you have a business and it a recession hits and your business folds, that is a fragile business.

‍

The next best thing you can be is durable. A durable business is one that has some cash reserves, and is able to make it through a recession without collapsing.

‍

But the best thing you can be is antifragile. So for a business, that might mean you actually make money in a recession. So think of a thrift store, it’s an imperfect example, but it helps illustrate the point. If the economy is booming, people spend their money at a thrift store, they’re doing just fine.

‍

As soon as a recession hits, you have more people struggling, more people unemployed, more people who need to shop at thrift stores. So during the recession, a thrift store actually does better.

‍

And that is what Rothschild does. He’s antifragile. He’s prepared for every eventuality, and things that would bankrupt a lesser banker, actually end up making Rothschild even richer.

‍

1806 would prove to be a critical year for the Rothschild in other ways, too. First, the Holy Roman Empire (which was neither Holy nor Roman nor an Empire) was finally dissolved, and Frankfurt’s status as a Free Imperial City was rendered null and void. Karl von Dalberg, the new mayor, made some positive overtures towards the Jewish community, but still refused to liberalize Frankfurt’s anti-Jewish laws, and Mayer would spend much of his later life championing the cause of the Jews in Germany.

‍

Another event that occurred in 1806 was Napoleon’s declaration of the Continental System. I know none of my listeners would ever forget a single piece of information from any of my episodes, but just in case you need a refresher on the continental system, here it is:

‍

Napoleon and the French Empire were at war with the British Empire. France had a much stronger army, and had political control that extended across Europe. However, England had a much stronger Navy, and more colonial possessions. England was able to use their Navy to completely disrupt trade with France. The quote is that Napoleon was the master of Europe, but he was also a prisoner there. He complained that he couldn’t launch a fishing boat without it being captured by the British Navy.

‍

So as a way to hit back at England, Napoleon tried to cut off British trade with Europe and this was called the continental system or the continental blockade. But as you might imagine, trying to make sure there are no British goods allowed in any port anywhere in Europe from Malaga, Spain to St. Petersburg, Russia, is pretty tough. Smuggling was rampant. 

‍

And one of those people who helped smuggle goods, was none other than Mayer Rothschild. Now the Rothschilds, and Mayer in particular, prided themselves on integrity. It’s in their family motto: Concordia, integritas, industria. That’s latin for: harmony, integrity, industry. Which is actually a pretty good summary of how Mayer Rothschild achieved so much success.

‍

And smuggling does not seem like a very honest trade. But remember he had already committed to managing Willhelm’s money, which he is managing by keeping it away from the French authorities. So it is kind of a moral bind. Does your integrity demand that you submit to the local authorities, and in so doing renege on the commitment you made to watch over your client’s money? Or does integrity demand that you preserve your commitment to your client, and lie to the local authorities?

‍

Well for Rothschild, this was made easier by the fact that the Jewish community sided with the coalition. Which is not what you would expect. They were prisoners in their own city who were constantly humiliated and frequently persecuted. The French, on the other hand, treated the Jews quite liberally. After all, the French Revolution espoused ideas of human rights and equal recognition before the law. There are a number of potential reasons why the Jews of Frankfurt backed the coalition forces, some conjecture that it was like a mass case of Stockholm Syndrome. Others guess that they were pretty savvy and realized that the French would soon give up the territory they had recently acquired. And if the old Austrian regime were put back in charge in Frankfurt and the Jews had supported the French? That would have been interpreted as treachery, and who knows what the consequences would have been for the Jewish community.

‍

In any case, Rothschild was smuggling goods from England. Mostly textiles. And he was doing very well with it. Making money hand over fist. The problem with smuggling is you can make a lot of money, but there is a lot of risk. Many officials basically turned a blind eye to the smuggling that was quite clearly going on in Frankfurt. But then at one point some higher-up decides to crack down, and there is a big bonfire in the center of town and the French soldiers burn all the imported British goods. And a good deal of Rothschild’s goods are seized and burned.

‍

Well Rothschild is, like, traumatized by this. He says he has learned his lesson and he is NEVER going to go into smuggling this way again. And it kind of seems like an overreaction. I mean after all he had to have known there was some risk. And his losses from the entire thing were pretty modest. And yet he was enraged and embarrassed. He had quite the reaction.

‍

So how to explain this reaction? This reaction reminds me of Warren Buffet’s rules for investing. “Rule #1: Never lose money. Rule #2: See rule #1.” Great investors are haunted by their losses. They HATE losing money. And you really see this with Mayer. Great investors don’t LOVE making great investments that much more than the average person. I mean of course they are always trying to make great investments. But everyone likes making money. What sets them apart is that they HATE losing money.

‍

Now let’s go back to Rothschild running Willhelm’s estate while he’s exiled. Wilhelm had ended up settling in Denmark, then Prague, with members of his court. From these residence-in-exile, Wilhelm sent Mayer constant letters, asking him about the state of the Prince’s holdings. Mayer, always the faithful steward, kept Wilhelm in the loop. 

‍

Mayer’s son, Amschel, was attached to Wilhelm’s court. This acted both as a move to prove Mayer’s reliability in giving Wilhelm a trusted adviser, and also to have his son in a position to keep an eye on Wilhelm. The Prince’s greed and suspicion was legendary, and even a man as hard-working and honest as Mayer was not free from mistrust. 

‍

To keep Wilhelm informed, Mayer developed a sophisticated system of sneaking letters to and from Prague, under the noses of the French. In the letters, Mayer was known as “Peter Arnoldi”, Wilhelm as “Goldstein”, and so on. The Austrians, who were still at war, on and off, with the French, allowed these secret activities to continue freely because they helped the war effort. Mayer was always able to use the political situations at the time to his advantage, choosing his sides carefully. 

‍

This is a testament to the tact and skill of Mayer, even in difficult circumstances like a war with France. Even when dealing with an employer as anxious as Wilhelm, Mayer calmly maintained business as usual. It is very easy for a person of business to fudge the numbers and skim a little off the top, especially when their boss lives hundreds of miles away and can’t check up on you. Mayer kept his integrity and maintained Wilhelm’s interests during the latter’s long absence. 

‍

While he’s losing out on money he could be skimming, the reputation he’s gaining as an honest steward is priceless. It’s a long-term play.

‍

As this is going on, Mayer’s boys are continuing to age into adulthood, and as they do he is sending them out to build a banking network across Europe. They would come to be known as the five arrows. And they establish five banking centers:

‍

His first son, Amschel, went to Prague, but came back to Frankfurt to run the original branch.

His second son, Salomon, went to Vienna.

His third son, Nathan, went to London.

His fourth son, Kalman (Carl), went to Naples.

His fifth son, James, went to Paris.

‍

Now when it comes to the Napoleonic conflict, two of the brothers matter the most. The first is Nathan. We’ll talk about him more in the next Rothschild episode, but Nathan was the third son, and he was considered by all the brothers to be the natural leader. He was the most energetic and intelligent of all of them, and that’s saying something.

‍

He was either sent to London, or decided to go himself. There are sort of varying accounts of how that happened, but London is really where the family started to make REAL money. He was at first acting as an exporter and then went into what we think of as high-finance, but London was the financial capital of the world at the time and Nathan did very well there.

‍

The other important brother in this business is James, who went to Paris. James was extremely outgoing, entrepreneurial and active. He makes an immediate impact in Paris, and one of the first things he does, is help to fund the anti-Napoleonic effort in the war. They are funding the war efforts of all these governments across Europe to fight against Napoleon and the French. If they lose, they are in all likelihood not be able to pay the Rothschilds back, so they are very invested in the coalition forces winning.

‍

You may recall that there were actually two main theatres of war that helped defeat Napoleon. The one everyone remembers is Russia. He suffered catastrophic defeat there, but he actually might have been able to recover from that if it weren’t for Spain. Napoleon invaded Spain and it turned out to be a huge debacle that tied up resources, diverted his attention, and was a huge contributing factor to his downfall.

‍

In March 1811, a crisis faced the anti-Napoleonic forces. The general Arthur Wellesley was leading the British forces in Spain, and the conflict there was really dirty and terrible. There were massacres and atrocities on both sides. It’s a dirty, ugly war, and Wellsley writes to London to say if they don’t get him more cash, he is going to have to halt the campaign. He says this a few more times over the coming four years. The British badly needed cash to pay their troops and allies in Spain or else they risked being completely defeated. And if they were defeated in Spain, the conflict was over.

‍

In London, Nathan gets a contract to pay the British troops. And he gets it because he was the only one bidding. No one had any idea how to pay the men. After all, they are trying to pay men in a warzone. And they need it in a currency that can be useful in Spain.

‍

Here is what the Rothschilds do: Nathan buys gold using British pounds in London. The gold bullion is then forwarded to Paris, where James sells it for Spanish notes. He then smuggles the notes in false compartments in carriages to the British forces in Spain.

‍

Now this is massive amounts of gold that is entering the city of Paris. So how do they explain this away? James tells the French investigators that actually they’re moving lots of gold from London to Paris (which is true) because they are losing confidence in the British war effort (which is not true). 

‍

They aren’t losing confidence in the British war effort, they’re paying British troops! They are smuggling money from London to Spain, and half of the journey is being fully monitored and sanctioned by the French government.

‍

These are the kind of bold moves that end up making the Rothschilds the richest family in Europe. But sadly this is where we must leave this episode, because Mayer actually dies in 1812.

‍

Mayer never was the richest man in the world. But on his deathbed, he said to his oldest son, Amschel “Amschel, keep your brothers together and you will become the richest men in Germany.” Well they became not only the richest men in Germany but in the world. He also begged his sons to charitable and remain faithful to Judaism.

‍

He ordered his funeral to avoid all ostentation, which it did, but that didn’t avoid the entire Judengasse from showing up for it. There were no speeches, and he was buried beneath a very plain tombstone.

‍

His wealth was actually very little remarked upon in the Judengasse when he died. Instead, they talked about his piety and his charity.

‍

And that’s because he was like Santa Clause to his community. Seriously. He was always giving away money. Listen to these descriptions from contemporaries.

‍

This first one is from German writer Ludwig Boerne:

‍

“People crowded behind Rothschild in the streets like a court, masses of poor people to whom he gave alms… If one saw a row of beggars in the street looking pleased and comforted, one knew that the old Rothschild had just passed through. When I was a little boy I was passing with my father through the Judengasse and we ran into the old Rothschild coming out of the synagogue. Rothschild spoke first to my father. He then addressed a few kind words to me and placed his hand on my head to bless me… thanks to this blessing, and although I became a German writer, the cash in my pocket never completely ran out.”

‍

Here’s from another writer “Rothschild believed that God best rewards those acts of charity for which the donor received no thanks. He often walked at night through the Judengasse, pressed a few coins into the palms of all who seemed poor and hurried on in the dark.”

‍

And this type of behavior starts early for him, it’s not something he does only once he becomes fabulously wealthy. He was a friend of the destitute and homeless from the time he was a young man. It should also be noted that he prayed often and was “very orthodox in his religious observance but was tolerant of others who were not.” He never moved into a mansion and always wore plain, simple clothing.

‍

This is important because I think this whole mindset and philosophy was what allowed his sons to be so successful. Usually if you’re rich and you have five boys, at least one of them is going to go off the deep end. But the fact that he never dressed fancy, never moved out of their modest Judengasse home, and never displayed their vast wealth except to pay the poor with it, probably helped his sons to be hard-working and well-adjusted.

‍

He also technically only left them the minimum required inheritance. Now in reality, all his wealth went to his sons, but not as an inheritance. They became partners in the firm, once they earned it, and were then given a proportional share of the company.

‍

He wasn’t a particularly harsh father. If anything he was rather doting and kind. But he also had high expectations for his sons and gave them very little for free.Hey it’s Ben Wilson welcome to How to Take Over the World. So let’s say you lived in El Paso. I lived in El Paso for a while. Honestly it wasn’t as bad as you think. In fact, that wouldn’t make a bad motto: El Paso, not as bad as you think. But let’s say you lived in El Paso, which is a city right on the Mexican American border. And you know that Gold is selling for $100 an ounce in the U.S. and it’s selling for $90 an ounce in Mexico. You could just keep crossing the border, buying gold in Mexico, and selling it in the US to turn a profit. That is what is called arbitrage. Arbitrage is when you take advantage of price differentials to turn a profit.

Why do I bring this up? Because the Rothschilds are masters of arbitrage. It’s how they become the richest family of all time. So you have to understand it. But before we get into all that, I suppose we should back up and recap last episode a little.

‍

Today we are talking about the richest family of all time and potentially the richest person of all time. That family is the Rothschild family, if you want to know more about their origins and how they got their start as a banking dynasty, go ahead and listen to the previous episode in this feed, “The Rothschilds Part 1.” which focuses on the founder of the family Mayer Rothschild.

‍

Today we are going to talk about the rest of the family going up to the present day.

‍

So just as a brief refresher, Mayer Rothschild was a German Jew born in the city of Frankfurt. He starts out as a small-time lender and merchant of medals and rare coins, but slowly makes his way up as he starts doing business on a larger and larger scale and eventually he is able to take over as the steward of the fortune of Willhelm, Landgrave of Hesse. 

‍

This happens because the French invade Hesse, forcing Willhelm into hiding. The French also import liberal ideas about religious tolerance and they emancipate the Jews from many of their previous oppressions, which allows the Rothschilds to move more freely and conduct more business. Mayer puts Willhelm’s fortune to great use and starts to make real money for his family.

‍

He does this in part by sending his five sons out to establish new branches of the family business in London, Paris, Vienna, and Naples and one brother stays home with him in Frankfurt.

‍

Together, they make it pretty big, Mayer teaches his sons the three cardinal Rothschild virtues of concordia, integritas, and industria: Harmony, integrity, and industry.

‍

On his deathbed, Mayer tells his eldest son, “Amschel, keep your brothers together and you will become the richest men in Germany.” 

‍

Mayer never moved out of the Judengasse, the Jewish ghetto in Frankfurt, and he was buried beneath a plain tombstone.

‍

Which brings us to this episode! So the brothers are in these five offices, they’re running what is essentially an investment bank, although it wasn’t called that back then, and the way they are making money at this point is, for the most part, by issuing government bonds. Government bonds were not a new invention, but the Rothschilds had radically transformed how they were issued. They made them much easier to issue, obtain, and trade. They basically invented the international bond market, and made it much easier and more common for governments to borrow money on a large scale.

‍

And this is right after Napoleon was defeated for the first time, all these governments just spent a ton of money to go to war with each other, they’ve run up huge wartime deficits, and they badly need money. So the Rothschilds are issuing bonds to all the great powers. By 1825 they had negotiated loans for Britain, Prussia, Austria, Russia, and France, as well as many smaller states like Denmark, Hesse, and others.

‍

So why are all these states trusting the Rothschilds to help them issue bonds? There are a few answers but one of the most important ones is that the Rothschilds could do it for the lowest price. They had this brilliant strategy: They would offer to help issue the bonds for much lower fees than anyone else, and then make up the difference, and much more, by speculating on those bonds in the secondary market.

‍

And they could do this incredibly effectively, because they have five brothers in five locations, AND if you recall from last episode, their father had established a mail and forwarding business, the best one in Europe. So they have five information centers and they can communicate faster and more reliably than anyone else in Europe.

‍

And now we come back to that word arbitrage. This creates incredible arbitrage opportunities. Going back to that El Paso example, they know where gold is being sold for $100 and where it’s being sold for $90 and they can quickly buy up assets move them and sell them to turn a profit.

‍

But for the most part they’re not buying and selling gold, although to be clear, they do that a fair amount as well, but it’s mostly government bonds. So hey, 3% bonds issued by the British government are selling for $78 bucks in Vienna but for $80 in Paris? I’ll tell Amschel to buy a bunch in Vienna and I’ll have James sell them in Paris.

‍

And because of this arbitrage advantage, they are just making money hand over fist. I mean you have to understand, their information advantage really was leaps and bounds ahead of everyone. For example, when the British defeat Napoleon at Waterloo, Nathan knows about it before the British government. Mind you the British government are the ones who were actually fighting the battle, it’s their soldiers who are fighting. You would think they would be the first to know.

‍

But Nathan has messengers watching the battle who take off and send messages through his courier service as soon as the outcome of the battle is certain. Nathan is notified well before parliament, so he takes the letter that he gets from his courier and takes it to parliament and says “hey guys, we won!” And they flatly don’t believe him. They say listen, I think I’d know if we had just defeated Napoleon. 

‍

Well Nathan actually had a second messenger watching the battle just to be sure so he gets news of the victory A SECOND TIME from another courier before the British government gets the news. Truly this communication system is leaps and bounds ahead of anything else in the world. So that’s what is helping to create this information advantage that creates this arbitrage advantage.

‍

Now I want to go back to our El Paso example. We’ll say in this example that you know this is a stable situation, gold always costs $90 in Mexico and always costs $100 in the United States. All you have to do is walk 5 minutes across the border and you make 10% profit. What would you do? 

‍

You’d buy as much as you could, right? You would put all your money into buying gold in Mexico to sell in the United States. You would max our your credit cards and pour your savings into it. I mean why not?

‍

And that is basically what the Rothschild brothers are doing right now. In 1815 alone, they double their capital. Keep in mind they are one of the largest banks in the world already. Can you imagine if Goldman Sachs or JP Morgan Chase or Wells Fargo grew by 100% in a single year? Every dollar they can get their hands on, is going immediately into bonds, currency, or precious metals that they can exploit in this way.

‍

But this has a couple downsides one is that this is pretty risky, having all your capital tied up in assets. The other problem is that they were subject to liquidity crunches. They also had liabilities that they needed to make payments on from time to time, but that’s tough to do when all of your money keeps moving from asset to asset. 

‍

Keep in mind that the Rothschild brothers are investing at such a frenetic pace that their accounting is just completely broken. It’s only in hindsight that we know they doubled their capital. They had NO IDEA how much money they were worth or how much they were making. It’s like if someone put you in a room that was stacked to the ceiling with bricks of $100 dollar bills and gave you two backpacks and said you have one minute. If I asked you at 30 seconds how much money you had, you would have no idea! You’re not stopping to count it!

‍

Well Carl, who was in Naples, had to make a payment and he goes looking for cash. He doesn’t have any, so he writes to Solomon at the Vienna branch, “Hey I need cash.” Solomon responds, “I don’t have the money, James has the money in Paris.” James says I don’t have the money, Nathan must have the money. Nathan doesn’t have the money, neither does Amschel, and all the sudden they start freaking out. 

‍

Again, they have this vague idea that for the most part their transactions have been super profitable, but they actually don’t know for sure, and for a minute they start to wonder if they’re broke. 

‍

Here’s the quote from Solomon

‍

“You must have all our money over there with you. We here are stinking poor. We haven’t a penny to spare. Amschel has less than a million left and therefore the whole lot must be with you, including what we owe.. Work out where the family money is, my good Nathan. I don’t know… Where is our money? Well, it’s just absurd. God willing it will turn up when we do the spring cleaning!”

‍

Amschel is also freaking out. Nathan tells him to chill and he responds and says I guess I’m rather like my eight-year-old son who asks to see our millions and thinks they must be piled up somewhere in the house.

‍

In 2019 it’s pretty hard to comprehend but they were just basically straight up not doing accounting. So anyways, that crisis does force them to look at their balance sheets and figure some stuff out and start doing accounting, which is a thing an investment bank should do.

‍

Now luckily, when they do the accounting it turns out that yep, they are in fact fabulously wealthy, which is good. Again, by volume their biggest business is helping to issue big government loans, and they are lightyears ahead of everyone else in their ability to do this, to the point where it is in fact difficult to negotiate a big government loan without Rothschild involvement. Not impossible, but at this point it’s almost impossible. It is significantly more difficult to do it without them and it’s going to cost you dearly.

‍

And that makes them very influential. For example, the Rothschilds were known to favor stable constitutional monarchies and peaceful regimes. Wars introduced uncertainty, and so did radical governments. Whether those were to the radical left or to the right. They didn’t like revolutionary republicans, or reactionary monarchical absolutists, because governments to either extreme tended to be unstable and short-lasting.

‍

So when the absolutist kingdom of Prussia badly needed a loan during this time period, the Rothschilds are able to make it conditional on Prussia adopting some very mild democratic reforms. 

‍

Now this influence is sort of unprecedented. Money had just never played this role on the world stage.

‍

If you were a nobleman in the 1700s or 1600s, what did that mean? It used to mean you were a knight and expected to mount up and fight in times of war but that’s no longer true, for the most part. It used to mean that you had a certain number of soldiers who answered directly to you but that is also no longer the case in places like England and France. What it really meant, and what was always the most important part of nobility, was that you owned land.

‍

Land was what made the whole thing work. Because land was the only form of durable investment that consistently generated a return. That was it and that was the power structure that everyone was used to. Sure, there were bankers, it would probably be more accurate to call them money-lenders, and there were merchants, but there was no such thing as a long-term stable investment. It was just land.

‍

And so besides their military power, that was one of the reasons that the nobility had so much power. They were the only ones with an investment portfolio.

‍

Well by creating the bond market, the Rothschilds are changing that. They are creating financial instruments that can rival land. And they are also making it possible to accumulate capital on an unprecedented scale.

‍

In this way the Rothschilds changed the world more than few other people can claim. I really like this quote from Heine:

‍

“I see in Rothschild one of the greatest revolutionaries who have founded modern democracy. They signify the gradual annihilation of the old aristocracy. They are Europe’s most fearful levelers. Rothschild came and destroyed the predominance of land, by raising the system of state bonds to supreme power, thereby mobilizing property and income and at the same time endowing money with the previous privileges of the land. 

‍

He thereby created a new aristocracy, it is true, but this, resting as it does on the most unreliable of elements, on money, can never play as enduringly regressive a role as the former aristocracy, which was rooted in the land, in the earth itself. For money is more fluid than water, more elusive than the air, and one can gladly forgive the impertinences of the new nobility in consideration of its ephemerality. In the twinkling of an eye, it will dissolve and evaporate.”

‍

That’s such an insightful quote. I love that. But then again I am living in 2019, and many people at the time decidedly did NOT love that. People were shocked and confused and amazed by these people with all this money who are foisting democracy on a kingdom like Prussia. As you might imagine, the Rothschilds generated A LOT of controversy, then as now. People wrote about them in the newspapers, they were frequently caricatured and lampooned in political cartoons, and were the subject of rumors, vitriol, and hatred.

‍

I love Solomon’s response to this kind of thing. Nathan complained about a particularly nasty cartoon that had been drawn about him in London, and Solomon responded, “I am not going to cry about the fact that you have been caricatured. So are the kings and emperors. May God grant that this is the worst thing that ever happens to us… May our sons also be caricatured, please God, as soon as they become well known in this world. I wish this for our darling children.”

‍

It never feels good to have people say bad things about you, but that is the price of admission for greatness. You can’t have everyone like you and accomplish anything great. You just can’t. And that’s when Solomon is alluding to here. You know who doesn’t have haters? The assistant to the branch manager of your local paper company. No one cares enough to be a hater.

‍

So if you’ve got haters, if you’ve got people who dislike you and disapprove of what you’re doing. Listen to them, but keep in mind that that’s not necessarily a bad thing. It means that you’re doing something that matters and makes a difference. Otherwise, they would just ignore you.

‍

So the Rothschilds are taking advantage of these arbitrage advantages, but also pretty quickly their sheer size and scale becomes a primary advantage. They’re the first banking institution of this size, they’re 10x bigger than their nearest competitor, when the Bank of England starts to go under in 1825, they turn to the Rothschilds for a bailout. That’s how big they were, they are bailing out the largest central bank in the world.

‍

One of the other reasons that they are growing is they plowed all their profits back into the business, something that none of their competitors did. They were really focused on growing the business. Most of their competitors tried to keep their investment capital fixed and simply spent more when more money came in.

‍

In fact, contemporaries couldn’t believe how focused Nathan was on making money. They viewed it as this slavish devotion to banking. You’re the richest man in the world, why do you work all day? Go live!

‍

But instead he said things like “My only pleasure is my business.” 

‍

One time he had dinner guests over, and one of them expressed the hope “that your children are not too fond of money and business to the exclusion of more important things. I am sure you would not wish that.” Nathan responded bluntly “I am sure I would wish that.”

‍

All the Rothschilds of this generation were somewhat this way, but it’s really only him and his younger brother James in Paris who took it to an extreme.

‍

And it was extreme. There’s another Story about Nathan. A powerful aristocrat came to see him in his office. Nathan was head down working and without looking up he says “Take a chair.” The man, offended, clears his throat and says “Excuse me. You are speaking to the Prince of Thurn and Taxis.” To which Nathan replies “Take two chairs, then.”

‍

Probably not true but a very good story, and it tells you something about the insane level of focus that he possessed.

‍

Now let’s take a moment to talk about the relationship between the brothers. Because Mayer’s last exhortation was that his sons stay together but guess what? Brothers fight. And the Rothschild brothers were no different. In their letters, you can find them variously calling each other bullies, idiots, and asses. And that’s in their letters, I can only imagine what they called each other in person. I have a brother so I get it. One shudders to think.

‍

They didn’t always fight. In most of their letters they are civil and they’re asking how are your kids and they are conducting business in a very effective and cordial matter. But they do frequently disagree, argue, and fight. And more than once throughout the years, the brothers threatened to break up the partnership and leave. 

‍

One reason for this discord is that Nathan, the London-based brother, quickly rose to the top. Nathan was an extraordinary figure. He was not the oldest, he was actually the third brother, but he became, as Solomon put it, the commanding general. Why? Well for one Nathan was in London, the financial capital of the world. But more importantly he was just the best at what they did. He was whip smart, obsessively focused on business, extremely hard-working, and possessed with an almost maniacal appetite for risk.

‍

In the years shortly after Mayer’s death, the firm basically operated with Nathan coming up with the strategy and his brother executing it. That full quote from Solomon was actually “My brother in London is the commanding general, I am his field marshall.”

‍

Another brother Carl, who was the least talented of the brothers, used an even starker analogy, saying that Nathan was the wagon driver, and he Carl, was merely a wheel. He said “I look on myself in the sense of a machine only.”

‍

But this is not going to go over easy when you’ve got five brothers who are all extremely smart, committed, focused, and ambitious. Yes, Nathan was the smartest but it’s not like he was leaps and bounds above his brothers, except for maybe Carl. So they often got upset and protested when they thought he was getting too big for his britches.

‍

But it wasn’t just Nathan that was the problem. The other brothers would fight too. Like I said, brothers fight. Families fight. And furthermore, you know it’s a little bit of a different dynamic when you’re working with your family. I have lots of co-workers and associates, and I’ve never told any of them “Hey, I remember when you used to pee the bed.” But when you work with your family, things can escalate to that.

‍

But we only know this today, now that we have access to the letters they wrote to each other where they’re calling each other fools and asses. At the time, everyone thought they got along like no brothers have ever gotten along in the history of the world.

‍

And that’s because they were totally unified in their investment strategy and in their representation to the outside world. You know when you say “Man, isnt my brother an idiot?” and your friend says “Yeah he is,” and all the sudden you go “Wait shut up, only I can say that.”

‍

They fought quite a bit but it was healthy fighting, not toxic fighting. It all came from a place of trying to make the best decisions and they never took their grievances public. They always kept it in the family.

‍

Which is why you have people saying things the British prime minister Benjamin Disraeli who said they had “a unity of feeling which pervaded all branches of the family.”

‍

And again, from a business perspective, all their opponents and associates saw was them working in perfect concert and harmony.

‍

Here’s a quote from a contemporary, Gentz:

‍

“With the greatest conscientiousness, the brothers have obeyed their father’s heartfelt deathbed injunction to maintain unbreakable unity and co-operation in all business transactions… Each business proposition is the subject of their joint deliberations; every operation of even moderate importance is carried out according to an agreed plan and with co-ordinated efforts; and all the brothers have an equal share in the results.”

‍

Here’s another contemporary quote:

‍

“These five brothers together formed an indomitable phalanx...and true to their principle never to undertake anything individually and to agree all operations precisely among themselves, always followed the same system and pursued the same goal.”

‍

I want to read from The House of Rothschild by Niall Fergueson that I think illustrates a really interesting point. He compares the Rothschilds to other banking families of their time. He says “Relations between the Hope brothers and the Baring brothers were less turbulent than the Rothschilds, but they failed to transcend their personal differences in the name of fraternal unity.”

‍

Okay, so in other words, and we’ll use the Barings as the counter-example, the Barings were another extremely successful banking family. And they were much more independent. They realized what the Rothschilds realized, if you’re living under the same roof, if you’re splitting profits from the same pot, then you tend to have disagreements. So they each went their own way. Less fighting, more peace 

‍

But they missed out on the exponential value that comes from working together. By 1825 the Rothschild bank was more than 9x bigger than Baring Brothers, despite coming from more obscure origins more recently. And by the way, it’s not like the Baring Brothers were blowing it. They were the second biggest investment bank in the world! That is the more common way of doing things.

‍

This is something I see a lot, people saying oh I would never work with my spouse because I know we would fight or I would never live on the same street as my sister because I know we would fight. Well yeah, I’m sure you would fight, but guess what? Your relationship would also be closer. 

‍

Fighting is actually a sign that your relationship is alive and growing. It means you’re doing things together that matter. When the Rothschild family eventually breaks up 80-90 years later, it’s not because they fought too much, in the end they weren’t fighting at all. They didn’t care what was happening with other branches of the family. 

‍

If you want to have a strong relationship, whether familial, romantic, friendly, or professional, it’s probably going to take working through some differences and conflict. And if you’re no longer doing that, then your relationship with that person probably isn’t growing.

‍

Okay tangent over. 

‍

Now in 1836, Nathan dies.

‍

Of course, before Nathan dies, he encourages the whole family to maintain unity, just like his father did before he died. And so shortly after he dies, a new agreement is signed, that once again ties the branches of the family together in a profit-sharing structure. 

‍

At the time of his death, Nathan was by far and away the richest man in the world. His fortune, if you use an inflation calculator, was something like $10 or $15 billion dollars. And that doesn’t sound THAT impressive, it’s not as much as Bill Gates or Jeff Bezos. But you have to understand that the world was just a less rich place back then. 

‍

The numbers are a little sketchy but I have seen it estimated that Nathan had under his personal control nearly a half a percent of global GDP at the time of his death. And that is just a WILD number. If that’s true, it means he basically owned one 200th of all the wealth on earth. And using that calculator of percentage of GDP, his wealth has never been matched and it’s not particularly close.

‍

Now how does that compare to someone like Montezuma or Mansa Musa or Crassus? Well, I don’t know. I mean how do you compare them? We don’t have anything resembling accurate global GDP numbers for those time periods, it’s impossible to calculate inflation accurately when they were buying just completely different goods from us, and we also don’t have great numbers around how much money they actually owned.

‍

Nathan did live in a time when you could calculate those things, he was buying and building homes that are still standing today in 2019, and so I think Nathan you really can compare to other people going to the present day. And by that percentage of GDP measure, which I think is the one that makes the most sense, he was the richest person to ever have lived so yeah, I find the argument that Nathn was the richest man of all time very compelling.

‍

When Nathan dies, James becomes the new de facto head of the Rothschild house. He’s the youngest brother, but he’s the most like Nathan: Energetic, intelligent, and domineering.

‍

He takes the family business in a slightly different direction and invests heavily in railroads, which were just starting to come into existence.

‍

James leads the family very ably, and Nathan’s sons are able to take over the London branch in a very capable way. Especially his oldest, Lionel. 

‍

The world financial market is quite volatile in the mid-1800s, as is the political situation in Europe. There are constant revolutions, as well as constant booms and busts, and those two things are related. One of the great things about the Rothschild family structure is that you have these five branches who are all linked, but their markets are not.

‍

So basically at one point or another, every single one of the branches nears bankruptcy and has to be bailed out by the other branches. But that’s okay. Because if you’re the French Rothschild bank and there is such a big financial collapse that you only survive by getting bailed out from your brothers or cousins in Vienna and London, guess what happened to all the other major banks in Paris? So you may have only survived by the skin of your teeth, but you’re in a better competitive position. The recession has essentially wiped the chessboard for you.

‍

That’s basically what happens in 1848. The French Rothschilds are heavily invested in railroad lines, there is a huge financial collapse throughout Europe, especially France, and it especially affects railroads. But guess who’s basically unscathed by all this? England. So the British Rothschilds come to the rescue of the other banks.

‍

Now there is more I could say about the Rothschilds. They’re a fascinating family and I encourage you to learn more. They have had a far larger impact on the world than most people realize. I mean up until World War 1, they are like the Forrest Gump of global events. No matter what happens, the Rothschilds are involved in some way.

‍

They prevent a breakout of war in 1830 and 1848. They help underwrite the creation of multiple states including Belgium, Greece, and Brazil. When the American Civil War breaks out they’re being petitioned for money by the confederacy and figuring out what to do with their tobacco and cotton investments.

‍

When the Franco-Prussian war breaks out they are the diplomatic go-between trying to broker a deal and preserve peace. Their influence is incredibly far-reaching.

‍

But something starts to happen. Remember all 5 of Mayer’s sons were very capable bankers (except Carl). I mean even Carl, poor maligned Carl. Was a pretty solid banker. But in the third generation, it starts to get checkered. It’s basically half and half, there are two gifted bankers in London, two in Paris, one in Vienna, but the rest are kind of duds. So when James dies in 1868, you’re basically back to five partners with five hanger-oners who show up and collect paychecks.

‍

And this isn’t good because they really need to be expanding to new markets. And one market in particular was very clearly becoming the new financial powerhouse of the world: The United States. Specifically, New York.

‍

Individual Rothschilds did end up moving to the US, but it really wasn’t until the latter half of the 20th century. They were never able to establish a solid presence in the US and that was probably their single biggest tactical mistake.

‍

Their other big mistake is they violate their cardinal virtue. They get disunited. They come unglued. The second generation were all brothers. When they fought, they had tons of shared experience they could lean on. When one of the brothers was getting mad at Carl for something he had done, Carl put things in perspective by saying “Was anything more promised to us when we slept together in one attic room in the Frankfurt Judengasse?”

‍

Which is obviously very touching. And amazing. Go Google Rothschild mansions, go to images and just start clicking around. The Rothschilds built some of the most opulent palaces of all time, which they proceeded to decorate with some of the greatest art collections of all time.

‍

And yet these brothers all slept in the same bed in a dingy attic bedroom when they were young. 

‍

You could see how those brothers would stay united no matter what after what they had been through together. For the next generation, the third generation, there was a way that things were done that also kept them united: You started working with your father as soon as you were able, then when you were in your teenage years you got sent to apprentice with one of your uncles for a few years, then you were given a solo assignment abroad for a little while, and then you came home and helped run one of the main branches.

‍

And with this system, you spend a ton of time in the office with your cousins who are also apprenticing there and you’re meeting your uncles and, you know, it’s this whole big family and you know everyone and so that helps keep you united.

‍

But, for the fourth generation, things start to come undone. Partially, I think it’s just the normal things that you come to expect from rich families. These guys are two generations removed from knowing any kind of struggle whatsoever, they’ve never had to work a day in their life for anything, and so they’re kind of spoiled. I think there’s also just some bad luck with the fourth generation, it just so happens that that particular cohort of Rothschilds are not too bright. 

‍

But there is one other, unlikely element that starts to pull apar the family: College. Suddenly, they’re not spending their formative years thinking about banking with their cousins, they’re spending them thinking about girls, booze, and maybe some classes too if time permits with their fellow countrymen. 

‍

And so the family unity starts fading. The Austrian Rothschilds become more Austrian, the British Rothschilds become more British, the French Rothschilds more French. This really starts when James dies in 1968, but it reaches its nadir in the early 1900s when the firms actually separate and the British, French, and Austrians all decide to remove all profit sharing and go their own way.

‍

During this time period, the Rothschild partners are generally working about 3-4 hours per day. They roll in around 11, take a lunch at 12:30, and then leave by 3:30. In stark contrast with Nathan and James, they hardly get involved with the day to day operations, and generally they act more like royalty than bankers. 

‍

Now the firm can survive for a while on sheer inertia. It’s huge. The largest investment bank in the world. They’re completely lacking in innovation, hard and hard work, but they can survive on just being cautious and taking the business that finds them, and so they do. In fact there are stories about ambitious young associates seeing that some country is looking to issue a bond and telling a partner “Hey, maybe we should call them up!” and the partner basically says “Why? They know how to reach us.”

‍

But after World War 1, this no longer becomes tenable. During World War 2, this becomes even worse. Their decline is of course accelerated by NAZIsm. The German and Austrian Rothschilds have all their assets seized and two are killed in the holocaust. The French Rothschilds have many of their assets seized when Germany invades France, though unlike their German cousins, they are able to recover many of them after the war.

‍

By the 1950s, the Rothschilds are little more than a name. Many of them still have tens and hundreds of millions of dollars in personal wealth, but the Rothschild banks have faded into obscurity and no longer really matter in terms of global financial markets.

‍

But in 1962, things start to turn around. They re-establish links between their institutions and start to modernize their old institutions. Rothschild had broken up into a number of different advisories and firms but they were all brought together under Rothschild & Co. It’s also during this time that they allow their first non-Rothschild partner, and start to resemble other more normal and frankly modern advisories.

‍

In the 70s, there is a rift with one of the French Rothschilds, Jacob. He wants to go all the way, fully modernize and open up Rothschild to outside investment and ownership. This causes a big rift, and he has a contentious departure from the family.

‍

He takes his share of the inheritance and opens a firm called RIT. RIT actually does really well and while there are still many wealthy Rothschilds, Jacob now has the distinction of being the only Rothschild billionaire on planet earth.

‍

Since the Rothschild firm reunited in the 60s, they’ve made something of a comeback. They’re no longer the biggest investment bank in the world, not even close. But they are a large, successful financial advisory group. They are relevant again.

‍

One of the reasons I wanted to do this podcast and study this family, is I wanted to see how it was possible that a family could retain their wealth and stay relevant for more than 200 years. And I was a little bit bummed out to see that it wasn’t exactly an unbroken chain of success.

‍

Honestly, it has forced me to come to grips with my own mortality a little bit. Not just that I will not live forever, obviously everyone knows that they will die someday. But everything that I build will one day pass away as well.

‍

Companies, organizations, and even countries have natural life cycles, just like people do. BUT.

‍

Mayer Rothschild clearly articulated the principals that he believed in most. Just three words: Concordia, integritas, industria. Though some of his descendants would turn away from those ideas, by articulating them so clearly and instilling them in his children, he planted the seeds of Rothschilds’ rebirth.

‍

We will not survive forever, nor will the things that we build in our lifetimes. But our ideas and the virtues that we espouse can have lives whose end we cannot see.

‍

So there you go. I know this was a slightly different episode than what we usually have here on How to Take Over the World, but so it goes sometimes. Speaking of different episodes, we’re going to be changing things up a little here in the near future. So stay tuned to How to Take Over the World there is going to be a special announcement in the next couple weeks.

‍

Until then, thanks for listening.

‍

‍

Okay, so let’s do the analysis. To what shall we attribute the phenomenal success of Mayer Rothschild. Let me just pull out a few principles:

‍

1. Compound yourself. Maybe you aren’t going to be able to do this by teaching your children to behave exactly like you, but you can compound your efforts in other ways: Teach others, mentor them. In a word: Be a leader. Leadership is all about learning to compound your efforts through others.
2. Hate losing money. I won’t harp on this anymore other than to also add protect your downside. When his goods were burned and it shocked and upset him so much, it actually didn’t set the business back too much. The Rothschilds were experts at hedging against risk. It’s the reason he sent his sons to the five corners of Europe. With five bases of operation, a single catastrophe couldn’t wipe you out, and that became crucial in the 1930s when the NAZIs confiscated a good deal of their wealth.
3. Information is key. Capital allocation is competitive. You don’t make real money by being smart or hardworking or even by being lucky. You make real money by being smarter or harder-working or luckier than anyone else. Rothschild created a lasting advantage for himself by having more information and faster communication. Remember the colored envelopes. So you have to think about what your advantages are. Information is the biggest one. This is why it’s no secret that Michael Bloomberg, the guy who started Bloomberg news and is the king of financial news, is worth more than $50 billion dollars. If you want to make money, learn something that no one else knows.
4. Start early. Go steady. Whether its Warren Buffet or Mayer Rothschild or John D Rockefeller, the great wealth-builders start making money as soon as they can. Compound interest really is the most powerful force in the universe, as the saying goes.

‍

And I’ll end with the real lesson from Mayer Rothschild’s life. He told us exactly what he wanted us to remember. It is the motto that was adopted on the Rothschild coat of arms: Concordia, integritas, industria. In that order. Concordia. Harmony. Mayer Rothschild always put his family first. He made his family his business, and he made his business his family. The result was a family that, despite squabbles and fights, has stayed mostly united for two hundred years.

‍

Integritas. Integrity. Mayer’s reputation for honesty and integrity followed him his entire life and it is what allowed him to continue to have success and it’s the reason people were willing to trust him with their money.

‍

Industria. Remember the hallmark of greatness is energy. Rothschild was flat out harder-working than any of his competitors, a trait that he passed on to his sons.

‍

Okay that does it for this episode. Next episode we will be talking about how his sons manage to carry on the legacy and create a financial empire the likes of which the world had never seen.

‍