[Global Finance History] The Rothschild Family and the Completion of the US Financial System

The name Rothschild was a symbol in the United States. Before the U.S. developed its own financial market, if capital had not flowed in from Europe, commodity trading or bond issuance in the U.S. would have been impossible. However, at the center of the European capital market was the Rothschild family. The founder, Nathan Rothschild, left behind an enormous fortune of undisclosed size when he passed away in 1836. His legacy became abundant capital supporting the industrial growth of the U.S. through the American agent August Belmont (1813?1890). The Rothschild family entered the U.S. market in the 1820s. After securing dominance in European government loans, Rothschild immediately turned its attention to the U.S. In 1821, Rothschild entered the U.S. market through a partnership with the Phillips Bank in Philadelphia. They arranged investment opportunities and introduced new clients for Rothschild. By 1833, Rothschild had branches in Baltimore and New York. Through these, Rothschild invested in bonds of various levels of local governments, stocks in canals and mining sectors, and banks. When President Andrew Jackson was elected in 1834, Rothschild’s London branch secured the right to represent the bank of the U.S. government in Europe, a role previously held by Baring Brothers.

However, the financial panic of 1837, known as the world’s first great depression, changed everything. The aftermath of the panic brought the U.S. economy to a near halt. The Rothschild branch in New York also closed due to the panic. Hearing this news, August Belmont, an ambitious young German employee of the Rothschild bank, headed to New York instead of Havana as instructed. He could not miss this divinely perfect timing. Belmont rented a small office on Wall Street and established his own company. James Rothschild furiously said, “Such a donkey must be tied with a short leash,” but eventually accepted him. They could not give up on the rapidly growing U.S. market. For 50 years, Belmont successfully served as the American agent.

The company Belmont created was essentially established without any capital, relying solely on the relationship with the Rothschild family. But that was enough. Just the connection with Rothschild allowed him to borrow funds. He began buying in the depressed market that everyone feared. He moved according to Rothschild’s instructions with funds borrowed from the U.S. He purchased stocks, commercial paper, and more. These purchases were a blessing to banks on the brink of bankruptcy. The reason the U.S. could be saved with money borrowed from the U.S. was because of the name “Rothschild.”

Belmont, who established himself as a banker specializing in international trade, not only made money for Rothschild but also became a millionaire himself. He was the first person to connect investment banking and politics. Belmont was able to succeed politically, and thanks to his political connections, Rothschild gained more business opportunities.

The original power of the Rothschild family was its network. Based on this network, they amassed wealth through currency arbitrage, royal and government loans, and brokering government bond issuances. By gathering information on European politics and utilizing their network, they created a business where “money makes money.”

After 1840, Belmont also entered politics by joining the Democratic Party to gain political influence on a national level. He married the daughter of Admiral Perry, a prominent family that pioneered Japan’s trade ports. He served as the U.S. Consul General to Austria and the U.S. Minister to the Netherlands. After returning to the U.S. in 1853, Belmont emerged as a leading figure in the Democratic Party. He was also President Lincoln’s most dangerous political opponent. When the Civil War began, Belmont supported Lincoln and the Union army and became Lincoln’s financial advisor.

He and Lincoln exchanged letters steadily throughout the Civil War. Early in the war, neither Rothschild nor the British government supported the Northern Union, so Belmont was a crucial figure for borrowing war funds. It is also known that Belmont used his influence over European banks to prevent investments in the South during the war. Above all, as Rothschild’s agent during the war, Belmont purchased a significant amount of government bonds. As Rothschild always did during wars, they were able to make money on both sides.

Belmont built a solid bridge between European capital and the industrial nation of the U.S. At the same time, he connected finance and politics. His main role was in government financing and supporting the capital market for businesses. Through Belmont, Rothschild established ties with U.S. politics. Belmont’s political influence was like an insurance policy purchased by Rothschild. However, after the Civil War, as the Democratic Party lost power, Belmont’s political influence gradually weakened. Accordingly, the Rothschild family’s influence in the U.S. also faded. Above all, after the Civil War, the U.S. developed into a different America. After his father’s death in 1890, Belmont Jr. inherited the company and was no longer just an agent. Enduring Rothschild’s humiliation, he became the head of August Belmont & Company, the firm his father had built. Belmont Jr. invested in the first New York City subway and the Cape Cod Canal. Under Belmont Jr.’s leadership, his bank remained one of the largest and most powerful banks in the U.S. Now, the U.S. had created a market where it could raise capital through its own financial system without Rothschild.

Baek Youngran, Director of History Bookstore