The 1830s witnessed the rapid rise of London accepting houses financing international trade. This followed the gradual shift of international trade and associated finance from Amsterdam. Two banking dynasties stand out in London: Rothschilds and Barings and offer two distinct models of what was becoming merchant banking. Rothschilds in London were just one branch of a family operating as bankers in a number of continental European countries. S.D. Chapman, in his book The Rise of Merchant Banking, suggests that they were pretty well wedded to the traditional ‘Jewish’ areas of interest to bankers: gold and diamonds. This is not being racist; I am quoting Chapman and it is also the case that money lenders tended to be Jews. From this Rothschilds extended their business to the issue of loans for foreign states and they became much involved in the Californian gold and South African diamonds. Certainly the British family steered away from investment in British railways and industry. Barings were at heart traders and dealt in a whole range of commodities from the traditional copper, flour, grain and wool through to saltpetre and spices. Barings would be more involved in acceptances of bills of exchange and Rothschilds had more of a focus on government issues.
Looking at the broader spread of what would be known as merchant banks two features stand out. They were international. Chapman suggests three groupings: the ‘Jewish’ group which included Rothschilds, Lazards and Samuel Montagu; the Anglo-American group which included Baring, JS Morgan, Brown, Shipley and Robert Benson; and the Anglo-German group which included Alex Kleinwort and CJ Hambro. The second feature was that there were a large number of different partnerships between the bigger houses focused on particular markets; it was an intricately woven mesh. We can look at the British Peabody and the American JP Morgan as a prime example. The main activity of these merchant banks was the financing of trade, but also handling issues largely for states of which American featured most highly as the fastest growing economy.
In his paper, Bankers in English Society in the late nineteenth century, Yousseff Cassis argues a strong affiliation between the leading bankers and the aristocracy. He quotes particularly the period after 1820 when the connections became closer, in particular, with marriages. In terms of other connections, he finds a high percentage of bankers were educated at public schools (significantly Eton) and then Oxbridge. I would add that this would build in a bias against manufacturing because of the emphasis on classics rather than sciences in those educational establishments. My father’s own experience at Alleyns at the turn of the nineteenth century was of the then novel introduction of sciences and modern languages. Leadership in banking was a role for the amateur, membership of the right family and the right club was a necessary and sufficient condition. Managers would be employed to do the banking work.
The characterisation of banks as part of the aristocracy is dependent both on date and the type banking. More generally it links into a paper which puts forward the concept of gentlemanly banking, and also also the British trading houses, more recently Lonrho, and looking further back businesses such as Jardine Matheson and Guthrie. The novel, The Singapore Grip, offers a flavour of the later times in which these traders operated.
‘Gentlemanly banking’ marked a move that emphasised the distance between the City and manufacturing. The emphasis of banking business was on financing international transactions and the provision of related financial services. There is perhaps a three stage model. To begin with wealth rested with the landed classes. I argued in How Britain Shaped the Manufacturing World that foreign trade enriched not only landed investors but began to create the monied middle class, with the new wealth in the hands of the financiers and their advisers; I might call this the second stage where wealth from finance and services took the lead from landed wealth. Manufacturing was almost an adjunct, until its fruits became big enough for significant money to rest with this new aristocracy, one based on making money; this was perhaps the third stage.
British Manufacturing History 