Rhodes and His Banker: Empire, Wealth and the Coming of Union

In May 1888, Rhodes was back in London again, with two things on his mind; the amalgamation of his diamond interests and the furthering of his plans for expanding British interests into Matabele/Mashonaland, soon to become known as “Charterland”. His timing was opportune: both the Foreign and Colonial Offices were interested in forestalling any attempt by Kruger’s Boers, let alone European powers such as Portugal and Germany, to occupy the territory across the Limpopo River – as long as the imperial government did not have to pay for it.

Rhodes accordingly proposed to the Salisbury government the formation of another chartered company, which – in return for being granted occupation and prospecting rights – would assume the financial responsibility for administering and developing the territory, subject to the overall supervision of the imperial government. Similar companies had been given charters in India and West Africa.

Despite the misgivings of Lord Knutsford, the Colonial Secretary, Rhodes found the pre-eminent political realist of the day, Lord Salisbury – doubling as Prime Minister and Foreign Secretary – sympathetic to his ideas. He returned to South Africa in July to complete the consolidation of De Beers, before resuming his efforts to launch a new company in England that would enjoy a Royal Charter.

The founding of the De Beers Consolidated Mining Company (DBCM) was not universally welcomed. Although the diamond industry would benefit in the long run from the concentration of ownership and the stabilisation of diamond prices, in the interim many diggers and employees of small companies found themselves out of work. One of DBCM’s first acts was to cut back on its extensive operations, making 200 white miners redundant. On the streets of Kimberley, Rhodes and his partner Barney Barnato were so unpopular that for a time they had to be given police protection.

Shrugging off all protests – including the public burning of his effigy – Rhodes also bought out shareholders in the struggling Dutoitspan and Bultfontein mines, and after a couple more acquisitions in the early 1890s now controlled 90 percent of the world’s diamond production.

Unlike white workers, however, lower-paid black workers continued to find employment at De Beers because the new company paid higher wages than those on the Transvaal goldfields. Yet African workers had to pay a steep price, including confinement to closed and overcrowded compounds; pass laws; strip searches for stolen diamonds; and little protection from extreme temperatures in summer and winter.

Rhodes defended the compound system, saying it was necessary to control the movement of labour and to prevent theft and illicit diamond buying. In parliament, he found support even from the libertarian JX Merriman, who told members that if they wished to “see natives advanced” they should do all they could to foster the compound system. In JX’s view, the theft and sale of stolen diamonds was much “the greater evil”.

*****

Among those unmoved by Rhodes’s address at De Beers Consolidated’s first meeting of shareholders were the staff of the Standard Bank. A General Manager’s monthly report to London on 4 April, under Edmund Thomas’s signature, observed that Rhodes’s speech had been “the subject of considerable comment, not altogether of a favourable nature. The effect of the speech is not likely to reassure the holders of diamonds, and may possibly result in a lowering of their value. The speech moreover does not impress one altogether favourably in regard to the reliability of Mr Rhodes, as he admits having incurred considerable risks, besides going beyond his company’s Trust Deed in order to attain the position he claims to have achieved.”

Another General Manager’s report a month later reported that since the meeting, Rhodes had attempted to account for the “disastrous effect” of his speech by regularly abusing the banking industry, attributing the fall in the value of diamonds not to his own market manipulation but to the banks. He had singled out the Standard, “insinuating that this Bank had been connected with the recent ‘bear’ in diamond stock in the London market…

“We do not believe any importance is attached to Mr Rhodes’s insinuations as he had to find some excuse for the disorder that resulted from his ill-advised public utterances, and his attempts to justify himself in the eyes of friends, who had been induced to speculate in the De Beers stock at high prices and were now heavy losers by their dependence upon his advice. Mr Rhodes is in our opinion very unscrupulous in his efforts to obtain his desired results. He is pretty generally known to be extremely uncertain in his views, and it is not we think necessary to take action in the matter beyond instructing Mr Smart [the Kimberley manager] to quietly check any glaring attempt to misrepresent the Bank.”

In July 1888, a friend in Kimberley warned (Lewis) Michell in a letter that “Rhodes intends to have it out with you, as the measures you adopted during the late crisis almost thwarted his plans. He is very simple in some things, but [is] a power here and extraordinarily shrewd for all his simplicity. He is peculiar in his manners and has a rough tongue at times, but he appreciates being stood up to.”

A month later, the first meeting between Rhodes and the joint head of Standard Bank took place. Lewis Michell takes up the story in his Life of Rhodes: “Our meeting at the outset was of a stormy character – indeed he had sent me a message which forecast it. At this date, Rhodes regarded banks with unconcealed disfavour. He disliked their methodical procedure, their strict adherence to rule and form, [and] their steady bar upon irregular or unusual business transactions. Where he dealt with a bank, he dealt by preference with a colonial institution managed by a local board, whereas I was the representative of an English bank whose headquarters were in London.

“To the Imperial banks, and to mine in particular,” Michell continued, “he was pleased to attribute the severe stringency existing in the money market at Kimberley, whereas it was a much-needed precautionary measure against excessive inflation of values and speculation brought about, in part, by himself in his struggle with Barnato.”

During that showdown, Rhodes had purchased “on credit, and at ever rising prices” more than £1-million worth of shares in the Kimberley Central Diamond Company: “All diamond shares had thus been artificially raised to figures in excess of their intrinsic value, and I had declined to allow the Bank under my charge to be used as a pawn in his game.”

The encounter between the two men may have begun acrimoniously but it ended cordially with Rhodes realising that Michell would not be cowed by his wealth or celebrity, and the banker having convinced Rhodes that his actions were intended to stabilise and safeguard the diamond industry: “He was brought to see that without a sound system of finance on the part of the banks, Kimberley would be liable to recurrent crises which in the long run would tell against, rather than in favour of, his policy of expansion.

“From that day to the day of his death,” Michell recalled, “he threw all the business he could in my way, and on no single occasion let me see the ‘rough side’ of his tongue… Indeed, after his exceptionally full experience of the seamy side of life on the diamond fields, and of the disillusionment that comes to most men who see poor human nature wallowing in the sty of party politics, Rhodes, to the last, retained a touching confidence in his fellows, and when he once trusted a man, he trusted him entirely.”

With both Michell and Rhodes based in Cape Town, their paths crossed more frequently. The banker records a second encounter at which he once again refused to be browbeaten by Rhodes, an attitude that set the seal on their personal relationship. The matter was not one of great moment: the Standard had paid out on a cheque of Rhodes’s with a forged endorsement, and the diamond magnate believed the Bank should bear the loss.

Michell patiently explained the law on the matter: the Bank was responsible only if it paid out on a forged cheque drawn by one of its customers, whose signature it was reasonably presumed to know, but not liable in the case of an endorsement by an unknown person: “[Rhodes] reluctantly admitted that the argument was good, and when, as a matter of policy, I said the Bank and his company should share the loss, he jumped at the offer, as it entirely squared with his genius for compromise. From that moment, he gave me, I think, his complete confidence.” DM

Richard Steyn is the author of several bestselling books, including Jan Smuts: Unafraid of Greatness (2015) and Louis Botha: A Man Apart (2018). He practised as a lawyer before switching to journalism. Steyn edited the Natal Witness in Pietermaritzburg from 1975 to 1990, was a Nieman Fellow at Harvard University in 1985 and 1986 and editor-in-chief of The Star from 1990 to 1995. He served as Standard Bank’s Director of Corporate Affairs from 1996 to 2001 before returning to writing.