Profit From Information Networks … Just Like the Rothschilds

The use of information networks has conferred competitive advantage long before the advent of LinkedIn AnswersAsk, orQuora. In fact, to truly see the power of information networks, one need look no further than how the wealthiest family of the 19th and 20th centuries, the Rothschilds, used them to wield international power.

Cobbling together some Internet sources, let’s define an information network as an exchange, platform, or process for communication. Communication in such a network may be broadcast or two-way, and the network could be formal (well-defined with rules and procedures) or informal. Such networks also have a transmission infrastructure (network, computer, person, mail delivery, or even Pony Express). Information networks are often designed to disseminate valuable information, yet also might include conversations that are commonplace or even trivial.

Today’s information networks transmit knowledge with blinding speed via computers, Internet, and telecommunications. Of course, such mechanisms didn’t exist in the 1800s. Even so, the ability to capture information and transmit it faster than competitors conferred significant advantage two hundred years ago, much as it does today. And there was no better information network in the 19th century than the system designed by the House of Rothschild.

According to economic historian Niall Ferguson, the Rothschild banking dynasty originally consisted of Mayer Amschel (father) and his five sons: Nathan, Amschel, James, Carl, and Solomon. Located in cities throughout the European continent, the Rothschilds started businesses in textiles and antiques, but quickly moved into supplying financial resources for kings (via personal loans) and countries. While more than a few characteristics made this family successful, one of their strongest advantages was use of a well-designed information network.

With brothers located in Frankfurt, London, France, Naples, and Vienna, the Rothschilds effectively acted with “unbreakable unity”—always coordinating and communicating as a single entity. While mail service existed at the time, the Rothschilds discovered it was more reliable to set up their own information network. This network consisted of carrier pigeons and couriers on ship or horse. Couriers were full-time associates employed by the Rothschilds and were solely dedicated to the transmission of information.

And the brothers used this information network to make obscene profits. Niall Ferguson explains: “Success of arbitrage and forward-exchange operations hinged on rapid communication. As far as possible, the brothers sought to keep one another abreast of news which might affect the exchange markets, the impending payment of a subsidy, further military action, imminent of the peace treaty being signed.”

In fact, the Rothschild information network was so well-constructed and rapid that statesmen used the Rothschild network instead of their own for exchanging diplomatic letters. With the Rothschild information network, letters that once took a week to travel the continent now traveled in a single day! And imagine the information flow exposed to the Rothschild family, when even kings trusted their correspondence to Rothschild couriers.

What was the profit advantage of the Rothschild information network? Niall Ferguson says that, “Major political events as well as confidential information could be relayed from one city to another well ahead of official channels.” Trading on information, before it became public knowledge, helped propel the Rothschild family to become the richest in Europe.

Alas, the speed of today’s technology has essentially removed information latency advantages. Five billion people now have mobile phones. And with sensors, RFID, GPS, and high-speed Internet accelerating data flows across the globe, the playing field is much more level than in the 1800s. That’s not to say, however, that there’s no longer profit advantage via information networks. Indeed, one needs to look no further than the formal and informal information networks used in the financial services community, particularly by investment banks which trade in information, sometimes a little too aggressively.

Change is accelerating rapidly. Information networks are a powerful tool to manage that change and make profitable decisions. But they’re not without costs of time, energy, and money to maintain them.

The Rothschilds made their fortune via an information network. How will you take advantage of today’s information networks to not only survive but thrive in the global marketplace?

  • Is there still competitive advantage to be had in utilization of information networks?
  • Niall Ferguson says that the Rothschilds spent a lot of time, energy, and money maintaining the best possible relations with the leading political figures of the day. What are you doing to cultivate your personal information network?