The Australian Connection of Marcel Proust

Proust and his Banker: In Search of Time Squandered
by Gian Balsamo
University of South Carolina Press, 2017, 272 pages, US$39.99
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Marcel Valentin Louis Eugène Georges Proust never visited Australia, but some of his money ended up here. It was part of a wave of international capital that poured in to fund development of the nation’s resources just over a century ago. Some of it also found its way into the pockets of bankers, brokers and share promoters in Paris and London. Proust, like Mark Twain, discovered that a rumour could run around the world while the truth was putting its shoes on. A mine could be a bonanza, or a hole in the ground owned by an ethically-challenged person with pie-in-the-sky syndrome.

The following extract from one of Proust’s many letters to Madame Geneviève Straus (née Halévy), salonnière and model for his Duchesse de Guermantes and Odette de Crécy characters, suggests a man keen to make a quick franc:

I should very much like to know whether Monsieur Straus holds any shares in Australian gold mines … and when I say “whether he holds”, I don’t want you to think I’m being vulgarly inquisitive, but only whether he has been persuaded to buy, whether anybody has given him a tip. Somebody, the other day, was speaking to me about Australian mines, but I can’t remember who it was …

Security laws today, of course, prohibit share trading by anyone who has—or claims to have—a tip, or in the jargon of regulators, “confidential price-sensitive information”, especially company insiders.

Proust’s interest in the stock market began soon after the death of his mother in 1905. A meticulous reconstruction by Gian Balsamo in a new book, Proust and his Banker: In Search of Time Squandered, reveals some fascinating facts about his financial affairs. The novelist was obsessed not only with gains and losses in the lotteries of life and love, but also on the Bourse de Paris.

Indeed, had he not begun À la recherche du temps perdu (In Search of Lost Time) in 1909 at the age of thirty-eight, he might well have written a guide to the art of investing, perhaps with the title Time is Money: In Search of Lost Profits or Marcel’s Midas Moments: How to Preserve a Fortune While Spending Magnanimously on Friends and Significant Others.

Balsamo’s research demonstrates how Proust’s riskier decisions were made to fund a personal quest for unconditional love. Letters in the twenty-one-volume Kolb-Proust Archive to Lionel Hauser, his Warburg banker, and documents in the Rothschild Archive, reveal that by 1915 Proust had lost three-fifths of his inherited wealth, which had been about 1.5 million francs in 1910. Worse still, he had spent much of it “on reckless speculations and magnificent gifts to the men and women who struck his fancy”.

The debacle, however, had one serendipitous outcome. It inspired the “artistic capital” that secured him a place in France’s literary pantheon. His novel won the Prix Goncourt in 1919 and finally began to earn royalties. But for Proust the real gold was not aurum vulgi, but John Ruskin’s “artistic gold”. Yet he needed the former—together with genius, stamina and “suicidal obstinacy”—to transmute it into the latter.

Proust had trading accounts with three financial services firms from about 1907: Warburg & Co, Crédit Industriel and the London County & Westminster Bank. But most of his wealth was managed by the Rothschild Bank in Paris. Established by the brothers Alphonse and Gustave, it was affiliated with the London-based N.M. Rothschild & Sons Limited, a leading global investment bank at the time.

Albert Nahmias, Proust’s secretary for many years, often acted as his intermediary with brokers. As for his investment tips, according to Balsamo they were “terrible”. Proust’s instructions were seldom brief buy-hold-sell orders. They were full of the convoluted sentences typical of his style; itself perhaps a consequence of long periods of medicated confinement. He suffered from asthma all his adult life. The so-called “fumigations” with Legras powder were part of a daily regime. So much so that his cork-lined bedroom at 102 boulevard Haussmann in the eighth arrondissement is now in the Carnavalet Museum. (He lived there from 1906 until 1919, when his aunt sold the building to a banker, René Varin-Bernier.)

Dear Albert      

My health is so bad just now that I don’t know how I am to explain my present devilishly complicated situation. Put briefly, the position is this. I shall have, at most, about one hundred thousand francs to invest. But I gather from the Crédit Industriel that, in this matter of selling out, the 4th March is settling day, which means that they won’t have the money before the 3rd. But I shall have to draw a cheque for a hundred thousand francs dated the 3rd, and this they will honour as soon as the sale has been completed (that is to say, as I understand it, either the 4th March or the 3rd). It won’t, in any case, be later than the 4th. I needn’t tell you that the transaction is as safe as houses. I guarantee that there will be enough funds in my account to meet the cheque.

If this arrangement seems alright to you (Crédit Industriel assure me that it is all in order and that I need fear no delay, which is as good as to say that all will be well, because they are extremely reliable people), all you need to do—with your knowledge of how my account stands—is to reckon how many shares I ought to take up. I don’t want to spend more than—roughly—a hundred thousand, which, I suppose, represents something like 270 Rand and 275 Crown, though perhaps not all paid up. (The brokerage charges should be included in that sum, or exceeding it by only a very little. I mean, I don’t want to find, after I have paid the hundred thousand, that there is still something owing. I keep on saying the same thing over and over again, but I am so anxious that there shouldn’t be any mistake. (I don’t want anything to be carried over: I shall take up part of the shares and sell the rest.)

If you telephone, please be very careful not to mention anything about all this here—nothing about shares, etc. Do you know whether cheques for such large amounts are made out in the same way as cheques for a hundred francs?

Affectionately
Marcel          

As for Proust’s Australian investments, his biographers refer to them generically as “Australian mines” or “Australian gold mines”. Towards the end of the nineteenth century there had been a surge of new mineral discoveries in Western Australia—including gold at Coolgardie (1892) and Kalgoorlie (1893)—and also at Broken Hill (1885) in New South Wales.

Promoters, entrepreneurs, syndicates, stockbrokers, dreamers and schemers keen to list a prospect or mining venture on the stock exchange went to London. Adelaide businessmen Sir George Philip Doolette and his son Dorham Longford Doolette were among them; as were Lionel and W.S. Robinson, William Clark and the legendary Claude Albo de Bernales. There was a high failure rate. According to Hal Colebatch’s biography of Bernales, some failed because “of criminality, others bad luck”. Of the 731 gold companies established by 1896, their promoters invariably paid themselves much more than the shareholders ever received. “From the beginning,” Colebatch wrote, “stories of wealth from the West Australian goldfields had a darker side.”

The London Investors’ Review warned about the “West Australian Alchemy”. Even the state’s agent-general in London Sir Malcolm Fraser’s enthusiasm for the state came under scrutiny. The Review’s October 1894 edition asked: “Surely the government of Western Australia does not pay its representative to deliver his soul like this for the benefit of company promoters, syndicates or other buccaneering agencies? Or do we mistake the duties of an Agent-General?”

The individual companies that were in Proust’s Australian portfolio are unknown. However, an investigation à la manière de Maigret has unearthed, if not a corpse, then some promising possibilities.

London share prices in the West Australian newspaper archives from over a century ago provide a tantalising clue. Listed companies, as at  February 3, 1908, that could well have had Proust as a shareholder include: Great Boulder, Ivanhoe, Kalgurli, Perseverance, Sons of Gwalia, and Golden Horseshoe in Western Australia, and Broken Hill South and North Broken Hill in New South Wales. Great Boulder Proprietary Gold Mines Ltd, for example, was the first West Australian gold company to list offshore in 1894. It sustained a high dividend for over two decades, an achievement that would have impressed investors all too familiar with antipodean failure.

Proust probably purchased his gold shares on the advice of a friend or one of his brokers: Gustave Guastalla, David Léon, Cremieux & Frankel or Wellhoff & Neustadtl. Some biographers claim he sought out companies in exotic locations because of temperament, poor health and lack of mobility. He was, wrote André Maurois, “susceptible to the poetry of the Stock Exchange, to its charm, to the romantic appeal of the rather old-fashioned engravings that adorned his share certificates”. In his 2013 biography of Proust, Adam Watt suggests Proust’s purchases were an imaginative way of travelling the world without leaving home:

from the railway companies of Mexico and Tanganyika to Australian gold mines, Royal Dutch Petroleum and Rio de Janeiro Tram, Light & Power. His investments were seldom lucrative and at times brought him closer to financial trouble than he would have been without them, but like so many things Proust enjoyed from a distance, they let him dream.

There is another explanation. Proust’s investments were driven more by a risk-and-return calculus. The Rothschild Bank was concerned with preserving client wealth, and discouraged speculation. Proust once joked to Hauser that Léon Neuberger, his Rothschild account manager and another cousin, was wary of anything earning more than an annual 2.5 per cent or promising big capital gains.

Hauser was similarly prudent. He too preferred long-term bonds and government securities over riskier commodity investments, be they in West Australian gold, Malaccan rubber or East European copper. So Proust probably acquired the latter through less risk-averse entities such as Crédit Industriel. (Hauser later urged him to close this account to get rid of “the acrid aftertaste left by his financial orgies”.)

So it is no surprise that Proust’s Rothschild and Warburg portfolios contained an internationally diverse range of income-bearing securities: Argentine National Loan, Banco Espanol del Rio de la Plata, Chinese Treasury notes, Consolidated Russian Bonds, Egyptian Preference Bonds, French Railways Company of Santa Fé, Liberation of French Territory Loan (French Treasury), Suez Canal Bonds, Swiss Railways, Treasury notes of Japan, Treasury notes of San Paulo do Brasil, Tunisian Government Bonds. Balsamo’s reconstruction of the Warburg portfolio also suggests an increasingly prudent asset allocation strategy over time, presumably designed by Hauser and Neuberger. For Proust’s share exposure declined from 48 per cent of it in 1908 to only 20 per cent by 1913.

As war fears intensified on the continent, more money was shifted to non-European securities. Exposure to US railway interest-bearing bonds increased from 44 per cent to 74 per cent between 1908 and 1913, while South American treasuries (San Paulo, Republic of Argentina) declined slightly from 8 to 6 per cent. Comparable data for Proust’s significantly larger Rothschild portfolio is unavailable, but it was most likely restructured in a similar way. Balsamo says, “Hauser, close as he was by training and family ties to the financial genius of the Rothschild Bank, probably applied wartime investment principles similar to it. Hence we can infer something about its strategies from his portfolios.”

Whatever the case, Hauser made this observation in a letter dated October 26, 1915:

Allow me to clear up a mirage to which you have unfortunately fallen victim. You imagine, like so many others, that the profit you make on the stock exchange depends mainly on which shares you buy. Well, paradoxical though it may seem, I assure you that they depend above all on the person who does the trading. I’ve known people who got rich at the Bourse by trading tenth-rate shares, while others have ruined themselves with blue-chips. This is a highly personal matter. Some people are born to do deals of this kind, while others are born to get their fingers burnt when they try it. I don’t think I’m exaggerating when I classify you with the second group; but if you disagree with me, feel free to continue the experiment. I’d be happy to be persuaded that I am wrong.

Fortunately for French literature, Proust did not bet all his francs on speculative shares. Like Waterloo, however, it was a close-run thing. For left to himself, he ended up in a serious financial hole. His guardian angels, Hauser, Neuberger and an “old mistress”—in the form of a semi-secret (to Hauser) parcel of Royal Dutch shares accumulating nicely due to new issues—eventually dug him out.

Proust’s predicament began in 1911 when he started trading forward contracts. A call option gives a buyer the right—but not the obligation—to take delivery of a specific number of shares on or before an expiry date. The buyer of a forward contract, however, must purchase the shares at the agreed settlement price on a specific date.

During the next two years, the volatility in this market—and in Proust’s emotional life—began to overwhelm him. Either he or his broker assumed (wrongly) that the outlook was good, that the securities covered by the forward contracts would rise over time, and he could exit at a profit. It all turned into a nasty case of caveat emptor.

While he still had capital of about 1.5 million francs at the end of 1911, more than 40 per cent of it—namely 640,000 francs—was tied up in forward contracts. It was, as Balsamo notes, “a crazy level of exposure for an amateur investor”. Everything came to a head on Saturday May 30, 1914, a settlement date for forward contracts on the Bourse de Paris. Proust’s collateral obligations, interest charges and quarterly commissions had reached a critical level. Forced to seek Hauser’s advice on how to extricate himself from the mess, he only just dodged bankruptcy. A year later, even with Hauser’s help, he still had a residual debt of 274,000 francs.

Despite the growing losses, Proust made two intriguing purchases on that very day. He bought an aeroplane for 27,000 francs for Alfred Agostinelli—his elusive chauffeur-secretary and inspiration for the novel’s Albertine character—and probably a Rolls Royce too. Agostinelli, however, never took delivery of the extravagant gifts. He died the same Saturday when an aeroplane he was flying over the Bay of Cannes plunged into the sea. “I have known people who have lost grip on their sanity for much less than that,” commented Balsamo.

Two months later, the Belle Époque came to an abrupt end. In a letter to Hauser on Sunday evening, August 2, 1914—hours before Germany declared war on France—Proust wrote of the approaching chaos:

In the terrible days we are going through, you have other things to do besides writing letters and bothering with my petty interests, which I assure you seem wholly unimportant when I think that millions of men are going to be massacred in a “War of the Worlds” comparable with that of Wells, because the Emperor of Austria thinks it advantageous to have an outlet onto the Black Sea.

He feared for his younger brother, Robert, mobilised that day with over three million other Frenchmen. “I have just seen off my brother, who was leaving for Verdun at midnight,” he wrote. “Alas, he insisted on being posted to the actual border.”

“I still hope,” he concluded, “non-believer though I am, that some supreme miracle will prevent, at the last second, the launch of the omni-murdering machine.” But there was no divine intervention and the rest is history.

As war raged, Proust’s own all-too-brief belle époque began at last. By 1920, his book royalties exceeded 10 per cent of his annual income—now 75,000 francs—for the first time. By 1921, he had over million francs in his Rothschild portfolio once again, compared with 1.3 million in 1907. Rothschild still held his Royal Dutch shares. Ultimately, sentiment—his affection for an “old mistress”—helped save him. They went back a long way. He had purchased them in 1908 on a tip from another Rothschild, a medical doctor, Henri-James. Proust not only acted on it, but held them for the rest of his life.

Created in early 1907 by the amalgamation of two rival companies—Royal Dutch Petroleum (60 per cent) and the UK Shell Transport and Trading Company (40 per cent)—Royal Dutch Shell’s profitability surged in the post-war age of oil and ocean tankers. In May 1920, Proust wrote to Madame Straus that he now held twelve shares, which were trading at 35,000 francs. The company’s capitalisation had doubled in the previous year. By the end of the decade, it was the world’s leading oil company, producing 11 per cent of the world’s crude oil and owning 10 per cent of tanker tonnage.

Dr Robert Proust, a gynaecologist, fortunately survived the First World War. On Marcel’s premature death in 1922 at the age of fifty-one, Robert edited and arranged publication of the last three volumes of his brother’s seven-volume magnum opus. It became the novelist’s most successful investment, one that continues to deliver royalties today—and special dividends to all his readers. As Marcel’s sole heir, among the financial assets Robert Proust inherited in the Rothschild portfolio were 17.3 actions (shares) of Royal Dutch.