The House of Morgan: An American Banking Dynasty and the Rise of Modern Finance

by Ron Chernow

  Although Peabody was nominal head until 1864, Junius Morgan assumed control of George Peabody and Company in 1859. In increasingly poor health, Peabody took his first European vacation in twenty-one years. After the outbreak of the American Civil War, Morgan traded Union bonds, which seesawed with the outcome of each battle. After the Union army was routed at Bull Run, bonds plunged, then rebounded sharply when Union troops stopped the Confederate advance at Antietam Creek. Sending a telegram via Nova Scotia, Pierpont alerted his father to Vicksburg’s fall in July 1863—in time for the elder Morgan to profit from a sudden rise in American securities. Such calamity trading wasn’t thought bloodthirsty or reprehensible among merchant bankers but had an honored place in their mythology. As one Rothschild boasted, “When the streets of Paris are running with blood, I buy.”28

  Despite his Yankee sympathies, Morgan was stymied in undertaking Union financing. After southern banks drained their deposits from the North, Lincoln cast about for new sources of funds. With Lancashire textile mills closely allied with southern cotton plantations, the City was cool to any large-scale operation for the North. To finance the war debt, the president turned to Philadelphia banker Jay Cooke—later dubbed a financial P. T. Barnum—whose agents fanned out across America to sell war bonds in the first mass-market securities operation in the country’s history. Among the buyers in London were George Peabody and Junius Morgan. Yet the Civil War was the one major military conflict in which the Morgans were handicapped by political circumstances: it was a bonanza for German-Jewish bankers on Wall Street, who raised loans from the numerous Union sympathizers in Germany. In future, the Morgans’ political impulses would mesh perfectly with profitable opportunities.

  THE Civil War years saw the metamorphosis of George Peabody from Scrooge to Santa Claus. He had been a prototypical heartless banker, a one-dimensional hoarder. As a contemporary said, “Uncle George, as Americans . . . call him—was one of the dullest men in the world: he had positively no gift, except that of making money.”29 Yet this dour man suddenly became prodigal in his gifts; his philanthropy was as immoderate as his earlier greed. He found it hard to break his miserly habits. “It is not easy to part with the wealth we have accumulated after years of hard work and difficulty,” he confessed.30 Now a lifetime of hoarding was disgorged in one compensatory binge, cleansing his Yankee conscience. Perhaps as a young man Peabody had worked too much for others and as an adult too much for himself. In any event, he could do nothing by halves and again went to extremes.

  By 1857, he had begun to endow a Peabody Institute in Baltimore. (Unlike later Morgan benefactions, often anonymous and discreet, Pea-body wanted his name plastered on every library, fund, or museum he endowed.) In 1862, he began to transfer £150,000 to a trust fund to build housing projects for London’s poor. These Peabody Estates, with gas lamps and running water, would be a vast improvement over the medieval poorhouses of Victorian London, and they still dot the city. He deeded a five-thousand-share block of the Hudson’s Bay Company to finance the operation. For this revolutionary act of generosity, he became the first American to receive the Freedom of the City of London. “From a full and grateful heart,” he declared at a Mansion House dinner, “I say that this day has repaid me for the care and anxiety of fifty years of commercial life.”31 Peabody’s openhandedness became so proverbial that he was soon besieged with a thousand begging letters a month.

  During Peabody’s last years, the scope of his charity grew dazzling. He endowed a natural history museum at Yale University, an archaeology and ethnology museum at Harvard, and an educational fund for emancipated southern blacks. For this last, he handed over a $l-million batch of defaulted Mississippi and Florida bonds, hoping these states would someday resume payment and enrich the fund. There were further bequests for the housing projects, finally amounting to £500,000. As Peabody turned into a one-man welfare state, admirers saw celestial virtues in this former skinflint. Victor Hugo remarked, “On this earth there are men of hate and men of love. Peabody was one of the latter. It is on the face of these men that we see the smile of God.”32 Gladstone said that he “taught men how to use money and how not to be its slave.”33 Queen Victoria tried to honor him with a baronetcy or a knighthood, but Peabody—as if a stranger to worldly pleasures—declined this one. Instead, the queen dashed off a fulsome personal note from Windsor Castle, praising Peabody’s “princely munificence” to London’s poor and enclosing a miniature portrait of herself, wearing the Koh-i-noor diamond and the decoration of the Order of the Garter.34

  Throughout this apotheosis, Peabody never extended his charity to Junius Morgan. In 1864, their ten-year agreement expired, and Peabody retired. At this point, according to the promise Peabody had made to lure Morgan to London, the junior partner was to receive the use of his name and possibly his capital. Instead, Peabody decided to pull both his name and his capital from the concern. Perhaps in his new sanctity he wanted to erase his name from the financial map and enshrine it in the world of good works. But to Morgan, as later recorded by his grandson, “it was, at that time, the bitterest disappointment of [his] life that Peabody refused to allow the old firm name to be continued.”35 Junius reluctantly renamed the firm J. S. Morgan and Company (its name until Morgan Grenfell was formed in 1910). Peabody also forced Morgan to buy the office lease at 22 Old Broad Street on onerous terms. J. P. Morgan, Jr., wrote, “My Grandfather always used to say that Mr. Peabody had been very hard on him as to the price of the lease.”36 Of course, Junius Morgan’s anger toward Peabody was tempered by the extraordinary profits they had divided—over £444,000 earned in a ten-year period. And he had inherited the chief American bank in London.

  When Peabody died, in 1869 at age seventy-four, the British government dug a grave for him in Westminster Abbey, but his deathbed words, “Danvers—Danvers, don’t forget” deprived London of his remains. The Prince of Wales, later Edward VII, unveiled a statue of Peabody behind the Royal Exchange—a rare honor, considering the scarce space in the City. Even in death, Peabody managed to foster Anglo-American harmony. The British had just built a forbidding warship, the Monarch, whose sheer size caused consternation in America and scare talk of the vessel’s being used to demand tribute from American cities. The young Andrew Carnegie sent an anonymous cable to the British cabinet: “First and best service possible tot Monarch, bringing home body Peabody.”37 Whether this was the genesis of the idea or not, Queen Victoria shipped Peabody’s corpse to America aboard the ironclad. The ship rigged up a maudlin funeral chapel, with tall candles burning above a black-draped coffin. In America, the ship was met by Admiral Farragut’s squadron. Pierpont Morgan, in charge of funeral arrangements, devised a tribute of martial splendor, with British and American soldiers marching together behind the financier’s coffin.

  Before leaving Peabody, we might note an exchange about him within the House of Morgan in 1946. Thomas W. Lamont, chairman of J. P. Morgan and Company, asked Lord Bicester, senior partner of Morgan Grenfell, for a photostat of Queen Victoria’s letter thanking Peabody for aiding London’s poor. Two years from his death, Lamont was in a nostalgic mood, but Lord Bicester enjoyed shocking the unsuspecting:

  I have always understood that Mr. Peabody, though known as a great philanthropist, was one of the meanest men that ever walked. I do not know if you ever saw the statue of him sitting on a chair behind the Royal Exchange. Old Mr. Burns told me once that when subscriptions were invited in the City to erect a statue there was so little enthusiasm that there was not sufficient money to pay for the chair, and Mr. Peabody had to pay for it himself. When I first came here the head of our office was Mr. Perman, and I remember when he had been here sixty years Teddy [Grenfell] and I gave all the staff a dinner at the Saucy, and we took them to a Music hall afterwards, and old Mr. Perman was at his desk at nine o’clock the next morning. He knew George Peabody’s form well and used to tell Jack [Morgan] many stories. . . indicative of his meanness. I always understood that when he retired he announced he
was leaving his money in the business—and at once proceeded to take it out. I believe he left several illegitimate children totally unprovided for.38

  CHAPTER TWO

  POLONIUS

  IF Emerson was correct that “an institution is the lengthened shadow of a man,” then the shadow-caster of the House of Morgan was Junius Spencer Morgan. Pounded into his son, Pierpont, his precepts codified Morgan philosophy for a century. He was a fussbudget father, fretting over son and bank, a figure so massive and willful that only his son, retrospectively, could reduce him to merely the “father of J. Pierpont Morgan.” As one journalist said, “The Morgans always believed in absolute monarchy. While Junius Morgan lived, he ruled the family and the business—his son and his partners.”1 Until Junius died, in 1890, his massive shadow dominated his son’s life.

  Junius was cool and steady and seldom showed his hand. He had a dry wit and a genial manner and employed iron discipline. His friend George Smalley praised his “grave, strong beauty” and his “eyes full of light” but noticed the face ended “in an immovable jaw, all will.” Sometimes the stone facade broke down, but imperceptibly. “Once or twice I have seen him angry, and he showed his anger by a sudden restraint of speech and of manner.”2 That was as far as Junius betrayed emotion.

  Where George Peabody bore the scars of early poverty, Junius Morgan had the smooth manners and poise of inherited wealth. Among the possessors of great American fortunes, the Morgans boasted a uniquely pampered lineage. They didn’t claw their way up from poverty or legitimize a bloody frontier fortune with later respectability. By the early nineteenth century, they were well-to-do, enjoying a cushion of security generations thick. Affluent and well-bred, they weren’t rejected by European aristocracy, as were the Vanderbilts. One finds it hard to track down those poor, benighted Morgans whose early suffering made later wealth glorious. By no accident, the family produced defenders of the social order whose vices sprang from too much comfort and too little exposure to ordinary human misery.

  The first Morgan in America was Miles, who emigrated from Wales to Springfield, Massachusetts, sixteen years after the Mayflower landed at Plymouth. He prospered as a farmer and fighter of Indians, spawning generations of land-owning Morgans. His descendant Joseph Morgan fought with Washington’s army during the American Revolution. In 1817, Joseph sold his farm in West Springfield, Massachusetts, and moved to Hartford, Connecticut, which would become the Morgans’ ancestral home. Joseph had a refined air, a straight, delicate nose, and coolly discerning eyes. Like later Morgans, he was a hymn-singer and Bible-thumper and subscribed to the Wadsworth Atheneum, the city’s new art museum. As a businessman, he strikingly resembled his progeny: he bought a stagecoach line and the Exchange Coffee House, on whose premises he helped to organize the Aetna Fire Insurance Company. In irrepressible Morgan style, he added the City Hotel, invested in canal and steamboat companies, directed a bank, and helped finance the Hartford and New Haven Railroad, whose grisly train wrecks would haunt his descendants. Joseph made his great windfall in December 1835, when a fire in the Wall Street area destroyed over six hundred buildings. As an Aetna founder, he insisted that the firm pay customers promptly and even bought up Aetna stakes from investors who hesitated to pay. Joseph Morgan’s quick action made the firm’s reputation on Wall Street and later enabled it to triple its premiums.

  To Joseph’s wife, Sarah, the Morgans owe those strange eyes—fearful, querulous, and burning—that shone with such famous intensity in the face of young Pierpont. Sarah had a fleshy chin and bulbous nose, adding a peasant roundness to the patrician Morgan face.

  In 1836, Joseph bought his son, Junius, a partnership in the Hartford dry-goods house of Howe and Mather. That same year, Junius married Juliet Pierpont, daughter of the Reverend John Pierpont of Boston, pastor of the Old Hollis Street Church. This union of Morgan and Pierpont joined together in their infant son, John Pierpont, born in 1837, a wildly improbable set of genes. A poet and preacher, the Reverend John Pierpont was a fiery abolitionist and friend of William Lloyd Garrison and Henry Ward Beecher. With craggy face and tousled hair, he spurned the Morgans’ Yankee trader values. He was a failed merchant from an old New England family and had a romantic temperament and a crusading spirit. He engaged in a bitter public row with his Boston parishioners and was charged with “moral impurity” for speaking the word “whore.”3 With the church cellar rented to a local rum merchant, the congregation found his views on temperance subversive. It was said that in the heat of argument, the Reverend Pierpont’s prominent nose became inflamed—as would his grandson’s. To Rev. Pierpont, the Morgans probably owe the streak of repressed romanticism and moralism in their later history. Not by chance would the House of Morgan fancy itself Wall Street’s conscience and attract many sons of preachers and teachers.

  When Joseph died, in 1847, he left an estate of more than $1 million. Four years later, Junius cashed in his stake in Howe and Mather for an estimated $600,000 and moved to Boston to hunt bigger game. As partner in the restyled J. M. Beebe, Morgan and Company—the city’s largest mercantile house—he operated on a global scale, exporting and financing cotton and other goods carried by clipper ships from Boston harbor. It was here that he came to George Peabody’s attention.

  By this point, Junius’s son Pierpont already seemed quite contradictory. One side of him was pure homo economicus. As a small boy, he was restricted to a twenty-five-cent weekly allowance and minutely noted candy and orange purchases in a ledger. At twelve, he charged admission to a viewing of his diorama of Columbus’s landing. As an adolescent, he was ardent and high-spirited but also petulant and prone to sudden mood swings. He was afflicted with facial rashes, which made him morbidly self-conscious, and his childhood was marred by constant headaches, scarlet fever, and ailments of mysterious provenance. Perhaps the contrast between his own steady nature and Pierpont’s unruly temper made Junius fret unduly about his boy. With granite will, he began to mold Pierpont, instructing him to associate with those of his grammar-school classmates “as are of the right stamp & whose influence over you will be good.”4 This Polonius-like voice would drone on for decades.

  When his father moved the family to Boston, Pierpont enrolled in the English High School there, from which he graduated in 1854. While there, he suffered a severe bout of inflammatory rheumatism and in 1852 spent several months recuperating in the Azores, the illness left one leg shorter than the other. For the rest of his life, assorted ailments would confine Pierpont to bed several days each month. He was a curious study in contrasts, sometimes sickly, sometimes capable of great bursts of energy that would exhaust him and send him back to bed.

  Early on, Pierpont figured in his father’s business plans. Junius knew that the houses of Baring and Rothschild operated largely as family enterprises, grooming sons to inherit their respective businesses. In fact, the Rothschild insignia of five arrows commemorated five sons dispatched to five European capitals. The British economist and journalist Walter Bagehot noted, “The banker’s calling is hereditary; the credit of the bank descends from father to son; this inherited wealth brings inherited refinement.”5 Since merchant bankers financed foreign trade, their bills had to be honored on sight in distant places, so their names had to inspire instant trust. As a twentieth-century Hambros Bank chairman would put it, “Our job is to breed wisely.”6 The family structure also guaranteed the preservation of the bank’s capital.

  Besides his three sisters—Sarah, Mary, and Juliet—Pierpont had a younger brother, Junius, Jr., fondly nicknamed “the Doctor,” who died in 1858 at age twelve. So it was onto Pierpont, the lone surviving male heir, that Junius Morgan projected his imperial ambitions, in preparation for which he provided him with a gentlemanly education. To allow him to attain fluency in foreign languages and to season him for global business, Junius in 1854 sent Pierpont to the Institut Sillig, a boarding school on Lake Geneva. This was followed by a stint at the German university in Gottingen in 1856, where Pierpont enjoyed the blu
ff camaraderie of student clubs. He was a dashing, foppish boy, partial to polka-dot vests, bright cravats, and checkered pants. Already self-conscious about his skin eruptions, he shied away from the popular student duels that might disfigure his face.

  Throughout his life, Pierpont had little intellectual curiosity or aptitude for theorizing, and at Gottingen he excelled most at math. Beneath a rough boyish swagger, he was sensitive to art. He also collected autographs of presidents and famous figures and broken shards of stained glass found in cathedral closes. In later years, these fragments would be embedded in the windows of the West Room of his famous library.

  Junius Morgan feared his son’s hot temper and moaned to friends, “I don’t know what in the world I’m going to do with Pierpont.”7 He said the boy needed “restraining” and tried to inculcate a strong sense of responsibility.8 When Pierpont was twenty-one, Junius told him he was “the only one [the family] could look to for counsel and direction should I be taken from them . . . I wish to impress upon you the necessity of preparation for such responsibilities—have them ever in view, be ready to assume & fulfill them whenever they shall be laid upon you.”9 Weighty injunctions for a young man.

  After Pierpont started work at Duncan, Sherman during the panic year of 1857, he displayed awesome but unsettling precocity. While visiting New Orleans in 1859, he entered into a rash, unauthorized speculation. He gambled the firm’s capital on a boatload of Brazilian coffee that had arrived in port without a buyer. He bought the entire shipment and resold it at a quick profit. This first proof of his supreme confidence petrified the gray men of Duncan, Sherman. It was probably on the basis of this incident that the firm refused to make Pierpont a partner. In 1861, he struck off on his own, forming J. P. Morgan and Company at 54 Exchange Place with his cousin James J. Goodwin. At age twenty-four, he was now New York agent for George Peabody and Company. (This J. P. Morgan and Company would be short-lived. The name would be revived in 1895.) A photo of Pierpont from this period shows he had lost his look of teenage frivolity. He was now burly and handsome, with handlebar mustache, full lips, and an intense gaze. Unlike his father’s composed look, his already seemed restless.