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

by Ron Chernow

  Pierpont had to contend with a single holdout, Britain’s Cunard Line, whose exclusion Ballin thought might wreck the trust. (There may have been some personal pique here: once detained by a strike of Cunard workers at Liverpool, Pierpont had sworn, on the spot, never to use the line again.) Now, with near-panic in British shipping circles and a popular clamor for Parliament to “save” the seas for Britain, a cabinet committee pressed Cunard not to sell. The British admiralty wanted transatlantic liners available as warships in an emergency and feared having Cunard in foreign hands. To woo the line, the British government granted it lavish subsidies to build two new ships, the Mauretania and the Lusitania, which would be the world’s biggest steamships. In exchange, Cunard agreed to stay in British hands and keep its fleet at the government’s disposal.

  In crafting a trust, Pierpont had never before had to contend with foreign governments. But as finance became increasingly international and affected sovereign interests, it took on a more political coloring. To temper British fears, Pierpont lobbied Colonial Secretary Joseph Chamberlain, a vocal critic, and resorted to a ruse familiar to modern multinationals: he camouflaged American ownership, first with the trust’s very name, the International Mercantile Marine. Pierpont also agreed to man his British ships with British crews, fill their boards with British directors, and have them fly the Union Jack. Finally, his British ships would be in the reserves of the British navy and could be conscripted in case of war. Yet the IMM’s five-man voting trust would have an American majority, with Pierpont and his partner Charles Steele joined by P. A. B. Widener, along with Ismay and Lord Pirrie.

  The IMM would become a famous Pierpont Morgan flop. When shipping traffic slackened after the Boer War, the Morgan combine and Cunard exhausted each other in debilitating rate wars. From its inception in April 1902, the Morgan syndicate struggled to unload the IMM’s unwanted securities. The stock had so much water—that is, inflated value—that it couldn’t get a New York Stock Exchange listing. In 1906, the underwriters still held nearly 80 percent of the shares. As the Wall Street Journal concluded in a postmortem on Pierpont’s shipping trust, “The ocean was too big for the old man.”22

  The British revulsion toward Pierpont probably changed the complexion of his London partnership, J. S. Morgan and Company. Not only had the bulk of its capital been his, but its mostly American partners had largely been recruited from among family members. In the new century, more partners would be British, and the choices more political, as Pierpont spent lavishly to build up the London house. In 1900, he signed up as a partner Sir Clinton E. Dawkins, a distinguished civil servant who had just completed a tour of duty in Egypt and was about to become a finance minister in India. The press saw fresh plans to expand the Morgan domain into Asia.

  It was dissatisfaction with Dawkins, apparently, that led Pierpont into merger talks with Barings in 1904. He also feared his new rivals on Wall Street. Lord Revelstoke of Barings, in recalling his meeting with Pierpont on the subject, wrote, “He inveighed bitterly against the growing power of the Jews and of the Rockefeller crowd, and said more than once that our firm and his were the only two composed of white men in New York.”23 The two firms had long identified with each other as the leading Protestant houses in their respective cities.

  The proposed merger centered on a plan for the House of Baring to handle the London side, the House of Morgan the New York side; J. S. Morgan and Company would disappear. The talks foundered for two reasons, according to Lord Revelstoke: Pierpont was afraid of disappointing Dawkins by merging the London house; and with Jack Morgan spending so much time in London, his position in the merged firm would be a ticklish affair. “I expect there is little sympathy and less confidence between father and son,” said Revelstoke, who was also afraid of being smothered by Pierpont.24 Soon after these talks collapsed in 1905, Dawkins had a heart attack and died. Jack was then entrusted with the sensitive assignment of recruiting well-connected British partners for the firm of J. S. Morgan and Company. Now the Morgans would buy some expensive British bloodlines.

  In 1904, Edward Grenfell was elevated to partner; he became a Bank of England director a year later. A cool, dapper young bachelor who wore smart clothes and had a sharp tongue, Grenfell was snobbish and conservative and possessed a penetrating intellect. He also had a taste for practical jokes. Educated at Harrow and Trinity College, Cambridge, he had eminent ancestors, both his father and grandfather having been directors of the Bank of England and members of Parliament. Even as a young man, he peered at the world unsentimentally and spied out the fraudulent and hypocritical in people. Grenfell would become the London firm’s political fixer and ace diplomat, its main contact with the British Treasury and the Bank of England.

  In 1905, Grenfell brought in his cousin and Jack Morgan’s friend, Vivian Hugh Smith, then working in a family business that managed wharves. A tall, handsome redhead and a charming raconteur, he had gone to Eton and Trinity Hall, Cambridge. He more than Grenfell was in Pierpont’s mold. He was a business go-getter, with his hand in many deals. He invested in Caucasian copper and African goldfields and in other Rhodesian enterprises. Smith’s father had been a Bank of England governor, and he was a member of the most prolific banking family England has produced, the so-called City Smiths, descended from a seventeenth-century Nottingham banker. (Grenfell wasn’t a Smith; he and Vivian were related through their mothers.) Charting the power of this prodigious brood in 1959, Anthony Sampson estimated that seventeen Smith descendants in the City controlled eighty-seven directorships in seventy-five companies and were chairmen of six companies. The Martin Smiths would intermarry with the Hambros, strengthening that banking alliance. Vivian Smith married the tall, slender, flaxen-haired Lady Sybil, the mischievous, high-spirited only daughter of the sixth earl of Antrim, who owned Glenarm Castle and several square miles of land in Ulster and whose mother had been a lady-in-waiting to Queen Victoria. Gradually, then, the London bank shed its character as an American colony in the City. When Jack returned to New York in 1905, Grenfell and Smith were in charge. When the firm was restyled Morgan, Grenfell in 1910, it was the first time it had ever carried a British name. The Morgans had built their Trojan horse well.

  DURING Theodore Roosevelt’s presidency, Pierpont Morgan received his most pronounced comeuppance for his role in the American scene. He was now so grand and cloud-wreathed that only a president could chop him down to mortal scale. The public revulsion from him was easy to explain. Wall Street had flourished with the trusts: many were headquartered in New York and enjoyed closer relations with Wall Street bankers than with the companies from which they were compounded. Teddy Roosevelt wanted to correct the imbalance between government and corporate power, and in so doing he inevitably collided with Pierpont Morgan.

  Although he had created great industrial combines, Pierpont couldn’t allow commensurate power to accrue to labor and government. Despite his reverence for the past, patent in the religious and Renaissance art he collected, he was a radical force, unsettling to small-town America, with its agrarian traditions and faith in its own innocence. However much businessmen might respect him, he was now an ogre in the popular press. One Broadway hit show depicted devils blowing across a fiery seat as they sang in unison, “This seat’s reserved for Morgan, the great financial Gorgon.”25

  Soon after President McKinley was shot, the House of Morgan tested his successor. Pierpont’s new lieutenant, the smooth, insinuating George W. Perkins, cabled the new president, “The country’s only consolation at this time is that it has an honest, fearless, loyal American to assume its world wide burdens.26 A few weeks later, Perkins and Robert Bacon, a former classmate of TR’s at Harvard, visited the White House to urge caution and scout out Roosevelt’s intentions. The president said he wanted reform and afterward described Perkins and Bacon “arguing like attorneys for a bad case, and at the bottom of their hearts each would know this if . . . he were not the representative of so strong and dominant a character as Pierpont Mo
rgan.”27

  As much a showman as Pierpont, TR would endlessly manipulate the Morgan symbolism. With the public appalled by the Northern Pacific corner, Roosevelt saw the political wisdom of filing an antitrust suit against the Northern Securities Company, whose formation had marked the Morgan-Harriman truce. Attorney General Philander C. Knox announced the suit after the stock market’s close on February 19, 1902. The news caught Morgan by surprise at a dinner. Clearly, this White House wouldn’t automatically succumb to Morgan pressure. The subsequent confrontations between TR and Morgan showed the tycoon in all his sublime arrogance. The two men shared membership in New York’s aristocracy; Pierpont and TR’s father were both founders of the American Museum of Natural History. This common background perhaps gave their feud a special rancor—a pattern that would repeat itself with Jack and another notable “class traitor,” Franklin Roosevelt.

  At a White House meeting that included Attorney General Knox, Morgan expressed indignation that he hadn’t received advance word of the Northern Securities suit. In what history has engraved as the ultimate hauteur, he suggested to Roosevelt that Knox and his lawyers meet privately. “If we have done anything wrong,” said Pierpont, “send your man to my man and they can fix it up.”28 Knox said testily that they didn’t want to fix the merger, but stop it. Worried about U.S. Steel, his favorite stepchild, Morgan asked Roosevelt if he planned to “attack my other interests.” Not “unless we find out . . . they have done something we regard as wrong,” Roosevelt replied.29

  In Roosevelt’s reaction to the meeting, there was the keen relish and cynicism of the well-bred rebel. He told Knox how Morgan “could not help regarding me as a big rival operator, who either intended to ruin all his interests or else could be induced to come to an agreement to ruin none.”30 Back at 23 Wall, Pierpont dashed off an angry letter to the president, but cooler associates dissuaded him from sending it. In 1903, a court in Saint Paul, Minnesota, backed the government in dissolving the Northern Securities Company and the Supreme Court narrowly upheld the decision a year later. The Sherman Antitrust Act, moribund under McKinley, suddenly took on new life with TR.

  Although the Roosevelt-Morgan relationship is sometimes caricatured as that of trust buster versus trust king, it was far more complex than that. The public wrangling obscured deeper ideological affinities, as first demonstrated in the anthracite miners strike of May 1902. The principal coal companies were owned by railroads, such as the Reading, Lehigh Valley, Erie, and others close to the House of Morgan. They wanted to avenge a 10-percent wage increase granted the miners in 1900—a deal that Pierpont had helped to broker—and reacted to the strikers with feudal ferocity. By the fall of 1902, schools were shut in New York for lack of coal, and the Republicans feared retribution in the elections. On October 11, 1902, Elihu Root, the secretary of war, met with Pierpont aboard Corsair III in the Hudson River. Roosevelt was ready to run the mines with soldiers and wanted Morgan’s support for an arbitration committee. TR was taking an enlightened stand for a president—strikebreaking had been the more typical presidential response.

  The approach appealed to Morgan, who liked order and negotiation. He and Root went straight to the Union Club to meet with some railroad presidents. Paternalistic in his own bank, he was more conciliatory toward the miners than the railroad presidents were. At a White House meeting on October 3, the railroad men angrily abused (ohn Mitchell, the young president of the United Mine Workers of America, who reacted with commendable dignity. Two days later, Roosevelt sent Robert Bacon a letter designed to enlist Pierpont’s further help. The president said of Mitchell, “He made no threats and resorted to no abuse. The proposition he made seemed to me eminently fair. The operators refused even to consider it; used insolent and abusive language about him, and in at least 2 cases assumed an attitude toward me which was one of insolence.”31 While sympathetic to Roosevelt’s plea, Morgan lacked the total power over the railroad men popularly attributed to him, and Roosevelt complained to Henry Cabot Lodge that Morgan hadn’t been able to “do much with those wooden-headed gentry.”32

  The crisis climaxed on October 15, 1902, when Perkins and Bacon visited the White House and stayed up close to midnight with Roosevelt, trying to find a way out of the impasse. Roosevelt again saw the two Morgan partners as melodramatic, even slightly ridiculous. As the night wore on, he said, they “grew more and more hysterical, and not merely admitted but insisted that failure to agree would result in violence and possible social war.”33 Roosevelt finally hit upon a way that would allow the operators to save face: they would place the labor representative on the board in a seat reserved for an “eminent sociologist.” In the end, the arbitration board granted the miners a 10-percent wage increase but no union recognition. Roosevelt glowingly wrote Morgan, “If it had not been for your going in the matter, I do not see how the strike could have been settled at this time, and the consequences that might have followed . . . are . . . very dreadful to contemplate.”34

  Even on the trust issue, Roosevelt and Morgan were far from antithetical. Roosevelt saw trusts as natural, organic outgrowths of economic development. Stopping them, he said, was like trying to dam the Mississippi River. Both TR and Morgan disliked the rugged, individualistic economy of the nineteenth century and favored big business; they wanted to promote U. S. entry into world markets. But whereas Roosevelt thought economic giantism warranted an equivalent growth in government regulation, Morgan saw no need for countervailing powers. A Victorian gentleman banker at bottom, Pierpont saw trust, honor, and self-regulation among businessmen as providing the needed checks and balances.

  That Roosevelt and Morgan were secret blood brothers can be seen in the strange odyssey of Morgan partner George W. Perkins, who ended up a lieutenant to both. He was a handsome, highly imaginative man, with roguish, heavy-lidded gambler’s eyes and a sinister baby face behind a handlebar mustache. His father had founded a missionary slum school in Chicago, and George grew up on the grounds of a reform school that his father ran. Before he joined the bank in 1901, he was already an empire-building executive at New York Life Insurance. A voluble, glad-handing deal maker, he was an experiment on Pierpont’s part—more chief than Indian—and showed Morgan’s knack for picking bright people. He had come to the Corner to solicit a donation for preserving the Palisades, the high cliffs on the western bank of the Hudson. Pierpont gave $25,000 of a requested $125,000, then said to Perkins as he was leaving, “I will give you the whole $125,000 if you will do something for me.” When Perkins asked what, Pierpont motioned toward the partners’ area. “Take that desk over there.”35

  Morgan gave Perkins a day to decide. President McKinley warned him against the killing regime of a Morgan partner, but the cocky Perkins accepted. Things were stormy from the start. J. P. Morgan and Company employed men for secretarial positions, and Perkins wanted to bring his female secretary from New York Life. “I will not have a damned woman in the place,” Pierpont roared, and poor Mary Kihm was stashed away in a bank building around the corner.36 Later, Perkins moved her over to 23 Wall, but with the proviso that she remain upstairs and never appear on the banking floor.

  Flamboyant and outgoing, George Perkins stands out among early partners because he wrote about trusts even as he created them. He challenged the mores of tight-lipped bankers of the Baronial Age. In August 1902, he pulled off a deal that put him in Pierpont’s league. For a $3-million fee, he merged the McCormick Harvesting Machine Company and the Deering Harvester Company plus three smaller companies into International Harvester. This new trust had an 85-percent share of the farm-equipment market. Perkins chose the name International Harvester because he foresaw the rise of global corporations and hoped the new trust would “comply with the laws of various countries and be at home everywhere.”37 Because of the popularity of McCormick Harvesting among farmers, International Harvester was spared the trust-busting fervor that was directed against U.S. Steel.

  As the Deering and McCormick families vied to control Int
ernational Harvester, Perkins came up with an ingenious solution: the House of Morgan would control it. Perkins boasted to Pierpont, “The new company is to be organized by us; its name chosen by us; the state in which it shall be incorporated is left to us, the Board of Directors, the Officers, and the whole outfit left to us—nobody has any right to question in any way any choice we make.”38 Cyrus Hall McCormick, Jr., later called Perkins the most brilliant negotiator he had ever known.39 When International Harvester was listed on the Stock Exchange, Perkins proudly sent its first report to Roosevelt, writing that “so far as I know, this is the first instance on record that a corporation, on offering its securities to the public, has given to the public complete information as to its affairs.”40

  Perkins’s advent came at an auspicious time for Pierpont Morgan. The trusts had thrust Wall Street into the national spotlight and brought about growing federal scrutiny of high finance. Pierpont was still mired in a nineteenth-century businessman’s contempt for government—when a fellow vestryman at Saint George’s Church, William Jay Schieffelin, the son-in-law of Dr. Markoe, came one day to talk to him about a civil service reform movement, Pierpont thundered, “What do I care about civil service reform!”41 To worsen matters, Pierpont had a ferocious attitude toward the press, rarely granted interviews, violently refused to be photographed, and warned employees to withhold information from reporters.

  The slick, cool George Perkins, with his natty gray alpaca suits and ingratiating manner, enjoyed the smoke-filled rooms. He was the House of Morgan’s first real power broker and high-level lobbyist. His later antagonist in the struggle for Theodore Roosevelt’s soul, the Kansas Progressive William Allen White, has left some marvelous impressions of Perkins as a silver-tongued devil. White became fascinated with Perkins after Senator Albert J. Beveridge urged White to go into the Senate and said that Perkins, who liked him, could arrange it. White observed that Perkins “made quick decisions, spoke in a soft voice, smiled ingratiatingly, easily.” He wrote, “I used to watch him fishing for men with a certain pride in his skill, which I greatly admired.” He also declared that “he exuded pleasantly the odor of great power that came from the Morgan connection.” At the Bull Moose National Convention in 1912, White saw a “smiling, simpering” Perkins, “spick-n-span, oiled and curled like an Assyrian bull, and a young one, trim and virile.”42