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

by Ron Chernow

  In 1909, the State Department prodded a reluctant Wall Street to undertake Chinese business. A consortium of British, French, and German banks had nearly completed negotiations for a $25-million loan for the Hukuang Railway, which ran from Shanghai to Canton. Much to the European’s dismay, the State Department demanded an equal share for U.S. bankers. As Herbert Croly wrote, “The majority of these bankers had gone into the Group not because they were seeking Chinese investments but in order to oblige the administration.”25

  The State Department placed the House of Morgan at the head of an American Bankers Group that included Kuhn, Loeb, the National City Bank, and the First National Bank. Only a few years before, these firms had viciously quarreled during the Northern Pacific corner. Now Washington was welding them into an instrument of national purpose, believing that banker unity would magnify American influence abroad. When Jack cabled his father in London about the arrangement, Pierpont couldn’t suppress his competitive instincts. “Strikes me favorably,” he responded, “but, strictly confidential and for your own use only, important J. P. M. & Co. take lead and name mentioned first. Suppose fact already recognized but must not be overlooked.”26

  The American Group met at 23 Wall Street, with Harry Davison in the chair but the State Department pulling the strings. Ordinarily commanding and good-humored, Davison chafed at the controls. He instructed Teddy Grenfell in London, “Think it would be very wise if you would casually but firmly point out to those with whom you come in contact that this is a proposition of the Government and not of the Bankers.”27 The popular press applauded the latest salvo in the Morgan-White House wars and fancied that trustbusters now had bankers on the run. Meanwhile, Davison moaned: “Continue to be governed entirely by wishes of State Department.”28 For bankers who had prided themselves in their fierce independence from government, this new strait-jacket was hard to tolerate.

  Teddy Grenfell, partner in J. S. Morgan and Company (soon to be Morgan Grenfell) represented the American group in its dealings with the British, French, and German banker groups of the China consortium. Now and in the future, he would be an important intermediary between 23 Wall Street and the British government. Bolted together internally, the Morgan banks acted autonomously in many matters. It was a tricky situation, fraught with conflicts, for the New York and London houses were always sensitive to requests from their respective governments. In 1908, for example, J. S. Morgan and Company withheld a Turkish loan at the Foreign Office’s behest, then extended it the following year when bureaucratic winds shifted. So long as British and American interests coincided, this situation posed no problem. But a conflict was buried here that would later tear apart the Anglo-American Morgan empire. However much it might camouflage it, the House of Morgan wasn’t a multinational bank but an American bank with partnerships abroad. Many times, it would be impossible to appease both the United States and Britain.

  From 1909 to 1913, the American Group served as a conduit for all Morgan dealings with China. Its representative in China was the most dashing, adventurous agent in Morgan history—Willard Dickerman Straight. Straight’s life reads like a spy thriller. Fresh out of Cornell, he worked for the Imperial Maritime Customs Service in Peking and studied Mandarin. In 1904, he went to Japan to report on the Russo-Japanese War for Reuters and the Associated Press. A friend in those years described him as “tall, slim, with reddish-brown hair, of unusual frankness and charm of manner.”29 While reporting from Seoul, Korea, he met Edward H. Harriman at a dinner, an experience that transformed his life. Harriman then controlled the Union Pacific Railroad and the Pacific Mail steamship line, which he saw as the first two legs of a round-the-world transportation system. He recruited the enthusiastic Straight to win the critical China rail link. Then, in 1906, Teddy Roosevelt invited Straight to the White House, saying he was signing up bright young Ivy Leaguers to join the Foreign Service and drum up business for American companies abroad. To assist Harriman’s venture, Roosevelt assigned Straight—then only in his twenties—to be the U.S. consul general in Mukden, a bustling rail center in Manchuria. He would be the sole State Department representative north of the Great Wall.

  In those days, Manchuria was colorfully described as the cockpit of Asia, the place where Russian and Japanese imperial interests clashed and European powers vied for influence. Nobody could have savored this romantic crossroads more than Willard Straight. He was an improbable mix of frank imperialist and young idealist, viewing American bankers as a buffer against Japanese and Russian encroachment in Manchuria. Cloaking dollar diplomacy in a mantle of altruism, he thought unity among foreign bankers would prevent any single country from exploiting China. This argument would eventually be exposed as a self-serving American delusion. But Straight was young and ardent and easily convinced himself of his mission of salvation.

  An intimate of mandarins in the Manchu court, he had a poetic sensibility, sketching watercolors of queued street vendors and illustrating a book about China. He sang Kiplingesque lyrics as he strummed his guitar and loved the themes of imperial conquest. His letters were spiced with vivid, exotic imagery, describing China as “the storm center of world politics,” a place “where everyone more or less is spying on everyone else.”30 In 1909, he met one of America’s richest heiresses, Dorothy Whitney, and they became engaged two years later. She was the orphaned daughter of William C. Whitney, a former navy secretary who had made a fortune in tobacco, traction, automobiles, and stock market speculation, and she had inherited $7 million. Recently president of the Junior League in New York, she was touring China when she met Straight. She had a wild, romantic sensibility that matched his own. In Peking, she recalled, they “walked along the city wall at sunset time and watched the soft glow of the distant purple hills.”31 Dorothy and Willard Straight would pass through the turbulence of revolutionary China with the cool insouciance of a couple in an elegant Hollywood farce.

  In 1909, Straight was appointed representative of the American Bankers Group. He had enough youthful idealism to be disturbed by much of what he saw within the group. During the summer of 1910, he worked at 23 Wall Street—he thought the address a good omen, because the street number was the same as Dorothy’s birthday—and was appalled at the way the House of Morgan bossed around the State Department. Davison might chafe at government control, but Straight saw things quite differently. When Pierpont instructed Davison, “You might as well make it clear that when we want to discuss things with the U.S. Government we want [the secretary of state] and not [the assistant secretary],”32 Straight commented sardonically, “It was not difficult to see where the real power lies in this country.”33 Pierpont might have been so imperious because the secretary of state was Philander C. Knox, who, as attorney general under Roosevelt, had filed the suit against the Northern Securities Company. Knox dutifully came to 23 Wall whenever he wished to speak to the American Group.

  In 1910, the China enterprise expanded beyond the railway loan to include a massive $50-million loan to China for currency reform. Willard rhapsodized about the new loan to Dorothy: “It’s history . . . and big history at that—the game for an empire.”34 The Chinese objected to a provision that required a Western adviser as a new overseer of Chinese finances. As a compromise, a Dutchman was unobtrusively slipped into the post. In 1911, Straight and representatives from England, France, and Germany signed the loan with Chinese officials. Willard wrote excitedly to Dorothy, “We’ve arranged it so that we can practically dictate the terms of China’s currency reform. When you think of holding the whip hand in formulating the first real sound financial basis for a country of 400 million, it’s quite a proposition.”35

  The loan generated worldwide publicity and made Straight an instant hero. Along with his prestigious association with the House of Morgan, the China loan helped reconcile Dorothy’s family to her marrying beneath her social station. Teddy Roosevelt interceded to plead Willard’s cause. Dorothy belonged to the polo-playing set of Locust Valley and Westbury, two Long Isla
nd communities rich in Morgan partners. Robert Bacon and his wife had been almost substitute parents after her own parents died, and she knew Pierpont as well. “Dear Mr. J.P. he’s such a sweetie underneath the sternness,” she wrote to Willard.36 In fact, Straight may have clung to the Morgan position longer than he wanted to because of its social utility.

  Straight’s naive hopes about the China loan were soon to be dashed by geopolitical realities. He and the bankers had cast their lot with the corrupt Manchu dynasty, which was oblivious to turmoil beyond the palace walls. Straight himself grew disillusioned with the “selfish, narrow-minded bigotry” of the Chinese officials. Yet he wanted to perpetuate the Manchu dynasty to save the loan. He was caught up with the wrong issues; he was worrying about the composition of banking syndicates and missed the popular revulsion from all foreign bankers. At a Paris conference on China’s finances in 1912, the Japanese and Russians demanded—and obtained—inclusion in the China consortium. This was Straight’s nightmare: the group now included China’s traditional enemies. Bankers, he saw, couldn’t operate in a void but were enmeshed in larger political forces. Gloomily he foresaw “the inevitable day when China’s finances will be administered like Egypt’s—by an international board. Another dream shattered!”37

  In 1911, a nationalist revolution in China, fueled partly by resentment of foreign bankers, ousted the Manchu dynasty and declared a republic. The liberal, activist Dorothy Straight was sympathetic to the revolutionaries. In January 1912, Sun Yat-sen became provisional president, heading a movement seeking to unify China and stop foreign meddling. Willard and Dorothy witnessed the panicky exodus of Manchu nobles from a Peking aflutter with radical banners. Willard slept with a loaded revolver by his side. The imaginative Dorothy thrived on the danger, writing, “It would be rather exciting to be attacked by a wild mob in the night.”38

  One evening as the Straights were getting ready to dine with a British neighbor, shooting did erupt nearby. As Willard recalled, “The pop, pop, popping continued and our roof lines stood out sharply against the glow of the first fire. I told Dorothy that it looked like trouble. She didn’t mind a bit, but went on dressing for dinner, calm as you please, and objected strenuously when I advised her to get into street dress in order that, if necessary, we could clear out to the Legation.”39 During a pause in the fighting, they made it over to the neighbor’s for dinner. But then soldiers began smashing and looting stores nearby. After gathering up their maid and proper clothing, they fled for the safety of the legation but were trapped by rioters on a dead-end street. Finally they were rescued by a contingent of American marines. Piling into a rickshaw, bags strapped to the back, Dorothy and Willard managed to thread their way through pillaging mobs to the legation.40

  This Morgan foray into China ended with Woodrow Wilson’s election and the elevation of that Morgan bete noire, William Jennings Bryan, to secretary of state. On March 10, 1913, Harry Davison and Willard Straight visited the new secretary of state in Washington. (Unlike Knox, Bryan would never deign to travel to 23 Wall Street.) Bryan asked them flat out what the group expected from Washington if China defaulted. Davison didn’t mince words and said the government might “be called upon to utilize both its military and naval forces to protect the interests of the lenders.”41 Neither Bryan nor Wilson sympathized with such foreign meddling. A week later, Wilson denounced the loan as “obnoxious to the principles upon which the government of our people rests.”42 The government was obviously withdrawing its support.

  The next day, the American Bankers Group was effectively disbanded. As a creature of Washington, it couldn’t survive without its blessing. Most bankers were relieved, for they had come to doubt China’s willingness to repay the loan. The end of the China business wasn’t mourned within the House of Morgan, either. As Teddy Gren-fell, who had been consumed by it, wrote to Jack, “I think that all of us will have ’China’ written on our hearts when we die, with several uncomplimentary epithets after it.’ ”43 Yet the experience had bridged differences among big Wall Street banks and made them accustomed to working together abroad. Morgans, National City, and First National arrived at an understanding for participating together in all Latin lending. This Big Three agreement would vastly magnify Morgan power. (Kuhn, Loeb often formed a fourth member of their syndicates.) These same banks, ironically, would shortly be hauled before the Pujo Committee as the abominable Money Trust. What the public wouldn’t know was that the Money Trust had been forged, in part, by Washington itself in its quest for foreign influence.

  The new age of banker-government collaboration mellowed even the vehemently antigovernment Jack Morgan. After wrangling with Washington over a Honduran loan in 1912, he cabled Grenfell, “You will understand we do not wish accuse our own Government too loudly in view of necessary relations with them other foreign matters.”44 No less ideologically hostile to government than his father, Jack saw the need to mute his public anger. The days of brusque individualism were dead.

  Willard Straight returned to work at 23 Wall, but never fit into a mundane office setting. In the 1912 election, he and Dorothy supported their friend from Oyster Bay, Teddy Roosevelt—an act that must have savored of subversive tendencies among the Morgan partners. They also secretly read Louis Brandeis’s attacks against Morgan’s handling of the New Haven Railroad. In 1914, they were the financial angels for a new political weekly, The New Republic, which initially had a strongly pro-Roosevelt slant. Harry Davison and other partners spurned the chance to participate, and only Thomas Lamont joined them. Restless and adventurous, Willard found it hard to submit to a banker’s discipline and chafed at not being made a Morgan partner. He was always concocting new schemes, such as the creation of India House on New York’s Hanover Square, a club dedicated to foreign trade, which he outfitted with model ships and antiques. In the end, even the spacious universe of J. P. Morgan and Company would be too confining for the large, venturesome spirit of Willard Straight. He would last only another two years at the bank.

  CHAPTER EIGHT

  TITANIC

  MOROSE and fatalistic in his last years, Pierpont felt misunderstood by the public and angered by the uproar over his trusts. He shook his cane menacingly at reporters, a murderous gleam in his eyes. He wouldn’t admit to legitimate public curiosity about his affairs. At Dover House in 1911, he burned the bound letters he had sent to Junius for thirty-three years, destroying perhaps the most important chronicle of Anglo-American finance in the late nineteenth century. He craved a privacy impossible for the world’s most famous banker. Like a ghost, he brooded in the West Room of his library, beneath stained-glass windows and thick draperies that muffled the sounds of a changing world.

  He spent much of his time in Europe, escaping the din of Progressive politics. His wanderlust never deserted him. From European spas, he would notify Jack of the next stop on his itinerary, adding those ever awkward words, “advise mother.” He felt at home in many places. Once asked to name his favorite spots, he replied, “New York, because it is my home; London, because it is my second home; Rome and Khargeh.”1

  Egypt, in particular, held a mystical charm for him, and he visited it three times in his last three years and helped to bankroll the Metropolitan Museum’s Egyptian excavations. (One 1909 photograph shows an oversize Pierpont on a small donkey galloping into the desert ahead of his flabbergasted guides.) The excavations at Khargeh, four hundred miles southwest of Cairo, so intrigued him that he asked Thomas Cook and Sons to construct a steel Nile steamer named the Khargeh. From this paddle-wheel boat, he would pitch coins into the water, which were fished up by boys diving from the Nile’s bank.

  Pierpont was a lonely man, and fame probably only deepened his isolation. His first biographer, Carl Hovey, wrote, “It is said there are scarcely fifty men in the financial district who have a speaking acquaintance with Morgan.”2 Pierpont had a wide business acquaintance, but few associates knew him well. Hence, he relied on his family for emotional sustenance. This made especiall
y bruising a feud with his youngest child, Anne Tracy, who was six years Jack’s junior. Pierpont Morgan could conquer the world but not his daughter Anne. She was an athletic, spirited girl who liked golf and tennis and rebelled against her formal upbringing. Of all Pierpont’s children, Anne most resembled him temperamentally: she was bright, stubborn, imperious, and highly opinionated. Elizabeth Drexel, later the wife of socialite Harry Lehr, recalled her as a “thin lanky child with an elfin face and penetrating eyes” but with “a personality and a will as strong as [Pierpont’s] own and a disconcerting habit of putting her elders in the wrong.”3 Once, at a dinner party with Pierpont’s cronies, her father peered down the table and asked her what she planned to be when she grew up. “Something better than a rich fool, anyway,” she snapped.4 Despite these gibes, she was close to her father and often accompanied him to Europe aboard Corsair III. Once, she served as host to the kaiser aboard the yacht.

  By the early 1900s, Anne, now in her early thirties, had grown into a tall young woman with short hair swept back on the sides, a strong nose, dark eyebrows, and her father’s intense gaze. She had his executive talents and childlike simplicity and hated cartoonists who mocked her father’s nose. She was big and somewhat matronly but also stylish in dress. In 1903, Daisy Harriman, a famous Washington hostess, brought her in as a founder of the Colony Club, the first American ladies’ club, patterned after a British gentlemen’s club. At Thirtieth Street and Madison Avenue, it was designed by Stanford White and had a marble swimming pool and Turkish baths. Rules forbade men above the first floor. Pierpont had no sympathy for the project and lectured the ladies that “a woman’s best and safest club is her own home.”5 Predictably, Dorothy Whitney was an early member.