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

by Ron Chernow

  Because Stettinius was the linchpin of the Allied supply operation, his safety became a high priority, especially after Erich von Falkenhayn, chief of Germany’s general staff, decided to achieve victory by cutting off the Allied supply line. British intelligence agents informed Stettinius of threats against his life. They told of a “certain lovely lady” in New York who had seen a German agent carrying letters addressed to him. As a security precaution, Stettinius’s family was uprooted without warning from their thirteen-acre mansion on Staten Island and relocated on Long Island. Stettinius himself spent the war aboard the cruiser Margaret, anchored in New York harbor. His room was tastefully appointed with vases, linen, china, and plated silver, all picked by that well-known decorator Harry Davison.

  The Morgan bank also performed intelligence work for the British. When the Morgan partners learned of a plan by German investors to buy up Bethlehem Steel, they met with company officials and had them put their shares in a voting trust, making the defense contractor impregnable to an unwanted takeover. In an extraordinary act of faith, the British exempted the House of Morgan from mail censorship in and out of Britain, allowing it to retain an in-house code developed by Stettinius and his British contact, Charles F. Whigham of Morgan Grenfell. Hence, in wartime cables, Jack retained his code name Chargeless and Lamont, Chalado. Sticking to tradition, the bank wouldn’t let any outsider have access to its code book.

  Nonetheless, the Export Department wasn’t an unqualified success. The French never used it as much as the British did, and the British Admiralty remained cool compared with the War Office—a tension unrelieved by a meeting between Jack and First Lord of the Admiralty Sir Winston Churchill. There were also persistent suspicions that the bank favored friends. Though contracts were distributed to almost one thousand companies, many big winners—General Electric, Bethlehem Steel, Du Pont, and U.S. Steel—were firmly in the Morgan camp.

  The war was especially profitable for the Guggenheims. In 1914, the House of Morgan helped them to organize Kennecott Copper, America’s biggest copper producer, as a public company; Daniel Guggenheim was a frequent wartime visitor to Morgan partner Thomas Cochran, who sat on Kennecott’s board. The Export Department bought up three-quarters of all the electrolytic copper mined in the United States for the British, and the Guggenheims and many others made fortunes from it. Another Guggenheim company, American Smelting and Refining, enjoyed a boom as the Allies bought lead for rifles and bullets. The distribution of billions of dollars in contracts enabled the House of Morgan to win the loyalty of dozens of powerful companies.

  Within bounds, the British tried to prevent the bank from abusing its extraordinary powers. To investigate charges of favoritism, Great Britain sent a mission to New York under the Welsh coal magnate David Alfred Thomas, later Lord Rhondda. Staying at the Plaza Hotel for three weeks during the summer of 1915, Thomas hovered around the bank and found Stettinius’s work faultless. He did report to England that the bank was buying excessively from Republicans, and Lloyd George advised Davison to spread the wealth around. Davison replied that they would try to distribute contracts geographically.

  Thomas’s stay in New York had one uneasy moment. One day, he got a call from his secretary at the Plaza, saying a sudden gust of wind had blown some confidential memos out the window; three sheets of top-secret onionskin had fluttered down onto Fifth Avenue. This breach of security was so grave that Lloyd George was notified in London. Through late-afternoon drizzle, Morgan employees scoured the avenue, ducking under parked cars and staring down drains. The sheets were lost. To console Thomas, his staff took three identical sheets, dragged them through bathwater, and showed him how they decomposed.

  Notwithstanding Thomas’s report, the British remained wary of Morgans and believed it rewarded friendly steel, chemical, and shipping concerns. Asquith consoled himself with the thought that the bank kept its back scratching within tolerable limits. He wrote to Reginald McKenna, who had succeeded Lloyd George as chancellor of the Exchequer: “In regard to Morgan’s, while I do not doubt that they have made and will continue to make all that they can out of us, I see no reason to think that they have been acting unfairly, still less treacherously. The original contract with them may or may not have been wise, but it would be bad policy to swop horses now, or to make them suspect that we distrust them.”20

  In fact, the British were never foolishly or blindly in love with the House of Morgan. They welcomed having an Anglo-American listening post on Wall Street, especially as financial power shifted across the Atlantic. But the government’s deliberations during the war were veined by a certain cynicism, a belief that Morgan partners drove a hard bargain and needlessly offended people with their arrogance. Relations between the Morgans and the British would always be close but seldom harmonious, a fraternal tension lurking beneath protestations of mutual devotion.

  WHERE other partners at 23 Wall Street harbored some secret envy or suspicion of their British brethren, Jack Morgan had no such reservations. He regularly spent up to six months a year in England and was fully bicultural. For him, the war was a holy cause as well as a business opportunity. Even more than Pierpont, Jack was simple and guileless. He inhabited a black-and-white world in which loyalty to England found its equal and opposite emotion in hatred of the Germans. Unstinting in serving England, he donated Dover House, Junius’s old country house at Roehampton, as a convalescent home for wounded officers. He instructed his steward at Wall Hall to plough up parkland and plant wheat for the war effort. Once Jack’s passions were engaged, his commitment was total. J. P. Morgan and Company even took a stake in Montana wheat fields to supply more war provisions.

  With America officially neutral, Stettinius’s Export Department exposed the bank to inflammatory criticism. It fanned anti-Morgan sentiment that had existed in the hinterlands ever since William Jennings Bryan’s Cross of Gold speech. During rallies at the Corner, agitators would point to 23 Wall and blame Morgan partners for killing thousands of innocents. Senator Robert La Follette echoed small-town sneers when he asked, “What do Morgan and Schwab [head of Bethlehem Steel] care for world peace, when there are big profits in world war?”21 Minnesota congressman Charles Lindbergh, who had prompted the Pujo hearings, now condemned the “money interests” for trying to lure the country into war on the side of the Allies. A dual myth was being born—that the Morgans were stooges of the British crown and that their money was drenched in blood. The bank received a flood of hate mail. Lamont received one note that said, “My dear Mr. Lamont—Your death doom is marked by your activity for the British war loan, which will deal death to my brothers on the battlefield in Germany. It shall be a distinct pleasure for me to puncture your black heart with lead some time in the distant future.”22

  Jack tried to avoid publicity that might incite Congress. When Harry Davison and lawyer Paul Cravath wanted to form a political committee to proselytize for the Allies, Jack refused. He also shied away from public appearances with his close friend Sir Cecil Arthur Spring-Rice, the British ambassador. In January 1915, writing about an upcoming trip, Jack told Springy that it might be “wiser for me not to be actually living at your house when I am in Washington. We are endeavouring to conduct this transaction with the British Government as inconspicuously as possible . . . but I must say that I do not see why, when you get away, you should not come and stay with us, which would be more quiet than staying in a hotel.”23

  Jack had always lived with a heightened awareness of danger. While at Harvard, a detective had tagged along behind him. After Jack’s younger son, Harry, returned to New York with his British tutor, the boy had become obsessed with fears of kidnapping. While Pierpont was still alive, Jack had experienced a burglary at Madison Avenue that smelled bizarrely of class revenge: the burglar had casually sat around the house, smoking his cigars. Another time, a blackmailer threatened to blow up Jack’s house unless money was deposited beneath a bush in Central Park; no money was paid, and no bomb went off.

 
; The House of Morgan was also an irresistible magnet for crackpots, who were attracted by its aura of mystery. Early in the war, a stream of abusive letters arrived from a madman named Schindler, who believed the bank had stolen his interest in an Alaska mine but refused to admit it. Such constant threats stoked Jack’s already fertile imagination, and he was wont to see conspirators everywhere.

  As it turned out, however, Jack’s fears weren’t entirely groundless. On the balmy Sunday morning of July 3, 1915, Jack and Jessie were having breakfast at their North Shore estate with Spring-Rice and his wife. They were just finishing the meal when the Morgan butler, Henry Physick, went to answer the door. There wasn’t yet a guardhouse at the causeway that connected the island to the Long Island shore, and interlopers could walk straight up to the door. A slight, gray-suited stranger greeted Physick and handed him a card saying “SUMMER SOCIETY DIRECTORY, REPRESENTED BY THOMAS c. LESTER.” He asked to see Mr. Morgan.

  Physick was a British butler of the old school. He usually wore a dark coat and gray striped trousers and was precise in his manners. Tactful but scenting danger, Physick refused to let the insistent stranger pass. He quickly raced to the library, found Jack and Jessie, and shouted “Upstairs!” Following these cryptic instructions, the Morgans went upstairs and searched the bedrooms, trying to figure out the problem. Then, at the top of the staircase, they saw the gunman, brandishing two pistols and leading the two Morgan daughters up the steps. (Later the gunman confessed that his major mistake was walking in front of the Morgan children, not behind them, thus reducing their value as hostages.) Trying to remain calm, the gunman told the Morgans not to be frightened, that he wanted to talk with them.

  If the later police depositions are accurate, everyone showed phenomenal courage. A woman of steely self-control, Jessie Morgan threw herself at the gunman. Her courage gave the big, burly Jack time enough to wade in and tackle the man; he took two bullets in the groin as he subdued him. While servants pinioned his arms, Jessie and Jack pried loose his two pistols. Then, with timing so exact it resembles Hollywood stagecraft, Physick rushed in and smashed a chunk of coal over the man’s head, rendering him unfit for further mischief. (This splendid touch, alas, isn’t mentioned in the police depositions.) Only after subduing the man did the Morgans see a large stick of dynamite protruding from his pocket. The assassination attempt ended with the Morgan servants submerging the dynamite in water and tightly binding the man in ropes. Dr. James Markoe, the Morgan family physician, was rushed out to Glen Cove to treat Jack’s bullet wounds.

  At the Nassau County jail, the gunman gave his name as Frank Holt, which turned out to be an alias for Erich Muenter. A man with a shadowy past and a former German instructor at Harvard, Muenter had vanished in 1906 after having been indicted for poisoning his wife with arsenic. Under questioning, he confessed to being a pacifist opposed to American arms exports to Europe. He hadn’t planned to kill Jack, he said, only to hold him hostage until munitions shipments were stopped. He possessed a delirious, dreamlike sense of Morgan power. The interrogator asked, “Do you think that you singlehandedly could arrest the whole trend of the age?” “No, but Mr. Morgan could.” “Do you think he could control those countries?” “With his money, if his money didn’t flow into their cash drawers, and stop the flow of ammunition.”24 To supplement his attack against Morgan, Muenter had secreted a bomb the day before in the U.S. Senate chambers. Whether Muenter had confederates will never be known. Two weeks later, he committed suicide in the Nassau County jail.

  Outwardly, Jack seemed phlegmatic and even clinical about the shooting, as if he had gone through a mildly unpleasant experiment and were jotting down the results. Miraculously, the bullets missed all vital organs, and his wounds healed quickly as he recuperated aboard the Corsair III. “It was a most disagreeable experience, though it is not as painful as I imagined it would be to be shot as I was,” he said.25 He credited Jessie’s coolness for foiling the plot and said he had done only what any parent would have with an intruder pointing a gun at his family. Dismissive of his own bravery, he was taken aback by the congratulatory messages that swamped the local telegraph office. On August 16, when he emerged from 23 Wall after his first day back at the bank, he was cheered by waiting crowds as he slipped into his limousine. Boyishly surprised, he touched his hat brim and gave a little wave. Unaccustomed to public adulation, he attained a fleeting status as a national hero.

  Jack’s calm was deceptive, for the shooting had deep effects that he hid beneath an offhanded manner. While a plot was never proved, Jack insisted Muenter was no isolated lunatic but part of a terrorist scheme. At his Adirondack retreat, Camp Uncas, he had the steward “get rid” of Germans and Austrians on the payroll.26 The shadows suddenly teemed with enemies. From the Corsair, Jack wrote Teddy Grenfell that Jessie had “an impression that people are trying to get another shot at me, and I have to look out for this even more than I otherwise would do, in order to satisfy her.”27 There were many reminders that Muenter wasn’t a lone Morgan-hater. When news of the 1915 shooting reached Vienna, it was celebrated by fireworks, speeches, and jubilant crowds.

  The shooting reinforced Jack’s reclusiveness, his penchant for privacy at the retreats of the rich. As a result, he probably spent more time at English country estates or cruising aboard his yacht; it was no coincidence that he recuperated aboard the Corsair. The shooting also filled him with a sense of omnipresent danger, playing to a cloak-and-dagger side of his personality. He frequently moved about by stealth. Visiting his older son, Junius, in Baltimore during the war, he wrote a friend about hotel arrangements: “I should greatly prefer that the hotel would not force me to register or to say that I am coming, owing to the fact that, apparently, the Germans are still after me, and I am requested by my family not to state where and when I am going in other towns.”28 After the shooting, Jack would be accompanied by bodyguards, a team of former marines. Such heavy security had the unfortunate effect of further distancing him from ordinary people and making the everyday brands of human misery more remote to him.

  Jack’s security was also a constant preoccupation of his highly protective partners. He was often unaware of security guards in a crowd. In Paris, senior partner Herman Harjes would notify the surete general whenever Jack visited. The detectives would stay close but not reveal their presence. Jack moved behind that invisible shield accorded heads of state.

  The shooting would be but one in a series of episodes that darkened Jack’s view of the world and produced a settled malice toward his enemies. These episodes made him feel frightened and beleaguered and quickened his tendency to lash out against his enemies. For all his wealth and power, Jack felt vulnerable to forces outside his control.

  JACK told friends that the shooting had made him more fervently anti-German and more eager to see the United States enter the war on the Allied side. He reviled the Germans as “Huns” and “Teuton savages”—he relished colorful epithets—and exhibited a latent bias against Germany that he had inherited from his father. As partner George Whitney later explained, Pierpont “always accused the Germans of doublecrossing him. . . . So there was an edict put down that we would never do business with the Germans.”29

  World War I was perhaps the last war in which bankers behaved as if they were sovereign states, indulging their biases and waging their own foreign policy. On Wall Street, spoils of war were divided strictly according to political and religious differences among the bankers. The House of Morgan was superbly positioned. Through its London and Paris houses, it had helped France finance the Franco-Prussian War and England the Boer War. Jack even had a soft spot for the czar, to whom he had extended credit.

  If a bonanza for Yankee Wall Street, the war was a catastrophe for Jewish firms, which were encumbered by anti-Russian and pro-German sympathies. Jacob Schiff, the autocratic head of Kuhn, Loeb, had been aghast at Russian pogroms, branding the czarist government the “enemy of mankind”; in revenge, he financed Japan in the 1904-5 Russo-Japanese W
ar. Nonetheless, he moderated his German sympathies after 1914, endorsed a negotiated peace, and “dutifully stopped speaking German to his family in public.”30 The less circumspect Henry Goldman of Goldman, Sachs espoused pro-German views, spouting Nietzsche and glorifying Prussian culture—much to the dismay of his partners. The Guggenheims, of German-speaking Swiss ancestry, suppressed any sympathy they might have had for Germany as munitions contracts rolled in.

  During the war, Wall Street and the City were full of scurrilous attacks on supposedly disloyal Jews. In 1915, Edward Kraftmeier of the British Nobel Company came to New York to warn the du Ponts that their company, a major Allied manufacturer of smokeless powder, could fall under the share control of “pro-German” Kuhn, Loeb. There were fears that Coleman du Pont might sell his large stake to them. To counter this threat, the du Ponts obtained an $8.5-million loan from Morgans, tightly locking up their shares in a holding company called Du Pont Securities. (When Sir William Wiseman, head of British intelligence in the United States, investigated the warning about Kuhn, Loeb, he found it baseless.) German financial penetration was a concern in the City as well, and the Bank of England “Anglicized” foreign-owned banks; for instance, it brought in the Pearson group to take over Lazard Brothers, fearing the London house might fall into German hands if its Paris affiliate were taken over.

  In this highly charged atmosphere, Jack Morgan’s pro-British passions and his anti-Semitism began to feed on one another. In September 1914, he complained to Teddy Grenfell that the ” ’peace’ talk has been fomented and worked up in a large measure by the German Jew element, which is very close to the German Ambassador.”31 Antagonism toward German-Jewish banks sharpened in December, when the House of Morgan extended a $12-million credit to Russia; the next month, Great Britain initiated war purchases for the czar through the House of Morgan. Noting Russia’s treatment of Jews, Schiff stiffly protested to Jack, who had to tread gingerly, since the two co-managed big bond issues. The syndicate structure of investment banking made it a world of sharp but sheathed rapiers. Exercising self-control, Jack wrote to Schiff: “I do not think it is for us to endeavor to change the attitude of Russia by applying financial pressure. It seems to me that the question of whether or not Russia is a good and solvent debtor can hardly be mixed up with questions of internal social or policing regulations.”32 Of course, Jack himself didn’t regard foreign loans so dispassionately and often mingled his political and financial beliefs.