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

by Ron Chernow

  Like his Cliveden friends, Lamont believed that Europe’s dictators could be held at bay through diplomacy and that war could be avoided. He also thought Britain and France were woefully unprepared for war. To some extent, Lamont and his partners were still cowed by the Nye committee charges that they had been “merchants of death” in World War I. They weren’t eager to stick their necks out in support of another war. “As for our dictators, Hitler and Mussolini,” Lamont wrote Lady Astor in 1937, “they don’t seem to have changed their spots very much, but I seem to think that raging at them will do no good, and if there is a possibility of methods of appeasement, these are our only chance.”20 Earlier, Lamont had asked Lady Astor to lobby the Foreign Office in support of its recognizing Mussolini’s conquest in Ethiopia. When Hitler took over Austria, Lamont assured her that his Italian friends were “aghast” at the coup and said their view must surely reflect il Duce’s own horror. Right up to the war, he believed that Italy had sided with the Germans only under extreme duress.

  Lamont took a more alarmist view of events in the Pacific. He had never fully recovered from his sense of betrayal by the Japanese militarists, and this only deepened his sense of their malevolence. During Japan’s fierce aggression against China in July 1937 and the slaughter of thousands of Chinese civilians in the rape of Nanking, he spied a design to subdue all of East Asia. He didn’t mince words with Japanese businessmen who made overtures to the bank. In September 1937, he assured the Japanese consul general that he would not “find one American in one hundred thousand who is not shocked and distressed beyond measure” by Japanese military operations in and around Shanghai.21 (In fact, a few weeks later Russell Leffingwell told Lamont that China would fare better under Japanese domination.22) In contrast with his gullible acceptance of the Mukden incident of 1931, an irate Lamont now protested to the Bank of Japan that “faked stories” about China were being circulated by Japan all over the world.23

  In September 1938, Neville Chamberlain flew to Munich and capitulated to Hitler’s demand for the Sudetenland. Hitler forswore further territorial ambitions, and Chamberlain hoped that the partition of Czechoslovakia would sate the dictator’s appetite for conquest. In accepting the Munich Pact, the British cabinet wasn’t completely naive about Hitler’s intentions: many thought England needed time to mount an expensive rearmament program and that war with Germany would be suicidal. Returning to Downing Street talking of “peace with honour,” Chamberlain received a tumultuous welcome. The London Times said, “No conqueror returning from a victory on the battlefield has come adorned with nobler laurels.”24 Amid a rapturous greeting in the House of Commons, Churchill was the sour, lonely voice of dissent, branding Munich a “total and unmitigated defeat.” He was predictably heckled by Nancy Astor.25

  The House of Morgan stoutly supported Munich. In a flight of fancy, Lamont predicted a new German regime within two years. Jack Morgan was sure that in the end Hitler would have to be stopped forcibly. In the meantime, he thought his friend Chamberlain had bought valuable time. “What an achievement!” he wrote to the prime minister in breathless tones. “I little thought when you were at Gannochy at tea and I said I had a hunch that there would be no war and you said hunches were the only thing to go on, and that you had the same hunch as I did, that you were going to be the one to have the imagination and courage to make that hunch come true! It never occurred to me that a single man could do so much by sheer force of courage, fairness and reasonableness.”26 With rather heavy snickering, Jack said that if Churchill or Lloyd George were in charge, the world would have been at war long ago.27 Vivian Smith, now Lord Bicester, was more muted in his support of Munich, warning that Hitler was a “fanatic” and that Göring and Goebbels were “gangsters” using the Nazis as a cloak for their evil-doing.28 While congratulating the Morgan Grenfell partners that Chamberlain had averted war, Russell Leffingwell privately lamented to Lamont that Britain had submitted to blackmail.29

  Hitler was puffed up with the success of his blackmail. In March 1939, he devoured the rest of Czechoslovakia, and the German army marched into Prague. Czechoslovakia’s extinction shattered the appeasement movement. Nancy Astor’s intimate friend Lord Lothian sent a despondent note to Lamont saying he had abandoned hope of decent behavior from that gangster, Hitler. Two days later, Lady Astor herself urged Chamberlain to condemn Germany. By the end of the month, Chamberlain reversed his course and guaranteed Poland’s independence.30

  The British public dealt harshly with the complacency Baldwin and Chamberlain had shown in the face of the German threat. Political adulation turned into vitriolic abuse as the British solidly closed ranks behind a determined response to Hitler. In America, however, the division of public opinion toward the European turmoil only grew more contentious. For Morgan partners in New York, it was an especially problematic dispute. As Lamont had warned Morgan Grenfell and the British Treasury, there was a residue of pent-up American hostility left over from the financial disputes of the 1930s. And the power of American isolationists was such that the bank couldn’t immediately proclaim the proud, unalloyed support for Britain that it had in 1914. J. P. Morgan and Company would find itself in the uncomfortable position of antagonizing the isolationists for doing too much for Britain while disappointing the British for not doing enough.

  An indirect casualty of Munich was Hjalmar Schacht, who had joined in the secret generals’ plot of September 1938 to overthrow Hitler. He later claimed the conspirators were disheartened by the Allies’ cowardice at Munich. Schacht’s standing in Nazi Germany had grown precarious in late 1938. At the Reichsbank Christmas party, held several weeks after the burning of Jewish shops and synagogues on Kristallnacht, he deplored such actions. In early 1939, the deluded Schacht still churned out Reichsbank memos on the need to cut inflationary arms expenditures, as if Hitler cared about neoclassical economics. In London that December, he presented a plan for the emigration of fifty thousand Jews from Germany—to be paid for with all their belongings and ransom payments from the world Jewish community. In the first week of January, Monty Norman made a last trip to Germany, to attend the christening of his godson—Schacht’s grandson Norman Hjalmar—named in tribute to him. When Hitler fired Schacht from the Reichsbank on January 20, Norman belatedly awoke to the full horror of the Nazi menace.

  RIGHT before the outbreak of World War II came the first state visit by a British monarch to the United States—a piece of pageantry and propaganda in which the House of Morgan participated. The trip was inspired by Joseph Kennedy, who became ambassador to the Court of Saint James’s in 1938. Like many Roosevelt appointments, this one infuriated 23 Wall. Several of his biases simultaneously aroused, Jack Morgan told Monty Norman, “I share your wonder that an Irish Papist and a Wall Street punter should have been selected for the London Embassy. Of course you must expect him to have to be a New Dealer, because Franklin would not appoint anyone else.”31 Although Norman patronized Kennedy as a social climber of inferior Irish stock, they met weekly, and Norman shared his pessimistic views about England’s prospects in a war against Germany.

  What made Kennedy’s appointment doubly galling for Jack was that as ambassador the Irishman was living at Princes Gate, which Jack had given to the State Department as an ambassador’s residence in the 1920s. (Joe Kennedy had his revenge on Morgan snubs: today the blue marker outside the house commemorates John F. Kennedy’s brief residence there and says nothing of the Morgans’ original ownership of the property.) Princes Gate would enjoy only a fleeting existence as an official residence, however. After the war, Barbara Hutton, the Wool-worth heiress, donated her Winfield House in Regent’s Park, and that became the new residence of American ambassadors.

  The 1939 visit came about when Queen Elizabeth one day said to Kennedy, “I only know 3 Americans—you, Fred Astaire, and J. P. Morgan—and I would like to know more.”32 To remedy this, Kennedy suggested a goodwill trip to the United States. Through their private secretary, the royal couple sounded out J
ack Morgan and John Davis, who agreed that a visit would indeed be timely. When the king and queen came to the United States in June 1939, Joe Kennedy was pointedly snubbed and excluded from attending their party.

  As planned, the American trip elicited a tremendous outpouring of pro-British sympathy. The royal couple enjoyed hot dogs at Hyde Park, and Roosevelt outlined limited naval steps he could take to support Britain in case of war. But it didn’t help the House of Morgan, for it reinforced the old stereotype of the firm’s being in league with the British crown. At a garden party at the British embassy in Washington, the king and queen sat up on the porch in remote splendor with several private citizens—Jack Morgan, John D. Rockefeller, Jr., and Mrs. Cornelius Vanderbilt. Only two New Dealers, James Farley and Cordell Hull, were allowed to join them. Stranded down on the lawn with other commoners, the saturnine Harold Ickes enviously watched Morgan and the other economic royalists up on the porch and felt demeaned. He wasn’t mollified when the king and queen descended to mingle with the “common herd.”33

  In late August 1939, Jack Morgan and King George VI were shooting together at Balmoral in Scotland, complaining about the bird shortage, when Europe suddenly mobilized for war. Like sovereigns retreating to their respective capitals, the king returned to London and Jack to Wall Street. On September 1, Germany invaded Poland. Soon Neville Chamberlain, his voice shaking, announced that Britain was at war with Germany. The New York Stock Exchange reacted with its best session in two years, and the bond market leaped upward with the heaviest one-day volume in history. Unlike the outbreak of World War I, American investors weren’t fooled as to who would profit from the conflict and foresaw an economic boom. It was the Second World War—not the New Deal—that would wipe away the vestiges of the Depression.

  It dawned on the House of Morgan that the firm might dust off the World War I purchasing-agency concept. Might not the bank again aid the Allies behind a shield of neutrality? After pondering such a move, the bank informed the British, French, and U.S. governments that it wouldn’t try to repeat the experience. After so many years of hearings, the bank felt politically vulnerable and feared a revival of war-profiteering charges.

  The bank also contended with an anti-Wall Street faction in Washington, which was determined to block any Morgan role. This opposition was apparent when Roosevelt created a short-lived War Resources Board. In an amazing coincidence, he chose as chairman Edward R. Stettinius, Jr., son of the Morgan genius of the Export Department in World War I. A handsome man with prematurely silver hair, Stettinius had risen through the ranks of two Morgan clients, General Motors and U.S. Steel, ending up chairman of the latter. The war board included another Morgan favorite, Walter Gifford of AT&T. Roosevelt wanted to counteract charges of being an enemy of business, but his liberal subordinates smelled extreme danger in this tactical retreat. Hugh Johnson, former head of the National Recovery Administration, told Assistant Secretary of War Louis Johnson that the government did not “intend to let Morgan and DuPont men run the war.”34 Henry Wallace, then FDR’s secretary of agriculture, also warned against bringing Wall Street bankers to Washington.

  The assiduous Harold Ickes quickly gathered his cabal of Brandeis men, Tom Corcoran and Bob Jackson. He noted, “We wondered how far the President would go or would permit others to go in abdicating in favor of big business, as Wilson did at the time of the First World War.”35 Ickes thought Wilson’s liberal credentials were tarnished by his wartime closeness to Wall Street and he hoped Roosevelt could avoid such a fate. His efforts to keep the Morgan bank out of war work dovetailed with his friend Cyrus Eaton’s efforts to break up Morgan power in the financial world. In late 1939 and early 1940, the Temporary National Economic Committee investigated an alleged monopoly in the investment banking field, with Morgan Stanley its prime suspect.

  These anti-Morgan maneuvers, coming from several directions, prevented the bank from resuming its World War I role, as did earlier U.S. entry into the war. In the Second World War, Washington would take charge of industrial mobilization through the War Production Board and other agencies. The federal government was vastly more powerful now than it had been in Woodrow Wilson’s day, and it didn’t hesitate to intervene in the economy for political ends. In fact, government resources now eclipsed those of private banking houses. By World War II, banks were no longer large enough to bankroll wars, as Barings, Rothschilds, and Morgans had done in their heydays. With their large budgets, central banks, and taxing powers, the modern nation-states no longer needed to rely on the good offices of private bankers.

  The House of Morgan championed economic support for Great Britain. As a belligerent, Britain was covered by the arms embargo of the Neutrality Act (passed, inter alia, to prevent a recurrence of the House of Morgan’s role in World War I). Lamont lobbied Roosevelt to repeal it, contending that it not only favored but emboldened Germany. In November 1939, Congress did repeal the embargo, permitting arms exports to countries at war on a “cash and carry basis”: that is, they could purchase U.S. supplies so long as they paid for and transported them. Under this arrangement, American planes would fly to the U.S.-Canadian border, and Canadian pilots would then fly them to Britain.

  The cash-and-carry decision created an urgent need for gold or dollars for the massive purchases. As in World War I, Britain raised money by commandeering American securities held by its nationals. The House of Morgan was charged with selling these securities in New York without triggering sharp price declines. It handled the British operation alone but shared a comparable French operation with Lazard Frères. Only a few people in each brokerage house knew the seller’s identity, and Morgans warned brokers that if any information leaked out, their services would be terminated within twenty-four hours. To oversee the operation, the British Treasury sent T. J. Carlyle Gifford to 23 Wall. He was already known to Morgans as chairman of the Scottish Investment Trust of Edinburgh, which used J. P. Morgan as custodian for U.S. securities. Impressed by the House of Morgan’s performance, Gifford nonetheless agreed with Roosevelt’s assessment that the bank’s participation was a severe political liability: “It seems the President and [Treasury Secretary] Morgenthau would much have preferred us not to go to J.P. Morgan & Co. and so have probably resented that and are now afraid it may cause difficulties when they appear [before] Congress,” he reported back to London.36

  Both for Nancy Astor’s and Britain’s sakes, Lamont assisted Lady Astor’s great spiritual companion, Lord Lothian, who was sent to Washington as British ambassador in April 1939. A former secretary of the Rhodes Trust and a founder of the Royal Institute of International Affairs, Lothian was shy, professorial, and, like Lady Astor, a devout Christian Scientist. Immediately after his appointment, he cabled Lamont, “Shall want all your advice and help.”37 In Washington, Lord Lothian found the mood very much opposed to Hitler but, at the same time, resolutely opposed to war. Drawing on his Wall Street ally, he would fly up to New York on a late-afternoon flight, speak to a dinner assembled by Lamont, then take a night train back to Washington. Lothian, repenting of his Cliveden appeasement period, would prove a superbly eloquent spokesman in enlisting support for Britain.

  In 1939, the most vociferous opposition to U.S. entry into the war came from the German and Italian immigrants, midwestern farmers, and labor unions. The isolationist agenda didn’t change from World War I: there was the same disgust with European broils and the same suspicion that Britain would dupe the United States into saving its own empire. Complicating matters was the still fresh memory of the Great War.

  The Morgan partners flatly opposed U.S. entry into the war and were dubious about the Allies’ chances of beating Germany. As Russell Leffingwell said right before the war’s outbreak, the British and French “cannot subjugate the Germans. There are too many of the devils, and they are too competent.”38 In May 1940, Lamont joined William Allen White in forming the Committee to Defend America by Aiding the Allies, whose outlook perfectly reflected the Morgan position. The group ass
ailed the same nemeses—the Hearst newspapers and Senators Wheeler and Nye—that had hounded the House of Morgan for years. While fervently attacking the isolationists, it parted company from a kindred group, Fight for Freedom, which endorsed U.S. entry into the war; instead, it heeded FDR’s call for all aid short of war. (At this time, Jack’s sister Anne formed the American Friends of France and by June 1940 was sailing to that country to evacuate refugees and head an ambulance unit. She would have a special plaque dedicated to her memory in Les Invalides, the Paris war memorial, after she died in 1952.)

  One of Lamont’s special committee assignments was to neutralize Herbert Hoover’s Anglophobia. Still bruised from his presidency and wishing to repeat his wartime triumph with European food relief, Hoover favored a scheme for feeding Nazi-occupied countries; Lamont supported Britain’s blockade against such activity. When Lamont and White visited Hoover, they couldn’t change his mind and vowed to fight him. Afterward, a press account popped up describing Hoover truculently pacing the room and swearing that he would tour the country and fight Britain on the issue. Lamont assured Hoover that he hadn’t talked to a newsman and said the account must have been a misrepresentation. Even at the end, the Lamont-Hoover relationship—once seen as a Faustian pact between Wall Street and Washington—was tense and querulous.

  The House of Morgan’s pro-British views brought it into conflict with the nation’s most visible isolationist, Charles Lindbergh. In late 1935, the Lindberghs had moved to England, hoping to find a tranquillity denied them in America after their son’s kidnapping. At the prompting of the U.S. military, Lindbergh visited Nazi Germany in 1936 to tour German aircraft factories. He made subsequent trips in 1937 and 1938 and developed a growing admiration for German air power—admiration that he expressed to Stanley Baldwin at Downing Street and in the drawing rooms of Cliveden. Lindbergh insisted that a war against Germany was unwinnable, would destroy American democracy, and would open the way for Communist infiltration. When he accepted a decoration from Hermann Göring at a reception, it added to suspicion in some quarters that Lindbergh was not only awed by the Nazis but sympathetic to them.