Morgan

by Jean Strouse

  As Grenfell noted, Morgan made “big mistakes” and had “patent shortcomings.” Had he been more concerned with the social costs of industrialization, he might seem more sympathetic now, and had he been able to explain himself, he would have been easier for me to write about—but biographers aren’t supposed to speculate about what might have been.

  Although the proponents of big business secured political ascendancy at the end of the nineteenth century, it was the opposition—populists, Progressives, and their intellectual heirs—who won the battle over how the story would be told. They depicted Morgan as a ruthless predator who robbed America’s farmers and workers to line his own pockets. Offered that scenario, most of us would side with the farmers and workers, but it does the democratic tradition an injustice not to see other dimensions of the story now.

  Many people have known a more complex version all along. Leading critics of big business during Morgan’s lifetime, including Lincoln Steffens, Ida Tarbell, and Theodore Roosevelt, recognized that the demonization of capitalists had gone too far, but their revision did not trickle down (or up) into popular opinion. Steffens’s disciple Walter Lippmann observed in 1914 that muckraking exposés had tapped into deep and legitimate dissatisfactions—otherwise, a “land notorious for its worship of success would not have turned so savagely upon those who had achieved it.” Still, Lippmann mocked the “sense of conspiracy and secret scheming” in which “ ‘Big Business,’ and its ruthless tentacles, have become the material for the feverish fantasy” of people whose lives had been radically altered by economic change: “all the frictions of life are readily ascribed to a deliberate evil intelligence, and men like Morgan and Rockefeller take on attributes of omnipotence, that ten minutes of cold sanity would reduce to a barbarous myth.”

  Nearly a century later, as fresh evidence and historical distance make it possible to take a more realistic look at Morgan, the questions his life raises are once again at the center of national debate—only now the markets are global, the emerging economies are Asian, and the corporations under scrutiny are Microsoft and Intel rather than railroads and U.S. Steel. Can central bankers effectively “manage” the business cycle? In economic crises, which tottering governments or banks ought to be bailed out, and which allowed to fail? What is the best way to control inflation? Does industrial competition naturally lead to consolidation? Are big corporations inherently bad? How can affluent societies offset economic inequality? How and when should government intervene in commercial markets?

  At the end of the twentieth century, responsibility for sorting out answers to those questions rests with the Treasury and Justice departments, the Federal Reserve, the SEC, the FTC, the Group of Seven, the IMF, and the World Bank. At the end of the nineteenth, with predictably mixed and controversial results, Morgan acted largely on his own.

  August 1998

  * Three valuable financial histories appeared while I was working on this project—Vincent Carosso’s The Morgans, an excellent academic study of the firm’s activities up to Pierpont Morgan’s death; Ron Chernow’s livelier, more accessible account, The House of Morgan, which tells the story of the bank from its origins through the 1980s; and Kathleen Burk’s Morgan Grenfell, a concise profile of the British house from 1838 to 1988.

  PART I

  CHARACTER

  No human being, whose life has been the subject of a biographer, has been so differently estimated, both in the popular mind and in elaborate memoirs. One historian lavishly praises him. Another indiscriminately condemns him; and we are called upon to form our opinion of his life and character from their writings.

  J. Pierpont Morgan,

  high school essay

  on Napoleon, 1854

  Chapter 1

  MONEY AND TRUST

  Pierpont Morgan’s arrival took the quiet chamber by surprise. It was 2:00 P.M. on a mild Wednesday in December 1912, and the congressional committee did not expect its star witness until the following day. Politicians, lawyers, clerks, reporters, and the casual visitors who had come to watch these proceedings on Capitol Hill stopped what they were doing. All eyes followed the seventy-five-year-old banker and his party as they filed slowly toward seats near the center of the hall.

  Morgan’s matronly daughter, Louisa, stayed close to his side. His son, J. P. Morgan, Jr., walked a step behind. Next came two young partners from Morgan’s Wall Street bank—Thomas W. Lamont and Henry P. Davison, with their wives—and a couple of lawyers. From a distance, the two J. P. Morgans looked very much alike. Each stood six feet tall, weighed over two hundred pounds, carried a velvet-collared Chesterfield topcoat, and walked with a tapered mahogany cane. People standing nearby could see the same broad planes in both faces, but the son’s hair was dark and his features trim, while the father wore a drooping, grizzled mustache, what hair he still had was white, and his overgrown eyebrows arched up like wide-angled Gothic vaults. It was hard not to stare at the elder Morgan because of the rhinophyma—excess growth of sebaceous tissue—that deformed his nose. No one stared for long. Edward Steichen, who had taken the old man’s photograph a few years earlier, said that meeting his gaze was like looking into the lights of an oncoming express train.

  Once the New Yorkers had found seats, the afternoon’s witness—a statistician named Philip Scudder—resumed his testimony, and Mr. Morgan heard his name mentioned several times. Mr. Scudder was describing, with the help of tables, charts, and diagrams, how eighteen financial institutions effectively controlled aggregate capital resources of over $25 billion—comparable to two thirds of the 1912 gross national product.

  There is no precise way to measure the value of a 1912 dollar nearly a century later, but using a rough equivalent to the consumer price index and adjusting for inflation, $25 billion from 1912 would be worth about $375 billion in the 1990s. A more revealing comparison comes from the percentage of gross national product: two thirds of the 1998 GNP would be about $5 trillion.

  For months in 1912 this House Banking and Currency subcommittee, headed by Louisiana Representative Arsène Pujo, had been trying to establish that a “money trust” ruled over America’s major corporations, railroads, insurance companies, securities markets, and banks. The investigation served as climax to more than two decades of intense popular antagonism to “big money” interests—an antagonism that traced back to the founding of the American colonies. And now here under subpoena was the dominant figure behind all the recent financial consolidations, “the Napoleon of Wall Street.”

  Morgan by 1912 could not cross the street, much less the Atlantic, without arousing speculation in the stock market and the press. He managed to enter the Pujo Committee hearing room with minimal fanfare on Wednesday, December 18, because of a schedule change. The committee’s counsel, Samuel Untermyer, had telephoned the Morgan bank on Tuesday morning to say that he would not be ready to examine the financier on Wednesday as originally planned, but would start on Thursday, December 19, instead. Morgan took a private train to Washington on Tuesday anyway, bringing with him an imposing array of counsel that included Joseph Hodges Choate, one of the country’s leading corporate lawyers, a former U.S. ambassador to Britain’s Court of St. James, and past president of the Bar Association of the City of New York; former Senator John Coit Spooner, once Wisconsin’s preeminent railroad attorney; Richard V. Lindabury, who was defending the Morgan-organized U.S. Steel Corporation against a government antitrust suit; De Lancey Nicoll, former district attorney for the City of New York; William F. Sheehan, former lieutenant governor of New York; George B. Case of the New York law firm White & Case; and Francis Lynde Stetson of Stetson, Jennings & Russell, known as “Morgan’s Attorney General.” None of these men would be allowed to advise the banker as he testified, but they provided weighty political support.

  The party reached Washington early Tuesday evening and went directly to the Willard Hotel at 14th and Pennsylvania. Morgan was gloomy and irritable. He had a bad cold. After dinner, too tired for any more talk with lawy
ers, he sat up late smoking his favorite cigar—a large Pedro Murias JPM made especially for him in Havana—and playing solitaire.

  He disliked everything about these hearings. For years he had worked closely with politicians he trusted, and thought U.S. markets would continue to thrive if the government let financial experts alone to conduct business in the nation’s best interests. Neither the government nor the press had left him alone lately, however, and neither seemed willing to take his word about what constituted the country’s best interests. Pretty soon, he ruefully told a friend, business would have to be conducted with “glass pockets.” The Pujo Committee apparently wanted to go through his pockets, and to score political points with the proceedings.

  Morgan had some grounds for thinking that the country ought to leave its financial affairs to him. Over the past half century, his bank had helped transform the United States from an economic neophyte into the strongest industrial power in the modern world. In the 1850s, when America needed much more capital than it could generate on its own, the Morgans and their associates had funneled money from Europe to build railroads and float government bonds. By the turn of the century, Pierpont Morgan was organizing giant industrial corporations, largely with American money, and the vital center of world finance had shifted from London to New York.

  The risks involved in funding the emerging U.S. economy were as enormous as the potential rewards, but investors regarded the Morgan name on issues of stocks and bonds as a warranty. It is a maxim on Wall Street that cash chases performance, and the house of Morgan established its reputation by backing properties that yielded steady profits and long-term growth. Moreover, Morgan personally took on the job of financial disciplinarian, acting as mediator between the owners and the users of capital. His clients, largely foreign at first, were putting up money to build railroads, steel mills, farm equipment, and electrical plants, and when things went wrong with one of those operations, Morgan fired the managers, restructured the finances, and set up a board of trustees to supervise the company until things went right. He was building internationally competitive financial and industrial structures, and his power came not from his own wealth but from a record that led other bankers and industrialists to trust him.

  It is another Wall Street maxim that markets hate uncertainty. Wars, panics, crashes, and depressions punctuated Morgan’s professional life, disrupting the flow of capital toward the future he had appointed himself to guard, and over time he had managed to impose a measure of order on America’s turbulent economic development. He reorganized the nation’s railroads (the process came to be known as Morganization), put together the world’s first billion-dollar corporation (U.S. Steel), and had a hand in setting up International Harvester and General Electric—all on the principle that the combination of rival interests into huge, stable systems was preferable to the boom-and-bust cycles, price wars, waste, and speculative recklessness of internecine competition. The “Napoleon of Wall Street” advocated a kind of managed competition, in which the managing was done not by government bureaucrats but by experienced professionals who understood the complexities of high finance—in other words, by him. Given the arcane nature of capital markets, a private banker with transatlantic authority, access to accurate information, and a high sense of stewardship was able to exercise extraordinary power.

  Under Morgan’s direction, New York’s major financial houses in 1912 were serving in effect as a central bank. Andrew Jackson had terminally crippled the Second Bank of the United States in 1836, shortly before Morgan was born, and Woodrow Wilson signed the Federal Reserve System into law in 1913, just after Morgan died. Between 1836 and 1913 there was no central bank to regulate the supply of money and credit in the United States, no official lender of last resort, no federal recourse in times of acute turbulence or panic. America’s antiquated banking system had been devised before the Civil War, for a decentralized agricultural society. When the federal government ran out of gold in 1895, Morgan raised $65 million and made sure it stayed in the Treasury’s coffers. When a panic started in New York in 1907, he led teams of bankers to stop it.

  For a moment in 1907 he was a national hero. Crowds cheered as he made his way down Wall Street, and world political leaders saluted his statesmanship with awe. The next moment, however, the exercise of that much power by one private citizen horrified a nation of democrats and revived America’s long-standing distrust of concentrated wealth. Morgan’s critics charged that he had made huge profits on the rescue operation—even that he had engineered the crisis in order to scoop up assets at fire-sale prices. The 1907 panic convinced the country that its financial welfare could no longer be left in private hands. It led to the setting up of a National Monetary Commission, to the “money trust” investigation, and eventually to the founding of the Federal Reserve.

  As Morgan played out rounds of solitaire late Tuesday night at the Willard Hotel, he had several things on his mind besides the approaching congressional ordeal. He was due to leave in January on his annual trip to Egypt, where he was underwriting archaeological excavations as president of New York’s Metropolitan Museum of Art. He planned early in 1913 to visit the expedition house he had commissioned for museum field-workers at Deir el-Bahri, the magnificent temple complex within the ancient city of Thebes. After Egypt, he would stop to see the new buildings he had funded at the American Academy in Rome, then go on to take the waters at Aix-les-Bains in southeastern France.

  He could, he said, do a year’s work in nine months but not in twelve, and accordingly visited Aix every spring. Though he had exceptional physical stamina, Morgan periodically collapsed in depression and “nervous” exhaustion, and tried to ward off these breakdowns with foreign travel and spa cures.

  His wife, who also suffered from depression, did not figure in his travel plans. The marriage had been over in all but form for thirty years. He sent her to Europe for months each summer and fall with a chauffeured car, one of their daughters, and a paid companion; when she returned, he took troops of friends, often including his mistress, abroad. Mrs. Morgan was heading home on the Atlantic in December 1912 as he prepared to leave.

  He had spent increasing amounts of time in Europe as he turned the focus of his attention from business to collecting art. The scope of his 1901 acquisitions had prompted one of his British partners, Clinton Dawkins, to wire the New York firm (referring to Morgan in code)—“I hope, though we cannot hint it, that Flitch will not buy the National Gallery at the end of the year.” The following summer, as “Flitch” dined with Edward VII in London and entertained Kaiser Wilhelm on board his yacht, Corsair, at Kiel, Dawkins complained: “We never see him and it is difficult to get hold of him. He spends his time lunching with Kings or Kaisers or buying Raphaels.”

  The Raphael, an altarpiece known as the Colonna Madonna, was about to go on exhibition at the Metropolitan Museum in 1912, along with other highlights of the painting collection Morgan had been shipping over from London all year. Among the canvases that would be shown together in the United States for the first time were Rembrandt’s Nicolaes Ruts, Vermeer’s A Lady Writing, Gainsborough’s Duchess of Devonshire, Lawrence’s Miss Farren, and works by Turner, Rubens, Van Dyck, Reynolds, and Greuze. A set of Fragonard panels called The Progress of Love, which had occupied a special room in Morgan’s London house, would not be shown until a similar room could be constructed for them at the Met. In December 1912 Morgan was in the process of buying for $200,000 an altarpiece attributed to Filippo Lippi from the chapel of the Villa Alessandri, Fiesole—St. Lawrence Enthroned with Saints and Donors.

  As a private collector and as president of the Metropolitan Museum, Morgan was stocking America with the world’s great art. His purchases included not only Old Master paintings and drawings but sculpture, majolica, tapestries, Regency furniture, bronzes, jewelry, watches, ivories, coins, armor, portrait miniatures, seventeenth-century German metalwork, Carolingian gold, rare books and illuminated manuscripts, Gutenberg Bibles, medieval r
eliquaries, Limoges enamels, Gothic boiserie, Chinese porcelains, ancient Babylonian cylinder seals, Assyrian reliefs, and Roman frescoes from Boscoreale.

  By 1912 he had spent about $60 million on art (roughly $900 million in the 1990s), and had given many important objects away. What would happen to the collections after his death was not clear. The Metropolitan Museum hoped to receive them as a gift, but Morgan wanted the museum to build a new wing, and New York City officials had not come up with the requisite funds. To accommodate his rare books, manuscripts, and drawings, he had built an Italianate marble library, designed by Charles McKim, next to his house in Murray Hill. The London Times, reporting on the library’s treasures in 1908, said of millionaire collectors: “One out of ten has taste; one out of a hundred has genius. Mr. Frick, Mr. Altman, Mr. Widener in America, and the late Rodolphe Kann in Paris, come under the former category; but the man of genius is Mr. Pierpont Morgan.”

  Few Americans had been as magnanimous as the London Times, either toward Morgan’s collecting or the career that made it possible. The federal government had begun at the turn of the century to enforce the Sherman Antitrust Act, a law passed in 1890 to curb private economic power, prohibit monopolization, and proscribe agreements that had the effect of restraining trade. When Theodore Roosevelt’s Justice Department won a celebrated antitrust suit against a railroad holding company organized by Morgan, James J. Hill, and E. H. Harriman, Morgan’s British partner Mr. Dawkins observed that to use “the blessed word ‘combination’ … in America causes as much disturbance now as the singing of the Marseillaise under the Third Empire.”*