Morgan

by Jean Strouse

  Early in 1857, finished at last with school and reasonably fluent in German and French, he headed south. He spent a month in Rome wandering through churches, galleries, and ruins, buying mosaics, jewelry, perfumes, bronze vases, reproductions of Canova’s Hebe and The Dying Gladiator. “It is very pleasant indeed travelling about & seeing the world,” he wrote to Jim, “but the truth is I have been so long unsettled & obliged to make my own arrangements for comfort that I shall not be sorry to settle down once more at home. Besides I am anxious to get to work, it seems to me high time.”

  Not quite. He came down that spring with a sore throat, cough, and chest pains. Junius told Jim that his son’s illness had “interfered so much with my plans for him that I don’t know exactly how he is to be situated.” Pierpont asked Jim to find out what plans Junius had in mind; he wanted to go to China.

  Jim crossed the Atlantic in June for a foreign education of his own. He started with a Pierpont-guided tour of Europe—the cousins had not seen each other in three years—but Junius cut the trip short in early July, summoning his son home.

  Pierpont found Princes Gate full of the “children” and their friends. His mother, still in the United States, had been gone nearly a year, but was not too ill to veto his latest dream: “Mother objects most strenuously to my going to China,” he told Jim in mid-July. Junius had rented a summer house in Barnet on the northern outskirts of London. The entire household moved there shortly after Pierpont arrived.

  By 1857 America had fully recovered from the depression of the 1840s, and business, particularly the railroad business, was booming. Junius proudly told a friend that spring: “We none of us realise the wonderful increase of capital in the United States. The day is not far distant when they will cease to watch with solicitude the rate of [the Bank of England on] Threadneedle Street.” The British Economist had made the case even more strongly in 1851, predicting that “the economic superiority of the United States to England is ultimately as certain as the next eclipse.”

  The center of this “wonderful increase of capital” was no longer Philadelphia or Boston but Wall Street. The exuberant growth of a market for railroad securities in the 1850s had brought trading and speculation to the New York Stock Exchange on a grand scale: about a thousand shares had traded on the exchange in a high-volume week during the 1830s; twenty years later a million shares a week could change hands. This boom led several investment firms to specialize in railroad finance, and among the best was a New York house called Duncan, Sherman & Co.

  One of its senior partners, William Watts Sherman, was living abroad in 1857. He often called on Junius in London and Barnet, and wrote to Mr. Peabody in July: “It was a lucky fortune or astute sagacity my dear sir that guided you when you fell upon such a man as partner. I know not where you could have found his superior.”

  Peabody had watched Duncan, Sherman & Co. with an approving eye ever since its inception in 1851. Sherman’s partner, Scotsman Alexander Duncan, had been introduced to him as having “sound and enlarged views and … one of the most beautiful fortunes” in America—about $4 million. Peabody told Junius in 1854: “I look upon this house as almost the only one in the United States who at present have the necessary capital, enterprize & talent to manage successfully a very large money business.” He gave Duncan, Sherman the right to draw on him for unlimited credit, favored it over other New York banks, and considered appointing it to manage his firm’s affairs in the United States.

  In the ebullient markets of 1857, however, the New Yorkers were not willing to act as subsidiary agents for Peabody & Co.; they wanted the opposite arrangement, with the London firm as agent of the American. That July, Junius Morgan and Watts Sherman made a decision that sidestepped the question, created a strong link between their firms, and solved Junius’s problem about what to do with his son. Pierpont would go to work as an unsalaried clerk at Duncan, Sherman, “for some schooling in American Banking,” Mr. Sherman told Peabody by mail. “I think him a very promising young man.”

  Junius had left Wall Street with regret in the chaos of 1836. He had hoped to return to New York, but his career took him instead from Hartford to Boston to London. Now, twenty years after giving up the prospect of making a fortune on Wall Street, he sent his son to apprentice there. At the end of July the “very promising young man” sailed for America with the Shermans. Once again, he carried important letters and documents—this time from his father. Junius dispatched an anxious note to his son on board the Persia just before she sailed, asking him to double-check on the safety of the papers, and urging: “I want you to realise the importance of the step you are now taking & the influence it is to have on your future life. Be true to yourself & all is well. Kind regards to Mr. & Mrs. Sherman. Goodbye. God Bless & keep you is the prayer of Yr aff[ectionate] Father.”

  * The Reverend Pierpont urged his sons William and James to join the ongoing fight for free-soil Kansas in 1855. Both had failed at everything else, and their father figuratively threw up his hands: “I can do no more for either of them,” he told John, Jr., “except … in a pinch, to furnish each of them with money enough to take them to Kansas, and there let them find—above ground or under it—a habitation for themselves.” The brothers did not go to Kansas. They persuaded their father to buy them sewing machines, and earned meager livings doing piecework.

  † The two rows of attached houses built on this stretch of Kensington Road in 1849–50 were called “Prince’s Gate” (with an apostrophe) because they stood opposite the 1848 gateway to the park named for the Prince of Wales, later Edward VII. The Morgans did not use the apostrophe, and most street signs, guidebooks, and architectural historians refer to the address as “Princes Gate.”

  Chapter 5

  NEW YORK

  For Pierpont, itching to get into the thick of things, New York in 1857 was the thick of things—the largest, most interesting city in the United States. Settled by the Dutch and populated early on by a mix of Huguenots, English, Germans, and Jews, New Amsterdam had always been the most culturally diverse of the European colonies in North America. Because its Knickerbocker aristocracy had to share power with the British, neither group managed to dominate the city as definitively as the Brahmins did Boston, old-line families Philadelphia, or southern planters Charleston. Vital, polyglot Manhattan with its thriving commercial markets remained wide open and in turbulent flux, holding out the promise of whatever generations of outsiders wanted to find. They came by the thousands—immigrants, pirates, gamblers, fugitives, visionaries, artists, strivers, crooks. As New York’s money markets fueled the explosive expansion of the U.S. economy, Wall Street by all authoritative accounts was on its way to becoming the financial capital of the world. Pierpont at twenty had already lived in more cultures than most people would ever see. He took to New York as soon as he settled in, and made it his home for the rest of his life.

  Shortly after the Persia docked he went briefly to Newport, Rhode Island, which was just beginning to become a fashionable resort, then on to Boston and Hartford. He found his mother, staying with Sarah Morgan on Asylum Street, little changed. The slightest exertion upset her for days.

  Returning to New York in early September, he moved into a house at 45 West 17th Street with Joseph Peabody, a relative of his father’s partner, and a third young man called Vose. Jim Goodwin’s sister, Sally, described the trio that fall as living in “fine style.”

  Forty-five West 17th was in New York’s most fashionable residential area, a designation that had been moving steadily north since the beginning of the century. After the Revolution, merchants, shipowners, and traders had built Federal town houses along unpaved roads near the seaport at the lower tip of Manhattan. When commerce took over Wall Street in the 1820s, converting private residences to banks and office buildings, Manhattan’s wealthy elite built new houses in what had been a rural village called Greenwich on the North (Hudson) River two miles farther up. And as trade brought traffic and noise to the Washington Square vic
inity in the 1840s, those who could afford to move fled north again, this time building Italian Renaissance mansions and row houses on quiet, tree-lined streets around Union Square, where Pierpont and Joe Peabody settled.

  Their neighbors in 1857 included Cyrus Field at 84 East 21st Street, Junius’s former partner Morris Ketchum at 60 East 23rd, and Levi P. Morton—another of Junius’s former partners, now Frank Payson’s boss—at 15 West 17th. Along Fifth Avenue were Watts Sherman, August Belmont (the American representative of the Rothschilds), and City Bank president Moses Taylor. The New York Herald pronounced the mansion of merchant/shipowner Moses Grinnell at 14th and Fifth, “one of the most majestic piles in that distingué neighborhood.” From 17th Street, Pierpont walked or took a horse-drawn omnibus down Broadway every morning to the offices of Duncan, Sherman & Co. at 11 Pine Street on the corner of Nassau. Just east of his office, on William Street, was the New York Stock and Exchange Board, founded in 1817, now trading shares in forty railroads, ten canals, eight coal and mining companies, three gas-lighting firms, and four banks. A block to the west, the 284-foot spire of Richard Upjohn’s Gothic Revival Trinity Church towered over the buildings along Wall Street.

  Duncan, Sherman & Co. paid its new clerk no salary; he had $200 a month from his father. His first assignment was copying out letters in the correspondence department. Junius approved: “There is I believe no place where so much general information can be had of the working of the business as at the correspondence,” he told his son. Pierpont studied bookkeeping with Charles H. Dabney, the partner in charge of accounting and a cousin of his host at Faial. And he served as confidential New York agent for George Peabody & Co., running informal credit checks, executing orders on the Exchange, handling interest and dividend payments for the firm’s clients and partners. He sent his father news of American finance by every steamer that left New York.

  In 1857, nine years before the Atlantic cable went into operation, London bankers depended entirely on mail for information from the United States. Junius that fall praised Pierpont’s reporting: “I am much pleased with the zeal & activity you have evinced in all these matters.… that is the way to do every thing, be wide awake, know what is going on soon as any one & make use of the information. It has pleased Mr. Peabody also that you have been so prompt.”

  The content of news from America in the fall of 1857 pleased Junius less than the manner of its delivery. Twenty years had passed since the 1837 panic—time enough for most people to forget the dangers of inflation and overconfidence. Not Junius Morgan. He vividly recalled the squalls that had driven him from Wall Street in 1836, followed by panic and depression.

  Railroad companies in the “miraculous” fifties had laid down the beginnings of a national transportation system—twenty-two thousand miles of track running through the heavily populated states of the Atlantic coast and west to the Great Lakes. It now took three days to ship freight from Chicago to New York, where in the thirties it had taken three weeks. Unlike steamboats and canal barges, railroad cars could go almost anywhere—over mountains, across prairies, through forests—on relatively predictable schedules in all kinds of weather. Rail lines, and the telegraph system that grew alongside them, were on the way to making one economic unit of the sprawling North American continent; they were already stimulating production and creating huge domestic markets by linking eastern cities to the Mississippi River and the farms and prairies of the Midwest. Feeding the headlong growth of the fifties were fresh supplies of California gold, easy credit policies, rising prices, a roaring bull market, and wild speculation in stocks and land. Relatively high yields on U.S. securities attracted foreign capital: British investors were earning 10 percent on American railroad bonds, compared with 5 percent at home.

  The U.S. economy remained highly dependent on foreign money and conditions overseas. Europeans in 1853 held about $222 million in American securities—19 percent of all outstanding U.S. stocks and bonds; three years later, the Treasury Secretary estimated that foreign investment in U.S. railroads alone amounted to nearly $83 million.

  Then suddenly in 1856 European demand for U.S. produce plummeted as the end of the Crimean War brought Russian grain back on the market. At the same time, the Bank of England hiked its short-term rate to stop an outflow of money to India and China, which drew capital out of the United States as well: foreign investors sold off American holdings to earn higher returns in London. The selling wave knocked down American securities prices, which reduced the assets of banks holding securities as collateral. Junius predicted a new “season of trial” for the world’s financial markets that fall, and warned a colleague: “he is wisest who has out least canvas when the storm commences.” In September 1857 a New York–bound ship carrying $1.6 million in California gold sank in a hurricane off Cape Hatteras, bringing on a sharp contraction in the U.S. money supply.

  The tempest Junius had anticipated struck in early October. Stock prices collapsed, railroads went bankrupt, creditors demanded repayment of loans, overextended borrowers could not cover their debts, and banks and businesses failed. The Western Blizzard quickly crossed the Atlantic. On October 7, Junius assured the traveling Mr. Peabody: “We are easy & strong & shall keep so. Nothing will tempt us out of the most conservative course, for we believe that in the end will give us the most profit as it certainly will comfort.” The next day he advised Pierpont by mail: “You are commencing your business career at an eventful time, let what you now witness make an impression not to be eradicated. In making haste to be rich how many fall, slow & sure should be the motto of every young man.”

  Watching closely as the Bank of England took charge of the British crisis by lending money to reputable merchants and banks, Junius bemoaned the absence of financial leadership in the United States: “What a pity that the [American] Banks could not earlier have seen the wise course & with a bold but judicious help to the merchants have carried those who deserved it before they themselves were obliged to give way.” His fondness for meteorologic imagery accommodated the nautical as well: the “ship” of finance would not sail easily “out of such a storm into smooth seas,” he predicted—especially with no one at the helm.

  As several of Peabody & Co.’s American clients failed, its British creditors began calling in their loans. Duncan, Sherman & Co., with many of its debtors defaulting, owed money to the Peabody firm—the credit agency R. G. Dun & Co. suspected as much as $2.5 million.‡ By November Junius had lost his equanimity: with outstanding obligations amounting to £2.3 million ($11.5 million), Peabody & Co. would be forced to suspend unless it could borrow from the Bank of England.

  In Manhattan, Watts Sherman was expecting news of this situation by wire from a ship scheduled to dock at Halifax, Nova Scotia. When no bulletin arrived, he sent Pierpont down to the New York telegraph office to “hunt it up.” There the young man learned that confidential messages were being held in Halifax for fear of the press, which had access to the wires. He went straight to Cyrus Field, builder of the recently completed Halifax–New York telegraph, and reported to Junius: “I … asked him what he had got & he showed me a dispatch. ‘G.P. & Co have rec’d 1000 m. from Bank & all is OK.’ ” Before Pierpont reached his office with this news, the papers printed rumors that Peabody & Co. had suspended payment, and brokers came swarming into Duncan, Sherman full of new fears. A statement to the press quickly set the record straight. The Bank of England credit actually amounted to £800,000, or $4 million. Mr. Peabody had arranged for thirteen English banks to guarantee the advance.

  Pierpont was outraged that Sherman had not confided in him sooner. Had he known a wire was expected he could have had the news much earlier, he told his father, since Field had promised “whenever he could do anything for me in line of telegraphing it would give him the greatest pleasure to do it.” The incident brought out his contempt for people in positions of authority who did not take him seriously enough, such as Miss Stevens and M. Sillig. It also reinforced his conviction that he had to ta
ke charge of important matters himself, and underscored the value of accurate information.

  The near failure of Peabody & Co. plunged the naturally alarmist Junius into despair. He thought his own reputation had been irreparably tarnished and twenty-two years of work destroyed, he told his son—who tried to buck him up: “It pained me exceedingly to see how severely the panic now raging on your side has affected your spirits,” Pierpont wrote, but Wall Street had taken the news of the Bank of England’s action in just the “right manner, & I can assure you that it has tended to strengthen rather than weaken the character & credit” of the London house. He forwarded “good toned & complimentary” newspaper articles, and dismissed less favorable stories as “ridiculous.” To pick up gossip on the Street, he quietly stepped outside: “No one knew me & consequently I could hear everything said”—all of it favorable to Peabody & Co.

  Then, turning the tables, the twenty-year-old had some fatherly advice: “I must repeat my entreaty that you will now break off for a little & go off somewhere & seek relief from business—do go where you will be entirely free from its anxieties for if you dont you will be sure to suffer more than any amount of money can repay you for.”

  Junius did not take a vacation. By the end of 1857, barely a month after the Bank of England’s action, Peabody & Co. had met over half its £2.3 million in liabilities, using less than half (£300,000) of the Bank credit. It repaid that loan in March 1858, having met all outstanding obligations. The experience left the house shaken and watchful—especially about accepting credits through correspondent firms—but not broke. After covering expenses and setting aside a £33,000 “suspense account” (temporary carrying) fund, the partners netted £50,000 profit (roughly $250,000) for 1857. That was considerably less than they had made in 1856 (£87,469), and the decline continued in 1858, to £43,043. Earnings recovered to £60,000 the next year, and reached £76,437 in 1860.