Morgan

by Jean Strouse

  Regular steamship passage between Marseilles and Alexandria started in 1835, and by midcentury Cairo had become a major stop on the grand tour. The French diplomat Ferdinand de Lesseps organized efforts to dig a canal across the Suez isthmus in 1859. Ten years later, a few months after the completion of America’s transcontinental railroad, Empress Eugénie sailed from Port Said to Suez for the formal opening of the canal. Among the other dignitaries who attended were the Prince and Princess of Wales, Emperor Franz Joseph, and an envoy from the Pope. Verdi, commissioned to write an opera for the event, failed to complete it in time: Aïda premiered in Cairo in 1871.

  Thomas Cook took his first organized expedition up the Nile shortly after the opening of the canal, and in 1870 three hundred Americans registered at the consul general’s office in Cairo. Seasoned travelers made fun of the “Cooks and Cookesses,” to whom the locals referred as “Kukiyyeh.”

  Morgan chartered a private boat to sail up the Nile from Cairo in early January 1872, but when the unwieldy craft with its native crew and huge triangular sails proved too slow, he exchanged it for a Cook’s steamer.* For three weeks the New Yorkers cruised through the lush Nile Valley past sights that had not changed for millennia—mud villages, date palms, fields of clover and barley, flocks of ducks and geese, men quarrying limestone in the blazing sun. They stopped at Giza, Memphis, Karnak, and Thebes, touring ancient pyramids and the remains of palaces and temples, then turned back north at Aswan. Their courier, Cesar, kept track of purchases en route—tea, chocolate, coffee, oranges, biscuits, tomatoes, medicines, cold cream, wine, tobacco, charcoal, an antique knife, ostrich eggs, bran for baths, “silk for Madame.”

  In mid-January the travelers returned to Rome, where Pierpont called on the American sculptor William Wetmore Story, an old Hartford friend now living in Renaissance splendor at the Palazzo Barberini on the Quirinal. Story had cast the bronze figure of George Peabody for the City of London, and his villa served as a salon for the colony of expatriate American artists in Rome. At the Palazzo Barberini the Morgans met the sculptor Harriet Hosmer, the painters Eugene Benson and Luther Terry, the composer Francis Boott, and Story’s son, Waldo, also a sculptor. Henry James, who regularly stayed with the Storys, thought his host more likable than talented; in a book on William Wetmore Story and His Friends (1903), he called the sculptor’s career “a sort of beautiful sacrifice to a noble mistake.”

  On April 17, the Morgans celebrated Pierpont’s thirty-fifth birthday at the Hôtel Bristol on the Place Vendôme in Paris.† The Bristol had the first entry in Baedeker’s “Hotels of the Highest Class,” and its bedroom suites included dining room, drawing room, and (not the usual nineteenth-century hotel fare) private bath. After this visit, Pierpont stayed at the Bristol whenever he was in Paris.

  At the beginning of May he left his family in France and went on to London alone. His months of travel had had the desired effect—he was in high spirits, reporting to Fanny that he had not bought anything at the opening of the Royal Academy of Art, since “my pocket book for that purpose needs replenishing.” She was now ailing, however. He warned her from London not to “overdo it and break down again,” and found her a nurse, “Hanoverian—Protestant—not bad looking, nothing stunning however,” with good manners and recommendations: “Shall I bring her over?” In June he accompanied his father to Germany for a final tune-up at the Wildbad spa, then in August took his party home.

  Just before he left New York in the early summer of 1871, Pierpont had learned that a large farm in Highland Falls, half a mile south of the house he had been renting, was for sale. Since he would be abroad all year, he authorized Fanny’s father to negotiate for the property in his name. In April 1872 Mr. Tracy bought the place, called Cragston, for $60,000 ($58,000 cash). In July he reported that “Pierpont’s new barony” looked “radiant” in the summer sun.

  The large wooden farmhouse on a hill overlooking the Hudson had been built for a family named Baldwin in 1859. It was not on the fashionable east bank of the river known as Millionaire’s Row, where the Osborns and Secretary of State Hamilton Fish had estates, but on the less stylish western side, near West Point. Before the final papers were signed, both Morgans began imagining what they would do with their new house. Pierpont had a thousand ideas for remodeling, while Fanny wanted everything “very simple,” with mats on the floors and furniture covered in chintz. Well aware that she and her husband had sharply divergent tastes—and that his usually prevailed—she hoped he would not make the place too grand: “We each have our ambition,” she wrote to Mary Sturges from Europe, “and mine is not elegant furniture. I prefer to spend the money on books and pictures and permanent things that thieves will not be tempted to break through and steal.” That she considered pictures less vulnerable to theft than furniture seems odd. In any case, her husband wanted both.

  The Morgans took possession of their new “barony” in the fall of 1872. It had been a 368-acre working farm, with cattle barns and a dairy. Fanny got her way about the chintz, but over the next several years Pierpont turned his Hudson highlands acreage into an English country estate. He cleared away rocks and woods to open the view, with wide lawns sweeping down to the river. He filled the house with paintings, Chippendale, flowering plants, potted palms, and Persian rugs. Outdoors there were tennis courts, stables, dog kennels, ponds, root cellars, greenhouses, vineyards, fruit trees, several gardens, and a Georgian carriage house. His gardeners planted thousands of daffodils along the Hudson shore and rhododendrons around the house. On his summer travels after 1872, Morgan brought along his own Cragston strawberries, tomatoes, and fresh cream.

  Anthony Drexel left for a sabbatical of his own that fall. Pierpont worked out of his old office on Exchange Place until construction of a new building for the bank was finished at 23 Wall Street, on the corner of Broad, early in 1873.‡ Facing the New York Stock Exchange to the west and the Doric temple of the U.S. Subtreasury Building to the north, the six-story white marble Drexel building came to be known as “the Corner.” Junius’s old friend Levi P. Morton rented the ground floor for his banking firm, Morton, Bliss & Co.

  In his first major undertaking as head of Drexel, Morgan & Co., Pierpont acquired the U.S. government as a client. Jay Cooke’s success at selling Civil War bonds had earned him exclusive contracts for federal loans after 1865, but rival bankers, including the Morgans and Levi Morton, wanted to break his hold on this prestigious, lucrative business. Competition and monopoly were not restricted to railroads and steel mills, and the Morgan allies found an opening when the government began to refinance its Civil War debt.

  The Treasury had made war bonds attractive by paying a relatively high interest rate of 6 percent. The bonds were mostly “5-20s”—twenty-year obligations that the government could pay off in five. Five years after the war, Treasury officials eager to reduce the $2.8 billion national debt decided to replace the wartime obligations with new ones bearing lower rates. In July 1870 Congress voted to refund $1.6 billion of the outstanding “5-20s” at 4 percent and 5 percent interest.

  Proceeds from the sales of new bonds would be deposited in national banks, and when the deposits reached a certain amount—say, $5 million—the secretary would use the money to buy back $5 million of old 6 percent bonds. An 1869 Public Credit Act required that all these transactions be conducted in gold. The refunding loans were designed to reduce interest payments and help build up the country’s gold reserves in preparation for return to a single monetary standard.

  When the first loan, offered through hundreds of disparate agencies and banks, sold poorly, Treasury Secretary George Boutwell called in Jay Cooke, who put together a transatlantic syndicate to share the selling and the risks. Cooke handled the issue so well that it put his house “head and shoulders above any American house in Europe,” Levi Morton admitted to President Grant.

  Still, Drexel, Morgan and Morton, Bliss wanted a share of the loans, and they had strong connections in Washington. Junius and Levi Morton ha
d known Secretary Boutwell in Boston. Grant had been a trustee of the George Peabody Southern Education Fund since 1867, Tony Drexel managed Grant’s personal finances, and Morton entertained the President and his wife at Newport.

  The November 1872 election returned Grant to the White House (he defeated the Democratic editor of the New York Tribune, Horace Greeley) and sent Boutwell to the Senate. When the Secretary decided to issue another $300 million refunding loan before leaving the Treasury, Cooke proposed to take the entire issue in conjunction with London’s Seligman Brothers and N. M. Rothschild & Sons. Pierpont called on Boutwell at the beginning of January 1873 to offer the services of a rival syndicate—Drexel, Morgan and Morton, Bliss in New York, with J. S. Morgan & Co., Baring Brothers, and Morton’s English firm.

  The junior Morgan commuted to Washington for weeks, and by the end of January he and Morton had worked out a compromise with Boutwell, Grant, and Cooke: the two banking groups would form a “super-syndicate” to sell a $300 million 5 percent loan. Pierpont and Morton kept London posted on the negotiations by cable, but at the last minute had to commit themselves without consultation. Junius scolded: “While we feel your action well intended, should not have been taken without all parties consent. Doubt whether Rothschild will ratify in which case Baring probably adopt similar course. If so, very embarrassing.”

  Junius was wrong. Rothschild (who was in any case Cooke’s responsibility) and Baring both ratified the agreement. Morgan père seemed more annoyed at the New Yorkers’ failure to get his final consent than interested in the fact that his son, at thirty-five, had just negotiated with the President, the Treasury Secretary, and the government’s leading banker, and gained for the house of Morgan a prominent share in the federal loans.

  A few months later Junius demanded to know why Drexel, Morgan allowed syndicate documents to issue from Cooke’s office and bear that firm’s signature first. He was eager to establish his bank as primus inter pares, but Morgan fils, in a reversal of their usual roles, made a pragmatic argument for deference to traditional rules: Cooke had legitimate leadership of the loan, since his group had signed the contract first, and there was “no questioning the fact that Cooke can do much better with the Clerical force of the Treasury Dept than anyone else can, particularly as they have got a house in Washington. We got everything we want that it is possible to get.”

  The 1873 loan did not sell well: when the subscription books closed in late February, the super-syndicate had placed less than $50 million of the $300 million issue. The general economy was showing signs of strain, and investors could buy comparable securities paying higher interest elsewhere. It took three years for the markets to absorb the bonds.

  To keep communications secret once the Atlantic cable was completed, international bankers sent their messages in code. The Morgans used various systems and names over the years: Pierpont was “Vienna,” “Charcoal,” “Flintlock,” and “Flitch”; at one point his New York firm was “Floatage,” J. S. Morgan & Co. “Flutists,” N. M. Rothschild & Sons “Forefather.” A cable from Pierpont to Junius in the 1870s read in part: “amber despise maliciously fawn whisper shank plainness rediving absconding apish quicksand forcing smelting your comma whereupon meanly … repeats zealot,” which meant “am desirous make negotiations which shall place Delaware & Hudson Canal Co. above any question for 3 years come what may … requires $5 million.” Clerks did the decoding unless a cable was labeled “Denkstein,” which meant it had to be read only by the person to whom it was addressed.

  The postwar boom had paused for eighteen months in 1869–1870, then resumed, but by early 1873 money was tight, new construction had fallen off, and the stock market had the jitters. Pierpont, learning that Jay Cooke & Co. was having trouble, began calling in Drexel, Morgan’s loans and building up cash reserves to prepare for a storm. He told Junius in April that he was handling only bonds “which can be recommended, without a shadow of a doubt, and without the least subsequent anxiety, as to payment of interest.” Joseph Drexel wanted to hold on to the firm’s risky, high-interest loans, but Pierpont overruled him.

  Even as he took these precautionary steps, Pierpont was looking out for promising new prospects. He urged Junius in March to let him negotiate for bonds of Commodore Vanderbilt’s New York Central Railroad, and continued to argue the point after his father refused: though the price seemed high, the value was “true”—just the sort of security with which the Morgan name ought to be connected—and as the price rose, Pierpont pointed out that had they moved in time, they could have had the entire issue to themselves.

  He was feeling “remarkably well” in the spring of 1873—“never better,” in fact, even though stocks were “very sick.” Events justified his prudence. The Vienna stock market collapsed in May, and the trouble spread to Berlin, Amsterdam, Paris, and London. British investors stopped buying American securities.

  Pierpont moved his household to Cragston for the summer in May. He commuted by steamboat, leaving the office every day at three. Fanny gave birth to their fourth child, Anne Tracy, in July. Highland Falls had “never looked so beautiful before,” Pierpont told his father in an expansive mood. “I only wish all my investments turned out as favorably.” He attributed his good spirits to his new partnership, and breathed a sigh of relief in June when Tony Drexel returned from his year off to take an “immense responsibility off my shoulders.” The business was working “well and smoothly,” Pierpont continued to Junius in July. In marked contrast to his final years with Dabney, Morgan, he found “nothing harassing or disturbing.”

  The economic crisis he had prepared for struck that fall, setting off one of the worst depressions in U.S. history. In early September a couple of defaulting railroads brought down banks that had lent them money. Then on September 18 Jay Cooke & Co. failed. Wall Street was stunned.

  Cooke, the government’s leading private banker, had also been ruined by a railroad—the Northern Pacific, chartered in 1864 to run from the Great Lakes to the Pacific Northwest. Just about everything had gone wrong for this road. It started with a huge grant of federal land, but the parcels did not sell. Cooke entered the picture in 1869, agreeing to underwrite $100 million of Northern Pacific bonds—just before the Franco-Prussian War curtailed European investment. The road’s construction costs ran much higher than predicted, and the tracks reached only as far as Bismarck, North Dakota, when the NP defaulted. Cooke tried to keep it in funds with short-term loans, but by September, hugely overextended, he could no longer meet his own obligations, and went bankrupt. Investors panicked. Stock prices collapsed. Fifty-seven investment firms failed. On September 20 the New York Stock Exchange closed for the first time in its history.

  The panic touched off by Cooke’s failure exposed the weaknesses in the economy as a whole. With no central bank, the country had no way to increase its currency supply or make cash available to faltering firms. The recent boom had been fueled by too much unsecured debt, and speculation had driven stock prices far beyond rational valuations. Moreover, the United States still depended heavily on capital that could vanish overnight—European investors held $1.5 billion of American securities in 1873. The day after Cooke’s suspension, Pierpont cabled Junius: “Affairs continue unprecedented bad large failures Phila NY.” He described the panic to a colleague as far worse than those of 1837 and 1857—a “cyclone, which came upon us without an hour’s warning.”

  He had taken warning, however, and his own affairs were in good shape thanks to his early defensive measures. “Everything satisfactory with us with ample margin,” he continued to his father. “Impossible foresee future consequently important prepared for any emergency.” A few days later, at the height of the panic, he and Drexel reported proudly: “No anxiety whatever as to selves NY Phila. Had over in Bank last night nearly 1½ millions.” Assured of their firms’ safety, they turned to the larger picture: “Our anxiety is to prevent disaster spreading.”

  The two bankers could not keep the disaster from spreading
, though they tried to function as an unofficial central bank, providing other firms with cash and importing money from England to ease the sudden contraction. President Grant authorized the Treasury to pump $26 million of retired greenbacks back into circulation, which brought some relief. The Stock Exchange reopened after ten days. Nonetheless, the economy slid into a crippling six-year decline that would be known until the 1930s as the Great Depression.

  Demand dried up. Businesses contracted, cut wages, and laid off employees. Railroad construction dropped from 7,500 miles in 1872 to 1,600 in 1875; by the following year over half the roads in the country were bankrupt. Coal production fell off by five million tons between 1873 and 1875, pig iron by half a million. Investment capital disappeared; foreigners lost $600 million in the United States between 1873 and 1879. By 1878, 327 banks had suspended payment. Ten thousand companies were wiped out that year, with assets worth over $250 million.

  The depression brought about major structural changes in American politics, business, and finance. It sharpened conflicts between interest groups in a stratified and increasingly pluralistic society, signaled the end of the country’s preoccupation with slavery, union, and civil rights, and put monetary questions once more in the forefront of daily life.