by Jean Strouse
In the masculine precincts of Gilded Age Harvard and private banking, only Bob Bacon inspired talk of beauty and falling in love. He had been planning to take a year off in France with his wife and children when the Wall Street proposal came, and had no intention of leaving Boston, but Morgan’s powers of persuasion proved as effective with prospective partners as they did with beautiful women.
Offered not only a coveted position in what was now one of the world’s premier banks but a 5 percent interest in its profits and Morgan’s warm personal friendship, Bacon said yes. Henry Lee Higginson, who initially opposed the move, wished his young colleague well in terms more applicable to a courtesan than a banker: “If Pierpont Morgan gets as much pleasure out of you and as many pleasant words and looks as I have had … he will be a lucky fellow. And why shouldn’t he,” added the Boston Brahmin, having worked closely with the Wall Street titan whom strangers found difficult and brusque, “for he deserves it, and is kind and pleasant to people.” Yet knowing of the herculean labors Morgan exacted from his partners, Higginson warned Bacon: “Don’t overwork like Coster just because you can and like to do it. He is wonderful—and unwise—to do so. Trade with me when you can.”
Bob Bacon joined J. P. Morgan & Co. at the beginning of 1895, and his advent probably gave rise to the Wall Street maxim “When the angels of God took unto themselves wives among the daughters of men, the result was the Morgan partners.”
The newest Morgan partner did not take Higginson’s advice about overwork. After three months in New York he told his wife that he could not join her for a vacation in France: “I am really working for perhaps the first time in my life. I almost feel as if I were just beginning to find a use for the poor substitute which I am pleased to call my brain.” Pierpont Morgan was about to leave for Europe, “and I assure you that I shudder a little to think of the responsibility which I feel.… My life is simply engrossed in this maelstrom, and I have no moments for any other thought except thoughts of you.”
The wage cuts and layoffs that came with the long depression of the 1890s led to a new round of strikes—1,400 in 1894, when more than 660,000 people lost their jobs. “It is probably safe to say that in no civilized country in this century, not actually in the throes of war or open insurrection, has society been so disorganized as it was in the United States during the first half of 1894,” wrote the editor of Railroad Age—“never was human life held so cheap; never did the constituted authorities appear so incompetent to enforce respect for the law.”
America’s best-selling books that summer were Henry Demarest Lloyd’s attack on predatory trusts, Wealth Against Commonwealth, and William Hope Harvey’s influential brief for silver, Coin’s Financial School. The populist leader Jacob Coxey of Ohio organized the unemployed to march on Washington in the spring to demand an increase in the money supply and a federal work relief program. When Coxey’s Army of five hundred arrived at the capital on April 30, police arrested the leaders and broke up the crowd. Nonetheless, hundreds more people marched on Washington that year—their “living petitions” for federal aid putting the human costs of the depression on graphic display.
In May, factory workers in George M. Pullman’s “model” company town outside Chicago went on strike. They had been forced to absorb four wage cuts in twelve months, with no offsetting reduction in the prices of housing or food, when Pullman fired a third of the workforce and cut wages by another 30 percent. Eugene V. Debs, president of the American Railway Union, called for the strike after Pullman refused to negotiate. When other railroad managers backed Pullman, Debs expanded the local action into a general railroad strike, which affected virtually all roads west of Chicago by the end of June. Responding to an appeal from the railroads, the federal government decided to intervene—ostensibly to protect the U.S. mail, though it was not the union but the managers who refused to attach mail cars to trains that did not include Pullman coaches. Attorney General Richard Olney issued an injunction to the union to return to work. Debs defied it. On July 4 President Cleveland sent two thousand federal troops to Chicago to break the strike, which had until then been nonviolent. The arrival of the troops set off a riot that left twelve people dead; dozens were arrested.
The Pullman strike had failed, and Debs went to jail for disobeying the Justice Department’s injunction. That federal authorities had sided with management against labor—and that a Democratic President had chosen to protect the railroads but not to provide work or aid to the unemployed—exacerbated the social conflicts of the era. The marches and strikes had strengthened the pro-labor positions of liberal reformers and intensified conservative fears of socialism and mob rule. Debs emerged from his six-month jail term convinced that trade unionism could not solve the economic problems of working people. He led the American socialist movement for the next two decades.
Morgan left no record of his response to these struggles. He was directing his professional energies to reorganizing bankrupt railroads in the expectation that restoring their health would promote general economic recovery. He was also keeping a watchful eye on the Treasury, and when it failed to resolve a currency crisis at the beginning of 1895, he appointed himself unofficial chancellor of the American exchequer.
* His father, George, had come to America from Scotland in the early nineteenth century and made his fortune in the East India trade. George Douglas built a house at 55 Broadway on the Battery when fashionable New Yorkers lived downtown, then moved with the northward migration to a larger house on West 14th Street. Later, he bought the Van Zandt estate on the east side of Little Neck Bay in Queens, where he built the mansion he left to his son.
† The son of Memie’s brother Fred, this Jonathan Sturges had been crippled in early childhood by polio. After graduating from Princeton he tried law school, then moved to England, where he worked as a literary journalist and became a close friend of Henry James’s.
‡ Pierpont and Walter Burns each took a 40 percent share of J. S. Morgan & Co.’s profits, and Robert Gordon the remaining 20 percent. The combined capital of J. P. Morgan & Co. and Drexel & Co. at the beginning of 1895 amounted to $7.1 million. Morgan contributed $4.6 million—nearly 65 percent; five other partners supplied the remainder. For the five-year term of the new partnership, 35 percent of the profits would go to Morgan, 14 percent each to Stotesbury and Thomas in Philadelphia, 11 percent each to Coster and George Bowdoin, and smaller percentages to the junior partners—2 percent each to Jack and Temple Bowdoin. Net earnings for the two American firms in 1895, the first year under the new arrangement, came to about $2 million—largely from railroad reorganizations—and rose steadily from $2.3 million in 1896 to $4.3 million in 1897, $5.8 million in 1898, and $8.1 million in 1899. By comparison, National City, which James Stillman was beginning to transform from an old-fashioned merchant bank into the largest and strongest commercial bank in the country, had $4.2 million in capital in 1895, and net earnings of $400,000; by 1900 the figures were $15.5 million in capital and earnings of $1.2 million.
Chapter 18
POLITICS OF GOLD
Morgan’s defense of the gold standard in the 1890s, hugely unpopular in the anguished South and West, established his image there as a “great financial Gorgon.” As in the currency fights of the seventies, each side from its own point of view was right. Farmers, workers, and small businessmen who suffered under economic stringency were desperate for easier money simply to survive. Eastern bankers and government officials, guarding the European sources of capital for the still-emerging U.S. economy, were determined to protect the westward flow of money by keeping the dollar strong.
The United States was running a trade deficit in the early nineties, and the repeal of the Silver Purchase Act had not stanched the flight of gold: foreign investors, worried about rising U.S. demand for cheap money, continued to sell American securities and take the proceeds home. “Few people have any idea of the amount of property of every description in this country that is held by foreigners,” wrote
National City Bank president James Stillman to a Treasury official in July of 1894. Between 1890 and 1894, nervous creditors unloaded $300 million worth of American securities and transferred gold abroad.
By the end of 1893 the Treasury’s $100 million gold reserve had fallen below $60 million. Since there was no income tax and the government had no power to issue money, the Treasury had to buy or borrow gold in order to maintain its reserve—and its ability to borrow depended on foreign confidence in the dollar.
President Cleveland and his Treasury Secretary, former Kentucky Senator and Speaker of the House John G. Carlisle, had tried in 1894 to shore up the gold supply by selling bonds. Several New York commercial banks took a $50 million issue in January, which restored the reserve to $107 million, but by November $46 million of it had disappeared. Another bond issue in November—this one sold through Drexel, Morgan—raised $50 million more.
By the end of the year it was clear that the concerted efforts of Cleveland and Carlisle could not keep the government in gold. In what amounted to an international run on the Treasury, an estimated $84 million left the country in the last three months of 1894. At the beginning of 1895 the nation watched in fascination as its gold reserve fell to $68 million on January 24 and $45 million a week later. Stock prices plummeted as Europeans sold American holdings. By early February the Treasury was losing over $2 million a day. At that rate, the government would have to stop payment in gold and default on the national debt in three weeks.
Cleveland tried to get congressional authority for a new issue of gold bonds, but at the height of the depression, sentiment in both houses was running high for silver and against the “goldbugs” on Wall Street and in the White House. Congress refused to authorize a bill that would strengthen gold.
Morgan had seen this crisis coming for years. If the Treasury reneged on its debt, he expected the financial markets to collapse and U.S. borrowing costs to soar. To avoid that disaster he had been quietly working with Treasury officials all along. Connecticut Representative Louis Sperry, on the House Banking and Currency Committee, asked him on January 1, 1895, whether a new bond issue would restore confidence and relieve the Treasury of the present emergency: “If so,” Sperry wrote, “I’ll say so to the House of my own information, knowing you don’t like to be quoted, and would not use your name.”
The head of the house of Morgan did not like to be quoted in part because any mention of his name in connection with these matters would heighten public antipathy to Wall Street. Cleveland told Congress on January 28 that regardless of the ongoing silver debate, the only way to restore urgently needed public confidence was to pay the Treasury’s obligations in gold, and the only way to procure the necessary gold was to sell bonds. Silverites, convinced that the entire “supposed emergency” had been trumped up by eastern plutocrats, demanded to know why the shortage could not be made up in silver.
Perhaps to keep Morgan’s name out of the public eye—and because any successful bond sale appeared to require foreign capital—Cleveland asked the English Rothschilds through August Belmont, Jr. (the senior Belmont had died in 1890), about syndicating a $100 million Treasury loan. Nathaniel Mayer Rothschild immediately called in Walter Burns, who cabled Morgan, and on January 30, Assistant Treasury Secretary William Edmond Curtis took a train to New York to confer with Belmont and Morgan. Lord Rothschild insisted, and the Morgan firms agreed, that in order to succeed abroad a new loan would have to be payable in gold or pounds sterling, but the administration could not sell gold bonds without authority from Congress, which it was unlikely to get.
Morgan cabled Burns of the unfolding drama: “situation … is critical & we are disposed do everything our power to avert calamity.” He felt sure that another domestic bond issue would not work, since Americans would simply withdraw Treasury gold to buy the new government paper, leaving the Treasury with more debt and no more gold. Only a new supply of gold from Europe could restore confidence in the Treasury and stop the drain. If all these conditions could be met, Morgan concluded, an international loan would be “most creditable all parties & pay good profit. We can secure cooperation best parties this side including leading National Banks.”
As he saw it, his efforts to stem the drain, avert default, and restore confidence in the dollar would protect the billions invested in the United States and reopen the channels for foreign capital: “We all,” he reminded his brother-in-law, “have large interests dependent upon maintenance sound currency U.S.”
While the bankers and Treasury officials conferred, rumors reported on default and secret rescue plans. A broker who saw Morgan emerge from the New York Subtreasury building with Curtis ran onto the floor of the Stock Exchange shouting, “The Treasury is negotiating a loan.” The panic subsided at the hint of Rothschild/Morgan action, and withdrawals stopped. Nine million dollars in gold taken out for shipment abroad one night was actually returned to the Treasury coffers the next morning.
As in his railroad reorganizations, Morgan was not willing to take full responsibility unless he had full authority. When other bankers put in for participation in these negotiations, he wired Treasury Secretary Carlisle that his own house and Rothschilds would underwrite the new issue alone.
For the next few days, Assistant Secretary Curtis shuttled between Washington and New York discussing rates and terms for a bond sale that would bring in $100 million worth of gold, while Congress and the press grumbled about “dark-lantern financiering” and a conspiracy between the Treasury and Wall Street. Grumbling notwithstanding, the fact of the bankers’ negotiations continued to assuage public anxiety. Morgan cabled Burns on February 3: “Effect of abandonment upon all interests would now be worse than if never begun.”
Then suddenly on Monday, February 4, when he thought everything was firmly settled except the exact amount of the loan and price of the bonds, Morgan got a letter by special messenger from Secretary Carlisle canceling the negotiations. The Secretary, a former silverite who had all along been reluctant to deal with Wall Street, declared the syndicate’s terms too harsh: the President would force Congress to authorize gold bonds for sale directly to the public instead.
Whether Carlisle was angling for a better deal or seriously meant to cancel, Morgan thought this news would bring on a crisis in public confidence and a crash in the markets. He telephoned the Treasury to ask for a day’s delay in announcing the change: he and Belmont would go to Washington to confer personally with the Secretary and the President.
Belmont left immediately. Morgan followed a few hours later accompanied by Bob Bacon and Frank Stetson, the President’s former law partner. Just before leaving, he sent Burns a gloomy wire: “We consider situation critical, politicians appear to have absolute control. We shall make strongest possible fight for sound currency, if fail & European negotiations abandoned it is impossible over estimate what shall be result U.S.… Must admit am not hopeful.”
War Secretary Daniel S. Lamont, one of Cleveland’s closest advisers, met the Morgan party at Washington’s Union Station. He said the President was determined to force an issue of public bonds through Congress and would not meet with the bankers.
Although it was late, Morgan dropped his bags at the Arlington Hotel and went with Lamont, Bacon, and Belmont to see the Attorney General, Richard Olney, at home. “All were much wrought up,” recalled Olney, a former Massachusetts corporate lawyer who had known Bob Bacon in Boston, “and anticipated, apparently with reason, that unless something were done the next day to save the situation, great financial and commercial calamities must follow.” Morgan told the Attorney General he had a plan, but if Cleveland refused to see him he would return in the morning to New York.
Olney telephoned the President and persuaded him to set up a meeting with the bankers at nine-thirty the next morning. Returning after midnight to the Arlington, Morgan cabled Burns: “Still some hopes but small, have strong allies in Cabinet but greatest fear Secy Treasury[;] will do our best.” He sat up alone in his hotel roo
m for another hour, smoking a large Rosa de Santiago Celestiale and playing out rounds of solitaire.
Right after breakfast on Tuesday morning, flanked by Stetson and Bacon, Morgan crossed a chilly Lafayette Park to the White House. Ushered upstairs to the library that served as the President’s workroom, the representatives of J. P. Morgan & Co. found Cleveland, Treasury Secretary Carlisle, Attorney General Olney, War Secretary Lamont, and August Belmont.
The banker, his “Attorney General,” and the President knew each other well, but Cleveland greeted his guests with formal reserve. He had Olney settle the New Yorkers in a corner of the room.
While the President’s men conferred among themselves, Morgan sat silent, rolling an unlighted cigar between his fingers. Every few minutes a message came in for Carlisle. One telephone call reported just $9 million of gold left in the New York Subtreasury.
After what seemed like hours, Cleveland rose from his desk with a distracted air and crossed the room to address the bankers. Standing before them with his hands in his pockets, he insisted once again that he would not discuss a bond issue. Congress was holding him up, he said, and he wanted the public to know exactly where the blame for the present crisis lay.
Morgan replied that there were outstanding drafts on the New York Subtreasury for $12 million, against $9 million in gold: if the drafts were presented that day, the government could not pay—it would have to default on its debt and destroy its credit. There was no time for congressional approval or a public sale of bonds, he said. Something had to be done.
“Have you anything to suggest?” Cleveland asked at last.
Accustomed to taking charge at moments of crisis, Morgan had been holding himself back all morning with great effort. Now, he quickly sketched out a plan. A new public issue of bonds, which Congress probably would not authorize, could not in any case work, since it would simply recycle domestic gold. Instead, a syndicate of international bankers could provide the Treasury with a new $100 million reserve.
