by Jean Strouse
Continuing at length in this vein, Fry delivered a summary judgment that has defined Morgan as collector for generations of scholars and readers: “A crude historical imagination,” the critic wrote, “was the only flaw in his otherwise perfect insensibility [to art].”
History is subject to a tyranny of the articulate, and Fry had the weapon of artful words in his contest with “the big man”—a contest Morgan barely noticed. Flummoxed by an implacable force he could neither sway nor disconcert, the aesthete resorted long after the fact to scorn.
In 1940, after Virginia Woolf’s Roger Fry was published in England, Jack Morgan asked the author (through one of his London partners) to delete two sentences for the American edition—the one about Morgan sleeping with Adelaide, and Fry’s reflection “I always wondered that his mistresses in New York got such substantial subsidies as they did.” Mrs. Woolf wrote to her American publisher: “As he [Jack Morgan] says that [the two sentences] give him and the Morgan family great pain, I have had to agree.… Privately, I think the objection is unreasonable, but of course I did not like to refuse.” The book had already been printed, and the changes were never made.
* Lord Bateman was an anonymous ballad that Dickens and George Cruikshank had published in 1839; Thackeray wrote it out and illustrated it that year. Virginia later said of the rambling house her family lived in at 22 Hyde Park Gate, “One never knew when one rummaged in the many dark cupboards and wardrobes whether one would disinter Herbert Duckworth’s barrister’s wig, my father’s clergyman’s collar, or a sheet scribbled over with drawings by Thackeray which we afterwards sold to Pierpont Morgan for a considerable sum.” In 1909, Morgan bought additional Thackeray manuscripts and drawings from Vanessa Stephen Bell for £2,000.
† The President praised Curtis’s work for its artistic merit and historical and ethnological value, then went on, with no acknowledgment of his own culture’s responsibility for what he described: “You have begun just in time, for these people are at this very moment rapidly losing the distinctive traits and customs which they have slowly developed through the ages. The Indian, as an Indian, is on the point of perishing, and when he has become a U.S. citizen, though it will be a much better thing for him and for the rest of the country, he will lose completely his value as a living historical document.” It evidently did not occur to Roosevelt that the native American culture destroyed by railroads and western expansion might have value to itself, or that it should be preserved for reasons other than “the rest of the country’s” romantic nostalgia.
‡ The earliest seals were flat, used to stamp motifs on clay pots or tags. Around 3500 B.C., just before the invention of writing, the Mesopotamians devised round stones shaped like spools, incised with designs that made an impression in soft material such as damp clay. Rolled out, a cylinder covers more surface than a stamp, and conveys more information—abstract designs, animals, human beings, monsters, inscriptions, gods. These seals, the largest source of visual information about the ancient Near East, were carefully carved, often of valuable stone, to tell symbolic stories of daily life, religion, and myth; they also served as amulets, to bring their owners the protection of the gods.
§ Jack kept Barbet’s bronze angel at the library; after his death, in 1943, it was purchased by the Trustees of the Frick Collection.
‖ Among Osborn’s major trade publications were The Age of Mammals in Europe, Asia, and North America (1910), and The Earth Speaks to Bryan (1925), a Darwinian answer to William Jennings Bryan after the infamous Scopes trial. In 1910 Osborn wrote to one of his trustees that the museum ought to add “an agreeable Hebrew” to the board, since “the Zoo, the Metrop[olitan Museum], the Public Lib. have all done so, and our atti[tude] is becoming conspicuous.” The trustees elected banker Felix M. Warburg. After Pierpont Morgan died, Jack took his place on the board, and refused in 1916 to attend any meeting at which Warburg was present: Jack was convinced, contrary to the facts, that German Jewish bankers were supporting Germany in World War I. “I cannot stand the German Jews,” he wrote to Osborn in October 1916, “and will not see them or have anything to do with them.… In my opinion they have made themselves impossible as associates for any white people for all time. I am sorry to bother you but there it is.”
a Treasury Secretary Leslie Shaw, who tried informally to adjust the money supply to seasonal fluctuations in demand, wrote at the end of 1906: “If the Secretary of the Treasury were given $100,000,000 to be deposited with the banks or withdrawn as he might deem expedient, and if in addition he were clothed with authority over the reserves of the several banks, with power to contract the national-bank circulation at pleasure, in my judgment no panic as distinguished from industrial stagnation could threaten either the United States or Europe that he could not avert. No central or Government bank in the world can so readily influence financial conditions throughout the world as can the Secretary under the authority with which he is now clothed.” According to Milton Friedman and Anna Schwartz, this large claim contained “much truth”: “The Treasury’s monetary powers were very great indeed. If they had been expanded as Shaw requested, the Treasury would have been clothed with effective power different from but not clearly inferior to that later assigned to the Federal Reserve System.”
b The painting was given to the Philadelphia Museum of Art with the Henry McIlhenny Collection in 1986, and is now called Interior (The Rape). It depicts a man and woman in a room just after the event described: he stands, fully clothed and facing her, with his back to a wall; turned away from him, her torn dress exposing one shoulder, she appears to be crying, though her face is obscured in shadow.
c Duveen had promised to reserve the Castagno for Isabella Stewart Gardner, and Morgan reluctantly agreed to let the dealer offer it to her. Berenson urged her to buy it for £12,500. Formerly in the Torrigiani Collection, the painting ranked among the “highest achievements of Italian art,” said BB, and was “the grandest surviving work of one of the greatest figures in Italian art … an overwhelming masterpiece.” The stock market’s 1907 troubles had reduced Mrs. Gardner’s income, however, and she declined the picture: “Woe is me!” she wailed to BB. “Why am I not Morgan or Frick? I am wretched about it.”
Morgan kept the Castagno. Berenson tried and failed to buy it from his estate in 1914. Then in 1932, in his Italian Pictures of the Renaissance, BB changed the attribution to Antonio Pollaiuolo. He had apparently considered Botticelli as well. Belle Greene asked him whether, “in memory of our long and hectic devotion, you could find time to let me know why our Castagno-Botticelli is now Pollaiuolo? I have tried my hardest to understand this, but my feeble and ageing mind refuses to do so.” Andrew Mellon bought the picture in 1935, and it is now—attributed to Castagno—in the National Gallery of Art in Washington. Morgan’s Vermeer, A Lady Writing, also now belongs to the National Gallery. The Ghirlandaio from the Kann Collection is part of the Baron Thyssen Collection in Madrid, and the Memlings are at the Morgan Library. The Van der Weyden Annunciation, Metsu’s A Visit to the Baby, and the Terborch, Young Girl at Her Toilet, are at the Metropolitan Museum.
d Berenson jeered to Mrs. Gardner that “Morgan … has just bought on Fry’s advice the King of Belgium’s Fra Angelico. It is a most beautiful picture. It was offered to me for eight, and I am confident I could have had it for six; but the next day it was sold to Morgan thro’ Fry for twelve thousand pounds! What a world the dealers’ is, what a goose Fry, and what a lamb am I!” Morgan’s heirs sold the painting, Virgin and Child Enthroned, shortly after his death. It is now in the Baron Thyssen Collection, attributed to a follower of Fra Angelico.
Chapter 28
PANIC
Morgan remained abroad for five months in 1907, from mid-March until mid-August. His major interests had not been hurt by the market turmoil in the spring: “The bank is fine,” noted Fanny in her diary on April 28, and on May 4: “The bank is glorious.” Jack reported that U.S. Steel earnings for the quarter ending June 30 would be the l
argest in its history—$45.5 million—and that the company was spending $10 million a month on expansion, which should increase earnings further. “The figures are so enormous that one hardly believes them possible,” Jack told his London partners, “but there they are.”
The worldwide credit shortage had not eased. The city of San Francisco had been unable to float a loan in New York that spring, and the Egyptian Stock Exchange crashed. The Bank of England sent $3 million in gold to Alexandria to stop the slide, then found itself short of cash. As stocks plummeted on the Tokyo Exchange, banks failed all over Japan. French investors sold American stocks to buy gold and ship it home, which further depleted U.S. reserves. Over the summer, large new bond offerings for Westinghouse and the cities of Boston and New York did not sell. New York’s Metropolitan Traction Company and a major iron-manufacturing house went bankrupt. On August 10, the American stock market crashed again. The New York Times estimated the losses at $1 billion. Morgan sailed for home on August 21.
The Roosevelt administration had not checked its regulatory course. That summer, Federal District Court Judge Kenesaw Mountain Landis fined Standard Oil $29 million on fourteen hundred counts of illegal rebating,* and Jack echoed much of Wall Street in ascribing the market crash to government “attacks” on big business—“everyone is frightened to death by the action of people like our fool Attorney General,” he told his London partners. Roosevelt defended himself to the Boston banker Henry Lee Higginson: pointing to recent breaks on foreign stock exchanges, and to declines in British government and railroad securities, the President found it “difficult to believe” that the worldwide financial crisis was “due to distrust of my policies, reasonable or unreasonable.” A few days later he leveled a charge of his own: “certain malefactors of great wealth” were inducing panic to force a “reversal” of his policies, “so that they may enjoy unmolested the fruits of their own evil-doing.”
The first explanation made more sense than the second. Europe’s troubles critically affected the international flow of money, and it was the currency supply more than the antitrust law that chiefly worried the elder Morgan. The rapidly expanding American economy, requiring enormous amounts of capital, faced a liquidity crisis: world gold production had declined relative to industrial growth, recent wars had absorbed western cash reserves, foreign governments had raised their interest rates, and the United States had no central bank to adjust supply to demand. The worst crises always came in the autumn, when rural banks drew money out of New York to meet agricultural demand. America’s obsolete banking system was like an immense tangle of dry brush and timber waiting for a spark.
There were in 1907 nearly twenty-one thousand state and national banks across the country, with no coordinated management or pool of common reserves. Most of them lent their surpluses to correspondent banks in New York, the national money center, and the New Yorkers lent the money out to the Stock Exchange, individuals, and business. Banks beyond the Hudson could call in the loans at a moment’s notice, however, and New York’s large national banks, required to keep 25 percent of their deposits in cash, could not possibly meet demand if all the correspondents suddenly demanded their money at once.
The weakest institutions in the system were trust companies, chartered by the states to handle individual trust funds, wills, and estates. Entirely different from industrial “trusts” such as Standard Oil and U.S. Steel, the trust companies operated like commercial banks—accepting deposits, issuing loans, financing speculative ventures—but they had no mandated reserves or regulatory supervision. Thomas W. Lawson, author of the muckraking articles on “Frenzied Finance” that helped bring on the Armstrong insurance investigation, described the trust company as “the irrigating canal of Wall Street, the insurance company as the reservoir.”
At the beginning of October 1907, Morgan went to Richmond, Virginia, with a party of friends to attend the Triennial Episcopal Convention. While he was gone, an attempt by two speculators to corner the stock of a copper company failed, bankrupting a mining concern, two brokerage houses, and a bank. The speculators, F. Augustus Heinze and Charles W. Morse, had induced several New York trust companies to fund their venture—including the Knickerbocker Trust, headed by Morgan’s acquaintance Charles T. Barney. As reports of Barney’s involvement in the copper scheme swept through New York, terrified Knickerbocker depositors began drawing their money out.
Morgan’s partners kept him posted on the situation by messenger and wire, but insisted that he not come back early since a sudden change of his plans would increase the sense of panic. The Richmond convention ended on Saturday afternoon, October 19. Morgan immediately left by train for New York, arriving early Sunday morning. He went straight to his library, where his partners were waiting.
They quickly filled him in. The Knickerbocker depositors’ demands had been met for two days with help from the National Bank of Commerce, which acted as clearinghouse for the Trust, but the run was likely to resume on Monday and the panic certain to spread.† Stocks were broadly down, and cash was in short supply. If country banks and individual depositors all tried to get their money out of New York in the next few days, the result would, as Schiff had predicted, “make all previous panics look like child’s play.” Morgan smoked cigars as he listened. He had told Walter Burns during the 1895 gold crisis that “We all have large interests dependent upon maintenance sound currency U.S.” Twelve years later he had even larger interests dependent on the maintenance of the U.S. banking system, currency supply, and Stock Exchange.
As soon as word got out that he had returned to New York, reporters stationed themselves across from the library on 36th Street. Bankers and government officials dropped by all Sunday afternoon and evening as the old man marshaled information and resources. He had managed the 1895 crisis with the aid of his lawyers, August Belmont, and President Cleveland. In 1907, seventy years old and facing a far more complex set of problems, he was going to need a wider network of help.
President Roosevelt was hunting in the Louisiana canebrakes. He told a reporter on Sunday: “We got three bears, six deer, one wild turkey, twelve squirrels, one duck, one opossum, and one wildcat. We ate them all, except the wildcat.”
In New York that night Morgan lined up two groups of men. The first consisted of himself, George Baker of the First National, and James Stillman at the City Bank—a high command that could review information, raise money, and decide on allocations as the country’s provisional lender of last resort. Baker had worked closely with Morgan for thirty years. This crisis induced Stillman to join forces with the man he had recently dismissed as a “back number.” The second group was made up of George Perkins, Henry P. Davison (a protégé of Baker’s and a vice president at First National), and Benjamin Strong: Davison had organized the reputable Bankers Trust Company in 1903, and he recommended Strong, the secretary of Bankers Trust. These six men would try to ascertain which trust companies were hopelessly overextended and should be allowed to fail, and which were essentially healthy and could be saved. Somehow they would find ways to supply liquidity where it would do the most good. Late Sunday night other New York financiers pledged to support any plan Morgan might devise. Treasury Secretary Cortelyou sent word that he would deposit $6 million in New York’s banks, and more if necessary.
It was after midnight by the time the meetings at the library broke up. Jack was in London. Anne and Fanny had recently returned from Europe and gone straight to Cragston. No. 219 Madison was closed for cleaning after the summer. Morgan stayed with the Satterlees in their new house.
On Monday, October 21, he held a strategy session over breakfast with Perkins before heading downtown. The pressure on the Knickerbocker Trust had increased: it had $60 million on deposit but just $10 million in cash. Its directors reported to 23 Wall Street shortly after Morgan arrived that they had forced Charles Barney to resign, but were afraid this news would accelerate the panic. While they talked, word came in that the National Bank of Commerce would no l
onger clear for the Knickerbocker—a decisive vote of no confidence. The Morgan and Knickerbocker people conferred all afternoon and evening, moving from 23 Wall to the library to a private dining room at Sherry’s. They adjourned at 2:00 A.M. with no clear plan except that the Trust Company would open in the morning, and Davison and Strong would examine its books: if the younger men found it financially sound, Morgan would find money to keep it afloat.
Long lines formed outside the Knickerbocker Trust at Fifth Avenue and 34th Street overnight. Early Tuesday morning, as Morgan’s lieutenants pored over accounts in a back office, depositors clamored for information and cash. The streets of the financial district “reflected the panicky feeling indoors, in the worried faces and the unusual crowds of hurrying men,” reported The New York Times. By noon the Knickerbocker had paid out $8 million, and Davison and Strong told Morgan they could not determine whether it had enough assets to secure a loan without more time. Morgan decided not to intervene, even though he had known Charles Barney for years. At 2:00 P.M. the Knickerbocker closed its doors.
Secretary Cortelyou took the afternoon train to Manhattan as banks around the country began withdrawing their reserves from New York. Stock prices tumbled. The annual interest rate of money on the exchange—“call” money lent briefly by banks to brokers to finance their trades—reached 70 percent.‡ As Morgan left his office, he told waiting reporters: “We are doing everything we can, as fast as we can, but nothing has yet crystallized.”
“Knickerbocker troubles everywhere,” wrote Anne in her diary on Tuesday, October 22: “Terrible day downtown.”
Late that night, the bankers met with Cortelyou at his hotel—the Manhattan, at Madison Avenue and 42nd Street—and at 1:00 A.M. Perkins told reporters that a syndicate would furnish money to the healthy trusts. The hardest hit, after the Knickerbocker, had been the Trust Company of America, with assets of $100 million. Hoping to ease public fears, Perkins promised specifically to buttress the TCA, but naming any institution in an atmosphere of panic turned out to be a mistake.
