The House of Morgan: An American Banking Dynasty and the Rise of Modern Finance

by Ron Chernow

early House of Morgan was something of a cross between a central bank and a private bank. It stopped panics, saved the gold standard, rescued New York City three times, and arbitrated financial disputes. If its concerns transcended an exclusive desire for profit, it also had a peculiar knack for making good works pay.

What gave the House of Morgan its tantalizing mystery was its government links. Much like the old Rothschilds and Barings, it seemed insinuated into the power structure of many countries, especially the United States, England, and France, and, to a lesser degree, Italy, Belgium, and Japan. As an instrument of U.S. power abroad, its actions were often endowed with broad significance in terms of foreign policy.

This empire was shattered by the Glass-Steagall Act of 1933, which erected a high wall between commercial banking (making loans and accepting deposits) and investment banking (issuing stocks and bonds). In 1935, J. P. Morgan and Company chose to remain a commercial bank and spun off Morgan Stanley, an investment house.

The truest heir to the old House of Morgan is J. P. Morgan and Company, also known by the name of its bank subsidiary, Morgan Guaranty Trust. A universe away from the coarse bustle of Chase Manhattan or Citibank, it seduces the rich with leather armchairs, grandfather clocks, and polished brass lamps.

The Morgan bank used to boast that ninety-six of America’s one hundred largest corporations were clients and hinted that in two of the remaining cases, it had blackballed the companies as unfit.

As with personal accounts, it never wanted to appear too eager for business. Instead of setting up offices hither and yon, it preferred to have clients make pilgrimages to

J. P. Morgan

Morgan Guaranty

As confidant of the Federal Reserve and other central banks, it still exhibits vestiges of its old statesman’s role. Morgan Stanley, in contrast, has wandered furthest from its roots. From 1935 through the 1970s, it enjoyed a reign such as no investment bank will ever match. Its clients included six of the seven-sister oil companies (Gulf Oil being the exception) and seven of America’s ten largest companies. Such success led to storied arrogance, a comic vanity. When one partner left for First Boston in the mid-1970s, he was congratulated by another: “That’s really exciting. Now you’ll be dealing with the second-best list of clients.”

Indeed, the client rosters of any two competitors together couldn’t have touched Morgan Stanley’s. When the firm started advertising in the 1970s, an agency created a sketch of a thunderbolt piercing a cloud, with the caption, “IF GOD WANTED TO DO A FINANCING, HE WOULD CALL MORGAN STANLEY.” F...

Morgan Stanley

Morgan Grenfell,

Guinness scandal.

During the pre-1913 Baronial Age of

In the Diplomatic Age

In the postwar Casino Age,

Yet, as the decade passed, Junius Morgan must have doubted the wisdom of transplanting his family to England. Peabody was a trying partner, and no real warmth existed between the two, as shown by their correspondence when the junior partner visited America each year.

Then, in 1857, it looked as if Morgan would be denied his promised fortune. Wheat prices tumbled with the end of the Crimean War, causing hardship for American banks and railroads. By October, New York banks stopped gold payments, preventing American correspondents from transferring funds to Peabody in London. He was suddenly overextended on his American bills.

At the same time, London investors sold American securities, siphoning more funds from Peabody and provoking a serious cash squeeze. Rumors raced through London that George Peabody and Company was about to fail, a prospect heartily relished by rivals, who disliked the old American. Morgan had also earned the displeasure of Barings by aggressively cutting prices on American securities and trying to steal their accounts.

Now the major London houses told Morgan they would bail out the firm—but only if Peabody shut down the bank within a year. When Morgan relayed this patent blackmail to Peabody, the older man reacted “like a wounded lion.”23 Defiant, he dared them to bring down his firm. George Peabody and Company was saved by an emergency credit line of £800,000 from the Bank of England, with Barings a guarantor of the loan. The vengeful Peabody, who felt Barings had mercilessly pressed ...

For Peabody, who had just made a resplendent return to America after a twenty-year absence, the incident confirmed his innate pessimism. “It is not yet three months since I parted from you, and left the country prosperous and the people ...

The 1857 panic made a deep impression on Morgan’s twenty-year-old son, Pierpont, who had just started on Wall Street as an unsalaried apprentice at Duncan, Sherman and Company, New York agent for Peabody. Tutored by partner Charles Dabney, an excellent accountant, Pierpont learned to eval...

Ever since Andrew Jackson killed the second Bank of the United States in 1832, the United States lacked a uniform currency. Each state had a separate banking system, and in many p...

During Peabody’s last years, the scope of his charity grew dazzling. He endowed a natural history museum at Yale University, an archaeology and ethnology museum at Harvard, and an educational fund for emancipated southern blacks. For this last, he handed over a $1-million batch of defaulted Mississippi and Florida bonds, hoping these states would someday resume payment and enrich the fund. There were further bequests for the housing projects, finally amounting to £500,000. As Peabody turned into a one-man welfare state, admirers saw celestial virtues in this former skinflint. Victor Hugo remarked, “On this earth there are men of hate and men of love. Peabody was one of the latter.

Among the possessors of great American fortunes, the Morgans boasted a uniquely pampered lineage. They didn’t claw their way up from poverty or legitimize a bloody frontier fortune with later respectability. By the early nineteenth century, they were well-to-do, enjoying a cushion of security generations thick. Affluent and well-bred, they weren’t rejected by European aristocracy, as were the Vanderbilts. One finds it hard to track down those poor, benighted Morgans whose early suffering made later wealth glorious. By no accident, the family produced defenders of the social order whose vices sprang from too much comfort and too little exposure to ordinary human misery.

Like later Morgans, he was a hymn-singer and Bible-thumper and subscribed to the Wadsworth Atheneum, the city’s new art museum.

In 1836, Joseph bought his son, Junius, a partnership in the Hartford dry-goods house of Howe and Mather. That same year, Junius married Juliet Pierpont, daughter of the Reverend John Pierpont of Boston, pastor of the Old Hollis Street Church. This union of Morgan and Pierpont joined together in their infant son, John Pierpont, born in 1837, a wildly improbable set of genes.

To Rev. Pierpont, the Morgans probably owe the streak of repressed romanticism and moralism in their later history. Not by chance would the House of Morgan fancy itself Wall Street’s conscience and attract many sons of preachers and teachers.

By this point, Junius’s son Pierpont already seemed quite contradictory. One side of him was pure homo economicus. As a small boy, he was restricted to a twenty-five-cent weekly allowance and minutely noted candy and orange purchases in a ledger. At twelve, he charged admission to a viewing of his diorama of Columbus’s landing. As an adolescent, he was ardent and high-spirited but also petulant and prone to sudden mood swings.

Perhaps the contrast between his own steady nature and Pierpont’s unruly temper made Junius fret unduly about his boy. With granite will, he began to mold Pierpont, instructing him to associate with those of his grammar-school classmates “as are of the right stamp & whose influence over you will be good.”4 This Polonius-like voice would drone on for decades.

While there, he suffered a severe bout of inflammatory rheumatism and in 1852 spent several months recuperating in the Azores, the illness left one leg shorter than the other. For the rest of his life, assorted ailments would confine Pierpont to bed several days each month. He was a curious study in contrasts, sometimes sickly, sometimes capable of great bursts of energy that would exhaust him and send him back to bed.

Early on, Pierpont figured in his father’s business plans. Junius knew that the houses of Baring and Rothschild operated largely as family enterprises, grooming sons to inherit their respective businesses. In fact, the Rothschild insignia of five arrows commemorated five sons dispatched to five European capitals. The British economist and journalist Walter Bagehot noted, “The banker’s calling is hereditary; the credit of the bank descends from father to son; this inherited wealth brings inherited refinement.”

Since merchant bankers financed foreign trade, their bills had to be honored on sight in distant places, so their names had to inspire instant trust. As a twentieth-century Hambros Bank chairman would put it, “Our job is to breed wisely.”6 The famil...

Throughout his life, Pierpont had little intellectual curiosity or aptitude for theorizing, and at Gottingen he excelled most at math. Beneath a rough boyish swagger, he was sensitive to art. He also collected autographs of presidents and famous figures and broken shards of stained glass found in cathedral closes.

The Rothschilds had a celebrated covey of carrier pigeons and courier boats at Folkestone. In a famous lament, Talleyrand sighed, “The English ministry is always informed of everything by Rothschilds ten to twelve hours before Lord Stuart’s dispatches arrive.”

During the Civil War, Pierpont confirmed his father’s fears concerning his rashness. Amid a mad rush of Wall Street profiteering, Pierpont financed a deal in 1861 that, if not unscrupulous, showed a decided lack of judgment. One Arthur M. Eastman purchased five thousand obsolete Hall carbines, then stored at a government armory in New York, for $3.50 apiece.

Within a three-month period, the government had bought back its own, now altered, rifles at six times their original price. And it was all financed by Pierpont Morgan.

The extent of Pierpont’s culpability in the Hall carbine affair has been endlessly debated. The unarguable point is that he saw the Civil War as an occasion for profit, not service—though he had an alternative role model in his grandfather, the Reverend Pierpont, who served as a chaplain for the Union army when it was camped on the Potomac.

Like other well-to-do young men, Pierpont paid a stand-in $300 to take his place when he was drafted after Gettysburg—a common, if inequitable, practice that contributed to draft riots in July 1863. (A future president, Grover Cleveland, als...

In later years, Pierpont would humorously refer to his proxy as “the other Pierpont Morgan,” and he subsidized the man. During the war, he also leapt into wild speculation in the infamous “gold roo...

Beneath their straitlaced exteriors, the Morgans would always be a sentimental clan, their public reserve often warring with powerful private emotions. Over fifty years later, Pierpont in his will bequeathed $100,000 to endow a rest home for consumptives, called the Amelia Sturges Morgan Memorial. Even his son, Jack, would regard the memory of Mimi as sacred and to be discussed only in hushed tones.

THE father-son team of Junius and Pierpont Morgan came on the world banking scene at a time of phenomenal expansion of banking power. We shall call it the Baronial Age. It coincided with the rise of railroads and heavy industry, new businesses requiring capital far beyond the resources of even the wealthiest individuals or families.

Yet, despite these tremendous needs for capital, financial markets were provincial and limited in scope. The banker allocated the economy’s scarce credit. His imprimatur alone reassured investors that unknown companies were sound—there were no government agencies to regulate securities issues or prospectuses—and he became integral to their operation.

Companies would come to be associated with their bankers. The New York Central Railroad, for instance, would...

In this phase of the Industrial Revolution, companies were dynamic but extremely unstable. In an atmosphere of feverish growth, many businesses fell into the hands of unscrupulous promoters, charlatans, and stock manipulators. Even visionary entrepreneurs often lacked the managerial skills necessary to convert their insp...

Bankers had to vouch for securities and often ended up running companies if they defaulted. As the Baronial Age progressed, the line between finance and commerce would blur until much o...

The House of Morgan would not only transplant this code from London to New York but would honor it until well into the twentieth century. Under this code, banks did not try to scout out business or seek new clients but waited for clients to arrive with proper introductions. They didn’t open branch offices and refused to take on new companies unless the move was first cleared with their former banker.

The idea was not to compete, at least not too openly. This meant no advertising, no price competition, and no raiding of other firms’ clients. Such an arrangement worked to the advantage of established banks and kept clients in an abject, dependent position. But it was a stylized competition—a world of sheathed rapiers—not a cartel, as it often seemed. The elegance of the surface often blinded critics to the vicious underlying relations among the banks.

No less than to industry, bankers dictated terms to sovereign states, and countries, like companies, had their “traditional bankers.” Benjamin Disraeli wrote of “the mighty loan-mongers on whose fi...

The bankers acquired such power because many governments in wartime lacked the sophisticated tax machinery to sustain the fighting. Merchant banks functioned as their ersatz treasury departments or central banks before economic management was established as a government responsibility.