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

by Ron Chernow

We don’t know why Peabody relegated love to the dim corners of his life. In general, he specialized in what Dickens called telescopic philanthropy—bountiful love for abstract humanity combined with extreme stinginess toward the individuals he knew personally. He would enjoy a reputation for generosity throughout the Victorian world—everywhere, in fact, but among his unacknowledged family and employees.

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 places debts could be settled in foreign currency.

Junius Morgan feared his son’s hot temper and moaned to friends, “I don’t know what in the world I’m going to do with Pierpont.”7 He said the boy needed “restraining” and tried to inculcate a strong sense of responsibility.

Observing his son’s reckless dealings and startling choice of a wife, Junius decided to take Pierpont’s life in hand. Between Pierpont and Junius Morgan, there would be total loyalty but also a fierce contest of wills.

Perhaps no business has ever blossomed so spectacularly: within eight years of the war’s end, railroad trackage doubled to seventy thousand miles, a spree fed by tens of millions of acres in federal land grants.

He never seemed to take great pleasure in his accomplishments, and for the rest of his life, he craved a restful but elusive peace.

He differed from most of the Gilded Age robber barons in that their rapacity stemmed from pure greed or lust for power while his included some strange admixture of idealism.

Perhaps never in financial history has anybody else amassed so much power so reluctantly. J. Pierpont Morgan was more exhausted than exhilarated by success. He didn’t enjoy responsibility and never learned to cope with it.

A novel feature of the Morgan household was electricity: it was New York’s first electrically lighted private residence.

He was never a champion of social justice or equality.

For Pierpont, a gentleman wasn’t a rich man but a member of a social caste. He is associated with two statements about yachting that sum up his philosophy. The first is that “you can do business with anyone but you can only sail a boat with a gentleman,”3 and the second (perhaps apocryphal) that anyone who asked about the cost of maintaining a yacht shouldn’t buy one. He had no time for bounders or upstarts and despised the rich idle young men about town who pursued women in clubs and cafés. The Morgans would always be strong believers in the work ethic and the duties of the rich. They shunned the snobbish version of high society embodied by Mrs. Astor and Ward McAllister’s “Four Hundred”—supposedly the crème de la crème of New York society. In bluff, manly style, Pierpont would have thought their balls prissy or vulgar.

In later years, he told his librarian, Belle da Costa Greene, that he believed every word in the Bible, including the account of Jonah and the whale.

As we shall see repeatedly, the House of Morgan always favored government planning over private competition, but private planning over either.

Unlike Pierpont, who had been a wild, headstrong boy requiring a firm hand, Jack needed a father to buck up his faltering courage—which Pierpont didn’t do. Jack was gentle and sedentary, lacking fire.

As a further guarantee that the roads would never again squander money, a majority of their stock was transferred to “voting trusts.” These were usually a euphemism for Pierpont and three or four of his cronies, who ran the railroads, typically for a five-year period. It was an extension of Pierpont’s old trick of trading money for power, and it usurped commercial power on a scale unprecedented in banking history. No longer would the banker just finance and advise his clients; now he would intervene directly in running the companies. The distinction between finance and industry was eroding dangerously.

In choosing partners, Pierpont wouldn’t tolerate a refusal. He was shameless enough to recruit Coster’s successor, railroad lawyer Charles Steele, at Coster’s funeral!

Driven by such changes in the economy, the number of mergers jumped from a modest sixty-nine in 1897 to over twelve hundred by 1899.

Andrew Carnegie and John D. Rockefeller. Both were hard-bitten individualists, scornful of bankers, who preferred to finance their operations from retained earnings. Rockefeller entered the deal through his ownership of ore mines and shipping companies on Lake Superior. Pierpont considered both men too crude for his stuffily refined tastes; they saw him as pompous and overbearing. The prudish Carnegie also disapproved of Pierpont’s adulterous escapades. “Carnegie frowned on anything savoring of the flesh and the devil,” Schwab said.31

Thin-skinned and vindictive, Carnegie gloated over the deal: “Pierpont feels that he can do anything because he has always got the best of the Jews in Wall Street. . . . It takes a Yankee to beat a Jew, and it takes a Scot to beat a Yankee.”34 Carnegie celebrated too quickly. He later admitted to Morgan that he had sold out too cheap, by $100 million. Not about to spare the industrialist’s feelings, Morgan replied, “Very likely, Andrew.”35

The Yankee-Jewish banking split was the most important fault line in American high finance.

Pierpont’s anti-Semitism was well known. Said an early biographer: “He had a deep-seated anti-Semitic prejudice and on more than one occasion needlessly antagonized great Jewish banking firms.”59 His dislike of Jews may have been sharpened by dealings with the Rothschilds.

the Rockefellers looked about for a financial repository. They chose the National City Bank—the forerunner of today’s Citibank—and pumped in so much money that by 1893 it ranked as New York’s largest bank.

National City became known as the oil bank, much as J. P. Morgan and Company would be called the steel bank.

In fact, the presidency of Teddy Roosevelt would mark the start of periodic warfare between the White House and the House of Morgan, warfare that would rage through three straight presidencies—those of Roosevelt, Taft, and Wilson.

Another son might have rebelled. Jack sulked and pined, waiting for approval.

There was now enormous British ambivalence toward Pierpont. On the streets of London, peddlers sold penny sheets entitled “License to Stay on the Earth” and signed “J. Pierpont Morgan.”

DURING Theodore Roosevelt’s presidency, Pierpont Morgan received his most pronounced comeuppance for his role in the American scene. He was now so grand and cloud-wreathed that only a president could chop him down to mortal scale.

Teddy Roosevelt wanted to correct the imbalance between government and corporate power, and in so doing he inevitably collided with Pierpont Morgan.

J. P. Morgan and Company employed men for secretarial positions, and Perkins wanted to bring his female secretary from New York Life. “I will not have a damned woman in the place,” Pierpont roared, and poor Mary Kihm was stashed away in a bank building around the corner.36 Later, Perkins moved her over to 23 Wall, but with the proviso that she remain upstairs and never appear on the banking floor.

That a Morgan partner should advocate socialism is not so startling. After all, Pierpont, starting with his railway associations of the late 1880s, espoused industrial cooperation instead of competition. He liked his capitalism neat, tidy, and under bankers’ control. The House of Morgan was banker to established enterprises—the great industrial planning systems that favored stability over innovation, predictability over experimentation, and were threatened by upstart companies; so the bank had a heavy stake in the status quo.

Morgan was less forgiving. When Roosevelt went on an African safari, Pierpont declared that he hoped the first lion he met would do its duty.

The 1907 panic was Pierpont’s last hurrah. Although semiretired, reporting to work periodically for only an hour or two, he suddenly functioned as America’s central bank. Within two week’s time, he saved several trust companies and a leading brokerage house, bailed out New York City, and rescued the Stock Exchange. His victory was Pyrrhic, however, as America decided that never again would one man wield such power. The 1907 panic would be the last time that bankers loomed so much larger than regulators in a crisis. Afterward, the pendulum would swing decidedly toward government financial management.

Despite this controversy, Pierpont reached the zenith of his influence with the 1907 panic. As his biographer Frederick Lewis Allen wrote, “Where there had been many principalities, there was now one kingdom, and it was Morgan’s.”16 Pierpont was suddenly not a pirate but a sage.

Jack was no slouch and ably handled affairs in his father’s absence. Yet he didn’t have Pierpont’s gargantuan ego. Since boyhood, he had been plagued by secret doubts about himself—it wasn’t clear to him whether he had the intestinal fortitude to head a banking empire.

Perhaps no other event of the year 1913 received as many lines of newspaper copy as Pierpont Morgan’s death. Momentarily the critical drumbeat—which had grown so loud and insistent with the Pujo hearings—was silenced. In lengthy obituaries, no analogy was too large to encompass the personage who had just died. The Economist called Pierpont “the Napoleon of Wall Street.”64 The Wall Street Journal said, “Such men have no successors. . . . There were no successors to Napoleon, Bismarck, Cecil Rhodes or E. H. Harriman, and their authority was not perpetuated.”65 These articles suggested that the last titan had died, and the world of banking would never again see a figure of such scope.

The companies Pierpont Morgan controlled were weak and primitive by today’s standards, without a vast, highly trained managerial corps.

the United States was about to capture financial supremacy from England and emerge as the leading creditor nation. Although nobody quite realized it at first, the English era was over. After the war, world currency markets would shift from a sterling to a dollar standard.

The House of Morgan offered a convenient cover for preserving the appearance, while denying the spirit, of neutrality.

World War I was perhaps the last war in which bankers behaved as if they were sovereign states, indulging their biases and waging their own foreign policy.

THE United States emerged from the First World War with thriving industries and a record trade surplus, while much of Europe lay in ruins, urgently in need of reconstruction loans.

Since much of the war was fought on French soil—northern France was left a lunar landscape of bomb craters—the French were implacable about receiving massive compensation. They had paid reparations to Germany in 1819 and 1871 and wanted their pound of flesh.

Later, in remarkable testimony to government-banker ties in the Diplomatic Age, Tom Lamont would state categorically that no sizable loan of the 1920s was made without Washington’s tacit approval. The line between politics and finance blurred, then disappeared. The cognoscenti who interpreted Morgan actions as a mirror of official policy were seldom far off the mark.

In the nineteenth century, South America was already known for wild borrowing sprees, followed by waves of default.

How to reconcile this tender Jack Morgan with the stern anti-Semite of earlier pages? He was a true Morgan. His humanity was deep but narrow, his world divided between those who counted and those who did not.

Although the Morgan bank, as an institution, was distant from the stock market, its partners weren’t averse to speculation. They were in an excellent position to take advantage of insider trading, which was a common vice of the 1920s, and not illegal.

AFTER the crash, Herbert Hoover wasn’t quite as passive or impotent as legend suggests. He announced tax cuts and public works programs and asked utilities to embark on new construction. Bringing business leaders to the White House, he extracted pledges to maintain wages and thus avert an erosion of purchasing power.

In mid-1932, the market would bottom out at one-tenth of its September 1929 peak. So the yokels who sold in terror after the Crash fared better, in the long run, than the canny traders who scouted for bargains.

THE City of London had reacted to the New York crash with alarm, but also with some quiet satisfaction and schadenfreude, After Black Thursday, the New York Times reported that the “selling left London’s ’City’ in a comfortable position saying ’I told you so.’ It had been expected for a long time. ”16 In many ways, London profited from the crash as investors switched funds from New York, easing the strain on British gold reserves.

In 1932, almost thirteen million of America’s 125 million people were unemployed. Two million roamed America searching for work, boarding boxcars and sleeping in hobo camps. Hoover refused to renounce economic orthodoxy and mount a vigorous attack on the Depression.

wish we could get from the bankers themselves an admission that in the 1927 to 1929 period there were grave abuses and that the bankers themselves now support wholeheartedly methods to prevent recurrence thereof. Can’t bankers see their own advantage in such a course?”24 It would be the tragedy of the House of Morgan that it couldn’t see the advantage in such a course. The public demanded a mea culpa for 1929, which the bankers wouldn’t provide.