Robert Skidelsky
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Robert Skidelsky
New York Review of Books | Thursday, May 06, 1999

Morgan: American Financier
by Jean Strouse
Random House, 796 pp., $34.95
When John Pierpont Morgan died in 1913, he was the most powerful banker in the world. As the main conduit for British foreign investment into North America he helped transform the United States from a society of yeoman farmers into an industrial colossus. More controversially, Morgan helped change competitive business into what Lenin called "monopoly capitalism." His bank financed the consolidation of large sectors of the American transportation, steel, and electricity industries. Most of this made economic sense, eliminating destructive competition, stabilizing the market, and lowering costs to the consumer through economies of scale and marketing. But the resulting concentration of power and wealth produced a popular backlash, leading Congress to pass the Sherman Antitrust Act in 1890.
Morgan's other offense against the spirit of American democracy was to act as unofficial banker to the US government. In the absence of a central bank, he mobilized the gold to keep the US on the gold standard in 1895 and pumped liquidity into the banking system during the crash of 1907. Economists like Charles Kindleberger would later categorize such services as the "public goods" needed by a capitalist system if it was not to self-destruct. At the time, Morgan's interventions turned the fury of debtors, mortgage holders, and losers against the New York "money power." In 1896, William Jennings Bryan, the Democratic presidential candidate, famously accused the hard money men of crucifying America on a "cross of gold." After Morgan's 1907 rescue, the bankers were accused of contracting the currency in order to bankrupt debtors and impound their property, then expanding it so they could sell on a rise. This kind of criticism led to the formation of the Federal Reserve System in 1913.
Sitting at the center of a web of trusts and holding companies, negotiating with presidents (for a profit), Morgan became the symbol of uncontrolled and unaccountable financial power. His own defense was perfunctory; he barely deigned to notice his critics—the Populists, muckrakers, Progressives. Late in life he came to resemble, perhaps even played up to, his diabolic caricature; with his walking stick clutched like a slave owner's cane in one hand, a large cigar in another, his heavily mustachioed face dominated by glaring eyes and a hideous expanding nose, he seemed to exude demonic power.
Morgan came nearest to answering his detractors in his evidence to the Pujo Committee, with which Jean Strouse's superb biography opens. It was in 1912, he was then seventy-five, and Arsène Pujo, chairman of the House Banking and Currency subcommittee, was trying to prove that the American economy was being manipulated for private profit by a "money trust" headed by Pierpont Morgan. The Pujo inquiry was the climax of two decades of popular agitation; Morgan's testimony was the climax of the hearings; and the climax of his testimony was the reply he gave to a probing question by the committee's counsel, Samuel Untermeyer. Untermeyer asked, "Is not commercial credit based primarily upon money or property?" Morgan replied, "No sir; the first thing is character." After a pause, he added, "Because a man I do not trust could not get money from me on all the bonds in Christendom."
Credit is character; character is the basis of trust; trust is the basis of a healthy economy; private power is good if it is in the hands of good men. In these homespun thoughts are to be found an ethic of economic life which has as little to do with the doctrine of competitive markets preached by the economic textbooks as with the regulatory legalism which has superseded it. Morgan's philosophy of character filled the gap, conceptually and in historical sequence, between laissez faire and statism. Its basis was the founding myth and the continuing power of Protestantism. Nineteenth-century America may not have had much law and order but it had plenty of morality. Morgan's unrivaled ability to command money was undoubtedly based on trust.
No one who dealt with him doubted his integrity. His word was his bond. He was also faithful over time: the reverse of "short-termism." However, his championship of private power in "good hands" has several vulnerable aspects: the unquestioning identification of his own self-interest (and that of the banking class) with that of the nation, the all-too-easy conflation of the service of Mammon and God, a somewhat unforgiving view of morality. Societies have found it safer to make powerful men accountable to their fellows rather than to God. Yet Morgan's defense is not entirely invalid. Morality without law is insufficient; but law requires the support of morality if the courts and police are not to be overburdened, and the prisons overcrowded. A capitalism which is wholly irreligious will always be vulnerable to assault from political creeds threatening to impose morality by force.
A winner of the Bancroft Prize in American History and Diplomacy for her biography of Alice James, Jean Strouse admits that she started with the usual prejudice against Pierpont Morgan, partly because the legends of his villainy were much more vivid than those of his benevolence, partly because, unlike Andrew Carnegie, he "left no response to his critics." Of his conversational powers, his London partner Teddy Grenfell observed, "The nearest approach he makes is an occasional grunt." As she started writing, she realized the reality did not square with the legend. With the help of hitherto undiscovered or underused archival material, she has done a splendid job of reinventing Morgan and his age for the contemporary reader.
Basically she endorses Walter Lippmann's view that the demonization of Morgan was the "feverish fantasy" of people whose lives had been radically altered by vast economic changes. It was also the result of the extraordinary propensity of American democracy to accept conspiracy theories. The picture which emerges from Strouse's book is that of a partly self-deceiving but not dishonorable Titan; of a man with a high sense of responsibility who reveled in exercising power and commanding deference; of a workaholic who took his pleasures seriously; of a man who enjoyed making money but enjoyed spending it even more; of a man who was intuitive, not calculating; of a hardheaded man of business who was at the same time a sentimentalist and an unexpectedly soft touch for unscrupulous adventurers. He was also someone in whom a childlike delight in collecting people and objects coexisted with periodic bouts of "isolation, depression, and soreness at being used for what he could give."
It is a story, in other words, of the agonies and satisfactions of being rich, famous, and powerful. Strouse is in full command of Pierpont Morgan's personal life, his financial operations, his collecting, and his benefactions, and presents a rich, vivid picture of the background against which they took place. Above all, she follows the thread of a career built on character. She has written a magnificent biography, which illuminates her subject and his world.
Pierpont Morgan's outlook and prestige were firmly anchored in heredity. Bridging the world of old and new money, he was an aristocrat in a world of self-made men, with what his biographer calls a "patrician sense of noblesse oblige." His family were old New England stock. His paternal grandfather, Joseph Morgan, a farmer and banker, left $1 million on his death in 1847. His father, Junius Morgan, became a partner in the London merchant bank Peabody and Co. in 1854, changing its name to J.S. Morgan. Pierpont Morgan was not a Wall Street upstart but a third-generation banker. He had no reputation to make, only one to lose. In both London and New York, character was associated not just with old but with "white" (i.e., non-Jewish) money. Anglo-American money stood for character, Jewish money for brains. And in conservative banking circles there was no doubt which was considered more valuable.
Old money also helps to explain Pierpont Morgan's lack of sympathy with the rampant individualism of his time, typical of an explosively expanding, upwardly mobile immigrant population. His outlook was hierarchical. He had a stake in stability, not flux. This required orderly markets. As Jean Strouse puts it,
Though cast as the high priest of modern capitalism, Morgan did not really believe in free markets. All his adult life he tried to stabilize the emerging US economy, to discipline speculative profiteers and bring the market's destructive forces under control…while urging Washington to modernize the country's antebellum banking system.
Without putting it in so many words, he believed that money is held in trust, and acted on the principle by spending most of his fortune on philanthropy and art.
The code by which Morgan lived was implanted early in childhood by his moralistic father, Junius. Indeed, the father-son relationship forms the spine of Strouse's biography, since Junius was an active and in many ways controlling presence in Pierpont's life until his death in 1890, by which time Pierpont was fifty-three. Junius saw childhood not as an exploration of self, but as a preparation for life. Father wrote son a letter on his eleventh birthday, forgetting the birthday but chiding him for his spelling mistakes. The virtues to be implanted were the Yankee ones of industry, prudence, restraint, veracity, and thrift. "You must bear in mind," Junius wrote to the thirteen-year-old Pierpont, "that now is the time for you to form your character & as it is formed now so it will be likely to remain." His father's supervision, which continued well into adulthood and business career, included (unsuccessful) attempts to control Pierpont's bowel movements. The character being formed was one marked by "evasion of emotion," and the relentless compilation of dates and lists was suggestive of a mind "intent on order and control." Jean Strouse writes that Junius
had assiduously drawn Pierpont into his world from the start, teaching the boy about business, helping him with his homework, monitoring his reading habits and pocket change, imparting first glimpses of European history and culture, ordering up the acquisition of foreign languages, standing militant watch over the shaping of his character. He had chosen Pierpont's teachers, employers, associates, partners—even, in effect, his first wife. From London Junius had dictated the terms of New York deals, and called his son to task for every minor infraction as well as for major lapses in judgment.
In one respect only did Pierpont's imaginative life break free from the course mapped out by his father. In his high school graduation speech the future Napoleon of Wall Street read out an essay of unstinted admiration for Napoleon Bonaparte. His parents had recommended to him more restrained heroes—George Washington, the Duke of Wellington—yet to the junior Morgan the self-made, morally ambiguous Corsican adventurer was a more appealing model for a young republic poised for the conquest of a continent. Pierpont would follow in Junius's footsteps, but he was more ambitious, less risk-averse. There are also a number of episodes in his business career—like his speculations in guns and gold during the Civil War—which show he was considerably less fastidious.
A singular aspect of this father-son relationship is that, powerful and indeed mesmeric as Pierpont Morgan became—a photographer said that "meeting his eye is like facing the headlight of an express train bearing down upon you"—he never openly resented his father's ownership of his career, and indeed his life. Far from being cowed by his father's surveillance, he took it all in his stride, evincing a "high confidence in his own abilities and prerogatives, and an astonishing lack of self-doubt." He usually followed Junius's advice; when he disagreed with it, he quietly ignored it. Periodic breakdowns in health may have been subconscious attempts to evade his father's demands. In 1871, he used one such episode to announce his withdrawal from business life. "Junius had no intention of letting his son quit…," Strouse writes. "Junius was looking to expand his base in the crucial US market, not contract it, and his prince regent in New York was an essential part of the plan." He told his son to take a holiday.
Character clearly came at a price. Bred to duty and mastery of the external world, Pierpont's inner life shriveled. The shell was magnificent, but inside was emptiness and loneliness. He had no friends, only subordinates. His second marriage, to Fanny Tracy, was a sham; in one of her many neat summaries, Strouse writes, "Pierpont had too strong a sense of duty to [divorce] his wife…and too much sense of entitlement to his own pleasures to abandon his extramarital pursuits." He ignored his son, and used his daughters as traveling companions.
But there were compensations. He had the satisfaction of knowing that he had fulfilled, indeed exceeded, all his father's expectations. Even his nose, swollen, by a disease called rhinophyma, to a gigantic mass of "vast blue oozing glands," as Margot Asquith called it, became a symbol of character. When Sergei Witte, the former Russian finance minister, advised an operation, Pierpont replied: "Everybody knows my nose and it would be impossible for me to appear on the streets of New York without it." Above all, there were the compensations of money and power: money to build yachts, palaces, churches, theaters, hospitals, clubhouses; money to buy partners, mistresses, doctors, clergymen, curators, chefs, animals; money to explore (and ransack) archaeological sites and buy up the rare books and art works of Europe. Money and power to do the right thing.
Morgan's career was, in effect, decided in 1854 when Junius Morgan joined Peabody's in London, which specialized in underwriting loans to develop US railroads and other utilities. In 1857 Junius placed Pierpont as an unsalaried clerk with his New York partner, Duncan, Sherman & Co., paying him $200 a month. His job was to keep his father informed of developments in the American market. Pierpont wrote to his father twice a week, every week, for over thirty years. Junius—an "indefatigable Polonius"—started him off with a sermon:
Be true to those responsibilities and to yourself. Never under any circumstances do an act which could be called in question if known to the whole world. Remember that there is an Eye above that is ever upon you & that for every act—word & deed you will one day be called to give account.
Pierpont Morgan was ever conscious of the "Eye." A practicing Low Church Episcopalian, he spent thousands of hours on his devotions, and hundreds of thousands of dollars on religious benefactions. Yet the doctrine of atonement was curiously comforting, depending not on good acts but on faith, with an assurance that the sins to which humankind was prey would be washed away in the blood of Christ.
From the time Pierpont began his moneymaking career, his history merged with that of America's turbulent industrial growth. After he had his first success as a financier in the famous Susquehanna railroad war of 1869, his business life was spent in mobilizing capital for railroad construction and government loans; in restructuring businesses and organizing defenses against financial panics; in arranging peace treaties with warring railroads and businessmen and workers. Partners dropped dead from overwork, while the hypochondriacal Pierpont marched on to fresh conquests. As Jean Strouse's book proceeds, his life becomes increasingly embedded in a vast panorama that saw not just the rise of finance capitalism and the passionate hostility it engendered but also the emergence of a fabulously wealthy class of tycoons, who spent conspicuously on both personal and philanthropic consumption.
Strouse skillfully interweaves Pierpont's story with those of the other giants of that era—Carnegie, Vanderbilt, Rockefeller, Jay Gould, and Harriman—together with the presidents and monarchs and art dealers with whom he consorted—among them Grover Cleveland and Teddy Roosevelt, Edward VII, Kaiser Wilhelm, and Bernard Berenson. If she is a bit of a collector herself of facts, statistics, curiosities, her method captures the increasing clutter of Pierpont's life. Never again would the rich have such assurance in the enjoyment of their privileges. Of the rich, Pierpont Morgan was never among the richest. Carnegie sold his steel company to Morgan in 1901 for $480 million; Vanderbilt left $225 million on his death in 1885; Rockefeller's net worth was estimated at $800 million in 1913. The total value of Morgan's estate was a modest $80 million. He spent most of what he earned.
Pierpont's career was shaped by the railway age. Investment in railroad construction drove the US economy forward, and speculation in railroad securities was the precipitating cause of the panics of 1857, 1873, and 1893. With the American continent opening up and land given away free by the federal government, investors succumbed to the romance of railroads and the lure of exceptional profits. These rarely materialized. Fixed costs were high. Cutthroat competition between the railway barons, who often built parallel tracks, kept freight costs down but also frequently bankrupted the promoters and their financial backers.
Pierpont's first business experience was the collapse of the railway boom of 1857. The default of Peabody's US debtors threatened Junius with bankruptcy. The Bank of England came to Peabody's rescue with a loan of $4 million. This episode made a reliable New York partner all the more essential to Junius Morgan. In 1862 Pierpont opened his own bank, J.Pierpont Morgan & Co., restructured (by his father) as Dabney, Morgan & Co. in 1864 and Drexel, Morgan & Co., in 1871, before its apotheosis as J.P. Morgan & Co. in 1895. Pierpont himself drew three lessons from the crash which he never forgot—ruinous competition had to be controlled; there had to be a "rule of law" in money (the gold standard) to limit speculation; and there had to be a "lender of last resort." Having himself profited from speculation—he had made $66,000 by trading greenbacks against gold in 1863—Pierpont came to value a system which removed the temptation to indulge such evil propensities.
These lessons were driven home by the 1873 economic collapse, which, precipitated by the failure of the Northern Pacific Railroad, set off one of the worst depressions in US history. It also started the first wave of consolidations, led by Jay Gould (railways), Andrew Carnegie (steel), and John D. Rockefeller (oil), and "a debate about competition and regulation that would continue for over a hundred years." Pierpont Morgan was firmly on the side of consolidation. "The Morgans," writes Strouse, "hated this kind of warfare, which played havoc with national financial markets and left their client-investors holding worthless paper." In the next quarter of a century, starting with the railroads in the 1880s, the Morgan bank was at the center of the rationalization movement in transport and industry, though Pierpont himself was rarely an initiator. Answerable to foreign investors for billions of dollars of stock, his bank labored mightily to impose order on the chaotic railroad industry; its interventions ranged from "giving financial advice and bailing out bankrupt roads to firing and hiring managers, appointing new directors, fighting off hostile takeover attempts, and trying to control duplicate building and 'ruinous' competition." At first he relied on voluntary agreements. It was only when these broke down that he turned to "trustification."
The hallmark of a typical "Morganization" started with the bankruptcy of competing companies and proceeded to the closure of the weaker ones, the merging of the remainder into a new corporation, the refinancing of their debt at lower rates, the raising of new capital, and bank involvement in the management of the new company. Aficionados of financial wars will enjoy Strouse's account of how Morgan "repelled" Edward Harriman's "raid" on the Northern Pacific Railroad in 1901, which he followed by sweeping up the railroads of the Northwest into a giant holding company, Northern Securities.
"Morganization" did not stop with railways. Morgan had first backed Edison's electric lightbulb in 1878; over the years he financed a series of mergers which culminated in the formation of General Electric in 1892. In his most spectacular coup, in 1901, he bought up and amalgamated half the steel industry into a giant holding company, US Steel, dubbed the first "Billion Dollar Trust." In 1902 he brought together American, British, and German shipping interests into a vast transatlantic combine, the International Mercantile Marine, which involved him for the first time in high international politics. Many of these consolidations were inspired by a sense of destiny rather than realism. The IMM never "came right." The sinking of its flagship, the Titanic, was the last straw and it defaulted on its bonds in 1914.
In populist demonology, the word "trust" was the general term for any concentration of economic power. In fact it is a particular type of corporation in which the assets of individuals or companies are held and managed by a single board of trustees, as opposed to a holding company, which controls a group of companies through partial ownership of their stock. To Morgan the word "trust" had a fine moral resonance; property held in trust was burdened with duties, to its owners naturally, but also to the community. It was the moral face of business. His opponents did not see it that way. To them it meant restraint of trade, price fixing, monopoly profits. Senator John Sherman, author of the Sherman Antitrust Act of 1890, denounced trusts as a "kingly prerogative inconsistent with our form of government." Was it mere linguistic irony that the most famous piece of American business legislation renounced the idea of trust for that of law? In 1902, a federal suit against the Northern Securities Company, the last of Morgan's great railway trusts, brought the first wave of mergers to an end.
The crash of 1893 precipitated Pierpont Morgan into his final role, that of banker to the US government. In 1879 Congress had decreed the resumption of gold payments, without regulating the banks or setting up a central bank able to obtain short-term credit to meet a gold drain or act as last-resort lender to the banking system. Worried by the trade deficit and by agitation for silver coinage, nervous foreign creditors unloaded American securities and shipped gold abroad. By 1895, the Treasury was within three weeks of defaulting on the national debt. President Grover Cleveland appealed to Pierpont Morgan for help. At a dramatic meeting in the White House Morgan offered to sell the Treasury $100 million of gold in exchange for a new bond issue and to guarantee it for six months against further withdrawals. He then intervened in the foreign exchange market on his own to prop up the dollar.
The situation was saved, but debtors were outraged because the defense of the gold standard pushed up interest rates, and they denounced "goldbuggery and Shylockism." It was Morgan's deal with Cleveland that led to William Jennings Bryan's famous denunciation "You shall not crucify mankind upon a cross of gold." Cleveland was denounced as the "agent of Jewish bankers and British gold." Morgan believed he had maintained the international credit of the United States. Jean Strouse writes, "He did not question the equation of his own and the country's best interests. The acute distress of farmers and workers probably seemed to him an unfortunate but inevitable side effect of business-cycle downturns, tight money, and rapid industrialization." Morgan was lucky that the discovery of new gold mines eased the monetary stringency.
In 1907 Morgan, by now seventy, was called by President "Teddy" Roosevelt to avert a banking collapse precipitated by the failure of the Knickerbocker Trust. Acting on Bagehot's dictum that only solvent banks should be rescued, Morgan, having seen the accounts of the Trust Company of America, decided that "this is the place to stop the trouble." He ordered TCA's president to bring the securities TCA had accepted as collateral for its loans into his office at 23 Wall Street. The bank's officials came in with sacks full of certificates. "Coughing and sneezing," Morgan
took notes on a pad, and as soon as he had enough collateral for an advance, told Stillman [president of the City Bank] to send that amount round to the Trust. By 3:00, about $3 million had been delivered and the Trust Company of America had, for the moment, survived.
During the two weeks of the panic he mobilized hundreds of millions of dollars from New York banks to staunch withdrawals from banks and corporations as the market tumbled; on one occasion he locked up the bankers in his room till they agreed to fork out. Bernard Berenson wrote to a correspondent that "Morgan should be represented as buttressing up the tottering fabric of finance the way Giotto painted St. Francis holding up the falling Church with his shoulder." Pierpont's role in stabilizing the market has probably been exaggerated. Nevertheless, his masterful handling of the panic impressed Milton Friedman sufficiently to speculate on whether the Great Depression might have been averted had the Federal Reserve Board taken equally firm steps to prevent the collapse of the money supply in 1930.
Jean Strouse writes: "Living well mattered to Morgan as much as doing well." He built three yachts called Corsair, each bigger than the last. Every year he spent three months or more in Europe and Egypt with a large party (which included the "elderly and well-preserved" Mrs. Adelaide Douglas), traveling in luxurious ships, staying at the best hotels, sweeping up artifacts and art treasures with all the voracity of a magpie. By 1902, writes Strouse, "he was more interested in Raphaels than in balance sheets." He "seemed to want all the beautiful things in the world."
In 1869 he helped found the American Museum of Natural History. In the 1880s he started building up his literary collection. His own taste tended toward minor Victorian novels and narrative salon paintings, but he bought fine collections of rare books and manuscripts, for which he built next to his house at 219 Madison Avenue the Morgan Library. He hired the remarkable Belle Greene as his administrator. His acquisitions soon extended to paintings, decorative objects, porcelains, and collections of armor, many of which he later gave to the Metropolitan Museum of Art. He spent such large sums that his son Jack worried that he was draining the bank of capital. Once he paid $325,000 for some tapestries at Knole, sight unseen, because he liked Lady Sackville and thought she needed the money to keep the house in her family.
He rarely bargained and, until his collecting urge was brought under aesthetic control, paid far too much for inferior pieces. Predictably the experts sneered at his taste. Roger Fry wrote that "a crude historical imagination was the only flaw in his otherwise perfect insensibility [to art]." Berenson described his house at Prince's Gate, London, as "a pawnbroker's shop for a Croesus." Most great "patrons of the arts" have earned a similar disrespect. But Morgan knew what he was doing. His aim was "to harvest 'the best' of the world's cultural past for the American future." It was only when the US government withdrew its 20 percent tax on imported works of art in 1909 that the great American collections could start.
"Where are they now?" asked Keynes in 1934 of people like Morgan, Carnegie, and Rockefeller. "Their office boys…rule in their mausoleums." Today we stand at the threshold of a new century which, in many respects, is strikingly similar to the world which ended in 1914. For the second time in human history we have embarked on the gigantic experiment of a world economy without a world government. As in the late nineteenth century the economic development of nations has been entrusted to financial markets. Socialist and autarkic economies have emerged from their isolation; national governments everywhere have surrendered the "commanding heights" of their economies to private businesses.
The new freedom to make money has revived the age of fabulous tycoons, of whom George Soros is the best known. But Soros lives off instability, whereas Morgan's creed was stabilization. In the scale of his philanthrophy and philosophizing Soros is more like Andrew Carnegie. There are robber barons in plenty in emerging markets. Post-Communist Russia has often been compared to nineteenth-century America. But its robber barons do not even have the defense of constructing an economy. The American robber barons built the railways. Their Russian equivalents make their money from financial manipulations and stash it away in Swiss bank accounts.
In the struggle to tame the global market, two philosophies compete. On the whole, the West subscribes to regulatory legalism, the triumph of an American tradition that goes back to Teddy Roosevelt. In a rough contemporary sense, Asia subscribes to Pierpont Morgan's philosophy of trust. The capitalism of the next century will be shaped by the competition and intermingling of the two. To contemplate Morgan and his world today is not to excavate a ruin but to be alerted to still undisclosed possibilities for the future.
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