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Notes and Quotes-July 21, 2019

J.P. Morgan: The Nation’s Banker & Entrepreneur

By Tom Morrow

On the surface, this story might seem a boring business tale, but, in a nutshell, the following explains how American became a world leader in nearly everything. It’s a short-read, but a big explanation.

There were eight key giants of early American industry who were responsible for building our nation: Andrew Carnegie (steel), Henry Ford (automobiles), Thomas Edison (developing electric lighting, motion pictures, recordings and more), John D. Rockefeller (oil), Cornelius Vanderbilt (railroads and shipping), Alexander Graham Bell (telephone), Cyrus McCormick (farm implements), and John Pierpont Morgan, who financed many of the above entrepreneurs and their businesses.

Morgan kept American industry going with his money and influence during some of the nation’s most devastating financial crises.

J.P. Morgan Sr., born April 17, 1837, was an American financier and banker who dominated corporate finance and industrial consolidation in the United States in the late 19th and early 20th centuries. At one point in the early 20th century, his money literally kept the U.S. government from going bankrupt.

Morgan played an important role in the formation of General Electric, U.S. Steel, International Harvester and American Telegraph & Telephone (AT&T). During the early part of the 20th century at the height of Morgan’s career, he and his partners had financial investments in many large corporations and had significant influence over the nation’s high finance and members of the United States Congress. He directed the banking coalition that stopped the national Panic of 1907; he was the leading financier of the so-called Progressive Era, and his dedication to efficiency and modernization helped transform modern-day American business. Yet, he was dubbed one of the so-called “robber baron,” along with Carnegie, Ford, Edison, Rockefeller and Vanderbilt.

Morgan learned at an early age how to make money. At 26, during the American Civil War, in an incident known as the “Hall Carbine Affair,” Morgan financed the purchase of 5,000 rifles from a U.S. Army arsenal at $3.50 each, which he then resold to a field general for $22 each.

Morgan’s process of taking over troubled businesses to reorganize them became known as “Morganization.” He reorganized business structures and management in order to return them to profitability. Morgan’s reputation as a banker and financier also helped bring interest from investors to the businesses that he took over.

At the depths of the Panic of 1893, the Federal Treasury was nearly out of gold in 1895. Morgan had put forward a plan for the federal government to buy gold from him and European financiers. Morgan came up with a plan to use an old civil war statute that allowed him and the Rothschilds to sell gold directly to the U.S. Treasury, 3.5 million ounces, to restore the treasury surplus, in exchange for a 30-year bond issue.

The episode saved the U.S. Treasury but hurt President Grover Cleveland’s standing with the agrarian wing of the Democratic Party, and became an issue in the election of 1896. Banks came under a withering attack from Democrat candidate William Jennings Bryan. To maintain the status quo in business, Morgan, Andrew Carnegie, and John D. Rockefeller, along with some Wall Street bankers donated heavily to Republican William McKinley, who was elected and then re-elected in 1900.

By 1900, Morgan’s firm was one of the most powerful banking houses on the world, focused especially on reorganizations and consolidations. After financing the creation of the Federal Steel Company, Morgan merged it in 1901 with the Carnegie Steel Company and several other steel and iron businesses to form the United States Steel Corporation.

The Panic of 1907 was a financial crisis that almost crippled the American economy. Major New York banks were on the verge of bankruptcy and there was no mechanism to rescue them, until Morgan stepped in to help resolve the crisis. Treasury Secretary George B. Cortelyou earmarked $35 million of federal money to deposit in New York banks. Morgan then met with the nation’s leading financiers in his New York mansion, where he forced them to devise a plan to meet the crisis. Morgan organized a team of bank and trust executives which redirected money between banks, secured further international lines of credit, and bought up the plummeting stocks of healthy corporations.

Vowing to never let it happen again, and realizing that in a future crisis there was unlikely to be another Morgan, in 1913 banking and political leaders, led by U.S. Sen. Nelson Aldrich, devised a plan that resulted in the creation of today’s Federal Reserve System.

In 1913, Morgan died in his sleep in Rome, Italy at the age of 75, leaving his fortune and business to his son, John Pierpont Morgan ,Jr. His estimated fortune at “only” $80 million, prompting John D. Rockefeller to say: “and to think, he wasn’t even a rich man.”