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Notes and Quotes- January 5, 2019

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

By Tom Morrow

John Pierpont Morgan, Sr., one of America’s most powerful entrepreneurs and financiers, twice saved the federal government’s financial system, as well as creating a number of giant corporations such as U.S. Steel, General Electric and AT&T, through his many acquisitions and consolidations.

Through his genius for finance, Morgan was undoubtedly the most powerful and important of all those who built America.

Morgan, born April 17, 1837, dominated corporate finance and industrial consolidation in the United States in the late 19th and early 20th centuries. He played an important role in the formation of General Electric, U.S. Steel, International Harvester, AT&T, and a number of other leading companies, which continue to be part of the backbone of American industry.

During the early part of the 20th century at the height of Morgan’s career, he and his partners directed a 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. Because he wielded so much financial power Morgan was dubbed one of the so-called “robber barons” along with Cornelius Vanderbilt, John D. Rockefeller, and Andrew Carnegie.

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,” young Morgan financed the purchase of 5,000 rifles from a U.S. Army arsenal at $3.50 each, which he then re-sold to a U.S. field general for $22 each.

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

At the depths of the “Panic of 1893,” the Federal Treasury was nearly out of gold. Morgan devised a plan for the federal government to buy gold from him and some European investors. He used an old civil war statute that allowed him and associate investors to sell 3.5 million ounces of gold directly to the U.S. Treasury. This maneuver restored the treasury’s surplus in exchange for a 30-year bond issue.

The episode saved the U.S. Treasury but hurt President Grover Cleveland’s political standing. It was a big issue in the election of 1896, when banks came under a withering attack from Democrat candidate William Jennings Bryan.

To counter Bryan’s attacks and maintain the status quo in business, Morgan, Carnegie, and Rockefeller, along with some other Wall Street bankers donated heavily to Republican candidate William McKinley. Accordingly, McKinley was elected in 1896 and 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. Example: he financed the creation of the Federal Steel Company, then merged it with Carnegie’s and other steel businesses to form the powerful U.S. Steel Corporation.

The “Panic of 1907” was another financial crisis that nearly 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 problem. He had the secretary of the U.S. Treasury earmark $35 million of federal money for deposit in New York banks. Morgan then called a meeting at his New York mansion with the nation’s leading financiers and forced them to come up with a plan to meet the national crisis. Morgan’s team of financial executives re-directed money between banks, secured further international lines of credit, and bought up the plummeting stocks of healthy corporations.

In 1913, banking and financial leaders in Washington realized the nation couldn’t afford to let such a crisis ever happen again because it was unlikely there would be another Morgan to come to the nation’s rescue, so a plan was devised that resulted in the creation of today’s Federal Reserve System.

Since then, no one has risen to J. Pierpont Morgan’s level of financial power. Morgan died in Rome, Italy, in his sleep in 1913 at the age of 75, leaving his fortune and business to his son, John Pierpont Morgan, Jr.

When he died, his estimated fortune was about $80 million, prompting Rockefeller to comment: “… and to think, he wasn’t even a rich man.”

COURT QUERY — Judge: “Mr. Quinn, I have reviewed this case very carefully, and I’ve decided to give your wife $775 a week.”
Husband: “That’s very fair, your honor, and every now and then I’ll try to send her a few bucks myself.”

FINAL WORDS — On Ribbesford, England cemetery tombstone: “Anna Wallace  — The children of Israel wanted bread, and the Lord sent them manna. Old clerk Wallace wanted a wife, so the Devil sent him Anna.”