It would be a mistake to think of John Pierpont Morgan as the Ben Bernanke of his day. In truth, Morgan was more powerful than any Federal Reserve chairman, serving as a one-man central bank long before that institution’s birth in 1913. And although the financier died that year at age seventy-five, he was indirectly responsible for the Fed’s creation.

J.P. Morgan’s inordinate influence in the late-nineteenth and early twentieth century stoked the nation’s inherent fear of concentrated wealth. It was a mixture of that fear and the recognition that the only man suitable for the role of central banker had lately departed this earth that ultimately led to the establishment of the Federal Reserve System. Henceforth, the government, not Morgan, would regulate the supply of money and credit, ensure the safety and soundness of the system, and step in to defuse financial panics.

It was typical of Pierpont - his preferred name since childhood - to elicit both gratitude and fear from those he rescued. He was the prototype of the top-hatted robber baron whose unfettered power was a threat (the government sued him in 1911 for forming a steel monopoly) but also a boon to America’s fragile economy (crowds parted and cheered as he walked purposefully down Wall Street in October 1907). But in spite of his fame and repeated interventions in times of crisis, the nation never saw the real Morgan.

Let’s get to know him.

Rise of the Morganization Man

At his birth in Hartford, Connecticut, in 1837, J.P. Morgan’s parents, Junius Spencer Morgan and Juliet Pierpont, greeted him with the highest of expectations. He was the first of five children and the only surviving son after his brother died at age twelve. Both of his parents were descended from families that came to the United States before the American Revolution, and the family tree was thick with achievement.

On the Morgan side, young Pierpont’s grandfather was a founder of the Aetna Insurance Company, while his ancestors on his mother’s side included both a founder of Yale University and the spouse of noted theologian Jonathan Edwards. There was also an uncle who embarrassed the family by riding with the Confederate cavalry in the Civil War. But even he scored an accomplishment that guaranteed lasting fame: An amateur songwriter, he penned “One Horse Open Sleigh,” later renamed “Jingle Bells.”

Perhaps not so surprising, John Pierpont Morgan’s birth and childhood seem to have been regarded as little more than necessary stages through which he had to pass to begin fulfilling his father’s grandiose ambitions. It was high praise, indeed, when Morgan’s grandfather reported that his visiting grandson “behaves like a man.” The boy was all of two years old at the time.

Junius hoped to construct an empire in the United States on a par with what the Rothschilds had built in Europe, which meant that, his son needed exposure to the world at large. Morgan’s most frequent childhood exposure, however, was to illness. He was forever battling seizures, sore throats, and headaches. As a teenager, he was beset by aggressive acne - the precursor of a more debilitating and disfiguring skin ailment, rhinophyma, that would afflict him in his fifties and that he would stubbornly refuse to treat. Nearly immobilized by rheumatic fever in 1852, Morgan was shuttled off by his father on a trip all by himself to the Azores. There, he spent nine months convalescing. Upon his return, he resumed his formal education.

Shortly before his illness, Morgan had passed the entrance exam for Boston’s English High School, an institution devoted to preparing young men for careers in commerce. Previously, his academic experiences had included the Hartford public schools and the Episcopal Academy in Cheshire, Connecticut, where he boarded. Upon his graduation from English High, Morgan was sent to Europe to study French and perfect his German.

By 1857, having also attained a degree in art history, he was ready to begin work at his father’s office in London. He spent a year there before settling in New York, where he served as the agent for his father’s bank. He subsequently formed J. Pierpont Morgan & Company, which was eventually shortened to J.P. Morgan & Company.

After the American Civil War, the railroads boomed, attracting billions of investment dollars, unscrupulous promoters, corrupt politicians, and, in time, worthless stock. Scandals brought down Jay Cooke’s Philadelphia firm, one of the biggest underwriters and distributors of railroad securities. The Cooke collapse incited the Panic of 1873, which threatened the viability of Wall Street. A depression ensued, and European investors lost hundreds of millions of dollars.

Without foreign capital, the railroads could not be built. To lure back European financiers, Pierpont Morgan stepped in to provide the necessary guarantees. Selecting railroad properties he deemed worthy, Morgan sold their debt securities to investors abroad with an implicit promise of his personal involvement, or what he thought of as taking “moral responsibility.” If a company he backed failed, he and his partners seized control and set about to stem the red ink. Thus began a consolidation technique known as Morganization that came to encompass not just railroads but the steel, electric power, and banking industries.

Designed to allay the fears of wary investors, Morgan would take over one troubled business after another within an industry, scrutinizing its operations and finances, and orchestrating massive reorganizations that included rescheduling debt and replacing incompetent managers. The goal was to stabilize the sector to make it an attractive investment again. But while his methods may have been admired as a calming force by investors, critics noted that Morgan was growing wealthier and more powerful with each consolidation.

Morganization eventually led the tycoon to take risks on an unprecedented scale. In February of 1901, he asked Andrew Carnegie to name his price for Carnegie Steel, then the nation’s largest steel company. During a round of golf, Carnegie came up with a figure that he scrawled on a piece of paper: $480 million. Done, Morgan declared. They later finalized the deal aboard a yacht without lawyers or even a contract.

A possibly apocryphal footnote to the story has Carnegie meeting Morgan some months later on a steamer bound for Europe. The steel magnate proposed that maybe he should have held out for another $100 million. Morgan reportedly responded, without a hint of emotion: “If you had, I’d have paid it.”

Moving fast, Morgan was able to announce in February that he had created the United States Steel Corporation, which became the country’s first billion-dollar business. By way of comparison, the rest of corporate America’s market value at the time amounted to $9 billion. Morgan’s enthusiasm for scale and the advantages it conferred reshaped the U.S. and eventually the global economy. It’s not a coincidence that, during his lifetime, the center of global finance shifted from London to New York, and the United States emerged as the world’s greatest industrial power.

The Rewards of Risk

Like many an entrepreneur, J.P. Morgan sometimes stumbled. In 1861, he invested $20,000 to finance the purchase of 5,000 out-of-date, surplus rifles from the Mexican War, which the Army was selling for $3.50 each. The buyers planned to refurbish the rifles and sell them back to the Union Army for $22 apiece. Even though the Army had agreed to the deal, it attracted the attention of a Congressional committee investigating war profiteering. The War Department subsequently refused to pay the agreed-upon sum. Although Morgan had already cashed out of the transaction, the case dragged on until 1867, when the Supreme Court ordered the War Department to pay up.

Chastened by his brush with disaster, Morgan looked for other ways to profit from booming wartime demand. He dutifully informed his father when he saw “tremendous traffic” boosting the earnings of the railroads that carried troops and supplies. But knowing his father’s cautious nature, he did not tell him that he and a partner had purchased $2 million worth of gold, borrowing against it and creating a temporary gold shortage in New York. Their plan was to sell it for a healthy profit.

In the end, Morgan pocketed $66,000, but his father was so angry when he learned of the deal that he threatened to sever their business ties. In a letter to a friend, the elder Morgan described himself as “disappointed & pained” by the fact that his son “continues his speculations on such a scale notwithstanding my repeated admonitions.” He even set a date for withdrawing his funds from the firm. Junius never carried out his threat. Instead, he installed a more experienced partner in the New York office to watch over his son.

Fortunately for the United States, Morgan didn’t inherit his father’s aversion to risk. Otherwise, he might have missed the opportunity to underwrite an inventor wholly unlike his conservative colleagues in banking.

Morgan enthusiastically embraced Thomas Alva Edison and his ideas about selling electric power - and not merely as an investor. He used Edison’s technology to light both his home and his Wall Street office. Nonetheless, his father remained unimpressed, dismissing Edison’s claim that he could illuminate downtown Manhattan with a single, 500-horsepower engine. To which Morgan responded in writing: “I feel sure that if you understood what was proposed about the Edison matter, you would look at it with a different light.” (Whether the remark about “a different light” was an unintentional pun or an uncharacteristic bout of wit, we’ll never know.) About a dozen years later and two years after Junius’ death, Morgan assembled the deal that created General Electric, the only company on the Dow Jones Industrial Average that has remained in the index from its 1896 start.

Less gratifying was his backing of inventor Nikola Tesla. Tesla spent $150,000 of Morgan’s money experimenting in radio transmission without success. When he pleaded for another $75,000, Morgan said no. As a young man, Morgan had lost nearly $1,500 speculating on Pacific Mail Steamship stock. He started small, with only five shares, but after his father admonished him to “never buy any stock on speculation,” he bought another 145 shares. In what might have been a fit of rebellion against a demanding father, Morgan apparently learned not to continue investing in a lost cause. Tesla was the loser.

A Conduit of Capital

As J.P. Morgan aged, he became both arrogant and domineering. A devout Episcopalian who presumably aspired to Christian humility, Morgan nonetheless carried himself in a manner befitting his established prominence in finance, making the most of his massive shoulders, considerable girth, and piercing eyes. The famed photographer Edward Steichen compared his gaze to looking into the lights of an oncoming express train. A woman who knew Morgan when he was in his early sixties said, “. . . when he walked into a room, you felt something electric. He was like the king. He was it.”

That said, he was hardly a charmer. Shy, inarticulate, and prone to substituting grunts for words, he was also hot-tempered. In 1919, the second volume of his U.S.A. Trilogy, writer John Dos Passos draws a sharp portrait of Morgan as “famous for his few words, Yes or No, and for his way of suddenly blowing up in a visitor’s face and for that special gesture of the arm that meant, What do I get out of it?” Plenty, it turned out - but not necessarily in dollars. Morgan would amass a fortune estimated at around $80 million, more than $1.2 billion in today’s dollars, but small compared to the wealth of other titans of his era. Indeed, Standard Oil’s John D. Rockefeller was worth ten times more. Morgan’s power, however, wasn’t just measured by his bank account.

He rose to prominence in the great expansion - both in terms of population and economic growth - that occurred between the end of the Civil War and the beginning of the twentieth century. It was a time of conspicuous consumption among the wealthy in the United States. Railroad tracks and telegraph wires were uniting the nation into one market, making it possible for entrepreneurs to create huge empires and equally huge personal fortunes through their sometimes ruthless actions.

Carnegie dominated steel; Rockefeller controlled oil; Morgan set his sights on the railroads. Though included in most listings of the era’s robber barons, Morgan saw himself as an honest broker, and those who did business with him agreed. In a boom time thick with crony corruption and speculative investors, Pierpont Morgan spoke paternalistically and convincingly of the “moral responsibility” he had accepted. He became the trusted go-between for corporate executives and the multitudes of stock and bond owners whose capital kept industries running.

Thus, his power was not based on money but on trust, a favorite topic of Junius Morgan and one that apparently resonated with his son. A memorable exchange to that effect occurred in 1912, when Morgan was called before a House committee investigating whether a so-called money trust controlled the economy. He talked in the following exchange about how he judged those to whom he extended credit.

Investigator: “Is not commercial credit based primarily upon money or property?”

Morgan: “No, sir. The first thing is character.”

Investigator: “Before money or property?”

Morgan: “Before money or anything else. Money cannot buy it . . . because a man I do not trust could not get money from me on all the bonds in Christendom.”

After that exchange, more Americans saw him as a man of valor.

To Morgan, competition was a ruinous source of instability. With enormous fixed costs and the prevalence of debt financing, railroads were especially vulnerable to cutthroat competition. So fierce were the battles, it often paid for a railroad to declare bankruptcy, suspend interest payments, and then gain an advantage by underpricing its competitors. Farmers and other shippers certainly appreciated the lower rates, but investors wouldn’t stick around unless they made money. So when railroad systems started to invade each other’s territories, Morgan worked to broker agreements between them and encouraged regional alliances that allowed smaller railroads to invest in one another. His strategy delivered economic stability.

It is true that Morgan favored the creation of trusts - cartels comprised of companies in a given industry that colluded to set prices. Was that any way to run the railroad industry? Well, yes - at least from Morgan’s perspective. With a whiff of price gouging, Morganization got the railroads built and kept them running. He used the same formula to orchestrate mergers that created dominant companies such as AT&T and International Harvester. But his zeal for consolidation sometimes led him to miscalculate the risks.

In 1902, for example, he put together a large collection of railroads that included Burlington Northern (a line now controlled by Warren Buffett). The group, christened the Northern Securities Company, chugged along for two years until Theodore Roosevelt’s attorney general dismantled it under the Sherman Antitrust Act. Populists began to grumble about Morgan’s ideas. Americans came to resent the monolithic corporations that charged whatever they wanted, drove rivals out of business, ignored working conditions, and made their owners ever richer.

Rumblings aside, the politicians of the time weren’t about to rein in J. Pierpont Morgan. They understood that he had single-handedly kept capital flowing from Europe’s aristocrats and wealthy merchants to the United States. They knew all too well the value of that feat and remembered that Morgan, acting as the nation’s financial steward and its lender of last resort, had kept the economy from collapsing. Despite his dislike of government intervention, he had considered it his duty to leap into the breach and carry the nation’s drowning economy back to safety.

The Baron of Bailouts

The Panic of 1893 began with a stock market crash that soon spiraled into a severe depression. Factories closed, banks failed, and railroads slowed to a halt. Farm incomes collapsed as already weak demand for agricultural products declined further. The U.S. government’s subsequent efforts to prop up the agricultural economy by printing dollars backed by silver instead of gold succeeded in frightening European investors into cashing out their dollars. They saw the move as devaluing the heretofore gold-backed American currency and threatening their return on investments. An international run on the U.S. Treasury ensued, draining $91 million worth of gold from its $100 million cache. If the government were to run out of gold, it would have no recourse but to default on any outstanding dollars presented for exchange - and Morgan would be unable to sell U.S. securities in Europe.

In 1919, Dos Passos gave Morgan credit for saving the Treasury during the Panic of 1893, then grudgingly made a point of noting that it came “at no inconsiderable profit to himself.” That was always the criticism aimed at Morgan.

Boarding a train for Washington, D.C., the financier arrived to find that President Grover Cleveland was reluctant to see him. Cleveland apparently feared the political fallout of appearing to be too cozy with Wall Street. Announcing that he would not leave the capital without seeing the president, Morgan met with Cleveland the next day. He secured the president’s approval of Morgan’s plan to stave off national bankruptcy. He had formed a syndicate that would buy enough gold (3.5 million ounces) to restore America’s solvency - and, yes, earn Pierpont Morgan a profit by letting him sell $65 million of thirty-year, government-issued gold bonds.

Morgan led a similar initiative in the Panic of 1907, working with other financiers to raise hundreds of millions of dollars to save the country’s best-managed financial institutions. Like Fed Chairman Bernanke a century later, Morgan arranged for stronger banks to shift money into weaker ones. He personally guaranteed some of the funds that came from foreign sources. He also kept the stock exchange operating by arranging a $23 million loan from large New York banks - and he did it in a matter of minutes. When the news reached the trading floor, stock exchange members broke out in a spontaneous cheer: “What’s the matter with Morgan? He’s all right!”

Morgan’s most dramatic move, however, came after he learned that two large New York trust companies were in danger of closing. Assembling the presidents of the companies in the library of his mansion on a Saturday evening, he warned that no one could leave until they had agreed to a $25 million rescue plan. He then walked out of the room and locked the door. Occupied with negotiations on a related matter, Morgan didn’t return home until 4:15 a.m. He unlocked the library door and walked in, holding a statement announcing that the banks would jointly provide the necessary funds. He handed a pen to the president of Union Trust and pointed to the line requiring his signature. The banker signed, and the others followed. Within thirty minutes, a committee was formed to handle the distribution - and Morgan, true to his word, let them go home.

No Taste for Explaining

On reflection, the stock traders’ exuberant question on the floor of the exchange was a pertinent one: What, indeed, was the matter with J.P. Morgan?

Stoic and expressionless, he provided a blank slate upon which others projected their images of him. Was he the soulless incarnation of pure greed - “a beefy, red-faced, thick-necked financial bully,” as one U.S. senator put it? In his 1975 historical novel Ragtime, author E.L. Doctorow recreated a Morgan “with fierce intolerant eyes set just close enough to suggest the psychopathology of his will.”

That same man was a sensitive aesthete. He amassed a large collection of art that he subsequently donated to the Metropolitan Museum of Art in New York, one of the cultural institutions he helped build. He was also something of a hypochondriac who, in between periods of intense activity, frequently complained of headaches and fatigue. Hypochondriac or not, he refused to seek medical treatment when he developed rhinophyma, the skin condition that deformed his nose. He claimed that his nose was such a recognizable part of him that he couldn’t change it. Yet, he had it retouched in pictures.

Perhaps he was afraid the treatment would bring on another ailment. That was the speculation, at least - and as close as anyone was likely to get to Morgan’s true motivations. He offered little insight, always eschewing a verbal explanation or analytical approach in favor of mathematical calculations. But he could startle participants in a tense negotiation when frowns and scowls would unexpectedly give way to a quiet voice saying: “I am mistaken. You are right.”

Lessons

What can J. Pierpont Morgan teach today’s leaders? Here’s a start.

Inspire trust.

Then as now, the United States was a debtor nation. But Morgan inspired the confidence that foreign investors needed, assuring them that the assets in which they invested would become predictable providers of dividends and capital gains. Armed with substantial savings, Europeans were eager to invest in the United States, and Morgan became the country’s foremost financier by steering them toward companies that were reputable and well-managed. Investors knew they could trust him to guard their money. Rather than disappearing with his profits as soon as a transaction was complete, he kept a close eye on the investment entity. Above all, he wanted to see the investors repaid and with a profit - even if that meant he had to step in and hire new management or reconfigure the board. Morgan needed to preserve his relationships with investors because those relationships were the source of his leverage - leverage he used to transform more than one industry.

Use short-term deals to make long-term allies.

Pierpont Morgan didn’t always play the bully. For example, during the Panic of 1873, when fellow tycoon-to-be Andrew Carnegie needed money, he reached an agreement with Morgan to cash out his share of a partnership for $60,000. The next day, Morgan handed him a check for $70,000, carefully pointing out that Carnegie had made a $10,000 error in his calculations. Morgan’s decision to pay him more than was legally necessary had a lasting impact on Carnegie, who later wrote that then and there he decided that Morgan “had in me henceforth a firm friend.”

Spend reputational capital wisely.

Morgan had the connections and the clout to make sure that any regulations that adversely affected his business were subjected to scrutiny. And he did intervene, for instance, to have a 20 percent duty on works of art rolled back so he could ship his collection from London to New York City. But Morgan mostly used the trust he’d built among foreign investors and fellow industrial barons to strike high-profile deals that rescued the government from insolvency. The positive attention he got replenished whatever capital he had spent, enabling him to be well-stocked for when he next needed to dip into his store of goodwill.

Let your actions speak loudest.

Morgan’s public persona was sometimes off-putting. That he never spelled out his purposes or provided a master plan for the world to see may seem incongruous in an era when Donald Trump hosts The Apprentice. But Morgan’s bias for action gave his few words of advice that much more muscle. To stem short sellers, all he had to do was warn them that they would be “properly attended to” - no one wanted to find out what, exactly, he meant. His father preached riskless “masterly inactivity” as an investment strategy, but didn’t follow through with threats to stop doing business with his defiant son. Similarly, while President Theodore Roosevelt referred to Morgan and his ilk as “malefactors of great wealth,” he resisted taking them on. Why? Because Morgan declined to defend himself, and continued to make moves with confidence. He displayed such absolute certainty that it was easy for others to be convinced that he knew something they didn’t.

A quick decision maker who despised long meetings, Morgan made - and stuck with - funding decisions based on his assessment of a person’s character. His belief in Thomas Edison, whom he began to back in 1878, never flickered despite delays in perfecting the invention. One early wiring mishap actually set Morgan’s own study ablaze. One afternoon in 1882, Edison himself flipped the switch in Morgan’s office to turn on the first electric lights in downtown Manhattan. A gaggle of reporters were on hand for what was intended as a history-making moment. Excitement quickly faded when nothing happened - or so it seemed at 3:00 in the afternoon. As dusk fell, the brightness of Edison’s genius burned through the twilight. It took the perspective of a little more time for Edison’s success to be appreciated. The same might be said for J. Pierpont Morgan’s career.

Chairwoman, CEO, and Publisher

Donna Sammons Carpenter

President and Associate Publisher

Maurice Coyle

Chief Financial Officer

Cindy Butler Sammons

Managing Editor

Molly Jones

Art Director

Matthew Pollock

Senior Editors

Ruth Hlavacek

Larry Martz

William Souder

Sebastian Stuart

Associate Editors

Robert W. McCune

Val Pendergrast

Chairwoman Emeritus

Juanita C. Sammons

Published by New Word City, Inc., 2014

www.NewWordCity.com

© The Editors of New Word City

All rights reserved. No part of this book may be reproduced, in any form or by any means, without permission in writing from the publisher.

ISBN 978-1-61230-723-7

Table of Contents

GREAT LEADERS: J.P. MORGAN

NEW WORD CITY