|John Pierpont Morgan|
Easily the most powerful financial figure in the nine-teenth-century United States was John Pierpont Morgan. His role in the creation of the Federal Reserve System, as well as his familiarity with other figures alleged to have been involved in conspiracies, including John D. Rockefeller, put Morgan at the center of financial controversies.
Populists, in particular, criticized his role in rescuing the United States Treasury in February 1895 when he and President Grover Cleveland struck a deal to provide gold to the government at a profit rate of 7 percent. More recently, conspiracy theorist Sherman Skolnick has contended that J. P. Morgan and Co., the firm founded by Morgan, “with the parent holding companies of 18 money center banks” have been involved in artificially forcing up oil prices.
Both the Populists and modern conspiracy theorists and others have maintained that Morgan is a part of a vast network in league with, or controlled by (depending on the source), John D. Rockefeller. The Populists went even further, claiming that Morgan was an agent of the “House of Rothschild” who was intent on oppressing the “common man.”
More modern theorists, in contrast, link Morgan to the British monarchy and its involvement in the two world wars, and Skolnick went so far as to claim that J. P. Morgan & Co. was part of a scheme with the British government to control the year 2000 presidential elections.
J. P. Morgan was born on 17 April 1837 in Hartford, Connecticut, to a mercantile family. Junius Morgan, J. P.’s father, dealt in foreign exchange and became a merchant banker, and could afford to send his son to school in Europe.
The family moved to England, and after J. P. worked for his father’s banking house in London, he returned to the United States in 1857 to establish J. P. Morgan & Co. in 1860 through a connection to the expired George Peabody & Co. He served as an agent for his father’s firm, and engaged in foreign exchange and gold speculation.
Morgan’s business flourished with the expansion of the railroads, a number of which were in financial trouble by the late 1860s. Morgan formed syndicates that acquired troubled railroads, such as the Albany & Susquehanna Railroad, imposing new “managerial hierarchies” on railroads that still had not adopted that managerial form. In this way, Morgan refashioned the railroads into the image of banks.
He also reconstructed his firm in 1871 with a merger with a family friend, Anthony J. Drexel, as Drexel, Morgan & Company, which was reorganized again in 1895 as J. P. Morgan & Company. By that time, Morgan had formed numerous syndicates to take over troubled railroads and put them on sound managerial and financial footing.
Several Jewish financial houses, such as Levi P. Morton and Seligman Brothers, as well as the European financier August Belmont, participated in these syndicates, fueling the allegations of “foreign influence” or “Jewish control.”
Morgan also got in the habit of bailing out the United States government in times of need, as in 1871 when he financed the army payroll with no guarantee of repayment after Congress adjourned without passing an appropriation bill. Drexel, Morgan & Company also refinanced the U.S. debt in 1877.
Through his social contacts, especially his trips to Europe where he was on the same vessel as William H. Vanderbilt, who owned a substantial interest in the New York Central Railroad, Morgan expanded his empire.
Not only did Morgan acquire critical information from magnates such as Vanderbilt and Rockefeller, but each time he sold securities for their firms, Drexel, Morgan & Company made healthy profits.
As the primary historian of railroads in the United States, Albro Martin, has noted, “No banking firm in America, publicly chartered or private, had a bigger stake in the smooth operation of the American railroad system than Drexel, Morgan”.
After the Populists succeeded in pressuring Congress to pass the Sherman Silver Purchase Act, which artificially overvalued silver to gold, the nation’s gold stocks plummeted and its banking system plunged into a panic.
In stepped Morgan, who, with a syndicate involving Belmont and the Rothschilds, essentially prevented the bankruptcy and collapse of the U.S. government. President Grover Cleveland had to swallow his (and the nation’s) pride and accept the bailout, but the populist press crucified both him and Morgan as betraying the “working man.”
Ultimately, the criticism of Morgan was irrelevant: in the 1896 election, William McKinley, running on a monometallic gold standard platform, defeated William Jennings Bryan, the Democratic candidate who had also enjoyed the endorsement of the Populist Party for his support of “free and unlimited coinage of silver at 16:1.”
McKinley’s election substantially ended all debate about a bimetallic standard, but not all questions about the U.S. banking system. Already a number of commissions and panels, most of them formed by bankers, had made recommendations to strengthen the nation’s financial system.
Their recommendations were not directed at Morgan, but rather at the necessity to have Morgan repeatedly step in to rescue the Treasury. After the panic of 1907, Morgan himself made clear that the country’s financial needs had grown so extensive that, even with a syndicate, he could not possibly save the country a third time.
Following a secret meeting on Jekyll Island, Georgia, attended by Paul Warburg, Frank Vanderlip, Nelson Aldrich, and a few others, a new banking plan was presented to Congress that in its essentials was the Federal Reserve System.
Morgan had not been present at the deliberations, nor had he participated in any meaningful way in the actual drafting of the bill, yet he was almost entirely responsible for the legislation. In late 1912 and early 1913, the House of Representatives formed a select committee under Representative Arsene P. Pujo of Louisiana to investigate the “money trust,” with Morgan under Pujo’s scrutiny.
The committee sent out questionnaires to 30,000 banks and trust companies, and took testimony from prominent financiers such as George F. Baker and Morgan, and when the smoke cleared, the committee claimed to have found evidence of extreme concentration of the nation’s money in the holdings by New York banks, via consolidations, stock investments, and securities arrangements.
Morgan, the committee asserted, had control of 10 percent of the nation’s wealth and controlled 43 percent of the nation’s money. (It is worth noting that the Rockefeller conspiracy theorists maintain that Morgan was a “puppet” of the Rockefeller interests.)
The Pujo Committee’s report helped the drafters of the Federal Reserve bill diversify power among twelve regional banks, many of them in the West and South—well outside of New York’s influence (they thought).
Meanwhile, between the two panics (1893 and 1907), Morgan had continued his acquisition and reorganization of railroads and then, in 1900, struck a famous deal with steel titan Andrew Carnegie to purchase Carnegie Steel company for $480 million. Morgan subsequently reorganized it as United States Steel, the world’s first billion-dollar company, and turned it over to Elbert H. Gary to run.
J. P. Morgan died in March 1913, before the Federal Reserve System became operational, but with him passed an era of “finance capitalism” that remained submerged until the arrival of Michael Milken in the 1970s. Morgan’s son, J. P. Morgan, Jr., took over the management of the company and continued to arrange financing for numerous countries, but never became the target of vitriol that his father engendered.