The Morgan-Baker sphere of influence was extending. For one thing, Morgan bought in 1910 a controlling interest in the Equitable Insurance Company from Thomas Fortune Ryan and Harriman’s estate. Ryan did not want to sell, it appears, but Morgan told him he had better, and he did. The price at which Morgan acquired the Equitable shares was so large that the yield on the investment was almost microscopic, but Jupiter did not mind that: he wanted to get the funds of the Equitable into what he considered reliable hands. (With Baker already in a position of influence in the Mutual Life, and the New York Life already close to the House of Morgan, three of the four biggest insurance companies were now well within the Morgan-Baker sphere.)
For another thing, the sphere now included more banks than ever before. Baker had bought a majority of the stock of the Chase National Bank, and his First Security Company was a considerable stockholder in other banks as well as in railroad and industrial corporations. Two Morgan partners (Davison and Porter) bought in 1910 an interest in the Guaranty Trust Company, and they and Baker constituted the voting trust which dominated it. Both the Guaranty Trust and that other Morgan-Baker ally, the Bankers Trust, were busily engaged in swallowing other lesser trust companies; in the years 1908–1913 they swallowed no less than six, the Guaranty thus becoming the largest trust company in the United States, with the Bankers occupying second place. The Farmers Loan & Trust was already closely identified with Stillman’s National City. It was therefore possible for the Pujo Committee in 1913 to list as under the influence of the Morgan-Baker-Stillman triumvirate no less than nine banks or trust companies—the First National, the National City, the Bankers Trust, the Guaranty Trust, the Astor Trust, the National Bank of Commerce, the Liberty, the Chase, and the Farmers Loan and Trust—with total resources (including their affiliates) of something like a billion and a half dollars.
In the railroad and industrial world as well, the Morgan and Baker and Stillman influences were spreading. They or their associates had a voice in the management of most of the big railroad systems of the country and of such leading industrial or public utility corporations as American Can, General Electric, International Harvester, Lackawanna Steel, Pullman, United States Steel, American Telephone & Telegraph, and Western Union.
When in 1912 the House of Representatives authorized its Committee on Banking and Currency to find out whether there was a “money trust” and to prepare new banking and currency legislation, this committee divided into two groups. One, under Carter Glass, worked on legislation (later producing the Federal Reserve Bill); the other, under Arsène Pujo of Louisiana, did the investigating. It engaged Samuel Untermyer of New York as counsel, and during the hearings which it held in the winter of 1912–13 it piled up a staggering array of statistics designed to show that a “money trust” indeed existed.
The Pujo Committee found, for example, that the firm members or directors of the House of Morgan, the First National Bank, the National City Bank, the Bankers Trust Company, and the Guaranty Trust Company—in other words, the men whom the Committee regarded as definitely representing the Morgan-BakerStillman community of interest—held, together, the following directorships:
118 directorships in 34 banks and trust companies having total resources of over two and a half billion dollars
30 directorships in 10 insurance companies having total assets of over two billion dollars
105 directorships in 32 transportation systems having a total capitalization of over eleven billion dollars
63 directorships in 24 producing and trading corporations having a total capitalization of over three billion dollars
25 directorships in 12 public utility corporations having a total capitalization of over two billion dollars
—all of which the Pujo Committee added together to make up the overwhelming total of 341 directorships in 112 concerns having aggregate resources or capitalization of over twenty-two billion dollars.
On the basis of these and other findings the Committee came to the conclusion that “If, therefore, by a ‘money trust’ is meant
An established and well-defined community of interest between a few leaders of finance which has been created and is held together through stock holdings, interlocking directorates, and other forms of dominion over banks, trust companies, railroads, public-service and industrial corporations, and which has resulted in a vast and growing concentration of control of money and credit in the hands of a comparatively few men—
your committee … has no hesitation in asserting as a result of its investigation up to this time that the condition thus described exists in this country today.”
There can be little doubt that the figures so diligently piled up by the Pujo Committee seemed to prove too much. In the first place, they suggested to the unwary a huge mass of mobile funds at the disposal of a few men, whereas of course the vast majority of the wealth involved in these tabulations consisted of non-mobile properties and investments. In the second place, the statistics as to directorates suggested a non-existent unity of policy and purpose. The presence of a man on a board of directors might mean any one of a number of things: for example, that he was able, or that his name had prestige value, or that he was associated with a bank which wanted to make sure that its funds were not wasted or that the securities which it had launched did not become insecurities. A director might have only the vaguest knowledge of the specific operations of the company over which he was supposed to be exerting control. The presence of one man on two directorates did not necessarily imply any concert of interests between the two concerns. There were many directors of industrial companies who rubbed their eyes in astonishment to find that they were considered by the Pujo Committee to be connecting links in a chain of interlocking directorates which reached from 23 Wall Street out into the remotest hamlet. They knew that no orders had ever been transmitted through them, that they had never so much as shaken hands with a Morgan partner; and they found it hard to imagine what kind of an influence they were held to be exerting on behalf of Morgan and Baker and Stillman.
Likewise the men at the center of things regarded the findings of the Committee with mingled amusement and dismay; they knew little about and paid little attention to the operations of some of the companies which were alleged to be tributary to them, and they quite sincerely believed that the Pujo contentions were absurd; they felt, moreover, that they used very sparingly whatever power they had.
Nevertheless the fact remained that banking power in New York was more concentrated than ever before, and that the influence of these men at the center, even when not crystallized through the existence of voting trusts or majority ownership of stock, ramified very far. It was compounded of many elements: the element of patronage—in other words the tendency among lesser bankers to follow the lead of the Morgan-Baker-Stillman groups in the hope of being remembered in the apportionment of securities for distribution; the element of fear—an obscure fear that a concern whose policies the key men of Wall Street considered “unsafe” would in some way open itself to reprisals—perhaps in the form of difficulty in getting credit at the banks; the element of community of interest—intensified by the fact that there was a general and wholly natural disposition on the part of the key men to favor, for vital positions in banks or businesses in which they had a voice, men whose ideas ran along with theirs; and, of course, the element of respect—a pervasive respect for these men and their opinions because to conservative business men generally they seemed the embodiment of success, astuteness, and wisdom.
One need not agree that there existed a money trust—even in the guarded way in which the Pujo Committee defined the word—to recognize that both the direct and the indirect influence of Morgan, Baker, Stillman, and their aides was prodigious, and that in these very years of the reformers’ counter-offensive it had been extended and strengthened.
2
The hearings of the Pujo Committee in the winter of 1912–13 were dramatic and illuminating. Samuel Untermyer, counsel for t
he Committee, summoned a succession of notable financiers to the witness chair. The taciturn Stillman was conveniently absent from the country, but Baker testified, and so did Morgan.
The committee room in Washington was jammed with men and women when Morgan was called, for his personality and his power had become almost an American legend. He was an old man now, seventy-five years old, and his son and daughter and son-in-law came with him and watched him anxiously through the long hours of his testimony, fearing the strain upon him of such an ordeal. He was flanked also by several attorneys; but he did not wait upon the attorneys for answers to the carefully contrived questions which Untermyer fired at him. From the moment when he was sworn by the chairman and Untermyer began, “Where do you reside, Mr. Morgan?” he took his own part. The center of the stage was his.
At first he was brief, guarded; but as time went on he became more animated—now striking the table before him for emphasis, now chuckling as the crowd laughed at some quick rejoinder of his, now swinging half around in his revolving chair after he had made a reply and looking at the faces of his son and daughter and his attorneys as if to say, “There; how was that?” He was always cordial to his inquisitor, offering to secure whatever information would be needed. But he was overwhelmingly positive. There was in his testimony none of that air of injured innocence which makes some financiers, cornered on the witness stand, sound like guileless and misguided morons. Even when his evidence seemed most flatly to fly in the face of reason, he uttered it with flat-footed authority.
He absolutely denied that he had any power. Once when he was insisting that no one man could get a monopoly of money or of credit, Untermyer asked him, “That is your idea, is it? Your idea is that when a man has got a vast power, such as you have—you admit you have, do you not?”
The old man stoutly replied, “I do not know it, sir.”
“You admit you have, do you not?”
“I do not think I have.”
“You do not feel it at all?”
“No, I do not feel it at all.”
He even denied obstinately that he controlled his own firm. “You are the final authority, are you not?” he was asked. “No, sir.” “You are not?” “No, sir.” Stolidly he held to this position.
Untermyer tried to get him to discuss the propriety of a relation such as that between the House of Morgan and the Southern Railway. Morgan and Baker controlled the Southern through a voting trust. Untermyer wanted to know this: When the directors of the Southern, who were chosen by this voting trust, agreed with the House of Morgan on the terms upon which securities should be issued by the House of Morgan, were not Morgan and Baker in a sense dealing with themselves?
MORGAN. I do not think so. We do not deal with ourselves.
UNTERMYER. Let us see if you do not.
MORGAN. The voting trustees–
UNTERMYER. The voting trustees name the board, do they not?
MORGAN. But when you have elected the board, then the board is independent of the voting trustees.
UNTERMYER. That is only until the next election?
MORGAN. It is during that time they act independently.
UNTERMYER. You think, therefore, that where you name a board of directors to remain in existence only a year and you have the power to name another board next year, that this board so named is in an independent position to deal with your banking house, as would a board named by the stockholders themselves?
MORGAN. I think it would be better.
UNTERMYER. You think it is a great deal better?
MORGAN. Yes, sir.
UNTERMYER. More independent?
MORGAN. Better.
UNTERMYER. Will you tell us why?
MORGAN. Simply because we select the best people that we can find for the positions.
UNTERMYER. … do you not realize that a board thus selected is under the domination of the people who name it?
MORGAN. My experience is quite otherwise, sir.
UNTERMYER. It is?
MORGAN. Yes, sir.
And he could not be budged.
Phillips Brooks, the great preacher, once remarked that he did not see why there was so much talk about the churches losing their hold; wherever he went, he always found the churches full. Even when one has made due allowance for Morgan’s probable feeling that he must on no account say anything which would give ammunition to the opponents of Wall Street, there remains in the old man’s testimony something which reminds one of Brooks’s remark. His influence so pervaded everything he touched that he was hardly more conscious of it than of the air he breathed.
His firm contention was that the basis of financial power and of credit was character. To people who remembered Morgan’s battle with Harriman over the Northern Pacific in the stock market, or his liking for voting trusts, or his campaign for the expansion of the New Haven, this contention had its humorous aspects; Morgan had been quite ready to purchase power with money. Yet there was truth in the argument too, as those who had confronted Morgan’s piercing eyes knew well. The banker reverted to this argument several times. When Untermyer was trying to make him acknowledge that he possessed power, he asked Morgan, “Well, assuming that you had it, your idea is that when a man abuses it, he loses it?”
“Yes,” replied Morgan; “and he never gets it back again, either.… The question of control, in this country at least, is personal; that is, in money.”
“How about credit?” pursued Untermyer.
“In credit, too.”
“Personal to whom? To the man who controls?” “No, no,” said Morgan doggedly; “he never has it. He cannot buy it.”
“No,” began Untermyer, “but he gets–”
Morgan interrupted him: “All the money in Christendom and all the banks in Christendom cannot control it.” Later the questioner approached the topic from another angle.
UNTERMYER. Is not commercial credit based primarily upon money or property?
MORGAN. No, sir; the first thing is character.
UNTERMYER. Before money or property?
MORGAN. Before money or anything else. Money cannot buy it.
Untermyer was quite sure that banks were accustomed to insist upon collateral when making loans, or upon the existence of a going business with a pretty sure cash income. He asked whether a borrower got credit on his face or on his character. Suppose he brought some bonds to the bank as collateral?
“Yes,” insisted Morgan, unrelentingly, “he gets it on his character.”
“I see,” said Untermyer ironically; “then he might as well take the bonds home …?”
Morgan went on, oblivious: “Because a man I do not trust could not get money from me on all the bonds in Christendom.”
He argued that the members of his firm went on boards of directors only because they had a large interest to protect. He refused to admit any other reason for his purchase of Equitable stock from Ryan than that he “thought it was better there than where it was.” The single word “better,” uttered by the florid-faced old man by the committee table, stood like a mountain in the way of Untermyer’s attempts to analyze the nature of the Morgan influence. Morgan thought his way of doing things was better; and that was that.
Untermyer went into the matter of the control of the Steel Corporation. Morgan agreed that nobody went on the board of directors over his objection. Then followed this characteristic colloquy:
UNTERMYER. Who decided that J. P. Morgan & Co. should be the depositary of the United States Steel Corporation?
MORGAN. That was rather ex-officio, I think, sir.
UNTERMYER. You mean you decided it both ways?
MORGAN. When the company was formed, J. P. Morgan & Co. had the whole company at that time, and I think that is the way it came.
UNTERMYER. You thought it was good business, and so you thought you would take it?
MORGAN. No; I did not know whether it was going to be good business or not at that time.
UNTERMYER. It proved pretty good
?
MORGAN. It did; very good indeed, sir.
UNTERMYER. You did not think you were taking many chances on its being good business when you took it up, then?
MORGAN. No; but I began to have doubts when the stock went to eight dollars a share afterwards.
UNTERMYER. Your doubt did not interfere with your buying heavily?
MORGAN. No; I bought all I could.
UNTERMYER. You did not have any doubt, did you?
MORGAN. (forgetting that a moment before he had confessed to doubts). Never, not for one moment.
UNTERMYER. You were getting the advantage of other people’s doubts at that time?
MORGAN (quickly). Nobody ever sold it at my suggestion, sir.
UNTERMYER. No; I did not mean to assume that.
MORGAN. I know.
UNTERMYER. My question does not imply that.
MORGAN. I know.
UNTERMYER. It only implies your confidence in the company at that time.
MORGAN. I always had it, sir.
Confidence—utter confidence in himself, his partners, his associates, his ideas and the onward march of American business; that was one of the secrets both of Morgan’s mistakes (as in the case of the shipping combination and the New Haven program) and of his successes. Another secret of the successes, of course, was his immense force. Perhaps the best brief suggestion of both the confidence and the force in his whole illuminating testimony before the Pujo Committee was buried in his answer to a question of Untermyer’s, when the latter was asking whether it was fair for a private bank such as the House of Morgan, which was not subject to governmental examination, to accept deposits which might otherwise go to banks which had to submit to such examination. Was it fair to have such an advantage in competing with these other banks for the deposits? Morgan said he did not compete for deposits. But, argued Untermyer, if your House gets the deposits which might go to other banks, you are really competing, are you not? Said Morgan, unmoved: “I do not compete for any deposits. I do not care whether they ever come. They come.”
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