by Ron Chernow
In 1873, Cooke teamed up with two Jewish houses—Seligman’s on Wall Street and the Rothschilds’ in Europe—to obtain the $300 million refunding issue against a vigorous challenge from Drexel, Morgan; J. S. Morgan and Company; Morton, Bliss; and Baring Brothers. Large-scale finance was increasingly shaping up as a contest between powerful syndicates; the sums—and the risks—were now too large for single houses to shoulder alone. The Drexel, Morgan group contested the Cooke monopoly and also circulated insidious rumors that Cooke needed victory in the refunding issue to recoup his Northern Pacific losses. Tony Drexel, a close friend of President Grant, proselytized through his partial ownership of the Philadelphia Public Ledger. Bowing to intense pressure from the Drexel, Morgan group, the secretary of the treasury awarded half of the issue to each syndicate, although the status-conscious Junius was disturbed by Cooke’s name preceding theirs on the contract. The prominence of American banks in this display of federal financing reflected the new postwar power of Wall Street.
The year 1873 was one of panicky markets that allowed the Morgans to leave behind their reputation as relative outsiders and achieve a commanding position in federal finance. Financial markets were at first unsettled by the scandal of the Credit Mobilier, builder of the Union Pacific Railroad, and exposed as a giant sinkhole of fraud and corruption. The scandal tarred the reputation of many congressmen holding the ephemeral company’s stock. By August 1873, London investors wouldn’t touch American bonds, one reporter said, “even if signed by an angel of Heaven.”12 Then, debilitated by the Northern Pacific, the mighty house of Jay Cooke failed on Black Thursday, September 18, 1873.
The failure ignited a full-blown Wall Street panic. For the first time since its formation, the New York Stock Exchange shut its doors for ten days. The corner outside the exchange became a wailing wall of ruined men. Diarist George Templeton Strong noted that “the central focus of excitement was, of course, at the corner of Broad and Wall Streets. People [were] swarming on the Treasury steps looking down on the seething mob that filled Broad Street.”13 Pierpont called in his loans and cabled Junius: “Affairs continue unprecedentedly bad.”14 Five thousand commercial firms and fifty-seven Stock Exchange firms were dragged down in Cooke’s maelstrom, a cataclysmic experience for a generation of Americans. “To my parents and to the outside world,” financial journalist Alexander Dana Noyes would later recall, “the financial crash of September 1873 had been as memorable a landmark as, to the community of half a century later, was the panic of October 1929.”15
By today’s standards, Wall Street looked almost pastoral: Trinity Church was the tallest structure, and street lamps on the cobblestone streets stood higher than many buildings. The six-story Drexel Building soared above its neighbors. Yet after Jay Cooke’s failure, it was popularly seen as the street of sin, a place responsible for corrupting the manners and morals of a pristine frontier nation. Not for the last time, America turned against Wall Street with puritanical outrage and a sense of offended innocence. Thomas Nast’s cartoons in Harper’s Weekly showed heaps of slaughtered animals in front of Trinity Church, the church itself scowling, with the words MORAL, I TOLD YOU SO emblazoned on its steeple. Wall Street already had a way of being renounced once the party was over.
In much the same way as the Morgan bank would in 1929, Pierpont managed a handy profit in the panic year of 1873. He made over $1 million, boasting to Junius: “I don’t believe there is another concern in the country [that] can begin to show such a result.”16 With Jay Cooke conveniently wiped off the map, Drexel, Morgan stood, with miraculous suddenness, at the apex of American government finance. Never again would Pierpont Morgan be an outsider, and before long he would be the chief arbiter of the establishment. Drexel, Morgan couldn’t immediately capitalize on its fame, however, since the 1873 panic ushered in a period of extended deflation and depression, during which it became hard to credit Junius’s injunction to “remember one thing always. . . . Always be a ‘bull’ on America.”17
The House of Morgan’s future approach to business was shaped in the gloomy days of 1873. The panic was a disaster for European investors, who lost $600 million in American railroad stocks. Stung by all the railroad bankruptcies, Pierpont decided to limit his future dealings to elite companies. He became the sort of tycoon who hated risk and wanted only sure things. “I have come to the conclusion that neither my firm nor myself will have anything to do, hereafter, directly or indirectly, with the negotiation of securities of any undertaking not entirely completed; and whose status, by experience, would not prove it entitled to a credit in every respect unassailable.”18 Another time, he said, “The kind of Bonds which I want to be connected with are those which can be recommended without a shadow of doubt, and without the least subsequent anxiety, as to payment of interest, as it matures.”19 This encapsulated future Morgan strategy—dealing only with the strongest companies and shying away from speculative ventures.
Under the Gentleman Banker’s Code, bankers held themselves responsible for bonds they sold and felt obligated to intervene when things went awry. And the railroads were going awry. Even before the 1873 panic, a new way of dealing with railroad rascality had appeared, devised, improbably, by Jay Gould. When investors boycotted an Erie bond issue in 1871, he proposed to bring in outside coal, railway, and banking interests to run the railroad as “voting trustees” who would control a majority of Erie stock. To placate the conservative side of Wall Street and the City, he proposed Junius Morgan as one trustee. The plan was stillborn but later was revived. By mid-decade, Junius was warning the president of the Baltimore and Ohio Railroad that rate wars among railroads were undermining investors’ confidence.20 The following year, when the Erie went bankrupt, the irate bondholders shackled the road with a “voting trust” that would run the operation. It was a pivotal moment—the revenge of the creditors against the debtors, the bankers against the railwaymen. Later, in Pierpont’s hands, the simple device of the voting trust would convert Morgan into America’s most powerful man, placing much of the country’s railway system under his personal control. Through such trusts, he would convert financiers from servants to masters of their clients.
The story of Pierpont Morgan is that of a young moralist turned despot, one who believed implicitly in the correctness of his views. Strong-willed and opinionated, he had an unshakable faith in his own impulses—a quality that later made him appear as a force of nature, a child of the Zeitgeist, making snap decisions that were often eerily right. He differed from most of the Gilded Age robber barons in that their rapacity stemmed from pure greed or lust for power while his included some strange admixture of idealism. As he confronted an economy that offended his sense of business propriety, his very conservatism gave him a revolutionary zeal. He believed, quite arrogantly, that he knew how the economy should be ordered and how people should behave. By no coincidence, he was active in the Young Men’s Christian Association, which discouraged gambling among the working class. He also sponsored revival meetings at Madison Square Garden and backed the moral policeman Anthony Comstock, who favored the covering up of nude statues.
Pierpont developed a reputation for snappishness and barking at people, a propensity that grew with his fame. Even in letters to his father as early as the 1870s, he seemed committed to his own way of doing things and wrote less as a servile son than as a highly confident business partner. In 1881, a report by R. G. Dun and Company referred to Pierpont’s “peculiar brusqueness of manner” and said it had “made him and his house unpopular with many.”21 He sat behind a glass partition in the mahogany partners’ room at 23 Wall Street, chewing on a big cigar and growling out “yes” or “no” when given offers on foreign exchange. He wouldn’t haggle and presented his bids for foreign exchange on a take-it-or-leave-it basis. He had a way of letting people cool their heels and knew all the silent tricks of authority. With his clear-cut sense of right and wrong, he quickly became accustomed to exercising leadership.
Not surprisingly, he
had trouble delegating authority and low regard for the intelligence of other people. He agonized over finding new partners, and people never measured up to his inflated standards. To find suitable candidates in 1875, he pored over business directories from New York, Philadelphia, and Boston—in vain. “The longer I live the more apparent becomes the absence of brains—particularly soundly balanced brains,” he told Junius.22 Once again, Pierpont flirted with the notion of quitting banking and casting off the oppressive weight of business. In 1876, when Joseph Drexel left the firm, Pierpont wanted to follow him, but he held back, awaiting word of Junius’s plans. He was chained to his bank by a sense of mission that never abandoned him. Perhaps never in financial history has anybody else amassed so much power so reluctantly. J. Pierpont Morgan was more exhausted than exhilarated by success. He didn’t enjoy responsibility and never learned to cope with it.
Pierpont was a natural leader on Wall Street. Whatever the general public might think of the Morgans, businessmen respected them for their honest dealings. August Belmont, Sr., thought Pierpont “brusque but fair.”23 Andrew Carnegie, who raised the money for his first rolling mill by brokering bonds to Junius, told the story of how during the 1873 panic the Morgans sold his interest in a railroad for $10,000. He already had $50,000 on deposit with Pierpont, and when he showed up to claim his $60,000, Pierpont handed him $70,000 instead. Pierpont said that they had underestimated his account and insisted he accept the additional $10,000. Carnegie didn’t want to take the money. “Will you please accept these ten thousand with my best wishes?” Carnegie asked him. “No, thank you,” Pierpont replied. “I cannot do it.”24 Carnegie decided that in future he would never harm the Morgans. Interestingly, Carnegie venerated Junius as the model of the sound, old-fashioned banker, but there was always friction between him and Pierpont. After one 1876 meeting with Carnegie, Pierpont bluntly chastised him—“You used language very offensive in its character”—and proceeded to rebut Carnegie’s statements about his firm’s role in a lawsuit.
The standing of Drexel, Morgan rose steadily through the 1870s. In 1877, a congressional dispute held up payment due the army of General Miles, then fighting the Nez Perce Indians out West. In a flamboyant gesture, Drexel, Morgan volunteered to cash the army’s pay vouchers for a 1-percent commission—which made Pierpont very popular with the soldiers. By 1879, the ascendant Morgans were joining with August Belmont and the Rothschilds to market the last Civil War refunding loan. The United States resumed specie payment that year—that is, government notes were payable in silver or gold—and the issue was a great success.
Far from being thrilled by this new parity with the Rothschilds, Pierpont was offended by the supposed high-handedness of his partners. The more conciliatory Junius insisted that the Rothschilds share in any syndicate, but Pierpont’s enormous ego brooked no condescension. As he wrote his brother-in-law Walter Burns, now Junius’s partner in London: “I need scarcely tell you that having anything to do with Rothschilds & Belmont in this matter is extremely unpalatable to us and I would give almost anything if they were out. The whole treatment of Rothschild’s to all the party, from Father downwards is such, as to my mind, no one should stand.”25 In fact, the Rothschilds had badly miscalculated America’s importance to the future of world finance, and it would prove an irremediable blunder. Their representative, August Belmont, bemoaned their “utter want of appreciation of the importance of American business.”26 Now the Morgan star was on the rise, and within a generation it would outshine that of both the Rothschilds and the Barings.
THE financial writer John Moody said that until 1879 Pierpont Morgan was “merely the son of his grim-mouthed father.”27 Junius, all business, found it hard to give up his all-consuming work. Now portly like “an East Indian merchant prince in an old English play,” he appears slightly bent in photographs, sedentary, heavy with care, gazing from beneath shaggy eyebrows.28 The airy elegance of youth has settled into a craggy look of suspicion. In 1873, when he reached sixty, Pierpont was already urging him to cut back his schedule. He wrote, “It occurs to me to suggest that you need rest as much as I do, & I do not quite see why you cannot also take two days away from office per week.”29 Junius wasn’t as rigidly attached to the office as Peabody, but he was domineering and at times had only one partner.
The elder Morgan now began to reap the honors of a semiretirement. On November 8, 1877, he enjoyed a last hurrah in his native country with a New York dinner at Delmonico’s in his honor, sponsored by the city’s business community. This impressive gathering of more than a hundred people numbered John Jacob Astor and the elder Theodore Ropsevelt among its dignitaries. Breaking a self-imposed ban on public appearances, Samuel J. Tilden, a former governor of New York and just-defeated presidential candidate, presided. Toasting Junius as America’s preeminent banker in London, Tilden lauded Junius for “upholding unsullied the honor of America in the tabernacle of the Old World.”30 As in Peabody’s day, American businessmen believed they had to prove their worth in London. In reply, Junius said his lifelong crusade was that no evil should be spoken of America. Nobody in those days talked of British obligations or of nascent American power—only of how Americans should please British creditors. Under Pierpont, the financial position of the two countries would be strikingly reversed.
Pierpont’s relationship with his father was the most important in his life. Junius was the sort of punishing father who built character by stinting on praise and setting exacting standards, keeping up psychic pressure and always making Pierpont prove himself. Tough and demanding, he produced a son who lashed himself into ever greater exertion, only to lapse into sickness, fatigue, or depression. Junius strengthened those already relentless impulses in Pierpont’s nature—his overmastering need to achieve, his inordinate sense of responsibility, his hatred of disorder. Yet the patriarchal Morgan clan permitted no rebellion, only veneration of Father. Whatever fear and resentment Pierpont felt were transmuted into exaggerated love, and such filial worship would be equally apparent in Pierpont’s own children and grandchildren.
Under his sometimes stern facade, Junius clearly adored Pierpont; the obsessive grooming was a tacit acknowledgment of his son’s gifts. In 1876, he decided to buy Pierpont a princely gift—Gainsborough’s portrait of the duchess of Devonshire, possibly the world’s most popular painting at the time. The Rothschilds had already bid for it, and Junius was prepared to top them by paying Agnew’s of Bond Street $50,000. Before the sale was consummated, however, the painting was stolen from Agnew’s. Even a £1,000 reward couldn’t coax it back. Interestingly, when the painting resurfaced in 1901, Pierpont rushed to buy it for £30,000, or $150,000. “If the truth came out,” he conceded regarding the staggering price, “I might be considered a candidate for the lunatic asylum.”31 It was a deeply sentimental homage to his father. At 13 Princes Gate, the London townhouse he inherited from Junius, he hung the painting in the cherished spot over the mantelpiece.
In 1879, Pierpont began to emerge from his father’s shadow and take charge of major deals. He was picked to market the largest block of stock ever publicly offered—250,000 shares of New York Central. It was a landmark event for the Vanderbilts, who owned the railroad.
Commodore Cornelius Vanderbilt had died two years before, at eighty-three, leaving a fortune of about $100 million. Though he rejected champagne as too expensive in his last days, he probably ranked as America’s richest man. Crude and tobacco chewing, a white-haired, red-cheeked rogue, he chased pretty maids to the end. In his dotage, he fell under the influence of spiritualists and held business talks with the late Jim Fisk, the tough whom Pierpont bested over the Albany and Susquehanna, later killed by a rival suitor to his mistress.
Commodore Vanderbilt’s death was a pivotal moment in the shift of business from family to public ownership—a transition rich in possibilities for Pierpont Morgan. To keep his railroad empire intact, the Commodore bequeathed to his oldest son, William Henry, 87 percent of New York Central stock. W
illiam was a homely, torpid, thick-set man then in his late fifties whom the Commodore had thought a dunce, berated freely, and exiled to a rude farm on Staten Island. William certainly wasn’t groomed to manage the New York Central, which the rough-hewn Commodore ran from a cigar box full of records.
The Commodore had merged eleven small railroads to form the forty-five-hundred-mile New York Central. It branched north from New York City to Albany and then swept west to the Great Lakes, opening the interior to eastern ports. That such power would pass to William Vanderbilt appalled many people. As William Gladstone wrote the Vanderbilt’s lawyer, Chauncey M. Depew, “I understand you have a man in your country who is worth $100,000,000, and it is all in property which he can convert at will into cash. The government ought to take it away from him, as it is too dangerous a power for any one man to have.”32 William didn’t help to reassure the public, and talked his way into the history books with his retort: “The public be damned; I am working for my stockholders.”33 The scope of Vanderbilt wealth spread fear and led to new calls for public accountability.
What finally induced William Henry to reduce his New York Central stake was publicity generated by New York State Assembly hearings in 1879, chaired by A. Barton Hepburn. This investigating committee exposed secret deals made by the New York Central, which gave preferential rates to oil refiners. As the railroad’s chief executive and star witness, William Henry seemed ignorant or evasive about the clandestine maneuvering; to counter bad publicity, he approached Morgan, probably steered to him by Chauncey Depew. New York State was beginning to levy punitive taxes against the New York Central, and it was hoped that by having William Henry sell a huge chunk of stock, thus making him a minority shareowner, the state legislature might relent.