The House of Morgan

by Ron Chernow

  In early 1927, Morgan Grenfell left 22 Old Broad Street and took up residence at 23 Great Winchester Street. The new headquarters stood at the angle of a small, L-shaped street around the corner from Liverpool Street Station. As former home to the British India Steam Navigation Company, its exterior was adorned with exotic tropical motifs—cornucopias and vines. The firm had these stripped away, to create an unmarked townhouse with a tall City doorway that dwarfed visitors. It was a posh, leisurely place with butlers. A 1926 photograph of Morgan Grenfell’s cricket team shows what looks like a set of pipe-smoking aristocrats—yet some of these young men were clerks or messengers.

  The resident partners at Morgan Grenfell were handpicked power brokers. Though their names aren’t conspicuous in history books, they mediated dealings between the British and American financial establishments. J. P. Morgan and Company and Morgan Grenfell always enjoyed intimate relations. They swapped young apprentices, visited regularly, and kept up a vast correspondence that provides a comprehensive portrait of Anglo-American finance between the wars. Within the Morgan empire, however, the British house was subservient. And though the two houses collaborated on many deals, they also did much separate business.

  If Lamont set the tone in New York, the London grandee was Teddy Grenfell, later Lord Saint Just. Fastidious and dashing, with pocket handkerchief, trim mustache, and smooth, glossy hair, he had a smart air and a brittle wit. His keen eyes sloped down in a penetrating stare that spied out people’s thoughts; Grenfell had the clear vision of the coldly unsentimental. Outwardly, he was neat and formal and correct in his behavior. But his judgments, expressed in a torrent of letters to 23 Wall and to his close friend, Jack Morgan, were funny, unsparing, and fiercely opinionated. Nobody in the House of Morgan was more prescient about people and affairs than Teddy Grenfell. He especially delighted in exposing the folly of social reformers. In his sneering but incisive way, he exhibited much racial and religious bigotry and poured buckets of scorn on his targets. This probably appealed to Jack, who shared Grenfell’s prejudices but was more reticent about expressing them. By 1922, Grenfell was not only a Bank of England director, but a conservative member of Parliament for the City.

  The slim, handsome Grenfell remained an eligible bachelor until the age of forty-three, when he married twenty-three-year-old Florence Henderson. Florence’s father was a director of the Bank of England and chairman of the Borneo Company, a Far East trading concern. At the wedding, legend has it, the church was crammed with women weeping at their loss. With the exception of Virginia Woolf, who found Florrie “dulled” and “coarsened” by wealth, everybody seemed enchanted by Grenfell’s bride.1 She was tall, beautiful, and distinguished-looking, with a deep, fascinating voice. Anne Morrow Lindbergh found her “fawnlike and fragile” and picked up a certain gamine quality about her, a feeling she was “incorrigibly young . . . and likes to be teased.”2 She likened Florrie to Virginia Woolf’s Mrs. Dalloway—a sociable woman who knew everybody and loved to organize events.

  It proved a difficult marriage. Florrie had an unconventional streak. She danced, took voice lessons, and became an early patron of Diaghilev’s Ballets Russes. The impresario referred to her as his fidèle amie and invited her to rehearsals. But she was more than just a society patroness plowing Morgan Grenfell money into dance. She was a woman of sophistication and flair who went to the theater every night and wrote penetrating blurbs on what she saw. All this was lost on the brilliant but limited Grenfell, who golfed and sailed and had no time for the artistic modernism that entranced his young wife. He would come home to their townhouse at 4 Cavendish Square and find partly clad Russian dancers and musicians strewn about the place. The famous ballerina Markova attended parties there, and Florrie also befriended Lydia Lopokova, later the wife of John Maynard Keynes. Snobbish and aloof, settled in his ways, Grenfell was jarred by the bohemian activity, despite his affection for Florrie. His wife, in turn, wasn’t ready to submit to the stuffy pleasures of the countinghouse crowd. The marriage lasted, but more through friendship than love.

  The other reigning partner at Morgan Grenfell was the tall, redheaded Vivian Hugh Smith, later the first Lord Bicester. He had a broad, open face and handlebar mustache and a nature more equable than Grenfell’s. In early pictures, he sucks on a pipe and smiles like the cat who swallowed the canary, as if he knew many City secrets but wouldn’t tell. He seldom got depressed, loved to tell shocking stories in deadpan style, and had unshakable composure. He was a country squire, with a mad passion for horses and steeplechase contests—while still at Eton, he was disciplined for sneaking off to Ascot. He occupied strategic posts—governor of the Royal Exchange Assurance Company, chairman of the City’s Conservative party, and a director of Associated Electrical Industries. His family connections ramified everywhere, and among his five brothers were bankers, admirals, and businessmen. (His brother Lancelot, senior partner with stock brokers Rowe and Pitman, executed many Morgan Grenfell deals.) Family scuttlebutt claimed Smith was envious of his cousin Ted Grenfell, whom, he felt, stole too much of the glory.

  In aristocratic circles, Smith was known as the establishmentarian with the outrageous wife. Slim and very Irish, with pale gold hair, Lady Sybil Smith brought seven more City Smiths into the world. She combined great charm and conviviality with deep political commitment. Beyond her interest in theosophy, which she shared with Monty Norman, she was a dedicated suffragette. As treasurer of the Women’s Social and Political Union in 1913, she was its chief fund-raiser in Mayfair drawing rooms; with her delightful voice, she interspersed her pitch with musical interludes. The daughter of her great friend, Emmeline Pankhurst, remembered Lady Sybil singing “in her long straight gown, like a nymph from a Greek vase.”3

  Vivian Smith was very amused by Lady Sybil, and they teased each other mercilessly. Yet tolerance had its limits. One day, Vivian picked up the newspaper and read the headline “LADY SYBIL SMITH ADOPTS CHILD.” Vivian quickly unadopted the child, a waif Sybil had picked up. In July 1913, came the great test of his composure. Sybil joined a delegation of militant suffragettes who invaded the House of Commons to oppose the Male Suffrage Bill. After an unsatisfactory interview with Reginald McKenna, then the home secretary, some of the women began making speeches; scuffles and arrests ensued. Lady Sybil pushed a constable who had taken a suffragette into custody and was sentenced to fourteen days. She insisted upon going to prison in solidarity with her sisters. Once in prison she gaily launched a hunger strike, as if it were a lark. Cool as a cocktail-party hostess, she wore a “tea-gown and golden slippers,” as another suffragette recalled.4 But the government didn’t like having an earl’s daughter in prison, and Lady Sybil’s sentence was commuted to only four days. Still, McKenna swore no favoritism was shown. During her prison stint, Grenfell cabled Jack that Vivian was trying to be a good sport, apparently with difficulty: “V.H.S. distressed, but as usual considerate and dignified.”5

  The Smiths were as odd a couple as the Grenfells. Sylvia Pankhurst, Emmeline’s daughter, saw Vivian as a “very dull foil” to Sybil, who managed a day nursery for destitute mothers and their babies in London’s East End. Sybil exhibited an idealism never apparent in her husband. As Pankhurst wrote of her, “She possessed a rare absence of class consciousness, a sensitive perception of the good qualities in other people and the precious ability to perceive that, at bottom, we most of us have the same needs.”6 Lady Sybil naturally became friends with her New York counterpart in the Morgan universe, the activist Dorothy Whitney Straight.

  MORGAN Grenfell emerged as an important conduit between the City and Wall Street at a time when U.S.-British rivalry threatened to overwhelm friendship. As American exports boomed under the tutelage of Herbert Hoover’s aggressive Commerce Department, British heavy industry languished. Britain felt threatened by America’s new industrial strength and marketing talent. There was a fad for American movies and cosmetics in Britain, an Anglo-American battle for raw materials, and a first wave of investment in
Britain by American industry, symbolized by Ford’s new factory at Dagenham on the Thames and General Electric’s assault on the British electric industry.

  Montagu Norman, who would enjoy an extraordinary reign as governor of the Bank of England from 1920 to 1944, wished to reestablish London financial preeminence in the 1920s and reverse the decline in British industry. To do this, he needed Wall Street money and connections. He found both in the House of Morgan, giving him power fantastically disproportionate to Britain’s postwar wealth. The Morgan partners in New York shared his vision of transatlantic cooperation and Anglo-American partnership, resisting the insular American mood of the 1920s.

  In 1919, Britain was forced off the gold standard. Restoring the link between sterling and gold became an indispensable first step in restoring the City’s status as a world financial center. London’s strength in foreign lending had always been premised on a stable pound. Like king and country, the gold standard was an abstraction that made British bankers feel snug and cosy. Norman thought it the best means by which to stop fluctuating exchange rates, and he wanted England to lead in restoring this monetary discipline.

  The American Morgan partners were instrumental in putting England back on gold. It was their holy cause. As early as September 1923, Russell Leffingwell told Jack in Scotland that after the grouse season he wanted to speak to him about “this dream of mine”—that England go back on gold. New to the firm, Leffingwell said he would “sell his shirt to help England out of this mess” and asked, “Could anything be more heartening than for England and America to lock arms for honest money?”7

  Like Monty Norman, the Morgan partners feared that if exchange rates weren’t tied to gold, they would be managed by politicians. Sober finance might then be held hostage to political expediency, giving a bias toward inflation and paper money. Keynes was already advancing such heretical ideas. Leffingwell warned Morgan: “Keynes . . . is flirting with strange gods and proposing to abandon the gold standard forever and to substitute a ’managed’ currency . . . it is better to have some standard than to turn our affairs over to the wisdom of the publicist-economists for management.”8

  Teddy Grenfell was Monty Norman’s intermediary between the Bank of England and Wall Street. He briefed the New York partners about Norman’s strange temperament and fragile nerves: “Norman elaborates his own schemes by himself and does not take anyone into his counsel unless he is obliged to do so in order to combat opposition. . . . As I have explained to you before, our dear friend Monty works in his own peculiar way. He is masterful and very secretive.”9 As a Bank of England director, Grenfell also alerted New York partners to impending changes in Bank of England interest rates—priceless information—just as Herman Harjes reported on upcoming gold movements by the Banque de France.

  In late 1924, Norman got cold feet about gold. To bolster his confidence, he went to New York to see Jack and Ben Strong. For Jack, the return to gold was gospel. Hadn’t his father saved America’s gold standard in 1895? He fervently told Norman that if Britain failed to return to gold, centuries of goodwill and moral authority would have been squandered. And Treasury Secretary Andrew Mellon told Norman that Washington approved of J. P. Morgan and the New York Fed helping Britain to go back on gold.

  Morgan cooperation was vital. For the pound to maintain its new, higher value in currency markets, the dollar couldn’t pose too strong a competitive threat. Otherwise, speculators would sell pounds and buy dollars, driving the pound back down. Either Norman had to maintain high interest rates in London—drawing money into the pound—or Strong had to keep rates low in New York—making dollar investments less attractive. The House of Morgan insisted on higher British interest rates as the answer. Instead, Monty’s loyal friend, Ben Strong, depressed American interest rates. This was no small technical matter: it would be blamed by some for causing the 1929 crash on Wall Street.

  Strong was always sensitive to insinuations of his being in league with Norman and wanted to involve the House of Morgan in the gold operation as political cover. J. P. Morgan and Company could be useful in another way as well. The British needed a large credit to defend the pound against any speculative attacks that might occur. Under the law, Strong could make loans to other central banks, such as the Bank of England, but not to other governments—for instance, the British Treasury. So it would take Strong and J. P. Morgan together to provide money to the bank and the Treasury.

  Norman had already manipulated a series of short-lived chancellors of the Exchequer. In 1925, the chancellor was Winston Churchill, who would later regard the gold decision as possibly his worst political mistake. At sea in finance, he privately confessed to feeling inadequate in that area and was easy prey for the devious Norman. Churchill’s son recalled that Norman would appear at Chartwell and mesmerize Winston by intoning, “I will make you the golden Chancellor.”10

  Grenfell disliked Churchill and privately criticized him as “still at heart a cheeky, over confident boy.”11 Both Norman and Grenfell wanted pliant politicians who would relegate financial decisions to the merchant bankers, for in the twenties the merchant bankers still dominated the Court of the Bank of England. (The five large commercial, or “clearing,” banks still didn’t have power commensurate with their resources, which grew fantastically through mergers in the 1920s.) Before announcing the gold decision in April 1925, Grenfell watched Churchill as if he were an unpredictable truant who might do something stupidly independent: “We, and especially Norman, feel that the new Chancellor’s cleverness, his almost uncanny brilliance, is a danger. At present he is a willing pupil but the moment he thinks he can stand on his own legs and believes that he understands economic questions he may, by some indiscretion, land us in trouble.”12

  As an attempt to restore the old imperial pound, the 1925 gold-standard decision was a colossal miscalculation, a nostalgic attempt to restore Britain’s former power. It was so lethal because Norman wished to return to gold at the lofty prewar rate of £1 to $4.86. At that rate, British industry couldn’t compete with world exports; even Russell Leffingwell thought Norman too heedless of the British employment situation.

  Not everybody cheered the plan. Keynes thought it would weaken British industry and force a sharp decline in wages to offset the stronger currency. (Perhaps in retaliation, the merciless Grenfell took to describing Keynes’s new bride, Lydia Lopokova, as the “little ballet girl.”) Many British industrialists echoed this alarm, and the jittery Norman almost backed down. One last boost was needed. Grenfell cabled Jack, “I think the Governor would like me to give him assurance that you personally still approve of his course of action in this whole matter.”13 Jack did.

  On April 28, 1925, in the House of Commons, with Norman in the distinguished-visitors’ gallery, Churchill announced Britain’s return to gold. Fearing a runaway chancellor, Grenfell was relieved that the chancellor didn’t depart from his prepared text. The New York Fed provided a $200-million credit to the Bank of England, and J. P. Morgan and Company a $100-million credit to the British Treasury. Because the pound soared and speculative attacks didn’t materialize, the credits weren’t needed. By November, Churchill announced that the embargo on foreign loans was lifted.

  The architects were in a self-congratulatory mood. Jack’s friend Prime Minister Stanley Baldwin praised Strong and the House of Morgan as “men than whom there are none in the world who stand higher for financial ability and moral rectitude.”14 The left wing, however, was up in arms about the threat to British industry and the more than 1-percent commission J. P. Morgan charged for keeping the unused credit ready. Grenfell itched to counterattack but was dissuaded by Churchill: “As we are paying a commission to Messrs Morgan, it would obviously be unsuitable for you to speak in the debate and it would I’m sure expose you to annoyance at the hand of the Socialists.”15 Grenfell withdrew to that natural habitat of Morgan men—the shadows.

  Before long, Keynes’s worst fears were vindicated, and British coal, textiles, and stee
l lost their competitiveness in world markets. Far from revivifying Britain, the gold standard seemed to accelerate its decline. There arose the predicted pressures for lower wages to counterbalance a higher pound. But it was impossible for wages and retail prices to adjust to the world price level. By late spring 1926, England had suffered a coal strike and a general strike with venomous overtones of class warfare. (During the strikes, Grenfell joked that he was glad to be relieved of the roar of motor buses and found the office pleasantly devoid of business.) When Ben Strong visited London during the strike, he met with Churchill and Norman. They managed to avoid talk of the gold standard altogether. Stanley Baldwin and Monty Norman didn’t mention the big blunder either. They forgot their troubles by playing duets together—Baldwin at the piano, Norman singing. It was a curiously civilized form of escape as strikers and policemen clashed in the streets.

  AS the House of Morgan moved from sterling to stabilize other currencies, it drew closer to the Italian government, which was alarmed by a sudden fall in the lira in 1925. The fascist government of Benito Mussolini had been in power for three years, and Wall Street bankers were comforted by the Italian’s macho pride in the lira’s strength. Ben Strong and Monty Norman favored a loan to stabilize Italy’s currency but had qualms about il Duce himself. Shocked by a 1926 visit to Italy, Strong said of the dictator: “I should imagine that he would not hesitate to cut off a man’s head instantly if he failed to deliver what was expected of him.”16 And Norman was dismayed by political meddling at the Banca d’Italia—an affront to the chastity of a central bank.

  Tom Lamont, however, viewed Mussolini in a rosier light. In New York political circles, Lamont enjoyed the reputation of a liberal. His son Corliss, a socialist and later a professor of philosophy at Columbia, saw his father’s foreign-policy views as spotless: “Although my father was a successful banker, and a Republican in politics, he was in essence a liberal, particularly in international affairs.”17 Corliss praised the tolerant atmosphere of the Lamont household, dubbed the International Inn for its many visiting celebrities and intellectuals. One visitor, H. G. Wells, interested Corliss in socialism, and the two would team up in arguments against the paterfamilias. To his credit, Lamont handled Corliss’s radical politics with admirable tact. Corliss would view his own politics not as a negation of his parents’ views but as an extension of their liberalism.