Not for a long time yet would the financial markets of the country return to normal operations. There would still be runs on banks, and minor bank failures; and the aftermath would follow—a short, but emphatic, slump in American business. But the corner had been turned. Now one could honestly say that the panic was over.
13
The lesson of the Panic of 1907 was clear, though not for some six years was it destined to be embodied in legislation: the United States gravely needed a central banking system, which could build up reserves to be disposed where they were most needed. The significance of Morgan’s role during the panic was likewise clear. To the extent that a single man could exercise the functions of a central banking system, Morgan had done this. He had been, as it were, a one-man Federal Reserve Bank.
Where, the present-day reader may ask, was the President of the United States during such a public emergency? Where was the Secretary of the Treasury? Where were the governor of the state, the mayor of the city? They were either inactive in the crisis, or following Morgan’s guidance, or looking to him for aid. Morgan was the leader.
Not by reason of the wealth of his firm; for though this was great, it could meet only a small fraction of the gigantic demands which developed. Not by reason of any special inventiveness on Morgan’s part; other men worked up the tactical plans while he sat at his card table. His unique power in the crisis derived partly from the sense in the back of men’s minds that if his leadership failed, the whole financial world would go to ruin, whereas if it succeeded, one would probably prosper much better if Morgan remembered one as an ally in time of need, than if he marked one down as an objector. It derived partly from his organizing ability; partly from the fact that men trusted him to work for the general interest as they would trust nobody else of remotely comparable authority; partly from the compulsion in his very glance; but mostly from his courage. At a time when the almost universal instinct was to pull one’s own chestnuts out of the fire, to escape new commitments, to dodge responsibility, he risked everything, again and again, on the success of his campaign. It is said that one banker came to 23 Wall Street during the panic and said, “I am very much disturbed; I am below my legal reserve.” Said Morgan, “You ought to be ashamed of yourself to be anywhere near your legal reserve. What is your reserve for at a time like this except to use?” Thus he bludgeoned other men into displaying the courage that was his own supreme contribution.
* The two preceding paragraphs follow closely a description of the same scene in a previous book of mine, The Lords of Creation, pp. 134–135.
XIII
ENVOI
1
After the Panic of 1907, Morgan’s retirement from active business was progressive. His annual absences abroad, which for several years had averaged four or five months in length, were now sometimes extended to six months or more. Not that his European sojourns were inactive. He liked to be on the move, and would shift back and forth between London, Paris, Aix-les-Bains, Rome, and perhaps Monte Carlo or Venice, spending a few days in each place and then going on to the next. More than once he extended his tour to Egypt; once the Corsair took him to Greece. As always, he enjoyed having a party with him, including usually one of his daughters or some other relative, along with a variety of men and women friends. The overtones of grandeur still sounded: in Rome he had audiences with the Queen Mother of Italy and with the Pope, in England Queen Alexandra came to Prince’s Gate to inspect his art collection, at Kiel the German Kaiser came aboard the Corsair for lunch. An aging international personage, Morgan liked to surround himself with companions, old or new, familiar or glittering, though often he said little at the gatherings he had assembled, preferring to smoke and listen and perhaps doze while the others talked; one reason why he appreciated the company of Salvatore Cortesi, the Associated Press correspondent in Rome, was that Cortesi could drive with him for hours about the streets of Rome without feeling any necessity to say or hear a word.
But it was at home in the United States that Morgan’s withdrawal from affairs was most apparent. He spent less and less time at 23 Wall Street, or at the office high up in the Bankers Trust Building which was set aside for him while the Drexel Building was being demolished to make way for the present Morgan headquarters; mostly he remained in his Library.
If you would see the Morgan of those last years in your mind’s eye, picture a somewhat bulky old gentleman, six feet tall, seating himself in an armchair in a European hotel suite, and pulling toward him a card table on which is a silver box containing two packs of cards. He is rather formally dressed for a gentleman on holiday, with a wing collar, Ascot tie, and white waistcoat. He sits solidly, his weight rather forward on his two feet, his toes turned out. Chun, his Pekinese dog, is curled up close to him. For background, imagine a Grand Hotel sitting room of the early years of this century, with the French windows open and the street sounds drifting up from below; with innumerable obsequious servants ready to come at the sound of a bell, to fetch trays to the occupants of the Morgan suite, or to call the carriage and pair that stand waiting not far from the hotel door, in case the old gentleman should put on his hat and take up his gold-headed cane to go driving.
Or picture him in London, wearing a silk hat and a velvet-collared overcoat, entering the Bond Street galleries, where there has been set out for his inspection a diverse assortment of objects of art, including a famous panel of Flemish tapestry. Morgan looks them over carefully and takes the dealer’s breath away by saying, “How much for the stack?” The dealer names a sum in six figures, to which Morgan simply replies, “Right,” and not only the tapestry but all the other exquisite things are his.… Or, by contrast, see him, again in London, talking with James Henry Duveen, nephew of the Henry Duveen who was for several years Morgan’s most trusted dealer. Says the younger Duveen, bringing out a photograph, “This is a picture of the vases about which I wrote you, Mr. Morgan.” Morgan grabs at the print—pounces on it. “How much?” “Twenty-two thousand pounds.” “Much too dear.” And he walks away.… Or watch Morgan sitting with Cortesi in the anteroom of the Borgia apartment at the Vatican, waiting for a talk with the Papal Secretary of State, Cardinal Merry del Val. The cardinal keeps them waiting half an hour, but Morgan does not mind; now for once he talks volubly and eloquently, pointing out to Cortesi the masterly handling of light and shade in the frescoes by Pinturicchio which adorn the room. A messenger from the cardinal comes in with apologies for the delay; Morgan sends word that the cardinal must not mind, that he is perfectly happy where he is, and only wishes that he had a bed so that he could lie on his back for hours and study the frescoes the better.
Or, better still, you might hold in your mind’s eye a glimpse of Morgan at home, in the West Room of the Library, going over the morning’s mail at the desk and sorting it into two piles, the letters that must be attended to, and those that can wait. Belle da Costa Greene, the devoted young librarian, remonstrates with him at the size of the pile of letters that can wait. He answers that he has found that if you leave letters alone long enough, they “die out.” After a while he asks Miss Greene to read aloud to him from the Bible as he sits in the red plush chair in the corner, and specifically requests the story of Jonah and the whale. She asks him if he really believes it. He answers stoutly that he does; that if the time ever came when he could not believe every word in the Bible, he could believe none of it.… At times he sits motionless in the stuffed chair, doing nothing, while cigar ashes fall unnoticed on his waistcoat and the cigar at last goes out; the minutes go by and still he does not move; his eyes are far away as he sits there lost in who knows what thoughts.
In the very last years he would often visit the office only to talk with his partners for a few minutes and then lunch with them. More and more he was leaving to them the conduct of banking affairs. His son Jack—J. P. Morgan, Jr.—would one of these days be taking over the senior partnership, with Charles Steele as elder adviser, young Henry P. Davison (who joined the firm in 1909) a
s a brilliant and rising associate, Thomas W. Lamont (who succeeded Perkins in the firm in 1911) as a sagacious and diplomatic junior aide, William H. Porter (formerly of the Chemical National Bank) as an expert in bank management, and a group of other able partners; and Jack must be given a spreading responsibility.
2
There were no grand feats of organization, no new major crises to command his attention during those last years, but the influence of the firm became even more pervasive than before 1907; and partly as a consequence of Morgan’s acknowledged leadership in the panic, and of the co-operative mood established then, it was in the field of banking that the lines of influence were most firmly extended.
For a generation Morgan and George F. Baker, the bewhiskered chief of the First National Bank, an inexorable and competent student of money and what could be done with it, had been hand in glove. After Baker, Morgan was the largest single stockholder in Baker’s bank; three Morgan partners sat on its board, and in enterprise after enterprise the Morgan and Baker banks joined forces. Both concerns had been interested in the Bankers Trust Company, founded in 1903 on the initiative of Henry P. Davison, who was then a vice-president in Baker’s bank and later became a Morgan partner; the Bankers Trust grew rapidly, and in 1911 and 1912 absorbed the Mercantile and Manhattan trust companies. Both Morgan and Baker likewise stood back of the Guaranty Trust Company, into which, in 1910, were merged two other concerns, the Morton and the Fifth Avenue; the Guaranty’s directors were named by a voting trust of three men—Baker, Davison (a Baker lieutenant turned Morgan lieutenant), and Porter (a Morgan partner). Similarly the influence of the two men, singly or jointly, reached in one way or another to the Chase National Bank (a majority of whose stock was owned by Baker), the Astor Trust Company, the Liberty National Bank, the Chemical Bank, and the National Bank of Commerce.
Nor was this all. For after 1907 the cool and silent James Stillman, who as head of the great National City Bank had previously been regarded principally as an ally of the Rockefeller family and the Standard Oil group generally, drew closer to Morgan. Morgan became a stockholder in the National City Bank, and his son became a director of it. And Stillman or his representatives came to have a say in the management of one of the institutions mentioned above—The National Bank of Commerce—as well as in the Farmers Loan & Trust Company.
Studying these developments, one could reasonably say that the Morgan-Baker-Stillman influence was strongly felt in most of the important banks of New York.
From banking it spread into insurance. For a time George W. Perkins had been both a Morgan partner and a vice-president of the New York Life Insurance Company; and in 1909 something else happened. Since 1905, when a series of scandals had rocked the insurance business, the ownership of another big company, the Equitable, had been in the hands of Thomas Fortune Ryan, who had set up, to supervise the concern, a board of three trustees which included Grover Cleveland and was calculated to put the management above suspicion. Later, Ryan had sold part of his stock interest in the Equitable to E. H. Harriman. At the end of 1909 Morgan bought Ryan’s remaining interest; he also acquired the part which had gone to Harriman. (The doughty railroad emperor had died in the summer of 1909; a fortnight before the end, in a reconciliatory mood, he had invited Morgan to come to Arden and sit by his bed for a friendly talk.) Now in sure control of the Equitable, Morgan offered a quarter interest in his investment to Baker, and another to Stillman, if at any time they should care to buy these fractions; this they did after his death, but for the time being they were content that he should hold their shares. This was satisfactory to him; he wanted to put the Equitable, which was a huge purchaser of securities, into “safe hands”; and what safer than his own?
During the Pujo Committee’s investigation in 1912, Samuel Untermyer, the committee counsel, questioned Morgan relentlessly about the purchase from Ryan. He had been struck by the fact that Morgan had paid a price which, at the usual dividend rate, would yield him only a small fraction of one per cent on his investment. Why had he been willing to pay so much, Untermyer wanted to know; and why had he wanted to buy control of the Equitable company anyhow?
“Because I thought it was a desirable thing for the situation to do that,” said Morgan.
“But that is very general, Mr. Morgan, when you speak of ‘the situation.’ Was not the stock safe enough in Mr. Ryan’s hands?”
“I suppose it was,” answered Morgan, unwilling to suggest that Ryan might otherwise have disposed of the shares to people whom he distrusted. “I thought it was greatly improved by being in the hands of myself and these two gentlemen [Baker and Stillman], provided I asked them to do so.”
Untermyer persisted with his questions, and in due course Morgan remarked that he had thought the purchase was “good business.” The colloquy went on:
UNTERMYER. Where is the good business, then, in buying a security that only pays one-ninth of one per cent?
MORGAN. Because I thought it was better there than it was where it was. That is all.
UNTERMYER. Was anything the matter with it in the hands of Mr. Ryan?
MORGAN. Nothing.
UNTERMYER. In what respect would it be better where it is than with him?
MORGAN. That is the way it struck me.
And a little later:
UNTERMYER. Did Mr. Ryan offer this stock to you?
MORGAN. I asked him to sell it to me.…
UNTERMYER. What did he say when you told him you would like to have it, and you thought you ought to have it?
MORGAN. He hesitated about it, and finally sold it.
At last, under persistent hammering, Morgan was a little more specific. He explained that Ryan had not been in good health, and that when a man died and his stock went into his estate, it might get divided up into small lots and you could not tell what would become of it. But he insisted that “the only reason I did it, on which I am willing to stand up before the community, is that I thought it was the thing to do.”
“This is a little nebulous, is it not?” asked Untermyer.
“You may call it so,” replied Morgan, “but I do not look at it in that light.”
3
So widely had the threads of the Morgan influence—and of the Morgan-Baker-Stillman influence—reached, that when the Pujo Committee made its report, at the conclusion of its hearings in 1912–13, and proclaimed its discovery of the existence of the “money trust” which it had decided in the first place to discover, it was able to produce some staggering statistics. It found that if you lumped together the Morgan partners and the directors of the First National and National City banks and the Bankers Trust Company and the Guaranty Trust Company, you had a group of men who between them held—
118
directorships in 34 banks and trust companies;
30
directorships in 10 insurance companies;
105
directorships in 32 transportation companies;
63
directorships in 24 producing and trading corporations;
25 directorships in 12 public utility corporations; making, in all, 341 directorships in 112 corporations with aggregate resources or capitalization of over 22 billion dollars. And of these 341 directorships, the members of the firm of J. P. Morgan & Co. held no less than 72.
Said the Pujo Committee, toward the close of its report: “The acts of this inner group … have … been more destructive of competition than anything accomplished by the trusts, for they strike at the very vitals of potential competition in every industry that is under their protection, a condition which if permitted to continue will render impossible all attempts to restore normal competitive conditions in the industrial world.”
That the Morgan firm actually exercised any controlling authority by means of these directorships, Morgan himself stoutly denied when he was called before the committee. He even went so far as to deny that voting trusts exercised such authority. When, for example, Untermyer asked him whether he, as a
member of the voting trust which year after year chose the directors of the Southern Railway, was not in effect dealing with himself when the firm of J. P. Morgan agreed with the officials of the Southern Railway on the prices at which its securities should be issued to the public, he would not yield an inch. “I do not think so,” said he. “We do not deal with ourselves.”
“Let us see if you do not,” persisted 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 who 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 we can find for the positions.
Questioned as to his alleged control of banks, he insisted likewise that the presence of Morgan partners on the boards of other banking institutions did not mean control. They were usually in a minority, and in a few banks; “there is no question of control,” said he, “unless you have got a majority of the directors … in all banks.” Often he shifted his ground in the debate with Untermyer as the zest of verbal battle seized hold of him, but the trend of his argument was plain: that the degree of influence which men exercised depended, in the long run, not upon charts and diagrams of “control,” but upon their personal stature, and that in banking this was pre-eminently true.
The Great Pierpont Morgan Page 25