Morgan

by Jean Strouse

  Jack Morgan was in New York when the decision came down. He cabled Dawkins that it was “almost as bad as possible.… Dissenting opinions very strong and by best men. Impossible at present say anything about effects,” and he added a few days later by mail: “The Senior is having endless conferences with the various gentlemen interested in the property, and I presume a scheme for liquidation will be arrived at before long.”

  On March 22 the “gentlemen interested in the property” approved a plan, over the objections of E. H. Harriman, to distribute its assets to shareholders pro rata. Harriman wanted the combination to return the exact number of shares each owner had put in, which would give him the huge Northern Pacific position he had acquired in 1901, and when the vote went against him he sued to prevent distribution. The federal circuit judges who had heard the original case ruled unanimously against his petition on April 19, but he appealed all the way to the Supreme Court, and lost there as well in 1905.

  With the dismantling of Northern Securities, the big Northwest railroads returned to the competitive status quo of 1901, with the Hill/Morgan group controlling the Northern Pacific, Burlington, and Great Northern, and Harriman the Union Pacific and Illinois Central.

  U.S. merger activity had declined as the contraction of 1903 and the disappointing performance of new consolidations left “undigested securities” on the market. By the time the Court ordered Northern Securities dissolved in 1904, the country’s first great merger movement was over.

  Even before the Northern Securities case was decided, Morgan apparently considered four years of Theodore Roosevelt quite enough. In May of 1903, he, Mark Hanna, and other leading Republicans tried to draft Grover Cleveland for a third term, announcing that they would switch parties to support the Democrat “with all their power.” Cleveland declined to run. Hanna died in February 1904. Dawkins wrote to Jack that it “will have been a blow to your father. I suppose [Hanna’s] removal makes Roosevelt’s nomination certain and that the chances of a Republican majority are good.”

  He was right. The Democrats nominated a conservative New York judge named Alton Parker who had all “the salient qualities of a sphere,” said the New York Sun. Parker didn’t bother to campaign against the charismatic advocate of the Square Deal and the busted trust. At the beginning of October, Pulitzer’s World breathed life into a stultifying race by implying that Republican Party chairman George Cortelyou, formerly Secretary of Commerce, was blackmailing corporations for campaign funds. Roosevelt denounced the story in a rage, and it quickly died. Cortelyou didn’t have to blackmail the corporations: wealthy Republicans with no viable alternative supported the party on their own.

  Morgan’s friend William Laffan at the Sun announced the paper’s reluctant support of the President in a five-word editorial: “Theodore, with all thy faults——.”

  Morgan, Frick, and Standard Oil each contributed $100,000 to the campaign, and Harriman raised an additional $300,000. Testifying before a Senate investigation into campaign finance several years later, Morgan said he had given $100,000 in cash in October, and then another $50,000 through the Harriman Fund in early November, because party officials thought they might not carry New York State. Senator Thomas H. Paynter of Kentucky, pointing out Morgan’s “very liberal” initial contribution, asked whether the banker had been surprised to be called on for a second installment.

  Morgan: “No: I got accustomed to it.”

  Paynter: “Did [party fund-raisers Cortelyou and Cornelius Bliss] express … their gratitude that you had given … $100,000 and had consented to give another $50,000?”

  Morgan. “No. Gratitude has been rather scarce in my experience.”

  Roosevelt had become president by virtue of McKinley’s assassination, and hated jokes about “His Accidency.” He won his first presidential election in 1904 by a landslide—57 percent of the vote to Parker’s 38 percent. During the victory celebrations that night, for reasons no one has ever fully understood, he announced that he would follow the “wise custom which limits the President to two terms” and not run again. It was, according to his biographer William Harbaugh, “the worst political blunder” of his career. Years later TR told a friend, “I would cut my hand off right there”—pointing to his wrist—“if I could recall that … statement.”

  When Morgan went to Europe in the spring of 1904—the spring of the Sienese art exhibition and Anne’s first trip to Versailles with Bessie—he was worried about his English firm. He had predicted in 1900 that it would be “unrivalled” for the next generation, but since then it had steadily lost caste. Jack and Dawkins had put together a disastrous consolidation of Scottish coal mines called United Collieries in 1902,† the IMM was a fiasco, and the partners were a decidedly mixed lot. Teddy Grenfell proved to be the only clear success: having started out in charge of routine internal operations, he worked well with clients and other bankers and became a partner, with a 4 percent share of the firm’s profits, in 1904. Jack showed few signs of distinction. The junior Walter Burns, whom Dawkins had described in 1900 as young, fat, and lazy, spent little time at work. And Morgan now reluctantly concluded that Dawkins had been a mistake. In April 1904 he began to confer in secret with Baring Brothers about a merger that would close down J. S. Morgan & Co.

  That step would erase the name of Junius Morgan and broadcast a momentous failure. Pierpont had terminated ailing partnerships before, but hated to confront people who disappointed him. He did not let Dawkins in on his deliberations. Meeting with Lord Revelstoke (John Baring) in mid-April, he talked only of Northern Securities as long as Dawkins was in the room. The instant his partner left, however, he “plunged into more personal questions” about the future, reported Revelstoke.

  After Barings’ near failure in 1890, the house of Morgan had taken the lead in their long-standing rivalry. When James Stillman at the National City Bank asked Barings to join in a British government loan in 1900, Cecil Baring had advised against it: “we take it absolutely for granted,” he told his brother, Revelstoke, “that we are committed to [Morgans].” He thought the City Bank ought to be included in big issues, but when “the time comes J.P.M. will be the man to offer Stillman the business.” The Barings worked well in Boston with Kidder, Peabody, but their New York office, Baring, Magoun, was faring as poorly as Morgans in London. In 1904, Morgan and Revelstoke discussed closing their weaker branches and relying on each other’s strengths—J. P. Morgan & Co. would represent Barings in New York while Baring Brothers handled Morgan’s London business.

  According to Revelstoke, Morgan hoped not only to solve his London problem but to defend his interests against increasingly aggressive competition from other American banks, particularly Stillman’s and Kuhn, Loeb: he “inveighed bitterly against the growing power of the Jews and of the Rockefeller crowd, and said more than once that our firms and his were the only two composed of white men in New York.” Age, and the pressure of his recent difficulties, brought out an anti-Semitism Morgan had not shown before.

  Kuhn, Loeb was the only Jewish firm powerful enough to pose a threat to the “white” men in New York. It had alliances with Harriman’s railroad interests, Stillman’s “Rockefeller” bank, and the Equitable Life Assurance Society. Moreover, it had taken the lead, after Morgan’s financing of the Boer War, in sponsoring U.S. international loans. Other German-Jewish houses in the early years of the new century, still largely dependent on European affiliates, were more willing than Yankee firms to meet the financial needs of small business, light industry, and retail stores, and began through those channels to gain a foothold in underwriting. Not until 1906, however, did Lehman Brothers and Goldman, Sachs float successful loans for Sears, Roebuck and United Cigar. Although Jacob Schiff was regarded as the second most powerful banker in America after Morgan, Jews were not about to take over Wall Street in 1904.

  Morgan held several more discussions with Barings that April, then went off with Adelaide and Anne (who had not yet decamped) to Aix. Dawkins was taking his own
measure of the London “débacle.” Now Sir Clinton (he had been knighted for his War Office work), he told Milner: “Morgan has done some bad business for which I am not really responsible”—probably the IMM. “Other bad or unfortunate business has been entered upon for which I am in a large measure responsible”—probably United Collieries—“in the direction rather of not having stopped it than of having originated it. Much the same thing.” He predicted that Morgan would not recover his “former position” in England, and that his own political career would suffer: “Any criticism or detractions for having engaged in unsound finance will be accentuated in my case because, as an Englishman, I am engaged in operations offensive to national susceptibilities.”

  That the house of Morgan had engaged in “unsound finance” seemed to be common knowledge. In New York that fall, James Stillman pronounced Morgan a “back number.”

  As Morgan escorted the archbishop of Canterbury from Maine to Washington in October 1904, he was vacillating about the alliance with Barings. Impulsive in his choice of people and decisive about starting new ventures, he had a terrible time making up his mind when things went wrong. In the 1870s he had wanted to retire rather than sort out unsatisfactory partnerships. Now, in the fall of 1904, he brought Bob Bacon and George Perkins into his deliberations, although not together: Bacon agreed in principle to head a reorganized Morgan-Baring New York office—on condition that Perkins go back to New York Life. Morgan asked Barings not to discuss the negotiations with his London partners, and said it was “absolutely essential nothing be said to Jack.”

  Dawkins had observed in 1901 that few men lived through the crushing pressure of the firm’s work “except physical and intellectual giants like Morgan.” Late in 1904 Dawkins himself, at forty-eight, developed heart trouble, and Morgan retreated from the Barings confederation on the ground that “it might kill Dawkins if any change were made.” Early in 1905 Dawkins had a heart attack. He went off on doctors’ orders to his country house in Surrey, then to Italy.

  Morgan continued to put off closure with Barings for fear, he claimed, “of inflicting a mortal hurt on Dawkins.” As Bessie Marbury noted, he was always loyal to his mistakes. He finally decided not to liquidate J. S. Morgan & Co., and in August of 1905 the Barings, referring to him as “the Old Man,” gave up. Revelstoke reflected that the “London lot [of Morgan partners], as at present constituted, are so entirely useless and so out of touch with anything which is of value in English financial and commercial life that Morgan’s people will find their power constantly decreasing on this side. They have made several serious and expensive blunders, and carry no sort of confidence in the City.” He thought the real difficulty all along had been not Dawkins but Jack: “I expect there is little sympathy and less confidence between father and son. JPM told me Jack did not know a word of what had been mooted.” Dawkins died at the end of the year.

  It may have been at about this time that Morgan said to Rainsford, “My first choice of a man is sometimes right—my second never is.” His choices of Fabbri, Coster, Stetson, Baker, Bristow, Edison, and Coffin had been first-rate, but lately, as Ballin said with regard to the IMM, he was finding it “impossible to get the right men to take their places.”

  Instead of dissolving his English partnership, Morgan rearranged it. He hired a new associate, a friend of Jack’s and a cousin of Grenfell’s named Vivian Hugh Smith, whose father had been governor of the Bank of England. He left Walter Burns in place but summoned Jack to New York. If Dawkins had been a poor choice, Teddy Grenfell had not: the Bank of England made him a director in 1905, and at the end of the year Morgan appointed him resident senior in London. Grenfell in six years had seen only the taciturn side of his chief. From Aix early in 1906, he told his sister: “JPM is placid but he is an impossible man to have any talk with. The nearest approach he makes is an occasional grunt.”

  In preparation for Jack’s return to New York, Morgan bought the last of the three houses built by the Phelps family on Madison Avenue between 36th and 37th Streets, No. 229, and gave it to his son. Jack reflected to Fanny from London in January 1905: “It is extra nice of Father to let us have it.… It will be perfectly charming to be so near 219 and [Louisa at] 225. Certainly Father has managed to get his family close about him this winter at any rate.”

  Over the next year, Jack and Jessie entirely remodeled the house. When completed, it had forty-five rooms, twelve bathrooms, twenty-two fireplaces, a silver vault, a two-thousand-bottle wine cellar, and a formal ballroom. Jack decided he didn’t like the number 229—perhaps it was too similar to 219—and changed it to 231. When the Satterlees moved to their new house at 37 East 36th Street in 1906, the senior Morgan tore down 225 and turned the space between his house and Jack’s into a garden.

  Depressed and anxious about his health, he sailed for Europe at the beginning of March 1905 with Adelaide, Sybil, and Anne. He celebrated his sixty-eighth birthday in Rome, where the Pope and the King thanked him for returning the Ascoli Cope. Staying at Rome’s Grand Hotel, he wrote to an American physician in Florence, William W. Baldwin: “I want very much to see you myself,” and “some of the ladies are also under the weather and need your care.”

  From Aix in early June, Morgan’s French physician, Dr. Léon Blanc, reported to Jim Markoe that their shared patient was quite depressed, and the tension in his arteries “so high that a cerebral congestion was to be feared. For this reason I … ordered some artificial Nauheim baths with strong rubbing after and some electricity to try to give him better sleep. After a few days of treatment the arterial tension which was at the beginning 27 fell to 23 and sometimes less.” Morgan cut back his caloric intake during spa cures: “He was careful not to eat and drink so much,” continued Blanc—“the only thing that I was not able to diminish is the use of cigars, but on this point he will not admit of a contradiction.” The Frenchman urged Markoe to prescribe Nauheim waters (“brine baths with carbonic acid”) for Morgan in New York, and to pay “great attention to the regular function of the bowels. If he will be prudent enough to continue the diet and the baths he will enjoy a long life so useful to his country.”

  Roosevelt’s second inauguration took place in March of 1905, while Morgan was en route to Europe. Putting aside the Northern Securities case and the Republican Old Guard’s attempt to unseat the White House incumbent, the house of Morgan and the chief executive worked out a wary mutual accommodation between 1905 and 1908. Roosevelt accepted the general efficacy of industrial consolidation and, in trying to distinguish between “good” and “bad” trusts, tended to place Morgan’s combinations in the former camp. Refusing to endorse what he saw as a reactionary antipathy to bigness per se, he aimed to penalize conduct rather than size. And he continued to consult Morgan on matters of finance.

  Shortly after the banker returned from Europe in July 1905, he heard from the President about China. Anti-American sentiment in that country was running high: nationalists led by Sun Yat-sen, eager to promote China’s economic independence, were threatening to boycott American goods, and the Chinese government wanted to buy back the stock of the American China Development Company, which granted railroad-building and mining concessions to the United States (see this page). Only 28 of a proposed 1,000 miles of track had been laid for the first U.S.-owned railroad, the Canton–Hankow, and Chinese opposition to the project had dimmed its prospects. The ACDC directors had voted to accept Peking’s offer of nearly $7 million for the concession, pending shareholder approval. Morgan, the largest shareholder in the company, saw no reason not to sell, but Roosevelt wanted to maintain a strong U.S. commercial presence in China. On July 18, the President quoted to Morgan a letter on the subject from Henry Cabot Lodge.

  According to Senator Lodge, Morgan had said that the amount of money involved in the railroad was not “serious enough to make him at his age enter on a struggle with the Chinese,” especially since it was not clear the U.S. government would support him. Lodge argued to TR that the loss of “this great line
of railway” would be “a blow to our prestige and to our commerce in China which we want to foster in every way.” In his own voice, the President went on: “Now, my dear Mr. Morgan, it is not my business to advise you what to do. From the standpoint of our national interests, I take entirely Lodge’s view. I cannot expect you or any of our big business men to go into what they think will be to their disadvantage. But if you are giving up this concession, if you are letting the railroad slip out of American hands, because you think that the Government will not back you up, I wish to assure you that in every honorable way the Government will stand by you and will do all that in its power lies to see that you suffer no wrong whatever from the Chinese or any other Power in this matter.… My interest of course is simply the interest of seeing American commercial interests prosper in the Orient.”

  Two days later, Chinese nationalists started a boycott of U.S. goods that quickly spread to Hawaii, the Philippines, and parts of Japan. In August Morgan had lunch with Roosevelt at Oyster Bay, and the President said he was prepared to “insist that China shall carry out its side of the agreement regarding the concession.… Can your company delay action for a few weeks longer? If so, I’ll call a halt in emphatic terms to the Chinese Government.” At the end of August, however, for reasons that do not appear in the correspondence, Roosevelt agreed that Morgan should accept the Chinese government’s $6.75 million settlement for canceling the concession.

  With regard to corporate policy, Roosevelt’s fact-finding Bureau of Corporations, set up with the help of George Perkins in 1903, was providing Morganized companies with an invaluable testing ground. When the bureau threatened to investigate U.S. Steel in 1905, Judge Gary went to the White House and worked out an agreement to open the corporation’s books in exchange for confidentiality: U.S. Steel would correct any violations of the law the bureau found, and would submit disputed questions about the use or publication of “trade secrets” to Roosevelt.