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MORGAN, J. PIERPONT 1837-1913

BANKER

To the Bank Born

J. P. Morgan headed J. P. Morgan and Company, the most important force in American finance in the quarter century before World War I, a time when the American economy grew to be the largest and most powerful in the world. Morgan was born into a wealthy banking family in Hartford, Connecticut. His father instilled in him from childhood principles of integrity and trained him early in the business of international banking as it was practiced at the highest levels. Morgan graduated from the university at Göttingen, Germany, in 1857 and immediately went to work on Wall Street. In 1862 he opened his own firm, which eventually became the Morgan Bank. Morgan took over his father's firm when his father died in 1890, and renamed it J. P. Morgan and Company.

U.S. Steel

In 1901 Morgan was instrumental in establishing the United States Steel Corporation. Morgan underwrote a successful public offering of stock in the world's first __BODY__ billion corporation. This offering netted millions for Morgan and paid $492 million to Andrew Carnegie for about $80 million in actual assets in order to eliminate the steel industry's major price-cutter. With the merger of Carnegie's properties and other steel properties, U.S. Steel controlled 65 percent of the U.S. steel-making capacity. Acquiring Carnegie's steel company was vital to Morgan because he saw Carnegie as a disturbing element, not only in steel, but also in the railroad world. On 3 March 1901 the plan of the organization of the U.S. Steel Corporation was made public. The incorporation stabilized the great, widely scattered, uncoordinated domestic steel industry and made it possible for American steel to invade foreign markets.

Morgan's Method

When Morgan backed U.S. Steel he concentrated on eliminating disturbances and selecting the right men to run the corporation. Morgan viewed his enterprise as too important to be subject to the whims of old age, the desire for retaliation, or the health or change in habits of any small group of men. The management had to be conducted at a high level. Constant attention to research and development and the best engineering talent was gathered to ensure that the United States retain its premier standing in the world of steel. The board of directors was made up of some of the most successful businessmen ever organized into a group. Charles M. Schwab was elected president, and Judge Elbert H. Gary was chosen as the chairman of the executive committee. Morgan was represented by Charles Steele on the executive committee and Robert Bacon on the finance committee.

Billion Dollar Steel Trust

Because of the enormous size and wealth generated by U.S. Steel, many politicians attempted to capitalize politically with the "common people" and the "friends of labor" by talking about the "Billion Dollar Steel Trust." It was attacked as a monopoly that was seeking to destroy competition, influence legislation, and control government. Carnegie did not help matters by stating several times that he would soon come back into possession of the Carnegie Steel Company: "Pierpont is not an ironmaster, he knows nothing about the business of making and selling steel. I managed my trade with him so that I was paid for my properties in bonds, not stocks! He will make a fizzle of the business and default in payment of interest. I will then foreclose and get my properties back, and Pierpont and his friends will lose all their paper profits." Carnegie did not realize that Morgan would not have paid him in anything but bonds because he wanted to eliminate him from control and have him as a creditor only and not as a partner. Of course, the event did not turn out as Carnegie predicted.

The Panic

The rhetoric regarding influential, wealthy men such as Morgan was clearly hostile in 1907. In a 4 July address Princeton University president Woodrow Wilson urged an attack on the illegal manipulations of financiers rather than on corporations. In a speech on 20 August President Theodore Roosevelt castigated "malefactors of great wealth." But later in the year Morgan acted single-handedly to avert a financial panic that began on 23 October with a run on New York's Knickerbocker Trust Company and spread to several other banks and trust companies. To calm the panic and shore up the money supply, Morgan obtained pledges from the Bank of England, John D. Rockefeller, and other major financiers. He acted to allow New York City to avoid defaulting on some short-term bonds. He even resorted to locking leading New York trust company presidents in his library overnight in his efforts to negotiate deals to support financial institutions. By taking command and rallying other bankers, Morgan succeeded in restoring confidence. The financial crisis of 1907 eventually led to the creation of the Federal Reserve System in 1913, which made the private manipulation of financial markets such as those represented by Morgan's actions during the panic both unnecessary and unthinkable. Morgan died in Rome, Italy, in 1913.