Who Was J.P. Morgan?

When John Pierpont Morgan arrived on Wall Street, it was a disorganized jumble of competing interests and one of the many financial centers in a country.

When he left Wall Street, it was a tightly knit group of big businesses leading one of the fastest-growing economies in the world. Much of the progress Wall Street experienced at the close of the 19th century and the beginning of the 20th was due to the influence of J.P. Morgan and the skill with which he wielded it.

Early Life and Education

When Morgan was born on April 17, 1837, in Hartford, Conn., there was very little doubt his future lay in banking. His father, Junius Spencer Morgan, was a partner in a bank run by another American, George Peabody.

Morgan was brought up knowing he would take his father's place, and was trained for a career in banking. When the family moved to London, J.P. Morgan was sent to study in Switzerland and later in Germany.

Upon his retirement, George Peabody left the bank completely in the hands of Junius, even removing his name from it. J.S. Morgan & Co., the first Morgan bank, had made its debut. By this time, J.P. Morgan had finished his European education and was learning his future trade as his father's New York agent while his father tended the more important London end of the business.

Morgan began to take over his father's responsibilities following the Drexel-Morgan merger. The Drexel-Morgan merger extended the scope of the business, strengthened international ties, and added to the capital the bank was able to loan.

As his father faded to the background, Morgan took an increasing role in underwriting companies for public offerings. He took a great interest in the railroad, holding shares, handling offerings, financing, and even placing Morgan employees on the company boards. With the importance of the railroad growing throughout the continent, Morgan picked an excellent time to expand both his bank's wealth and his personal power.

Notable Accomplishments

In 1893 the US Treasury found itself in a dire situation. The nation used the gold standard, meaning the currency was backed by and redeemable for gold in the treasury. However, a law on the books also required the minting of silver coins at an artificially high fixed ratio to gold. The use of these silver coins caused the public to hoard gold, and spend the silver. Foreign nations redeemed dollars as a result of international trade as well. This combined to leave the US Treasury with dwindling gold reserves.

JP Morgan traveled to Washington D.C. to meet President Cleveland. The president initially refused to meet him, worried about the bad optics of being close to Wall Street. In the end, he had to choice. The two met and Morgan hatched a scheme to use bonds to buy gold in Europe to refill the treasury.

The Great Reorganizing

Morgan, Cornelius Vanderbilt, John D. Rockefeller, and all the other robber barons shared two beliefs: Cutthroat competition was ruinous, and combination and size could reduce competition while increasing efficiency. Morgan used his personal power and reputation to encourage the formation of trusts and mergers within industries where he saw ruinous competition.

Although he will always be remembered for trying to create a steel monopoly in the form of U.S. Steel, many of the other large companies Morgan helped create were beneficial to the economy. General Electric and International Harvester (now Navistar International) helped the United States advance technologically and helped the agricultural sector Morgan was often accused of strangling through his rail trusts.

Morgan's power and influenced was much greater than the actual wealth he controlled. The Morgan bank simply didn't have the size to underwrite public offerings or handle bond issues without help from other banks.

Morgan's reputation, however, meant any time his bank was part of a syndicate, it was reported as if Morgan was personally steering the offering. Morgan's growing prestige helped him in an age when the offering bank's reputation mattered more than the stock fundamentals. This cemented the public's perception of Morgan as a figurehead for all of Wall Street.

When things were bad, Morgan was accused of suppressing the economy. When things were good, Morgan was thought to be lining his pockets. Morgan's personal power came at a high public price. While he did wield a huge amount of power and influence, including in the instances were he helped rescue the economy, the public perceived his power to be beyond what it really was.

Leadership During the Panic of 1907

Morgan was hated and respected in almost equal measure at the beginning of the 1900s. In 1907, however, he tipped his hand and gave the government and the general public something to fear. By March 1907, the New York Stock Exchange had declined 8% since September 1906, signaling sings of weakness.

The signs of trouble increased through the summer and into the fall. October saw absolute chaos in the financial industry with panic selling, market crashes, and firms going bust. Morgan was 70 years old, semi-retired, but decided to step in.

From his office, Morgan sent messengers to exchanges and banks, making certain that no till closed, but the rate at which cash could be drained from the system was slowed. Money counters were instructed to double-count at a slow pace, religious leaders were called on to preach calm in their sermons, and company presidents and bankers were all locked in Morgan's library.

Morgan used his considerable connections to gather the top players in the U.S. economy. The U.S. Treasury also got involved as well. His plan was to reach a solution to save the economy.

In the locked room, Morgan was able to force all involved to agree to a plan. Basically, they would create liquidity to shore up the financial world, much like the federal government does now in similar situations. Morgan pledged his own money, and convinced other wealth individuals to do the same in order to sure up the financial industry. This plan then received presidential approval, and the panic subsided.

Recognizing that only an aging banker sat between the United States and financial disaster, the government quickly moved to reform the banking industry and built up the Federal Reserve System to avert such crises in the future.

Pujo Committee

The Panic of 1907 was Morgan's finest moment. In the aftermath, he received praise along with his usual helping of blame. His obvious manipulation of the economy only worsened the general public's opinion of him as a "Robber Baron" of Wall Street. Rather than being left to his retirement, Morgan was called to the Pujo Committee, a government investigation into money trusts.

In the course of his testimony, Morgan gave voice to what was then an unspoken banker's code. Among other things, he reinforced the Old World concepts of character and moral responsibility being a banker's guiding principles. Whether this was a noble principle, it became clear that a gentleman's arrangement between the big banks on Wall Street was controlling a vast amount of the nation's credit.

Following the hearings, Morgan's health began to fail. With his decline, however, the age of gentlemen's business, or baronial rule as seen by his detractors, was over on Wall Street. On March 31, 1913, the hero of the Panic of 1907, and the alleged kingpin of Wall Street, died in a hotel room in Rome.

The Bottom Line

During his life, Morgan played many roles: banker, financier, robber baron, and hero.

Today, we speak of entities, corporations, and multinationals dominating Wall Street. Never again has one businessperson wielded so much power over the financial world.