Using his company’s wealth and influence, Morgan was called on to become an industry consolidator. He obtained a seat on the board of the troubled companies, taking lessons from his deal with Vanderbilt, and made significant changes including: cost cutting, restructuring debts, placing stocks in funds he managed, and also hiring senior executives that were loyal and whom he trusted. Many railroad companies underwent this process including Northern Pacific, the Reading and the Erie. By the end of his career, J.P. Morgan played a vital role in companies that accounted for around one sixth of the total railroad track in the US.
In consolidating the industry (and having such overreaching financial control) Morgan was also able to monopolise it, the best way – in his opinion – to stabilise not only the railroad industry but also the American economy as a whole. The manifestation of this was the creation of Northern Securities, a merger of two of the country’s biggest railroads. Averse to competition, Morgan wished to prevent the price wars he had seen cause so much turmoil in the rail industry before. It was an effective tactic and one that stabilised the US economy and allowed the country to move from being a debtor nation to a lending one.
As the railroad network closed in on the Pacific Ocean, nearing its completion in the late 1890s Morgan’s attention moved to other industries. He monopolised 70% of the steel industry with the purchase of Carnegie Steel. His bank also purchased Thomson-Houston Electric Company and created General Electric. These deals cemented his place as one of the most powerful individuals in America – and one of the greatest investment bankers of all time.
Investing in politics
With so much power and influence over the financial sector, and the country as a whole, it was only a matter of time before Washington came to Morgan’s doorstep. The effects of the 1893 crisis and subsequent depression had seen a number of banks fail, and started a run on gold. As such, the US government’s gold supplies were deteriorating rapidly. It was reported that the treasury was losing $2m a day and had a matter of weeks to survive.
Initially, Morgan was kept at arm’s length due to his unpopularity among the electorate, however, as the crisis deepened there were few places left for the US government to turn. President Glover Cleveland arranged a meeting with Morgan and proposed a deal that would see the US government sell private government bonds to Morgan and his syndicate in return for $100m of gold. In the end, Cleveland settled for $60m – the run stopped and the economy began to settle. However, as many observers at the time highlighted, it wasn’t just the gold now in the coffers that lifted the markets, it was Morgan’s position as co-signer. Morgan gained significantly from the deal, although he never revealed his profits.
As Morgan continued to hold stock in numerous companies across various industries, many observers, notably those who were anti-big business, began to tout the idea that he also ‘owned America’. His efforts in saving the US economy only strengthened this notion: after all, how could a businessman have the means and the power to save the US government when the President couldn’t? Perhaps inadvertently, Morgan gave wealth and greed a face and this saw him develop many enemies.
The political left of America was the staunchest of enemies, continuously attacking Morgan and the undemocratic power he seemingly wielded (at the time, Morgan had helped William McKinley become President). But McKinley’s assassination saw the tide turn. Theodore Roosevelt, McKinley’s successor, was a man of the people and J.P. Morgan was firmly in his sights. It was Roosevelt’s ambition to break up the monopolies, starting with Northern Trust. Morgan fought the ruling in court, however the decision was upheld; a rare defeat for the most powerful man in America.
However in 1907, with a touch of poetic irony, Roosevelt called upon Morgan to rescue the nation again as a financial panic created another gold shortage and a run on the banks. This time, Morgan arranged a number of meetings with Wall Street bankers and facilitated discussions over loans that would be used to bail out the various institutions including their weaker rivals. Morgan was quite likely the only man in America at the time that could have facilitated such a deal. His confidence and position allowing him to use tough negotiation tactics, which famously included locking a number of bankers in his house until terms on a particular loan were agreed, while he sat in another room playing solitaire!
Despite his efforts, public sentiment continued to turn against big business. The Wall Street ‘money trusts’ began to be investigated by the Senate Committee and Morgan was called to testify. It was during this meeting that Morgan underlined the philosophy that had allowed him to achieve all he had. When asked if commercial credit was based on money or property, Morgan replied: “no Sir the first thing is character, before money or anything else. Money cannot buy it because a man I cannot trust could not get money from me for all the bonds in Christendom.” It was a statement that was met with public approval and saw the overall opinion of him soften. Yet this would be the end for Morgan and finance in America would move on without him.
J.P Morgan died in 1913, in Rome, at the age of 75. Following his death, Morgan’s son, John Pierpont Junior took over the bank that today remains one of the world’s most prominent financial institutions. Outside of finance, J.P Morgan’s lifelong passion was art and he was known as one of the world’s foremost collectors; at the time of his death, his private collection was valued at $60m. Today, his collection sits in the Pierpont Morgan Library in New York for public viewing.
In many ways, it was J.P. Morgan who inspired the architecture of the US economy as it stands today. The fallout of the Senate Committee and subsequent investigations into the power of Wall Street and big business saw the US government implement the Federal Reserve Act. In turn, the Act saw the creation of the new Federal Reserve System and control of the nation’s money supply being taken away from Wall Street. The new Federal Reserve was fundamentally set-up to do what Morgan had done twice before (single-handedly): control and protect the nation’s economy. Morgan also helped facilitate the transformation of the US economy into the industrial and economic leader it is today.
It goes without saying that J.P. Morgan was a visionary. He knew that, as America grew and companies looked to expand, the financial sector would become the industry that dominated all. He also knew that money wasn’t everything – it was about power and influence too. Indeed, Morgan was happy to make his rivals rich if it meant he had the power. And as his deal with Andrew Carnegie was being tied up, Carnegie asked: “I wonder if I could have gotten $100m more. I probably should have asked for that.” And Morgan said, “If you had, you would have gotten it.”