Born sickly, financier J.P. Morgan grew into a physically towering figure. Born into wealth, he grew even greater wealth. Throughout his life, he showed a unique knack for taking something relatively small and making it into something almost unimaginably large.
CHILDHOOD
John Pierpont Morgan was born in Hartford, Connecticut on April 17, 1837, the son of a successful dry goods merchant named Junius Morgan. Pierpont, as he was commonly called, was a fragile child, prone to unexplained fevers and seizures.
Junius Morgan moved his family to Europe in 1852 when he took a position with a London banking firm. The younger Morgan was sent to finish his education, first to Institut Sillig in Switzerland and later to Gottingen University in Germany. During those years, he became fluent in both French and German and indulged in what would become a lifelong passion for art and culture.
EARLY CAREER
J.P. Morgan returned to the United States in 1858 to join the New York City branch of his father’s banking firm. He quickly showed his facility for swinging profitable deals. In one infamous case in 1861, Morgan purchased 5,000 rifles for $3.50 each and sold them to the War Department for $22 each. He made enough money to found J. Pierpont Morgan & Company, although he continued to partner with his father and others. Philadelphia financier Anthony Drexel became his mentor in the mid-1860s, and in 1871, they formed the firm Drexel, Morgan & Company.
By 1875, the 33-year-old Morgan had accumulated a fortune of $350,000 (equivalent to almost $7 million in modern terms) and contemplated retirement. His father talked him out of it, and Morgan went on to build a fortune equivalent to $49 billion over the next four decades.
RAILROADS
Morgan, like his father, was primarily a merchant banker, advising, underwriting, and securing funding for corporations and the ultra-wealthy. Among his firm’s eventual clients were the Vanderbilts, the Astors, the du Ponts, the Guggenheims, and others. He had a nose for innovation; in 1878, he secured financing for Thomas Edison’s new Edison Electric Illuminating Company, and his was the first private home in New York to have electricity.
By the 1870s, Morgan focused increasingly on railroads. Historian Ron Chernow pointed out that railroads, which “required constant capital and exhausted the resources of lone entrepreneurs,” were ripe for “domination” by bankers like Morgan. As time went on, he ended up taking a much more hands-on approach than many of his peers in the financial world.
In 1879, he was approached by William Henry Vanderbilt about the possible sale of 250,000 shares of the powerful New York Central railroad. Vanderbilt had inherited much of the stock from his father, Cornelius Vanderbilt, upon the patriarch’s death in 1877. William Vanderbilt was now staring down the possibility of massive tax penalties for unethical business practices, and believed that reducing himself to a minority shareholder might reduce his exposure and protect his massive fortune. Morgan ended up with a $3 million commission for selling the stock through his connections in the US and abroad. But he expanded on this windfall by maintaining control of enough shares to make himself the de facto leader of the North Central.
Over the next several years, he reorganized many small regional railroads into the North Central’s system, at a huge personal profit. He was a major player in US railroads until the early 1900s, when many of the major railroad monopolies were broken up by the antitrust movement.
STEEL
With so much of his energy invested in controlling the railroads, it was inevitable that Morgan would also seek to dominate the steel industry. He started adding steel companies to his growing portfolio in the 1890s. In December 1900, he was approached by Charles Schwab, a charismatic young financier who worked for Andrew Carnegie. The exact sequence of events is unknown, but Schwab let it be known that Carnegie might be in the market to sell Carnegie Steel — a move that would make Morgan the undisputed leader of the steel industry.
Carnegie eventually set a price at $480 million. Morgan didn’t hesitate. He agreed to the price and sent Carnegie a telegram: “Mr. Carnegie, I want to congratulate you on becoming the richest man in the world.” Carnegie Steel was folded into Morgan’s other holdings to create US Steel in 1901, with Charles Schwab as its president. It soon became the largest corporation in the world. By 1902, it was responsible for producing 67% of all the steel produced in the country.
SAVING THE ECONOMY
Morgan was best described as gruff and unapproachable. His first wife had died of tuberculosis within a year of their marriage and he never recovered from the loss. His second marriage brought four children, including son and heir J.P. Morgan Jr., but the union was an unhappy one. He was frequently in poor health, and the only thing that seemed to give him true happiness was the time he spent on his yacht, the Corsair.
He also had something of a “savior” complex, which came into full view during the financial crises of 1893 and 1907.
The US economy was subject to frequent economic shocks and downturns before World War I. The Panic of 1893 was one of the deepest depressions on record, and by January 1895, the US Treasury was down to under $10 million in gold reserves, and the government was at serious risk of insolvency.
Morgan met with President Grover Cleveland and made a proposal: if Cleveland would sell a block of government bonds to a Morgan-led banking syndicate, he would give the Treasury $100 million. Cleveland agreed to accept $60 million, and in the end, the financial markets stabilized.
He came to the rescue again in 1907, when a liquidity crisis threatened to collapse the stock market. At one point, Morgan called the presidents of most of the major New York banks and told them they needed to pledge $25 million in the next 10 minutes to prevent catastrophe. They agreed. A few days later, he purchased $30 million in city bonds to keep New York City from going bankrupt. Over the course of several weeks, he worked his connections and eventually helped pump enough liquidity into the market to stabilize it.
While he was hailed as a hero in the aftermath of the crisis, enough people were worried about one man having so much more financial power than the government that a movement grew for major monetary reforms. The Federal Reserve was proposed in 1908 and was established in 1918.
DEATH AND LEGACY
J.P. Morgan died in Rome on March 31, 1913 at the age of 75. He left behind a personal fortune of $63 million and an art collection worth $50. His bank, which passed on to his son JP “Jack” Morgan was broken into three entities under the Glass-Steagall banking reform act. More than a century after his death, his name lives on as part of JPMorgan Chase & Company.
FURTHER READING
Carr, Sean D., and Bruner, Robert F.. The Panic of 1907: Lessons Learned from the Market’s Perfect Storm. Wiley, 2009.
Chernow, Ron. The House of Morgan: An American Banking Dynasty and the Rise of Modern Finance. Grove Atlantic, 2010.
Gittelman, Steven H.. J.P. Morgan and the Transportation Kings: The Titanic and Other Disasters. University Press of America, 2012.
Pak, Susie. Gentlemen Bankers. Harvard University Press, 2013.