Ron Chernow in The House of Morgan has written an epic study of the Morgan banking empire, from its origins in the nineteenth century through its diversification into three financial giants in the late twentieth century. Chernow’s book is a model of institutional history. He has mastered the vagaries of a multiheaded banking firm over the course of more than a century, without losing the thread of an engrossing story. Chernow brilliantly brings to life the men who made and staffed the Morgan empire. His work, which received the 1990 National Book Award for nonfiction, effectively becomes the collective biography of such powerful and fascinating characters as the two John Pierpont Morgans, father and son, and Thomas Lamont, who followed in their footsteps as ruler of the House of Morgan. The history Chernow relates with such skill is important because, as he says, the story of the Morgan banks is the story of American finance. Chernow traces the change in Wall Street from a slow- paced, gentlemanly world, in which personal reputation counted as much at times as ready assets, to the informal and hectic world of high-stakes leveraged buyouts and corporate takeovers. In the course of this task, Chernow not only tells of the transformation of Wall Street but also reveals profound changes in American culture. Far from being an arcane study of a mysterious subject, Chernow’s book speaks to the opportunities and challenges facing modern-day Americans.
The bank which would form the nucleus of the House of Morgan was founded in London in 1837, by a Massachusetts entrepreneur named George Peabody. The United States in the nineteenth century was a creditor nation, heavily dependent on foreign investment for its industrial development. London served as an international market for American bonds. Hence, any American firm hoping to play a major role in this lucrative business had to base itself in the British capital. Over the years, Peabody built a thriving and respected bank. In 1854, growing older and wanting time to devote to philanthropy, Peabody took Junius Morgan as a partner.
Junius Morgan had been born in Connecticut into a family of prosperous Yankee traders. He was a partner in a Boston merchant house when summoned by Peabody.
Junius Morgan would become the paterfamilias of the House of Morgan, giving the firm his name when Peabody died, and establishing his son John Pierpont Morgan, Sr., in an outpost of the firm on Wall Street. Junius Morgan embodied what Chernow calls the Gentleman Banker’s Code. According to this code, bankers did not seek out business, and dealt only with clients who arrived with introductions. They operated no branch offices and would only accept a new company as a client if the client’s previous banker did not object. Gentlemen bankers did not advertise their services, usually not even placing the firm’s name above the door, and refused to enter price competitions. Gentlemen bankers also played a quasi-official role in international finance, often numbering governments among their clients and organizing international bond issues. The gentleman banker had to be both upright and discreet. Junius Morgan was both, and became the wealthiest American banker in London, winning for his bank an international reputation.
It would be John Pierpont Morgan, Sr., however, who would make both himself and the House of Morgan legendary. Entrusted with the American side of the family business, Pierpont Morgan’s stature reflected the growing importance of American financial power, as well as his own business acumen. Reviled as a “robber baron,” Pierpont Morgan played a crucial role in the development of a host of American industries.
Morgan was personally offended by the chaotic conditions of American industrialization. Speculation and competitive rate wars in the railroad industry led to bankruptcies and insecurity in the railroad bonds he issued. In order to stabilize the market in his securities, Morgan began playing a role in the business decisions of railroads indebted to him, and arranged some mergers. Morgan was so satisfied with the results of his work that he became the great enemy of laissez-faire business competition in the United States. Before the end of his career, he would be the impresario of some of the most spectacular industrial mergers in American history, including the formation of General Electric and United States Steel, which was capitalized in 1901 at the then spectacular figure of 1.4 billion dollars. Morgan wielded this power because, in the late nineteenth century, bankers provided the services later provided by trade groups, government commissions, and the courts. A gentleman banker could intervene in a competitive war between companies and play the role of honest broker, arbitrating a settlement, and perhaps a merger, which would lead to higher profits for all. A banker with the resources of Pierpont Morgan could be all the more persuasive a peacemaker. While his critics saw him as the architect of industrial monopoly, Morgan believed that he was engaged in a moral endeavor. He saw himself as the champion of shareholders who might otherwise be ruined by the cutthroat competition of the day.
By the turn of the century,...
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