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Revising the Morgan Myth

ISSUE:  Winter 1988
The Morgans: Private International Bankers, 1854—1913. By Vincent P. Carosso. Harvard. $65.00.

We 20th-century Americans are preoccupied with money. Like it or not, a fascination with things material is a pervasive national obsession. Movies and television purport to reveal how the wealthy play and love, and pretenders fall over one another to look the part. Of course joining the circle of the elite is the ultimate goal, and you can purchase endless books, cassettes, and videos promising to hold the key to success.

If you fear crass materialism will shake the foundations of the Republic, it may be a small comfort to remember that Americans of the last century fell prey to the same mania. It seems that have-nots have always studied the ways of the haves, with the hope that someday they might trade places. Long before the first tabloid appeared at a supermarket checkout stand, Americans immersed themselves in details of the lives of the wealthy.

The problem is that there has always been a dearth of accurate information about the rich and even less telling how they made their fortunes. For this reason, myths and legends have circulated about some of our most affluent citizens. Usually they are not very flattering. In a land where heroes are larger than life, the titans of business, who make many of us quite envious, are depicted as especially sinister and dishonest. We have standard fantasies about how people acquire wealth. When one is living a tedious middle-class existence, there is a tendency to believe that “making it” is a matter of luck—like picking the right numbers in the lottery or finding oil in one’s backyard. A darker explanation is that the rich man has simply cheated. The popular press has engaged in this simplistic type of analysis. So, too, have many historians, as the generic conclusions about the 19th-century “robber barons” illustrate.

A case in point involves the interpretation of the career of John Pierpont Morgan, arguably the world’s most influential banker at the turn of the 20th century and the principal character in the book under review. A reading of newspapers published during Morgan’s day would lead one to conclude that Morgan achieved his lofty station through a combination of luck and chicanery, with the emphasis probably on the latter. Morgan’s part in setting railroad rates and his supposed profiting during the Cleveland administration’s gold crisis immediately come to mind as examples. The fact that Morgan rarely spoke to reporters (whom he detested) and that his critics often had little more than hearsay on which to base their conclusions did not temper the bite of their indictments. This tendency is also apparent in the more prominent biographies of Morgan. John K. Winkler’s Morgan the Magnificent (1930) is a Beardian-style critique of big business that predictably depicts Morgan as a villain. The book’s first chapter, which pays an inordinate amount of attention to Morgan’s alleged philandering, sets the tone for what follows. In his The Great Pierpont Morgan (1949), Frederick Lewis Allen forewent the gossip and produced a biography notches above Winkler’s, but his discussions of Morgan’s business dealings were superficial, crippled by lack of access to the Morgan companies’ records.

What really separates The Morgans from these earlier writings is that Professor Carosso does not concentrate on Morgan’s personality quirks, his art collection, or the size of his yachts, but on Morgan as businessman. This is business history in the truest sense; if you will, Carosso has written a biography of the Morgan companies. Like Alfred D. Chandler, Jr. and Stephen Salsbury’s pioneering Pierre S. du Pont and the Making of the Modern Corporation (1971), the author gives a broad, yet richly detailed, view of the Morgan businesses and explains how they rose to a position of supremacy in world finance. The reader interested in making moral judgments can reach conclusions based on facts, not innuendo. Through the use of company records not previously available to scholars, Caros so has provided us with a far clearer understanding of the worlds of merchant and investment banking at a time when industrial capitalism came to dominate the American economy.

The first insight Carosso gives us into the House of Morgan is the role Junius S. Morgan, father of J. Pierpont, played in establishing the business. At mid-19th century, when American banking was in its infancy and London was the world’s investment capítol, Junius joined with another American, George Peabody, in a successful London merchant banking firm. It was Junius Morgan who established the Morgan name in the banking business, as he and Peabody extended lines of credit to mainly American trading companies. Other Morgan partnerships (it is interesting that these businesses were partnerships, not corporations) were started in Paris, Philadelphia, and New York. J. Pierpont learned the banking business under his father’s eye, and the elder Morgan remained a guiding force for the Morgan companies until his death in 1890.

It was as investment bankers, however, that the Morgan partners gained worldwide prominence and notoriety, and J. Pierpont Morgan reigned as major strategist. As Professor Carosso so lucidly explains, the work of merchant bankers and investment bankers was very different. The merchant banker issued letters of credit to trusted customers involved in world trade. As merchant bankers, the Morgan companies financed trading with places as distant as China. The investment banker, on the other hand, sought investors for companies and even countries in need of capital. The banking company, either alone but more often in concert with other houses, would find investors for an offering and receive a commission for the sale. A house’s name on an offering was tantamount to staking its reputation. The responsible banker not only wanted to fill an offer but had to be confident that subscribers would be repaid in a timely fashion.

As the dean of American investment bankers, J. Pierpont Morgan became a guiding force in enterprise development. The growth of the American railroad network presents a good illustration. The Morgan companies sponsored numerous railroad bond offerings. By 1890, however, overbuilding and untrammeled competition drove many lines into receivership, thereby threatening the investments of Morgan clients. Morgan wielded his influence in bringing the railroad community into compacts that abated competition and avoided financial ruin for all. Critics saw these agreements as restraints of trade; Morgan believed they were the only reasonable means of averting an industry-wide financial disaster. He applied the same cooperative techniques to end cutthroat competition when he engineered the formation of the mammoth United States Steel Corporation in 1901.

As the public learned of Morgan company activities, the legend spread that American business was dominated by a “money trust.” The fact that Morgan partners served on the boards of directors of many, diverse corporations tended to lend credence to this view. As the author has noted, however, the Morgan houses took little part in the management of other businesses. Bankers were not interested in daily business operations, and moreover in most cases they lacked the expertise to be of much help. The paramount goal of the Morgan companies was orderly, stable economic growth. They were successful if they could articulate broad policy statements by which particular industries would abide. For this reason, J. Pierpont Morgan opposed government intervention in the economy. He believed politicians were woefully incapable of framing solutions to business problems, and he considered those who reflexively attacked big business to be demagogues. In Morgan’s mind, rational, cooperative businessmen should solve business problems. He never hesitated to act as catalyst in bringing about needed change.

There was also a “Morgan way” of doing business which, according to Professor Carosso, was not at all modern but rather was a throwback to the Victorian era. The Morgans were not of the same ilk as the Daniel Drews and Jim Fisks, who speculated recklessly to make and then lose huge fortunes. The partners were conservative businessmen who shied from even calculated risks. This is not surprising, since their reputation as bankers depended on prudence and honesty. Ironically, the financiers of the modern, centralized industrial state continued to abide by conservative first principles in their own affairs, a fact that even critics grudgingly acknowledged.

If this book has a shortcoming, it is that these major themes are to be found amid mounds of data about the Morgan companies’ domestic and international banking transactions. The stories of financial intrigue involving China, Russia, and numerous South American countries alone could justify a separate volume. Many readers will lack the fortitude for reading this 800-page-plus enterprise. In a way it is unfortunate that the book is intended for the professional historian of American business, since the author’s findings would be illuminating for a more general readership. Professor Carosso has dispelled a number of myths about the House of Morgan and has shown that the work ethic and morality in business guided the companies’ dealings. This even-handed revisionist history is an overdue counterbalance to the standard interpretation.


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