John Pierpont Morgan is considered one of the founding fathers of the modern United States economy. He was an industrial genius that is accredited with the founding of many companies including General Electric and AT&T. However, Pierpont is looked upon as a saint and demon the same. He received a honorary degree from Harvard university that read: “Public citizen, patron of literature and art, prince among merchants, who by his skill, wisdom and courage, has twice in times of stress repelled a national danger of financial panic.” But Robert LaFollette, the Wisconsin progressive, saw him as “a beefy, red-faced thick-necked financial bully, drunk with wealth and power.” Despite conflicting opinion on his persona, his influence and character shaped the business world more so than any other person at the turn of the century. Morgan was a banker, railroad czar, industrialist, financier, philanthropist, yachtsman, and ladies’ man. He was king to a handful of millionaire barons who controlled the country’s wealth in an era of little government regulation.
The wealth of the Morgan family did not begin with Pierpont but with his grandfather Joseph Morgan. Joseph prospered as a hotelkeeper in Hartford, Connecticut. He helped to organize a canal company, steamboat lines and the new railroad that connected Hartford with Springfield. Finally he became one of the founders of the Aetna Fire Insurance Company. Joseph’s first son was Junius Spencer Morgan, also destined for the life of a businessman. He spent a number of years as a dry-goods merchant before moving to Boston and into the foreign trade business. Junius was invited to join the firm of George Peabody & Co. in 1854. In 1864 Junius took over the Peabody Company and changed the name to J.S. Morgan & Co.
John Pierpont Morgan was born on April 17, 1837 in Hartford, Connecticut. He was nicknamed “Pip” by his childhood friends. The family prospered in Hartford until Junius moved the family to Boston where Pip began Boston English High. He did well in the prestigious high school and then in his second high school in Vevey, Switzerland. The family moved to London and John transferred to the University of Gottingen in Germany. John continued to excel in his studies and majored in mathematics. He began to become interested in business affairs as he started and investing club amongst his friends and kept strict records of his own finances.
In 1857, Junius Morgan decided to broaden his son’s experience by sending him to New York. The firm of Duncan, Sherman & Co. was the American representation of the George Peabody Company. He wrote to the company asking for a position for his son and advertising the fact that his son had “many admirable qualities for a worker” To the company, J.P brought an energetic and enterprising spirit, mathematical wisdom, great confidence and a useful tie with the English banking world. In less than three years Morgan went from clerk to cashier in the company. Although, he was denied a promotion when his father requested one, he did receive a promotion in the firm later in his career. In 1860 Morgan left Duncan, Sherman and founded J. P. Morgan and Company to act as an agent for his father’s business. Young Morgan had his hands full at time putting through sales of American securities on behalf of his fathers anxious English clients, who doubted if the Union would survive and wanted to unload their American holdings in. In 1864 Morgan joined up with another former businessman of Duncan, Sherman & Company. Charles Dabney and Morgan started their own company named Dabney, Morgan & Co. Morgan’s business continued to grow as he intensively involves his company in more trade and commerce transactions. In 1871 Dabney retired and Anthony J. Drexel became Morgan’s new senior partner. Drexel was already the head of the Philadelphia investment bank Drexel & and Company. The new company Drexel Morgan & Co. became one of the largest and most successful companies on Wall Street. The firm also became the predominant force in US government funding. When Junius Morgan died in 1890, J.P. became head of the London house. Pierpont now was able to control all the dealing between the New York based firm and their oversees partner. Anthony Drexel also died in 1893, and Morgan reorganized the Morgan and Drexel firms two years later. The New York based Drexel Morgan became J. P Morgan & Co. Drexel, Harjes & Company was Drexel’s prominent Paris-based invest banking business. Morgan’s new French connection was renamed Morgan, Harjes & Co. Pierpont was now at the head of houses in New York, Philadelphia, London and Paris. He was the commanding figure in international finance.
Pierpont Morgan was an imposing figure on Wall Street and in the financing world but was virtually unknown to many until 1869. That year a war over railroads began including Jay Gould and Jim Fisk, both famous financiers. Gould already had dominant control over the Erie railroad and began to buy up stock in the Albany & Susquehanna Railroad. The board of the railroad was prevented from issuing new stock to protect itself and the president of the company, Joseph Ramsey, was suspended. A judge appointed Jim Fisk as temporary controller of the company until the ownership argument was settled. Ramsey and the board of the company fought Gould buy acquiring more shares of the company. Both sides had judges that placed injunctions on the opposing sides of the war. Mr. Ramsey soon found himself with not enough money to keep up his contention for the 142 miles of track. The board of directors and Ramsey asked Morgan for his financial support. Morgan deposed the Erie railroad directors and was more than happy to assist the Ramsey plea. Through legal feuds with Boss Tweed and other characters and holding covert stockholder meetings, Morgan was able to obtain a lease over the company. The state supreme court upheld the lease and ensured ownership over the company to Morgan, Ramsey and the original owners. It was an astonishing victory for Morgan and one that set precedence for his future dealings.
The true beginning of the “Age of Morganization” was his deal with William H. Vanderbilt. The legislature, at the time, began to propose control of railroad management, prevent stock watering, and tax profits. Vanderbilt inherited eighty seven percent of the stock of the New York Central Railroad. He made a secret agreement with Morgan to sell 250,000 shares of his stock to English investors. Vanderbilt also agreed to combine the Central railroad with the Wabash, St. Louis & Pacific Railroad. When the news broke out about the deal, Morgan was praised as an economic genius and stepped out of his father’s shadow. Pierpont also received a seat on the board of the New York Central. Morgan was achieving the influence he desired and had an appropriate venue to express the opinions of the English businessmen he dealt with oversees.
As Morgan enjoyed his position on the board of the New York Central, he used his position to settle a dispute of railroad organization in 1885. New York Central was competing with Pennsylvania railroad for control over the West Shore line. The two companies were engaging in rate wars and for control over surrounding lines. A second offspring, the South Pennsylvania line, was built by the Central to compete with the Pennsylvania line. Morgan argued that is was senseless for Vanderbilt and Gould, the two leaders, to compete over the lines. J. P. suggested that the Pennsylvania should allow Central to buy the West Shore and Central should turn over control of the South Pennsylvania to the Pennsylvania owners. The two parties agreed and Morgan was again hailed as an industrial wizard. Mr. Morgan developed into the nation’s railroad reorganizer. In 1886, the Philadelphia and Reading Railroad was in great difficulty with a deficit of six million dollars a year. Morgan was brought in to slash the value of the watered stock, reduce interest rates on the bonds, and assess the shareholders for more money. Morgan’s plans for the Philadelphia and Reading lines were working well until their president A. Archibald McLeod waged was against Pierpont. Archibald built connecting lines and shipped coals on the carts. Morgan objected to these and other actions but was still able to reorganize the rails. In 1888, John Pierpont was again called on to reorganize railroads in the east. He reorganized the Chesapeake & Ohio and the Baltimore & Ohio. He often encountered some resistance to his interference but managed, in the end, to accomplish his set goals and reshape the failing economic Railroad system. Morgan was unsympathetic with governmental regulation; however, he sought to help enforce the Interstate Commerce Act of 1887. The act asked for the maintenance of “public, reasonable, uniform and stable rates. The act served to at least establish some community of interest among railroads that, at the time, were engaged in ruthless and wasteful competition. Their alliance paved the way for the future great consolidations of the railroads. After the Panic of 1893, the government called on Morgan once more to reorganize a large number of leading railroad systems of the country. The major lines J. P. dealt with were the Southern Railway, the Erie, the Philadelphia and Reading for a second time and the Northern Pacific. By the end of the century only two American systems were outside of his control. Various devices were used to ensure Morgan’s continued control and that of his associates over the companies. One of these devices was his famous voting trust, by which shareholders voted to give their rights to Morgan’s nominees on the board. Morgan’s methods of railroad organization followed a standard pattern with small variations. He would first slash watered stocks, issued new bonds at a lower interest rate, assessed the stockholders for more capitol and eliminated all waste. Secondly, he would try to consolidate lines whenever possible. Third, Morgan and his associates would always charge enormous fees for their services. Pierpont, when questioned about his large compensation, said “I am not in Wall Street for my health.”
Morgan’s reputation most likely grows from his role in the emergence of many modern companies. Morgan, through his innate business sense, helped launch some of America’s largest corporations. Morgan was now known throughout the land for reorganizing the railroad system. He was able to invest and help foundling companies in need of his monetary support and guidance. Morgan was one of the earliest of Thomas Edison. Morgan allowed Edison to work in is office building and continue his experimentation, which caused several problems along the way. Morgan continued to support the growing company by acquiring many stock shares and facilitating the company’s merger with the Thomson-Houston Electrical Company. This merger created the General Electric company, one of the most prominent companies in the modern world.
Morgan went on to help create the Federal Steel Company, the National Tube Company and the American Bridge Company. One of Morgan’s most famous business deals was the formation of the United States Steel Corporation in 1901. Morgan collaborated with Elbert Gary and John Gates to consolidate different steel companies to form a “supercombination.” The U.S Steel Corporation was
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www.jpmorgan.com