John Pierpont Morgan, Jr., (born Sept. 7, 1867, Irvington, N.Y., U.S.—died March 13, 1943, Boca Grande, Fla.), American banker and financier, the head of the Morgan investment banking house after the death of his father, John Pierpont Morgan, Sr.

He graduated from Harvard University in 1889 and became a member of his father’s banking firm, J.P. Morgan and Company, in 1892, working in the firm’s London branch for eight years. He succeeded his father as head of the firm in 1913 upon the latter’s death, becoming heir to an estate of more than $50,000,000.

Morgan had developed a deep affection for England during his stay there. As a consequence, during the first three years of World War I, he became the sole purchasing agent in the United States for the British and French governments, buying about $3,000,000,000 worth of military and other supplies from American firms on behalf of those countries. To finance the Franco–British requirements for credits in the United States, he organized more than 2,000 banks to underwrite a total of more than $1,500,000,000 in Allied bonds. After the end of the war his firm floated loans totaling more than $10,000,000,000 for European reconstruction work. Though not the dominant, masterful personality his father had been, J.P. Morgan, Jr., was still the most important American financier of his day.

During the stock market crash of October 1929, Morgan and several other major bankers pooled their funds and tried to stem the decline of stock prices, but to no avail. In 1933 the Banking Act of that year compelled his firm to separate its investment banking activities from its commercial (deposit) banking activities. Accordingly, Morgan, Stanley and Company became a new investment banking firm, while Morgan himself remained head of J.P. Morgan and Company, which thenceforth became strictly a commercial banking firm.

John Pierpont "Jack" Morgan Jr. (September 7, 1867 – March 13, 1943) was an American banker, finance executive, and philanthropist.[1] He inherited the family fortune and took over the business interests including J.P. Morgan & Co. after his father J. P. Morgan died in 1913.

After graduating from St. Paul's School and Harvard, Morgan trained as a finance executive working for his father and grandfather. He became a banking financier, a lending leader, and a director of several companies. He supported the New York Lying-In Hospital, the Red Cross, the Episcopal Church, and endowed the creation of a rare book and manuscript collection at the Morgan Library.

Morgan brokered a deal that positioned his company as the sole munitions and supplies purchaser during World War I for the British and French governments, bringing his company a 1% commission on $3 billion ($30 million). He was also a banking broker for financing to foreign governments both during and after the war.

Contents

1 Early life

2 Career

2.1 World War I

2.2 Postwar

3 Personal life

3.1 Philanthropy

3.2 Social

4 References

5 Further reading

6 External links

Early life

Morgan was born on September 7, 1867 in Irvington, New York to J. P. Morgan and Frances Louisa Tracy who is the eighteenth great granddaughter of Edward_I_of_England. He graduated from St. Paul's School and later, Harvard College, in 1886, where he was a member of the Delphic Club, formerly known as the Delta Phi.

His siblings included Louisa Pierpont Morgan (1866–1946), who married Herbert L. Satterlee (1863–1947),[2] Juliet Pierpont Morgan (1870–1952) who married William Pierson Hamilton (1869–1950), and Anne Tracy Morgan (1873–1952), a philanthropist. His paternal grandparents were Junius Spencer Morgan (1813–1890)[3] and Juliet Pierpont (1816–1884), the daughter of John Pierpont.[4][5]

Career

Jack Morgan walking alongside his father J. P. Morgan in the last known photograph of the two together (ca. 1913)

The younger Morgan resembled his father in his dislike for publicity and continued his father's philanthropic policy. In 1905, his father acquired the Guaranty Trust bank as part of his efforts to consolidate banking in New York City. After his father died in 1913, the bank became Jack's base.

World War I

Morgan played a prominent part in financing World War I. Following its outbreak, he made the first loan of $12,000,000 to Russia.[6] In 1915, a loan of $500,000,000 was made to France and Britain following negotiations by the Anglo-French Financial Commission.[7] The firm's involvement with British and French interests fueled charges the bank was conspiring to maneuver the United States into supporting the Allies in order to rescue its loans. By 1915, when it became apparent the war was not going to end quickly, the company decided to forge formal relationships with France.[8] Those dealings became strained over the course of the war as a result of poor personal relations with French emissaries, relationships that were heightened in importance by the unexpected duration of the conflict, its costs, and the complications flowing from American neutrality. Contributing to the tensions was the favoritism displayed by Morgan officials to British interests.[9] His personal friendship with Cecil Spring Rice ensured that from 1915 until sometime after the United States entered the war, his firm was the official purchasing agent for the British government, buying cotton, steel, chemicals and food, receiving a 1% commission on all purchases.[10] Morgan organized a syndicate of about 2200 banks and floated a loan of $500,000,000 to the Allies. The British sold off their holdings of American securities and by late 1916 were dependent on unsecured loans for further purchases.[11]

At the beginning of World War I, US Treasury Secretary William McAdoo and others in the Wilson administration were very suspicious of J. P. Morgan & Co.'s enthusiastic role as British agent for purchasing and banking. When the United States entered the war, this gave way to close collaboration, in the course of which Morgan received financial concessions.[12] From 1914 to 1919, he was a member of the advisory council for the Federal Reserve Bank of New York.[10]

On July 3, 1915, an assassin, Eric Muenter, entered Morgan's Long Island mansion and shot him twice. This was ostensibly to bring about an embargo on arms, and in protest of his profiteering from war. Morgan, however, quickly recovered from his wounds.[13]

Postwar

After World War I and the Versailles Treaty, Morgan Guaranty managed Germany's reparation payments. After the war, Morgan made several trips to Europe to investigate and report on financial conditions there. In 1919 he was for a time chairman of the international committee, composed of American, British and French bankers, for the protection of the holders of Mexican securities. In November 1919, he was made a director of the Foreign Finance Corporation, which was organized to engage in the investment of funds chiefly in foreign enterprises. By the 1920s, Morgan Guaranty had become one of the world's most important banking institutions, as a leading lender to Germany and Europe.[10][14] During the Great Depression he took heavy financial losses. The assets of the House of Morgan fell 40% from $704 million to $425 million.[15] American banking came under heavy attack.[16] Morgan personified banking, and drew attacks from politicians, especially in the U.S. Senate's Pecora hearings of 1932, which "created a tidal wave of anger against Wall Street".[17][18]

He was a director in numerous corporations, including the U.S. Steel Corp., the Pullman Co., the Aetna Insurance Co., and the Northern Pacific Railway Co.[10]

He died on March 13, 1943 in Boca Grande, Florida and was interred in Cedar Hill Cemetery in Hartford, Connecticut.[19]

Morgan family memorial in Cedar Hill Cemetery

Personal life

Jack's brownstone, now part of the Morgan Library

In 1890, Morgan married Jane Norton Grew (1868–1925), daughter of Boston banker and mill owner Henry Sturgis Grew. She was the aunt of Henry Grew Crosby. The couple raised four children:

Junius Spencer Morgan III (1892–1960), who married Louise Converse (1895–1974), daughter of Frederick Shepherd Converse, in 1915.[20]

Jane Norton Morgan Nichols (1893–1981), who married George Nichols (1878–1950).[21]

Frances Tracy Pennoyer (1897–1989),[22] who married Paul Geddes Pennoyer (1890–1970), a lawyer, in 1917.[23]

Henry Sturgis Morgan (1900–1982), a founding partner of Morgan Stanley who married Catherine Lovering Adams (1902–1988), daughter of Charles Francis Adams III, descendants of the 2nd U.S. President, John Adams.

Alice Morgan, who died at a young age of typhoid fever.

Philanthropy

In 1920, Morgan gave his London residence, 14 Princes Gate (near Imperial College London), to the U.S. government for use as its embassy.

In 1924, Morgan created the Pierpont Morgan Library as a public institution as a memorial to his father. Belle da Costa Greene, Morgan's personal librarian, became the first director and continued the aggressive acquisition and expansion of the collections of illuminated manuscripts, authors' original manuscripts, incunabula, prints, and drawings, early printed Bibles, and many examples of fine bookbinding. Today the library is a complex of buildings which serve as a museum and scholarly research center.

Morgan donated many valuable works to the Metropolitan Museum of Art.[24]

Social

A yachtsman, like his father, Morgan served as commodore of the New York Yacht Club from 1919 to 1921. In 1930, he built the turbo electric driven yacht Corsair IV at Bath Iron Works in Maine. Corsair IV, launched April 10, 1930, was one of the most opulent yachts of its day and the largest built in the United States with an overall length of 343 feet (104.5 m), 42 feet (12.8 m) beam and 2,142 GRT.[25][26] Legend at the shipyard credits the phrase "If you have to ask, you can't afford it" to Morgan, when asked what the yacht cost. However, this quote is most often attributed to his father in connection with the yacht Corsair, launched in 1891. Morgan sold the Corsair IV to the British Admiralty in 1940 for one dollar to assist with Britain's war effort.[27] After the war the Corsair IV was sold to Pacific Cruise Lines and, on September 29, 1947, began service as a luxury cruise ship operating between Long Beach, California and Acapulco, Mexico. On November 12, 1949 the yacht struck a rock near the beach in Acapulco and, although all passengers and crew were rescued, was deemed a total loss.[28]

Morgan was a member of the Jekyll Island Club (aka The Millionaires Club) on Jekyll Island, Georgia, as had been his father J. P. Morgan Sr.

J.P. Morgan and His Money Trust 5 Sat, Aug 12, 1995 would spend most of the 1920’s trying to commit American public and private capital to the support of Europe’s post-World War I recovery. Perhaps the most intelligent was George Perkins, who had come to J.P. Morgan & Co. after being a mastermind behind the creation of the mass American life insurance industry, who served as Morgan’s right hand in the Panic of 1907, and who would become Theodore Roosevelt’s campaign manager. Morgan and his partners examined and hand-wrote documents behind desks in large open rooms, and attending countless meetings of boards of directors and with prospective executives, investors, and owners. Matthew Josephson says that all the partners “were rewarded with liberal shares in profits, toiled madly, and died young.…By 1900…the first generation of them were all dead” except for Morgan himself. They worked hard because they were so few of them. The Morgan partnership itself consisted at any one time of perhaps a baker’s dozen of partners, with at most three clerks per partner—all J.P. Morgan and His Money Trust 6 Sat, Aug 12, 1995 Morgan was also an American aristocrat. Pierpont’s father Junius Spencer Morgan had been the leading banker channeling British savings into American railroads in the third quarter of the twentieth century. Morgan himself was used to good living, large yachts, and three-month tours of Europe: “I can do a year’s work in nine months,” he would say, “but not in twelve.” He spent more than fifty million turn-of-the-century dollars buying art and antiquities, and served as president of New York’s Metropolitan Museum during its years of most rapid expansion. II. The Money Trust In the minds of Progressives like Louis Brandeis, the Morgan partnership was evil if only because its interests were large. Brandeis saw American development as depending on “…the freedom of the individual. The only way we are going to work out our problems in this country is to have the individual…free to work and to trade without the fear of some gigantic power threatening to engulf him every moment.” Thus the Morgan partnership’s effective size alone made it “dangerous, highly dangerous.” The biggest danger seen by the Progressives was that the Morgan partnership was the source of multiple severe conflicts of interest. First National Bank head George F. Baker was one of Morgan’s best friends—was in fact asked by Morgan to serve as referee and deciding voice in arguments among his partners after his death. He was also on the board of A.T.&T., and he was the prime mover behind A.T.&T.’s appointment of Theodore Vail as its president. Vail thought that A.T.&T. should sacrifice present profits for future market share by cutting prices and attempting to become the nationwide telephone company. When Morgan partners recommended the purchase of A.T.&T. bonds and stocks, were they doing so because they thought A.T.&T. was a good investment or because of Baker’s friendship with Morgan? Morgan partner George W. Perkins was also a director of New York Life, which invested heavily in securities underwritten by the Morgan partnership. Corporations sought to get as much for their securities as possible, and the Morgan partnership worked for them. Life insurance J.P. Morgan and His Money Trust 7 Sat, Aug 12, 1995 companies sought to obtain high returns on their investments for the sake of policy holders. Would Perkins act so as to advance the interests of the corporations, his clients in his role as Morgan partner, or of New York Life’s policyholders—or would he sacrifice the interests of both in order to increase the spread the Morgan partnership received as a middleman. Perkins claimed that he could determine whether a deal had come to him in his capacity as Vice President of New York Life or as partner of J.P. Morgan & Co., and bargain accordingly. Others disagreed, including National City Bank president Frank Vanderlip. Vanderlip wrote that “there were times... when [acting as a board member of the Union Pacific Railroad] I opposed underwriting fees because I felt they were too high.…I believed my obligation of trusteeship ran to the stockholders, and not to [railroad President E.H.] Harriman.” Vanderlip’s fellow directors then “…pointed out to me, in a hurt tone, that the City Bank [of which Vanderlip was then president] was sharing in those underwriting profits that I thought were too fat....” Progressives called for the elimination of all such conflicts of interest, for they saw the Money Trust’s control over new issues of securities, its occupation of places on corporate boards of directors, and its high profits as the three corners of a self-reinforcing iron triangle of conflicts of interest. High profits voted by Money Trust-dominated boards of directors generated funds necessary to reward those who cooperated with present deals. Fear of the power of the Money Trust to deprive active competitors of profits from future deals restrained competition. And the absence of competition gave firms no choice but to accept Money Trust domination of their boards. “Morganization” could mean the jacking-up of prices far above costs to create large monopoly profits. Morgan was eager to create U.S. Steel in order to keep Carnegie Steel from competing too fiercely with his previous creation, Federal Steel. Even in cases where no formal merger was contemplated, common directors and cross-ownership of shares created a “community of interest.” First National Bank Chairman George F. Baker sat on the boards of six railroads that together owned 90 percent and carried 80 percent of Pennsylvania anthracite. Morgan partner Thomas Lamont sat on the board of General Electric and Morgan partner J.P. Morgan and His Money Trust 8 Sat, Aug 12, 1995 Charles Steele sat on the board of Westinghouse. How cutthroat was competition likely to be under such circumstances? The Progressive position was that all possible conflicts of interest should be eliminated. In Brandeis’ words: …interlocking directorates…must be…prohibited.…The prohibition will no be an innovation. It will merely give full sanction to the fundamental law…that “No man can serve two masters.”…[N]o ruel of law has been…more rigorously applied than that which prohibits a trustee from occupying inconsistent positions.…And a director of a corporation is as obviously a trustee as persons…called specifically by that name. In retrospect, it is surprising that “finance capitalism” in America lasted so long, given the heat of the political hostility to it. The money trust was subject to two major congressional investigations, the first in 1912-1913 by a special House committee chaired by Arsené Pujo and counseled by Samuel Untermyer, the second in 1932-1933 by the Senate Banking Committee counseled by Ferdinand Pecora. Progressive concern over this concentration of the business of finance in the hands of a few investment banks led by the Morgan partnership dominated public policy debates over the securities industry for the first third of this century. In the reaction after World War I, the Morgan partnership was accused of working hand-in-glove with the “merchants of death,” and of having dragged the United States into the war in order to protect its own investments in British bonds. The debate over the Money Trust was resolved only by the Great Depression. The presumed link between the stock market crash and the Depression left the securities industry without political defenders, and so the old guard of Progressives won during the 1930’s what they had not been able to win in the three earlier decades. Ironically, it was Herbert Hoover who triggered the congressional investigations that were to remove Morgan’s influence. Hoover thought that Wall Street was prolonging the Depression and refusing to take steps to restore prosperity—and he tried to use the threat of investigations to persuade New York financiers to turn the corner around which he was sure J.P. Morgan and His Money Trust 9 Sat, Aug 12, 1995 prosperity waited. In fact the links between Morgan and the Depression were indirect and inconsequential. Morgan was only one of many who believed in the gold standard as a necessary instrument for sound finance—without the gold standard, inflation would rob the bonds that Morgan sold of their value. But during the Depression abandonment of the gold standard and rapid inflation was the one best thing the government could have done to restore employment and production. As Franklin D. Roosevelt put it, “the money changers have been cast down from their high place in the temple of our civilization.” The Depression’s Glass-Steagall act broke the links between board membership, investment banking, and commercial banking-based management of asset portfolios that had marked American finance before 1930. Glass-Steagall said that investment bankers could no longer be commercial bankers: thus depositors’ money could not be directly used to support the prices of newly-issued securities. Glass-Steagall said that directorates could not be interlocked: that bankers could not be on the boards of directors of firms that were their clients. Glass-Steagall said that investors—those with money of their own or those who were fiduciaries for clients or policyholders—had to be separate from the bankers who issued and priced securities, who had to be separate from the executives who hired the bankers. The links that the Morgan partnership had used to gather information, raise capital, and exercise influence were thus broken. Since World War II the pieces into which Morgan’s empire were divided have continued their business as commercial and investment bankers. They have earned high commissions. But their profits have been an order of magnitude lower and their influence over American industrial development nonexistent compared to what would have been had the pre-Depression order continued. Finance historians have often argued that there never was a “Money Trust” and that Progressive fears were highly exaggerated—examples of the “paranoid style” in American politics. For example Vincent Carosso, whose knowledge of the history and workings of the Morgan partnership is unequalled, does not believe that investment bankers had lockholds on their traditional clients. Carosso argues that financiers did not dominate industrial firms: J.P. Morgan and His Money Trust 10 Sat, Aug 12, 1995 investment bankers did not “purposely act together; and even if they had, they would have been unable to impose their will upon the other directors... always more numerous than the representatives of Wall Street.” Carosso concludes that Progressive investigators like Untermyer were unable to demonstrate “the existence of a money trust...even in the sense...[he] defined it” not as an active conspiracy but as a “close... understanding among the men who dominate the financial destinies of our country and who wield fabulous power.. ” Citibank’s official history sees “aspiring politician” Progressives like Untermyer, at least, as guilty of bad faith in his investigation. For “aspiring politicians” like Samuel Untermyer an opportunity to throw mud at plutocrats “…was a godsend.”3 But Untermyer, “not knowing... such an opportunity would come his way…had stated in November 1910…[that] ‘monopolies and substantial domination of industries… could be counted on the fingers of your hand’.” Moreover, in the same speech Untermyer had “attacked ‘political partisans who seek to make personal and Party capital out of a demagogic appeal to the unthinking’.”4 Neither the finance historian nor the Progressive perspective can be complete. From the Progressive perspective the Morgan partnership was little more than a very large financial 3 . Reading the transcripts of the hearings makes one more favorably disposed toward the finance historian view. It is easy to dislike Untermyer, and almost as eay to dislike Ferdinand Pecora, the counsel of the Great Depression’s Congressional investigation. Neither Untermyer nor Pecora had a worked out “theory of the case.” Untermyer bullies Chicago professor J. Laurence Laughlin for advocating banking system reforms close to those adopted in the founding of the Federal Reserve—and, worst of all, for having refused to accept money from bankers to fund his National Citizens’ League and thus having tried to hide his true orientation. In Untermyer’s hearings Morgan is first pilloried for having issued clearing house loan certificates during the panic of 1907 (thus illegally assuming the role of a central bank) and then pilloried for not having issued enough clearing house certificates. It is much easier to like and respect Brandeis, and to respect Morgan. 4 . It is also possible that Untermyer’s conversion to progressivism was partly driven by a desire for revenge against the Rockefeller interests. Untermyer had reportedly lost heavily in the dealings surrounding the formation of the Amalgamated Copper Company. Citibank’s then president, Frank Vanderlip, judged some ot the bank’s deals in which William Rockefeller appeared as “the means of some of the worst abuses that occurred in Wall Street.” The relationships between Untermyer, the Rockefeller interests, and Citibank are convoluted. See Thomas Lawson, Frenzied Finance (1906); Frank Vanderlip and Boyden Sparkes, From Farm Boy to Financier (1935); Thomas Huertas and Harold van. B. Cleveland, Citibank (1987). J.P. Morgan and His Money Trust 11 Sat, Aug 12, 1995 protection racket, and there is no reason why firm owner-managers outside of the Morgan influence would ever wish to enter it. Yet many firms did so willingly. Entrepreneurs like Henry Ford who strained every muscle to avoid any form of dependence on Wall Street capital were exceptions. On the other hand, historians of finance do not account for the Morgan partnership’s high profits. If the market was as competitive as they believe, then the Morgan firm’s profits should have been lower: if market discipline left the partnership little freedom of action it should have induced it to moderate its fees as well. If Morgan’s profits were monopoly profits paid by captive firms, why did firms that had the option of remaining outside of Morgan control willingly enter it? But if the investment banking industry was competitive, why were Morgan’s profits so high? III. The Money Trust’s Perspective on Itself More to the point, Morgan’s supporters at the time also rejected the finance historian perspective. For example John Moody, the founder of Moody’s Investor Services, argued that there was a functioning money trust and that it was a good thing: supervision of firms by financiers was a necessity given the need of investors for trustworthy intermediaries and advisors. Moody thought that scattered individual shareholders could not monitor or evaluate the performance of firm managers. Only investment bankers could effectively do so. The presence of investment bankers on boards signalled to ultimate investors that firm management was honest and industrious. Some executives did seek to make money not for but off of their shareholders by manipulating stock prices. Richmond Terminal executive W.P. Clyde was alleged to have told Morgan in a private metting that “I’ve bought Richmond Terminal at 7 or 8 and sold it at 15 twice in the last few years. I see no reason why I shouldn’t do it again.” Morgan had little patience with such, telling one executive who did not know his place: “Your railroad? Your railroad belongs to my clients…” They attempted to remain outside of Morgan’s influence. J.P. Morgan and His Money Trust 12 Sat, Aug 12, 1995 Clyde tried unsuccessfully to block the inclusion of the Richmond Terminal in the Morgan empire. John Moody’s positive view of the money trust was not his own invention. His view was a commonplace in the early literature on investment banking: investment banks exercised control and influence over firms because knowing that the investment banks were doing so put investors’ minds at ease. Firms welcomed investment bank oversight because it made it possible for them to tap investors’ savings for expansion. As New York, New Haven, and Hartford Railroad president Charles Mellen said, “I wear the Morgan collar, but I am proud of it.” The Morgan partnership’s explicit argument, as laid out in an extended private conversation between Thomas Lamont and Louis Brandeis and in a pamphlet written primarily by Morgan partner Henry Davison in response to Untermyer’s Progressive attacks, followed the same line. Lamont argued that investment bankers found the business of serving on boards of directors an extraordinary burden, and would willingly lay it down if they felt that they could. “As you realize,” he said: we have…drifted onto these various…boards because we had first undertaken to place a large block of the corporation’s securities with our [investor] clients, and we felt a sense of responsibility to those clients which we fulfilled by keeping an eye on the corporation in which they had invested. We have felt that this was a strong factor in enabling us to market these securities, and while the responsibility was a very onerous one, nevertheless, we shouldered it. Don’t you think there is quite a little in that point?5 Davison similarly argued that the reason the partnership had apparent control over what was done with investors’ funds was because: “thousands of investors... seeking…securities...have neither the knowledge nor the opportunity for investigating a great... enterprise.” Lacking information, they “look to a banking house to perform those functions and to give its stamp of approval.” Morgan’s approval had become “...a large factor which inspires confidence 5 . Brandeis agreed that investment bankers performed an important service by providing ultimate investors with information, but saw no reason that they needed to exercise control. J.P. Morgan and His Money Trust 13 Sat, Aug 12, 1995 in the investor and leads him to purchase....” Moreover, Davison argued that in the long run the Morgan partnership’s influence over investors’ choice of securities was not genuine but only apparent. If the firm lost its reputation for “character”—placed investors in securities that were profitable to it but offered poor returns—or another firm acquired a reputation as a superior judge of risk, then Morgan influence would quickly disappear: The public, that is the depositors, are the ones who entrust bankers with such influence and power as they today have in every civilized land.... The only genuine power which an individual... can gain is that arising from the confidence reposed in him... by the community....only so long as [bankers’] records are unblemished do they retain such trusts.…The past is full of examples where the slightest suspicion as to the conservatism, or the method’s of a bank’s management, has destroyed confidence and drawn away its deposits overnight… Moreover, the concentration of the business into the hands of a few firms may well have been a benefit. The wealth and dominant position of the Morgan partnership depended on its reputation for “character,” and thus the firm’s “character” was its most important asset. As a result, the Morgan partnership was not tempted—and investors could determine that it was not tempted—to sacrifice its reputation for the sake of the profits of a single large deal. By contrast a firm with a small market share might well decide to sacrifice future reputation for present profits, and so take the money and run. For example, Standard Oil magnates H.H. Rogers and John D. Rockefeller’s financier brother William entered the corporate promotion business with the Amalgamated Copper Corporation. Rogers and William Rockefeller capitalized Amalgamated Copper at $75,000,000, traded on their reputations as the financial wizards behind the growth of Standard Oil, and sold about half of the company off to other investors at approximately par value. It then developed that the only assets of Amalgamated were copper companies that Rockefeller and Rogers had purchased for $40,000,000 immediately before. When the dust cleared, the original copper entrepreneur Marcus Daly had his $40,000,000, Rogers and Rockefeller held half of Amalgamated—worth $20,000,000 in fundamental value—and outside investors had put up J.P. Morgan and His Money Trust 14 Sat, Aug 12, 1995 $40,000,000 but had acquired in return only the other half of Amalgamated. Rogers and Rockefeller’s reputations as investment bankers and corporate promoters were shot, but to them this was only a small cost because they had never been in the investment banking business in the first place. The losers were investors who had bet that Rogers and Rockefeller’s financial expertise would work in and not against their interest. This was a risk that they had taken by dealing with the individual promoters rather than with an established institution like the Morgan partnership that cared about its reputation. The stress on the importance of the Morgan partnership’s reputation provides an answer to the question of what the competitive edge that allowed them to reap high profits and also attract clients voluntarily. High profit rates could coexist with ease of entry into investment banking because there was no rapid way for new firms to acquire that “reputation” that was the Morgan partnership’s chief institutional asset: firms and investors came to Morgan because they knew that it had been an honest broker in the past and has too much at stake to risk not being an honest broker in the present. It is ironic to find firm defenders of private privilege and property like Moody and Davison wound up advocating a system for the assessment and allocation of investment that might be termed “socialist.” The Morgan partnership has approximately a dozen partners and forty-five employees. They approve and veto proposed top managers for individual firms. They decide which firms’ securities they will underwrite, and thus implicitly which lines of business should receive additional capital and so expand. The net effect appears similar to what would be done by a centralized investment planning directorate. The major differences are three: the judgment of Morgan and his partners are substituted for that of the bureaucracy in deciding which investment projects are to be undertaken; Morgan and his partners are much more highly paid than bureaucrats; and the Morgan partnership feels itself under severe pressure to run an efficient operation and make investment decisions that will profit investors—for in the long run it faces competition for its privileged place from Kuhn, Loeb; from National City Bank; and from others. J.P. Morgan and His Money Trust 15 Sat, Aug 12, 1995 IV. The Value of Morgan Control Was there any truth to the Morgan partnership’s self-justification? Was it more than just another plausible but specious argument thrown up to protect power and privilege against democratic reform? Figure 1 suggests that there was considerable truth in the Morgan partnership’s self-justification, and that there was a clear sense in which Morgan domination and influence made corporations more profitable and investors richer than they would have been otherwise. The horizontal axis plots, on a logarithmic scale so that equal distances reflect equal proportional changes, the ratio of earnings to book values for large American corporations in the years around 1910. “Book value” is an accounting concept that roughly captures how much it would cost to duplicate the machines, buildings, liquid assets, and intellectual property held by the firm. The ratio of earnings to book value is an index of how efficient the corporation is considered as a profit-making engine: how much profits are made for each dollar’s worth of capital at work in the firm. The vertical axis plots, also on a logarithmic scale, the ratio of stock market value to book value. The vertical scale tells whether investors on the stock market believe that the corporation has bright prospect