BANKING: End and Beginning

J. P. Morgan stepped into No. 23 Wall Street, the building known on every bourse in the world as “The Corner,” on Feb. 23-Driving in from his great Matinicock estate at Glen Cove, Long Island, he came into the bank as usual at about 10:30 a.m. That evening he was on a Florida special, southbound for a rest. Early on the morning of the 25th he suffered a slight heart attack, walked from the train to a cottage of the Gasparilla Inn at Bocagrande, a tiny hamlet on a Florida key.

To his bedside went Dr. Henry Stewart Patterson, a first-rate New York heart specialist; Morgan’s two daughters, Mrs. Paul G. Pennoyer and Mrs. George Nichols; his younger son, Lieut. Commander Henry Sturgis Morgan, 42. His elder son, Junius Spencer Morgan, 51, was out of the country on active naval duty, as he had been in 1917-18. Seventy-five-year-old John Pierpont Morgan died at 3:15 in the morning of March 13.

Had J. P. Morgan died in 1936 with the Nye investigation ringing throughout the land, he might have been written off as the international banker who got the U.S. into. World War I. But with U.S. industry, which Morgan & Co. had helped build to greatness, contributing on an unparalleled scale to another war, with Lend-Lease giving to Britain more aid than the bankers 29 years ago dreamed possible, his place in history had changed.

This week J. P. Morgan was buried at Middle Village, Queens, New York. With him the U.S. laid away not so much an era as a great misinterpretation of an era.

No Buccaneer. The U.S., for two decades, had largely believed in a fairy story, of Marxist origin—the legend that international bankers sucked the nation into a war which was none of its business, that U.S. participation in that war had been a mistake, which must never be repeated. The work of the Nye committee, the defaulted war debts, the failure of the League of Nations, the legend of the “Merchants of Death” all made for disillusionment, and out of that came the national attitude of cynicism toward the world, expressed as isolationism.

A great part of that legend was associated with the position of the House of Morgan. The legend began with the elder Morgan, John Pierpont (Maximus), a Hartford boy who went down to New York to do battle with Fisk and Gould, to trade with Vanderbilt for the control of U.S. railroads, to integrate U.S. industry through the power of finance.

The J. P. Morgan who died last week was not of that breed. A tycoon by inheritance, he was not a buccaneer by nature. Born in 1867 at Irvington-on-Hudson, at the beginning of his father’s career, “Jack” Morgan was brought up in a genteel tradition, educated at St. Paul’s School and Harvard, served a turn in his father’s expanding firm, in 1898 departed for London.

Eight years in London had a profound effect on the younger Morgan. They made him a conservative banker, interested in doing a safe deposit and security business. And they gave him an undying loyalty to England.

Morgan Lend-Lease. That loyalty served the U.S. well. In 1913 Morgan the elder died in Rome, and Jack Morgan took over. There was never any question where the Morgan sympathies lay. Testifying long afterwards before a Government committee, Mr. Morgan said: “We find it quite impossible to be impartial as between right and wrong.”

In 1914 the isolationist opposition ran strong. The House of Morgan offered to float a French loan in 1914—Secretary of State William Jennings Bryan turned the idea down cold. By 1915, as the gold stocks of the Allies ran low, the Administration changed heart: Robert Lansing replaced Bryan, and the Morgan firm floated a $500,000,000 loan for both France and Britain, an act roughly corresponding to the first Lend-Lease aid in this war.

The House of Morgan also acted as purchasing agents for the British and the French—a function fulfilled in this war by the Anglo-French Purchasing Board. When the U.S. entered the war in 1917, purchasing was turned over to the U.S. Government, which also took responsibility for further loans to the Allies. Up to 1917, Morgan’s played the same role the Roosevelt administration did in 1939-41, in helping the Allies “short of war.”

The ’20s. On the strength of its war record the firm of Morgan bestrode the postwar world. Between Jan. 1, 1920 and Dec. 15, 1931, the firm floated 39 separate issues for Argentina, Australia, Belgium, Canada and other countries, totaling $1.8 billions, on which the firm made a net of about $9.5 millions. In addition it arranged $68,000,000 of loans for foreign corporations. Yet even at the very pit of the depression these loans stood up with remarkable strength. By 1933 40% of them had been redeemed or retired, 33% of them were selling above the offering price, and none was in default.

Domestically the record of the firm was also strong: few of its railroad, public utility or industrial bonds ever defaulted. The heart of the great prosperity of the ’20s, in which the national income pushed up from $66 billions in 1919 to $83 billions in 1929, was based on a strong private capital market in which the Morgan firm led. But in the end The Corner was sucked into dabbling in the stocks of holding companies such as Standard Brands, United Corp. and the hapless Alleghany Corp. Though the Federal Reserve authorities were to blame in not clamping down on the excesses of 1929, the Morgan outfit, as the most responsible house on the Street, also had to take the rap.

Into the New Deal. When the crash came, Morgan joined with other bankers to stem the tide. A $240,000,000 pool was formed to bolster the market—a gesture which failed. “There is no man nor group of men,” said the top-ranking Morgan partner, realistic Thomas W. Lament, “who can buy all the stocks that the American public can sell.” The market crashed on down. In 1933 came the New Deal, and with it the campaign against “princes of privilege” and “economic royalists.”

The Pecora banking investigation was a series of field days. When someone used the word “circus,” a pressagent had an idea that made photographic history—planting a midget on dignified Banker Morgan’s lap, while flash bulbs flared. From their three floors in the Carlton Hotel, the Morgan partners were brought again & again to the committee room. Up came the charge of the “preferred list” —which Morgan held to be an honest practice but which he certainly regretted having tolerated. There was the charge that the partners failed to pay income taxes in 1930, 1931 and 1932—a charge which Morgan countered with the fact that in those years the partnership had suffered large losses, directly deductible from personal income. “The fault,” growled Virginia’s Senator Carter Glass, “is with the law.”

Finally, there was the charge that the firm exerted too much influence through its directorships in 167 companies. Said Mr. Morgan: “I cannot remember any partner of the house taking a directorship except at the earnest request of the board of directors of the company in question. … If friends in whom we have confidence ask us to serve them, we are bound to give them the best advice we can.”

Like his father at the 1912 Pujo investigation, Morgan stressed always that if the private banker had power, it was because of his reputation for integrity. But the Pecora investigation spelled the end of the Morgan power in the old sense. Came the Banking Act of 1933, splitting apart the business of deposit and investment banking. Result: Morgan’s son Harry and two other partners formed the separate investment firm of Morgan, Stanley & Co., Inc. Son Junius Morgan stuck with the bank, which now became merely the 18th largest bank of deposit in the U.S. By 1940 the firm’s net worth, which had stood at $118,600,000 in 1929, was down to $39,156,000. At that point Morgan took a final step. The partnership of J. P. Morgan & Co. was dissolved in the formation of a stock corporation, J. P. Morgan & Co., Inc. The era of “personal” banking, and with it the great Morgan tradition, was over.

New World. For J. P. Morgan himself the incorporation may have been something of a relief. After a heart attack in 1936 he spent more time in his gardens at Glen Cove and the magnificent 400-acre estate, Wall Hall in Hertfordshire, England. He read and played backgammon of an evening, surrounded by the collections which he had inherited and expanded. There were the grouse-shooting trips to Scotland (once Morgan said that the only thing as lovely as grouse shooting was duck shooting), Mediterranean cruises and other absences. The firm of Morgan has never been a one-man show. Jack Morgan’s greatest inheritance was the tradition which his father had built up of getting able men into the firm who would be able to carry on under their own steam. By the ‘303, Thomas W. Lamont (now 72), along with such men as Russell Leffingwell and George Whitney, carried the main burden.

When Morgan died he was by no means the richest man in the U.S. His estate is certainly well under $50,000,000, of which perhaps $5,000,000 represents his share in the firm. Whether his sons will come back into banking at war’s end remains to be seen. But certainly they will come back to a new world. The war may not restore the glories of J. P. Morgan & Co., but to a peculiar degree it has re-established certain principles for which the firm was famous. Its international position — that, whatever came, the U.S. and Britain must stick together — has already been justified. And the Morgan philosophy of domestic expansion is in better estate than two years ago.

What the ‘305 proved was that the U.S. must have strong government, that government is a “career” in itself (as it has always been in England) and cannot be managed by businessmen with their left hands. In this sense the economy will perhaps never again be dominated by private organizations such as the House of Morgan, and never should be.

But the notion is on the way out that Washington by itself can rehabilitate the postwar world. The Export-Import Bank is no substitute for fruitful private loans in South America; Government spending is no substitute for a strong, healthy private capital market. In this sense the death of J. P. Morgan marked not so much an end as a return and beginning.

In 1933 Morgan and his partner, Russell Leffingwell, submitted a valedictory to the Pecora Committee. It said: “Looking back it is easy to see the errors that were made. It is easy to see that our super-prosperity from 1914 to 1929 grew out of the war itself, and out of the maladjustments which the war left behind it. Yet while we were living through the period it seemed that with effort, forethought and courage we were going to be able to build a better world; that our Federal Reserve System created in 1914 had put an end to the banking panics which had periodically arrested every previous era of prosperity in modern history; that, possessed of a great continent with all the climates and all the natural resources, inhabited by an adventurous and hardy and industrious people; with the extraordinary development of communications, of telephone and telegraph and radio, of motor cars and of roads, electrical power, and all the manifold extensions of human activity; we had indeed entered upon a new phase in the life of the American people.”

No postwar planner can settle for a lesser vision.