Despite the fact that I have a stack of books resting on the stand by my bed ready to be read, when I saw a paperback copy of The House of Morgan: An American Banking Dynasty and the Rise of Modern Finance with a deeply broken spine at the Lake Worth Library book sale I decided to pick it up and place it first in the queue. Weighing in at 848 page, this was no small diversion from previously scheduled reading. I was, however, richly rewarded for my decision. It wasn’t a total surprise, it did win the National Book Award in 1991.
How did it do this? The account successfully manages to illustrate the myriad complex legal changes made in the United States from the 1860s to the 1990s in a manner both informative and stylistically compelling. By describing the actions of Morgan personnel, their competitors, those that would seek to regulate them as well as those that want loans the contributions of Pierpont Morgan, Jack Morgan, Tom Lamont, and many others are placed into a context that allows the reader to see the effects that various flows and concentrations of capital had on the world’s political economic system.
The history of the Morgan Bank is periodized into three distinct periods: The Baronial Age, The Diplomatic Age and The Casino Age. The book explains the reasons for the changes that occurs – whether it be increasing public distrust of banks to self-regulate or the increasing capital powers of companies to raise their own capital – and also gives accounts of the most significant issues the leaders of the various financial service companies that spawned from the Morgan Bank following the passage of Glass-Steagall had to face.
In the Baronial Age – most associated with the aristocratic Rothschilds, bankers relied upon an individual’s character and social connections to determine creditworthiness and competition between banks was moderated by The Bankers Code. The Bankers Code was the set of value–judgments that inhibited bankers from poaching clients and getting involved in cutthroat competition so as to make any services provided not profitable. This was an age when most bankers relied upon their connections to aristocrats to do business and as such were highly cultured. England, then the Financial Capital of the World was where George Peabody first began his transformation from rich to wealthy. Peabody, a miser who financed many British and colonial merchant ventures, was the true “founder” of the Morgan Bank. Taking on a young Junius Morgan in the autumn years of his life, it is only after Peabody’s death that Junius is able to gain greater access to elite and rename the enterprise to J. S. Morgan and Co. An Anglophile to the core with blue-blooded heritage, Morgan is able to become the pre-eminent representative of the American financial market. As a representative of the British Bondholders for capital investments in the United States, Junius was constantly advocating for the financial duties of his clients to be fulfilled. Thus though American, he consistently fought for the interests of what were predominantly foreign investors. This was a logical extension of the Bankers Code, which sought to protect creditors’ investment and thus demonstrate integrity. As time went on and national conflict grew this came to be a ticklish task to accomplish without unduly promoting the interests of belligerent states in Europe. This internationalist position ostracized the Morgan Bank from the domestic political leaders of the time, the smaller domestic banks that lacked access to the British and European capital markets and was one of the reasons that much of the press at the time likened them to a foreign power placing undue duress on American working men. The domestic policies, practices and investments of the Morgan Bank, however, elicited much greater public brouhaha in the news of the day. It was typical for Morgan executives to sit on the board of multiple companies that they had loaned money to – a circumstance that lent themselves to being depicted as a financial cabal running the country. During the railroad price wars, for instance, the Morgan banks involvement in holding companies purchases to help create a monopoly line in the North-East and North-West lead to congressional investigations that went largely nowhere. Chernow here also documents how typical it was for the bankers of this era to be so hard working that many died both rich and young. The work culture that Banks imbued is so taxing that a number of associates and partners die prematurely. Also worth noting is the particularly fascinating scene were J. P. Morgan is able to “save” Wall Street nearly singlehandedly.
During the Diplomatic Age, which occurred following the cessation of the First World War and ended a decade after the second – many of these prerogatives, policies changed due to the new situation on the ground. The bank slightly eased its underwriting policies – previously they has only been willing to underwrite “sure-things” – and became, to an extent, an extension of American diplomatic policy in Latin American and Asia. Innuendos voiced by government officials transformed into guarantees on return. Given the rhetoric and history of U.S. involvement in these places, this is understandable. Conflicts between other banks, previously seemingly small, start to become more heightened. The animosity between the Jewish banks and the Anglophile, Anti-Semitic House of Morgan are a partial cause for a new set of hearings. It is also during this time that the bankers heightened service for his clients is tested. As various foreign powers, such as Italy and Japan, began bellicose campaigns in foreign nations under the aegis of self-defense and development Morgan partners defend those that will soon be enemy combatants. The sections on the creation of an Italian-American news group that re-frames Mussolini’s actions in an American context and that is apologetic about Japanese military action in Manchuria. The Diplomatic Age lasts a little bit longer than the end of the Second World War, though this time instead of directly writing loans to destroyed countries seeking to revivify their industries they play predominantly an advisory role. Not only had experience shown that this was a problematic situation for these banks to operate in but also by this time the American Federal Government has successfully bureaucratized and expanded enough that it no longer needed to rely upon private financiers.
By the time of the Casino Age, the Gentleman’s Banker’s Code is practically out the window. Competition created by the resurgence of the defeated WW2 powers and the increasing ability means that the banks need to offer greater incentives to maintain clients as now large industries are capable of raising funs themselves. As a wide variety of cultural productions such as Wall Street, The Wolf of Wall Street, American Psycho, etc. have shown – this is when a massive consolidation of American industry occurs. The shift from Gentlemen Bankers to hot-headed, rash, ultra-competitive bankers marks a total one-hundred and eighty degree shift in the manner in which business is done. Sectoral shifts in policy are often initiated by the House of Morgan – which by now is a number of enterprises that actively compete against each other.
In Chernow’s depiction of these three epochs there are so many biographical/business stories that makes the world of banking not merely come alive but seem much more interesting than it had before. I enjoyed reading about the work-culture of Wall Street as well as getting to understand the minds working behind the scenes. There were several people that I’d like to learn more about, but considering the name of the bank I’d like to focus some thoughts on Junius Morgan.
He is depicted in the book as practically possessed by the need to collect as much of the “great” European art as he can. A telling statement that Chernow discovered is the fear that art sellers had that when he died the prices for their products would drop by nearly half. While I understand his desire to collect all of the treasures of the past that he thought the most edifying onto American shores so that those less financially endowed as himself could have the opportunity to visit it, I can’t help but wonder what would have happened had he encouraged the most talented artists in both Europe and Asia to relocate as a condition of their patronage.
While it may seem that this era has little to do with the present it’s worth noting that while talking about a different book of Chernow’s – Titan: The Life of John D. Rockefeller, Sr. – Corey Robin posted a quote from this peer of the Morgan’s to Jodi Dean’s Facebook Profile. That commentators on the current state of political affairs continue to look at this period to contextualize the present indicates how a historical, material perspective is needed to understand the world rather than simply decrying an abstract “injustice”. It’s through understanding the people that lobbied and influenced government policies – as well as understanding how those policies function – that one can better understand both Wall Street and U.S. policies.
Much like Liquidated and To Serve God and Wal-Mart The House of Morgan: An American Banking Dynasty and the Rise of Modern Finance provides a history of Wall Street. I am grateful for Mr. Chernow’s contribution to my understanding of that world that is at the time of this writing so far away and yet having such a huge impact on both the USA and the rest of the world, especially at a time when J.P. Morgan associated banks are paying out more than 30 billion dollars for activities that many are calling criminal.