The Magnitude of J. P. Morgan

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Certainly Morgan was an enthusiastic and affectionate father. When his children were young, he would dress up as Santa Claus at Christmas, and his son remembered all his life a trip he took with his father to visit Thomas Edison at Menlo Park. (Morgan had invested three hundred thousand dollars in the Edison Electric Light Company even before Edison had perfected his great invention. Morgan’s house on Thirty-sixth Street was the first one in the world to be completely wired for electricity, and the Morgan family endured numerous sudden blackouts at the hands of the new and often erratic technology.)

In 1871 Dabney wanted to retire, and Morgan formed a new partnership with the Drexel firm of Philadelphia. The New York firm, known as Drexel, Morgan and Company, had its offices in the newly erected Drexel Building, at the corner of Wall and Broad streets. The offices of the Morgan bank have been there ever since, at the symbolic and actual center of American capitalism. With the new firm’s many connections with Philadelphia and with J. S. Morgan and Company in London, it was immediately profitable. Morgan’s share of those profits averaged close to half a million dollars a year, even in the depressed economy of the mid-seventies.

That same year he bought Cragston, an ample but unpretentious house on the west shore of the Hudson River. Nine years later he bought his house on Madison Avenue and Thirty-sixth Street. While the house was large and comfortable, it was nowhere near as grand as those being built by dozens of newly minted millionaires a mile uptown on Fifth Avenue. Although Morgan was used to the best of everything and insisted on both luxury and comfort, he had no interest in show for show’s sake. In an age when even modest middle-class households had two or three live-in servants, Morgan’s staff on Thirty-sixth Street was only twelve. (By way of contrast, the servants at the vast palace of Cornelius Vanderbilt II on Fifty-eighth Street numbered at least fifty-six.) In 1881 Morgan had the Corsair built for him, the first of three steam yachts by that name. The first was 165 feet long; the third, ordered in 1898, would be 302.

In 1879 Morgan made his first really big financial deal. William H. Vanderbilt owned no less than 87 percent of the New York Central Railroad and wanted to diversify his holdings. Morgan arranged to sell in England 150,000 shares of Central at $120 a share and managed to do it so quietly that there was no notice taken of it until the deal had been accomplished. Not only was the stock sale very successful, and profitable, but Morgan, holding the proxies of the new English shareholders, now sat on the Central’s board. He had become a power in the railroad business, and he intended to use this power to bring order out of the chaos that was American railroading.

The American railroad system had grown quickly and haphazardly over the previous fifty years. The larger trunk lines had mostly been assembled out of a myriad of small local roads and often had bizarrely complex corporate structures as a result. Railroads had been the first economic enterprises to be managed by people who did not own them, and there were few laws to compel railroad managers to act as fiduciaries for the stockholders. As a result the managers could, and all too frequently did, act as they pleased.

One of the more popular schemes was to build, or at least start to build, a line that would compete with an established railroad. The managers would often hire a construction firm that they owned and overcharge their own railroad while coercing the other into buying them out. The managers made a tidy profit whatever happened, and the shareholders of the two railroads were the losers. Morgan felt that these sorts of shenanigans were unspeakable.

By the mid-eighties, a time of great national prosperity, railroad profitability was rapidly declining as ferocious rate wars and overbuilding wracked the industry. Even the splendidly managed New York Central and the Pennsylvania Railroad were at each other’s throats, building competitive lines in each other’s territories. Morgan persuaded Vanderbilt to let him work out a peace settlement, and he invited the heads of the Pennsylvania and the Central to cruise the Hudson on Corsair. As the yacht sailed up and down the river, Morgan got the two railroad directors to thrash out an agreement ending the war between them.

 

Morgan’s prestige soared as a result of the deal, and much profitable business flowed to his firm as a result. Although he was a banker, not a railroader, Morgan was the most influential man in the railroad business in the last two decades of the century, doing much to rationalize corporate structures and routes. In those years he reorganized the Baltimore and Ohio, the Chesapeake and Ohio, the Erie, and many other major railroads.