A hundred years ago, the most famous banker in America testified before Congress in one of his last public appearances. His name (hint: you’ve seen it in recent headlines) was John Pierpont Morgan, the redoubtable founding father of today’s JPMorgan Chase. At the time, Morgan was without peer in American banking, simultaneously the old man and the great innovator of American finance. The list of corporations he organized was legendary: U.S. Steel, International Harvester, General Electric. So was his personal power. From the dawn of the Gilded Age, he reigned as “the boss of bosses,” in the words of muckraker Lincoln Steffens, a mystical figurehead and ruthless businessman wrapped up in a single top-hatted, pot-bellied package.
It was in his capacity as the great “boss” of American finance capitalism that an elderly Morgan appeared before Congress in December 1912 to answer for Wall Street’s alleged sins. Five years earlier, he had helped to stave off national economic collapse when stock market manipulation yielded a near-catastrophic Wall Street bank run. Despite his success, the Panic of 1907 had inspired outrage across the nation. How was it possible that one man had the power to save or destroy the American economy? And why could the federal government, by contrast, do nothing? To many Americans, Morgan’s machinations seemed to prove that a shadowy “money trust” controlled the national economy. The congressional hearings, led by Louisiana Democrat Arsène Pujo, aimed to expose the secrets of the money trust once and for all.
Morgan arrived in Washington in regal fashion, surrounded by a phalanx of lawyers, subordinates, and supportive heirs. Under questioning, he was blunt and impatient, offering a show of congressional truculence later matched only by communists and tobacco executives. His answers often consisted of two outraged words: “No, sir.” When he spoke at greater length, he sought primarily to justify the Wall Street status quo. Morgan portrayed himself as a besieged aristocrat, misunderstood by the masses despite his efforts to do good. Rather than a master of the universe, he claimed to be a servant to duty and to the iron laws of economics.
Morgan’s defiant performance increased his heroic status on Wall Street; congratulations poured in from bankers and brokers. Outside those confines, though, his arrogance helped to seal the case for financial reform. Building off the Pujo hearings, future Supreme Court Justice Louis Brandeis set out to write his influential Other People’s Money, a vicious (if rather tedious) indictment of the “interlocking directorates” that allowed Morgan and other banks to exercise undue economic influence. Based partly on Pujo evidence as well, in 1913 the Wilson administration pushed through plans for a new central bank known as the Federal Reserve. Historians and economists have argued ever since about whether the creation of the Fed ultimately increased or decreased Wall Street’s power. But there can be no question about its political meaning at the time. In 1913, nearly all Americans saw the Fed as a major government triumph against the likes of J.P. Morgan, and the beginning of the end of the money-trust era.
Today’s debates over the Volcker Rule, Dodd-Frank, and the mistakes of JPMorgan Chase are more modest in scope—tinkering within a well-established institutional framework. Despite such differences of substance, their style owes much to the epic showdowns of the early 20th century. What was at stake in the Pujo hearings was not so much good or bad economics, free enterprise or government control. At issue was the uncomfortable democratic problem of who deserved to rule, and how much the public deserved to know. Could a man like Morgan be trusted to act in the country’s best interests? If not, would politicians, government bankers, and regulators do a better job? As JPMorgan CEO Jamie Dimon prepares to testify before the Senate Banking Committee later this summer, such questions are once again on the table.
Morgan himself was utterly contemptuous of public opinion and government policy, and he made no secret of his views. He saw banking as a specialist’s world, best conducted in secret among a handful of trusted men. As biographer Ron Chernow brilliantly described in The House of Morgan, the entire Morgan firm lived according to a “Gentleman Banker’s Code,” which frowned upon branch offices, company names on the door, and the open solicitation of business. “A man I do not trust,” Morgan explained at Pujo, “could not get money from me on all the bonds in Christendom.”
This was hardly a free-market vision of the world, filled with scrappy entrepreneurs and courageous risk-takers. It’s a common misconception that the great tycoons of the Gilded Age were champions of laissez-faire, eager to liberate the competitive impulses of American finance and industry. To the contrary, they spent much of their time figuring out ways around competition—forming trusts, fixing prices, begging for tariff protection, manipulating stock, and rigging corporate boards. The greatest political battles of the era focused on precisely this problem, with industrialists and financiers pushing for concentration while government officials gestured—sometimes feebly, sometimes not—toward trust-busting and small-business competition.
Morgan was both the figurehead and architect of the anti-competitive strategy. His technique—known as “Morganization”—was relatively simple. Using his bank’s resources, he bought up smaller firms throughout a given industry, smashed them together, and produced a behemoth of a modern corporation, with Morgan men duly seated on the board. The goal, in part, was greater efficiency. But Morgan also explicitly criticized industrial competition as a destructive force that condemned the American economy to its Gilded Age cycle of boom and bust.
Morgan preferred to do his haggling in private, through quiet meetings at his midtown library or aboard his yacht the Corsair. Sometimes, though, the public got a glimpse of his visible hand shaping the political process. In 1896, Morgan pledged a quarter-million dollars to Republican presidential candidate William McKinley to defeat populist silver-money champion William Jennings Bryan—one of the first campaign-finance scandals in modern American history. A decade later, he strong-armed his fellow bankers into putting up funds to stop the 1907 panic, arguably his greatest act of civic beneficence. In both cases, he got what he wanted in the short term. But the sheer evidence of his ability to manipulate the system—and the potential for error along the way—fueled calls for greater transparency and reform.
Morgan died in 1913, a few months after his Pujo appearance, convinced that the nation had turned against him despite his many good deeds. Today, a similar refrain appears once again to be making its way through Morgan banking circles. Since 2008, JPMorgan Chase has been widely regarded as one of the “good banks,” cautious and farseeing in ways that would have made its founder proud. Partly for that reason, CEO Jamie Dimon emerged as one of Wall Street’s point men on the fight against regulation, the sort of banker who could be trusted to do things right without government intervention.
Now Dimon is being held up as proof that even the best bankers need oversight and transparency—the very sentiment that Morgan lamented in the months before his death. “The time is coming when all business will have to be done with glass pockets,” he complained a century ago, foreseeing an end to the secretive banking world in which he had made his career. Perhaps he would have taken heart in the knowledge that such a time has not yet come to pass.