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From financing the railroad industry to organizing the United States Steel, General Electric, while trying his hand in many other sectors, J.P. Morgan rose to become one of the most powerful bankers of all time. The fact that he worked very hard to dominate the industry makes The Life Story of J. Pierpont Morgan: a biography by Carl Hovey a handbook for go-getting individuals. Authored by Carl Hovey, the biography is an interesting read that gives an insight into one of history’s most prominent figures.
The Life Story of J. Pierpont Morgan narrates the life journey of a man already born with a golden spoon because the father was already an influential figure at his birth. But what is interesting is that he did not sit to be breastfed but went out of his way to out-do him. His father’s achievement rather served as a motivation for his success. Having grown up feeling inferior as though he will never match what his father achieved, J.P. Morgan puts up a fight to stand out.
Split into fifteen chapters and covering more than 350 pages, Carl Hovey’s choice of language is also a marvel. While most biographies written in the 1910s are often hard to follow through to the end, this one is incredibly easy to understand. He aims at truth and avoids caricature, maybe because he wrote the book while J.P Morgan was still alive.
J.P Morgan’s personal life
It can be quite tempting to start a biography on J.P. Morgan by jumping right away to his success in business. After all, he only rose to fame after taking over the banking sector even though he had excelled in many other industries. But it would be negligence and regrettable if his past was put aside. Carl Hovey did not fall into this trap. Rather, he took the time to go deeper and explore his past.
The first chapter is titled “Childhood and Youth.” On seeing this, one gets the impression that the author will dive right away into Morgan’s early life, like in most biographies. Rather, he chooses to first paint a clear picture of the American business environment, talking about how the United States has become a business nation, and how the strongest people in society are businessmen. The author notes that the businessman is not altruistic, a statesman, nor a philanthropist. After such a long introductory, Carl Hovey eventually brings in the young J.P. Morgan.
We get to see that John Pierpont Morgan was born on April 17, 1837, in Hartford, Connecticut, to Junius Spencer Morgan, a successful banker in London. Generally speaking, his family was well-doing, with one of his relatives, James Pierpont, being a founder of Yale University. His paternal father founded Aetna Insurance Company.
He attended high school in Boston and upon graduation in 1854, moved to Europe where he studied French and German. In 1857, he returned to New York City to start a career in financing at the banking house of Duncan, Sherman & Company. During the American Civil War, the American financier bought 5000 rifles at $3.50 each and resold to the field general at $22 each. He avoided taking part in the war by paying $300 to a substitute. This was a common practice at that time.
Of course, the book does not talk about the time Morgan died because it was published while he was still alive. His death happened on March 31, 1913, in Rome. To honor him, the New York Stock Exchange closed until noon in his honor.
The First Morgan Syndicate
The firm of Drexel, Morgan & Company was established in 1871, paving the way for the underwriting syndicate. As the author explains, this is a device that has the power to disrupt the operations of modern businesses. It was first developed by Jay Cooke, having received the idea from the French syndicates. Even though Morgan was not part of the first United States syndicate by Cooke, his actions convinced Cooke that he would have to involve the American financier on the next occasion.
An underwriter syndicate refers to a temporary group of broker-dealers and investment banks who jointly sell debt securities or equities to investors. There is a lead underwriter who forms and leads the underwriter syndicate. It is mostly formed when the issue at hand is quite big for just one firm to handle. It is then compensated by the underwriting spread, which is calculated by obtaining the difference between the amount received from investors and the price paid to the issuer.
The book gives a detailed description of the public’s first reception of this new financial instrument. Everybody was a bit skeptical. One political orator even likened it to devilfish, noting that it was “stony-hearted relic of inhumanity.” This perception would soon change with the involvement of popular names like J.P. Morgan Chase Bank. Carl Hovey explains that Mr. Morgan started his career in a syndicate operation, and this would lead him to gain control of the field.
To participate in a syndicate, you must be a firm large enough to assure the success of such a venture. The house entering into an underwriting scheme, puts together a contract that is to be signed by all participants. Most do not deny acceptance and signing given that doing so would result in self-defamation.
The Rescue of Vanderbilt
The name Vanderbilt evokes powerful memories in the minds of most Americans. We have a review of Cornelius Vanderbilt’s biography; you might want to check it out. Cornelius built a name for himself as a business magnate focusing on railroads and shipping. He became so influential that he earned the nickname “The Commodore.” Upon his death, his son William H. Vanderbilt took over the New York Central Railway Corporation, making him the richest American in 1877. This attracted the attention of the Legislature at Albany, which started imposing heavy taxation upon Mr. Vanderbilt and the New York Central Property. The heavy taxations were justified by the notion that the property was owned by one man.
Such moves frightened Vanderbilt and he began looking for ways to maneuver around the situation. The book shares a couple of first-person conversations that Vanderbilt had. That is when the name Morgan was suggested to him. Prior to this, the two had never had a one-on-one connection.
He invited J.P. Morgan over and immediately presented the difficult proposition. Vanderbilt told him of the impending bankruptcy that the New York Central faced. “Unless this disposition is checked, the consequences will be serious, and force the road to go into bankruptcy.” He asked Morgan how he would market a sizeable portion of his holdings.
The very first thing that Morgan noted was the potential that New York Central possessed. He saw that it had the power to expand its reach and make much more money. The two agreed on how Vanderbilt would part with most of his stocks in such a manner that would no longer make him the single major stakeholder. The transaction was so secret that even at the time of writing this biography; no one knew which investors purchased the stock.
If you thought that J.P. Morgan was all about rescuing private investors, this biography has a shocker for you. He stepped in a big manner to relieve the government in a way never seen before. He was instrumental in ending the panic of 1893.
In a separate chapter in the book, the author provides a detailed description of this panic. It was a serious economic depression in the United States that started in 1893 and came to an end in 1897. Every sector of the economy was deeply affected and triggered political upheaval.
There is a wide range of factors that are said to have caused its occurrence. One of them is the wheat crop failure of 1890, which ended further investments. The majority of European investors raised concerns that these problems might spread. That led them to run on gold in the United States Treasury. Also, the post-war railroad boom took part of the blame. Eventually, numerous banks failed, and the run on gold increased. By 1895, the gold reserves had significantly dwindled.
J.P. Morgan helped set up an international syndicate to purchase gold and safeguard the Treasury from continued withdrawals. His actions were aimed at increasing confidence in the dollar and protecting billions invested in the United States. The government, led by President Grover Cleveland, initially had other plans as elucidated in the book. These did not work. As the situation became severe, Morgan was consulted to put his plan into action. The initial concern was that the gold bought would find its way out of the country. With his connections, J.P. Morgan ensured that would not happen.
John Pierpont Morgan played an important role in placing the United States in the world economy through international banking. This was an important moment for the nation as it was set to compete with other financial brokers. As the author notes, a country is only able to compete in such a manner when its bankers are capable of crediting another nation. Before the onset of the 20th century, the United States had never tried to enter into such a relationship. In most cases, this country had been the debtor of other countries. Mr. Morgan was one of the bankers with the power to undertake the making of foreign loans.
It comes out that J.P. Morgan was brilliantly daring. The first international loan that the country ever issued was negotiated through the American financier and the Mexican Government in 1889. Mexico was seeking to sell national bonds to settle its international obligations. Mr. Morgan quickly underwrote the whole issue. This was a momentous moment for the country as such a thing had never happened before. Even Carl Hovey felt that it did not get the attention that the moment deserved.
Interestingly, two years after the loan, England came requesting a similar bailout. Remember, America used English money to build its railroads, and its businesses depended on English supplies for over half a century. So Morgan’s strategy gave America more the honor to lend to England, its former master. Its pride as a nation increased. Think of it this way… America now had more money to lend whilst it had become used to borrowing or receiving. All these were thanks to the revolutionary efforts initiated by Morgan in the banking sector.
The Life Story of J. Pierpont Morgan is an interesting biography. Some people born in well-to-do families tend to be less innovative. John Pierpont Morgan was a different story; he used what his father had built to catapult himself up in society. Carl Hovey clearly captures the life of J.P. Morgan, the story of a man who revolutionizes an entire country out of personal belief and determination. His impact can still be felt to date.