The Great Pierpont Morgan (13 page)

The trouble was multifold. In the first place, legislation of long standing not only permitted men who held the kind of paper dollars called legal tender (or, more colloquially, greenbacks) to turn in these notes at the Treasury and receive gold for them, but also—absurdly—provided that when the notes were exchanged for the gold they were not extinguished but must be reissued, and could thus be used again and again as a means of drawing out gold. In a time of general confidence such a law was not necessarily embarrassing; but in a time of business depression, when men became uneasy about paper
promises to pay and wanted to wrap their hands around things of unquestionable value, it invited what Grover Cleveland called an “endless chain” of withdrawals of gold from the Treasury. Nor was this the only reason for the gold shortage. For because of the depressed state of business and the ineptitudes of the framers of the new Wilson Tariff Act, the government's revenues were not keeping pace with its expenditures; it was running at a loss, and at times actually had to dip into its gold reserves to pay its day-to-day expenses. And meanwhile a succession of business bankruptcies in the United States had so disturbed European investors that they were unloading their American securities, thus hastening the flow of gold away from America to Europe. For all these reasons the gold reserve kept melting away.

Several times Cleveland's Secretary of the Treasury, John G. Carlisle, had either gone to the New York bankers and persuaded them, as a patriotic measure, to exchange some of the gold in their vaults for government notes, or else had issued bonds and with the proceeds of their sale had bought gold for the Treasury; thus disaster had been deferred. But now, on the morning of Monday, January 28, 1895, the gold remaining in the reserve had fallen far below the amount considered the necessary minimum for safety, which was one hundred million dollars. It had been reduced to only a little over fifty-six millions, and the amount was shrinking daily.

On that Monday, January 28, three millions and three-quarters were withdrawn. On Tuesday, three millions were taken out. On Wednesday, nearly three millions and three-quarters. At that rate, the reserve would last scarcely three weeks—and who could tell when the trickle of gold might not become a torrent? The emergency was immediate and acute.

What could be done? Float another bond issue to raise money with which the government could buy more gold? But the last one had been floated less than three months before, in November 1894. Surely such a measure would advertise all too well the desperateness of the situation. And besides, it took time to prepare and advertise an issue of bonds for public bidding—and now there was no time to spare.

Could Cleveland turn to Congress for emergency help? On Monday the 28th he did so, in a brief emergency message. But the chances of relief from Congress were small indeed.
For during these years of depression and unrest a strange thing had been taking place.

In the early nineties the long-gathering resentment of Western and Southern farmers, and of small business men and workmen generally, against the business abuses of the time had boiled over, and they had angrily formed the Populist party. This party's 1892 platform had been radical not only in the accepted sense of the word but also in its stricter sense; for it had contained many drastic proposals which went to the roots of the abuses of the day. (One might almost describe the Populists as vociferous left-wing New Dealers born long before their time.) They had gathered such a large following that in 1892 they carried four states, won a million votes for their candidate for the Presidency, and swept into office five senators and ten representatives. But as time went on and conservative opinion solidified against them and discouragements multiplied, more and more of the indignation which Populism had crystallized began to concentrate itself upon a single cause—the cause of “free silver.” The perennial susceptibility of desperate men to panaceas which involve formulae too complex for the average man to understand—a susceptibility which in later years was to win converts for Technocracy and Social Credit—led millions of people to believe that it was gold which was at the root of their troubles; that the wider circulation of silver would enable Kansas farmers to make a profit on their wheat, and would restore the reduced wages of Pennsylvania steel workers; and that any plan designed to protect the government's gold supply was a plan to enslave the plain people of America.

During those years, as Mark Sullivan has written, “The average American in great numbers had the feeling that he was being ‘put upon' by something he couldn't quite see or get his fingers on; that somebody was ‘riding' him; that some force or other was ‘crowding' him. Vaguely he felt that … his economic freedom … was being circumscribed in a tightening ring, the drawing-strings of which, he felt sure, were being pulled by the hands of some invisible power which he ardently desired to see and get at, but could not. This unseen enemy he tried to personify. He called it the Invisible Government, the Money Interests, the Gold Bugs, Wall Street, the Trusts. During the first Bryan campaign, the spokesmen
of the West spoke of the business men of the East, collectively, as ‘the enemy.'” Now, at the beginning of 1895, the Senate was largely dominated by men to whom President Cleveland's insistence upon the protection of the government's gold was the surest sign of his alliance with this enemy. And when in his emergency message of January 28 he spoke of “the preservation of our national honor and credit,” they turned deaf ears.

Well then, what else could Cleveland do to avert panic? Could the government borrow money through private bankers, who could presumably raise it more rapidly than could the government itself through a publicly advertised bond issue? Most of the gold which was currently being withdrawn from the Treasury reserve was being shipped abroad; could private bankers with European connections possibly help to bring some of it back again? On Wednesday, January 30, Secretary of the Treasury Carlisle sent Assistant Secretary Curtis to New York to consult with August Belmont, a banker whose firm was allied with the Rothschilds in England, France, and Germany. To the silver senators such a consultation would surely seem like a supplication to Beelzebub, but at least Belmont was a Democrat, and therefore not totally suspect. Curtis talked with Belmont at his home that evening, and Belmont said there was one man without whose aid no plan for restoring the government's gold reserve could succeed: Pierpont Morgan.

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Morgan was now moving into a position of rising consequence in American finance. To begin with, he was now emphatically master in his own house. Junius Spencer Morgan, his father, was gone; the old gentleman had been driving on the Riviera on an April day in 1890 when the horses had bolted and he had been thrown heavily from the open victoria; he had lived only four days after the accident. Thereupon Pierpont had succeeded him as senior partner of the London house of J. S. Morgan & Co. Three years later, on June 30, 1893, Anthony J. Drexel had died, and after a long delay caused by the troubled financial conditions of the time, Pierpont Morgan had invited all the partners in Drexel, Morgan & Co. to dine with him at the Metropolitan Club in New
York to consider a new basis for the American firm. (This meeting, held in October 1894, was the first occasion on which all the New York and Philadelphia partners had ever been in one room at the same time.)

After dinner was over and the waiters had left the room, Morgan, the most unoratorical of men, had stood up and made one of the few speeches of his life. He proposed that the Philadelphia and New York firms should become one; that the name should become J. P. Morgan & Co. in New York, and Drexel & Co. in Philadelphia, if the Drexel heirs consented; and that the capital should be all in New York. This arrangement was later somewhat modified at the request of Edward T. Stotesbury of the Philadelphia group; the partners there were allowed to retain the earnings of Drexel & Co. in Philadelphia until these reached ten million dollars. Otherwise it went into effect at the end of 1894, so that by the end of January 1895, when Curtis went to New York to consult August Belmont about the gold crisis, Pierpont Morgan's firm in New York had for almost a month been known by his name alone. Once again it had become J. P. Morgan & Co.—a designation unused since those bitter days at the outset of the Civil War when the young Pierpont had been mourning his lost Mimi.

He had several partners in New York. Foremost among them was the brilliant Charles H. Coster, of whom Pierpont Morgan's son said long later that “his mastery of detail was complete, his grasp of a problem immediate and comprehensive, and his power of work astonishing.” It was Coster who was working out the exacting details of the railroad reorganizations of the mid-nineties. “Men saw him day by day,” wrote John Moody, “a white-faced, nervous figure, hurrying from directors' meeting to directors' meeting; at evening carrying home his portfolio of corporation problems for the night.” Another New York partner was George S. Bowdoin, an old and dear friend of his chief's and one of the original members of the Corsair Club. Still another was J. P. Morgan, Jr., who had graduated from Harvard in 1889, had worked for a time in the London office, had come into the New York office at the beginning of 1891, had been admitted to partnership on January 1, 1892, and now, at the age of twenty-seven, had been a partner for over three years. Finally—to fill the gap
left by the veteran J. Hood Wright, who had dropped dead one day late in 1894—there was the newly admitted young Bostonian, Robert Bacon. If Coster's endless labor and his untimely death in 1900 did much to give currency to the Wall Street saying that Morgan partners were likely to die young of overwork, Bacon's spectacular good looks bore out another generalization about the firm: that Pierpont Morgan liked handsome men. Perhaps there was in this preference an element of compensation: a man who, suffering from
acne rosacea
, knew that his own physical appearance sometimes struck beholders with dismay was glad to be accompanied by a partner as superb looking as this young man from Boston, who had been captain of the Harvard football team, had rowed No. 7 on the university crew, had excelled at sparring, the hundred-yard dash, and the quarter-mile, had been president of the Glee Club, and had graduated as chief marshal of his class. Hence the Wall Street saying, “When the angels of God took unto themselves wives among the daughters of men, the result was the Morgan partners.”

All these men—the diligent and harried Coster, the friendly Bowdoin, the earnest young Jack Morgan, the handsome Bacon—stood in awe of Pierpont Morgan. In the words of James Brown Scott, “They were lieutenants, not commanders.” Everything hung on his almighty word.

His prestige among financiers and business men generally had risen too within the past few years; for the railroad reorganizations which have been described in the preceding chapter of this book were well under way, and already his success with them was impressive. It was recognized, too, that as a master of international finance he stood alone.

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On the morning of Thursday, January 31—the morning after Curtis' conference with Belmont at the latter's house—a cable from J. S. Morgan & Co. in London reached Pierpont Morgan in New York:

N. M. Rothschild & Sons have sent for us, asked us if we would act with them Europe
re
U. S. Government securities. A. Belmont & Co., New York, have cabled them Assistant Secretary of Treasury coming see him
[sic] today to offer 4% Bond. We replied we will be most happy act in concert with them provided you A. Belmont & Co. acted together U. S.

N. M. Rothschild & Sons cable A. Belmont & Co., New York, see you, also that our opinion is jointly that public will not take any loan not specifically gold bonds at any price satisfactory to U. S. Government.

That was interesting to Pierpont Morgan—but also discouraging. He had received three days earlier a somewhat similar cable message, though in less immediate terms, from his brother-in-law Walter Burns, the acting chief of the London firm. The earlier message had likewise made the point that there was no hope of selling in Europe a United States bond not specifically payable in gold; now this new message reaffirmed it. Well, there seemed to be little hope that Congress, in its present temper, would authorize a bond issue specifically payable in gold. So the impasse continued: it looked unlikely that the government could borrow money quickly on terms satisfactory to European investors. But the earlier message had been “strictly confidential, for your own use only,” and Morgan had done nothing about it. This one he could do something about.

Presently, August Belmont appeared to consult him, and the two of them thereupon walked across the street from the Drexel Building and conferred with Assistant Secretary Curtis at the United States Subtreasury. Curtis was seeing the heads of most of the chief international banking houses that day, getting their views of possible ways of meeting the emergency, but it was Morgan and Belmont alone with whom his negotiations at once took definite and positive form. Morgan had been giving the problem long and intense thought, and as a result he was able to cable London that very day as follows:

Have had consultations with A. Belmont & Co., also Assistant Secretary Curtis. Without further authority Congress, any loan specifically gold impossible, although feeling necessity such action growing.

The situation, however, is critical and we are disposed to do everything our power avert calamity and assist Government under the power it actually possesses; besides
which, should dislike see business largely hands Speyer & Co. and similar houses, who more sanguine European loans than your cables indicate.

We have requested Secretary Curtis to obtain from Government answer to following questions:

“Would the Government make a private contract with a syndicate for the sale of 50,000,000 with option of 50,000,000 additional, such a contract to be considered a state paper and confidential and not to be divulged until syndicate issue completed? Bonds to be 4's or 5's at discretion of syndicate and delivered wherever sold.” [Then followed further financial details.]