The Great Pierpont Morgan (15 page)

The cold wave of the early part of the week had now turned into a blizzard, accompanied by temperatures close to zero in the northeastern states and by blinding winds; traffic was crippled, ferries tied up, trains stalled; and as a result August Belmont, who had started from New York to Washington by Thursday night's train, did not arrive until the early afternoon. But he got there in time to sign the contract. As a matter of fact, it would have mattered little if he had been further delayed, for Morgan had been informed by cable from J. S. Morgan & Co. in London that the Rothschilds authorized him to sign on Belmont's behalf if necessary; and anyhow, Cleveland had already, even before the signatures were affixed, notified Congress of the arrangement and thus given authoritative public notice that relief for the government's gold reserve was at hand.

9

An uproar of protest at the news arose from the silverites and those other Americans who regarded Wall Street as the enemy. What seems astonishing to us today, as we contrast the relative powers of the government and of private financial groups at the present time with their relative powers in the mid-nineties—the fact that the United States Treasury was forced by circumstances to deal with two private bankers almost as if they had been plenipotentiaries of an independent state of more ample resources—seemed to these observers not so much astonishing as outright scandalous.

The price of the private bankers' aid looked high. In the final contract they had secured the bonds on the basis of a 3¾ per cent yield, not the 3⅝ per cent that they had been ready to compromise on, nor the 3½ per cent that the public had expected; and since the public announcement of the deal at once relieved the pressure on the Treasury, there was a sharp rise in the market value of the new bonds which were about to be issued. The 3¾ per cent yield was equivalent to
a price of 104½; presently the temporary “allotment certificates” which represented these bonds while the actual instruments were being engraved were being bid for on the market at the much higher price of 120—a fact which of course suggested that the original figure had been much too low. On February 14, young William Jennings Bryan of Nebraska, not yet renowned as a Presidential candidate, said in a speech in Congress, “I only ask that the Treasury shall be administered on behalf of the American people and not on behalf of the Rothschilds and other foreign bankers.” The New York
World
, speaking scornfully of “bank-parlor negotiations,” called the agreement “an excellent arrangement for the bankers. It puts at least $16,000,000 into their pockets.… For the nation it means a scandalous surrender of credit and a shameful waste of substance.”

Nor was this all, for it was widely—and of course baselessly—whispered that Cleveland had profited personally by the deal. As Allan Nevins has put it in his life of Cleveland, “By hundreds of thousands, hard-headed Americans believed that Cleveland and Carlisle had sold the credit of the republic to the Morgans and Rothschilds and had pocketed a share of the price.”

But certainly the syndicate operation proved a thumping success. On February 20 the new United States Government bonds were put on sale simultaneously in New York and London, and presently the transatlantic cables were ticking off messages of triumph. From London, J. S. Morgan & Co. sent word, “Subscription enormous. Subscription books closed noon; open only two hours.” And from New York came the return message from J. P. Morgan & Co., “We have closed our books. Subscriptions something enormous. We offer you all our sincere congratulations.” And a little later: “We are quite overwhelmed by success of transaction. We send you our deepest heartfelt congratulations. You cannot appreciate the relief to everybody's mind, for the dangers were so great scarcely anyone dared whisper them.…”

10

And after that? The success continued. Within a few weeks the New York banks associated with the syndicate had turned in to the Treasury, in payment for the new bonds, large
amounts of gold collected in the United States; and, in payment for bonds issued abroad, a steady stream of gold was crossing the Atlantic westward. “You can ship any gold you choose,” a cable from Morgan in New York had explained; “bar gold, sovereigns, U. S. gold coin, Napoleons. Assay Office will receive and give coin value.” To protect the Treasury against simultaneous withdrawals of gold which would have nullified these gains was a more difficult undertaking; but so well did the members of the syndicate keep their pledged word to do this that before the end of June the Treasury's reserve of gold had grown until it had crossed the safety line of 100 million dollars.

Years later, Grover Cleveland told George F. Parker that when the negotiations were over he asked the head of the syndicate, “Mr. Morgan, how did you know that you could command the co-operation of the great financial interests of Europe?” And Morgan replied, “I simply told them that this was necessary for the maintenance of the public credit and the promotion of industrial peace, and they did it.”

After June 1895 the situation became more difficult, and the syndicate was put to considerable expense to prevent the outflow of gold from America by complicated and hazardous dealings in drafts on London, conducted at a loss. And after the syndicate agreement came to an end and the books were closed in the autumn of 1895, a reaction set in; for a complex of economic reasons, gold began at once to move out of the United States again. So that once more, at the beginning of 1895, the Treasury was forced for the last time to sell bonds to fortify its reserve—this time through the more orthodox method of a public sale.

The Morgan-Belmont bond issue had not brought permanent relief to the Treasury. But it had brought instant temporary relief. To say that it had prevented a panic is to indulge in guesswork. History never tells us, after we have taken Road A at the fork in the ways, what would have happened had we taken Road B. But certain it is that the financial community felt positive that the government's exchange of bonds for gold had averted dire calamity. Morgan's cable to London which spoke of “dangers so great scarcely anyone dared whisper them” was written not to impress the public—it was a private message—but out of well-informed conviction.

11

Naturally, in view of the public outcry and the whispers of graft, there was a congressional investigation of the Treasury's dealings; and on June 19, 1896, Pierpont Morgan took the stand at a hearing in the Hoffman House in New York. His forthright answers to questions reflected his complete satisfaction in the course he had taken and his overwhelming assurance. Let us listen to him for a moment, as first a friendly interrogator, Senator Platt of Connecticut, and then a hostile one, Senator Vest of Missouri, throw questions at him:

SENATOR PLATT
. Why did you not want to have an issue of bonds after you had commenced your negotiations? You asked the President not to issue a call. What was your reason for doing that?

MORGAN
. Because I knew that if the call was made the public would understand that the foreign negotiation had been abandoned.

PLATT
. It was a well-known fact that you had commenced a negotiation.

MORGAN
. I did not care about anything except to get the gold for the government. I had but one aim in the whole matter—to secure the gold that the government needed and to save the panic and widespread disaster that was sure to follow if the gold was not got.

PLATT
. Then it was understood that when you were negotiating, shipments ceased?

MORGAN
. Absolutely; and they did not commence again until a month afterwards.

PLATT
. And so your real purpose, as I understand you, in this transaction was not the idea that you could take this bond issue and make money out of it, but that you could prevent a panic and distress in the country?

MORGAN
. I will answer the question, though I do not think it is necessary in view of all that I have done. I will say that I had no object except, as I have stated, to save the disaster that would result in case that foreign gold had not been obtained.

SENATOR VEST
(
moving to the attack
). If that was your sole object, why did you specify in your telegraphic communication
to Mr. Carlisle that your house, or you and Mr. Belmont, were to have exclusive control of the matter?

MORGAN
. Because it was absolutely impossible for more than one party to negotiate—to make the same negotiation for the same lot of gold. It would only have made competition.

VEST
. If the gold was abroad, I take for granted that anybody could get hold of it who had the means to do so. If you were actuated by the desire to prevent a panic, why were you not willing that other people should do it, if they wanted to?

MORGAN
.
They could not do it
.

VEST
. How did you know?

MORGAN
. That was my opinion.…

VEST
. Do you believe that the government could have made any better terms with anybody else than it made with yourself and Mr. Belmont at that juncture?

MORGAN
. I do not, sir.

VEST
. Do you believe that gold could have been obtained from abroad on any better terms?

MORGAN
. I do not. It was difficult enough to obtain it, as it was.

VEST
. Was your house engaged in shipping gold abroad up to this time, or at about this time?

MORGAN
. We never have shipped one dollar of gold abroad for the last three years.

12

When Senator Vest, a little earlier, asked the direct question, “What profit did your house make upon this transaction?” Morgan replied flatly: “That I decline to answer. I wish to state that I am perfectly ready to state to the committee every detail of the negotiation up to the time that the bonds became my property and were paid for. What I did with my own property subsequent to that purchase I decline to state, except this, that no member of the government in any department was interested directly or indirectly in connection therewith.”

Vest pursued the matter. “You decline to answer my question as to the amount of profits made by your firm?”

“I do, sir,” said Morgan.

“Upon what terms did you dispose of these bonds that you received from the government, and to whom?”

Morgan still stood fast. “That was subsequent to the purchase,” he said, “and I decline to answer for the reason stated.”

J. P. Morgan, Jr., used to say that his father told him that he himself was quite willing to disclose his profit, but that for some reason August Belmont asked him not to. Be that as it may, Belmont too refused to inform the senators. Nobody seriously questioned the bankers' right to keep silence if they chose—a fact which seems somewhat remarkable to us today, since, in view of the surrounding circumstances, the transactions of the syndicate were emphatically vested with a public interest—and therefore the amount of the actual profit long remained a matter of conjecture.

As we have noted, the New York
World
charged in 1895 that “the bankers” (unspecified) made at least sixteen million dollars. In his book
The House of Morgan
, published in 1930, Lewis Corey said that “the syndicate profits ranged from seven to twelve million dollars.” Other estimates, taking into account possible losses in maintaining foreign exchange in equilibrium and other expenses of the operation, and also taking into account the probability that the syndicate could not have disposed of all its bonds at the top price and raked in the whole difference as a profit, made much lower estimates, nevertheless arguing, as did the conservative Alexander Dana Noyes in his
Forty Years of American Finance
, that “the terms were extremely harsh … they measured with little mercy the emergency of the Treasury,” or as did Nevins in his sympathetic life of Cleveland, that “after all allowances are made, the profits must be pronounced exorbitant.” On the other hand, Francis Lynde Stetson said in an address that the American syndicate realized “only five per cent and interest”; and Herbert L. Satterlee went so far as to declare that “from my talks with Mr. Morgan I can confidently state that there was no profit for him at all.”

Among these wildly divergent statements it was Stetson's which was the most accurate. Here are the actual figures—which so far as I know have never previously been disclosed—from the original Syndicate Book of the American Syndicate
. (It must be recalled that there were two syndicates, one American, one European, with the business divided about evenly between them. These are the American figures only, from the still-existing records at 23 Wall Street.)

The American Syndicate took bonds totaling $31,157,000, and allotted them among no less than sixty-one syndicate members—banks and private banking and investment houses. The House of Morgan took less than a tenth of the total. The largest holdings of bonds were $2,753,875 by August Belmont & Co.; $2,678,825 by J. P. Morgan & Co.; $2,600,000 by the First National Bank; $2,600,000 by Harvey Fisk & Sons; $1,800,000 by the United States Trust Co.; $1,500,000 by the National City Bank; and $1,000,000 each by the Fourth National Bank and the Chase and Hanover banks. All the other fifty-two holdings were for less than a million dollars apiece.

When the transaction was over and the books were closed, the total profit of the American Syndicate was $1,534,516.72, which was about a tenth of the figure set down by the
World
, less than a quarter of the minimum figure set down by Corey, and a shade less than the five per cent figure given by Mr. Stetson. (If interest is included—properly it should not be—the amount is increased from $1,534,516.72 to $2,079,776.47.)

Of the American Syndicate's profit, J. P. Morgan & Co.'s share was $131,932.13. In addition the Morgan firm received half of the American Syndicate Managers' commission of three-quarters of one per cent; that brought in $116,841.37 more. These two sums total $248,773.50—a little less than a quarter of a million dollars. And this, by the way, was gross profit, against which could reasonably be charged some of the general costs of doing business. (If one adds to this sum the interest drawn by the firm on its holding, the total rises by $46,879.43 to $295,652.93.)