Thursday, March 3, 2016

J.P. Morgan, The Pujo Committee, and the “Money Trust”

Like it or not, the broad influence of our best-known capitalists makes America unique (Donald Trump might say great). With the very real possibility of a billion dollar businessman landing in the Oval Office next year, we asked Professor Emeritus and biographer Charles Molesworth to reflect on a very different kind of powerful capitalist in
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American history, one who avoided public statements and hated publicity.

Sure, J.P. Morgan exploited a pre-regulation American economy, but he was also an avid art collector and played a major role in establishing the preeminence of the Metropolitan Museum of Art in New York City. Charles Molesworth's new book The Capitalist and the Critic offers the first in-depth look at how Morgan and the headstrong English art history expert Roger Fry helped to mold the cultural legacy of the “encyclopedic” museum. In this blog post, Molesworth expands on his examination of J.P. Morgan, reflecting on issues that reverberate today: buying influence in a presidential race, breaking up too-powerful bank trusts, pushing Progressive Era initiatives to eliminate obscure and unfair trading practices, and the problem of "large sums of money resting in the hands of a few men."

Look for Charles Molesworth's piece in the New York Post this weekend.

J.P. Morgan, The Pujo Committee, and the “Money Trust”
By Charles Molesworth

In the last three decades of his life, J. Pierpont Morgan enjoyed unique pre-eminence as the nation’s most famous banker and its most demanding art collector. The latter distinction was burnished by his position as president of the Board of Trustees at the Metropolitan Museum of Art. The influence he exercised over the growth of the museum outstripped that of any other individual. Yet many of his artistic treasures resided elsewhere than the Met. His personal collections were housed in London and his other homes in England, and most impressively in his imposing self-named Library on Madison Avenue in New York, which was completed in 1906. The building served as the final testament to the fortune he had spent on paintings, sculpture, decorative objects-d’art, and rare books. His life as a banker, however, was not adorned with such a monument. His fame as a finance capitalist of international power and renown was instead to be spotlighted by a Congressional Committee which brought his banking style and practices briefly into the open.

Morgan was possibly the least well-known of America’s most famous men. Amassing an untold fortune – he was routinely referred to as the country’s wealthiest man – and redrawing the foundations of America’s industrial and financial workings somehow did not interfere with his inordinate desire for complete privacy. This desire was implemented not only by the power of his wealth, but because he wrote very little, and seldom made public statements. No one doubted the sway he exercised with stern willfulness, but many disputed whether or not he was a force for good. But on one dramatic and well-reported occasion, the public, and the prying eyes of reporters, caught more than a glimpse of what Morgan had adamantly tried to conceal. It would show what he thought of himself and his role in the system he built.

“The Pied Piper” cartoon expressed what Morgan’s detractors felt about his unchecked influence in the industrial and financial markets. Those “magnetized” by Morgan’s influence also included people from all sectors of society.
As he reached his seventieth birthday, Morgan had begun to spend more of his furious energy on the Metropolitan Museum, in part because his life as a financier was drawing to a close. Still, the final chapter was not to be finished until the pivotal event known as the Panic of 1907, when with immense leverage he called together the various bankers whose credit crisis was threatening everyone’s fortune. The rather lurid story of Morgan locking them all in his study (while he went off to play one of his countless games of solitaire) until they could agree on the necessary fiscal and monetary arrangements contained enough truth to be widely accepted. In fact it only added to his near-mythic identity. For some time Morgan himself had been acting like a Federal Reserve Bank, controlling the loans and liens that occurred between banks as part of the country’s economic system.

No inner narrative exists that would definitively state whether the fabled event of 1907 drained Morgan of his energy, or if he knew that regulation finally had to come on a national scale with a truly reform-minded government apparatus. In any case, he would soon turn more and more to the affairs of the Museum and his private art collection. But the lift provided by the world of museums and art collections could not lighten the burden that descended on him when, in 1912, he was called before the Congress to explain his role as the country’s most powerful banker. The House Committee on Banking and Currency – known as the Pujo Committee, after its chairman - was appointed by the 62nd Congress and it would shed considerable light on Morgan’s business methods and, by extension, his personal character.

Morgan approached his appearance before the Committee with full preparation and a carefully modulated attitude of reserve and condescension. The preparation included salting the newspapers – control or ownership of several was one of the keys to Morgan’s positive image – as he had done in the past, most recently as he successfully fought off the government’s attempt in 1911 to break the trust of U. S. Steel. Morgan had once been called to Washington to answer whether or not his contribution to Roosevelt’s presidential campaign had bought him any favorable treatment in the U. S. Steel investigation. When one committee member asked if Morgan ever enjoyed the gratitude of the party’s fund-raisers, he snapped, “No. Gratitude has been rather scarce in my opinion.” The dry humor only contributed to the Morgan myth. Nevertheless, he was surrounded by partisans and they aided in managing his reputation, which was a source of pride to him as expansive as the extent of his wealth. His daughter Louisa worried over the stress he was under; his son Jack supplied his associates with optimistic reports, claiming his father, referred to by the code-name Flitch, was in “splendid form,” and “has never been better.” His trip to the Capitol for the Pujo Committee appearance transpired aboard a private train, with Louisa, several business partners, and fifteen lawyers in the retinue. The charge to the committee was to investigate the control and concentration of money and credit on the part of the nation’s banks; this concentration was referred to as the “money trust.” The committee met between May 16, 1912 and February 26, 1913. A junior Representative from Louisiana, Mr. Arsène Pujo served as the chairman of the committee, and Samuel Untermyer served as the counsel. Spurred in part by the Panic of 1907, and the fiscal excesses of the Gilded Age with its monopolies and interlocking directorates, the men of the committee were stern and thorough, even though they would generate enormous publicity. Pujo’s House Committee assembled in the summer of 1912, but cautiously delayed hearings lest they unduly influence the upcoming Presidential election.

Morgan berating a photographer, n.d. Morgan became well known for disliking publicity, and he was forthright in his antipathy to those who would violate his privacy. His choleric temperament shows up clearly here.
Roosevelt and Taft stood as the chief candidates for the highest office, both proclaiming commitment to a progressive attitude toward the relations between industry and government. Known as “trust busters” Roosevelt and Taft introduced much of the legislation of the Progressive Era, including the income tax, the Pure Food and Drug Act, and the break-up of the Northern Securities, one of Morgan’s companies, and one of the two richest corporations in the world. (The other was also run by Morgan: the United States Steel which produced one quarter of all the steel in the world.) Taft had a long career in public service, having served under Roosevelt as his secretary of war, and then succeeded him as president in 1908. Roosevelt had relied on Taft to a great extent, but would eventually split with him when he felt Taft, as president, failed to push hard enough for the continuation of Roosevelt’s agenda.

During his first elected term, 1904 to 1908, Roosevelt had proved his progressive bona fides when he tempered railroad rates, creating the Interstate Commerce Commission. Taft, succeeding Roosevelt, busted the sugar trust and Standard Oil Company, ending their harmful influence over consumer prices and healthy competition. Neither man wanted to be seen as a foot-stool for a rapacious financier like Morgan. As for Morgan, he guarded the advantages his massive wealth brought him, and so he remained on good terms with Roosevelt, having contributed to his campaign in 1904, and he could expect support from Taft as well, should matters become too zealously reform-minded. Both presidents professed to know banking and credit required transparency and rational justification. But public opinion ran decisively against the big banks and corporations, moved in considerable measure by a core of press reporters who energetically exposed the graft, self-dealing and monopolistic tendencies of the country’s major industries.

Now came the search for the reality behind what was called the “money trust.” Consisting of interlocking directorates, along with arbitrary restrictive policies of clearing houses, this trust dictated how banks loaned to, and borrowed from, one another. Like trusts in railroad, mining and other enterprises, a banking trust could control the flow of credit in ways that went far beyond that of any other single industry. Character, contrary to Morgan’s pious pronouncements about the need of individuals to measure one another’s probity, apparently had little to do with it.

Near the end of 1912 the seventy-six year old Morgan was called upon to testify, which he did, on December 18 and 19, where Untermyer questioned him for several hours. His associates, James E. Stillman and George F. Baker, also faced questioning. But it was Morgan alone who was able to use his testimony before the committee to take control of the proceedings by his nearly limitless knowledge of financial capitalism, which he had done much to shape.

With rather heavy irony, an anonymous pamphleteer summarized the spectacle. Treated by the Pujo Committee as if he were an oracle of high finance, Morgan described the workings of “private vs. public banking, of interlocked directorates, of mergers, of voting trusts, of speculation, of credit and of money,” and what he said “had behind it his own prestige and personality. His yes or no meant pages in themselves.” The pamphleteer presented Morgan as explaining everything, though heretofore he had been nothing if not secretive. “Going further, Mr. Morgan laid down with the force of undisputed authority some of the basic tenets of finance. His definition of credit alone sufficed to lay the ghost of the ‘money trust.’ His observations on the functions and faults of bankers and brokers set forth the essential service, while not blinking the incidental blemishes, of the country's apparatus for investment and speculation. He appraised and explained Wall Street.” But it was more than an explanation. Many in the public said of Morgan that as far as his part in Wall Street went, “He did not have to defend it; he justified it.” Morgan apparently triumphed over the forces that would control or regulate his activities, let alone assess his culpability.

Opinion on all the practices and decisions revealed by Morgan would be divided, as were the assessments of his ethics and his politics. The committee produced an illuminating report, daunting and damning with its 258 pages that contained careful explanations of the many otherwise obscure banking practices. The committee’s members’ implicit values are evident in their approach to these conventions. Reporting on the necessity for banks to join the membership of clearing houses, the committee argued that membership in such key organizations was very highly restricted, and clearly served consciously to restrain trade and limit competition. The same is true of the New York Stock Exchange. Morgan ran most of his institutions and directorships like a man’s private club.

The committee invoked an earlier committee, known as the Hughes Committee of 1909, whose report stated that “It is unquestionable that only a small part of the transactions upon the exchange (NYSE) is of an investment character; a substantial part may be characterized as virtually gambling.” The Pujo committee then went a step further. “Such excessive and indiscriminate speculation in stocks as is shown to be conducted on the New York Stock Exchange is not only hurtful in the way that all public gambling is hurtful, but in addition it withdraws from productive industry vast quantities of capital.”

The committee concluded that the concentration of credit and currency resulted from a number of factors, such as the consolidation of competing banks, banks acting as controlling stockholders in various industries, the control of industrial policies resulting from such stock ownership, and partnerships and joint accounts between big financial houses. Of course, Morgan mastered each of these practices. Since he had refused to supply the committee with his personal business records, Morgan faced a detailed listing of the public enterprises in which his role and office was public knowledge. This led the committee to concentrate on two institutions, Guaranty Trust and Bankers Trust – which it identified as the first and second largest trust companies in the United States. Their combined resources totaled $437 million. However, the committee went further and totaled all the assets of the seven trusts that Morgan controlled, which came to $1.389 billion. Adding in ownership through stock holdings of railroads, producing and trading companies, and public utilities, the grand total of the entire cadre of the officers of Morgan & Co. and the five trusts they controlled came to 341 directorships and 112 corporations with aggregate resources of $22,245,000,000.

Spelling out the existence of such large sums of money resting in the hands of a few men was sufficient evidence for the committee to conclude there was a “money trust.” But they proceeded to gather more evidence, turning to the single most powerful banker in the country. The committee was more than a little exasperated by the way Morgan answered questions regarding the monopoly control of credit. Surely one could try to gain such monopoly control, but no, not according to Morgan. The questioner asked, “If you owned all the banks in New York, with all their resources, would you not come pretty near having a control of credit?” Morgan’s denial was steadfast: “No, sir; not at all.” A moment later he strengthened this claim, denying the possibility of such unlimited control: “All the money in Christendom and all the banks in Christendom can not control it.” Credit for Morgan had, from the days of his ascendance, been based not on any material substance or system of accounting but on the character of the borrower and lender, each acting as an individual, and as a judge of the other man’s character. The committee considered this view as virtually unique, as they found no other witness to agree with it. The report would make Morgan’s near solipsistic approach to finance capitalism explicit.

Morgan’s view meant to him that group control of credit was impossible. The committee clearly saw that this claim “rests upon the theory that credit is not based on money or resources, but wholly on character.” This was true to such an extent that it applied as well to loans on the stock exchange. “This is an obvious economic fallacy,” the committee insisted, “as the every-day transactions of business demonstrates.” If Morgan would persist in believing that the role of character outstrips the force of power, the report would encapsulate Morgan’s sense of his own power by quoting this exchange:

Q. Your power in any direction is entirely unconscious to you, is it not?
A. It is sir….
Q. You do not think you have any power in any department of industry in this country, do you?
A. I do not.
Q. Not the slightest?
A. Not the slightest.
The committee concluded that Morgan’s self-serving remarks were untenable. “This again illustrates that Mr. Morgan’s conception of what constitutes power and control in the financial world is so peculiar as to invalidate all his conclusions based upon it.” If Morgan in his own eyes had no power then he could not have been responsible for any concentration of such. Peculiar though his views on power and control might have sounded to the committee, they now sound to history plainly self-serving. Though the legislators were firm in their conclusions, Morgan avoided any reprimand or censure, and would die a few months later. Some attributed his death to the “grilling” he faced at the hands of Pujo and his committee.

Less than fifteen months after Morgan’s statement about character, the control of the nation’s finance industry was put into the hands of the Federal Reserve bank. Morgan’s character proved not to be duplicable.

Professor Emeritus, Queens College, CUNY, Charles Molesworth is the author of biographies of Marianne Moore, Alain Locke, and Countee Cullen, and literary critical monographs on Donald Barthleme and Gary Snyder. The regular art columnist for Salmagundi, and author of many articles on modern literature and the visual arts, he has also edited the modern section of The Heath Anthology of American Literature and the essays of Alain Locke.

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