18.2 From invention to industrial growth  (Page 7/18)

J. pierpont morgan

Unlike Carnegie and Rockefeller, J. P. Morgan was no rags-to-riches hero. He was born to wealth and became much wealthier as an investment banker, making wise financial decisions in support of the hard-working entrepreneurs building their fortunes. Morgan’s father was a London banker, and Morgan the son moved to New York in 1857 to look after the family’s business interests there. Once in America, he separated from the London bank and created the J. Pierpont Morgan and Company financial firm. The firm bought and sold stock in growing companies, investing the family’s wealth in those that showed great promise, turning an enormous profit as a result. Investments from firms such as his were the key to the success stories of up-and-coming businessmen like Carnegie and Rockefeller. In return for his investment, Morgan and other investment bankers demanded seats on the companies’ boards, which gave them even greater control over policies and decisions than just investment alone. There were many critics of Morgan and these other bankers, particularly among members of a U.S. congressional subcommittee who investigated the control that financiers maintained over key industries in the country. The subcommittee referred to Morgan’s enterprise as a form of “money trust” that was even more powerful than the trusts operated by Rockefeller and others. Morgan argued that his firm, and others like it, brought stability and organization to a hypercompetitive capitalist economy, and likened his role to a kind of public service.

Ultimately, Morgan’s most notable investment, and greatest consolidation, was in the steel industry, when he bought out Andrew Carnegie in 1901. Initially, Carnegie was reluctant to sell, but after repeated badgering by Morgan, Carnegie named his price: an outrageously inflated sum of $500 million. Morgan agreed without hesitation, and then consolidated Carnegie’s holdings with several smaller steel firms to create the U.S. Steel Corporation. U.S. Steel was subsequently capitalized at $1.4 billion. It was the country’s first billion-dollar firm. Lauded by admirers for the efficiency and modernization he brought to investment banking practices, as well as for his philanthropy and support of the arts, Morgan was also criticized by reformers who subsequently blamed his (and other bankers’) efforts for contributing to the artificial bubble of prosperity that eventually burst in the Great Depression of the 1930s. What none could doubt was that Morgan’s financial aptitude and savvy business dealings kept him in good stead. A subsequent U.S. congressional committee, in 1912, reported that his firm held 341 directorships in 112 corporations that controlled over $22 billion in assets. In comparison, that amount of wealth was greater than the assessed value of all the land in the United States west of the Mississippi River.

Section summary

As the three tycoons profiled in this section illustrate, the end of the nineteenth century was a period in history that offered tremendous financial rewards to those who had the right combination of skill, ambition, and luck. Whether self-made millionaires like Carnegie or Rockefeller, or born to wealth like Morgan, these men were the lynchpins that turned inventors’ ideas into industrial growth. Steel production, in particular, but also oil refining techniques and countless other inventions, changed how industries in the country could operate, allowing them to grow in scale and scope like never before.

It is also critical to note how these different men managed their businesses and ambition. Where Carnegie felt strongly that it was the job of the wealthy to give back in their lifetime to the greater community, his fellow tycoons did not necessarily agree. Although he contributed to many philanthropic efforts, Rockefeller’s financial success was built on the backs of ruined and bankrupt companies, and he came to be condemned by progressive reformers who questioned the impact on the working class as well as the dangers of consolidating too much power and wealth into one individual’s hands. Morgan sought wealth strictly through the investment in, and subsequent purchase of, others’ hard work. Along the way, the models of management they adopted—horizontal and vertical integration, trusts, holding companies, and investment brokerages—became commonplace in American businesses. Very quickly, large business enterprises fell under the control of fewer and fewer individuals and trusts. In sum, their ruthlessness, their ambition, their generosity, and their management made up the workings of America’s industrial age.