5

The Transit of Jupiter

Fisk and Gould survived Black Friday, as that dire session became known, to fight another day. They surrounded themselves with lawyers to supplement the thugs at the Opera House; the law men threw up a cloud of litigation that kept the pair’s creditors at a distance for months and in several cases years, until even the most indefatigable victims of the gold conspiracy finally settled. The two returned to railroading, working together until Fisk met a bloody end at the hands of a rival in love, who murdered him in 1872 on the staircase of the Grand Central Hotel on Broadway in Manhattan. Fisk went out in characteristic style; a hundred thousand people jammed the streets for his funeral parade, which featured an honor guard of New York’s Ninth Militia Regiment and a brass band. Gould lived another two decades and became almost respectable as a railroad magnate and telegraph-company owner. But some people couldn’t forgive him for his raid on gold, and when he died in 1892 he wasn’t mourned. “There was no sorrow by his bier,” the New York World reported. “There was decent respect—nothing more.”

 

THE OTHER JAY—Jay Cooke—also survived the gold panic, but barely. The Civil War bond seller had distrusted the gold speculators since dark moments of the war, when the gold bulls had cheered the Union reverses that made the dollar dive. After the war Cooke encouraged the Treasury to retire the greenbacks and return the country to the gold standard; failing this, he said, the government should orchestrate gold sales so as “to keep things steady for the honest interests of the country.” In 1869 Cooke and brother Henry were among those urging the Treasury to sell gold to counter the Gould-Fisk gold spike, in part from principle and in part because Cooke & Company had gone short in gold, believing the corner couldn’t be sustained. Henry Cooke subsequently claimed it was his influence that caused Boutwell to sell the Treasury gold and break the corner. If true, this was a dubious accomplishment, for the Treasury-induced collapse of the gold price nearly swamped the Cookes along with everyone else. Another brother, Pitt Cooke, headed the bailing efforts. “I have been writing up our side of the Gold muddle,” Pitt told Jay, “until I can demonstrate that black is white (in all cases except Jim Fisk and the devil).” Jay gave orders to batten down the hatches. “Get in every dollar you can, and loan only on what is instant cash.”

The gold panic prompted Cooke to turn in another direction. The recent completion of the first transcontinental railroad—the Union Pacific–Central Pacific combination, from Omaha to Sacramento—inspired emulators, and Cooke linked up with a group projecting a northern line, from Lake Superior to Puget Sound. Like the Union and Central Pacifics, Cooke’s Northern Pacific would rely on land grants from the federal government; these would provide the collateral to support the $100 million in construction bonds Cooke proposed to sell. Cooke applied the same energy and imagination to the marketing of the railroad bonds he had employed on behalf of the Union. He touted the region through which the Northern Pacific would run as the finest real estate in America. Duluth, he said, would rival Chicago as the great city of the West. (This claim acquired a certain credibility when much of Chicago burned to the ground in 1871.) The Red River Valley of Dakota would grow the grain that would feed the world; the plains of Montana would supply the beef. The headwaters of the Yellowstone, with their geysers and hot springs, were a tourists’ wonderland. The Cascade Mountains of Washington held timber that would build houses for a nation of a hundred million. The sheltered harbor of Puget Sound made San Francisco seem a roadstead. Cooke’s promotions pumped bond sales; they also inspired snickers among those comparative few who had actually been to the region in question and who derisively dubbed it “Cooke’s banana belt.”

Unluckily for Cooke, the campaign for the Northern Pacific coincided with revelations of spectacular corruption in the building of the Union Pacific. Bondholders had been fleeced by an inside crew—calling itself Crédit Mobilier—that left the larger corporation holding the debt while the insiders skimmed the profits. The Crédit Mobilier scandal, combined with further shenanigans on the Erie Railroad, spoiled the market for railroad bonds, and Cooke found himself suddenly illiquid. “Owing to unexpected demands on us, our firm has been obliged to suspend payment,” he posted on the door at 114 South Third Street on September 18, 1873.

“A thunderclap in a clear sky,” the Philadelphia Press described the announcement. Not since the closing of Nicholas Biddle’s bank three decades earlier had the financial community experienced such a blow. “If I had been struck on the head with a hammer, I could not have been more stunned,” one old-timer explained. “I rubbed my eyes to see if I was quite awake…. It seemed as though the ground had passed from under foot and the stars had gone from the sky.” Cooke & Company’s failure touched off a mad run on banks in Philadelphia, New York, and Boston; the weaker fell at once, the stronger somewhat later. The Panic of 1873 proved the worst since before the Civil War—the worst, by some measures, since the 1837 panic that followed the Jackson-Biddle Bank War. Thousands of financial institutions and other companies closed, leaving their employees bereft, their depositors and investors empty-handed, and the country wondering where all this money trouble would end.

 

JOHN PIERPONT MORGAN was a rarity among the money men of the nineteenth century: a person born to the business. His father, Junius Morgan, inherited a fortune from his father and used the capital to build a Boston brokerage of commodities and merchandise traded across the Atlantic. The business introduced Junius to Lombard Street, the world of London bankers, from whom he imbibed a philosophy articulated by Walter Bagehot, the founding editor of the Economist magazine. “The banker’s calling is hereditary,” Bagehot asserted, on the basis of his study of the Baring and Rothschild dynasties. “The credit of the bank descends from father to son; this inherited wealth brings inherited refinement.” Junius bred Pierpont, as the son was called, to the money trade. The boy attended Boston’s premier schools; after Junius relocated his offices to England, he sent Pierpont to Switzerland and then Germany to absorb the best education Europe had to offer. At the University of Göttingen the boy impressed his mathematics instructors with a flair for numbers. One of his professors urged him to stay on and join the mathematics faculty; Pierpont replied he would put his reckoning skills to work in the family calling.

He arrived on Wall Street during the panic season of 1857, which shook out much dead wood and left openings for newcomers. Morgan apprenticed with the firm that served as American agent for his father’s company, and soon acted as though he owned the place. His audacity alarmed his employers, who declined to make him partner and thereby prompted him to go into competition with them. J. P. Morgan & Company opened in 1861 and instantly profited from the soaring demand for commodities during the Civil War. The return Morgan was required to file under the new tax law showed an income for 1864 of $50,000.

Morgan steered clear of the gold boom and bust of 1869, preferring to invest in railroads. These nearly proved his undoing during the Cooke panic of 1873. But Morgan wasn’t quite as exposed as Cooke and many others, and when all the financial debris stopped falling, Morgan’s house still stood, conspicuous among the rubble.

The 1873 panic suggested certain lessons, of which the most obvious was the need to reorganize the railroad industry. Morgan wasn’t alone in thinking the industry overbuilt, that there were too many railroads chasing too little freight and too few passengers. But he was unusual, and eventually unique, in his ability to act on this insight. As part of his price for underwriting railroad issues, he insisted on seats for himself or his partners on the boards of directors of the issuing lines. The perspective these perches afforded him provided additional insight into the operation of the industry; before long he was the country’s leading expert on railroads.

To rationalize the industry—to reduce the competition—became a Morgan mission. A brutal struggle had developed between the Pennsylvania Railroad and the New York Central. The Central invaded the Penn’s territory by starting a line from Philadelphia to Pittsburgh; the Penn struck back by blasting a route that challenged the Central’s dominance from New York to Buffalo. Morgan had a special stake in this fight, as the detonations by the Penn disrupted the peace of his Hudson River estate and the immigrant construction crews frightened his children. Morgan determined to end the Penn-Central war. He summoned the leaders of the Penn, Frank Thompson and George Roberts, to join him and fellow Central director Chauncey Depew aboard his yacht, the Corsair. The steamer and its passengers departed Jersey City at ten o’clock the morning of the meeting and headed north. Thompson soon agreed with Morgan that a ceasefire made sense. The Penn would leave New York to the Central, and the Central would cede Pennsylvania to the Penn. Roberts, however, was more reluctant, and Depew—one of the great talkers of the era—worked him over all afternoon. The boat ascended nearly to West Point, then doubled back beyond its slip to Sandy Hook. Depew kept talking, and the cruise showed no sign of ending. Finally, worn down by Depew and perhaps fearing that Morgan would never put him ashore, Roberts relented. “I will agree to your plan and do my part,” he said.

The “Corsair Compact” confirmed Morgan’s mastery of railroading. The industry’s leading association looked to him whenever competition became oppressive, and he responded by hosting summit meetings of the railroad presidents at his home in Manhattan’s Murray Hill neighborhood. Financial reporters would trail the executives to Morgan’s door; some peered into the windows with opera glasses while others dressed as deliverymen and rang the bell. The markets hung on the outcome of these sessions. Inside Morgan made plain why he had brought the railroaders there. “The purpose of this meeting is to cause the members of this association to no longer take the law into their own hands when they suspect they have been wronged,” he announced at one such affair. “This is not elsewhere customary in civilized communities, and no good reason exists why such a practice should continue among railroads.” Morgan persuaded the presidents that future financing for their roads required self-denial on their parts. Price competition must cease, and construction of new roads must be rational. Some of the railroaders occasionally balked, but most went along. “RAILROAD KINGS FORM A GIGANTIC TRUST,” a typical next-day headline declared.

 

MORGAN’S RAILROAD WORK solved some of that industry’s problems, but it left untouched larger issues of American finance. The price level declined relentlessly during the 1880s and early 1890s, partly on account of productivity improvements in industry and agriculture, and partly as a result of a shrinking money supply. In 1879, after great debate in Congress, the Treasury had resumed specie payments, redeeming greenbacks for gold, which became America’s de facto standard. The dearer money warmed the hearts of creditors but left debtors shivering as their debts increased in real terms. America’s gold standard—which was also the international standard—meanwhile rendered the American economy more vulnerable to the vagaries of foreign finance, and when speculative bubbles burst overseas, the instability spread to America.

A series of such foreign burstings in the early 1890s produced the Panic of 1893 in America. Twenty years of industrialization since the last panic meant millions more Americans now worked for wages; initial layoffs in manufacturing induced a widening downdraft as the unemployed defaulted on rents and stopped purchasing consumer goods. Within months the country experienced its first full-blown industrial depression.

Americans had never suffered so. “Men died like flies under the strain,” Henry Adams recalled of New England. “Boston grew suddenly old, haggard, and thin.” A railroad strike at Pullman, Illinois, called to protest wage cuts, spread until it paralyzed traffic in dozens of states. A disgruntled army of the unemployed, led by an Ohio Theosophist named Jacob Coxey, whose inflationist monetary theories inspired him to christen his son Legal Tender, marched on Washington demanding relief. “Never before has there been such a sudden and shaking cessation of industrial activity,” the Commercial and Financial Chronicle reported. “Mills, factories, furnaces, mines nearly everywhere shut down in large numbers…. Hundreds of thousands of men thrown out of employment.” Sober observers of American society feared general unrest, perhaps civil war. “In no civilized country in this century, not actually in the throes of war or open insurrection, has society been so disorganized as it was in the United States during the first half of 1894,” an editor declared a short while later. “Never was human life held so cheap. Never did the constituted authorities appear so incompetent to enforce respect for law.”

 

THE TURMOIL PRODUCED numerous schemes and projects for mitigating the distress. Many of these focused on the money question, which seemed to lie at the heart of the problem, even if the various schemers and projectors couldn’t agree on its angle of repose. None of the public commentators produced a greater effect than a remarkable young man who conducted a “school of finance” in Chicago, at the Art Institute there. “Coin” used but the single name, and no one knew anything about his background or even his age, although he appeared quite young. He entered public view on May 7, 1894, when he opened his school and essayed “to instruct the youths of the nation with a view to their having a clear understanding of what has been considered an abstruse subject; to lead them out of the labyrinth of falsehoods, heresies and isms that distract the country.” After greeting the class and specifying the ground rules—all questions answered, nothing accepted on faith—Coin cut straight to the point. “My object will be to teach you the A, B, C of the questions about money that are now a matter of every-day conversation.”

Coin commenced the lecture proper. “In money there must be a unit,” he explained. In arithmetic the unit was the number 1, which he wrote on the blackboard with a confident stroke. The monetary unit was the dollar, fixed by Congress in 1792 as containing 3711⁄4 grains of fine silver. Gold was also denominated as money, Coin said, “but its value was counted from these silver units or dollars.” The ratio of silver to gold was originally 15 to 1, later 16 to 1. For eighty years the United States maintained this bimetallic standard, with Americans free to choose between the two metals. Ordinary people preferred silver, Coin said, because it was the most reliable. “It was scattered among all the people. Men having a design to injure business by making money scarce could not so easily get hold of all the silver and hide it away, as they could gold…. Gold was considered the money of the rich. It was owned principally by that class of people, and the poor people seldom handled it.” Silver was the more democratic. “It was so much handled by the people and preferred by them, that it was called the people’s money.”

There matters rested until 1873, when Congress passed an act revising the country’s coinage laws. This act made gold the unit of value and discontinued the minting of silver dollars. The deed was done stealthily, Coin said, and he quoted a senator who compared its passage to the “silent tread of a cat.” Yet the consequence could scarcely be overstated. “An army of a half million men invading our shores, the warships of the world bombarding our coasts, could not have made us surrender the money of the people and substitute in its place the money of the rich…. The pen was mightier than the sword.”

To explicate the evil impact of the 1873 law, Coin reviewed the basic relationship between money and the items for which it was traded. “The value of the property of the world, as expressed in money, depends on what money is made of, and how much money there is…. If the quantity of money is large, the total value of the property of the world will be correspondingly large as expressed in dollars or money units. If the quantity of money is small, the total value of the property of the world will be correspondingly reduced.” By demonetizing silver in 1873, Congress had effectively reduced the supply of money, which now depended on the amount of gold in the country. Coin summoned two assistants to demonstrate a striking point. The young men measured off on the stage a square twenty-two feet on each side. They then raised a stick twenty-two feet long into a vertical position. Coin requested the audience to imagine a cube of the measured dimensions. “That space will hold all the gold in the world obtainable for use as money!” he said.

The audience gasped in disbelief. Coin let the lesson sink in, then pushed on. “It is in this quantity of gold that it is proposed to measure the value of all the other property in the world,” he said. “Its significance is written in our present low prices and depression in business.”

The advocates of gold as the sole basis for American money knew what they were doing, Coin asserted. Typically creditors, they magnified the value of their credits by constraining the money supply within that twenty-two-foot cube. Debtors and other ordinary people paid the price in their falling standard of living—which would continue to fall if the money men had their way. The republic itself was in peril. Coin pointed to the imagined cube of gold.

One pinch from that block of gold the size of a gold dollar—one twentieth of an ounce—will be so valuable that it will not only buy two bushels of wheat, as it does now, but it will then buy four bushels of wheat. One half that quantity will buy ten hours’ labor from a strong-armed mechanic. So much as you could put in the palm of your hand will then buy a man’s soul—a statesman’s honor. It is breaking down the fabric of our institutions, driving hope from the heart and happiness from the minds of our people. Who can estimate the damage to the commerce and business of the world? Who can estimate the suffering that humanity has and must yet experience? In what language can we characterize the men behind the scenes who knowingly are directing the world to the gold standard?

Coin returned to the event—the revision of the coinage law—that had set the dire train in motion. “It is commonly known as the crime of 1873,” he said. “A crime because it has confiscated millions of dollars worth of property. A crime because it has made thousands of paupers. A crime because it has made tens of thousands tramps. A crime because it has made thousands of suicides…. A crime because it has brought this once great republic to the verge of ruin, where it is now in danger of tottering to its fall.” The victims of the crime were peculiarly the men and women of the West, where debtors were many and creditors few. Coin showed a drawing of a giant sponge hovering over the Appalachians. The sponge sopped up the resources of the farmers of the West and squeezed them out upon the bankers of the East. This damaged the debtors individually but also their communities. “When your neighbor has sent all of his money off, he has none left to spend with you.”

There was an international angle to the thievery, as well. The Bank of England had been pressing gold upon the world for decades. America’s money men were simply doing England’s bidding. Some professed impotence, declaring the forces of world finance to be beyond American control. Coin thought these faint-hearts had things just backward. “If it is claimed we must adopt for our money the metal England selects, and can have no independent choice in the matter, let us make the test and find out if it is true. It is not American to give up without trying. If it is true, let us attach England to the United States and blot her name out from among the nations of the earth.” At this the audience applauded loudly. Coin continued, “A war with England would be the most popular ever waged on the face of the earth.” More applause. “If it is true that she can dictate the money of the world and thereby create world-wide misery, it would be the most just war ever waged by man.” Cheers and shouts.

But it needn’t come to that, Coin assured his listeners. Americans could reclaim their own destiny by remonetizing silver and restoring the balance to American money.

Give the people back their favored primary money! Give us two arms with which to transact business! Silver the right arm, and gold the left arm! Silver the money of the people, and gold the money of the rich. Stop this legalized robbery that is transferring the property of the debtors to the possession of the creditors!

Citizens! The integrity of the government has been violated. A financial trust has control of your money, and with it is robbing you of your property. Vampires feed upon your commercial blood…. Oppression now seeks to enslave this fair land. Its name is greed…. This is a struggle for humanity—for our homes and firesides, for the purity and integrity of our government.

With every sentence, the audience cheered, more enthusiastically each time. Coin kept them just shy of bedlam as he told a story of Benjamin Franklin after the Revolutionary War, dining with diplomats from England and France. The English diplomat proposed a toast to England, which he likened to the sun as giving light to the world. The French diplomat toasted France as the moon that controlled the motion of the tides. Franklin toasted the United States: “the Joshua that commanded the sun and moon to stand still—and they stood still.” Coin declared that this must be the attitude of Americans on the contemporary money question. “If we had an administration and Congress now that would say to England, ‘Stand still,’ one loud shout would be heard in this country from sea to sea and Lakes to Gulf, proclaiming the second independence of the United States.”

Coin’s listeners could contain themselves no longer. They roared their assent and crowded the stage, each striving to shake his hand and slap his back. Chicago had never witnessed such a bravura performance, and few of those present expected to witness its like again.

 

AN ENCORE WAS especially improbable given that the original performance never actually occurred. Coin was the invention of William Harvey, a Virginian too young to have fought in the Civil War but old enough to remember the way it had split the western part of the Old Dominion—Harvey’s part—from the tidewater east. Harvey bounced around the Ohio Valley before migrating west to the silver district of Colorado, where he managed a mine for three years, until the falling price of silver—in part the result of demonetization in 1873—forced him to seek other work. He hawked patent medicine and promoted a tourist stop in Pueblo that featured the gems and precious metals of the Rockies; after hearing that Chicago was to host a world’s fair in 1893 he headed there. He arrived in time for the Panic of 1893—another consequence, he judged, of the decision to drop silver—and, lacking better prospects amid the depression that followed, he decided to take the case for silver to the people.

The literature on the money question in the 1890s included treatises as abstruse as financial tracts had ever been, but also oversimplifications, partisan polemics, and conspiracy theories. Harvey’s genius was to join the arcane to the simplistic and the bombastic. His “Coin” was very young, to show that the money question wasn’t really complicated once one got past the interested arguments of the bankers and the gold bugs. Harvey illustrated the printed version of Coin’s lectures—the only version that existed—with cartoons that amplified the pro-silver arguments of the text. John Sherman, an author of the 1873 coinage law, was shown wielding a pen that decapitated the maiden Silver. A one-legged man represented the American economy after the cutoff of silver. An enormous cow grazed on western corn while eastern bankers milked it and hauled the pails to England. The tentacles of an octopus named “Rothschild” spanned the earth and drew the wealth of every region into its capacious maw. Skeletons behind the bars of a crypt labeled “Gold Standard” had obviously ignored the warning above the door: “All ye who enter here, leave hope behind.”

Harvey, when pressed, never pretended Coin actually existed. But many of the million who bought his small book—Coin’s Financial School—apparently believed Coin was real. The gold advocates felt obliged to rebut the imaginary wunderkind. Coin’s Financial Fool, The Mistakes of Coin, Coin at School in Finance, The Closing Days of Coin’s Financial School, Cash vs. Coin, and numerous other titles pointed out that apathy rather than conspiracy explained the terms of the Coinage Act of 1873 (silver producers, able to get more for their metal on the open market, had simply stopped delivering silver to the mint), that global overproduction of wheat and other commodities had as much to do with falling prices as the demonetization of silver (American farmers now competed with farmers in Argentina, Russia, and other countries), that a decision by the United States to remonetize silver would almost certainly fall flat if other countries didn’t follow suit (money flowed across oceans even faster than wheat did), that the free coinage of silver at the 16-to-1 ratio of silver to gold favored by the Coinites would be hair-raisingly inflationary (the market ratio was about 32 to 1), that much of the heft behind the silver movement came from well-heeled silver-mine owners (rather than from the “people”).

Harvey answered his critics in subsequent editions of Coin’s Financial School. He might have saved his ink. For all the trappings of monetary theory in which he couched his message, Harvey’s appeal was chiefly to the heart. Gold and silver were simply the latest proxies in the historic contest between capitalism and democracy, between wealth and commonwealth. Harvey understood this, as he revealed in closing his account of the Coin lectures. “In the struggle of might against right,” he wrote, “the former has generally triumphed. Will it win in the United States?”

 

SEVERAL MONTHS AFTER Coin purportedly lectured in Chicago, J. P. Morgan genuinely boarded his private rail car for a trip to Washington. Since the 1893 panic, the Treasury’s gold supply had been dwindling. Conventional wisdom considered $100 million the minimum the government needed to ensure liquidity in the face of demands by foreigners and others who insisted on redeeming Treasury notes for the yellow metal that backed them. This number was financially arbitrary but psychologically significant: if investors believed a dip below $100 million was cause for alarm, the belief alone could make it so.

The investors grew nervous as 1894 ended with the federal coffers holding barely more than the magic $100 million. A New Year’s rally brought a slight respite, but then a post-holiday fit of pessimism sent the reserve plunging, to $68 million on January 24, 1895. Dollar-holders hastened, then sprinted headlong, to the Treasury to redeem their notes, and the reserve dove further, to $45 million on January 31 and less than $10 million on February 2. The United States, by all evidence, would be forced off the gold standard within days, perhaps hours.

President Grover Cleveland didn’t know what to do. “I have been dreadfully forlorn these many months, and sorely perplexed and tried,” he wrote a friend. Cleveland was a gold man, unlike an increasing number of his fellow Democrats. He believed a return to silver would ruin the country, making it a laughingstock among the trading states of the world. But he realized he might have no alternative to silver if the government ran out of gold.

Cleveland detected a single means of escape, though it made him sweat merely to think of it. J. P. Morgan could rescue the government, if anyone could. But Cleveland didn’t like Morgan, and he liked the implications of a deal with Morgan even less. Morgan stood for everything Democrats (and their Jeffersonian Republican ancestors) had abhorred since the days of Hamilton and Biddle: big money, big business, and the excessive influence they wielded over the lives of ordinary people. “Jupiter” Morgan, as he was commonly called, might save the Treasury, but the price could be democracy’s soul.

While Cleveland sweated, Morgan made himself available. He hitched his rail car to a southbound train and rode to Washington. He was met at Union Station by Daniel Lamont, Cleveland’s secretary of war and closest friend in the capital. Morgan expected to receive an invitation to the White House; he was surprised to hear Lamont say Cleveland would not see him. Any communications would have to take place indirectly.

Morgan found this unacceptable and said so. “I have come down to Washington to see the President,” he told Lamont. “And I am going to stay here until I see him.” He hailed a carriage and proceeded to the home of a longtime friend. He received callers till midnight, and then played solitaire before retiring.

He was eating breakfast the next morning when word arrived that Cleveland had changed his mind. He would see Morgan after all. Morgan cut across Lafayette Square to the executive mansion, where he was ushered directly to the president’s office. Cleveland joined him shortly. They spoke of the financial crisis but in language, on Cleveland’s part, that suggested to Morgan that the president didn’t understand just how dire the situation had become. Morgan stated the matter as starkly as he could. He had learned that a single investor held a draft for $10 million against the Treasury’s gold reserve, which currently hovered around $9 million. “If that $10 million draft is presented, you can’t meet it,” Morgan told Cleveland. “It will be all over before three o’clock.”

Cleveland now understood. “What suggestion have you to make, Mr. Morgan?” he replied.

Morgan explained that a public bond offering, toward which some in the Treasury were leaning, would fail, as it would take too long. Something swifter was necessary. Morgan recommended a private sale, to a syndicate headed by himself, which would pay for the bonds in gold coin. Cleveland questioned his own authority for ordering such a sale. Morgan replied that a Civil War statute—number “four thousand and something”—had authorized President Lincoln to make emergency bond sales; if the statute was still in force, it ought to suffice. The president turned to Richard Olney, his attorney general, and inquired whether this was so. Olney said he’d have to look it up. He left the room, and returned moments later with a volume of the Revised Statutes. He handed it to the Treasury secretary, John Carlisle, who read aloud, “The Secretary of the Treasury may purchase coin with any of the bonds or notes of the United States…upon such terms as he may deem most advantageous to the public interest.” Carlisle looked at Cleveland. “Mr. President,” he said, “that seems to fit the situation exactly.”

Morgan suggested an issue of $100 million, which would signal the government’s seriousness by putting the reserve back above the safety mark. Cleveland balked. Sixty million would have to do, he said. He then pressed Morgan for assurance that the bond sale would accomplish what it was supposed to. “Mr. Morgan, what guarantee have we that if we adopt this plan, gold will not continue to be shipped abroad, and while we are getting it in, it will go out, and we will not reach our goal? Will you guarantee that this will not happen?”

Cleveland was asking a lot—in essence, that Morgan stand against the world to defend the credit of the United States. Morgan didn’t flinch. “Yes, sir,” he said. “I will guarantee it during the life of the syndicate, and that means until the contract has been concluded and the goal has been reached.”

It was a breathtaking promise, one only Morgan among American financiers could give with a straight face. But Cleveland took him at his word, and the deal was struck. As the group rose to go to lunch, one of Morgan’s associates pointed to some brownish dust on the carpet about his feet. All required a moment to realize that the dust was the tobacco of an unlit cigar Morgan had silently ground to powder during the discussion.

 

THE MORGAN DEAL rescued the Treasury but won neither Cleveland nor Morgan any friends. Populist-minded Democrats screamed that the president had sold out democracy to the capitalists; Congress summoned Morgan to testify before a committee investigating the inside deal. The interrogators demanded to know what profit Morgan and his syndicate made from the government’s distress.

“That I decline to answer,” Morgan said. “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.” And he continued to decline, despite repeated efforts to squeeze the information out of him.

Cleveland’s complicity with Morgan, and Morgan’s disdain for democratic oversight of private finance, made it nearly inevitable that the Democratic nomination for president in 1896 would go to the most radically anti-capitalist of the credible contenders. William Jennings Bryan sealed his convention victory with a stirring speech that outdid anything on the money question since the demagogic days of Thomas Hart Benton. Bryan had represented Nebraska in Congress before the depression-year elections of 1894 swept scores of the majority Democratic incumbents away (“Their dead will be buried in trenches and marked ‘Unknown,’” Republican Thomas Reed chortled). Bryan traveled the country the next two years, shaking hands, stumping for candidates, and spreading the gospel of silver. As the Democrats gathered in Chicago in July 1896 to nominate a successor to Cleveland, Bryan prepared to challenge the still regnant gold Democrats associated with the administration, who hoped to engineer the nomination of a sound-money man like the president.

The uprising began at once. “The silver men are running this affair,” Ben Tillman of South Carolina shouted, in words that were more assertive than descriptive at the time he spoke. “And they propose to do it in their own fashion. If the gold men don’t like it, let them bolt. I hope they will.” The intensity of emotion among the radical silverites shocked the gold conservatives. “For the first time, I can understand the scenes of the French revolution,” one said. Another mused ominously, “Perhaps somewhere in this country there lurks a Robespierre, a Danton, a Marat?” A mournful member of the old guard was asked why he didn’t smile and look pleasant for the photographers. “I never smile and look pleasant at a funeral,” he answered.

A brawl erupted over the platform, with the radicals gaining an edge. “We of the South have burned our bridges behind us so far as the Eastern Democrats are concerned,” Tillman of South Carolina declared. “We denounce the administration of President Cleveland as undemocratic and tyrannical.” The platform committee called for new monetary policies to restore democracy and defeat tyranny. “We are unalterably opposed to monometallism, which has locked fast the prosperity of an industrial people in the paralysis of hard times,” the draft platform proclaimed. “We demand the free and unlimited coinage of both silver and gold at the present legal ratio of 16 to 1.”

The inclusion of this plank touched off a debate in the convention as a whole, which climaxed when Nebraska’s Bryan took the stage. The silverites yelled and stamped approval at his mere appearance. He calmed them by starting quietly. He was young and untested, he granted. Others in the party knew more about certain policies. Yet he offered his honest convictions, which ought to count for something. “The humblest citizen in all the land, when clad in the armor of a righteous cause, is stronger than all the hosts of error. I come to speak to you in defense of a cause as holy as the cause of liberty—the cause of humanity.”

The audience absorbed the rhythms of Bryan’s voice. “At the close of a sentence, it would rise and shout, and when I began upon another sentence, the room was as still as a church,” Bryan recalled later. “I thought of a choir, as I noted how instantaneously and in unison they responded to each point made.”

After a bit more preface, Bryan ripped into the gold men for slandering the cause of silver. The capitalists claimed that the silverites were disturbing the business interests of the country.

We reply that you have disturbed our business interests by your course. We say to you that you have made the definition of a business man too limited in its application. The man who is employed for wages is as much a business man as his employer; the attorney in a country town is as much a business man as the corporation counsel in a great metropolis; the merchant at the crossroads store is as much a business man as the merchant of New York; the farmer who goes forth in the morning and toils all day, who begins in the spring and toils all summer, and who by the application of brain and muscle to the natural resources of the country creates wealth, is as much a business man as the man who goes upon the board of trade and bets upon the price of grain…. We come to speak of this broader class of business men.

Bryan claimed the patron saints of the Democratic party for his cause. Jefferson had opposed Hamilton on the money question. “I stand with Jefferson,” Bryan said. Jackson had fought Biddle over the Bank of the United States. “He destroyed the bank conspiracy and saved America.” The gold men today were as wrong as the big capitalists had always been. “There are two ideas of government. There are those who believe that if you will only legislate to make the well-to-do prosperous, their prosperity will leak through on those below. The democratic idea, however, has been that if you legislate to make the masses prosperous, their prosperity will find its way up through every class which rests upon them.”

The advocates of silver were charged with radicalism, with assaulting the temple of respectability. Bryan denied the charge, saying the silver men were the true conservatives. “We are fighting in defense of our homes, our families, our posterity.” And fight they would, for they had no choice. “We have petitioned, and our petitions have been scorned. We have entreated, and our entreaties have been disregarded. We have begged, and they have mocked when our calamity came. We beg no more. We entreat no more. We petition no more. We defy them!”

The crowd thundered its approval. Even some of the gold delegates, caught in the riptide of Bryan’s rhetoric, began cheering the speaker. Many delegates, thinking the speech was over, started to storm the stage, to carry Bryan bodily off.

Bryan basked in the tumult, then stilled it. He wasn’t done. The gold standard yet stood. “You come and tell us that the great cities are in favor of the gold standard. We reply that the great cities rest upon our broad and fertile prairies. Burn down your cities and leave our farms, and your cities will spring up again as if by magic. But destroy our farms and the grass will grow in the streets of every city in the country.” The money men said America couldn’t change the currency alone, that any alteration in money required the cooperation of England and the other trading countries. Bryan refused to bow to Britain. “It is the issue of 1776 over again. Our ancestors, when but three millions in number, had the courage to declare their political independence…. Shall we, their descendants, when we have grown to seventy millions, declare that we are less independent than our forefathers?”

The lines had been drawn. The battle was joined. The money men took one side, the people the other.

If they dare to come out in the open field and defend the gold standard as a good thing, we will fight them to the uttermost. Having behind us the producing masses of this nation and the world, supported by the commercial interests, the laboring interests, and the toilers everywhere, we will answer their demand for a gold standard by saying to them: You shall not press down upon the brow of labor this crown of thorns! You shall not crucify mankind upon a cross of gold!

WITH THIS SPEECH Bryan won the nomination and framed the election. Not since 1832, when Jackson vetoed Biddle, had the money question so dominated a presidential campaign. The Populist party, which had raised the silver issue in the first place, seconded Bryan’s nomination, despite the fears of many Populists that doing so would deprive the party of its raison d’être. Gold Democrats groused, with many hoping for Bryan’s defeat. The smaller group of silver Republicans, most with ties to silver mines or the states where they were located, sat on their hands while Republican boss Mark Hanna directed the campaign of William McKinley, the Ohio governor with a solid record of being friendly to business and twenty-four karat on the money question.

Bryan’s battle was uphill the whole way. Though opinions differed on the causes of the continuing depression, none could deny its effects, and voters trooped to the polls with a mind to punish the party that held the White House. Bryan preached silver, but McKinley—or rather his proxies, as he stayed home in Canton, Ohio—promised prosperity. Bryan’s appeal to agrarian values galvanized the West and South but left the industrializing Northeast and Midwest indifferent. Some manufacturers allegedly told employees not to bother reporting to work in the event of a Bryan victory. That it didn’t come even close to that reflected how much the country had changed since Jackson’s day. Old Hickory could count on farmers and their friends for a winning majority; Bryan could not. He carried the farm districts by a large margin but lost the Northeast and Ohio Valley and, with them, the election. “God’s in his heaven; all’s right with the world,” Hanna wired McKinley.

 

THE REPUBLICAN VICTORY—a gold Congress rode to Washington on McKinley’s coattails—settled the money question for the moment. But what scuttled silver forever were subsequent developments beyond the reach of politics. New discoveries of gold in South Africa and the Yukon and new techniques for stripping gold from ore dramatically expanded the world gold supply, accomplishing some of the inflationary objectives of the silverites without resort to their favorite metal. The return of prosperity under McKinley—which had more to do with the business cycle than with the composition of money—further eroded demand for drastic remedies. The Gold Standard Act of 1900, followed by McKinley’s reelection the same year, ratified the monetary policy he espoused.

The country entered the new century with cause for capitalist celebration. J. P. Morgan did his part by underwriting the establishment of the mammoth United States Steel Corporation. Capitalized in 1901 at $1.4 billion, the steel trust summarized the power of Morgan and the money he controlled. A few months later he godfathered a railroad trust, the Northern Securities Company, which married Jay Cooke’s old Northern Pacific to the newer Great Northern line of James J. Hill. Nothing, it seemed, was beyond the reach of the greatest money man in American history.

But then things began to go wrong. McKinley was assassinated in Buffalo, leaving the White House to Theodore Roosevelt, whose devotion to capitalism was considerably less certain than McKinley’s. Mark Hanna had feared such a development and for this reason had resisted Roosevelt’s addition to the ticket in 1900. “Don’t any of you realize,” Hanna bellowed, “that there’s only one life between that madman and the presidency?” Hanna and other skeptics weren’t mollified when Roosevelt promised, shortly after taking office, to carry out the policies of his predecessor. Carry them out the way trash men carry out the garbage, the distrusters said.

They seemed to be right when Roosevelt took the utterly un-McKinleyan step of attacking Morgan’s Northern Securities. In 1902 the Justice Department, at Roosevelt’s direction, initiated antitrust proceedings against the railroad combine. Morgan was outraged. Since his rescue of the Treasury in 1895, he had come to consider himself indispensable to the republic, a fourth branch of government. He didn’t expect the other branches to agree with him on all things, but he certainly expected to be consulted. Roosevelt sprang his attack by stealth; Morgan could have told him the stock market would react by swooning, which it did.

As he had with Cleveland, Morgan traveled to Washington and insisted on seeing the president. Roosevelt invited him in at once. Morgan came straight to the point. “If we have done something wrong,” he said, “send your man to my man, and they can fix it up.”

“That can’t be done,” Roosevelt replied. Philander Knox, Roosevelt’s attorney general and the lead prosecutor in the Northern Securities case, explained, “We don’t want to fix it up. We want to stop it.”

Morgan eyed the president suspiciously. “Are you going to attack my other interests? The steel trust and the others?”

“Certainly not,” Roosevelt responded, “unless we find that in any case they have done something that we regard as wrong.”

Morgan returned to New York and the prosecution proceeded, culminating in the breakup of Northern Securities. But Roosevelt stuck to his word. He didn’t go after the steel trust, and he didn’t try to bring Morgan down. He was content to assert a principle: that though money might govern the marketplace, the people ruled the public square. Roosevelt wasn’t a foe of capitalism per se—though he regularly railed at the “criminal rich”—but he was an ardent defender of democracy.

Yet even Roosevelt was finally compelled to admit that the country couldn’t do without the money men. Roosevelt’s epiphany occurred in 1907, when another financial panic set in. The trouble started overseas, as it had the last time Morgan was called to the rescue. Gold production, after rising sharply in the late 1890s, failed to keep pace with world industrial output, and by the middle of the next decade several countries were feeling the pinch. An expensive war between Russia and Japan, followed by the 1906 earthquake and fire in San Francisco, added to the competition for capital and drove interest rates to record highs. London lenders got nearly seven percent from their most credit-worthy customers at the beginning of 1907. The foreign demand for capital drained gold from the United States, pushing several American banks and trust companies to the brink of insolvency. A failed attempt by speculators to corner the copper market reproduced some of the gyrations of Jay Gould’s Black Friday and drove several bankers over the edge.

The signal collapse—the equivalent of Jay Cooke’s closing in 1873—came on October 22 when the Knickerbocker Trust Company of New York couldn’t meet its calls. Partly for the trivial reason of its distinctive name, the Knickerbocker was one of the best-known firms on Wall Street; its closing produced a panic that threatened to outdo the one of 1873.

This time, though, a steady and powerful hand provided a stabilizing force. That evening Morgan convened the leading bankers of New York at the Hotel Manhattan. George Cortelyou, Roosevelt’s Treasury secretary, hurried up from Washington to join them. Morgan sufficiently impressed Cortelyou with the gravity of the situation that the secretary agreed on the spot to deliver $6 million to a syndicate Morgan was just then putting together. There would be more where this came from, should more be necessary. “The Secretary of the Treasury…will not hesitate to deal promptly and adequately with any situation that may arise,” the administration announced.

Morgan had caught cold some days earlier, and the late meeting and general stress left him too tired to play his bedtime solitaire. The city awoke the next morning expecting the great money man to dispense credit and reassurance. But the Morgan mansion showed no sign of life as the hour of bank openings approached. Herbert Satterlee, a business intimate (and Morgan’s son-in-law), voiced the alarm many others felt: “If he could not be aroused, the consequences were too serious to contemplate.” Satterlee checked on Morgan, and discovered to his relief that it was merely the cold, worsened overnight, that had kept him abed.

Morgan drove to his office, where beleaguered bank presidents were already lined up. One by one he heard them out, reckoning their strengths and weaknesses. He changed venue in the afternoon, to the Morgan Library, where the audiences continued. He fell asleep during one session, and snored for half an hour. No one had the nerve to wake him. Morgan generally shunned publicity and kept his business as far from public view as possible, but now he let himself be seen with his fellow bankers. His aura alone lifted spirits. “There goes the Old Man!” cabbies called hopefully as he passed. Police stopped traffic to let him through.

His calm demeanor stabilized the situation, but only briefly. Fear spread from the money market to the stock market, where prices plunged in heavy trading. At one-thirty on October 24 the president of the New York Stock Exchange, R. H. Thomas, bolted into Morgan’s office and declared that the exchange would have to close.

“What?” Morgan demanded.

“We will have to close the Stock Exchange,” Thomas repeated.

Morgan’s brow furrowed. “What time do you usually close it?” he said, as if he didn’t know.

“Three o’clock.”

“It must not close one minute before that hour today!” Morgan commanded.

J. P. Morgan didn’t like candid photos, and the more candid the less he liked them.

Thomas said he had no choice. Money had vanished, leaving nothing to support prices. In their free-fall they were taking down one brokerage after another. Morgan answered that he would find the money to keep the exchange open. He summoned the bank presidents back to his office, lectured them sternly, and within minutes pulled $27 million from their pockets. The news of this relief fund was telephoned to the stock exchange, where the brokers nearly rioted in gratitude, clamoring to get their hands on the money. The exchange stayed open.

As Morgan left the meeting, reporters crowded about. Did he have a message for the people of New York and America? Morgan answered distinctly: “If people will keep their money in the banks, everything will be all right.”

But people weren’t keeping their money in the banks, scores of which faced collapse. To alleviate the pressure, Morgan gathered the bankers again and got them to accept scrip—in essence IOUs—in their reciprocal transactions in order that the strong banks support the weak ones. The only authority Morgan had for this action was his financial prestige and his reputation for never forgetting who helped in time of trouble and who shirked.

A unexpected wrinkle in the crisis emerged when the city government of New York couldn’t sell bonds it needed to cover operating expenses. Morgan assumed responsibility for the sale but in return demanded oversight of city spending. City officials acquiesced, albeit nervously.

Morgan plugged the final hole in the dike in a meeting in the Morgan Library. The presidents of New York’s principal trust companies couldn’t come to terms on a fund to support their struggling brethren. Morgan insisted they keep trying, and to encourage persistence he locked all the doors, preventing escape. As the cigar smoke thickened and the claustrophobia mounted, an agreement eventually hove into sight. A last hold-out, Edward King of the Union Trust, hesitated as he approached the document delineating the pact. Morgan gruffly guided him home. “Here’s the place, King,” he said, pointing to the line that awaited his signature. “Here’s the pen.”

Morgan’s actions saved the day and the balances of most of his moneyed friends. Possibly they prevented the financial panic from triggering a general depression. For this he was feted as a hero. Even Roosevelt expressed his appreciation. But the capitalist statesman could never stop thinking like a capitalist. At a crucial moment for the trust companies Morgan posed a question, which he proceeded to answer. “Why should I get into this? My affairs are all in order. I’ve done enough. I won’t take all this on unless I get what I want out of it.”

What Morgan most wanted at this particular time was the cooperation of the federal government in a merger that would strengthen his steel trust. The fate of one Wall Street house hung on the value of the stock of the Tennessee Coal and Iron Company. Morgan proposed that U.S. Steel offer to purchase Tennessee Coal. The mere offer would boost the Tennessee shares and save its broker; the actual purchase would bolster the preeminence in the steel industry of U.S. Steel, and for this reason would have engaged the scrutiny of Roosevelt’s Justice Department. Morgan sent two directors of U.S. Steel, Elbert Gary and Henry Frick, to Washington to discuss the matter with the president. Gary and Frick, poor-mouthing the prospects of Tennessee Coal, presented the merger as their contribution to stemming the financial distress.

Roosevelt’s grasp of politics had always been surer than his grip on finance, and the thought of sending his party into elections the following year amid a depression caused him to set aside his suspicions of Morgan. “I answered that while of course I could not advise them to take the action proposed,” Roosevelt recorded after the meeting, “I felt it no public duty of mine to interpose any objection.”

 

ONCE THE PANIC SUBSIDED, the sweetheart steel deal was what people remembered—that and the fact that once again Morgan had held the fate of American finance in his hand. Roosevelt retired from the White House to safari in Africa, prompting sighs of relief among the big capitalists. “May every lion do its part,” Morgan was alleged to have said.

Perhaps he did say that, but if so he soon came to realize that worse than Roosevelt could befall the moneyed class. Roosevelt was the first progressive president—the first chief executive to believe that government should reclaim for democracy much of what the capitalists had seized during the decades of industrialization. But he wasn’t the last. William Howard Taft continued Roosevelt’s trust-busting, winning the most celebrated case of the era when his prosecutors broke up John D. Rockefeller’s Standard Oil Company. And when Woodrow Wilson, the reforming governor of New Jersey, defeated Taft (and the back-from-Africa Roosevelt) in the 1912 election, the progressive handwriting was on the wall.

A principal complaint of the progressives was the power of the “money trust,” by which they meant J. P. Morgan and his circle. “A few groups of financiers in the city of New York…have secured domination over many of the leading national banks and other moneyed institutions,” the progressive majority in the House of Representatives declared. These groups sought “to control the money, exchange, security, and commodity markets…to the detriment of interstate commerce and of the general public.” An investigation into the money trust was necessary and proper.

Morgan was supposed to be the star witness. No one knew more about money; no one possessed the moneyed power Morgan did. The investigative committee, headed by Democrat Arsène Pujo, prepared its questions carefully and enlisted the most able counsel it could find. The financial papers and the general press anticipated the interrogation with headline-writers ready.

But Morgan refused to cooperate. He resented the idea that his business should be revealed to the world, and he answered questions in the opaquest of terms. Samuel Untermyer, chief counsel for the committee, inquired about a transaction that appeared a patent case of chicanery, in which Morgan had paid $3 million for stock worth only $51,000 at par. Why had he done so?, Untermyer demanded.

“Because I thought it was a desirable thing,” Morgan replied.

Untermyer rephrased the question.

Morgan reiterated: “I thought it was the thing to do.”

“But that does not explain anything.”

“That is the only reason I can give.”

“It was the thing to do for whom?”

“That is the only reason I can give. That is the only reason I have, in other words. I am not trying to keep anything back, you understand.”

“I understand. In other words, you have no reason at all.”

“That is the way you look at it. I think it is a very good reason.”

The guiding premise of the investigation was that a few powerful men enjoyed an operational monopoly of the money system in America. Morgan dismissed the idea as absurd. No one could get a monopoly of money.

Untermyer professed amazement. “There is no way one man can get a monopoly of money?”

“Or control of it,” Morgan answered.

“He can make a try of it?”

“No, sir, he can not. He may have all the money in Christendom, but he can not do it.”

“If you owned all the banks of New York, with all their resources, would you not come pretty near having a control of credit?”

“No, sir. Not at all.”

Untermyer was mystified. “Is not the credit based upon the money?”

“No, sir.”

“It has no relation?”

“No, sir.”

What, then, was credit based on?, Untermyer asked.

“The first thing is character,” Morgan answered.

“Before money or property?”

“Before money or anything else. Money can not buy it.”

“So that a man with character, without anything at all behind it, can get all the credit he wants, and a man with the property can not get it?”

“That is very often the case…. I have known a man to come into my office, and I have given him a check for a million dollars when I knew they did not have a cent in the world.”

The committee clearly didn’t believe Morgan. The committee staff compiled a dossier on Morgan and the other big bankers, detailing the links among the financial institutions and between the banks and the railroads and industrial corporations. “J. P. Morgan & Co. of New York and Drexel & Co. of Philadelphia are one and the same firm,” the Pujo report began. It proceeded to tally the directorships held by Morgan partners in Bankers Trust, Guaranty Trust, Astor Trust, the National Bank of Commerce, Chase National Bank, Chemical National Bank, Equitable Life Assurance, the New York Central Railroad, the Northern Pacific, U.S. Steel, International Harvester, General Electric, American Telephone and Telegraph, Western Union, and scores more companies, till the eyes of readers glazed over.

The report chided Morgan and other witnesses for refusing to cooperate in the investigation, but their recalcitrance only confirmed the committee’s conclusion. “There is an established and well-defined identity and community of interest between a few leaders of finance, created and held together through stock ownership, interlocking directorates, partnership and joint account transactions, and other forms of domination over banks, trust companies, railroads, and public-service and industrial corporations, which has resulted in great and rapidly growing concentration of the control of money and credit in the hands of these few men.” The committee didn’t gainsay the constructive role the money men had played in the development of the American economy. “Without the aid of their invaluable enterprise and initiative and their credit and financial power, the money requirements of our vast ventures could not have been financed.” But by eliminating competition and monopolizing access to money, the inner circle endangered democracy. “The peril is manifest.”