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ISU Captains of Industry – J.P Morgan
J.P Morgan was born as John Pierpont Morgan on April 17, 1837 in Hartford, Connecticut. He was born to parents Junius Spencer Morgan and Juliet Pierpont Morgan and was the first of five children. His siblings included Sarah, Mary, Juliet and his brother Junius who lived only until the age of 11. J.P came from a distinguished ancestry line. On his mother's side, one of his ancestors was James Pierpont who was a founder of the famous university, Yale. Another notable ancestor was J.P`s maternal grandfather Reverend John Pierpont who was a Unitarian minister, poet and radical antislavery and temperance activist. On J.P`s paternal side, his grandfather Joseph Morgan cofounded the Aetna Insurance Company and in 1847 left an estate worth $1 million. J.P`s father Junius shaped J.P`s future success. Junius was a successful investment banker and he became a partner in the firm known as George Peabody. Ten years later, he assumed entire control of the firm and it was renamed J.S. Morgan & Company. He expanded this banking enterprise taking it internationally. The company handled most of the British funds that were invested in the United States. He famously participated in a syndicate loan of $50 million which was directed toward the French government at the time of the Franco-Prussian war. J.P was married twice in his lifetime. His first marriage was in 1860 to Amelia Sturges. For their honeymoon the pair sailed to North Africa as they believed this would be a cure for Amelia`s lingering cold. Instead she died in Algiers of tuberculosis which was four months into their marriage. J.P was only 24 years old when she passed away. In 1865 J.P married Frances Tracy. They met through J.P`s affiliation with St. George`s Episcopal Church in New York City. They had four children together named J.P Morgan Jr., Louisa, Juliet and Anne. J.P Morgan Jr. carried on his father`s legacy and later became the head of JP Morgan & Co after his father died in 1931 in Rome.
J.P Morgan studied at numerous schools in Connecticut while he was a young boy. He first attended Hartford Public School and he then transferred to Episcopal Academy where he boarded with the principal. For high school, J.P passed an entrance exam for the English High School of Boston which was a school that specialized in mathematics. This school was mostly known for the extensive preparation it provided for young men going into careers in commerce. While in school, J.P suffered from an illness known as rheumatic fever. The illness took a large toll on him, as it put him in so much pain that he couldn't walk. Because of this, he took a break from his studies at the English High School of Boston, and he retreated to the Azores hoping to recover. After a year, J.P recuperated and he returned to his studies at the English High School of Boston. After his adolescent schooling was completed, he studied across Europe. This resulted in him becoming fluent in French and German. J.P he moved to Germany where he studied at the country's most prestigious place of higher learning, the University of Gottingen.
After university, J.P trained at his father's firm in England. A year later, he moved to New York City and was hired at Duncan, Sherman & Company, which was the American representative of the London firm George Peabody and Company .The fact that his father was a prominent London banker certainly helped him further his position in the firm. In 1861 the 24-year-old acted as the American agent for his father's London firm, now called J.S. Morgan. That was the same year that the American Civil War broke out, and he avoided fighting in the war by paying a large amount of money as a substitute. J.P was involved in a scandal that related to the rifles that were used in this war and he was under heavy criticism for this. The scandal involved him financing what came to be known as the Hall Carbine Affair. This consisted of J.P loaning money to a profiteer who used it to buy antiquated rifles. These rifles were then re-machined and sold back to the US government for ten times more than the price they were bought for. These rifles were defective and they were known to blow the thumbs off the people who used them. This incident ended with J.P suing the government twice. The first time he sued the government, it was because the government refused to pay Morgan's bill for the rifles. A special commission allowed half of his claim, and they paid half of the full sum that was owed. Morgan sued again, and the court promptly awarded him the full sum because the contract was indeed valid. Morgan pocketed over 100,000 dollars from this scandal, and this allowed him to bankroll the many financial undertakings that lead to his dynasty. In 1871, Morgan teamed up with the firm of Drexel based in Philadelphia to form Drexel, Morgan & Co based on the corner of Wall Street and Broad Street in New York. This was later renamed J.P Morgan & Co in 1895. This piece of real estate was the most expensive in the world at that time. The company quickly flourished, and the firm was able to make it through many economic crises relatively unharmed. As his impact on the business world grew, he began to assert his presence in politics. During the presidential election of 1876, Morgan demanded that Drexel, Morgan and its syndicate partners each contribute $5000 to Rutherford B. Hayes's campaign. He described his support with the statement, “Defeat means inflation.” After the Civil War, Morgan loaned money to the U.S. treasury at high interest rates. In 1871, he financed the United States Army's payroll and in 1877, he refinanced the government's debt. In a sense, he had a hand in the overall financial stability of the entire nation. The most notable actions that Morgan took part in to save the country occurred during the Panic of 1893 and the Panic of 1907. During the Panic of 1893, Morgan acted as the central banker for the country and he was appointed by President Grover Cleveland. The issue at hand was that the US had no Federal Reserve System at the time. Morgan knew that the nation's economy was in danger of a collapse. In order to avoid this collapse, Morgan led the effort that created a syndicate with European lenders to provide about $65 million worth of gold. Although he saved the US economy, he came under great fire in the press. He refused to reveal how much profit he made in the transaction, and the public and press did not like this at all. In 1907, Morgan was sought after by the US government to aid them in yet another financial crisis which involved many banks that were about to fail. In response to this, Morgan rounded out a group of other prominent financiers to evaluate which institutions were in the black. Morgan's U.S. Steel Company was involved by trading some stock for one bank's share in the Tennessee Coal, Iron, & Railroad Company, and Morgan was later indicted by President William H. Taft for this. Morgan showed great interest in the accumulation and association with railroads. He acted as a conveyer for money from investors both in the United States and in Europe. In 1879 he put together the stock contribution of $18 million for the New York Central Railroad owned by William Vanderbilt. Morgan's importance in the railroad business evolved to the point where principal players would favour him to resolve disagreements and suggest his insight on particular issues. In an industry where railway companies fought amplifying aggressive encounters to gain supremacy, Morgan found himself having the responsibility of the negotiator. For the success of his arrangement he was granted a seat on New York Central Railroad's board of directors. Between 1885 and 1890 Morgan held private meetings at his home with other railroad tycoons, a group that called itself the Interstate Commerce Railway Association, to eliminate possible competition on profitable routes. During this era, competing railroad lines would build parallel tracks, and one carrier unavoidably went under. The moguls also set rates amongst themselves. This practice was declared illegal with the Interstate Commerce Act of 1887. By the 1900's, Morgan owned 5000 miles of rail. He consolidated and restructured many of his rail companies, importing in his own guidelines and criteria to an industry that the government had unsuccessfully regulated. Morgan's rail holdings included the New York Central, New Haven and Hartford, Lehigh Valley, Pennsylvania, Reading, Erie, Southern, Chesapeake and Ohio, and the Northern Pacific systems. The rails and trains, of course, demanded massive amounts of steel. Knowing this, Morgan established and acquired enormous steel-making operations. This resulted in his rail companies being supplied with steel that was generated from his own steel operations. In 1901 he established the U.S. Steel Company by merging Carnegie Steel Works and several other steel companies into the leading steel producer in the country. This was the first corporation in the world to be worth more than a billion dollars. With U.S. Steel, Morgan had captured two-thirds of the steel market and it was evident that he would soon take over more companies. Aside from dominating these industries, he also dominated the electricity industry. In the late 1870's Morgan invested money into Thomas Edison's work. In 1889, Morgan arranged the merger of Edison's original company with other competitors to form Edison General Electric Co. The competition for this company consisted of two major competitors including Thomson-Houston, who was interested in combining with Edison General Electric. Eventually Morgan merged the two and created General Electric which would proceed to become one of the world's leading electrical monopolies.
Background on Current Business
After J.P died in 1913, his son J.P. Morgan Jr. took control of his father's business affairs and company, J.P Morgan & Co. Today, Morgan's name still lives on as his company J.P. Morgan & Co. is a part of the mega company known as JPMorgan Chase & Co. This merger happened in the year 2000, when Chase Manhattan Bank which emerged as one of the largest and fastest growing commercial banks in the US, was looking for a transformational merger to improve its position in investment banking. The combined JPMorgan Chase became one of the largest banks both in the United States and worldwide, offering a full array of investment banking, commercial banking, retail banking, asset management, private banking and private equity businesses. JP Morgan Chase & Co. can credit itself as being one of the “big four” banks of the US along with Bank of America, Citigroup and Wells Fargo. “At JPMorgan Chase (NYSE: JPM), we do our best to manage and operate our company with a consistent set of business principles and core values. First and foremost, this means always trying to do the right thing. It means continuing to focus on maintaining a "Fortress Balance Sheet", strong capital ratios, and strong credit ratings. It means being willing to sacrifice short-term growth for long-term opportunity. During these turbulent times, this approach is vital.”
(taken from http://www.jpmorganchase.com/corporate/About-JPMC/about-us.htm)
Essentially, the clients that fall under the J.P. Morgan part of the company include the world's most prominent corporations, governments, wealthy individuals and institutional investors.
How They Took Advantage of What They Know About Economics:
In economics the term trade off is expressed as opportunity cost, referring to the most preferred alternative given up. A trade-off, then, involves a sacrifice that must be made to obtain a certain product, rather than other products that can be made using the same required resources. J.P Morgan's success can be attributed to the fact that he seized opportunities and took risks. An example of this can be seen when he financed the defected guns. He took a risk by buying them and selling them back to the government. This risk involved Morgan being sued by the government. However, this risk paid off in the end because he ended up suing the government for not fulfilling the contract. This provided him with a very large payout in the end, so this indicated that he profited from this risk. Another incident where Morgan took a big risk and used opportunity cost was during the Panic of 1893. Morgan took a risk to save the American economy by buying a large amount of gold. The opportunity cost was the money that was put into saving the economy. Morgan could have easily used this money to further his company, especially in a time of economic uncertainty. Again, Morgan's risk paid off as he profited from this risk in the end with a large sum of money.
The use of land; labour; capital; entrepreneurship:
In economics land refers to those resources which have been given by nature and which can be used to produce goods and services to satisfy human wants. Morgan used resources to his advantage. An example of this can be seen when he founded the US Steel Co. This was a smart move because the steel that was produced in this company supplied his railroads with the steel they needed to be repaired or built with. This means that he was supplying his railroads with resources directly from his company. There was no intermediary between obtaining the resources, so he was able to supply the steel for the railroads at a very low cost. This allowed his railroad accumulation to prosper and continue to grow. In economics, the term labour refers to the physical and mental efforts that people can contribute to the production processes. Morgan used labour usefully in the form of employees. Because Morgan owned many companies, he could not be at all of his companies at the same time. This is where labour came in handy, as he could hire managers and other employees to take care of a corporation while he could remain the overseer. In economics, the term capital refers to any manufactured goods which can be used for the production of other goods and services. Capital can be classified as real capital and human capital. Morgan used capital to his advantage. He was a collector of books, pictures, clocks and other art objects. When he died, he did not leave behind a large fortune compared to other businessmen of his stature. Instead, he left with many assets that added up to a large sum of money.
J.P. Morgan took great interest in the new technology that was beginning to prosper in the world. This is the reason why he decided to fund Thomas Edison's technological ideas. In fact, this allowed his company to be one of the first offices in the world to operate by electric light. This also allowed his house on Madison Avenue was the first electrically lit private residence in New York. He took a risk by funding Thomas Edison's ideas and by forming General Electric. His pursuit for new technology eventually paid off, as he was able to profit from Edison's ideas. He was knowledgeable in the sense that he knew that the idea was a very good one.
J.P. Morgan used his knowledge of the US government to help him become successful. Morgan was willing to step in and help the federal government on many occasions; however he also caused his share of distress for the government as well. An example of this can be seen when he took advantage of the government and sold them back the defective rifles after buying them from the government. He didn`t get sued, and in the end, he ended up suing the government for not fulfilling their part of the contract. Morgan profited from this, and because he was able to use his knowledge of the government, he was able to obtain a financial basis to start with in the business world. In essence, Morgan was always undermining the government. For example, when the growth of the Populist Party started to become appealing to many people, Morgan headed a committee of New York bankers to fight Bryan by forming a $50 million guarantee of syndicate. This allowed Morgan to become the chairman of the committee that was essentially controlling US finances, and leaving the government powerless. These actions did not make him very popular with the public; however it was a small price to pay when looking at the success he achieved.
Supply & Demand:
Another way J.P. Morgan accomplished his success was by using his knowledge of supply and demand. In the years following the Civil War, the American industry was growing at a rapid pace. Also, at this time Wall Street provided the capital to fund new, but often risky ventures. This resulted in the demand for capital being greater that the supply. This led Morgan to look to foreign markets for financial assistance. He obtained close ties with many European markets after his father died. This is because when his father died, he left him with all these important connections. Essentially, Morgan connected his important connections with his knowledge of supply and demand and in the end, it worked out to his benefit. Morgan ended up gaining a reputation on Wall Street for being the man who seeks out profitable investments for European clients.
Almost 100 years after Morgan's death, his impact on American economics is still clearly visible. The corporation is still a vessel of prosperity and contempt, opportunity and greed. Even his name still lingers in the world of finance; JPMorgan Chase is still the largest bank in the United States. Morgan's identity is somewhat of an elusive one, even now. To some, he was an embodiment of opportunity in America; to others, he was a money-hungry tycoon. His actions still mark a shift in thinking among American industrialists. He proved to them that it isn't necessary to be a builder in order to be successful. Smart investment and efficient consolidations can result in massive profits. After his death, many of his plans were repeated. For example, the plan Morgan used to rescue the US economy in 1895 was used over the years when economic troubles were present. The plan of getting foreign markets to aid in an economic recovery is in fact still used to this day.