House of Morgan (Review)
House of Morgan is the third Ron Chernow book I’ve read after Hamilton and Titan. In it, Chernow uses the lineage of Junius Spencer Morgan, John Pierpont Morgan, and Jack Morgan—in conjunction with their famed bank, JP Morgan—to tell the history of the finance industry in the United States. I only have a rudimentary understanding of banking and finance, and House of Morgan is an excellent primer for individuals wanting a better foundation of the subject. Chernow divides the history of banking into the following eras:
Baronial Age – 1838-1913
Diplomatic Age – 1913-1948
Casino Age – 1948-1989 (publication)
But the book feels more like two distinct parts—first the years with the Junius, J.P., and Jack Morgan running the bank and part two when the bank split and followed the leadership of a wide variety of individuals. The first part of this 800-page book moved at a steady clip, while the latter seemed more scattered.
My waning interest in part two likely extends from two factors. First, I love the personal connection of a good biography and the stories of the Morgans carried the weight of learning the banking history. The second factor that caused a slower pace in part two was the growing complexity of the finance industry. There were more instances when I needed to research financial devices to fully understand the book. This was a worthwhile exercise for learning, but it makes for a less pleasurable read. As a whole, House of Morgan is an excellent book to introduce finance for a novice, but readers should know it is more work—at least for someone outside of banking—compared to my previous Chernow books.
Particularly since banking and finance is an unfamiliar subject for me, there were a number of interesting insights from Chernow’s book. Here are some of the takeaways:
Like John D. Rockefeller, Pierpont Morgan valued his mastery of ledgers as an integral skill.
Shareholders gave up their power by sending Morgan their certificates because 19th-century finance provided for assessments if the companies lost money. Instead of suffering penalties through assessments during recessions, people conceded their power to Morgan and railroad trusts composed of Morgan and 3-4 of his colleagues. This allowed Morgan to build unprecedented power (“the “Morganization” of the railroads”)
While Morgan’s style and selection of partners had the appearance of aristocracy, in actuality, he based his selections on meritocracy—brains and skills over name and existing wealth.
Pierpont Morgan recognized the stability of the British pound as the foundation for the country’s wealth. He saw sound monetary policy as a necessary step for the U.S. in relation to the gold standard. The gold standard was less a focus for Pierpont than was eliminating the bi-metal standard that occurred after the introduction of the silver standard. Pierpont saw how this hurt the country’s monetary policy. He also noted how no country appreciates its creditor during economic downturns. There was U.S. resentment toward Great Britain during the 1890s and toward Japan during the 1980s.
During the 1907 Bankers’ Panic, a year-long prediction of a financial crisis occurred in October. Pierpont served as America’s central bank, but—as Chernow note—it was a Pyrrhic victory. America decided it would no longer address emergencies through private bankers. This led to the precursors of the federal reserve, which finally came to exist in 1913. Fittingly, this was also the year J.P. Morgan died.
The transition from Pierpont to Jack Morgan brought a more relaxed approach. Jack was comfortable with a group of partners who were talented and capable. He governed by consensus with regular meetings, which Pierpont avoided.
After World War I, the banking industry feared a collapse by Germany would lead to a European economic collapse. They viewed Germany as the economic engine of Europe. A number of bankers predicted Germany rearming itself due to punitive reparations, yet this warning was not enough to stop WWII.
JP Morgan’s smallness was a point of intrigue. It’s scope, reputation, and influence far exceeded its size. The partners each had a different idea on the bank’s source of success. George Whitney attributed it to conservative financial practices with plenty of liquid assets. Tom Lamont (chairman after Jack Morgan) held a flywheel theory: cautious in boom time’s and aggressive in lean times. Jack Morgan claimed it was the principle of doing first-class business in a first-class way. This seems similar to Jim Collins’s idea from “Good to Great” that excellent organizations must have a core value that permeates through everyone. Perhaps more important than each of these ideas is that the firm was a meritocracy: you had to be excellent to be a partner.
Tom Lamont’s relationship with Mussolini-led Italy shows the danger of financial interests. Even being close to the bloodshed, Lamont glossed over the evils to defend the government’s sound financial policy.
It’s amazing how the 2008 housing crisis was a repeat of the packaged securities of foreign debt in the 1920s and 1930s.
After FDR’s enacting of the Glass–Steagall Act, JP Morgan found itself ousted from the White House and a pariah oh Wall Street. Jack Morgan devolved into a bitter man who railed against liberals, Jews, and the Irish. I wonder if it was greed that drove him this direction. The diatribes did not seem entirely inconsistent with the early part of Jack Morgan’s life, but the bitterness seemed like a departure from his past.
The regulatory effect of the Glass–Steagall Act prompted JP Morgan to stick with the commercial banking because the Act made securities work so burdensome by forcing banks to assume liabilities. The long-term effect was to drive JP Morgan into the less lucrative field in comparison to investment banking. Investment banking had been where JP Morgan led the industry and showed the most ingenuity. The legal changes also would have forced JP Morgan to eliminate nearly 90% of its staff if it had stayed as an investment bank—a disloyal action under the old bankers’ code. Instead, Morgan Stanley spun off to form a separate investment bank. As mentioned above, this spurred Jack Morgan to bitterness. It strikes me that the Glass–Steagall Act is perhaps representative as to why some industrial players find government action and regulation so reprehensible.
Jack Morgan grew angry and embittered in old age—his loneliness contrasted by his plush surroundings. He did not evolve even in the midst of a dynamic time of transformation in the finance industry. Late in life, he stuck with this summary of his work philosophy: “Do your work; be honest; keep your word; help where you can.; be fair.” Morgan kept a circle of acquaintances that did not challenge the application of his thinking. An ability to evolve is essential in changing times, but—particularly in an era where character seems so often lacking—it is admirable Jack Morgan was able to stick with his principles even when the landscape had shaken and crumbled beneath him.
House of Morgan transitioned from a combined biography of the Morgan family into a well-written textbook. I’m not sure this could be rectified as the Morgan financial entities turned from talented and oversized personalities into a history of businesses. I couldn’t help but think this subtle difference may be the reason that so many people complain of overwhelming dullness when they think of history. I suspect it is the individuals and their traits that draw me to history. We can see the bravery of Washington or Rosa Parks and hope that we also would be brave. We see the wisdom of Jefferson or Nelson Mandela and hope that we too would be wise. Yet when it comes to entities—be it countries or businesses or some other faceless entity—it grows harder to see a reflection or a hoped-for reflection in the events.
As with my previous experiences with Ron Chernow, I found the book edifying and worthwhile. Yet House of Morgan was less entertaining than Hamilton and Titan. Still, I recommend the book for anyone who does not have much experience in finance. Chernow’s book serves as a wonderful entry point on the subject and is a worthwhile read.
