J.P. Morgan: How One Man Financed America

John Pierpont Morgan – He is considered to be the most powerful man in the history of American Finance. To understand the influence of this man we need to rewind to a time long before America was an economic powerhouse with an estimated GDP of US21 Trillion Dollars.

It’s all too easy to forget that America was once an emerging market; one that, not too long ago, was almost entirely dependent upon the British capital. From this stage to the world’s most powerful economy, this is quite a journey, and he can be considered as one of the many pioneers of this transformation.

Emerging of Pierpont Morgan

Pierpont was born into an influential family and was provided with a very strong base by his father, Junius, who was a very successful and respected businessman. He became obsessed with the powerful and ambitious man. After school, Pierpont started his career at Wall Street, aiming to profit from the lucrative and emergent American market. With his new position on Wall Street, he gained invaluable first-hand experience in the business world.

In the year 1861, Pierpont – working at Wall Street at the time, started his own company named J Pierpont Morgan. As Pierpont was already working in the banking sector, that introduced him to New York’s elite class allowing him to mingle with those of high-society. From the year 1861, Morgan threw himself wholeheartedly into his work. He dedicated the next two years to build his reputation as a trustworthy American banker.

It was during this time, however, that America would go to war… with itself. With the civil war, all able body men were required to enlist themselves for the army. But JP Morgan was far too busy and important to dirty his hands with something as trivial as war. He paid US$300 to be removed from the enlistment. But, he didn’t sit idle on the sidelines of battles – the business of war was too lucrative for such nonsense.

As the war became intense Morgan found a way to earn profit from the carnage; trading union bonds. He was very fast to recognize that the bond prizes seesawed in value following the news of each battle’s outcome between the Union and Confederate army – the ability to foresee the winner would mean big profit! Along with this he also found other ways to monetize the war.

Later, purchasing Carnegie Steel for US$480 MN, Morgan formed the United States Steel Corporation and continued his consolidation-spree, effectively controlling 60-70% of the country’s production. In doing so, he also created the world’s first billion-dollar company! Let’s look at how Morgan helped in reviving the American economy.

The Gold Panic of 1983!

At the time, the U.S. Dollar was tied to the gold standard; which allowed anyone to convert their paper money to physical gold. The government always kept a minimum reserve of one-hundred-million dollars worth of gold coins and bullion. Keeping the amount to this much meant that the public still trusted the government. But, in February 1893, these reserves plunged well below that mark. The run on gold sparked widespread panic; as people started to ask themselves.

If the U.S. government ran out of gold, would paper money really be worth everything?

At this point, Morgan suggested merging the railroads and this proved to be the game-changing move. After taking control of railroads he started to strengthen the balance sheets, refinancing debts, and issuing new shares to raise more capital. He suggested a plan to restore America’s gold reserves. This plan was accepted by the president and this helped to restore the gold reserves. Thereby reviving the economy!