J.P. Morgan on Capital Allocation

By 1900 Morgan's collection had outgrown his residence, with his son-in-law describing the basement as packed with objects and part of the holdings stored at the Lenox Library, the Morgan Library's Wikipedia history records. In January 1900 he bought a plot on 36th Street for a library, and in 1902 two more lots; between his house and a new limestone house for his daughter Louisa, Charles McKim of McKim, Mead and White designed a classical marble library. Morgan rejected Warren and Wetmore's baroque proposal and McKim's Greek temple variant, telling the architect he wanted a gem; he insisted on marble despite his family's brownstones, and switched from white to pinkish-gray Tennessee marble after a neighbor warned that white would make the building look like a mausoleum. He prohibited workers from talking to the press, paid an extra fifty thousand dollars for dry masonry construction without mortar joints, and completed the library in 1906 at a cost of 1.2 million dollars. The Wall Street Journal reported he wanted the most perfect structure human hands could erect, at whatever cost.

As the chaos began shaking the confidence of New York's banks, their most famous practitioner was away at a church convention in Richmond, Virginia, the article records. Morgan returned to Wall Street late on the night of Saturday, October 19, and the following morning the library of his brownstone at Madison Avenue and 36th Street had become a revolving door of bank and trust company presidents seeking help. Morgan and his associates examined the Knickerbocker's books, judged it insolvent, and declined to intervene; its failure, however, triggered runs on healthy trusts, prompting Morgan to take charge of the rescue. After an overnight audit showed the Trust Company of America to be sound, Morgan declared this was the place to stop the trouble, then assembled the other trust companies' presidents and held them in meeting until midnight, when they agreed to provide 8.25 million dollars in loans to keep it open. On Thursday Treasury Secretary Cortelyou deposited around twenty-five million dollars in New York banks, and John D. Rockefeller deposited ten million more.

In 1871, at the behest of Junius Morgan in London, the Philadelphia financier Anthony Joseph Drexel became Pierpont's mentor, and the two formed Drexel, Morgan and Co. in New York, his biography records. The merchant banking partnership acted as agent for European capital moving into the United States, took the leading role in financing American railroads, and stabilized and revitalized the nation's securities markets. Most critically, it built a national capital market for industrial companies, an arena that before then had existed for railroads and canals alone. In government finance, Drexel, Morgan underwrote the pay of the entire United States Army in 1877 to restore investor confidence when Congress refused to act, and bailed out the federal government during the aftermath of the Panic of 1893. Drexel's Philadelphia capital and reputation steadied the younger Morgan, whom his father considered temperamentally speculative, and the partnership gave Morgan what his father's London house alone could not: a New York base from which to dominate American corporate finance for the next four decades.

At the depths of the Panic of 1893, around 1895, the United States Treasury nearly depleted its gold reserves, Morgan's biography records. Morgan proposed that the federal government purchase gold from his own and allied European banks; when Washington declined in favor of public bond sales, he demanded a meeting with President Grover Cleveland, warning that the government could default that same day absent action. Morgan then reached for an old Civil War statute under which he and the Rothschilds sold 3.5 million ounces of gold straight to the Treasury for a thirty-year bond issue. The Treasury was saved, but Cleveland's standing with the populist agrarian wing of his party was ruined, ending his political career. Bankers faced William Jennings Bryan's withering attacks in the 1896 election, and Morgan donated heavily, like many of his peers, to the Republican William McKinley.

In 1900 Nikola Tesla persuaded Morgan that a trans-Atlantic wireless communication system, built on his theories of electrical conduction through the earth and atmosphere, would outperform the short-range radio apparatus Guglielmo Marconi was then demonstrating, his biography records. In what may have been a philanthropic investment, Morgan gave Tesla one hundred fifty thousand dollars, and Tesla offered him fifty-one percent control of the resulting patents. The letter of agreement was scarcely signed before Tesla resolved to enlarge the facility, eventually sited at Wardenclyffe, to incorporate terrestrial wireless power transmission, which he believed would sharpen the system's competitiveness. Morgan refused to give any further money toward the project, and with Tesla unable to secure other capital, development stalled and the site was abandoned by 1906. The episode displays the classic Morgan pattern: full backing for a founder's defined thesis, and none at all for a scope change.

During the Panic of 1907, with major New York banks on the verge of bankruptcy and no mechanism in existence to rescue them, Morgan stepped in to help resolve the crisis, his biography records. Treasury Secretary George B. Cortelyou earmarked thirty-five million dollars of federal money for deposit in New York banks, and Morgan summoned the nation's leading financiers to his New York mansion, compelling them to work out a rescue plan, with James Stillman, president of the National City Bank, at the center of the effort. A team of bank and trust executives that Morgan organized shifted money from bank to bank, opened further international lines of credit, and purchased the plummeting shares of healthy corporations. When the brokerage Moore and Schley, deeply invested in the Tennessee Coal, Iron and Railroad Company, threatened a larger collapse, Morgan proposed merging TCI into U.S. Steel; President Roosevelt promised legal immunity, U.S. Steel paid thirty million dollars for the stock, and by November 7, 1907, the panic was over.