The famous banker and financier John Pierpont Morgandied in 1913 while in Italy; he was 75 years old.
At the time of his death, Morgan's net worth totaled $118.3 million: half in his estate and half in his vast art collection. The figure was approximately 0.3% of the U.S. gross domestic product, which was $39.1 billion at the time. Adjusted to today's real GDP of $16.3 trillion, his net worth would have been $49 billion. This is among the largest individual fortunes in American history.
His start
Unlike his legendary contemporaries, J.P. Morgan never claimed to be self-made. In fact, in TheHouse of Morgan: An American Banking Dynasty and the Rise to Modern Finance, it explains that Morgan once told New York governor Grover Cleveland, "If I have been able to succeed in the station of life [...] I attribute it more than anything to the endorsem*nt of my father's friends."
His father, Junius Morgan, was a successful merchant banker in London, and the connection to British money would be the defining factor in J.P. Morgan's career.
J.P. Morgan's first job was an internship for Duncan, Sherman, and Co.; an affiliate of his father's in New York. He graduated to Dabney, Morgan, and Co., and it was there he grew his wealth to $350,000 investing British money into the booming post-war U.S. economy. He even considered retiring, but the thought was quickly squashed by his father, and in 1871, Junius connected his son with Anthony Drexel. With this alliance, J.P. Morgan would build the company that would bear his name for more than a century.
The right tool
The U.S. economy was lawless and rampant with rate wars among railroads. It was in this chaos that J.P. Morgan would find the tool he would later harness to build his fortune.
In the early 1870s, the Erie railroad went bankrupt and "irate bondholders shackled the road with a 'voting trust' that would run the operation." The voting trust allowed a group of investors to pool their shares, effectively takeover a company, and leave a trustee to vote their proxies. The shrewd use of this device would convert J.P. Morgan into the most powerful man in America.
Death of his father
In the 1880s, J.P. Morgan's name was still below Drexel's (Drexel, Morgan and Co.), and he was still subject to the will of his father. That would change on April 3, 1890, as a startled horse threw Junius Morgan from his carriage. He died a few day later from his injuries.
J.P. Morgan inherited his father's $12 million estate, as well as assuming his father's role in the banking empire, which doubled Morgan's fortune overnight. Drexel died not long after, leaving the firm completely under Morgan's control. Herenamed the firm to J.P. Morgan and Co.
Thriving during the crash
Along with the passing of Drexel, 1893 was witness to one of the greatest economic depressions in history. The contributing factors were a perfect storm of dwindling U.S. gold reserves -- the U.S. was on the gold standard at the time -- and the bursting of the railroad bubble, which lead to widespread panic and the collapse of thousands of commercial firms.
In this backdrop, J.P. Morgan built his legacy. Along with providing rescue financing for General Electricand the U.S. government, he began consolidating the rail industry via voting trusts and appointing himself as the trustee: "Virtually every bankrupt road east of the Mississippi eventually passed through such reorganization."
Morgan fiercely hated competition and had tirelessly, though unsuccessfully, attempted to broker agreements to settle price wars among railway men in the past. The use of trusts during the Panic allowed Morgan to move from middleman to the controller of one-sixth of all rail lines.
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Creating U.S. Steel
As the depression subsided in the late 1890s, Morgan had his sights set on steel. He brokered an alliance with Carnegie Steel's president, Charles Schwab, to negotiate the secret sale of Carnegie Steel. Dale Carnegie put a figure on paper, $480 million, and Morgan didn't even blink before buying. For some perspective, "This [was] more than the entire budget of the US federal government."
J.P. Morgan consolidated his steel companies to create U.S. Steel in 1901. The new corporation had a market cap of $1.4 billion, making it the first billion dollar company. This also marked the peak of Morgan's power -- by this point, he dominated the banking industry, controlled a large chunk of railroads as well as 60% of the steel industry. Morgan is said to have sat on the board of directors for 48 companies.
President McKinley is shot
Morgan's legacy would receive its first blow in 1901; the same year it reached its pinnacle. The death of McKinley began the presidency of Theodore Roosevelt and the war against major consortiums. Roosevelt's case against Morgan went to the Supreme Court in 1904. They ruled in favor of breaking up Morgan's railroad monopoly, which was the first casualty among many other monopolies.
J.P. Morgan is still spoken of today in equal parts as a sheriff, whose consolidating efforts brought order to chaos, and as a robber baron motivated by greed. There is likely truth to both stories, but there is little argument to be made about Morgan's impact. His legacy lives on through many of today's most successful companies ranging from Warren Buffett's BNSF railroad, to AT&T, as well as those that bear his name:Morgan Stanley and JPMorgan Chase.
Dave Koppenheffer has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.
