Among the world’s favourite villains, banks and bankers have always featured prominently. The bigger the bank, the more dastardly it is likely to be portrayed. For this reason, dispassionate analyses of the role played by banks and other financial institutions in society in general, and during economic and political crises in particular, are rare.
Fortunately, Martin Horn’s J.P. Morgan & Co. and the Crisis of Capitalism: From the Wall Street Crash to World War II (2022) is one such rarity. Drawing on extensive archival materials, Horn has authored a sophisticated and readable study of how J.P. Morgan & Co.—which emerged as the world’s most powerful and internationally connected financial house after World War I—navigated the economic and political storms that swept the world from the late-1920s until the outbreak of the Second World War.
The picture that emerges of the leading lights of J.P. Morgan & Co. in these years is one which explodes myths about some of the primary economic players in the interwar period. There is no doubt, according to Horn, that several Morgan partners made serious misjudgments in the lead-up to and after the Great Depression. But he also demonstrates that the Morgan partners were honourable men. The problem facing those leading J.P. Morgan & Co. in these years was that of everyone else: an initial difficulty in grasping the sheer size and scope of the world-wide depression followed by much floundering as they struggled to devise appropriate responses.
Ninety years after the Great Depression, it is hard for us to comprehend J.P. Morgan & Co.’s significance in American politics and world affairs during the interwar years. In many ways, ‘the Corner’ (as it was called after the firm’s location at the corner of Wall Street and Broad) was a more important institution than the Federal Reserve. Governments around the world regularly factored J.P. Morgan & Co. into their calculations and treated the Corner with the deference normally accorded to sovereign states. What’s more, Horn underscores that most of J.P. Morgan’s partners consciously thought of themselves as players in domestic and international politics.
Certainly, J.P. Morgan & Co. were concerned with what we would call the bottom-line. For them, the business of banking was that of all businesses: realising profit through meeting consumer wants and needs in the most efficient and competitive way possible. But senior partners, such as Jack Morgan, Thomas W. Lamont, George Whitney, and Russell C. Leffingwell, had also imbibed a public service ethos that led them to reflect at length on questions like the economics and politics of German reparations to the victorious Allied powers, or how to deal with the rise of authoritarian regimes across continental Europe.
Theirs was a patrician view of the world but one that, Horn indicates, should not be mocked as quaint or insincere. It owed something to the Morgan partners being confirmed Anglophiles, who admired British political institutions and modelled their banking practices on the City of London. That Anglophilia went together with a deep commitment to probity in business, belief in the merits of ‘a multilateral liberal capitalist order resting on a restored gold standard’, and the conviction that ‘American prosperity was connected to European prosperity’. Much of that world had disintegrated in July 1914. The Corner was determined to revive it.
Subsequent chapters unfold Horn’s account of J.P. Morgan & Co.’s pursuit of this goal, and how, just when the Corner thought it was on the brink of being realised, any real prospect of a restored pre-1914 world economy imploded in the wake of the 1929 Stock Market Crash. According to Horn, the Morgan partners misread the Crash’s significance inasmuch as they thought that their job was to restore order in the market instead of addressing the subsequent panic’s deeper causes. They weren’t alone, however, in viewing the Crash as a significant blip rather than a transformative event. Horn stresses that this more optimistic view was shared by most Americans at the time.
Like many who have studied the period, Horn regards 1931 as the year in which a severe recession became a cataclysmic depression. Governments, economists, businesses and financial houses alike struggled to adjust to the new realities. While they were willing to abandon what had been one of their articles of faith —the gold standard—the Morgan partners called for sharp cuts in government expenditures to reduce wages to the level of world commodity prices, the objective being to restore some type of equilibrium in markets.
Such messages fell, however, on stony ground in Washington D.C. Presidents Herbert Hoover and Franklin D. Roosevelt disagreed about many things, but they shared a deep distrust of Wall Street bankers. They also believed that the Corner was fundamentally misreading the situation. This meant that, despite the Morgan partners’ development of a plausible explanation of the Depression’s causes, the White House alternatively humoured and ignored these prognostications.
Indeed, one major goal of the Banking Act of 1935 was to minimise the influence of Wall Street — and especially J.P. Morgan & Co.— over the Federal Reserve and consolidate the making of monetary policy in Washington D.C. Such measures would have been unthinkable only a few years earlier. As a result, the Corner was gradually transformed from being a central institution of American capitalism to a symbol of that economy: one which many Americans across the political spectrum increasingly viewed in negative terms.
Over time, J.P. Morgan & Co. came to oppose much of the Roosevelt administration’s domestic agenda. But contrary to the impression given by the anti-Semitic-tinged rants of prominent American populists of the 1930s, like Father Charles E. Coughlin, the Morgan partners did not follow the majority of American businesses into a position of hardline opposition to the New Deal. The more measured character of the Corner’s scepticism did not, however, translate into any leverage inside the Roosevelt White House. With the exception of Leffingwell, FDR tended to do what he did with so many other people: that is, humour them with charm and platitudes while pursuing very different objectives. The Morgan partners consequently retreated back into the day-to-day business of banking, one which increasingly assumed a mundane character. By 1938, J.P. Morgan & Co. was, Horn states, ‘doing little more than amassing deposits fleeing the fear of war in Europe’.
To the extent that the Corner remained a force in international affairs after 1933, its focus was upon making loans to some long-standing nation-state clients. Three of these included National Socialist Germany, Fascist Italy and an increasingly militaristic Japan. Like many people, the Morgan partners largely misread what was happening in these countries. It was not that they had fascist sympathies, let alone approved what was going on inside these countries. The Morgan partners never wavered from their Anglophilia and regarded France as a bulwark against the spread of authoritarianism in Western Europe. Such sentiments matched what Horn stresses was the Corner’s ongoing fidelity to the institutions of American republicanism.
Nonetheless, J.P. Morgan & Co. made the mistake of thinking that, in Horn’s words, appeasement offered a solution to European difficulties that would allow for a restoration of ‘a liberal, international trading order and would, with time, promote peace’. Again, the Morgan partners were hardly alone in that. Their particular error was not to grasp how the politics of the 1930s had marginalised the causes of market liberalism and constitutional government, as well as the character of the authoritarian regimes that were determined to cleanse Western societies of any such commitments.
Despite detailing at length these domestic and international failures, Horn’s assessment of the Corner ends on a positive note. Without downplaying the particular misjudgments of Morgan partners or denying that there were times in which the bank became narrowly fixated on the immediate, Horn maintains that ‘J.P. Morgan & Co. was faithful to an image of liberal, democratic capitalism’.
To our ears, that may not sound like much. Yet it was more than could be said of some other economic elites throughout the 1930s. The kowtowing of German, Italian and Japanese bankers and business leaders to Nazis, fascists, and militarists respectively is a matter of record. By contrast, Horn states, the Morgan partners ‘did not lift their eyes worshipfully to the rising star of authoritarianism’. Moreover, while J.P. Morgan & Co. was a shadow of its previous self by 1940, the bank had —like American capitalism—endured. The Corner made plenty of errors during one of the worst economic episodes of modern history, but they were not villains. Sometimes, it turns out, that is enough.
J.P. Morgan & Co. and the Crisis of Capitalism: From the Wall Street Crash to World War II by Martin Horn, Cambridge University Press, pp 350, £29.99