The Man Behind the Money Behind Nikola Tesla

If motors and engines and other machines can be said to be the muscles of civilization, then surely money is its life blood. Certainly nothing can happen with out money. Supplies, tools, and raw material cannot be bought, workers cannot be paid, and quite simply, progress stops.

In the case of Nikola Tesla, money was essential to continue his experiments, apply for and protect his patents, purchase materials, hire technicians and workers, and support his well-known ground lifestyle.

We are all fairly familiar with George Westinghouse; by Tesla's description, a prince of man. But after Tesla had spent the money Westinghouse paid him for the Induction Motor and AC power transmission system, what then? Aside from the sale of licenses and royalties for various inventions, Tesla also was a recipient of funds lent by J.P. Morgan, the financier. Of course, Morgan expected a return on his investment. Tesla had a good reputation and many wonderful and profitable inventions were expected of him.

But, what of Morgan? Was he really the robber baron, the "public be damned" villain many popular stories make him to be? Let us look at Morgan and his times and then you judge for yourself.

J.P. Morgan's story really starts with his paternal grandfather who had moved to Hartford in 1817 and as that city grew and prospered, so did the elder Morgan. He successfully invested in real estate, steamboat line, railroads, and later become one of the founders of the Aetna Fire Insurance Company.

J.P. Morgan's father, Junius Spenser Morgan, was well-established as a partner in a dry goods firm in Hartford. He moved to Boston and become a partner of James M. Beebe and Company which was deeply involved in financing the expanding Atlantic cotton trade.

By the middle 1850's, Morgan was invited to join the George Peabody banking house in London. When Peabody, (actually an American expatriate) retired in the early 1860's, Morgan's father took control of the company and renamed it the J.S. Morgan and Company.

John Pierpont Morgan was born on April 17, 1837 in Hartford. From boyhood on Morgan learned about finances and international banking; and the idea that personal integrity was the key to success. A brief story illustrates that principle.

In 1905, J.P. Morgan and Company were working for the Erie railroad and had purchased a controlling interest in a small railroad company. Morgan later discovered the stock prices were based on fraudulent numbers. Although under no legal constraint, Morgan bought back the stock from the Erie and at the price it was sold. Morgan's action and revelation about the stock's true value resulted in the small railroad going into bankruptcy and causing a loss of about 12 million dollars to J.P. Morgan and Company. The Company's irresponsible officers were punished, but J.P. Morgan's reputation and stature was shown to be good.

Young J.P. Morgan was well-educated, attending schools on both sides of the Atlantic. He attended grade school in Hartford, public high school in Boston, and when his father moved to London, private school in Switzerland. Young Morgan also studied for 2 years the University of Gottingen in Germany.

Morgan did so well that his university mathematics professor offered him a teaching assistantship which Morgan refused, having desired to return to business.

In 1857, Morgan left the University, Moved to New York and joined the Wall Street firm of Duncan, Sherman as a junior accountant. Soon, Morgan displayed the independent, decisive character he would show through his life.

Later that year, while working for that commercial brokerage firm, young Morgan was sent to New Orleans to familiarize himself with the cotton and shipping business. While on the waterfront Morgan found a shipload of coffee he could purchase at a bargain price.

Using the name of his firm (a well-known and respected company), but without official approval, bought the load. He notified his company and by the time they wired back instructions to sell the load, Morgan had already found a buyer and told his New York office he was forwarding the checks.

In later years Morgan's decisiveness combined with his generosity would become legend. John D. Rockefeller had a committee study for six months a proposal to expand the Harvard Medical School. Only then did he contribute one million dollars. Morgan in sharp contrast simply asked a delegation from the school to show him their plans. Morgan looked over the blueprints, points out three buildings, agree to build them and in less than one minute had committed as much as Rockefeller had with his six months of debate and study.

Morgan opened an investment banking firm in 1862. The American Civil War was in full swing and Morgan's company benefited from the speculative frenzy. The disorder of Civil War economy and the corruption of the Grant Administration and the Tweed ring in New York only served to sharpen Morgan's sense of economic right and wrong. Morgan felt a keen sense of responsibility and believed that people from his "class" were obligated to conduct business for the benefit of all citizens. By 1879, Morgan's investment banking firm was well established. Morgan was profiting close to a half-million dollars a year, but compared to other millionaires of the time, lived unpretentiously. He did, however, like convenience, luxury, and comfort, and his home was the first ever to be completely wired of electricity.

Morgan knew Edison fairly well and had invested 300 thousand dollars in the Edison Electric Light Company when Edison did not have a commercially viable lamp yet developed.

In July of that year, Morgan company acquired the voting proxies of 150,000 shares of the New York Central Railroad by way of its action as William Vanderbilt's agent in the sale of those shares to English buyers. Morgan gained a position on the NYCRR board of directors. Morgan now felt that with this new power he could apply his business and ethical philosophies to bring rationality and honesty to the industry.

Morgan did, in fact, bring the heads of the NYC and Pennsylvania rail companies together to hammer out agreements on line routes and stop the then escalating rate wars. Morgan's influence also helped to drive out unethical and crooked rail company organizers and managers. From the mid 1880's to 1900, Morgan remained a significant force and reorganized the Baltimore and Ohio, Chesapeake and Ohio, the Erie and other railroads.

As the United States entered the 20th Century, Morgan's economic power and influence grew. Morgan's firm underwrote stock issues to begin such corporate giants as General Electric, International Harvester and US Steel. US Steel was capitalized at $1.4 billion. At this time, all the manufacturing companies of the United States were capitalized at only $9 billion, which gave US Steel about 10% of the value of all U.S. manufacturing. Additionally, the companies which combined to form US Steel controlled about 60% of the American steel market. As the Wall Street Journal uneasily pointed out, this appeared to be "the high tide of industrial capitalism," but more significantly the news story articulated the growing concern at the immense economic power of corporations.

In October, 1907 a financial panic hit Wall Street. Depositors were withdrawing savings from all banks. Banks called in loans to pay depositors. Stockholder went into a selling panic to raise money to pay loans causing a drop in stock prices. Economic collapse seemed imminent.

Morgan called a meeting of the most important bankers to help resolve the crisis. Morgan and the other bankers could not print money so they did the next best thing: they pooled funds, raising $25 million between Morgan and Rockefeller alone. That and $10 million in U.S. Government funds deposited in New York banks allowed obligations to be paid. By the end of two weeks the panic was over.

Again, the personal power and charisma of Morgan won the day, but that day was ending. No longer could the economy be dependent upon a corporate leader like Morgan with high ethical principles and a sense of altruism. Soon, anti-trust laws, central banking and other laws would provide the checks and balances to provide a hope-for stable economy.

Radicals and reformers alike accused Morgan of manufacturing the panic for his own ends. Morgan simply ignored his critics and withdrew more and more into private life. Venture capital, as we call it today, was no longer available for the likes of an Edison light bulb or a Tesla wireless power system.

Morgan traveled extensively, but while on a trip to Egypt became ill. Returning to Rome for better treatment, Morgan worsened and died March 31, 1913.

Whatever is history's judgement of J.P. Morgan, we maybe thankful that he funded Tesla to the extent he did and also perturbed that he did not do more. Nevertheless, a Morgan or a person like him could give lessons in good ethical economics to some of today's Wall Street wolves who buy and dismember companies for the short term rewards of dollars and power for its own sake. - MB