At the end of the 19th century, the United States has completed the first industrial revolution, and is undergoing the second industrial revolution, that is, the industrial revolution based on steel, energy, railroads, shipping, etc. Heavy industry is capital-intensive and requires a lot of capital investment. But capital was scarce at the time. At the same time, at that time, there were still very few large national enterprises, and local enterprises were weak, unable to issue stocks and bonds by their own credibility alone, and they had to rely on the credibility endorsement of wall Street consortiums to raise funds. Wall Street controls the flow of scarce capital, which can control the survival of industrial enterprises, and the industry has to obey Wall Street. However, at that time, Wall Street only exerted indirect influence on industry and was not directly involved in the operation. What really made Wall Street the actual trader of the U.S. economy was the head of the Morgan consortium at the time, Pierpont Morgan, also known as "Old Morgan."
Railways were the "Internet" of the 19th century, the most dynamic emerging industry at that time, and the most favored industry of capital. Of the stocks listed on the New York Stock Exchange at the time, 60 percent were railroad companies. The public raced to buy railroad stocks, expecting to get rich overnight. In order to compete for monopoly positions, major railway companies competed to lay railway lines, resulting in a serious surplus. For example, between St. Louis and Atlanta, there are 20 railroad lines competing with each other, and the railroad companies have launched a fierce price war. As a result, a large number of railway companies went bankrupt and collapsed, and small and medium-sized investors lost everything. Because these railroad securities were underwritten by a Wall Street banking group led by Morgan, an angry public angered Morgan, and the business credibility that the Morgan consortium had painstakingly built over the years was severely damaged. Crazy investment and vicious competition in the railway industry will cause cyclical economic crises, which will bring devastating blows to the entire financial system.
The most typical example is the Great Panic of 1873. At the time, 89 railroad companies in the United States defaulted on their debts, and one of the most prominent banks in the United States, the Jay Cook consortium, declared bankruptcy for speculating on North Pacific Railroad stocks, eventually triggering a financial collapse.
The financial collapse was a good thing for Morgan in a way, because its biggest competitor went bankrupt and the Morgan consortium became the number one player in the U.S. financial community. However, the elder Morgan never forgot the lesson of this financial collapse, and he decided to rectify the chaos of the railway industry and use railway trusts to avoid vicious competition. How did he do it?
In the beginning, morgan the elder relied on his personal prestige to summon the railroad tycoons to his private yacht, the Viking, and sat down together to sign a gentleman's agreement to form a trust. This agreement is therefore called the "Viking Agreement". But it turned out that this method simply did not work, and there were always people who undermined the agreement by secretly reducing prices. So Morgan, the elder, simply took matters into his own hands, reorganizing the bankrupt railroad companies and placing his partners on the boards of these companies, thus keeping control of the companies firmly in his own hands. This process has been called the "morganization" of American railroads. In this way, Morgan the Elder controlled dozens of railroad companies, which he organized into a giant railroad trust with a total revenue equivalent to half of the U.S. government's fiscal revenues.
In addition to this, morgan the elder invented a method called "equity trust", which further expanded his control. Equity trust here refers to the decentralized small and medium-sized investors who entrust their shares to the bank and let the bank help them exercise shareholder rights. In this way, the banker became the spokesman for many small and medium-sized shareholders, and further controlled the railway company. By 1900, the Wall Street banking group, led by Morgan Sr., effectively controlled the entire railroad system in the United States.
After the success of the railroad trust, the elder Morgan followed suit and formed the Steel Trust in 1901. At the time, there was fierce competition between the steel companies owned by the elder Morgan and the firms of steel magnate Andrew Carnegie, and there was a price war and overproduction in the steel industry. This time, morgan's solution was to buy Carnegie's company for $480 million directly, thus forming the American Steel Company. Morgan Sr. stood up and said to Carnegie after signing the purchase agreement with Carnegie, "Congratulations on becoming the richest man in the world." ”
We generally think that free competition is good, monopoly is bad, and the formation of trusts is a historical reaction. However, the railway is a public good with a natural monopoly nature, and at that time, dozens or hundreds of small railway companies engaged in disorderly competition, which was not conducive to the stable operation of the railway and harmed the interests of small and medium-sized investors. Objectively speaking, Morgan's railroad trust has greatly improved the operating status of American railroads, so that the interests of small and medium-sized investors have been protected. Of course, the Morgan consortium also used this to expand its sphere of influence and become the supreme lord of the US economy.
In 1902, Morgan Sr. formed another shipping trust and built the world's largest private fleet. Through a joint venture of rail trusts and shipping trusts, morgan the elder controlled the major freight network between the United States and Europe. It is worth mentioning that the famous Titanic belongs to the shipping trust of the old Morgan and was built with the approval of the elder Morgan himself. He was scheduled to take part in the Titanic's maiden flight, but was eventually cancelled due to a temporary incident and escaped the disaster.
The emergence of industrial trusts symbolized the rise of Wall Street forces led by Morgan. By forming three major trusts, morgan the elder took firm control of industry and became the most powerful financial capitalist in the United States.