What Is Morganization?
Morganization is the name given to monopolization techniques used by investor and banking mogul J.P. Morgan in the 19thcentury. Morgan used his reputation to lure European financiers into America by taking over an industry and stabilizing it through monopoly. Morgan would then turn the industry into a single, stable, profitable entity that was much more palatable to European bankers.
Key Takeaways
- Morganization refers to the strategy employed by J.P. Morgan in the 19th century to create industrial monopolies.
- He identified weak or small players in a particular sector, such as railroads or steelmaking, and effected a series of mergers, ultimately crafting powerful monopolies.
- Morgan's tactics were a challenge to competition and U.S. antitrust laws, which saw the breakup of many monopolies in the 20th century.
Understanding Morganization
As a prime example, J.P. Morgan "morganized" the railroad industry first, taking over small underfinanced companies. He then streamlined their management and operational efficiency, allowing each small company to join forces and combine into a dominant player.
He then took over the steel, electricity, and banking industries the same way. The solid, steady growth that resulted was successful in transforming the U.S. from a debtor nation to one that was able to lend money to others.
Morgan reinventedhow monopolies can becreatedby eliminating competition by buying up smaller companies, decreasing prices until the competitors went bankrupt trying tocompete, buying up the bankrupt competitors to cover more ground in a market, andslashing the workforce behind the company whilereducing wages.
Collectively, these actionsmaximized the monopoly's profit.Morgan eventually took control of threemajor industries: railroads, electricity, and steel—and his dedicationto efficiency and modernization revolutionized American business.J.P. Morgan would go on to build anestimated net worth of between $25 billion and $45 billion, adjusted for inflation.
Perhaps the greatest example of Morganizationat work was the formation of U.S. Steel in 1901. By the end of the 19th Century, the steel industry had overtaken railroads as the most important U.S. industry, with massive new companies organized and capitalized to satisfy the growing demand for steel for use in the construction of new buildings, bridges,factories, and railroads.
The goal of U.S. Steel was to vertically integrate all phases of steel production from ore acreage and coal mines to blast furnaces, steel mills, finishing mills, and every manner of transportation of steel goods, from barges to railroad lines. A large part of this was done by Andrew Carnegie before J.P. Morgan merged Carnegie Steel, Federal Steel, and National Steel to create U.S. Steel. The end result was that U.S. Steel became the largest operator and lowest-cost producer in the steel business.
Morgan vs. President Theodore Roosevelt
Morganization was, in effect, an open challenge to the antitrust laws of the United States and President Theodore Roosevelt's authority to lead in the organization and planning of the economy.
Much of J.P. Morgan's drive to dominate business was derived directly from his own personality. He was possessed by the urge to dominate and command, and he complemented that natural impulse with a visionary's foresight and a well-honed ability to organize his desires into real-world action. This was the essence of Morganization.
What Was J.P. Morgan Famous For?
J.P. Morgan was famous for restructuring businesses to make them more efficient and profitable. He consolidated many industries, such as railroad and steel, overseeing some of the most powerful companies in America, such as U.S. Steel and General Electric. He was also prominent in the banking sector and quite often saved the economy in periods of financial crisis.
What Companies Did J.P. Morgan Control?
Some of the most prominent companies that J.P. Morgan had control over were U.S. Steel, International Harvester, Aetna, General Electric, International Mercantile Marine Company, Western Union, and many railroads.
What Is a Trust Buster?
A "trust buster" is anyone or any entity that seeks to break up monopolies. They are in the business of enforcing antitrust laws so that no one company has too much power over one industry. President Theodore Roosevelt was a famous trust buster.
The Bottom Line
A controversial individual, J.P. Morgan played a massive role in the growth of U.S. industry and finance. He left his mark on many industries, from electricity to steel to banking to railroads. He made shrewd and wise investment decisions that allowed him to consolidate many industries into monopolies. His actions have had a lasting effect on the U.S. economy.
