What is Morganization

Morganization is the name given to monopolization techniques used by J.P. Morgan in the 19th century. 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.

BREAKING DOWN Morganization

Morgan "morganized" the railroad industry first, taking over small underfinanced companies. 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 reinvented how monopolies can be created by eliminating competition through buying up smaller companies, decreasing prices until the competitors went bankrupt trying to compete, buying up the bankrupt competitors to cover more ground in a market and slashing the workforce behind the company while reducing wages. Collectively, these actions maximized the monopoly's profit. Morgan eventually took control of three major industries: railroads, electricity and steel, and his dedication to efficiency and modernization revolutionized American business. J.P. Morgan & Co. (and partners) would go on to build an estimated net worth of over $22 billion.

Perhaps the greatest example of Morganization at 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. 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. The end result was that U.S. Steel became the largest operator and lowest cost producer in the steel business.

Morganization vs. President Theodore Roosevelt

Morganization was, in effect, an open challenge to the antitrust laws of the United States and the 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.