What Is Morganization?

Morganization is the name given to monopolization techniques used by investor and banking mogul 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.

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. anti-trust 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 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. (along with his 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. 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. 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.