JP Morgan: Gold is Money, Money is a Commodity (or not) and the Issue of Credit

The QUESTION of what James Pierpont Morgan actually said to Samuel Untermeyer (Attorney for the Committee) is debated ad nauseum on different websites. It's always food-for-thought.
Here's the relevant text of that Congressional hearing, nearly 100 years ago to this date. This is a matter of the public govt record and not under copyright.

SUBCOMITTEE OF THE COMMITTEE ON BANKING AND CURRENCY,
HOUSE OF REPRESENTATIVES, WASHINGTON, D.C., THURSDAY,
DECEMBER 19, 1912, 10:30am
Mr. Morgan. What I call money is the basis of banking.
Mr. Untermyer. But the basis of banking is credit, is it not?
Mr. Morgan. Not always. That is an evidence of banking, but it is not the money itself. Money is gold, and nothing else.
Mr. Untermyer. Do you not know that the basis of banking all over the world is credit rather than gold?
Mr. Morgan. It is the basis of credit, but it is not the basis of money.
Mr. Untermyer. I say, the basis of all banking is credit, is it not, and not money?
Mr. Morgan. No; I do not think so.
Mr. Untermyer. Do you not know that it is?
Mr. Morgan. A basis of banking is credit, but not a basis of money.
Mr. Untermyer. The basis of banking is credit?
Mr. Morgan. Yes.
Mr. Untermyer. And you know, do you not, that in no part of the world is the supply of gold anything like sufficient to meet the outstanding obligations in the form of notes representing credit?
Mr. Morgan. That is so.
Mr. Untermyer. That is so, is it not?
Mr. Morgan. Of course.
Mr. Untermyer. Therefore, when money is issued by a Government it is issued largely on the basis of credit, is it not? It has got dollar for dollar of gold to support it, has it?
Mr. Morgan. Well, no; not always.
Mr. Untermyer. Is there any country in the world of which the outstanding obligations passing as money are supported dollar for dollar by gold?
Mr. Morgan. It comes nearer to it in England than anywhere else.
Mr. Untermyer. Does it not come nearer to it here than in England?
Mr. Morgan. No; because you have got your greenbacks.
Mr. Untermyer. How near does it come to it in England?
Mr. Morgan. I do not know. I cannot tell you.
Mr. Untermyer. You cannot tell the proportions?
Mr. Morgan. I cannot tell you the proportions.
Mr. Untermyer. At any rate, it is largely credit there, as it is everywhere, is it not?
Mr. Morgan. Yes.
Mr. Untermyer. A man or a group of men who have the control of credit have control of money, have they not?
Mr. Morgan. Yes.
Mr. Untermyer. Is not that so?
Mr. Morgan. No, sir; not always.
Mr. Untermyer. That is general so, is it not?
Mr. Morgan. No.
Mr. Untermyer. If you had the control of all the credit and the funds
Mr. Morgan. Now, the funds—no; leave credit alone.
Mr. Untermyer. If you had the control of all that represents the assets in the banks of New York, you would have the control of money—of all that money?
Mr. Morgan. No; you would not.
Mr. Untermyer. You would not?
Mr. Morgan. No.
Mr. Untermyer. You would not?
Mr. Morgan. No, sir; not in my opinion. I may be wrong; but that is my opinion of it.
Mr. Untermyer. Money is a commodity, is it not?
Mr. Morgan. A very important one.
Mr. Untermyer. It is a commodity?
Mr. Morgan. Yes.
Mr. Untermyer. You regard it as regulated by supply and demand, like any other commodity, do you not?
Mr. Morgan. Yes.
Mr. Untermyer. And you know you can control any other commodity, do you not?
Mr. Morgan. No; I do not think so.
Mr. Untermyer. Do you not? I thought you said this morning that you could control a commodity, but you could not control money?
Mr. Morgan. I say, you can get a combination that can control business, and all that.
Mr. Untermyer. A given commodity?
Mr. Morgan. Not a question of a commodity. You can control business; but you cannot control money.
Mr. Untermyer. You can control a given commodity, like steel or wool or some other article of commerce, can you not? I say, you can control it?
Mr. Morgan. Yes; but if you try to control it—take the question of food and all that sort of thing. You could not control that.
Mr. Untermyer. I am- not speaking of food.
Mr. Morgan. That is a commodity.
Mr. Untermyer. I say there are commodities that you can control?
Mr. Morgan. Yes; I suppose there are.
Mr. Untermyer. And it is conceivable that every commodity could be controlled, is it not?
Mr. Morgan. Except money.
Mr. Untermyer. I say, every commodity except money?
Mr. Morgan. Yes.
Mr. Untermyer. And money is a commodity?
Mr. Morgan. I do not like to think of it as a commodity.
Mr. Untermyer. If a man controlled the credit of a country, he would have a control of all its affairs?
Mr. Morgan. He might have that, but he would not have the money. If he had the credit and I had the money, his customer would be badly off.
Mr. Untermyer. Yes; I understand that. But it is not conceivable that one man would have the credit and the other the money, is- it, because the credit is based upon money?
Mr. Morgan. But money cannot be controlled.
Mr. Untermyer. Is not the credit based upon the money?
Mr. Morgan. No, sir.
Mr. Untermyer. It has no relation?
Mr. Morgan. No, sir.
Mr. Untermyer. None whatever?
Mr. Morgan. No, sir; none whatever.
Mr. Untermyer. So that the banks of New York City would have the same credit, and if you owned them you would have the same control of credit as if you had the money, would you not?
Mr. Morgan. I know lots of men, business men, too, who can borrow any amount, whose credit is unquestioned.
Mr. Untermyer. Is that not because it is believed that they have the money back of them?
Mr. Morgan. No, sir; it is because people believe in the man.
Mr. Untermyer. And it is regardless of whether he has any financial backing at all, is it?
Mr. Morgan. It is very often.
Mr. Untermyer. And he might not be worth anything?
Mr. Morgan. He might not have anything. I have known a man to come into my office, and I have given him a check for a million dollars when I knew he had not a cent in the world.
Mr. Untermyer. There are not many of them?
Mr. Morgan. Yes; a good many.
Mr. Untermyer. That is not business?
Mr. Morgan. Yes; unfortunately it is. I do not think it is good business, though.
Mr. Untermyer. Commercial credits are based upon the possession of money or property?
Mr. Morgan. What?
Mr. Untermyer. Commercial credits?
Mr. Morgan. Money or property or character.
Mr. Untermyer. Is not commercial credit based primarily upon money or property?
Mr. Morgan. No, sir; the first thing is character.
Mr. Untermyer. Before money or property?
Mr. Morgan. Before money or anything else. Money cannot buy it.
Mr. Untermyer. So that a man with character, without anything at all behind it, can get all the credit he wants, and a man with the property cannot get it?
Mr. Morgan. That is very often the case.
Mr. Untermyer. But that is the rule of business?
Mr. Morgan. That is the rule of business, sir.
Mr. Untermyer. If that is the rule of business, Mr. Morgan, why do the banks demand, the first thing they ask, a statement of what the man has got, before they extend him credit?
Mr. Morgan. That is what they go into; but the first thing they say is "We want to see your record."
Mr. Untermyer. Yes; and if his record is a blank, the next thing is how much has he got?
Mr. Morgan. People do not care, then.
Mr. Untermyer. For instance, if he has got Government bond or railroad bonds, and goes into get credit, he gets it, and on the security of those bonds, does he not?
Mr. Morgan. Yes.
Mr. Untermyer. He does not get it on his face or his character, does he?
Mr. Morgan. Yes; he gets it on his character.
Mr. Untermyer. I see; then he might as well take the bonds home, had he not?
Mr. Morgan. Because a man I do not trust could not get money from me on all the bonds in Christendom.
Mr. Untermyer. That is the rule all over the world?
Mr. Morgan. I think that is the fundamental basis of business.
Mr. Untermyer. That is the way money is loaned on Wall Street, on collateral?
Mr. Morgan. I do not know anything about that. I have nothing to do with it; but that is the principle.
Mr. Untermyer. You loan money on Wall Street?
Mr. Morgan. Yes; sometimes.
Mr. Untermyer. You loan it on stock-exchange collateral? Mr. Morgan. I know who the man is.
Mr. Untermyer. Do you mean to say that when you send money to loan on the stock exchange you know to whom you loan it?
Mr. Morgan. I may not know before it goes, but I know who he is before very long.
Mr. Untermyer. I know, but suppose you were lending money on demand loans on stock-exchange collateral?
Mr. Morgan. Yes.
Mr. Untermyer. You do a lot of that, do you not?
Mr. Morgan. Yes.
Mr. Untermyer. You loan it from day to day on the exchange, do you not?
Mr. Morgan. I used to do it.
Mr. Untermyer. And you do it now?
Mr. Morgan. Yes; I know. That is all right.
Mr. Untermyer. You lend it at the loan stand on the exchange?
Mr. Morgan. Yes.
Mr. Untermyer. And you get certain collateral?
Mr. Morgan. Yes.
Mr. Untermyer. Do you know anything about to whom you lend it?
Mr. Morgan. I do; at least I always did.
Mr. Untermyer. Do you mean to say that when people lend, as loans are made on stock-exchange collateral, to the extent of hundreds of millions of dollars, they look to anything except the collateral?
Mr. Morgan. Yes; they do.
Mr. Untermyer. They do?
Mr. Morgan. Yes. Right on that point, what I did, what I used to do—and I think it is pretty generally done now—is this: If I see there is a loan to Mr. Smith I say, "You call that loan right away." I would not have that loan in the box. I would not have that loan.
Mr. Untermyer. That is not the way money is loaned on the stock exchange?
Mr. Morgan. That is the way I loan it.
Mr. Untermyer. No matter what collateral a man has on the stock exchange
Mr. Morgan. If he is not satisfactory to me, I call the loan at once, personally.
Mr. Untermyer. I am not talking about you, personally.
Mr. Morgan. I call that loan personally. I am not talking of anybody else's way of doing business, but I tell you what I think is the basis of business.

...

 

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this confuses me:

Mr. Untermyer. Money is a commodity, is it not?
Mr. Morgan. A very important one.
Mr. Untermyer. It is a commodity?
Mr. Morgan. Yes.


Mr. Untermyer. And money is a commodity?
Mr. Morgan. I do not like to think of it as a commodity.

 

Ya, that's hilarious. I think you're supposed to be confused.

 

Sounds like your typical exchange between Ben B and Ron Paul, lol.

 

I was thinking the Marx Brothers.

 

After reading that transcript, these were my takeaways:

1) Morgan loaned money based upon character. This is the same as today, but the banks use a "credit rating" system in lieu of researching the character of each individual.

2) Untermeyer was trying to relate that credit, in itself, is a commodity, as is money.

3) Morgan argued that money, while technically a commodity, is used more as a facilitator of trade.

Did I miss something?

 

So, they're discussing the basis of banking and the basis of how credit is granted. Sounds like Morgan is in the "hot seat". In order to understand what or why he's saying what he's saying, we'd need to know the reason for the hearing.

 

Money is gold, and nothing else.

 

Who's on first?

The takaway is that money was and can be a commodity, particularly gold. I would never dispute that gold and silver can be money. But today they are not.

 

'The Creature from Jekyll Island" I suppose. The National Monetary Commission (1909–1912) submitted a report to Congress on January 9, 1912, proposing changes to U.S. banking and currency laws. Rural and western states feared organs of this Aldrich Plan would be controlled by certain rich and powerful financiers in New York City, referred to as the "Money Trust." The Pujo Committee was investigating that.
[video=youtube;lu_VqX6J93k]http://www.youtube.com/watch?v=lu_VqX6J93k[/video]

It should be noted that J.P. Morgan & Co. partner Henry P. Davison attended the Jekyll Island Meeting in 1910, but that doesn't mean JPM approved any details. In this testimony, he phrases his lending activities in the past tense, so he may have been largely retired from the day-to-day business.

Untermeyer refers to "the outstanding obligations passing as money" which Morgan quickly derides as "YOUR greenbacks." JPM draws a distinction between Money (Gold) and those Paper Obligations, here.
It's obvious: in Morgan's opinion, Money is NOT Paper and (Greenbacks or credit notes) cannot be!

Paper Bugs have typically miscontrued and/or disinformed on this point. This text clarifies what JPM said & meant specifically: "Money is gold, and nothing else."

 

It just goes to prove that politicians 100 years ago made no more sense than they do today.


I am surprised that Morgan listened to the idiot that long.

I would have excused myself and left.
Permanently.

 

Samuel Untermyer wasn't a politician, he was a highly-respected lawyer. His career was quite spectacular, and I don't see him as the idiot here. Why do you think otherwise?
http://en.wikipedia.org/wiki/Samuel_Untermyer

If it taxed you so to simply read/think about this, I do apologize.

 

I think Morgan was probably having a good time. One must also caution that Morgan's ideas were in the process of becomming obsolete at the time which may have led to some of the exchanges between the men -- the past meets the future.

 

taxed me?

Nope.

Just the repeating, and re-wording.

seems silly to me.

Highly respected?

For what?

Asking the same thing 15 times?

[okay, several times.]

 

Agreed, cloudsweeper. In fact, JPM would dead in 3 months.

His firm may have sent Morgan to speak because he was largely 'out-of-loop' on the Pujo Committee's issues -- AND/OR -- because his was the best window-dressing they could muster (to cover-up the Jekyll Island conspiracy.) You know where it went? The Pujo Committee findings led directly to the Sixteenth Amendment (Federal Income Tax) and the Federal Reserve Act.

..."Gee, thanks!!!"

 

I don't think anybody misconstrued Morgan's quote, which is widely known. I think they just consider it outdated thinking.

 

History Channel has a programme on their network right now titled "Men Who Built America" and whilst it is sensationalised a wee bit with regards to the Robber Barons it does also factor J. P. Morgan and is educational if you have some otherwise acquired knowledge of what they are presenting. It is also now on "On Demand" - well worth a watch.