Our attention was bound to come around to the first age of capital,
those years that stretched from Britain's repeal of the Corn Laws in
1846 to the outbreak of the First World War. For once we had entered
into a great controversy about the integration of global finance and
markets in our time, that first global economy became a very usable
past.

In a way, it came rather too easily. By a leap of faith, by
imaginative historical analogies, the Internet became for us what the
railroads were for that earlier age. Today's heady belief that
commerce has tamed conquest and made wars unthinkable can also be
located back in that era. So when the evangelists of globalization
trumpeted the birth of Pax Kapital, the historically-minded, and
particularly those most skeptical about the claimed novelty of our
times, headed straight into the past, into that First Global Economy.
There they saw the precursors of the present moment: transnational
capital, mobility of labor, a global monetary authority attained
through the functioning of the gold standard, and, most vivid of all,
the titans of industry who loomed larger than princes and the rulers
of states. They also saw rack and ruin and illusion. Then, too,
nations thought they had tamed the beast--only to be overtaken by
war, the destruction of markets, and the shredding of economic
liberalism.

It was with this story that the influential and popular economist
Paul Krugman launched his column in the New York Times. For his
maiden voyage on January 2, 2000, the economist-turned-pundit chose
to write of that First Global Economy. We have been here before, he
warned, and the seemingly "unstoppable logic of growing trade and
investment" could again be undone. "To some extent", Krugman wrote,

"The First Global Economy was a casualty of war. The Panama Canal and
the Western Front both went into action in August 1914. . . . But the
truth is that even before 1914, though the volume of trade and
investment continued to expand, the globalist idea was on the
defensive. Intelligent men might explain that wars were no longer
worth fighting and borders obsolete; a sophisticated cosmopolitan
elite . . . might move freely between continents; but the political
foundations for a global economy were never properly laid, and at the
first serious shock the structure collapsed."

"I speak to my daughter-in-law so my neighbor can hear me", goes an
Arab maxim. Which is to acknowledge that all these journeys into the
past are, of course, meditations on our time, on our Second Global
Economy, to use Krugman's term, and ruminations about our own fate.
States smashed the liberal world in 1914, the "commanding heights"
were claimed by political men, and the regulatory state emerged out
of the wreckage of a global time of troubles. No age exactly repeats
what has gone before, it must be granted right away. But increasingly
we are writing our world, and reading it, into the way the First
Global Economy was put together, and then came apart.

Raging, Tearing, Booming

Often enough, we are reading that world through the lives of great
men. In the age of Bill Gates, Steve Case and Warren Buffett (the
"Oracle of Omaha"), it is natural to think of John D. Rockefeller,
J.P. Morgan and the Rothschilds. Those giants of finance lorded over
a global economy sustained by Pax Britannica, underpinned by the
ideology of free trade, transnational in its sources and movement of
capital. But even they could not prevent the ground from being pulled
from underneath them as political support cracked and the
liberalizing gains of six to seven decades were irretrievably lost.
They are the characters that act out the plot.

The best portrait of the Gilded Age has been sketched for us by the
historian and writer Jean Strouse in her magnificent biography,
Morgan: An American Financier. A biographer at once tireless and
possessed of a delicate touch, Strouse has captured a seminal figure
in American economic history against a rich and crowded and
tumultuous background. Her work will stand as one of those books that
do justice to a single, important life, but place the subject in a
whole, big world. Now and then a life illuminates an age, and it was
J.P. Morgan's luck and fate to come into his own as America itself
was being remade.

Born in 1837, Morgan stepped into the family's merchant banking
business to work with his father, Junius, at a time of great economic
transformation. A single national economy was being created by
railroads, and thousands of miles of track were being laid down. The
U.S. population would double between 1870 and 1914, while the
national wealth would increase fourfold. It was a time of rising per
capita incomes, a roaring bull market, and a speculative fever in
land and stocks. The dash for riches had begun in the immediate
aftermath of the Civil War. It was, as Ron Chernow put it in a rich
biography, Titan: The Life of John D. Rockefeller, Sr., a time of
"outsize dreams. . . . A new cult of opportunity sprang up, producing
a generation of business leaders for whom work was the greatest
adventure life afforded." Money was in the air, and all sorts of
possibilities danced about: "A perfect mania for patents and
inventions swept America, as everybody tinkered with some new
contrivance." Men were through with the past, and with tradition.
This was the world that Mark Twain--who gave us the term "the Gilded
Age"--described as the "raging, tearing, booming nineteenth century."

The capital markets--domestic savings, and American securities sold
in European markets--had a brand new world to finance and to invent.
It was not merciful, that new world, and it was not ordered: it was
propelled by buccaneer capitalism at full throttle, and the railroad
business epitomized the chaos. There were unsupervised, good lines
competing with lines laid down by speculators. From the outset of his
remarkable career, Morgan abhorred that kind of chaos. His instinct
was for order. He was for "true" valuation. (The kind of valuation,
disconnected from profits, that has--until recently--been driving the
Internet market ever higher would have been anathema to him.)

Morgan's initiation into the world of market volatility came in the
depression of 1873, a six-year decline that shattered the boom of the
post-Civil War economy. Fittingly, it began with trouble in the
railroads, spread to the banks, and exposed the weakness of an
economy fueled by speculation and unsecured debt. When the
government's leading private banker, Jay Cooke & Co., failed, panic
overtook the capital markets. In Strouse's summation:

"Demand dried up. Businesses contracted, cut wages, and laid off
employees. Railroad construction dropped from 7,500 miles in 1872 to
1,600 in 1875; by the following year half the roads in the country
were bankrupt. . . . Investment capital disappeared; foreigners lost
$600 million in the United States between 1873 and 1879."

The "captains of industry" then stepped forth to shape the new order
of things. John D. Rockefeller and Andrew Carnegie came to dominate
their industries, butt out rivals, and build great industrial
empires. The firm on 23 Wall Street--Drexel, Morgan & Co.--had been
spared the turmoil, and picked up the business of banks that had gone
under. But Pierpont Morgan had emerged out of that crisis with a
preference for a "guided" form of capitalism and a dread of
unrestrained competition. The nation had no central bank to oversee
and regulate the supply of currency and check economic panic; Morgan
now had a view of the role that awaited him. An eastern banker who
understood the capital markets of Europe and the need of a debtor
nation to keep its finances in order, he sought more disciplined
fiscal conditions: a sound dollar, the reduction of Civil War debt,
the growth of domestic savings, and the return of the United States
to the gold standard, which it had abandoned in 1862. This put Morgan
in the cross currents of a great struggle between the interests and
outlook he represented and the advocates of easy money, who came
together from the distressed economies of the South and the West to
form the Greenback Party. The Treasury/Wall Street alliance that
would become a lightning rod for populists for decades to come had
made its appearance, and Pierpont Morgan had played a significant
part in forging it.

When Morgan subsequently stepped beyond his old concerns with the
railroads and government bonds into the realm of industrial
securities, he did so in a grand fashion. In 1901 he put together the
deal that purchased Andrew Carnegie's steel business, consolidated
the industry, and created that great giant, U.S. Steel. A tidal wave
of mergers in the economy worked its way through the land between
1897 and 1904, and the consolidation of the steel industry, now the
nation's pre-eminent manufacturing concern, was part of this larger
transformation. The sale of Carnegie's steel business was a
straightforward proposition. Carnegie, who was leaving the world of
industry to take up philanthropy, scribbled on a piece of paper his
asking price: $480 million, twelve times the annual earnings of his
company. Morgan accepted it without any quibble. His mastery now
loomed larger than ever in the nation's economic life. That
incomparable chronicler of his time, Henry Adams, wrote, "Pierpont is
trying to swallow the sun."