One of the most famous American bankers in history, John Pierpont Morgan, got his start not in New York but in London. There, his father was a partner in a firm founded by another American abroad, George Peabody. Peabody was born poor and received very little education; after finding success in business in America, he became a London-based financier. Even more than his rags-to-riches story and his successful career as a merchant banker, Peabody is known for his philanthropy. At a time when large acts generosity were not typically expected of the very wealthy, Peabody set a standard which future tycoons, like J. P. Morgan himself, would be expected to match.
Dry Goods
George Peabody was born in Danvers, Massachusetts in 1795, was raised in a poor family with seven siblings, and received little formal education. Peabody apprenticed in a general store where he complemented his limited schooling with a knowledge of trade and exercises in diligence that earned the respect of his first boss. After a few years he went to work for an older brother running a drapery shop in Newburyport, north of Boston.
The drapery store closed after most of the rest of Newburyport burned down in 1811. This was also the year George’s father died, leaving him to support the family alongside his other older siblings. Peabody moved to Washington D.C. where he worked in an uncle’s dry goods store. He proved himself useful before he even left New England by securing credit from a Boston-based merchant, allowing his uncle’s store to fill its inventory. While in Washington, he briefly served in the militia defending the city during the War of 1812. Peabody later formed a new dry goods business with a fellow militiaman, launching Riggs and Peabody in Baltimore.
Peabody travelled widely for his new firm which opened branches in Philadelphia and New York. He was no longer a poor man as Riggs and Peabody prospered. He made five foreign trips to source inventory in Europe between 1827 and 1837, starting with Liverpool in 1827 where he obtained orders for American cotton and purchased English goods to send to his Baltimore firm. The typical routine involved travelling across Britain first before securing product on the continent. In 1837, Peabody settled permanently in London.
Finance
That year began Peabody’s redirection towards finance. Brown Brothers, already a reasonably well-known Baltimore-based banking firm, was ensnared in a financial panic and requested assistance from the Bank of England through its Liverpool-based partners. The Bank of England offered to provide assistance but demanded that other firms guarantee its loan to the troubled bankers. Since Brown Brothers had supplied Peabody with his own credit, he assisted the firm in securing a guarantee while on his travels and ultimately secured more than enough commitments from other bankers.
Within a year in Britain, Peabody moved from the dry-good business into finance himself. Peabody would no longer just be trading in dry goods but would be financing trade too. From London, Peabody was open to risky ventures, such as financing shipments to grain to Ireland during the potato famine. Shipping losses and price fluctuations for grain nearly caused a large loss had he not withdrawn from this trade in time.
His role as a prominent American merchant in Britain made him useful to American governments and firms sourcing capital in London, as many did at the time. On an earlier trip to Britain, Peabody had secured an $8 million loan for his home state of Maryland, though he did not accept any fee for arranging the financing. This was no small accomplishment; the state’s credit was poor and some members of the legislature were openly in favor of defaulting on the state’s existing debt. Still, Peabody convinced London bankers to lend more money.
Peabody was also active in promoting the bonds of Maryland firms like the Chesapeake and Ohio Canal and the Baltimore and Ohio Railroad. He became a broker in 1843, buying and selling American state bonds in London through his new firm, George Peabody & Co., at a time when American credit was poor. He was essentially a trader in distressed, often defaulted, securities. Since Peabody himself had originally placed struggling American securities in the hands of many investors, he saw his reputation tarnished. He was even barred entry into London’s Reform Club for his association with bankrupt American state governments.
Nonetheless, Peabody worked with Barings, a London bank active in America, to push state governments to resume repayments where they had defaulted in the late 1830s and early 1840s. When they did so, the bonds recovered, delivering Peabody a great return on his own holdings. He became very wealthy over the next twenty years, amassing a fortune of $20 million.
As the American fiasco faded into memory, Peabody’s reputation recovered; it was also helped by the fact that his efforts to persuade state governments to repay were well-known. In turn, Peabody supported America’s image and trade in Britain. When the American Congress appropriated no funds for an American exhibit at London’s Great Exhibition in 1851, Peabody lent money on short-notice to prepare the American potion of the exhibition, where American products were showcased to businesspeople and tourists in the city.
Two of Peabody’s partners at George Peabody & Co. were Junius Spencer Morgan and his son, the future preeminent American banker John Pierpont Morgan. The Morgans did not leave Peabody to start their own firm but rather took over its management and changed its name to J.S. Morgan & Co. upon Peabody’s retirement. George Peabody & Co. is the origin of today’s JPMorgan Chase & Co.
At George Peabody & Co., the elder Morgan found his partner’s frugality perplexing. Peabody did not own a carriage but took a public horsecar to work. Morgan recounted seeing Peabody waiting in the rain for a penny bus, having allowed at least one twopenny bus pass him by, too costly for the very rich George Peabody.
Philanthropy
Peabody supposedly spent only one percent of his income, or about $3,000 of an income of $300,000 per annum. He gave away the difference. Junius Spencer Morgan did not get to benefit from Peabody’s fortune because he withdrew his capital from the firm upon handing it off to Morgan. Peabody had new ventures in mind, outside of finance or commerce. He gave away most of his fortune to philanthropic projects on both sides of the Atlantic over the 1850s and 1860s.
Education was a core focus of Peabody’s philanthropy. Back in America, Peabody had paid for the education of his sisters and younger relatives when he became wealthy enough to do so. He believed education was an effective defense against poverty. Peabody established museums at Yale and Harvard Universities and elsewhere. The Peabody Institute he funded in Baltimore combined a lecture hall, an art gallery, and a music conservatory. He endowed academic chairs at schools and colleges. Perhaps more notably though, the Peabody Education Fund was established with $3.5 million from Peabody to promote education in the American South after the civil war. The U.S. Congress conferred a Congressional Gold Medal on Peabody.
In Britain, perhaps his most notable legacy is the Peabody Trust. Created in 1862 with £500,000 ($2.5 million), the Peabody Trust provided better housing to London’s working classes. The first Peabody estates opened in 1864 and charged lower rents for better housing than could be had by the poor elsewhere in London. By the time of Peabody’s death in 1869, the Peabody Trust was housing 2,000 people and ten times as many by the end of the century. Queen Victoria wrote a letter of thanks and a statue erected in Peabody’s honor was paid for by popular donations.
Peabody died a very famous man. After his 1869 death, he was interred at Westminster Abbey for a month before being carried across the Atlantic by the Royal Navy. Not just any vessel would do and one of the Royal Navy’s newest and most well-known ships, HMS Monarch, was tasked with this job. Peabody’s funeral in America attracted great publicity and was attended by Prince Arthur, Queen Victoria’s son who happened to be touring Canada and the United States at the time. Peabody was buried in his native Peabody, Massachusetts, renamed in his honor back in 1868.
Lesson
Whether in his trading of dry goods or holdings of distressed bonds, George Peabody was not afraid of taking big gambles. In a way, his participation in risky ventures contrasted with his reputation for propriety and personal austerity. Neither his business or character is Peabody’s most enduring legacy though; that would be his philanthropy. The honors conferred on Peabody on account of his philanthropy are not surprising given just how novel it was in that era to give away the bulk of one’s fortune. Many of the institutions established from his giving still exist today.
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Further Reading
1. The Editors of Encyclopaedia Britannica. “George Peabody.” Encyclopædia Britannica, Last updated: 14 Feb. 2022.
2. Braun, Helena. When Bankers Were Good. Presented by Ian Hislop, BBC, 2011.
3. Chernow, Ron. The House of Morgan: An American Banking Dynasty and the Rise of Modern Finance. Grove Press, 2010.
4. Parker, Franklin. George Peabody, a Biography. Vanderbilt University Press, 1995.
5. Parker, Franklin. “The Funeral of George Peabody.” Peabody Journal of Education, vol. 44, no. 1, 1966, pp. 21–36.
