Since the founding of the United States in the late eighteenth century, Americans have rooted their national identity in their relationship with the wider world. America’s geopolitical position, its civilizing mission, its identity as the home of a chosen people, and its security requirements have shaped not only Americans’ external relations but also their very sense of themselves and who they are in a world of other peoples.

American nationalism has of course had several other sources than the outside world.1 The virtue of republican self-government – what might be identified as “civic nationalism” – has been an obviously powerful font of America’s self-identity, particularly the ways in which Americans have seen themselves as different, even superior, to other countries.

This chapter examines the ways in which Lyndon Johnson attempted to build on and expand the liberal tradition in twentieth-century American politics. As he did so from the perch of the Oval Office, Johnson ran directly into the structural limitations and debilitating political fears of liberalism that were at work right at this high point for Johnson’s career: the racial accord that Northern Democrats had entered into with Southerners in the 1930s, and the fears about appearing weak on national security. In the end, the political vulnerabilities and limitations of this tradition would overwhelm him, leaving him to announce that he would not run for reelection in October 1964 and defining his legacy over the failed war in Vietnam. While it is important to understand how Johnson’s own agency led to his downfall, it is equally relevant to understand how the nature of American liberalism trapped Johnson into these positions. The president was caught in the basic contradictions of the agenda that he inherited and championed. The same tradition that strengthened his resolve to grow the government to tackle new areas of domestic life also pushed him toward the decisions that drowned his legacy for decades to come. This is not just the story of Lyndon Johnson – it’s the story of American liberalism in the twentieth century.

This Chapter discusses the infamous economic crisis, the Great Depression, and its political and regulatory ramifications. After a devastating stock market collapse seemingly enabled by laissez-fair policy (“hands-off” governmental role in the marketplace), politicians turned to John Maynard Keynes for economic policy guidance. Keynes theorized that investment in infrastructure and public works projects could boost the economy by a multiplier factor. President Franklin D. Roosevelt also turned to Justice Louis Dembitz Brandeis to shape his administration’s regulatory policies. The legislature passed the Securities Act of 1933, which called for strict disclosure requirements compelling registered companies to regularly report financial statistics to investors and the public. This crucial piece of legislation created the Securities Exchange Commission (the “SEC”). Public sale of stock came under the purview of this powerful regulatory agency. In the wake of the Great Depression, a galvanized federal government, bent on protecting the American people from another economic catastrophe, passed a series of sweeping regulatory and legislative reforms collectively called The New Deal.

The Introduction lays out the principal arguments of the book, namely that the history of J.P. Morgan & Co. in the 1930s informs the reader about how the leading American financial institution coped with and participated in, the challenges of a crisis decade, while simultaneously making a case for a broader understanding of capitalism’s survival.

This chapter examines J.P. Morgan & Co., the Hoover administration, and the progress of the Depression in the United States between 1930 and 1933. It challenges the idea that banks were bystanders as the trauma of the Great Depression unfolded. Morgan activity took several forms. The first was acting selectively to aid private institutions in trouble in 1930–31. This policy ended with the last quarter of 1931 when heavy losses weakened the Morgan bank. While 1930–33 was devastating for the bank’s operations, two periods stand out as especially harmful: the last quarter of 1931 and the first quarter of 1933. The Morgan partners pushed the Hoover administration to adopt forceful measures to respond to deflation. Leffingwell and Parker Gilbert believed that deflation was imperilling capitalism’s existence. Attempts to shift Hoover were unsuccessful, in part because of the latter’s suspicion of the Morgan bank, in part because of the incoherence of the Morgan policy prescription. By the opening months of 1933 the Morgan partners had come to accept that suspension of the gold standard was necessary to save capitalism. Yet, the chapter suggests, by Roosevelt’s inauguration neither Hoover nor Roosevelt were listening to the partners.

Histories of the interaction between business and the New Deal have emphasized a movement from concord, to doubt, to full-blown animosity by 1935–36. The advent of the American Liberty League is often seen as emblematic. For J.P. Morgan & Co. the New Deal was fracturing – in its banking business, in its politics, and among its partners. While the Pecora hearings dominated American media in May-June 1933, Glass–Steagall was the fulcrum on which the Morgan bank and the New Deal pivoted. Glass–Steagall dictated that J.P. Morgan & Co. must make a choice between commercial and investment banking. From the late summer of 1933 Morgan efforts were bent to securing its revision. Unable to secure modification of Glass–Steagall, the Morgan partners split on their appreciation of Roosevelt and the New Deal. Jack Morgan became a strident critic, while Leffingwell argued that the New Deal had saved capitalism. Simultaneously, the partners, reeling, became ever more cautious as bankers, embracing a conservatism that reflected their hope that the provisions of Glass–Steagall would not be implemented. When this failed, they created Morgan Stanley as an independent investment bank as a temporary adaptation.

The years between 1937 and 1940 were dominated by two themes: the future of the bank and the move to war. With their investment business gone, the partners retreated into inertia, an inclination deepened by the sharp contraction of 193–38. Against Wall Street opinion, and Federal Reserve Board policy, the partners argued that tightening monetary policy was unsound. As the recession deepened, the White House reached out to J.P. Morgan & Co. This feeler ended in disharmony. When it did, confronted with the subsequent death of their partner Charles Steele, the partners decided that survival required incorporating. Making this decision easier was the European war. J.P. Morgan & Co. was of modest consequence as war loomed. Supporters of appeasement, the partners tried to help France in the late 1930s but their timidity was marked enough that the French had recourse to others. Across the Channel, Neville Chamberlain’s government ignored the Morgan partners. With war, the Morgan partners moved closer in their embrace of Roosevelt. Ardent supporters of Britain and France, J.P. Morgan & Co. was not in the interventionist camp. They argued for aid to the Western democracies but not American belligerency, a posture that aligned with the president.