How a ‘Generous Skinflint’ Restored America’s Fiscal Reputation

By John Steele Gordon

Skinflints can be generous too. Consider George Peabody (1795-1869), one of this country’s first international bankers, living in London the last 30 years of his life. Born poor in Danvers, Mass. (now renamed Peabody in his honor), he never quite got over his early penury. Worth millions, he once famously stood in the rain, letting the two-penny bus go by in order to catch the one-penny bus. Like his fictional contemporary Ebenezer Scrooge, Peabody was notably ungenerous to his employees. And then, like Scrooge, at the end of his life he suddenly redeemed himself.

Peabody moved to Baltimore when he was 21 and established a dry goods business, importing fabrics and such from England. He soon prospered and began trading in state bonds, slowly moving away from dry goods and into merchant banking.

In the early 19th century, London was the world’s financial center and the capital-poor United States needed British capital to develop and power its rapidly growing economy. Unfortunately, many state governments developed very poor financial reputations, making London bankers reluctant to buy their paper. After the financial panic of 1837, the year that Peabody moved to London, states began to default as the ensuing depression deepened.

Pennsylvania, Mississippi, Indiana, Arkansas, Michigan and the territory of Florida all stopped making interest payments on their outstanding bonds. No wonder Charles Dickens in A Christmas Carol, published in 1843, gave Scrooge a nightmare in which his gilt-edge bonds had become “a mere United States security.”

Peabody worked hard to restore his country’s reputation. He had sold many of Maryland’s state bonds to European investors and when Maryland too went into default, his own reputation was severely tarnished. Peabody wrote his Baltimore business associates to pressure the state government to resume payments. Together with Barings Bank he paid journalists to run stories favoring resumption and even paid Sen. Daniel Webster of New Hampshire to make speeches on the subject.

After Maryland resumed payments, Peabody worked to get other defaulting states to restore their reputations. Peabody began holding an annual July 4 party for the cream of the British establishment and even lent £3,000 to beef up the American exhibit at the Crystal Palace Exhibition of 1851.

Peabody never married and in 1854 he took in a younger partner, Junius Morgan. After Peabody’s death, Morgan changed the name of the firm to J.S. Morgan & Co. (And after Morgan’s death, his son Pierpont took over and the firm became the great American banking house of J.P. Morgan & Co.)

Having devoted his entire adult life to accumulating one of the great fortunes of the age—while spending as little as possible in the process—Peabody spent his last decade giving it away. He established the Peabody Institute in Baltimore and the Peabody Museums at Harvard and Yale. In London, he gave £150,000 to a trust fund to build housing projects for the city’s poor. Equipped with gaslight and running water, the Peabody Estates (which still dot the London cityscape) were a huge improvement on the Dickensian slums the poor then lived in. Back in the States, Peabody gave generously to an education fund to help emancipated slaves after the Civil War.

For his generosity, he was given the freedom of the City of London, the first American so honored. Indeed, Peabody became so generous in his philanthropic endeavors that he was offered a baronetcy by Queen Victoria, almost unprecedented for someone not a British subject. His funeral was held in Westminster Abbey and his remains were returned to the United States aboard HMS Monarch, Britain’s largest and newest battleship.

One hopes that, like Scrooge, Peabody finally found happiness in generosity.

About John Steele Gordon

John Steele Gordon
John Steele Gordon, the ABA Banking Journal's "From the Vault" columnist, is an acclaimed economic historian. His books include An Empire of Wealth, Hamilton’s Blessing and The Great Game.