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The author discusses the uncommon instance of a private banker conducting official bilateral talks potentially of considerable national and international importance. Dr. Kilgroe, who teaches U.S. History at North Carolina State University, earned a Ph.D. at the University of North Carolina at Chapel Hill in 1989, working with Professor Michael H. Hunt.

~ Ed.

NOTHING QUITE PREPARED J. P. Morgan’s senior partner, Thomas William Lamont, for Japan. While the American banker lunched at the downtown Tokyo villa of Japan’s wealthiest man, Baron Iwasaki of the Mitsubishi zaibatsu, the baron offered to show him his garden. It was one of the most beautiful gardens I ever expect to see, Lamont wrote, everything was artificially constructed but beautiful and perfect—rocks, mountains, flowers, shrubs along the shore of a picturesque artificial lake. In the middle of the lake, two old retainers sculled about in a sampan, casting a net for fish. So taken was Lamont by this illusion of timeless serenity that it momentarily blotted out that other Japan, the Japan of blood and iron.1 But were he to succeed in his current mission to Japan, he would have to persuade the Japanese of the futility of military aggrandizement and of the benefits of international cooperation.
Lamont’s arrival in Japan in the spring of 1920 came within what the author of The House of Morgan has called the Morgan Bank’s Diplomatic Age. As historian Ron Chernow observes, the tendency of Washington to seek the cooperation of leading American businesses such as the Morgan Bank reached a high point during the 1920s and blurred the lines between private interests and public policy. And nothing better symbolized the House of Morgan’s postwar supremacy or its fusion with American policy in the Diplomatic Age than its new prominence in the Far East.2 Beginning in the late nineteenth century, the Morgan bank had led the charge to export American capital abroad. J. P. Morgan and Company was America’s preeminent investment bank, with partnership arrangements in England and France. After the purchase of Andrew Carnegie’s steel interests, Morgan’s organization of the first billion dollar corporation, United States Steel, suggests that the bank had positioned itself to exploit both the financial and commercial advantages of markets abroad.3 The head of the firm, J. Pierpont Morgan, Sr., was by far America’s best known investment banker. One fellow investor called him the greatest financial genius this country has ever known.4 He was credited with halting a financial panic in 1907 almost singlehandedly, for example. So exalted had Morgan’s position in international finance become that he would deal directly with kings and heads of state, as in 1905 when Morgan and King Leopold II of Belgium haggled over the sale of a railway concession in China.5

Thomas Lamont joined J. P. Morgan & Co. in 1910. Personally recruited by Morgan himself, Lamont quickly became the bank’s spinmeister and its most accomplished diplomat. Already well-connected to Washington insiders, the Harvard-educated Lamont would become internationally known for his part in arranging loans and credits for America’s future allies, England and France, during the First World War. He would further enhance his international reputation when in 1918 he was selected as one of two representatives of the U. S. Treasury on the American Commission to Negotiate the Peace in Paris.6 Lamont was also one of the firm’s lead men in Asian business, serving as chairman in 1920 of the American Group of the International Banking Consortium for China.

As Pierpont Morgan had discovered earlier, doing business in Asia was not without complications. By the end of the nineteenth century, China had become the focus of an intense rivalry among the Europe’s leading industrial powers. With its defeat of China in 1895, Japan too joined in the scramble for Chinese concessions. This international competition, however, had intensified Chinese resistance to foreign imperialism and had demonstrated the wisdom of cooperation in the form of an international financial consortium.

In 1909, when it seemed likely that the United States might find the door to more lucrative Chinese investments slammed shut, the Taft Administration turned up the diplomatic heat, insisting that Great Britain, France, and Germany admit into the new banking combination an American group headed by J. P. Morgan and Company. In 1913, the Consortium was expanded to include Japanese and Russian banking groups. From the beginning, then, foreign investments in China were heavily weighted with political considerations as bankers worked in close cooperation with their governments in furtherance of national objectives. Thus, the American Group performed two functions: as bankers seeking the best return for their investors, and as an instrument of American foreign policy.7

The American Group’s relations with Washington were to say the least erratic. Either the American Group found itself forced into positions it thought unwise, as in 1909 when the Taft Administration tried to challenge Japan by its proposal to neutralize Manchurian railroads, or was publicly excoriated as in 1913 when Woodrow Wilson described the China Consortium as an organization whose purpose was to destroy the administrative integrity of China itself.8

World War I transformed Asian politics, however. In 1914, cashing in on an opportunity said by Japanese expansionists to come but once in a thousand years, Japan took over the former German sphere of influence in Shandong. Preoccupied with the war in Europe, the European powers did nothing. Nor were the Americans prepared to militarily intervene to defend China against Japanese incursions or to risk war with Japan for what were primarily commercial and political objectives. Yet Wilson was not prepared to abandon China totally to a rapacious Japan. Shortly after the United States entered the war in April 1917, Wilson authorized as a war measure the formation of a new American banking group, to be led preferably by someone other than the Morgan Bank.9

But Morgan was not to be excluded. When the bankers and administration officials met in June 1918, J. P. Morgan, Jr., son of the founder, was indisputably in charge. So important had the American Group become to Wilson’s Asian strategy that the president was prepared to accept Morgan’s leadership, although the administration did insist that all loans be submitted to the Department of State for approval.10 As a condition of membership in the new consortium, which was to consist of Great Britain, France, Japan, and the United States, the bankers demanded that all existing loans as well as options on future loans be relinquished to the group as whole.11 An exception was made for those projects on which substantial progress had been made. In essence, the Morgan Bank required that much of the large-scale industrial and railway business in China be turned over to the consortium. The effect would be to deny Japan the rewards of its recent aggression in China.

In May 1919, only a few miles from where the Paris peace negotiations were taking place, international bankers met to discuss the formation of a new China consortium. The bankers adopted the American proposals virtually intact. The Japanese representative, while stating that he was not authorized to deal with political questions arising from the surrender of options in Manchuria and Mongolia, signed nevertheless. Throughout the remainder of 1919, the consortium stalled as the Japanese government insisted that all rights and options held by Japan in Manchuria and Mongolia be excluded from the pooling arrangements. In pursuing its policy of containing Japan and helping a China in jeopardy to overcome Japanese obstructionism, the Wilson administration again turned to the House of Morgan. This meant, in effect, turning to Thomas Lamont.

As Lamont explained in a letter to Colonel Edward M. House, who had been until the Paris Peace Conference one of Wilson’s closest advisers, he agreed to undertake a trip to the Far East at the suggestion of the State Department. The Department argued that there was no other way to assist China financially or to persuade the Japanese to drop their reservations concerning Manchuria and Mongolia. He had been repeatedly reminded that the purpose of the consortium was to eliminate the claims to special territorial and political rights that had in the past been the basis for spheres of influence in China. Both the bankers and the administration agreed that such reservations on Japan’s part were inadmissible. Lamont was doubtful that purely through business means he would succeed, but he was willing to try. He had had long talks with the secretary and other Department officials and we are thoroughly and completely in accord. He recognized the high stakes involved, no less than getting Japan in line [and] maintaining the peace in Asia, and establishing friendly relations between the United States and Japan.12

Lamont also discussed his upcoming Asian trip with President Wilson. Although Wilson had been felled by a stroke in October 1919, he had nonetheless had been following developments. Wilson had been encouraged by the establishment of a republican form of government in 1912 and believed that given a chance, China’s nascent democracy could flourish. This could best be accomplished, in Lamont’s understanding, by co-opting Japan into the consortium.13

In addition, Lamont had private business to conduct for the House of Morgan in sounding out bankers on investment opportunities in Japan.

The fifty-year-old Lamont arrived in Japan in early March 1920. The fact that he spoke for the Wilson Administration as well as the British and French banking groups assured him of an audience with leading Japanese financial and government officials. Further, the American ambassador, Roland Morris, provided Lamont with invaluable assistance, making available to him the use of diplomatic cable channels, briefing him on the divisions within the Japanese government, and arranging for interviews.

Lamont’s key contact within the Japanese financial community and the designated spokesman for the government was Junnosuke Inouye. Like Lamont, Inouye preferred multinational cooperation over economic autarchy and destabilizing competition. A graduate of Tokyo University, Inouye had studied banking methods in both England and America. A former president of the Yokohama Specie Bank, currently governor of the Bank of Japan, and future Minister of Finance, Inouye impressed Lamont as frank, dignified and intelligent. From 1920 on, the close contact between Inouye and Lamont, in the estimation of a student of the period, formed the most important bridge between the two countries in their economic diplomacy.14

On March 4, Lamont held the first of several conferences with Inouye. Inouye assured Lamont that Japan had no territorial designs on Manchuria and Mongolia, areas that held special strategic and economic significance for Japan. Manchuria and Mongolia, Inouye explained, were key to Japan’s defense of Korea and the Japanese homeland, as well as crucial to the continued supply of industrial raw materials and food supplies. As a major importer, Japan was unusually susceptible to international market fluctuations and restrictionist trade policies. However, according to Inouye, Manchuria and Mongolia need not be an issue were American capital to be introduced there. Contrary to what Lamont may have been told, Japan welcomed a China made more economically self-sufficient through increased American investment.15

Lamont assured Inouye that the consortium would neither block Japan’s access to these vital materials nor undertake operations inimical to Japan’s defense or economic existence. He had already agreed at Paris to exclude from the consortium’s scope those projects upon which substantial progress had been made; therefore, Inouye need have no fear that Japan’s legitimate interests would be affected.16

Ever the pragmatist, Lamont had already accepted the fact that the United States, Great Britain, and France could do relatively little to dislodge Japan from Manchuria. The Department of State had said as much in the 1917 Lansing-Ishii Agreement. Japanese businessmen and bankers whose support was essential to Japan’s entry into the consortium were also deeply involved in the establishment of a Japanese empire in Northeastern Asia. Zaibatsu such as Mitsui and Mitsubishi and banks such as the Yokohama Specie Bank, the Japanese representative in the consortium, not only had substantial economic interests in Manchuria, but also stood to gain from any extension of Japanese power overseas. The Yokohama Specie Bank, for example, closely aligned with the South Manchurian Railway (known in Japan as Mantetsu), constituted two of Japan’s most important economic instruments in Manchuria.17

To his partners and to Secretary of State Robert Lansing, Lamont pointed out that theoretically American rights in Manchuria or anywhere else in China would be protected once the consortium was formally organized. But practically speaking, he saw nothing in South Manchuria and Inner Eastern Mongolia that would lead us to put money there unless Japan desires to go along. He accepted the Japanese contention that branches of the South Manchurian Railway lay outside the consortium’s scope, and given the extensive commercial and economic activities of Japanese nationals in Manchuria, offered little of interest to American investors. We cannot blink this fact away or be dogs in the manger and insist on keeping Japan out. It was better to state this fact openly so as to assist the Japanese government and group in composing their difficult domestic situation. But the Sinophiles in the State Department and Wilson himself were adamantly opposed to such a frank admission, which would in their view constitute the concession of a Japanese sphere of influence in China.18

Despite Lamont’s assurances that the consortium had no designs on the strategically important South Manchurian railways, its mines or any of its branches, the Japanese government reasserted its political claims to Manchuria and Mongolia. Inouye had told Lamont that it was the military which continued to place obstacles in the way of Japan’s unconditional entry into the consortium. Meeting with Ambassador Morris, Lamont advised firmness. He had gained the distinct impression that the Japanese government will come to adopt substantially our viewpoint inasmuch as the financial interests here. . .are all in favor of the consortium. Rather than a diplomatic démarche, Lamont suggested instead an exchange of notes between the American and Japanese banking groups. The letters would bolster the arguments of Japanese bankers and businessmen who were leading the fight within the government for the consortium and break the force of their [the bankers’] opposition.19

In Lamont’s view, such an exchange of notes would also make clear that the United States had no designs on China. On the contrary, the notes would mollify Japanese suspicions and clarify American objectives, which were to assist China in the reorganization of its currency and in the development of systems of transportation, not to pursue actions detrimental to Japan’s interests. Cooperation would mean for China’s public enterprises a far more orderly and complete development contributing to the speedy stabilization of the country economically and politically. The key was the construction of China’s railroads upon a great scale. Surely, Lamont contended, Japan must realize that of all the powers, it stood to gain the most from a stable China. The United States was simply asking for Japan’s assistance in making China a free field for the trade of all nations.20

But first, Lamont asserted, Japan had to discard the notion that it could become China’s suzerain. Japan’s efforts to dominate China had been met by the rise of a powerful anti-Japanese feeling and a potentially crippling boycott of Japanese goods. To recapture both markets and prestige, Japan had only to enter into partnership with America and her sister nations. Japan must realize, as must all the groups, that the day for securing wholesale and one-sided concessions in China was over. China, if properly handled, contained numerous opportunities for legitimate trade and profit. Such legitimate opportunities should not be ruined by “unfair, wholesale exploitation. But Lamont was not averse to warning the Japanese that if they persisted in their present course, the United States could, as in the war just ended, show extraordinary resource and vigor in armament [once] her people become aroused by injustice and aggression.21 On the other hand, in return for cooperation in China, Morgan would aid in Japan’s industrial development.22

In a letter to the Morgan Bank, Lamont warned that Americans must be under no illusion as to the kind of partner Japan would make. He saw little advantage in a Japanese Group unsupported by its government or forced to act against its own financial interests by the militarists in the government. He was amazed that Japan was treated as a first-class power, rather than the third-rate power that it actually was. On balance, he thought

the Yellow peril . . . not so very perilous. They are raw, unfinished and inefficient in Japan. They had a meteoric career. I think they are in for something of a fall. I should not be surprised to see a business panic. Talk about financing China by themselves —they haven’t enough money to finance Japan and their businessmen know it. 23

By the end of April Tokyo capitulated. In a May 5 memorandum, the Japanese foreign office announced its intention of entering the consortium unconditionally. As Lamont had suggested, the agreement took the form of an exchange of letters between Lamont and the representative of the Yokohama Bank, Kajiwara Chuji. Lamont was pleased with the result, in that that the official Japanese statement met the American views at every point. Fear of diplomatic isolation, Japan’s worsening economic situation, Lamont’s warnings of increased tensions with the United States and of possible economic retaliation were instrumental in Japan’s decision to drop the reservations.

Inouye announced Japan’s entry into the consortium at a banker’s dinner given in Lamont’s honor in Tokyo on May 11. Both Lamont and Inouye stressed in their remarks that Japan had entered without reservations. Lamont also used the occasion to issue an extraordinarily stern warning to the Japanese militarists and to bolster the liberal and sound ideas of men like Inouye. Although intemperate in tone, Lamont believed he spoke not only for himself, but for many in the administration who, like Lamont, had witnessed first hand the carnage of French battlefields.24 The Prussianized Japanese high command had not yet learned the lesson that force no longer rules the world. The Chinese had expressed to him their anger at Japan’s highhanded military actions in Shandong and Siberia. These same militaristic methods also invited retaliation from America. Were Japan to try to make China hers, it would meet Germany’s fate and deserve it. American trade and investment might well cease if Americans gained the impression that Japan was using its money for military adventures abroad. Large sums were Japan’s for the asking if it stopped wasting money in China and joined the other consortium powers in the peaceful economic cultivation of that nation.25

Lamont had shown himself to be a tough and skillful negotiator. He had removed the major stumbling block to the formation of the consortium, even if the agreement papered over significant differences yet to be resolved—Japan’s economic and political position in Manchuria, among other issues. The agreement had its critics. Morgan’s subsequent investments in Japan struck many later as evidence that Lamont and Inouye had reached a gentlemen’s agreement on Manchuria.26

Agreements, like holy scripture, can be interpreted many ways. Such was the case with the Lamont-Kajiwara exchange of letters. Lamont was somewhat disingenuous when he contended that, at the very dinner given in Tokyo in his honour, Kajiwara had misrepresented Lamont’s position on Manchuria and Mongolia. Lamont was no less so when he asserted that the administration had been kept fully informed of the progress of his negotiations. The dinner was a fitting conclusion to what had been a frustrating experience.27

Lamont had attempted to serve several masters, satisfying none of them completely. Nevertheless, some of the original objectives had been met. The exchange of letters between the banking groups gave the administration deniability that it was condoning a Japanese sphere of influence in Northern China and checked for the time being Japanese expansion in China. There is little doubt that Lamont in his semi-official capacity resolved privately what the Wilson Administration could not do publicly. Given America’s limited political and military commitment to China, the consortium did serve to provide a disorganized China with breathing space. From the perspective of the Morgan Bank, a cooperative policy for China restrained competition, allowed for the peaceful development of Chinese resources, and put added pressure on the Chinese to accede to the consortium’s demands.

Lamont’s efforts in Japan constitute an unusual chapter in American diplomacy, one in which public interests and private policy put aside their differences in pursuit of a common goal. Moreover, the episode provides insight into the political and economic obstacles of doing business in Asia in the period and into the thinking of one important actor, Thomas W. Lamont, in the evolution of America’s Asian policy.  


1. Thomas W. Lamont Handwritten Trip Diary, March 11, 1920 (hereinafter cited as Trip Diary), Papers of Thomas William Lamont, Baker Library, Harvard University. (hereinafter cited as TWLP). TWLP 273/5-7. Lamont made a distinction between Japanese militarists and businessmen; the latter he believed wanted to cooperate with the West in the peaceful development of Asia.

2. Ron Chernow, House of Morgan: An American Banking Dynasty and the Rise of Modern Finance (New York: Simon & Schuster Inc, 1990), 230.

3. See Mira Wilkins, The Emergence of Multinational Enterprise: American Business Abroad from 1914 to 1970 (Cambridge: Harvard University Press, 1977), 35-69.

4. Bernard Baruch cited in Chernow, House of Morgan, 65.

5. William Braisted, “The United States and the American China Development Company,” Far Eastern Quarterly, XI (1952), 158. G. Kurgan van-Hentenryk, Leopold II et les groupes financiers belges en Chine: La Politique royale et ses Prolongements (1895-1914) (Brussels: Academie Royale de Belgique, 1972), 451-62, 492-503.

6. Chernow, House of Morgan, pp. 144-45. See also Edward M. Lamont, The Ambassador from Wall Street: The Story of Thomas W. Lamont, J. P. Morgan’s Chief Executive (Lanham, Maryland: Madison Books, 1994), 105-07.

7. As David McLean points out, railroad, mines, and other concessions “ensured the regional domination of the power whose financiers controlled them.” McLean, “Finance and ‘Informal Empire’ before the First World War,” Economic History Review, XXIX, 2nd ser. (May 1975), 292. The first American Group consisted of J. P. Morgan, National City Bank, Kuhn, Loeb, and First National Bank, Morgan’s usual syndicate partners, all of whom had an interest in Chinese investments. Vincent Carosso, The Morgans: Private Investment Bankers, 1854-1913 (Cambridge: Harvard University Press, 1987), 551.

8. Walter V. and Marie V. Scholes, Foreign Policies of the Taft Administration (Columbia: University of Missouri Press, 1970), 145-5. Arthur Link, ed., The Papers of Woodrow Wilson (Princeton: Princeton University Press, 1978), 192-94. A copy of Wilson’s statement can be found in his papers, Series 4, Case File 227. Library of Congress, Washington, D. C.

9. Wilson to Secretary of State Robert Lansing, June 21, 1918. Arthur S. Link, ed., The Papers of Woodrow Wilson, XLVIII (Princeton: Princeton University Press, 1985), 182.

10. The administration did insist that the American Group be enlarged to include some but not all of the original members. However, the leadership remained where it had been in the first group—with the Morgan Bank. Details of the meeting can be found in Breckinridge Long’s memorandum, The Chinese Consortium, undated, in the Papers of Ray Stannard Baker, Library of Congress, Washington, D. C.

11. Ibid.

12. Lamont to House, February 13, 1920, TWLP 184-23. See also Long to Lamont, December 20, 1920, TWLP 185-15.

13. Thomas W. Lamont, Across World Frontiers (New York: Harcourt & Brace, 1951), 214. This is Lamont’s posthumously published autobiography.

14. In 1932 Inouye would meet his death at the hands of an ultranationalist assassin determined to liquidate influential members of the political parties, the financial clique, and the privileged class. For Inouye, see Iwao, ed., Biographical Dictionary of Japanese History, 350-51. Taichiro Mitani, “Nihon Kokusai Kinyu-ka to Kokusai Seiji,” [“International Financiers and International Politics,”] in Seizaburo Sato and Roger Dingman, Kindai Nihon no taigai taido [Attitudes toward Modern Japan] (Tokyo: Tokio Daigaku Shupankai, 1974), 123-45. Chernow attributes much of the power enjoyed by the House of Morgan in the 1920s to its intimacy with the world’s major central bankers such as Inouye; Chernow, House of Morgan, 233.

15. Mitani, “Nihon no Kokusai Kinyuka to Kokushi Seiyi,” 123-54. Takeshi Matsuda, “Woodrow Wilson’s Dollar Diplomacy in the Far East: The New China Consortium, 1917-1922.” (PhD diss., University of Wisconsin, 1979), 317-23.

16. Matsuda, “Woodrow Wilson’s Dollar Diplomacy,” 323. Lamont also welcomed the opportunity to discuss with Inouye Japanese business for his firm, including the possibility that Morgan, instead of Kuhn, Loeb, might bring out a stock issue of the South Manchurian Railway. Lamont to Inouye, March 20, 1922, TWLP 184-14.

17. W. G. Beasley, Japanese Imperialism, (Oxford: Clarendon Press, 1987), 106, 136.

18. Lamont to Lansing and the American Group, March 18, 1920. FDSNA 893.51/2718. U.S. Department of State, Record Group 59: Internal Affairs of China 1910-1929. National Archives, Washington, D.C. (hereinafter DSNA).

19. Trip Diary, March 6 & 7, 1920. TWLP. Morris to Dept. of State, March 8, 1920. DSNA 893.51/2703. Morris to Dept. of State, March 8, 1920, Tokyo: 851. Alston to For. Off. March 15, 1920. FO371/5298/F561/2/10. Alston to For. Off., March 9, 1920. FO371/5298/F131/2/10. Records of the British Foreign Office, PRO, London, England. Ian Nish, Alliance in Decline: A Study of Anglo-Japanese Relations, (London: Athlone Press, 1972), 287, 395.

20. Confidential Memo, “Thomas W. Lamont’s Visit to the Far East,” March 13, 1920. Tokyo: 851. Alston to Fon.Off., March 29, 1920. FO371/5299/F842/2/10. Morris to Lansing, March 11 & 12, 1920. DSNA 893.5l/2707.

21. Ibid.

22. Alston to Fon. Off., March 28, 1920. FO371/5298/F315/2/10.

23. Lamont to American Group, April 25, 1920. DSNA 893.51/2797. Trip Diary, March 26, 1920, TWLP. Alston to FO, March 29,1920. FO371/5299/F784/2/10. Morgan to Lamont, March 29, 1920. Lamont MSS 185-19.

24. Long to Lamont, December 20, 1919. Long Papers.

25. Morris to Dept. of State, May 5, 1920. DSNA 893.51/2818. Lamont, “Preliminary Report,” May 14, 1920, ibid. Trip Diary, May 11, 12, 1920, TWLP. Lamont, “Supplementary Remarks for Banker’s Dinner,” Tokyo, May 11, 1920; TWLP 185-21.

26. C. Walter Young thoroughly airs the issue of a “gentleman’s agreement” and finds no justification for the charge that Lamont conceded any reservations on Manchuria and Mongolia. See his Japan’s Special Position in Manchuria (Baltimore: Johns Hopkins Press, 1931), 284-88. Lamont, “The Economic Situation in the Orient,” Academy of Political Science Proceedings, IX (February 1921), 212-19.

27. Both Hara and Foreign Minister Uchida Yasuya made similar representations. Lamont to Editor, Japan Advertiser ,July 12, 1920. Tokyo: 851. Lamont to Norman Davis, September 4, 1920. Norman Davis Papers, Box 33/T, Lamont Folder 1919-1921. The Davis Papers are in the Library of Congress, Washington, D. C.

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