thomas edison and his investors -- 11/7/17

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Today's selection -- from Insull: The Rise and Fall of a Billionaire Utility Tycoon by Forrest McDonald. For all his genius as an inventor, Thomas Edison had mixed financial success and contentious relations with his investors, who at one point included J.P. Morgan:

"As an engineering feat, Edison's achievement is without parallel. When he undertook the building of the pioneer central station, at Pearl Street in lower Manhattan, he had already worked out the three cardinal innovations that made it possible -- the incandescent lamp, a relatively efficient dynamo, and the multiple distribution system -- but hundreds of minor parts of a complete electrical system had yet to be devised. He had to develop practical switches, sockets, cables, junction boxes, wires, insulators, fuses, meters, filaments, voltage regulators, and scores of other devices, and to teach subordi­nates how to put them together once he figured out how to make them. He did it all, and for practical purposes he did it alone. He had craftsmen and mechanics to help him, to be sure, but these were simply so many extra arms and legs, not extra brains. All those who might have helped -- the world's electrical 'experts,' such men as Joseph Swan, Professor Henry Morton, Conrad Cooke, and W. E. Sawyer -- were unavailable, for they were busily engaged in thinking up reasons why Edison's efforts were doomed to fail.

"As a business venture, building the first central station was so audacious as to be called foolhardy, largely because Edison's financial backers so regarded it. Edison's electrical experiments (1878-80) had been financed, and his patents were held, by a syndicate of bankers, notably J. P. Morgan and several of his partners, through a corporation formally styled the Edison Electric Light Company but referred to by Edison and his intimates as 'the leaden collar.' As soon as a primitive form of the lamp was ready for commercial exploitation, it developed that Edison and his backers had irreconcil­able views of the best method of exploitation. The bankers believed that the proper market was for so-called isolated plants: systems designed for lighting a single large building and operated from a 'powerhouse' in the basement, much as a steam-radiator heating system is operated. This method had the short-range virtues of requiring small capital outlay and promising quick returns, whereas Edison's plan for central stations was slow, risky, and expensive. Edison conceded that isolated plants should be sold to help raise money for developing his first central station, as well as for their incidental publicity; and for this reason he formed the Edison Company for Isolated Lighting, which licensed local organizations in major cities with the exclusive right to sell Edison equipment in their areas. But this was only a stopgap concession, for Edison was unalterably convinced that the great future for electricity lay in central station service. The bankers were as cool toward the central station as Edison was toward isolated plants and, having advanced and received no return on upwards of $500,000, they absolutely refused to advance any more for either Edison's central station or the sizable manufacturing works that Edison's route would entail. ...

"The result [was chaos]..., and the confusion was compounded by Edison's own curious personal make-up. Like all persons of colossal creativity, Edison was possessed of a colossal ego. Hence, systematic as he was when pursuing his own ends, he had an almost pathological hostility to any form of system, order, or discipline imposed from without. Hence his wildly irregular orgies of work and sleep, his sneers at scientists, his cruel practical jokes on his mathematicians, his horror of account books. Hence, too, his invaluable habit of paying careful attention at all points to the economics of his inventions, and his seemingly contradictory habit of abandoning all sensible business methods at unpredictable and sometimes critical moments. (Said Insull, years later, 'We never made a dollar until we got the factory 180 miles away from Mr. Edison.') And hence, also, his compulsive need and his almost incredible ability to be simultaneously in the center, at the periphery, and on top of his multifaceted ventures. ...

"To Edison's chagrin, the light proved most salable in the form that he considered unsound: the isolated plant proved to be as easy to sell as the central station was difficult. By the spring of 1883, there were 334 isolated plants in operation and the Pearl Street plant was still almost alone as a central station.

"This early trend of the business widened the rift between Edison and his backers and, incidentally, resulted in Insull's first major as­signment. The backers, impatient for profits after four years without a return on their investment, now demanded that Edison promote isolated plants. ...

"The success of this activity forced a showdown over control of Edi­son's various enterprises. ... [Later, as things got more complicated, and] in a fit of despair, [Edison said], 'I do not know just how we are going to live. I think I could go back and earn my living as a telegraph operator.' "

author:	Forrest McDonald
title:	Insull: The Rise and Fall of a Billionaire Utility Tycoon
publisher:	Beard Books
date:	Copyright 1962 by the University of Chicago
pages:	25-34