Book: The Merchant of Power by John F. Wasik
Interesting biography of the man who brought electricity to much of the Chicago area
February 8, 2011
John F. Wasik
The Merchant of Power: Samuel Insull, Thomas Edison, and the Creation of the Modern Metropolis
Palgrave Macmillan, 2006
ISBN: 1-4039-6884-5
249 pages (main text)
$24.95
John F. Wasik is a business journalist who lives outside of Chicago and his book The Merchant of Power is a biography of Samuel Insull, the remarkable man who brought electricity to much of the Chicago area.
Samuel Insull was born in London in 1859 to a working-class nonconformist (that is, non-Anglican protestant) family. At the age of fourteen, he went to work in London. His diligence and program of self-improvement were sufficient that, after several jobs, he became a clerk in the office of Thomas Edison’s European agent. He clearly did a very good job because, before long, he was off to be Edison’s private secretary in America.
In the hothouse atmosphere of Edison’s workshops and laboratories in New Jersey and New York, Insull worked tirelessly and learned everything he could about Edison’s businesses and finances. Building power plants is hugely capital-intensive, Edison was perpetually short of the stuff. He built a power plant on Pearl Street in Manhattan, deliberately close to the city’s financial district in the hopes that the nearby bankers would be impressed enough finance his operations. When it started operating in 1882, it attracted attention and increased sales but did nothing immediately to solve Edison’s capital problems. Edison gave Insull more responsibility in the hopes that he could sort out the situation. Indeed, at the time that the Pearl Street station began working, Insull was splitting his time between building and running a factory for Edison in Schenectady and working in Edison’s office in Manhattan. Capital eventually arrived, though not in the form that Insull had wanted. It was a buyout by J. P. Morgan. Insull was kept on.
But by this time Insull felt capable of running a business. And he liked the idea of running a “central station” (that is, power generation) business. And he wanted to run one that was sufficiently far away from the north-east that he wouldn’t immediately be in competition with the company he was leaving. So he wrote to the directors of Chicago Edison and they took him on as president in 1892. He would have considerable work to do. Chicago Edison was one of more than 45 electric utilities in that city at the time.
And this is where the meat of the book begins. Insull had shown himself to be a more-than-competent businessman. Running Chicago Edison would show that he was a great one. Insull put Chicago Edison on a sound financial footing and went on to create a remarkable network of mutually-reinforcing businesses including electrical generation, electrical-appliance sales, electric trains, suburban development, and retail banking. All of which benefited a great many people and made Insull vasty rich as well.
There were periodic calls for government ownership of electric utilities. But Insull’s companies’ stocks were widely held. Insull would cannily reply that government ownership was unnecessary when the public already owned and profited from the utilities he ran.
But Insull liked public ownership only as long as it didn’t threaten his absolute control. Partly on account of the actions of Cyrus Eaton, an investor from Cleveland, who had accumulated large blocks of stock in Insull’s companies, Insull set up pyramids of holding companies to ensure that he couldn’t lose control. (To simplify slightly, if 51% of the stock of an operating company were owned by a holding company, it required only 51% of the stock of the holding company to control the operating company, and that would require only 26% of the capital. Repeating that structure as necessary allowed someone with a relatively small amount of capital to control a large company.) Alas for Insull, the holding companies he ran were largely financed with loans against the value of the stocks they held. And the stockmarket crash of 1929 and the ensuing depression would come all too soon.
There’s a good deal of drama in the story up to that point and a good deal more in the book as the consequences of the financial disaster unfold. The story of Insull’s life is a thoroughly interesting one.
Mr Wasik’s prose is more often more workmanlike than elegant and occasionally doesn’t quite reach that standard. For example, speaking of Nikola Tesla, Mr Wasik says that he had a proclivity for “imagining great, pragmatic electrical systems” (p. 238). Many of Tesla’s ideas were thoroughly impractical. And, speaking of the advantages of electric refrigerators, he says, “Farmers would not have to wait for the iceman to deliver huge blocks of ice for small ice boxes” (p. 90). And it’s a thoroughly subjective judgment on my part, but Samuel Insull didn’t quite come alive on the page for me. Nevertheless, this is a good book about an interesting man and a fascinating era.