The Very, Very Rich and How They Got That Way (3 page)
Read The Very, Very Rich and How They Got That Way Online
Authors: Max Gunther
For many and complicated reasons the Industrial Revolution didn’t quickly bring on a golden age of prosperity such as the Dutch had enjoyed 100 years before. The masses of common citizens in most nations remained trapped without money and without much hope of getting any. But some of them did make it big, and from about 1750 onward the pages of history books glitter more and more often with the names of self-made rich men. Their numbers increased steadily through the 19th century, particularly in America, the new economic colossus that had suddenly and quietly arisen across the Atlantic.
Among the best-known non-kingly names in 18th and 19th century Europe was that of Rothschild. Mayer Rothschild started as a two-bit moneylender in Frankfurt around 1765 and expanded his business step by step until he became one of Europe’s most important investment bankers. He helped finance some of the first textile mills and other industrial plants in England and some of the first heavy-machinery factories in Germany. He had five sons, each of whom went to a different city to set up his own banking and venture-capital operation.
The son generally conceded to be the most brilliant of the lot was Nathan, who hung out his shingle in London. He made fortunes in the London stock market and also, later, in the young but lusty New York market. One of his secrets, in this age before telephones, was to make sure he received news of international developments before anybody else did. He had agents hanging around the fringes of the Battle of Waterloo for instance. They brought him the news of Napoleon’s defeat some six hours before the rest of London knew about it. Those six hours were enough for Nathan Rothschild. He bought up depressed currencies, government bonds and industrial shares, gleefully watched them rise in a post-Waterloo bull market and walked away with a killing. Like his father, he helped finance early industrial corporations and technical innovations, among them railroads. He was just starting to put his money into the first American railroads when he died, in 1836. The House of Rothschild stayed in business, however, and lived to help finance the adventures of such 20th century buccaneers as Bernard Cornfeld.
It was in America, starting around 1850, that the possibilities of self-made wealth reached their gaudiest and finest flowering. Never before in all history, not even in the 17th century Netherlands, had the average man been offered such stunning opportunities to strike it rich. All kinds of routes were opening up as the huge, empty nation expanded and matured. And all kinds of men suddenly shot from obscurity to dazzling prominence.
Jay Cooke specialized in brokerage. He came from nowhere in particular, set up a small Wall Street brokerage house in the mid-19th century, watched it grow as the New York stock market grew. He made his big pile when President Lincoln’s administration asked him to sell Civil War bonds to the public. He sent agents out to sell door-to-door, and he cheerfully and shamelessly paid newspaper editors all over the country to tout the bonds financial and patriotic glories. He sold about two and a half billion dollars’ worth. His commission, fees and other payoffs on this one stupendous sale totalled nearly $100 million, tax-free.
Jay Gould showed up on Wall Street around 1860 with a couple hundred dollars in his pocket and rapidly parlayed the sum into a fortune. His favorite gambit was to construct phantom companies, particularly in the railroad industry. Railroad fever had seized the country, and too many railroads were being built too fast. Many small operations, poorly capitalized and badly managed, were going bankrupt. Gould would buy up a few of them for nickels and dimes, put them together to form a new railroad company with some grand-sounding name, publicize the new company, drive up its stock price and sell out, after which the rickety structure would collapse. Gould became so famous for doing this that when he went to London to propose a European railroad deal to the House of Rothschild, the Rothschilds dismissed him with a curt note: “Dear Mr. Gould: Europe is not for sale.”
Junius Spencer Morgan and his son and grandson, both named John Pierpont, were investment bankers who specialised in building monopolies. Old Junius had started as a Connecticut dry-goods merchant and had put his money into banking just as the Industrial Revolution was creeping into America. Under his son and grandson the House of Morgan grew as powerful as the House of Rothschild or, centuries before, Fugger. The Morgans loved railroads. At one time they controlled the New York Central, the New Haven, the Lehigh Valley, the Erie, the Reading, the Chesapeake and Ohio, the Northern Pacific and a bundle of others – simultaneously. They organized U.S. Steel. They engineered trusts that came to own most of the anthracite and soft-coal production in the country. The story is told of John Pierpont, Jr., that when he attended a banquet in Europe around 1900, an aged countess came up to him and said in all seriousness, “I understand, Mr. Morgan, that you’re the controlling stockholder of America.”
The Astor family rose to prominence by a different route. John Jacob Astor was an immigrant from Germany by way of England. He landed in New York in 1784, broke and hungry. He sold musical instruments for a while, wandered around looking for a better business, ended as a fur trader in the Mohawk Valley. Business was good: He bought furs cheaply from Indian tribes, sold them at huge mark-ups in Montreal, New York and later London. As his capital built up, he invested it in what must surely count as one of history’s most glorious real-estate speculations. Even old Crassus would have been jealous. Astor bought large chunks of upper Manhattan Island, north of what were then the New York City limits. His estate was valued at about $30 million when he died. His eldest son picked up the ball by building about 1000 houses on some of the uptown lots, and late generations of Astors cleverly traded still other uptown lots for downtown ones on which they built hotels and office buildings. The family fortune rose to the neighborhood of one billion dollars.
John D. Rockefeller got in on another kind of ground floor: that of the oil industry. He started his career as a 16-year-old clerk in a Cleveland mercantile company in the 1850s, was promoted to bookkeeper and cashier because he was good at figuring, quit the job in 1858 to go into business for himself as a kind of manufacturers’ representative, selling goods on a commission basis. In the 1860s he met an expert oil refiner named Samuel Andrews who convinced him money could be made in the newborn petroleum business. (The first successful American oil well had been drilled at Titusville, Pennsylvania, in 1859.) Rockefeller’s little company borrowed money and built a small refinery called the Standard Oil Works. It turned out to be highly profitable. The company then began a long and not altogether honorable career of absorbing competitors or price-squeezing them to death. When the courts dissolved Standard Oil’s monopoly in 1892, the former clerk had become, as far as is known, the world’s first humbly born billionaire.
We could spend hours looking at the careers of early American tycoons. Never before in history, nowhere else in the world, had so many men of humble beginnings risen so high. Samuel Insull, Andrew Carnegie, Andrew Mellon, Joseph Kennedy – the list could go on and on. Each man found a way to wrestle his environment to the ground and end on top, riding it.
The economic environment has become a somewhat trickier opponent as the 20th century has progressed. Corporate and personal taxes have increased enormously. Antitrust and other business laws have been tightened. The stock market’s rules have been doctored so that manipulations and killings require considerably more thought, planning and patience. The country is generally less empty and open than it once was. There is less elbowroom. You can no longer buy an acre of Manhattan for a couple hundred bucks.
And yet there are still men making fortunes. How? Let’s visit some of them and find out.
It is not easy to become one of the very, very rich. We’ve noted and will note again that the process takes guts. It takes work. It takes self-assurance. It takes these and other attributes in almost superhuman measure. The ordinary unrich – you and I – may display such characteristics from time to time when we’re feeling good, but that doesn’t seem to be enough. What is required is that you step up the voltage and keep it stepped up all day, every day.
In our tour through this gallery we’re going to meet men of such outrageously high voltage that we will wonder why their fuses don’t blow. The average man’s energy output, compared with theirs, is a mere dribble. They perform prodigious amounts of work. Their brains generate ideas in a seemingly endless stream. They leap into situations of enormous risk, unworried, supremely confident. They do things that other men wouldn’t dare do or simply would never think of doing. They seem a little more than human sometimes, and this may trouble us if we harbor any hope of emulating them. We’ll be tempted to think,
These are men of a special and superior breed. What they did can’t be done by anybody else. Adventures like these aren’t for just folks.
In the light of this, it seems like a good idea to comfort ourselves right in the beginning by looking at a man who is (and we hope he will pardon the expression) just folks. He is William Benton, cofounder of the advertising agency Benton and Bowles, briefly a U.S. senator, today sole owner (with his family) of
Encyclopaedia Britannica
.
The
Saturday Review
once characterized Benton as a “smoothly whirring dynamo of a man.” A dynamo, to be sure – a man of constant, high energy output. But he whirs smoothly, and that is what makes Benton a comfort to the unrich. Unlike other men we’ll meet here, he doesn’t quiver and crackle with frighteningly high voltage. His life has been generally calm, orderly, a smooth and patient progression from one step to the next. He took risks, certainly. He recognized early in his life that nobody ever gets rich on a salary, and he voluntarily left a secure job to step out into the scary world of the self-employed. Yet he kept his risk to a minimum. He was content to begin modestly and build slowly. Unlike other hundred-millionaires, he didn’t make it by betting everything on some mad scheme that could either shoot him skyward or flatten him in an instant. He did nothing that could be called startling or unusual. He generally stayed within established patterns of business behavior, trod the trodden paths. Like a good mountain climber, he tested each new handhold before letting go of the one below.
Probably the main reason for the tranquillity of Benton’s climb was that he never really wanted to be one of the great rich. He was not driven by the compulsions that screeched and seethed inside most of the other men you’ll meet here. He determined early in life that he would quit the business world when he reached a moderately comfortable level of wealth – and that is actually what he did, at age 35. Circumstances conspired against him, however, and he got rich after all, by accident.
He sometimes seems irritated by the fact. When
Fortune
included him without comment or qualification in its 1968 list of the nation’s richest people, he howled in dismay. He argued that he
wasn’t
rich. He pointed out that he lived modestly. Almost his entire worth was bound up in
Britannica
, he said, and since he had no intention of ever selling the company and converting his equity to spendable cash, he felt that to class him with the great rich was not only erroneous but impudent.
Fortune’s
editors found his argument puzzling. As one of them puts it: “You measure a man’s worth by the property he owns today, not be what he intends to do with it tomorrow.
Britannica
is a tidy lump of wealth no matter how you look at it.”
If you want to learn how to get rich, Benton may not be the best man to emulate. Statistically, not much of a case can be made for his nonchalant, easygoing approach. When you’ve met all the glittering people in this gallery, you’ll have to conclude that the majority are compulsives and mavericks. Some have been called mad. Some may even be clinically mad. They took hair-raising risks, did things that everybody was sure couldn’t be done. When they were starting their careers, before they achieved the ultimate justification of $100 million or more, conventional businessmen labeled them unsound, unstable, unlikely to succeed. It is probable that most of them if they were to apply today for responsible salaried jobs under assumed names would be rejected as unfit. (One of them, in fact – Jeno Paulucci, whom you’ll meet in chapter 20 – once generated a little fun by applying incognito for a job in his own company. A psychological test showed him to be a miserable misfit. As he later reported in high glee, he was denied employment.)
Thus, if you hope to become a hundred-millionaire some day, it appears that you shouldn’t invest too much hope in the calm, smooth, patient, conventional route of Bill Benton. Yet the fact that Benton did it this way indicates that, at least in some cases, it can be done.
Bill Benton was born in Minnesota on April 1, 1900 a child of the century. His father was a quiet, undistinguished college professor who, even if he had lived, would probably never have exerted much influence on the boy. The father died when young Bill was in his early teens. (You’ll note as we go through the gallery that many of the very, very rich lost a parent at an early age. This fact gives rise to some odd psychiatric speculations, which we’ll consider in a later chapter.) Bill and his younger brother, Dan, were brought up from then on by their school teacher mother, in conditions of genteel poverty.
The mother was quite equal to the task. She was a formidable woman of large intellect, strong will and unshakable opinions, a member of the Daughters of the American Revolution and the Women’s Christian Temperance Union and other intimidating outfits. Bill Benton spent much of his time as boy and man trying to justify his thoughts and actions to her, never quite succeeding. He wrote letters to her almost daily from the time he left home to seek his fortune – and these illuminating pleas and protests, which she saved, crowd the 600 pages of Sydney Hyman’s massive biography,
The Lives of William Benton
. Many of the letters, even for Benton as an adult, have the tone of a small boy trying to explain to a disapproving parent why he needs 50 cents to go to the movies.
Biographer Hyman seems baffled, as was Bill Benton himself, by the stark difference between the two brothers. Bill was a straight-A man in school. He wasn’t tall or handsome or athletic, but he made up for those social drawbacks with a driving energy that pushed him to leadership in every school he attended. He was the class-president type, the kind of superbusy kid who organized fund drives and ran school dances. His mother demanded that he excel; it seemed to be as simple as that. Yet his brother, Dan, went in the opposite direction. The mother’s expectations were so high that Dan apparently despaired of living up to them. He plodded through school without distinction, a classic underachiever. Sadly he never had a chance to show what he could do as an adult, for he died of a viral infection in his teens. He might have turned out to be a late bloomer, as were some of the other men you’ll meet here. But judging by the start he made, he seemed doomed as a loser.
Why does one man head for fame and fortune while his brother, reared in the same environment, goes nowhere? What spark lights so hot a fire in a man that he ends with $100 million, and where does the spark come from? Neither Benton nor his mother nor his biographer could answer those questions. We will be on the trail of this elusive spark from here to the other end of the gallery. Maybe we’ll pin it down and maybe we won’t. But the hunt promises to be most exhilarating.
Benton went to Yale University with scholarship aid and was graduated in 1921. This fact in itself makes him unusual, for three-fourths of the men in our gallery aren’t college graduates, and half aren’t even high-school graduates. But Benton was no maverick. He bought the standard advice given out to younger men by older men: If you want to succeed, get an education.
After college he sold cash registers in Utica, New York, for a while, then drifted to New York City. The advertising business attracted him in a vague way, and he landed a $25-a-week job with an agency called Lord and Thomas. He had been an aggressive kid in school, and he was an aggressive young man in business – not the kind who disrupts the established order and gets everybody mad at him, but the kind who works within the organizational structure and delicately, without damaging it, turns it to his own advantage. This technique had always carried him to the top of social structures in school and now it sent him zigzagging upward through the ranks of Lord and Thomas. By 1925 he was in charge of a group of copywriters, some of them older than he.
He was now 25 years old, a man of medium height and slight build, with a square face and a thin, curved beak of a nose. Later in his life, when he became a U.S. senator, some who liked him called him Hawk and some who didn’t called him Hook. His nose gave him a faintly predatory look.
Early in 1925 he hired a young assistant, a newly graduated Yale man named Chester Bowles. The two become close friends and within a couple of years were dreaming and talking about starting their own ad agency. The middle and late 1920s were bullish times and there was a lot of money around and a lot of optimism in the air. Benton and Bowles probed here and there to see what clients, if any, the dreamed-of new agency could hope to capture. One possibility was General Foods, whose advertising chief had been impressed with the copywriting work both young men were doing at Lord and Thomas. The ad chief indicated that, if the new agency ever got itself born, it could count on getting at least some of General Foods’ business.
The firm of Benton and Bowles got itself born on July 15, 1929, a few months short of the worst stock-market crash in history. The capitalization was a slender $18,000, with each man putting up half. Benton had managed to save only some $5000 during his salaried years at Lord and Thomas; so he couldn’t immediately come up with his $9000 share of the capital. He borrowed the missing $4000 from Bowles, who was blessed with a moderately wealthy family.
General Foods, true to its promise, gave the new agency the job of advertising Hellman’s mayonnaise and a jelly additive. Working out of a small, cramped New York office, the little outfit blundered bravely into the hurricane of the Great Depression. For a while it looked as though Benton and Bowles would sink from sight along with thousands of other small, leaky businesses that had been launched in the calm and friendly seas of the 1920s. But, by bailing furiously, the two men managed to keep their battered little craft afloat. They did it mainly by establishing a reputation as an agency that was ready to try novel ideas – among them the utterly goofy idea that radio was probably as good an advertising medium as magazines and newspapers.
Benton roamed around the country to convince potential clients that the sensible reaction to hard times was to buy more advertising, not less – and that, since conventional selling approaches obviously weren’t prying customers loose from their money, novel approaches were the way to go. General Foods and some other companies gradually slid around to this point of view, and by the mid-1930s Benton and Bowles had about half of GF’s colossal ad business, plus other lucrative accounts such as Colgate-Palmolive. For these clients Benton and Bowles launched radio shows that became famous in their day: shows such as
Fred Allen’s Town Hall
and the
Maxwell House Show Boat
. It turned out, as Benton had predicted, that radio advertising had enormous power to move products. By 1935 the six-year-old agency of Benton and Bowles was rich. And the 35-year-old Bill Benton was ready to retire.
His net worth, including the estimated value of his equity in Benton and Bowles, was somewhere near one million dollars. He was a remarkably greedless man. He had no pressing desire to get any richer. Moreover, he now found himself fed up with the world of business. His youthful aggressiveness was cooling off markedly as he aged. He thought he might like to go into politics, perhaps, or education. He didn’t really know what he wanted to do, but he did know he wanted to leave Madison Avenue.
And so he made a decision that is very unusual in the annals of the rich. He said,
I have enough
. And he quit.
He and the Benton and Bowles agency made a deal: The agency was to buy his stock from him in instalments over a five-year period, and the price he received for each block was to be worked out by a complex formula based on the agency’s earnings. Benton sold his name to the agency in perpetuity and agreed never again to enter the advertising business.
He put some of his money into the stock market and rapidly lost great chunks of it in the 1937 crash. This traumatic experience made him change course slightly. He didn’t particularly want to make more money, but he didn’t want to lose what he had, either. “It was obvious to him,” says a friend, “that he wasn’t cut out to be a stock-market player. He figured that anytime he bought a stock, some other guy was selling and that guy might be an insider who knew more about the company than he did. What Benton wanted was a situation where he could invest his money and derive income from it but still retain some control over the situation without making a full-time job out of it.”
Benton now launched himself on a crazy career of making money by mistake.
To help a friend, he put $5000 of new capital into a small shoe company that was suffering from depression problems. In ten years the value of Benton’s equity soared to $125,000.
He put some money into a new company called Muzak, which was in the business of piping music over closed circuits to restaurants, office buildings and other customers. Benton started with the intention of being a one-third stockholder, with control over his investment but without day-to-day executive responsibilities. Because of a quarrel among the other owners, he ended as sole stockholder, with a total investment of about $130,000. Muzak leaped to success, and Benton, the reluctant moneymaker, eventually came out of the deal richer by some four million dollars.
And so it went. The biggest accidental bonanza of all came along in the early 1940s. This was the fabulous piece of property – fabulous, today, not then – called
Encyclopaedia
Britannica
.
This dusty old company had begun its life in Scotland, had bumbled around in England for nearly two centuries and had then been acquired by the giant American merchandising outfit, Sears, Roebuck and Company. Sears had made some money by peddling the encyclopedia in the U.S. but had not made much and was beginning to regret the whole deal. The encyclopedia was badly out of date and growing more so. Worse, it was perhaps the most monumentally boring set of books ever perpetrated. As one customer gloomily remarked, “It’s a hundred-pound sleeping pill.” A new and completely revised edition was called for, but Sears had no stomach for the trouble and expense that would be involved and in no mood to gamble on the
Britannica’s
future profit potential. To Sears the encyclopedia had become nothing but a damned nuisance.