by Jack Lee
Sam Insull came to America with $200 and not much else. But, he was lucky enough to land a job, although it was a low paying one. But the real luck here was his boss. He was none other than Thomas Edison. As you probably know Edison was a workaholic and put in long days, but Insull’s days were. . .
even longer and Edison took note. Insull’s hard work soon paid off and he was rewarded with a number of promotions until he was part of the management team as Edison’s accountant. His career was launched and more importantly it was coupled with one of America’s most brilliant and prolific inventors.
Sam Insull was perhaps Edison’s greatest student besides being his most devoted employee. After about 10 years Insull saw another opportunity and he left the Edison company to create his own company. Insull traveled to Chicago, got a bank loan for $250,000 and built the city’s first power generation plant that was so innovative it was not only an instant success, but the power grid concept that Insull designed is still used today.
Insull designed and implemented an improved copper wiring system that made electrical hookups more affordable, even to the average citizen. Electrical power to homes and businesses spread like wildfire and Insull’s fortunes grew and grew.
By 1929 Insull was one of the most well known, best liked and richest men in the world. His personal fortune was estimated in today’s dollars at about $66 billion. Then the Great Depression hit and for Insull the timing could not have been worse.
Sam Insull’s energy empire faltered as revenues dropped sharply. He struggled to meet huge debt obligations incurred during their rapid expansion phase into a number of states. His company had recently issued shares of common stock and they too plummeted taking the small fortunes of many little investors. People blamed Insull and he went from being one of America’s most admired men to one of America’s most reviled. Big investors in his power company also went broke and fraud was charged. Insull was taken to court, but he was found innocent. He was a victim of the depression just like everyone else, but his reputation was ruined. His fortune quickly evaporated and within a few years Insull was a broken man, completely destitute. He died alone and in abject poverty.
The reason for the story is to point out that in a free, capitalist society like ours, the only guarantee is that people have the opportunity to succeed. We provide the opportunity – the people must do the rest. It is not, and has never been, an assurance of success to live here. Nor can it be, not without damaging everything that made us the world’s greatest superpower.
In Insull’s day no company was too big too fail. Debts were not purchased, nor were they forgiven by the government. Mortgages were not reduced because people bought at the wrong time and paid too much. The depression was therefore not a failure of capitalism, it was a failure of unbridled greed. It was an endemic collapse because too many people were involved in unsound business practices, including Insull. Insull violated several tenets of economic law in his pursuit of great wealth. He was over-leveraged, and when the economy imploded he was buried under a mountain of debt.
Capitolism worked – people failed.
Jack I enjoyed reading this American story. If we Americans can learn from the past we might not be forced to experience such things as great depressions or sharp economic crisis. I’m not certain I can agree completely with your conclusion that “unbridled greed” caused the depression or the demise of Mr. Insull, however. I think it’s a bit more complicated than that. I’m also motivated to counter the claim because I know this word is a favorite of our friends on the left use this part of mankinds nature as an excuse to adopt socialist tyranny.
Prior to the depression there were a number of forces that compelled individuals, including Insull, to act as they did. This was a time of great innovation and progress in America. Entrepreneurs were doing well, the economy was expanding and the stock market enjoying a “good run”. Americans were eager to invest in what they saw as an opportunity to better their own lives and increase personal wealth. They were, in other words, willing to “take a risk”. Those at the top of the rung were definitely making a lot of money but men like Insull and Henry Ford were also setting in motion innovations that would bring opportunities beyond the family farm to average Americans who would eventually become a huge middle class.
Sam Insull was apparently a man of vision wishing to bring electricity to all of America. His goals were well on their way to being realized supported by an expanding economy with enthusiasm driving demand through the roof. Based on this vibrant economic reality I can see a man with his contacts (JP Morgan, Rockefeller) and resources (great product & personal wealth) being willing to take a greater risk to further his vision. This isn’t greed but a sound calculation of positive return on investment to effect an equally positive resulta nation with power and lights!
As you rightly said in your piece, opportunity doesn’t guarantee a positive result. When we choose to risk we know going in that we could lose as well as win. Unfortunately mistakes were made during this period and politicos, as it always does, lurced forward to take advantage of the crisis. This period ushered in the first big wave of socialist government policy and anti-business rhetoric.
As is typical of human beings feeling disgruntled over losses, people look for causes (or people) to blame for financial losses instead of taking responsibility for the risk. Insull didn’t cause the circumstances that caused the depression. Although there were undoubtedly those who were greedily investing in the stock market at the time I imagine most people were just hoping to come out ahead by taking a chance on what appeared to be a fairly sure bet. The big investors fell right along with the smaller investor when the market crashed. One group didnt do it to the other.
Unfortunately, the timing for all of these investors couldn’t have been worse and the governments handling of events in the banking industry couldnt have been more devastating.
People continue to speculate and argue about what caused the depression. Milton Freidmans explanation makes the most sense to me. Freidman said we were experiencing a cyclical recession and the Federal Reserve set in motion what led to deep depression:
There were other factors that added to the misery people felt during this period, small farmers were not doing well and industrialization (progress) was causing displacement of workers. Extreme drought conditions brought on the dust bowl and set in motion athe great migration of destitute people to the west. These miseries would not have disappeared by an improving economy, but swift action by the fed would have created recovery that could have eased this pain and reversed the cyclic trend. According to Lawrence M. Stratton and Paul Craig Roberts, here:
As you indicated, Jack, capitalism works. It is not a perfect system simply because people are not perfect. Government intervention can certainly make it work well or, as we are seeing now, stifle it drastically. When all is said and done capitalism is the still the best system in the world for those who also happen to value freedom.