Insull: The Rise and Fall of a Billionaire Utility Tycoon [Paperback]

Forrest McDonald (Author)

Book Description

Publication Date: December 2004

This is a reprint of a previosly published work. It dewals with Samuel Insull, who was Thomas Edison's private secretary and founded the business of centralized electric supply. He organized the Edison General Electric Company.

Editorial Reviews

From the Publisher

Next to Thomas Edison, Samuel Insull is the name you should remember as the most important and perhaps the most notorious person in the utility business. He was the billionaire utility tycoon from Chicago whose gas and electric empire operating in over thirty states in 1932, causing a million investors to lose two to three billion dollars. Starting as Thomas Edison's private secretary in 1881, he was responsible for establishing centralized electric supply. He organized the Edison General Electric Company before the industrial giant of the same name, working out a model of nationwide distribution and promoting rural electrification. One of the most significant accomplishments was acquiring effective government regulation of public utilities. The author does not make judgments as to whether Insull was good or bad. He merely wants us to know the man for what he did.

From the Inside Flap

An astute businessman, he practiced "mass production" and "selling at the lowest possible cost" long before those ideas became popular. In addition, he successfully applied the concepts of load and diversity on a large scale -- factors on which all utility rates are based. On the financial side, his innovativeness in devising ways to market securities made possible gigantic modern corporations owned by anonymous millions and therefore owned by nobody.

Insull was instrumental in acquiring effective governmental regulation of public utilities. He pioneered welfare programs long before labor or even government became aware of their importance and encouraged the growth of labor unions.

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Product Details

• Paperback: 400 pages
• Publisher: Beard Books (December 2004)
• Language: English
• ISBN-10: 1587982439
• ISBN-13: 978-1587982439
• Product Dimensions: 9.3 x 5.9 x 1 inches
• Shipping Weight: 1.3 pounds (View shipping rates and policies)
• Average Customer Review: 4.0 out of 5 stars  See all reviews (1 customer review)
• Amazon Best Sellers Rank: #966,494 in Books (See Top 100 in Books)

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7 of 8 people found the following review helpful:

4.0 out of 5 stars Caution, August 1, 2009

By 

E. Husman "ehusman" (Las Cruces, NM USA) - See all my reviews
(REAL NAME)   

This review is from: Insull: The Rise and Fall of a Billionaire Utility Tycoon (Paperback)

Forrest McDonald's biography of Samuel Insull strikes me as an unreliable source of information. I can't put my finger on it exactly, but it is striking that all of Insull's enemies and competitors just happened to be either corrupt or incompetent. I suppose that's possible, but I think perhaps Mr. McDonald overlooked some of Insull's less stellar moments. McDonald appears to have been a very strong admirer of Insull, so I caution the casual reader to consider whether certain uncomfortable truths are glossed over or dropped from this history.

My interest in the book has to do with seeking out the origins of public utility regulation. I had once read that Insull, like AT&T's Vail, was a great advocate of natural monopoly theory and actively sought it. While McDonald mentions this a few times, he does not try to document or substantiate the claim. He notes that Insull's English upbringing left him regarding monopolies as benign, and his association with German Henry Villard left him believing in the benevolence of regulated utilities. However, it does become apparent from the narrative that the electric industry was not exactly the wild and wooly unregulated market one might suspect from reading other sources about the period.

Insull's empire was built on at least two other types of government regulation that pre-dated the Public Utility Holding Company Act (PUHCA). The first was the patent, and the second was existing public utility regulations. Insull started his career as a secretary for Thomas Edison, and eventually worked his way up to become an executive in the Edison General Electric Company (the forerunner of the modern GE). When the Morgan group forced out Henry Villard, Insull went to seek his fortune outside the electrical equipment manufacturing industry and found a little generation company.

Edison (and, to a lesser extent, others) had started into the electrical generation business by selling two different types of generators: central station and isolated power. The latter was easier to sell since the objective was to provide power for a single building; the infrastructure was either pre-existing or easily installed; and for the most part, these provided power to the new-fangled elevators. The former, however, was the route by which economies of scale could be obtained if you could only build up the distribution infrastructure and subscribership.

One could only obtain the machinery required to run a central station from about 4 companies at that time: GE, Thomson-Houston, Westinghouse, and Siemens. Each enforced a regional sales strategy, so the only way to obtain rights to buy from Westinghouse was to either be the first to make a deal with them, or to enter into partnership or to buy someone who had. So all Insull had to do was to acquire ownership of 4 of the "central" stations in Chicago and he had a lock on the whole region. So the means was institutional failure, right? Well, not really. The real issue here was patent protection: only four manufacturers existed because innovating companies like GE learned to aggressively defend their patents (from Edison's experience with the light bulb), and companies like Thomson-Houston existed for the primary purpose of buying up patents to defend (patent trolls).

At the time Insull entered the business, many cities already had a history with gas lighting companies. It didn't take long for politicians in places like Chicago to realize that they could charge them franchise fees and use the money to run their political machines. So when a new upstart -- including electrical generators -- showed up, it was relatively easy to use this machinery to keep them out, and when that proved unworkable, to aim it at the newcomers. And once the newcomers showed themselves to be reliable campaign contributors, it didn't take long for them to realize that they could employ the politicians to keep the public on a leash on one side, and competitors on the other.

By the end of the story, we learn that Insull was a generous man (who fired people for failing to say good morning) who contributed much to the war effort (in support of his native England). During WWI, he developed a powerful propaganda machinery which he put to private use after the war. At a high school reunion one time, I asked a classmate who now works for a big power company why they wasted their money on advertising since they are, after all, a legal monopoly. He said he had pointed out the same thing at a cost-cutting meeting one time, but got shot down. I think I know the answer now: the PR machinery needs to stay limber in case the public decides to bring out the torches and pitch forks and starts talking about public ownership. It is all based on Insull's war propaganda example.

Another interesting factoid: just prior to Insull's great downfall, England approached him to ask for his help in setting up their national grid. The entire national system was based on Midwest Utilities. After the collapse, for which Insull was found not guilty (not easy, given the times and the public persecution), the TVA was said to be founded on the public English example instead of the corrupt capitalist systems. Yep, they traveled across an ocean to look at a copy of the original instead of basing it on the original which itself lay in their own back yard. But propaganda isn't just for utility operators.