by Jill Jonnes
The Belmont plan was straightforward: The electric company would continue to be capitalized at $10 million. The stockholders of $7 million worth of shares were being asked to sacrifice 40 percent of their stock, to be sent to the Mercantile Trust Company of New York. Another $3 million of stock issued but not sold would be combined with this surrendered stock to create a $6 million pool of capital. Of this, $4 million would be converted into 7 percent stock, of which $3 million would be directed to paying off the debt and the rest given over for expansion. Another $500,000 would be held in reserve. The remainder would be used to purchase two companies already controlled by Westinghouse—U.S. Electric Lighting and Consolidated Electric Light Company. Westinghouse had acquired these companies largely for their incandescent light bulb patents, crucial weapons in the ongoing patent wars. They would become part of the bigger, properly financed Westinghouse Electric & Manufacturing Company. Now it was up to the shareholders. Would they relinquish enough stock to save the company? Two weeks hence, the postponed annual stockholders meeting was put off yet again, a most unpromising sign.
Even as George Westinghouse struggled to maintain control of his electric company, the entire electrical community was riveted, in that unsettling summer of 1891, on an altogether different—but equally momentous—matter. What had come to be known as the Seven Years’ Incandescent Light Bulb War was heading into its most decisive phase. Ever since 1889, when Thomas Edison had triumphed in Pittsburgh’s circuit court, the electrical companies and their bevies of lawyers had hoped to overturn Judge Bradley’s clear-eyed decision that Edison alone had created a practical, functioning light bulb based on the novel and original long-burning high-resistance filament set in an exhausted glass globe. Westinghouse and the U.S. Electric Lighting Company immediately appealed the decision, determined to spin out the whole process for as long as possible. For it was well understood that the minute the light bulb case was conclusively won in favor of Edison General Electric, the company intended to cut off all access to its light bulbs, save to its own beleaguered licensees. The electrical community had long since been formally warned that the Edison people would seek the right to extract in damages from infringing firms the terrifying sums of “$25 for each lamp in an original installation and $2.50 for each renewable lamp, independent of the fact that such decision would necessarily render your plant inoperative.”25
True, the Edison light bulb patent would run out in 1894, but that was little solace to the thousands of electrical men whose businesses faced extinction without an Edison-style bulb. So when federal judge William Wallace of the Southern District of New York sustained the earlier decision on Tuesday, July 14, 1891, he unleashed low-level panic in the electrical ranks. Of course, Westinghouse would appeal, but Judge Wallace was reputed to be “appeal proof,” so it was not a future victory that was hoped for, only time. Nor were the triumphant remarks of the Edison lawyers reassuring. The New York Times reported the next day, “They say that hitherto half of the incandescent lamps in the country have been manufactured by other companies.” The Edison legal team envisioned $2 million a year in new royalties pouring into the firm’s coffers. The black day of reckoning loomed.
All this was sweet vindication for Thomas Edison, who gloried in his long-awaited judicial triumph, the refutation of all those who dismissed his historic light bulb as mere tinkering with others’ breakthroughs. Above all, Edison hoped this excellent decision would squelch for good Villard’s tiresome talk about merging with the inventor’s patent-stealing rivals. The postdecision statements of Edison officer and attorney Major Sherbourne Eaton were music to Edison’s deaf ears: Now that the Edison Company’s rightful light bulb monopoly had been reasserted, said Major Eaton, “the prospect of consolidation is far more remote than ever, as the company would have nothing to gain and everything to lose by such an operation.”26
And who would not savor Judge Wallace’s much-commented-upon rebuke of Edison’s longtime nemesis Professor Morton Smith for daring to “belittle his [Edison’s] achievement” when testifying as an expert witness? In truth, Edison himself was immensely jaded on the subject of patents, having seen his company launch hundreds of lawsuits to little visible result thus far (aside from enriching attorneys). The disgusted inventor could cite endless absurd claims and decisions against him, like “the foreign patent lost because the patent office in that country discovered that something similar had been used in Egypt in 2000 B.C.—not exactly the same device, but something nearly enough like it to defeat my patent.”
The moment Judge Wallace released his opinion, Electrical Engineer issued an extra that reprinted the decision in full. All ten thousand copies were quickly snapped up. Editor T. Commerford Martin obviously hoped to calm the panicked electricians and set a beneficent tone when he subsequently wrote in an Edison lamp editorial: “As to the attitude of the Edison General [Electric] Co., we can only hope and believe that the corporation will exercise its victory with the moderation which is always the best proof of the right to power.” Martin also correctly pointed out that aside from as-yet-unknown judicial vicissitudes, the future would also be shaped by ever changing technology. Commerford, still very much Nikola Tesla’s great champion, proposed that the brilliant Serb’s “work is the most striking illustration of the possibilities that lie before us. Mr. Tesla gave us a motor without a commutator; and it would be strangely in keeping if he gave us now a lamp without a filament.”27
Even as the electricians were digesting the big Edison patent win, the bold George Westinghouse once again proved all his naysayers wrong, pulling off what most deemed impossible: He had saved his cash-strapped electric company, emerging stronger than ever and still fully in charge. On July 15, 1891, in Pittsburgh, at long last, the stockholders agreed to yield up hunks of their holdings to pay off the company’s immediate debt. A new high-powered board was installed, including such financiers as Bostonian Charles Francis Adams and August Belmont. The very issue of Electrical Engineer that opined about Edison’s lamp triumph also congratulated Westinghouse on his own considerable coup, especially as it came in the immediate wake of his resounding light bulb loss to Edison. “The only inference possible,” noted the electrical journal, “is that the men of affairs … are well satisfied as to the outlook. We are ourselves inclined to look upon the Westinghouse Company as now one of the most formidable in the field, and as being far more likely today to get business and do it profitably than it was in the time of its inflation and extravagance.” Westinghouse’s lawyer, Paul D. Cravath, still marveled years later at this triumph of reorganization. Westinghouse, he said, “found it difficult to work with so-called financiers. What seemed to him to be their lack of vision and faith was always annoying to him…. In at least two great financial crises, when the financiers had given up the task as hopeless, Mr. Westinghouse, by his faith, by his untiring energy, and by the exercise of a power to influence men that I have never seen equaled, was able to weather the financial storm, raise enormous sums of money, and restore his enterprises to a sound financial position when his critics and most of his friends were certain that he was facing a crushing defeat.”28 Once again, Westinghouse had emerged victorious.
The light bulb win did not prove to be the great windfall Edison General Electric had hoped. The final appeal dragged on, and the big Wall Street investors once again became restive as they watched their Edison stock drop from $120 a share to $90. By mid-December of 1891, as famine, typhus, and smallpox ravaged parts of far-off Russia, The New York Times was reporting that Henry Villard’s days as president of Edison General Electric were numbered. “He is a strong talker and has wonderful personal magnetism,” noted the paper. “J. Pierpont Morgan, however, is a hard man to dazzle.”29 So the rumors multiplied, were quashed, and then came to life again. The jovial Alfred O. Tate had been serving as Edison’s personal secretary since May of 1883, and he had heard the rumors ebb and flow so often, he paid them little mind. But on February 5, 1892, Tate was sitting at his desk a
t the Edison Building at 16 Broad Street when one of his old friends, journalist Herbert Sinclair, whose beat was Wall Street, walked in. Tate relates what happened in his memoir:
“‘Alf,’ he said as he seated himself, ‘do you know that the Edison General [Electric] and Thomson-Houston are going to amalgamate?’
“‘Herby,’ I replied, ‘that’s an old yarn that was buried long ago. Where did you resurrect it?’
“‘Now listen to me,’ he answered, ‘I know what I am talking about. Charlie Coffin and Villard are in Morgan’s office right now and we are all waiting at Henry Clews’ office for the story. We have been told that we can break it after three o’clock.’”
Tate jumped up and said he had to leave immediately to catch the ferry to Orange. “I’ll have to go right out to see Edison. He knows nothing about this.”
It was a bone-chilling bright winter day as Tate raced through the well-dressed Wall Street crowds, threaded through the jams of horsecars and trucks full of huge barrels, past the oyster sellers and hot-coffee carts, and down to the Hoboken ferry. The wharves were full of ships, their masts jaunty with many flags. The weather was so frigid that upriver in Poughkeepsie, ice yachts were out racing across the great frozen riverine expanse. Tate would say in his memoir, “I have always regretted the abruptness with which I broke the news to Edison but I am not sure that a milder manner and less precipitate delivery would have cushioned the shock. I never before had seen him change color. His complexion naturally was pale, a clear healthy paleness, but following my announcement it turned as white as his collar.
“‘Send for [Samuel] Insull,’ was all he said as he left me standing in his library. Insull [his treasurer] was sent for. What passed between them I do not know. Edison never again made any reference to the subject except on one significant occasion.”30
Back on the other side of the Hudson, J. P. Morgan in his smoke-filled office had come to support the consolidation of Edison General Electric and Thomson-Houston for the most obvious and compelling of business reasons: the bottom line. In 1891, Edison General Electric had sales of $11 million and profits of $1.4 million, or an 11 percent return. Thomson-Houston had sales of $10 million and profits of $2.7 million, or a 26 percent return. Charles Coffin boasted to the investment bankers trying to push the merger that he was “beating the stuffing out of them [Edison] all along the line.”31 Business was booming for both companies, but once again Edison General Electric was sitting on a $4 million pile of local electric stocks, unable to translate this paper into cash. In notable contrast, the Boston bankers for the Thomson-Houston people had prudently marketed and steadily sold these sorts of securities so they could recoup that capital. And, of course, there was the lure of the Edison light bulb patent.
Nonetheless, Coffin had begun to wonder why they should sell their company to the Edison forces when Thomson-Houston was doing so well. In meetings at the Boston mansion of Morgan associate and Vanderbilt family member Hamilton McK. Twombly, one Thomson-Houston executive surprised the Morgan forces by saying, “We don’t think much of the way the Edison company has been managed.”32 When their lack of enthusiasm was conveyed to Morgan in Manhattan, he ordered, “Well, send them down here to talk to me.”33 Coffin, with his thick brush mustache and hard-charging manner, went as bade to hold his meeting with Morgan. The balance sheets of the competing companies deeply impressed Morgan with Coffin’s business savvy, for here was a man who produced twice the profit of the Edison people. With that, Morgan could quite see that it made more sense for the better managers—the men of Thomson-Houston—to buy out Edison General Electric.
Coffin then demurred, proposing a consolidation but one that left him in charge. Capitalized at $50 million, this financial reworking ranked in 1892 as the nation’s second-largest industrial merger. Edison stock was converted at a rate of one to one, Thomson-Houston stock at the rate of three shares for five new shares. While this sounded generous, the reality was that the smaller, lesser-known company was taking over the great name of the electric field. Edison shareholders now controlled only $15 million in the new company, compared with the $18 million controlled by the Thomson-Houston shareholders. The remaining $17 million went into the treasury as future capital. The Edison forces were routed in more than mere dollars. Most hurtful of all, the new company’s generic name—General Electric—tossed aside the names of the founders of both firms. He, Edison, the father of electricity, his famous name, was being dropped. And so it was that J. Pierpont Morgan, whose house had been the first in New York to be wired for electricity by Edison but a decade earlier, now erased Edison’s name out of corporate existence without even the courtesy of a telegram or a phone call to the great inventor. Edison biographer Matthew Josephson wrote, “To Morgan it made little difference so long as it all resulted in a big trustification for which he would be the banker.”34 Edison had been, in the vocabulary of the times, Morganized.
The New-York Daily Tribune reported two weeks later that “Edison was so disgusted with the turn affairs had taken he proposed to withdraw entirely…. He feels much aggrieved over what he considers the mismanagement of the company and the sacrifice of his interests.”35 This was, of course, completely true, but Edison hated to look like a sap, so the very day that story appeared he quickly adopted his usual cocky public face. He did not want the world or his enemies to know his company had been sold out from under him without so much as a word from the money men. For the many reporters, Edison now assumed his best cavalier manner, explaining that he was already on to bigger, better things. “I cannot waste my time over electric-lighting matters, for they are old. I ceased to worry over those things ten years ago, and I have a lot more new material on which to work. Electric lights are too old for me. I simply wish to get as large dividends as possible from such stock as I hold. I am not businessman enough to spend my time at that end of the concern. I think I was the first to urge the consolidation.”36 He insisted that the new company, which would dominate three-quarters of the electric market, was no trust or monopoly.
The influential editor of the Electrical Engineer, T. Commerford Martin, who once briefly worked for Edison at Menlo Park, wrote an editorial in the wake of the announcement titled “Mr. Edison’s Mistake.” He pondered what had brought about Edison General Electric’s demise. Without question one could blame “the discontinuous, frequently changing, though often able, organization and management of the Edison interests,” he said. But was not the far greater cause, he proposed, “the attitude taken, and persistently held, by Mr. Edison towards alternating current distribution? He could see no merit in that system. But upon its advent, its possibilities were promptly perceived by others…. Since its introduction for long-distance service, six years ago, it has practically driven the direct system from the field of much central station business. Mr. Edison set his face against it as a flint from the first, and has sought on every possible occasion to discredit it through the weight in the community of his justly great name. But the tide would not turn back at his frown.” Here in this first and most furious of battles pitting one new modern technology against another, the superior technology had thus far prevailed. But despite Edison’s obstinate opposition to AC, which T. C. Martin believed had cost Edison his company, Martin also believed Edison’s greatness would endure. “His name and fame are too deeply impressed upon the world to incur any risk of obscuration through any changes of business or methods.”37
Understandably, Edison took little pleasure in the fall of 1892 over his final victory and vindication in the Seven Years’ Incandescent Light Bulb War, when yet another court sustained his lamp patent. This was slender solace to the wounded wizard in his New Jersey redoubt. Edison’s secretary, Alfred O. Tate, went out to see Edison several months after the patent decision was handed down, wanting some technical information about a battery project. He found Edison standing alone at his big rolltop desk in the magnificent two-story book-lined library. Atop the desk was sculptor Aurelio Bordigo’s spritelike
statue holding aloft a lamp. Edison himself had purchased Genius of Electricity during those happy months in late 1889 at the Paris Exposition. When the young Tate put his electrical question to the great electrician, Edison answered vehemently, “Tate, if you want to know anything about electricity go out to the galvanometer room and ask Kennelly. He knows far more about it than I do. In fact, I’ve come to the conclusion that I never did know anything about it. I’m going to do something now so different and so much bigger than anything I’ve ever done before that people will forget that my name ever was connected with anything electrical.”
Tate was utterly stunned at Edison’s bitterness and vehemence. “I knew that something had died in Edison’s heart and that it had not been replaced by the different and bigger thing to which he had referred. His pride had been wounded. There was no trace of vanity in his character, but he had a deep-seated, enduring pride in his name. And that name had been violated, torn from the title of the great industry created by his genius through years of intensive planning and unremitting toil.”38
Was a similar fate in the offing for George Westinghouse? He had successfully, against all odds and expectations, secured the necessary loans and a new pool of capital for the electric company. Nonetheless, the Electrical Engineer of February 17, 1892, had reported, “It seems quite reasonable to expect, as many do, and as rumor has it, that absorption of the Westinghouse Company into the proposed new [General Electric] corporation will soon follow. The provision of $16,600,000 of stock—$6 million of which is in preferred shares—remaining to the treasury after taking up the Edison and Thomson-Houston stocks, is thought by many to imply the use of a considerable portion of it in taking over the Westinghouse Company when convenient; but no information of such a plan has been made public.” When convenient. Even a man as tough as Westinghouse had to read those words with at least a tinge of trepidation. While he had yet to get his Tesla AC system working, no one doubted that he would. Clearly, the people at General Electric, who would now control three-quarters of the nation’s electrical business, would want those AC patents. And J. P. Morgan, who was now a firm GE backer, was a man who preferred a tidy monopoly above all other industrial arrangements.
