Issue #89 • September/October, 2004
The conventional wisdom is that to get filthy rich, you need to be greedy. So, it may come as counterintuitive that it’s generosity, intentional or accidental, and not greed that may be the key to obscene wealth. In fact, greed may actually work against you. The reason? As near as I can figure, allow others to prosper and they will work harder and smarter. Then you’ve got to figure out how to tap into them.
There are some good examples to demonstrate this and they come from—brace yourself for this—some of the so-called Robber Barons of the 19th century. Among them John D. Rockefeller, Cornelius Vanderbilt, and James J. Hill.
After all these years of being told that these men made their riches by stifling competition and squeezing the common man, it came as a surprise to me that under these robber barons the consumer prices of their respective products and services fell, sometimes to nothing. For example, in the case of Rockefeller, whose goal was to provide the best product at the lowest possible price for the consumer, kerosene, then the primary petroleum product, went from 58 cents to 8 cents a gallon. He also paid higher wages and gave good bonuses to employees knowing, in the long run, good help would ultimately improve products and cut costs. His employees worked hard, remained loyal, and his companies were rarely bothered by strikes. His competitors, many of whom couldn’t compete, didn’t understand his methods and, in desperate attempts to stay in business, looked toward political means to break up his business. Ultimately, they succeeded.
For Vanderbilt it was passenger travel and freight hauling by steamship that got cheaper as he undercut his competitors. Others charged $600 fares from the East Coast to California, but he slashed his to $150, then to $100. For third class passengers, it was a paltry $30. At one point, he ran his freight business in New York so well that he let passengers ride his ships at the lowest rates possible and fed them for free. On another of his lines, passengers rode for free and he made his money selling them lunches. All the while, he was making a killing and he won legions of loyal customers. Eventually, competitors paid him to get out of the steamship business.
With Hill it was railroads.While Leland Stanford of the Central Pacific, Oakes Ames of the Union Pacific, and Henry Villard of the Northern Pacific built second-rate railroads using generous government subsidies, Hill built the best railroad in America without any government handouts. To drum up business, he promoted scientific farming practices along his rail lines and actually gave cattle away so farmers could develop herds, and he ultimately used his railroad to ship beef back east. He even brought farmers into the area for a mere $10. He told them he would prosper only if they did; otherwise, he and they would be poor. But the farmers prospered and so did Hill. And that’s a clue as to how the richest got that way—letting others prosper.
I’ll admit that other “robber barons,” such as Stanford and Gould, were price fixing scoundrels who, with the support of government-supported monopolies and government subsidies, ran up their fortunes and fixed prices at the expense of people like you and me. But men like Vanderbilt, Rockefeller, and Hill acquired their fortunes by running their businesses efficiently, cutting both costs and prices to the bone, embracing innovations (those with government protection or subsidies felt they didn’t have to innovate and actually tried to keep their competitors from doing so), and by creating wealth in other men. As a reward, first Vanderbilt, then Rockefeller became the world’s richest men. In the meantime, the companies that had to compete against them often went bankrupt despite generous government protections and subsidies.
Eventually, antitrust litigation was brought against men like Rockefeller. Who was it that wanted the companies like his broken up? The public? Of course not. People were getting the best deals of their lives. Then who? None other than inefficient competitors, the politicians who were in their pockets, and a press that didn’t understand how businesses should be run. And while men like Rockefeller were considered dangerous because of their potential for price fixing, the irony is that it was the companies receiving government subsidies that engaged in that practice.
Fast-forward to today. Bill Gates, the man who created operating systems for the PC, is now the world’s richest man. They say the PC’s main competition, Apple, is a better machine. But, if so, how then did Apple fail when the PC and Bill Gates’ Microsoft succeeded so admirably? Like the Hills and Rockefellers of old, both Apple and Gates built their fortunes the old-fashioned way; they didn’t ask for government help, but constantly innovated. And they surrounded themselves with talent. But perhaps even more importantly, in the case of Gates, he never seemed to care how much money you made off him, and directly or indirectly he’s probably responsible for creating more millionaires than any other person in history. And, unlike Apple, which insisted on licensing fees from software developers, Gates charged none. Because of that, developers flocked to Microsoft’s operating system, encouraged by the prospect of making their own fortunes, while avoiding Apple’s. Seeing all the software that ran on PCs, the public flocked to Microsoft’s operating system and made Gates the world’s richest man. It’s like James Hill who encouraged those along his rail line to prosper, simply because he knew they’d use his rails if they did.
So, you want to make a bundle of money? Help your fellow man prosper.