William Collins Whitney
Whitney resigned in 1882, his reform credentials unblemished, and set to work to get Grover Cleveland elected president. He was one of Cleveland’s most successful fundraisers and also demonstrated a deft touch in smoothing over party infighting. When Cleveland won, Whitney was appointed secretary of the navy, where he “achieved an enviable record in converting the existing navy of antiquated vessels, mostly wooden, into a modern navy of steel built economically and efficiently.”15
When Cleveland was returned to office in 1892, Whitney had been so instrumental in his election that he was offered any job in the administration he wanted. But Whitney was finished with public service. He decided that he needed to work full-time on his ambition to become very, very rich.
Just because William Whitney had spent years in government rooting out conflicts of interest did not mean that he had none of his own. In fact, Whitney had spent much of that time investing in businesses that, with his insider’s knowledge of New York politics, he knew could be exploited for sizable profit. In the 1880s, he teamed with a group of like-minded investors and set in motion a campaign to monopolize the surface trolley business, first in New York and then in major cities across America. The group’s longer-term plans included similar acquisitions of gas and electric lighting companies. Although the syndicate had no formal structure and not every member participated in each of the deals, they operated sufficiently in concert to eventually be dubbed the “Whitney-Ryan trust.” Other members included stockbroker Thomas Ryan—whose middle name was, appropriately, Fortune—and Philadelphia’s Peter Widener.
They began in earnest in 1884, when “the transit situation in New York was an especially tempting one…some thirty independent street railways [that] operated largely on perpetual franchises, for which they paid practically nothing into the city treasury. Each company aimed only at cultivating its own traffic and never considered the convenience of the city as a whole.”16 As a result, in addition to often having to pay multiple fares and following a “zigzag course” to their destinations, riders were forced to endure cars that were “small, unventilated, shockingly filthy, and broken down.”
His years as corporation counsel had left no one more acquainted with railroad law or better equipped to outflank city franchise regulations than Whitney. Widener, who was the son of an immigrant bricklayer and had made a fortune in, among other ventures, railroad speculation, was a force in Philadelphia’s particularly dirty political culture. Ryan, also from a modest background, was a seasoned Wall Street operator who saw great potential in light rail. They shared high intelligence, unvarnished ambition, and the willingness to push hard against the letter of the law while trampling on its spirit.
“Whoever hoped to monopolize New York transit had to control Broadway,” so Whitney began there.17 At first, both Widener and Ryan were aligned with competitors for the franchise, but they soon banded together to ruin the franchise holder, Jacob Sharp—who in 1886 was indicted on twenty-one counts of bribery, a crime of which he was surely guilty, although so was everyone else—and then took over the Broadway and Seventh Avenue Railroad themselves. From there, the new partners spread their net, acquiring one surface and elevated rail franchise after another; in most cases, the licenses, worth millions, were granted “practically as gifts…even in the face of existing laws that apparently protected the city’s rights.” Those laws, which required that every franchise be awarded at a public auction, were circumvented by Whitney and Ryan on the grounds that the new franchises were merely extensions of existing ones, a claim that was transparently false. In other cases, where auctions were held, Whitney used his connections in government and the courts to obtain rulings disqualifying the competing bidders. A good deal of money obviously changed hands during these machinations, although neither Whitney nor Ryan was ever implicated. By the time the Panic of 1893 set in, the partners had achieved a virtual monopoly: only two of New York’s horsecar railways were not under their control. (One of the two was the Third Avenue Railroad, the second-most-important franchise in the city, whose owner, Henry Hart, briefly outwitted the cabal before ultimately succumbing.) Whitney and Ryan then consolidated their purchases by forming the Metropolitan Street Railway Company, essentially a holding company, to which they leased most of the franchises.
The future of public transportation and public utilities, the syndicate agreed, was not in horse power, but they were undecided as to whether steam, compressed air, or electricity should be their technology of choice. They experimented with each, including installing underground steam cables to mechanize some of their franchises. They also decided to invest in storage batteries. When exide technology demonstrated itself superior to any other, the group bought up stock in the Electric Storage Battery Company, until they held a significant minority stake. At first they saw the devices merely as a means to store energy produced in surplus by generators during off-peak hours, power that could then be returned to the system during peak periods to supplement the generators’ output, a process called “load leveling.”
In 1898, when Isaac Rice’s electric taxis first demonstrated serious potential, however, Whitney and his confederates altered their plans. “Since they were already experienced in the art of merger and stock manipulation, it was natural enough for these men to decide that electric taxicabs offered a useful adjunct to their traction interests, particularly with the battery patent offering monopolistic possibilities.”18 The syndicate bought even more stock in Electric Vehicle, bringing their total holdings to more than $1 million. But maneuver as they might, they could not wrest control from wily Isaac Rice.
After the February 1899 blizzard, however, Electric Vehicle became a Wall Street darling and the stock price soared, appreciating from about $20 per share to as much as $150 per share. There was no longer any possibility of Whitney and Ryan gaining a majority interest in the company without buying out Rice and even Gibbs, who had retained his minority interest. The parties met in March 1899 and settled on a price of $141 per share, an enormous profit to Rice and Gibbs. Rice would remain on as titular president, but his tenure with the company had effectively ended.
Just weeks after buying Rice out, Whitney traveled to Hartford, Connecticut, to meet with Albert Pope, who had recently initiated his expansion into motorcars. Pope and Whitney got along well—one monopolist to another—and on April 19, they came to terms on the most ambitious plan of expansion ever undertaken in American transportation.
The motor carriage division of Pope Manufacturing would be acquired by a new entity, the Columbia Automobile Company, which would then merge with Electric Vehicle and Electric Storage Battery (still technically the parent) to form the Columbia and Electric Vehicle Company, taking over Electric Vehicle’s assets plus $1 million to be paid by the Whitney syndicate. The plan was to introduce taxicab fleets in every major city in America, projected at an astronomical twelve thousand vehicles. The new company would build its electric cars in Pope’s Hartford factory, purchasing the batteries at a tidy 20 percent over cost from Whitney’s Electric Storage Battery. The consortium also acquired some small electric automobile manufacturers. By1900, the Electric Vehicle Company was, at least on paper, the largest automobile maker in the world.
The bicycle end of the Pope business was spun off into the Hartford Cycle Company. After a merger of more than a dozen smaller firms engineered by Pope and his cousins late in 1899, Hartford Cycle became a division of the American Bicycle Company. While American Bicycle fell victim to the declining market and declared bankruptcy in 1902, Pope once again demonstrated that he was a tough man to put out of business.
At his instruction, some of the bicycle affiliates had begun to make automobiles, almost all gasoline, and these operations were continued when American Bicycle was reorganized as the International Motorcar Company, which was soon changed to the Pope Motorcar Company, its principal factories located in Toledo and Indianapolis. Pope also converted the unused capacity of the Har
tford plant to automobile manufacture. In 1903, he created the Pope Manufacturing Company to consolidate the Pope Motorcar Company and the remaining assets of the American Bicycle Company. He would manufacture automobiles until his death in 1909.
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For Whitney’s group, the Pope acquisition was merely the base of the pyramid. Soon after it was completed, they established the Electric Vehicle subsidiary as a holding company for the individual operating companies planned for each major city. (In May 1899, the first of these was obtained when Whitney and Widener bought control of “nearly all the surface and elevated railway lines” in Chicago, paying their previous owner, Charles Yerkes, “something less than $20,000,000.”)19 The following year, the parent company would again be reorganized and the Electric Vehicle Company would acquire Columbia, leaving Electric Vehicle as parent company for the entire organization.
These serpentine maneuvers were hardly affectations. With each assignment of subsidiaries or reorganization, the Whitney syndicate extracted profits, protected itself against losses that might accrue to ordinary stockholders, or insulated itself against any liability that could result from mismanagement or worse. Electric Vehicle eventually issued more than $20 million in stock, with authorizations for an additional $80 million in the various regional companies under its umbrella. With such intense dilution, especially for a company making modest profits, only a huge success would make public shareholders any money. Whitney and the rest, of course, had awarded themselves enormous blocks of stock, for which they had paid nothing, and they could sell at the very moment the speculative fervor that they had stoked was at its most intense.*4 Hiram Percy Maxim, no fan of either the electric car or his employer’s new associates, later noted, “The scheme was a very broad one, promising all manner of possibilities in the way of stock manipulation. Whether it was intended to develop profits out of earned dividends, or by unloading the stock on the public, I will not venture to guess. In those days of wild finance, unloading upon the public was very fashionable.”20
Maxim was equally vociferous when the mergers were being consummated. He told anyone who would listen that the deal as structured, attractive as it may have appeared, would end in disaster. But Maxim’s was virtually the only voice of dissent within Pope’s organization. In addition, he tried to convince his colleagues that gasoline, not electricity, was the future of automotive technology. Maxim was furious when Pope and the other senior executives dismissed his complaints out of hand.*5
But Maxim’s cavils looked silly in the face of the thousands of new automobiles dangled in front of Albert Pope’s nose. In July 1899, Isaac Rice, still officially president of the new concern, announced that
he had placed orders for $8,000,000 worth of electric carriages. This means 4,200 new vehicles, and this number will not begin to supply the big demand that is being made in all directions for the new-fangled vehicle. The delivery of the carriages will begin the latter part of this month and will go on regularly until the order is filled. The big order was given to the Columbia and Electric Vehicle Company, one of the subsidiary companies of the Electric Vehicle Company. It is said that all of the 4,200 vehicles could be put to instant use if they were finished now. The Electric Vehicle Company has a demand for more than it can supply at present.21
Other than the final sentence, virtually every word in that pronouncement proved to be false.
Whitney might have been reckless with stockholder money, but he had been a corporation counsel for too long not to be fastidious with his own. Early on, he inquired as to whether anyone had checked to determine not only whether the new venture would infringe on existing patents but also if there were any unrelated patents out there that it might be useful to buy up. Whitney heard that Pope’s auditor, Hermann Cuntz, was purported to be something of a patent whiz, so he was assigned the task.
Cuntz soon reported back that Electric Vehicle seemed to be in the clear insofar as battery technology was concerned, but there was an obscure gasoline motor patent that, as Cuntz read it, might well control every automobile of that sort that had or would be constructed. It belonged to a man no one had ever heard of. His name was George Selden.
* * *
*1 Rice’s children also led extraordinary lives. One founded the Poetry Society of America. Another, Marion Rice Hart, was the first woman to graduate from the Massachusetts Institute of Technology with a degree in chemical engineering, and obtained a master’s in geology from Columbia University. While working as a sculptress in Avignon, France, at age forty-five, on a whim she purchased a seventy-two-foot ketch and piloted it around the world. She served in World War II as a radio operator in the Signal Corps, often aboard a B-17, and became fascinated with airplanes. She learned to fly after the war and eventually made seven solo trips across the Atlantic, the last when she was eighty-three years old. She continued to fly alone, often for thousands of miles, until she was eighty-seven. She had no children and her husband divorced her when she “refused to be like other women.”
*2 There were those who did not consider the Rice Gambit the result of incisive brilliance. In The Middle Game in Chess, grandmaster Reuben Fine wrote, “The story of the Rice Gambit is rather amusing. It begins: 1 e4 e5 2 f4 exf4 3 Nf3 g5 4 h4 g4 5 Ne5 Nf6 6 Bc4 d5 7 exd5 Bd6. Professor Rice, a New York amateur, had this position once and inadvertently left his knight en prise; then later he won the game. He was so impressed with his success that he immediately interested a number of the prominent masters in the move, which was easy enough to do because he had a lot of money.”
*3 The Exide brand was officially adopted in 1900, and so the Electric Storage Battery Company still exists as Exide Technologies. The company manufactures car batteries, but in 2013, with new technologies squeezing their market, filed for bankruptcy.
*4 Whitney would make tens of millions of dollars by dumping his Metropolitan Street Railway Company stock. Upon his death in 1904, not a single share remained in his portfolio.
*5 Maxim would eventually strike out on his own, making his mark in a number of industries. He invented the car muffler and the gun silencer, pioneered a system of radio relays, and was active in aviation, astronomy, yachting, and cinema.
CHAPTER 11
After the buyout, the fortunes of the erstwhile partners of convenience, W. W. Gibbs and Isaac Rice, diverged.
Gibbs could not seem to do anything right. Within five years, he had declared bankruptcy, been accused of fraud, moved from his Philadelphia Main Line mansion to a tiny house, and forced his son to drop out of Harvard. The last of these had a serendipitous result, as the son, William Francis Gibbs, became perhaps the foremost naval engineer in America, designer of the SS United States. The younger Gibbs later declared that he “never would have amounted to anything” had his father not gone bankrupt.
Rice fared a good deal better. He resigned from Electric Vehicle in August 1899, his final link with the company severed but his belief in the potential of electricity undiminished. One of Electric Storage Battery’s other customers was a self-taught Irish-born engineer named John Philip Holland, a former music teacher in a parochial school, who was in the process of developing the first self-sustaining submarine. Holland, an Irish nationalist who began his quest in an effort to develop a weapon against the British navy, had been working on his idea for thirty years. He completed his first prototype in 1878—a one-man submersible powered by a foot treadle—and went from there to building machines of increasing sophistication for the next two decades. In 1893, with the Navy Department sufficiently interested in submersibles to offer $200,000 to the winner of an open competition for a workable design, Holland secured the necessary financial backing to form the John P. Holland Torpedo Boat Company and enter the fray. He won handily and was given a government contract, but by 1899, with war declared against Spain and the navy procrastinating, Holland ran out of money.
Even before his negotiations with the Whitney syndicate were concluded, Rice offered to step in. With the proceeds from
the sale of Electric Vehicle, Rice purchased a controlling interest in Holland’s company, a stipulation of the deal being that all patents held by Holland personally would be transferred to the corporation, which meant to Isaac Rice. Rice also bought out the Electro-Dynamic Company, which made the motors for Holland’s submersibles, and combined the two in a new corporation, the Electric Boat Company. As with Morris and Salom, once Rice had acquired the patents he both put his own stamp on the design and marginalized the original owner. Holland, like Morris and Salom, was eventually forced out and remained bitter for the rest of his life toward the man he accused of stealing his company.*1
In 1900, Rice used another part of the Electric Vehicle proceeds to purchase land at the corner of Riverside Drive and West 89th Street in Manhattan, on which he erected a four-story Beaux Arts mansion he called Villa Julia, after his wife. Rice designed much of the interior himself. Villa Julia took three years to build and included a soundproof chess room in the basement cut out of solid rock.*2
Drive!: Henry Ford, George Selden, and the Race to Invent the Auto Age Page 14