Review – The First Tycoon (#review, #books, #capitalism, #history, #entrepreneurship)

[amazon text=The First Tycoon: The Epic Life of Cornelius Vanderbilt&asin=1400031745]

by T.J. Stiles, published 2010

How and why did Cornelius Vanderbilt, steamship and railroad entrepreneur, become America’s “first tycoon” and in the process earn a fortune worth an estimated $100M in the 1870s? The simplest answer provided by this lengthy biography is that Vanderbilt was able to think about abstract entities such as corporations as representing competitive business opportunities in an age when most other people controlling them thought of them as profitable grants of privilege from the State (which they were). The result was that Vanderbilt thought strategically about his acquisitions in the sense of actively seeking to own things with identifiable competitive advantages (the best route, the lowest operating costs, network effects) which he would then exploit while slashing prices, while his competitors were stuck playing defense until they gave up and offered to buy him out in self-defense.

But the book really doesn’t offer enough specific and concrete evidence to validate this thesis, it’s really just a hunch and an attempt to read between the lines of what is offered. Like most biographers and historians, Stiles consistently fluctuates between the two extremes of failing to provide the necessary evidence to actually understand what was happening and why, and forcing a tortured narrative metaphor of “the capitalist as king/general” that ends up just confusing the issues. Vanderbilt is constantly in “rate wars”, is “battling” for control of companies and finds himself with an “empire” after yet another “conquest.” But we never hear this language in Vanderbilt’s own quotations (based upon written correspondence, newspaper interviews and courtroom testimony) which are numerous.

How Vanderbilt saw himself as a businessman and operator, and how Stiles chooses to depict him with his jarring anachronistic fadism are even more incongruous because Stiles himself spends much of the time arguing against his own descriptions! It is a puzzling choice. Perhaps books about old tyme capitalists don’t sell well without a not so subtle nod to the villainous Robber Baron laying in wait inside of all of them, but it’s a shame because the much more interesting story would’ve been the one told through Vanderbilt’s own eyes. Not to mention the fact that the Robber Baron myth is a lie perpetrated against Vanderbilt, not because he was a horrible monopolist but because he was such a pain in the ass to the horrible monopolists!

[The NYT] attacked him for, as he wrote elsewhere, “driving too sharp a competition” [… deriding] “competition for competition’s sake; competition which crowds out legitimate enterprises… or imposes tribute upon them” [… and called on] “our mercantile community to look the curse of competition fully in the face.”

Similarly, there are constant references to “the world Vanderbilt helped make” with reference to markets and businesses, the city of New York and the emergent nation of the United States of America. And while certainly the man’s actions and decisions were influential and impactful, Vanderbilt was not a statesman and never saw himself as anything more than an ambitious private citizen. There is not one example in the book of Vanderbilt plotting to remake the world in his own image. This is just another forced biographical trope that dopey readers, editors and authors seem to think makes a story ten times better to insist upon when the world just doesn’t have that many psychopaths in fact.

Other information missing from the story that seems essential to charting Vanderbilt’s rise: what he paid for various business assets and how he financed them, what he earned from them and what he paid in taxes, when he controlled an asset and when he was a minority partner, etc. Especially, we should like to know his leverage over time and how he was able to benefit from the various money panics that occurred repeatedly throughout his business career. One thing is for certain, he seemed to always be a buyer in such scenarios, never a seller, and he seemed comfortable being in control of his investments and making and enforcing operating policy, rather than being a mere financial speculator such as a partner like Daniel Drew might.

There are many charming bits of early American social and business vernacular we learn sprinkled throughout the book and its strength is in providing so many direct quotations from primary sources, especially the business media of the day, which really help to flavor the narrative and transport the reader to the place and time described. But this can also be a weakness, when the author ends up name-dropping a litany of capitalists involved in some deal or scheme and dribbling their worries and anxieties from private correspondence over several pages as the deal unfolds. I found it difficult to follow and mostly tuned out what I assume are supposed to be the action-packed moments of the story.

I first read this book shortly after it was published in 2010. I since decided to re-read it and while I wish I had had a bit more energy and focus when I did, I am glad of it. I took a new and different appreciation from some of the book’s events than I did on first pass, which suggests I’ve either improved my mental framework or at least changed it in meaningful ways over the last 7 years. Vanderbilt still comes across as a unique and heroic figure, a true titanic will. The narrative is as confused and cluttered as ever, and while I think there were the makings of a better, more concisely argued book here, and the author certainly has done his research, I am not convinced he did the right research or even fully understood what lessons he was taking away from it. The result is I’ve since downgraded the value of this particular work in my mind and think it belongs to a pretty standard class of historical biographies. Vanderbilt the man himself though is easily a five out of five as far as members of humanity are concerned!

I’ve got far more I’d be willing and able to discuss about this work and Vanderbilt as an example in private correspondence than I think I could fit into a short, coherent blog post, so really ruminating on this story will have to wait for another time and a different occasion.

3/5

[amazon asin=1400031745&template=iframe image2]

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Review – The Rational Optimist (#books, #optimism, #reason, #evolution, #economics, #development)

[amazon text=The Rational Optimist: How Prosperity Evolves&asin=0061452068]

by Matt Ridley, published 2011

Why, for the last 300 years, has “everything” been getting better and better in terms of just about any human outcome you can come up with? Human beings are getting better at exchanging ideas and thus generating new and better ideas. In addition, the total stock of life improving ideas humanity can build from is compounding at an increasing rate. The benefits of free exchange extend beyond the economic realm and into the philosophic, and then back again.

The author charts a surprising course through humanity’s shared hunter-gatherer history. He argues that it was economic trade which allowed the division of labor to develop, and the division of labor which allowed for the transition from hunter-gatherer subsistence living to agricultural subsistence, and from there to a compounding of capital and an increasing division of labor and economic specialization that allowed for mankind to finally break free of the Malthusian trap in many parts of the globe (and more every year).

In addition, he says we are never going back. The genie is out of the bottle and rather than the division of labor being fragile, it is far more robust than any social structure yet experienced and gets stronger the more specialized it becomes.

Because of this, and because when surveying history up to this point in the broadest terms possible there is evidence of things getting better and better for more and more people, not the opposite, the author concludes that the rational thing is to be an optimist and expect this trend to continue.

There are several convenient leaps of logic built off flimsy premises that would startle and upset an opponent of markets and industrialized societies, but there is such a preponderance of hard logic and even harder evidence that there isn’t enough here to tip over the apple cart. But the value of this book is less in its rhetorical force for free markets and industrial development and more in its sweeping survey of a number of seemingly unrelated historical data and economic phenomena into a coherent picture of hopefulness about humanity’s future. I found myself joyfully surprised by the idea that in the chicken-egg quandry of agriculture and trade, the author contends that trade came first and produced all the surplus we moderns have enjoyed since then.

Going “back to the land” or seeking out de-urbanized, atomized communities seem to be doomed to bring their proponents a lower standard of living overall, idealizing a past reality that never actually existed or rejecting the very thing (the division of labor) which is necessary to enjoying a desirable standard of living with modern securities and comforts.

3/5

[amazon asin=0061452068&template=iframe image2]

News Media Can Not Be Objective

A friend in the financial industry sent over an article that began,

Hedge funds run by women have outperformed a broad benchmark of alternative asset managers over the past five years, raising fresh questions about why there are so few female portfolio managers.

This is a great example of the “fake news” phenomenon and will serve to illustrate why news media is not and can not be objective in its presentation of facts.

First, news gathering and publishing is part of the discipline of history– it deals primarily with events and information that have already taken place, even while commenting on or attempting to predict events yet to happen. When you open up a newspaper, you are reading articles about things that happened in the past, albeit the recent past. The only difference between what you read in a history book and what you read in a newspaper is how much time has passed between your present reality and the events portrayed in the book or article. In a news article, that time period may be hours, days, weeks or even a few years; in a history book, it may be decades, is often centuries and is sometimes millennia.

Second, as a specimen of history, news gathering and publishing suffers from the same philosophical problem that history in general does, namely, developing a criterion for selecting meaningful facts and data to tell a particular story from the essentially infinite quantity of such facts and figures available. To write history, you first need a person (the author) who has a set of values or curiosity that dictate his desire to explore a particular historical topic. Once he has selected a topic, he has to come up with a theory about the topic and then use the theory to select from and interpret the available data to tell a story about the topic. The news journalist works the same way– start with a person, the journalist (or their editor, advertiser, owner or other primary influencer) who uses their values and judgment to determine what stories need to be told, then, using pre-existing theories of how the world works, select and interpret relevant data to tell the story that needs to be told.

History does not write itself, and neither does the news. Historians write history, journalists write the news, and some innate values and beliefs are necessary in each to cause sufficient motivation to inspire the act of writing and publishing in the first place. Given the motivation, pre-existing logical theories of cause and effect are necessary to determine which facts and data belong to the story and which do not and how they are relevant. At no point in this process up to this point, or after it, is any “objectivity” involved.

Returning now to the example of the story my financial friend shared with me, what can we make of it? A few questions and observations come to mind, using the framework above:

  • Why (what theory/value) is the proportion of female versus male money managers a story that needs to be told?
  • Why was a five year period of data used for observing the phenomenon of relative outperformance?
  • How did the female active managers perform against a genderless, passive index strategy?
  • Were any male active managers able to outperform the broad benchmark used? Were they able to beat the female managers’ performance?
  • Do women want to run hedge funds?
  • Is there is a systemic reason for female fund managers outperforming a benchmark that is persistent and not attributable to luck?

Of course, none of these are addressed in this news story. That is because the job of interpreting the news falls on the consumer of the news, not the news itself– for the news to attempt to interpret itself would be a highly problematic and morally suspect enterprise!

The Greatest Time To Build A Fortune Is Now (#investing, #wealth)

From Is Value Investing Broken? by Geoff Gannon:

There’s a tendency for people – people of any time – to see the time they live in as unique, dangerous, different, unlike any other age. In some ways, they are always right. Some things really are different this time from all other times. But, mostly, they’re wrong. And what they are wrong about is reading a golden age of stability into the past. I was talking with a value investor once and this value investor said that sure Ben Graham’s ideas worked in Ben Graham’s times. But Ben Graham invested in simpler times.

Here are the times Ben Graham invested in: the 1910s through the 1950s. He invested during Two World Wars, the start of the Cold War, the atomic bombings of Nagasaki and Hiroshima by the U.S. and then the testing of nuclear weapons by other countries, The Great Depression, a big explosion (reportedly a terrorist bombing) on Wall Street, and the longest shut down of trading in Wall Street history that I can remember at least (right as World War One started). People talk about political risk today. Political risk in Ben Graham’s time meant Marxists and Fascists. Investors saw hyperinflation in Germany after the war and then they saw deflation after the 1929 crash. These were not simple times. If you go back and read the newspapers from the time – you can see how not simple they were.

Now, yes, they were different from today in some ways. Much of the period investors and economists in the U.S. study were more regulated than today. So, you either had the Gold Standard or Bretton Woods. You had much greater belief in planned and insular economies in a lot of countries. With the benefit of hindsight – and seeing the entire sweep of history – many of these decades seem simple to us. They rarely were. Try to find a decade without too much inflation, too much deflation, too much war, the mania of some bubble, or the bursting of that bubble. At any point in that past, people could have believed value investing was dead. And yet, buy and hold investors – business owners and the like – have been compounding fortunes in the U.S. from the 1800s through today. If there are companies that can make founders and their families billionaires – there are companies that can make shareholders very rich if they buy and hold.

The Unwritten Constitution of the United States (#politics, #government, #USA)

It would be a fascinating exercise to actually write down what the Constitution would say if it actually described the structure of the US government today.

from Why I am not a libertarian.

How Memes Get Twisted (#history, #language, #memes, #politics, #capitalism, #business, #RobberBarons)

I recently removed my read copy of TJ Stiles [amazon text=The First Tycoon: The Epic Life of Cornelius Vanderbilt&asin=1400031745] from the shelf and paged through the introduction. I enjoyed the book both in the way it was written and in learning of the life and times of this esteemed capitalist and thought it might be nearing time for a re-read as I am certain that I would appreciate certain details differently now than when I first read the book almost 7 years ago.

One passage stood out to me right away as evidence in favor of this supposition because I do not remember it at all:

His strength of will was famous indeed. Vanderbilt had first amassed wealth as a competitor in the steamboat business, cutting fares against established lines until he forced his rivals to pay him to go away. The practice led the New York Times, a quarter of a century before his death, to introduce a new metaphor into the American vernacular by comparing him to the medieval robber barons who took a toll from all passing traffic on the Rhine.

I was floored re-reading this (well, as floored as I could be in the dim moments before bedtime). If you’ve heard the “robber barons” meme in contemporary discourse, its typically trotted out as a catch-all word to disparage a person who is extremely wealthy, implying perhaps to a criminal degree not in the sense that the wealth was acquired illegally, but that no one should be allowed to be so wealthy. This is the latest evolution in the use of the meme. Maybe even five years ago, the meme was used to mean a large corporation or wealthy person who was exerting undue influence in society, against the social mores of the Left, synonymous with “capitalist pig.” The tie to “robber barons” was the implication that there was something overtly political, and unfair, about the activities of a person or for-profit institution with so much wealth.

Going back still further, the meme seemed to be a muckraking term favored by the Progressives on their march, associating any type of large industrial scale as seedy, sinister and exploitative– not captains of industry, but robber barons who achieve their size and wealth not by solving the world’s problems, but by creating arbitrary opportunities to siphon off resources by gumming up the works.

But according to this quote from Stiles, the meme originated in Vanderbilt’s heyday (early to mid-1800s) to describe his actions, and the actions which inspired the response were not the actions of a monopolist or large-scale corporate monolith as has become fashionable, but the opposite! At this time, Vanderbilt was the scrappy upstart pestering the “established” businesses and giving them their first taste of competition, and he was being pilloried for this by the establishment press. Today, businesses and businessmen are attacked for raising prices, whereas Vanderbilt was being attacked for cutting them– finding cheaper ways to provide the same service just wasn’t the “gentlemanly” thing to do. We see here the origin of the meme is a lot closer to the “corporate raider” personality of the 1980s than the “corporate titan CEO” of the 1990s or 2000s.

[amazon asin=1400031745&template=iframe image2]

 

But Who Will… Destroy Organic Urban Communities? (#economics, #fallacies, #development, #BigCities, #politics)

From the “But who will…?” file of pro-government fallacies comes this latest doozy on how the development of the Eisenhower Expressway destroyed multiple ethnic enclaves in Chicago:

If you live in Chicago and you drive a car, you’ve probably been stuck in traffic on the Eisenhower Expressway. Oak Park resident Jillian Zarlenga sure has. “I spent a great deal of time on the Eisenhower inching towards the Harlem Avenue exit,” she says.

Sitting in traffic jams gave Jillian time to think — especially when she was working as a United Church of Christ chaplain at Elmhurst Hospital. “I had a lot of time sitting on the Eisenhower examining this huge area of land, thinking there must have been a lot of people that lived here before, and I was just curious where they all went,” she says. She also wondered about all of the buildings that were torn down. What was lost? These musings prompted her to pose this question to Curious City: “What happened to the people displaced by the Eisenhower Expressway?”

Short answer: Who cares? Make way for Progress!

Long answer: read the article. Sure to get those same Progressives in a tizzy.