Prophet of Innovation

Thomas K. McCraw

• Publisher: Belknap Press
• Year: 2010
• ISBN:
  9780674736962
• Topic: Business
• Subtopic: Biografie in ambito aziendale
• Index: Business

Pan Am, Gimbel's, Pullman, Douglas Aircraft, Digital Equipment Corporation, British Leyland—all once as strong as dinosaurs, all now just as extinct. Destruction of businesses, fortunes, products, and careers is the price of progress toward a better material life. No one understood this bedrock economic principle better than Joseph A. Schumpeter. "Creative destruction, " he said, is the driving force of capitalism.Described by John Kenneth Galbraith as "the most sophisticated conservative" of the twentieth century, Schumpeter made his mark as the prophet of incessant change. His vision was stark: Nearly all businesses fail, victims of innovation by their competitors. Businesspeople ignore this lesson at their peril—to survive, they must be entrepreneurial and think strategically. Yet in Schumpeter's view, the general prosperity produced by the "capitalist engine" far outweighs the wreckage it leaves behind.During a tumultuous life spanning two world wars, the Great Depression, and the early Cold War, Schumpeter reinvented himself many times. From boy wonder in turn-of-the-century Vienna to captivating Harvard professor, he was stalked by tragedy and haunted by the specter of his rival, John Maynard Keynes. By 1983—the centennial of the birth of both men—Forbes christened Schumpeter, not Keynes, the best navigator through the turbulent seas of globalization. Time has proved that assessment accurate. Prophet of Innovation is also the private story of a man rescued repeatedly by women who loved him and put his well-being above their own. Without them, he would likely have perished, so fierce were the conflicts between his reason and his emotions. Drawing on all of Schumpeter's writings, including many intimate diaries and letters never before used, this biography paints the full portrait of a magnetic figure who aspired to become the world's greatest economist, lover, and horseman—and admitted to failure only with the horses.

CHAPTER 1

Adams and the Sunshine Commission

THE GRAVESTONE of Charles Francis Adams bears an epitaph, written by his brother Henry, which captures the many-sided nature of Charles’s career.¹

BORN IN BOSTON MAY 27, 1835

DIED IN WASHINGTON MARCH 20, 1915

KNOWN TO HIS TIME IN MANY PATHS

SOLDIER CIVILIAN ADMINISTRATOR HISTORIAN

HIS CHARACTER COURAGE AND ABILITIES

WERE DOUBTED IN NONE

AFTER EIGHTY YEARS OF ACTIVE LIFE

IN A RESTLESS AND OFTEN A TROUBLED AGE

HE LEFT TO HIS DESCENDANTS AN HONORABLE NAME

WORTHY OF THOSE WHICH HAD BEFORE HIM

SHONE IN THE ANNALS OF THE STATE

Charles trod so many paths in part because the burden of the family legacy pressed hard on him. For any Adams of his generation, life by definition meant a continual struggle with one’s conscience, a fateful quest to fulfill one’s responsibilities to stern ancestors and to God. By Charles’s time, the family’s history had entered the public domain; it was so much a part of the nation’s own history as to recall Old Testament dynasties. John Adams, the second American president, fathered John Quincy Adams, the sixth. He in turn begat the first Charles Francis Adams, the Civil War diplomat who prevented British recognition of the Confederacy and thereby saved the Union from its most dangerous foreign threat. This diplomat had four sons: John, Charles Jr., Henry, and Brooks. John immersed himself in the affairs of Massachusetts and of Quincy, the family seat. Henry and Brooks became important historians and social commentators—blueblood versions of what a later age called “personalities.”

Of the four brothers, it was Charles who made the most interesting attempt to weave the Adams tradition of public service into the harsh realities of the Gilded Age. Charles was an aristocrat, a man of refinement who shared brother Henry’s distaste for the excesses of the era. Yet he also kept one eye to the main chance and took stock market plunges of the greediest sort. An economic analyst who tried to accelerate industrial change, he still preferred the quiet of the countryside, the comfort of history books. He began his career as a muckraker, brilliantly lampooning railroad tycoons in his classic magazine piece, “A Chapter of Erie.” Shortly afterward, however, as the first important regulatory commissioner in American history, he warned against infringing on the prerogatives of business management. He made substantial contributions to public life, and to regulation in particular. But he did not forgo the opportunity for personal enrichment at the “Great Barbecue.”²

Mistakes

“My youth and education,” Charles reflected in his autobiography, “now seem to me to have been a skilfully arranged series of mistakes, first on the part of others and then on my own part.” Charles’s joyless father tended to think of children in the abstract, and he had difficulty perceiving the different needs of his four sons. “Any exceptionalism or individuality,” Charles lamented, “he regarded with aversion.” Therefore it was certain that his father would insist that he go to the Boston Latin School, but equally certain what would come of the decision. “I loathed it,” Charles recalled, “and John loathed it worse than I.” The next lockstep, Harvard College, brought little improvement: “No instructor produced, or endeavored to produce, the slightest impression on me; no spark of enthusiasm was sought to be infused into me.” These educational “mistakes” seemed in retrospect only the unnecessary prices of privilege. As Charles viewed the matter, he was justified in finishing below the median of his class at Harvard, just as he had done at Boston Latin.³

In the years after Harvard, mistakes continued. Worse still, Charles himself now had to bear the responsibility. Intelligent and able, but drawn to no particular field, he searched almost desperately for a vocation. He finally settled on the law, a profession embedded in the family tradition. Forgoing formal training at Harvard Law School, he read for a couple of years in the Boston offices of Francis E. Parker, whom Charles thought a peerless judge of character; and of Parker’s cohort Richard Henry Dana, the author of Two Years Before the Mast. He enjoyed working with Parker and Dana, but for the law itself he could generate no affection. To his horror he realized that for someone of his temperament the profession offered the worst possible fit. He was “singularly lacking in what is known as tact” (as he himself put it), too self-centered to adapt to office routine, and too much the dilettante to concentrate on detail. Brusque, petulant, “a good deal of a prig,” Charles began to despise himself. He went through the motions of admission to the bar, but soon sat “eating my heart out in a clientless office.” Then, as clients continued to stay away, he grew panicky in his effort to maintain the fictitious front of yet another Adams on the rise.⁴

Charles’s early and middle twenties slipped by without accomplishment. He gadded about, taking advantage of his access to high social and political circles. As a son of Abigail Brown Brooks, one of New England’s wealthiest heiresses, Charles had no material need to work. But uselessness tortured him. Decades afterward, his name long since made, he tried to expunge this period from his own memory by destroying the diaries he had kept between his fifteenth and twenty-fifth years. This act was a type of retrospective suicide, the more striking in view of the family’s characteristic devotion to diaries as sympathetic confidants in a hostile world.

At just this point in his life (he was twenty-six), the American Civil War intruded. Charles witnessed the unfolding drama at first hand during a long Washington sojourn in 1861, as his family connection brought him into the company of William H. Seward, Charles Sumner, and other Union leaders. When the break between North and South finally did come, President Lincoln dispatched Charles Francis Adams, Sr., to London. This move lifted the family incubus from Charles Jr. and signaled the onset of his adult life. Yet his appreciation of the new freedom took time to sink in, and for a while Charles remained content to attend to family affairs around Boston, acting as surrogate for his absent parent. At length, against his own first instinct and his father’s stern advice, he determined to join the army. He began service in 1862 as an officer in the U.S. cavalry.⁵

By the end of the war, Charles had seen action in Antietam and Gettysburg and risen to the rank of full colonel. For him, the climax of the war came when he led his Massachusetts regiment of black troops into Richmond at the moment of Lee’s retreat: “the one event which I should most have desired as the culmination of my life in the Army.” As his father wrote proudly from England, “How full of significance is this history, which all of us are now helping to make!”⁶

Charles spent the months after his discharge recovering from the rigors of military life. He also took advantage of the interlude to marry the aristocratic Minnie Ogden of Newport, whom he had met during the war, and to spend a long European honeymoon contemplating his future. The war had been an immensely satisfying experience, but only an episode in his life. The road now before him must not lead back to the emptiness of his earlier experience.

The First Big Business

This time, having learned from his mistakes, Charles approached the choice of a vocation more systematically: “Surveying the whole field—instinctively recognizing my unfitness for the law—I fixed on the railroad system as the most developing force and largest field of the day, and determined to attach myself to it.”⁷ At about the same time, Emerson was coining his famous aphorism about hitching one’s wagon to a star. By hitching himself to the railroads, Charles was joining a force that had begun to revolutionize American life.

Already by the 1860s railroads dwarfed most other institutions in American society. At a time when the federal government employed only 50,000 civilians, rail corporations provided jobs for many times that number. Their capitalizations far exceeded those of even the largest manufacturing companies. Railroading influenced American society in the late nineteenth century as only television would in the late twentieth—or as the Roman Catholic Church had influenced the life of medieval Europe. Henry Adams, that self-conscious student of such matters, accurately characterized his and Charles’s entire generation as “mortgaged to the railways.⁸

At the time, Massachusetts had the densest rail network in the world, and the industry’s impact was not limited to the realm of economics and business. Railroads affected consciousness; they influenced life itself. As Thoreau ruefully noted, railway locomotives had penetrated to the very banks of Walden Pond: “They go and come with such regularity and precision, and their whistle can be heard so far, that the farmers set their clocks by them, and thus one well conducted institution regulates a whole country. Have not men improved somewhat in punctuality since the railroad was invented? Do they not talk and think faster in the depot than they did in the stage-office?”⁹ New England and the industrial northeast had developed mature rail systems by the time of the Civil War. The giant eastern trunklines—the New York Central, Pennsylvania, Baltimore and Ohio, and Erie—built up feeder systems, pierced the Allegheny mountain barrier, and opened up the West for fast, reliable transportation of an enormous volume of traffic.¹⁰ Huge though the railroad system already was, it actually stood on the verge of still more fantastic growth. In the five years following 1868—the time when Charles Francis Adams began his railroad work—nearly 30,000 miles of new tracks were laid, an enormous total, seldom equaled before or since. Surely Charles picked the right star for his wagon.¹¹

But within the giant railroad industry, what might be the appropriate role for an Adams? Even though the affairs of railroading somehow constituted a vast new arena for the affairs of state, it remained unclear just how one might play the part of a statesman. As he began to frame a reply to his own question, Charles decided to draw on the one first-rate talent he had inherited, the talent for good writing. Throughout his life, he preserved a vivid image of his grandfather John Quincy Adams, an image that might have applied as well to Charles himself: “I can see him now … with a bald head and white fringe of hair—writing, writing—with a perpetual inkstain on the forefinger and thumb of the right hand.” For Charles, as for his Adams forebears, the habit of writing became almost compulsive. By the end of his life he had published the remarkable total of 440 items, not counting an endless series of diary entries, letters to family and friends, and editorials written anonymously for newspapers. It seemed as if his Adams genes had issued standing orders that pen be put to paper. Had he used old John Quincy’s quills, his own hands would have worn the perpetual inkstain too, like a family birthmark.¹²

By the time he left military service, Charles’s expository skills were already in evidence, both in his one significant publication (“The Reign of King Cotton,” which the Atlantic Monthly carried in 1861) and in the many evocative letters he wrote to his family from the battlefields. Now, in 1867, married, past thirty, and still frustrated by his law practice, he deliberately set about to build a career on the foundation of his writing ability; he would educate himself in all aspects of the railroad question, publish his analyses and thereby publicize his growing expertise, and use the resulting reputation to gain an official public post.¹³ “I want,” he wrote his friend David A. Wells, “a war with the [railroad] Rings.” By battling the rail corporations, he could achieve the fame that might bring him a franchise to regulate them. From this idea grew an ambition ultimately to be a national ombudsman, the public’s representative-at-large in its manifold relationships with the railroad system. But one measure of Charles’s early naiveté toward the business world is less obvious here: he failed to see the inconsistency between war, on the one hand, and disinterested mediation on the other.¹⁴

In pursuing this ambitious line of thinking about a career in public life, Charles followed a pattern already marked out by other young men of his generation. These men, despite the mismatch of their refined tastes with the age’s garishness, dreamed of critical national roles for themselves as reformers. Another example was Henry Adams, whose “strike for the press” paralleled Charles’s “strike for the railroads.” A third was David A. Wells, whose economic writings broke new ground in the perennial debates over free trade and protective tariffs. Still another was Frederick Law Olmsted, the landscape architect who attempted to save American cities from self-destruction through developments such as New York’s Central Park. And at the center of this group of friends and allies stood E. L. Godkin, the Irish journalist who had settled in America and built, in The Nation, an instrument for the dissemination of the group’s views.¹⁵

With all of these men, Charles remained on familiar terms. He and his circle liked to think of themselves as America’s “best men.” Yet sometimes their elitism and antidemocratic tendencies could not be disguised, and in one sense most of them were a bit foolish. Deeply involved in the political and industrial struggles of their time, they strove to be simultaneously above the battle and decisive in it. That contradictory combination could not prevail, and the group was doomed to frustration. But, in the meantime, its members left permanent marks on some of the innovative institutions of their time (urban park systems, learned journals, regulatory commissions); and Charles’s imprint cut deeper than most. Certainly no ultimate disappointment seemed apparent to him in the hopeful years after the Civil War, as he set his prolific pen to work.

A New Phase of Representative Government

From 1867 until his accession to office as a commissioner in 1869, Charles Francis Adams published numerous articles on railroads, in a variety of periodicals ranging from new quasi-professional journals such as the American Law Review and the Journal of Social Science to those well-established magazines of opinion, The Nation and the North American Review. Some of his essays were short and perfunctory, others rigorously analytical. Each of them served Adams’ strategy of making first a name for himself and then a place.

From the very first article, one thing was apparent: Adams spoke with the voice not of the lawyer but of the economist. He had rejected the legal profession substantively as well as symbolically. From that point on he persistently emphasized the broad landscape more than closeup details, as he concerned himself more with economic policy than with legal process. In nearly every article, he made four themes explicit.¹⁶

1. Industrialization in America had acquired a momentum of its own, a thrust and direction essentially independent of human will. Technology was shaping society as it had never done before.

2. This technological determinism applied not only to the general aspects of the case, but especially to one industry—the railroads—whose unique economics of natural monopoly sharply restricted governments’ choices in making policy.

3. A serious institutional lag had opened up between corporate development and the public response to it. As a consequence, private and public interests were out of balance.

4. The best solution to the “railroad problem” (as contemporary writers called it) was not really a solution in the final sense, but rather some means of coping with a situation that was inherently fluid and complex. To perform this function, a new instrumentality of government must be created: an expert, permanent, apolitical body—in brief, a regulatory commission.

Though much of Adams’ thought was derivative, his articles showed a distinctive understanding of the revolution being wrought by machines. He apprehended well the meaning of industrialization’s momentum throughout the western world and the implications it held even for the routine of daily life: “Increased communication, increased activity, and increased facilities of trade destroy local interests, local dialects, and local jealousies.” Industrial development brought unprecedented centralization and standardization. “Whatever is homogeneous is combining all over the world in obedience to an irresistible law. It is the law of gravitation applied to human affairs. One national centre regulates the whole daily thought, trade, and language of great nations, and regulates it instantly.”¹⁷ In Adams’ view, personal preference, individual or collective free will, availed little against the force of the machine: “It is useless for men to stand in the way of steam-engines.” Industrialization simply transcended ideology and politics. “The progressive may exult, and the conservative ...