The Very, Very Rich and How They Got That Way (2 page)

The men in this gallery are all living. They are contemporaries of ours. They made their colossal fortunes in our own economic era or in recently phased-out eras that were not grossly different from our own. Each took the economic environment as it existed in his day and instead of letting it walk on him as most of us do, he grabbed it by the neck and beat it into submission.

The supremely wealthy have always done that and always will. No matter what the environment was like, some men have figured out how to beat it. There is, it turns out, always a way.

This optimistic statement seems worth enlarging. In every era, including our own, people have tended to believe that the days of great wealth-gathering opportunity are over. The era just past has almost always looked better. Today people complain that high taxes, high prices, high labor costs and other problems prevent them from getting rich, and they look back sadly to the time when Andrew Carnegie could collect a personal income of $30 million a year without paying a dime of income tax and they figure the good old days are finished and why try anymore? And yet we have before us the spectacle of such a man as Jean Paul Getty (chapter 9), who amassed a fortune of about a billion dollars in our own era. Paying the full legal tax bite all the way. Getty tartly addressed himself to the point a few years ago. To say that the modern era is hopeless from the viewpoint of wealth gathering, wrote Getty, “is only an excuse for not trying.”

It is quite probable that, when the first nomadic tribes settled down to cultivate farms at the dawn of human history, there were wandering hunters who went around grumping that the world was now all staked out and the hell with it. It is equally probable that people in the 21
^st
century will gloomily contemplate whatever economic problems beset them and will say, “Nope, you can’t make it anymore today. If only we were back in the 1970s ...”

Let’s see what kinds of environment men have beaten in the past. Later in the book (chapter 24) we’ll speculate about possible environments of the future.

It must be admitted that through most of recorded history, up until the late-16th and the 17th centuries, the great mass of ordinary men apparently had small hope of becoming really rich. Each man worked alone on his farm or at his craft or trade. Since there was a physical limit to the amount of work one man could turn out, there was an absolute limit to his wealth. The modern corporation hadn’t been invented, nor had machines that could dramatically speed up the work. There was no commonly available way to make a business grow cumulatively – that is, to set it up so that each year’s profits could be used to expand the business and produce still bigger profits the year after. Until the 17th century most men were in roughly the position of the modern wage or salary earner, who can’t multiply himself cumulatively and is limited by the ironbound and immutable fact that there are only 24 hours in his day. The only thing between him and starvation is the work he personally can put out.

Despite these problems, some clever and aggressive families took power into their hands and became tribal chiefs, barons, kings and queens. They, like modern tycoons, were able to build fortunes through the use of other people’s work and money. This was universally acknowledged to be the surest way to get rich. In fairy tales, myths and dramas written before 1600, if the plot calls for a rich man, he is almost invariably portrayed as a king or prince. Many of the Grimm brothers’ mercenary tales end with the deadbeat hero marrying a princess – the ancient boss’s daughter. The two most famous rich men of ancient times were Croesus and Midas, both kings. (Croesus was real; Midas was a mythological fiction.) Both their names are embedded in most of the Western world’s languages as clichés describing great wealth.

There were some common men who got uncommonly rich, of course. Generally this happened when, through some lucky series of circumstances, a commoner became friendly with the ruling powers and was granted certain business favors or outright cash gifts. Such a man was Marcus Licinius Crassus, who flourished in Rome during the 1
^st
century B.C. His name isn’t the source of our word crass, but it might as well be. Crassus did some favors for the dictator Sulla and was rewarded by being given first option to buy certain confiscated lands at ridiculously low prices. Not only that, Sulla also loaned Crassus money from the Roman treasury with which to buy the lands. Crassus borrowed, bought the lands, sold them at high prices, paid off the loan, used the profits to buy more confiscated lands (some of which were confiscated especially for his benefit), repeated the process and thus became one of history’s most famous and successful real-estate speculators. In Rome they called him “Dives” – “The Rich.”

But men like Crassus were exceptions. The very fact that history has bothered to remember his name and accomplishments indicates how unusual he was. In terms of modern spending power (a highly unreliable and even ridiculous comparison, but it’s the only comparison we’ve got) his wealth was probably in the general neighborhood of one to five million dollars. That isn’t enough money to put a man in history books today. But it certainly was in Crassus’s day, and it remained so for 1700 years longer.

Sometime in the 16th century the first rudimentary bank-like enterprises began to appear, and a few lucky citizens got rich by this route. Notable among these was an energetic German family called Fugger. The founding father was a weaver, poor most of his life. His sons and grandsons stuck together as a family company, expanded into various kinds of merchandising and, by around 1500, had accumulated so much capital among them that they began to earn income by lending the money at interest to various governments and noble families. By the end of the 16th century the Fuggers’ banks were so wealthy and powerful that at least three nations gave them official permission to coin and issue money.

Like Crassus, the Fuggers were financial freaks in their day. It wasn’t usual for ordinary men to rise to such wealth. But in the 17th
century the average man’s chances abruptly began to look better.

The Industrial Revolution is generally pegged as having started in the 18th
century, but it was the 17th century that saw the development of financial and corporate mechanisms without which the first industrial plants could never have been built or operated. Humble citizens who got in on the ground floor of these financial developments grew rich.

Following the lead of the Fuggers and a few others, money-men in the 17th century expanded and refined the idea of banking. They invented corporate structures resembling the publicly owned companies we know today. They designed the first workable credit system. And they set up the first full-scale, broad-based stock and commodity exchanges. This financial revolution took place mainly in England, Germany, Italy and, most notably and brilliantly, in the Netherlands.

While nobody was looking, the Netherlands had risen to become the world’s wealthiest and most powerful nation. (Actually, it was less a nation than a chummy fraternity of nearly autonomous states, of which the biggest and richest was Holland. Ever since, people have been calling the whole country Holland. The tolerant Dutch long ago gave up trying to correct the mistake.) The Dutch navy had put on so much muscle that it virtually ruled the oceans, regularly and easily defeating the navies of Spain and England and France, which had each been thought invincible. Dutch land armies attempted no forays into other European countries but were capable of repelling invaders without even trying. Sometime later in the 16th century the more ambitious and conquest-minded of Europe’s rulers, notably Philip of Spain and Elizabeth of England, woke up with a start and realized that the Netherlands simply could not be taken.

Where did all this muscle come from? Money. Without actually planning it in advance, the Dutch had set up an outrageously successful new economic system in which the common man, by enriching himself, enriched his nation.

Most of Europe’s rulers felt the Dutch must be mad. These “heavy fellows” and “rude mechanicals,” as Elizabeth sourly called them, were trying to run a thing called a republic. They hadn’t really wanted it that way. The problem was that they couldn’t find a suitable king; so they were gamely struggling along without one – temporarily, they thought at first. Their state and city governments were run by merchants and other business-oriented burghers – what we would today call middle-class citizens – and the local laws were naturally favorable to private entrepreneurship. Taxes were light. Government revenues were spent on businesslike things such as dock improvements instead of going into kings’ and nobles’ private coffers. There were few class or religious barriers to prevent a man from going into business. Any ragged farmer’s son, any Jew fleeing from Spain or Quaker from England or Lutheran from Germany was welcome to come around, dump his money into the local economy and lose his shirt in a business venture – or make his fortune if he could.

The Dutch had always been seamen. Around 1600 they were establishing colonies and looking into business opportunities in North and South America, Africa, India and other far-off places. The opportunities looked gorgeous, and to finance the needed ships they began to develop a rudimentary stock exchange at Amsterdam. (Similar exchanges were growing up at Hamburg, London and other cities, but for sundry reasons Amsterdam’s succeeded best.) If you had a little extra cash, you could go to Amsterdam and, in effect, buy stock in a shipping venture. You might buy for instance, a 100
^th
or 1000
^th
interest in the fortunes of a certain ship that was to be built for a trip to India. Thus you, a common citizen, helped finance the growth of your nation. If the ship sank or simply failed to return, you lost your investment. If it returned laden with silks and spices, you got your share of the possibly huge profits, which you could then plow into some other venture. Or perhaps, before the ship returned, you might have wanted to sell your share to somebody else. You did it simply by sauntering around Amsterdam and finding a buyer among the hundreds of speculators who were always milling about or drinking in the taverns.

From these simple beginnings the Amsterdam equity market expanded to great size and complexity. By 1625 it contained most of the elements we recognize today as belonging to a full-scale stock exchange. There were rules for fair and orderly trading, there were brokers, there were provisions for various sideline techniques such as short selling, and the variety of enterprises in which you could buy stock ranged all the way from shipping to tulip farming. (You could even buy stock in some profitable Amsterdam brothels.)

Since the brokers and speculators often needed large amounts of money, private syndicates sprang up to provide pools of risk capital. Thus some rudimentary investment-banking outfits came into being. Since nobody wanted to walk the streets carrying sacks of guilders and florins, some bankers and brokers offered special cash-storage facilities and a kind of checking-account system evolved.

As ever more shipping ventures were launched, money began to pour into the little nation at an astonishing rate. Amsterdam became the financial capital of Europe. Government agents of all nations went there to borrow war money, buy guns and make other big-scale deals requiring large financial resources. Private entrepreneurs from as far away as Russia went there to float stock in shipping or mining ventures or to borrow development money for the first crude laborsaving machines.

As a result, the Netherlands in the early 17th century may have been the first nation on earth in which substantial numbers of ordinary citizens got rich – in which wealth was not a startling exception to the norm. The nation’s initial wealth had come from trading and shipping, but as the century progressed, the wealth came more and more from the Netherlands’ central position in the flow of European money.

Some three centuries later an American named Bernard Cornfeld (chapter 7) was to remark that the best way to make money is to deal directly with money itself, rather than approach it obliquely by dealing with goods and services. It may not be best way for everybody, but it is certainly an excellent way for some. Large numbers of 17th century Netherlanders became millionaires.

Fairly typical of the new breed was one Roemer Visscher, an Amsterdam shipping speculator, merchant and investment banker. Visscher’s fortune appears to have amounted to something like one to two million guilders. As we’ve noted, any attempt to translate the currency and spending power of one era into those of an entirely different era is fraught with booby traps, but as a very rough comparison, a guilder back then had about the financial oomph of $10 today. Thus, Visscher was worth perhaps $10 to $20 million. The most interesting fact about him is that he was not particularly interesting to his fellow Dutchmen. Nobody said “ooh” and “ah” over his wealth. He seems to have been but one of many.

Elizabeth of England called the Dutch “heavy fellows,” devoid of breeding or social grace, but it should be said in passing that Visscher and his fellow burghers provided the necessary financial support for what was later labelled the golden age of Dutch art and literature. The very wealthy have always been interested in art and still are today (see for example, the story of stock speculator Joe Hirshhorn, chapter 6). Among those who hung around Visscher’s palatial home and freeloaded at his table were Rembrandt, Jan van Goyen, sometimes Peter Paul Rubens from Antwerp and the scientist Constantijn Huygens, inventor of the pendulum clock.

The 17th century Dutch explored and developed the money-handling route to wealth, the technique for putting yourself into some money pipeline so that you can control the flow and direct some of it into your own bank account. In the next century a whole new set of possibilities opened up. The financial revolution was succeeded by the Industrial Revolution. It now became possible for an ordinary citizen to get rich by putting his money behind various technological innovations.