Andrew Carnegie (1889): Wealth: An Historical Document

NIkola Tesla


Wednesday Economic History: It is traditional to talk about Thomas Alva Edison. The most famous inventor in the world, "the wizard of Menlo Park", New Jersey, registered more than 1000 patents and founded 15 companies—including what is now called General Electric. But that story is too well-known. Let’s talk about Nicola Tesla instead.

America at the turn of the twentieth century was unequal—more unequal as far as non-slaves were concerned than it had ever been before, or than it would ever be again until the decade of the 2000s. Yet America at the turn of the century was a very attractive place compared to every single other place in the rest of the world: America was exceptional. In spite of the hours, in spite of the risk of death or injury at the hands of U.S. Steel, in spite of the working conditions, American jobs were very good jobs by international standards.

They were jobs worth moving 5,000 miles for, from Hungary or Lithuania to suburban Pittsburgh. And the world of 1900 was unusual in that for the first time intercontinental movement became commonplace. We have already seen one such case: Herbert Hoover’s move from Iowa to China. Hoover was born in 1874 in Iowa, son of Hulda Minthorn and Jesse Hoover, who was the town blacksmith of West Branch. Orphaned in 1883, he moved to the Pacific coast and became Stanford University’s first student in 1891. He graduated in 1895 with a degree in geology, and in 1897 moved across the Pacific to work as a mining engineer for Bewick, Moreing & Co. From son of the town blacksmith to college graduate to multimillionaire mining consultant to President of the United States—could anyone’s ascent have been so fast and so far anywhere else?

Another of those who moved was Nikola Tesla, born on July 10, 1856 in the town of Smiljan, in the Krajina region of the province of Croatia, in the Habsburg empire then reigned over by the young Emperor Franz Josef in Vienna.

He was the fourth of five children. His father was literate—a priest in the Serbian Orthodox Church—but his mother was not. His parents wanted him to become a priest. He wanted to become an electrical engineer. He studied electrical engineering in Graz. He dropped out after two years, broke off relations with his family and friends, worked as an engineer for two years, and apparently suffered a nervous breakdown. His father persuaded him to return to college at Prague’s Karl-Ferdinand University. Perhaps he did, but only for one summer. And then his father died.

1881 finds Nikola Tesla working in Budapest for a startup, the National Telephone Company of Hungary in Budapest, as chief electrician and chief engineer. But he does not stay. 1882 sees him in Paris working as an improver and adapter of American technology. And on June 6, 1884 Tesla arrived in New York with nothing in his pockets save a letter of recommendation from engineer Charles Batchelor to Thomas Edison:

I know of two great men. You are one of them. This young man is the other.

And so Edison hired Tesla.

Tesla had an “eccentric personality,” as people put it. He wrote:

I had a violent aversion against the earrings of women but other ornaments, as bracelets, pleased me more or less according to design. The sight of a pearl would almost give me a fit but I was fascinated with the glitter of crystals or objects with sharp edges and plane surfaces. I would not touch the hair of other people except, perhaps, at the point of a revolver. I would get a fever by looking at a peach and if a piece of camphor was anywhere in the house it caused me the keenest discomfort. Even now I am not insensible to some of these upsetting impulses. When I drop little squares of paper in a dish filled with liquid, I always sense a peculiar and awful taste in my mouth. I counted the steps in my walks and calculated the cubical contents of soup plates, coffee cups and pieces of food—otherwise my meal was unenjoyable. All repeated acts or operations I performed had to be divisible by three and if I missed I felt impelled to do it all over again, even if it took hours…

This, coupled with bizarre and utopian claims about the future course of science and technology made it difficult for him to find and maintain either financial backers or a supporting engineering staff.

He was, as much as Mary Wollstonecraft Shelley’s fictional Dr. Viktor von Frankenstein, the very model of the mad scientist.

Yet our entire electrical power grid and everything that draws off of it, our electric appliances and engines today, based as they are on alternating-current generators, polyphase systems and long-distance transmission through high-voltage power lines, are Tesla’s much more than they are Thomas Edison’s. The world from space at night, illuminated by the electric power grid, is Tesla’s world.

Tesla, George Westinghouse, and their allies beat Thomas Edison and his in the struggle over whether electricity was going to be AC or DC. And his was the first, or at least one of the first, demonstrations of radio in 1894, which was at the time regarded as a great mystery: it was Albert Einstein who, when asked to explain radio, said:

You see, a wire telegraph is a kind of a very, very long cat. You pull his tail in New York and his head is meowing in Los Angeles. Do you understand this? And radio operates exactly the same way: you send signals here, they receive them there. The only difference is that there is no cat…

Tesla did not like Albert Einstein, claiming that his Theory of Relativity was:

...[a] magnificent mathematical garb which fascinates, dazzles and makes people blind to the underlying errors. The theory is like a beggar clothed in purple whom ignorant people take for a king ... its exponents are brilliant men but they are metaphysicists rather than scientists...

leaving me wondering: in what respect is the electromagnetic field Tesla made sit up and do acrobatics any less “metaphysical” than the gravitational field?

In America Tesla went to work for Edison Machine Works. He would later claim that Edison promised him $50,000—the entire net worth at the time of the Edison Machine Works, the same multiple of average wages back then that $7 million would be today, and the same share of GDP back then that $40 million would be today—to improve and redesign Edison’s direct current generators, but that in 1885 Edison refused to pay. Tesla quit and found himself digging ditches for a living for a couple of years before finding his own financial backers. The day after Edison died, Tesla spoke for the newspapers:

[Edison] had no hobby, cared for no sort of amusement of any kind and lived in utter disregard of the most elementary rules of hygiene .... His method was inefficient in the extreme, for an immense ground had to be covered to get anything at all unless blind chance intervened and, at first, I was almost a sorry witness of his doings, knowing that just a little theory and calculation would have saved him 90 percent of the labor. But he had a veritable contempt for book learning and mathematical knowledge, trusting himself entirely to his inventor's instinct and practical American sense…

Nevertheless, Tesla found financial backers. Tesla made inventions:

  • 1887 sees Tesla as the proprietor of Tesla Electric Light and Manufacturing (but his financial backers soon fire him from his own company).
  • 1888 sees Tesla demonstrating an alternating-current induction motor—the ancestor of all our current alternating-current motors—at the American Institute of Electrical Engineers meeting.
  • 1889 sees Tesla working at the Westinghouse Electric and Manufacturing Company’s laboratory in Pittsburg.
  • In 1891, at the age of 35, Tesla is back in New York establishing his own laboratory.
  • In 1892 he becomes vice president of the American Institute of Electrical Engineers and receives his patents for the polyphase alternating-current electric power system. * In 1893 Nikola Tesla and George Westinghouse use alternating-current power to illuminate the Chicago’s World Fair—the first World Fair ever to have a building for electricity and its applications.

The late 1880s and 1890s see Westinghouse and Tesla and their backers struggle against Edison and his backers in the so-called “war of the currents.” Thomas Alva Edison had bet on a direct current—DC—electrical grid. Direct current worked very well with incandescent lamps and with the motors of the day. Direct current fit well with storage batteries, which meant that you only had to build the expensive generating capacity for average loads rather than peak loads. And Edison was no mathematician, so he did not understand what Tesla was getting at when Tesla worked for him: “[Tesla's] ideas are splendid, but they are utterly impractical…”

The 1890s see Westinghouse and Edison nearly bankrupt themselves as each struggles to build out an electrical power grid fast enough to become the dominant standard. The alternating current—AC—systems of Tesla and Westinghouse, by contrast, allowed the efficient transmission of electric power over long distances through very high-voltage power lines. Once the energy got where you want it to go, it could then be reduced to a voltage that isn’t immediately fatal via step-down transformer. There was no equivalent trick for Edison’s direct-current system: Edison had to push your power at low voltage across long distances, thus incurring extremely large resistance power losses. On the other hand, it was not obvious before Tesla’s induction motor how alternating current could be used to power anything useful. Westinghouse and Tesla won—although ConEd still had 4600 DC customers in New York as of 2000.

1899 sees Tesla move from New York to Colorado Springs to conduct experiments in high-voltage power distribution—both through wires and wireless—and the wireless power distribution experiments soon turned into radio. But Tesla was not especially interested in radio. Tesla was interested in distributing electric power to the world without having to build power lines, and in distributing electric power to the world for free: a kind of open-source electric power movement antedating the open-source software movement by ninety years.

J.P. Morgan backed Tesla, directly and indirectly, for a long while. But then in 1907 he decided that the heroic age of electricity was over, and it was time to rationalize operations and replace the visionary inventors like Tesla and the executives like George Westinghouse who could deal with them by managers who would focus on he bottom line. Indeed, collecting royalties on his own patents would have made Tesla rich on the same scale of magnitude as oil baron John D. Rockefeller. But Tesla did not really believe in intellectual property. Enforcing his rights would have driven his friend Westinghouse’s company to the wall and into the hands of the bankers much earlier. So he gave them away.

Tesla was not especially interested in radio. So Marconi and his backers were to win the patents over and profit from radio—at least until World War I, when the U.S. Navy seized all radio intellectual property as of vital importance for national security. Then during World War II when the U.S. Supreme Court decided that the then-penniless Tesla was less likely to make trouble if he owned the radio patents than if Marconi’s heirs did, and decided that what everybody had thought for 30 years were Marconi's patents were Tesla's instead.

All in all, Tesla designed, built, and patented:

  • 1892: polyphase alternating-current electric motor.
  • 1896: radio.
  • 1897: teleoperation.
  • 1898: radio-controlled model boat.
  • 1898: spark plug.

And Tesla proposed, but had no idea how to build:

  • ICBM
  • Tele-operated mechanisms
  • Autonomous robots
  • Death rays

Once the economy could make use of the inventive talents of Tesla—and hundreds of thousands less talented—to research and research and develop and develop and apply and apply modern economic growth was off and running. How fast is modern economic growth? How much of a difference does it make?

I cannot give you a single number. A number inevitably depends on which set of commodities you view as central and important. If you care only about personal services—having a butler around to answer the door and polish your silver spoons—then you would find little difference in national average wealth between 1870 and 2013: an hour of a butler's time then cost about an hour's worth of the time of an average worker; an hour of a butler's time today costs about the same; on the butler-hiring standard we are no better off than a century ago. But suppose you care a lot, instead, about your ability to buy mass-produced manufactured goods—like bicycles. Then the multiple is 50. And calories? The multiple is 500.

This divergence is what economists call “the index-number problem.” It is unsolvable.