The Fall of an Electric Empire
Even the greatest of U.S. industrial empires wasn’t immune to the economic trials of the Great Depression.
At 19, Samuel Insull became a switchboard operator for Thomas Edison’s British telephone company. Two years later, he talked his way into a job as the great inventor’s personal secretary, crossed the Atlantic, and within a decade was one of the founding partners of Edison General Electric Co., the forerunner of today’s General Electric Co.
When financier Charles Coffin, not Insull, was named its first president in 1892, Insull was infuriated. He relocated to Chicago and took charge of the stumbling Chicago Edison Co. the next year.
“He battled rival companies, palavered with politicians, worked 18 hours a day, shouldered others out of positions of responsibility, and dictated to the directors,” the Berkeley Daily Gazette reported.
A mid-continent electrical empire gradually emerged.
In 1912, in partnership with his brother Martin, Insull merged his growing properties into Middle West Utilities Co. By the 1930s, Insull held a seat on the boards of 85 companies, served as chairman for 65 and was the president of 11 others. His network of electricity-producing enterprises, managed through a series of holding companies, was valued at about $3 billion.
In 1929, his personal fortune surpassed $100 million -- but not for long.
Cleveland corporate raider Cyrus Eaton launched a takeover drive for Insull’s crown jewel, Commonwealth Edison, in 1930. To protect his interests, Insull created Insull Utility Investments, another holding company. When the market crashed, he borrowed more than $100 million from New York bankers to buy out Eaton’s accumulated shares.
The value of his stockholdings shrank steadily as the Depression worsened, but the debts he owed did not, forcing Insull into an ever-tighter squeeze.
In April 1932, as he began resigning from board after board, Insull faced a lawsuit by bondholders whose notes had lost more than 90 percent of their face value.
“I am not infallible,” he said. “I have made many mistakes and I have erred in judgment, but the same criticism may be leveled at everyone in the business world.”
Later that month, Middle West Utilities went into receivership. In May, federal courts began scheduling auctions for Insull’s properties, even as his firms defaulted on bond interest payments.
Everything fell apart in June 1932. Bankers forced Insull’s resignation as chairman of his three principal enterprises, including ComEd, and replaced him with “the hardbitten, hard-working James Simpson, board chairman of Marshall Field and Co,” the New York Times reported. This step “virtually wrote finis to Mr. Insull’s career as a public utility magnate.”
Although the three companies’ operating facilities were in good shape, estimates soon circulated that write-downs of $80 million to $100 million on their assets were inevitable.
A few days later, the defeated 72-year-old and his wife secretly sailed to France. By month’s end, they were “living quietly in Paris,” but the storm that Insull’s collapse whipped up would rage for years to come.
(Philip Scranton is a Board of Governors professor of the History of Industry and Technology at the University of Rutgers at Camden and the editor-in-chief of Enterprise and Society. He writes "This Week in the Great Depression" for the Echoes blog. The opinions expressed are his own.)
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