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Wednesday, August 22, 2012

GE’s Striking Beginnings

From the Electric Vault Dept.: "Not schoolbook history, not Mr. Wells's history, but history nevertheless," intones Kaspar Gutman as he unravels the tale of jewel-encrusted statuette. Here's another slice of that kind of history: the union-busting wranglings of Thomas Edison that brought his General Electric Company to Schenectady, NY, and then left the inventor out in the cold.


Thomas Edison
THOMAS EDISON NEVER WAS regarded as the most benevolent of employers, but considered himself something of a Croesus when he raised his employees’ pay to “twenty-five cents an hour above the prevailing rate of wages.”

This was at his Machine Works on Goerck Street in New York City in 1886, at a time when laborers were discovering collective bargaining techniques. Edison lamented that “the men, having got a little more wages, thought they would try coercion and get a little more . . . whereupon they struck at a time that was critical.”

Edison took advantage of the strike to save payroll money and to explore his newly-acquired property in Schenectady. His employees appointed a committee to meet with their boss, “but for two weeks they could not find us, so they became somewhat more anxious than we were. Finally they said they would like to go back. We said all right, and back they went. It was quite a novelty to the men not to be able to find us when they wanted to; and they didn’t relish it at all.”

(He is quoted in a two-volume biography titled Edison: His Life and Inventions, written by Frank Dyer and Thomas Martin and published in 1910. The copy in the Schenectady Library’s reference section has most of its yellowed pages uncut.)

Another labor dispute made those Schenectady buildings available in the first place. The city was then known for its Locomotive Works, manufacturing close to 200 locomotives a year. In 1882, master mechanic Walter McQueen fought with president John Ellis and resigned to form his own company and bought eight acres of land along the Mohawk River. He was able to begin putting up buildings thanks to the backing of several prominent local businessmen, among them State Senator Charles Stanford. But Stanford died unexpectedly and the funding dried up. McQueen went back to work at the Works. The property went into receivership with an appraised value of $45,000.

Henry Villard
Edison thought the price too high and offered $37,500. Not a dime more. Thanks to adept maneuvers coordinated by the Schenectady Chamber of Commerce, which didn’t want to lose a potentially large business, 82 local merchants kicked in the remaining $7,500. The Edison Machine Works were moved out of New York in 1886; shortly thereafter his Tube Company and Shafting Company followed.

In January 1889, the Edison General Electric Company brought together all of the inventor’s disparate enterprises. Much of the vision – and money – behind it came from a man named Henry Villard, a German immigrant who had distinguished himself as a newspaper correspondent during the Civil War and went on to make a fortune investing in new railroad companies.

Villard, born Ferdinand Heinrich Gustav Hilgard, sold railroad bonds in Germany after the war and was in a position of some control as a receiver for the financially-strapped Kansas Pacific when the notorious Jay Gould outmaneuvered him for ownership in the 1870s. Gould went on to devise a merger between that line and Union Pacific and slyly bankrupted both, garnering millions. Villard was learning.

He put the lesson to use on the defaulted Oregon & California Railroad, which he took over in 1879 and reorganized into the Oregon Railway & Navigation Company. “(He) issued several million dollars in stocks and bonds,” writes Dee Brown in his history of railroads of the west, Hear That Lonesome Whistle Blow. ”Because of his reputation as a financial wizard, Villard sold all his bonds before he could even draft a mortgage.”

Although perpetually teetering on financial ruin, in 1881 Villard advanced $40,000 to Edison for further electrical research. This got him a place on the board of directors of Edison Electric Light.

He obtained control of the Northern Pacific stock and watched it drop from 83 to 34 in 1883. He was bankrupt at the end of the year and resigned. He declared himself poverty-stricken and returned to Germany. There he aligned himself with a wealthy cartel that wished to control the electrical industry throughout the world.

Villard’s German backers wanted control of Edison’s interests for their consortium, and sent their representative to the inventor with a plan to combine his various enterprises into one corporation.

For Edison’s three manufacturing companies – the Lamp Company, the Machine Works, and Bergmann & Co. – Villard offered $1,100,00 in cash and $2,100,000 in par value of stock in the new corporation. He offered J.P. Morgan’s people $2,625,000 and almost $1.5 million in trust certificates for their million-and-a-half worth of stock (for which they’d paid less than $800,000). There were other, similarly generous offers, and a large amount of cash to go right into Edison’s pocket.

Morgan balked, the numbers were shuffled and Edison’s slices diminished considerably. But the inventor was frightened of money problems and a deal was cut in January of 1889 to form the new Edison General Electric Company.

Edison justified his action when he told Villard, “I have been under a desperate strain for 22 years, and when I sold out, one of the greatest inducements was the sum of cash received, so as to free my mind from financial stress, and thus enable me to get ahead in the technical field.”

He owned less than ten percent of the company and rarely attended board meetings. There was a feeling, shared by Villard, that he had outlived his usefulness.

Edison Electric Light Company in 1886
Some spectacular court cases brought the issue of electric currents to the fore as Edison General Electric’s corporate rivals, Westinghouse and Thomas-Houston, competed for the light. Villard meanwhile was backstage, secretly negotiating a merger with first one, then the other. Charles Coffin at Thomas-Houston, over in Lynn, Massachusetts, was most agreeable, seeing such a merger as a way to take over Edison’s patents and crush Westinghouse.

At the same time, Villard’s fellow board member, Morgan, was working to get his German rival out of the picture. By designing a structure wherein Edison G.E. would sell itself out and be absorbed into Thomas Houston, Villard was frozen out. He resigned. Morgan retained the plum post of banker for the organization.

On April 15, 1892, the merger was complete and Edison’s name was dropped from the company name. Coffin was named president. In 1893, Villard’s Northern Pacific railroad collapsed for its second time.    

Ironically, locomotive manufacturing continued in Schenectady well into the present century until another labor dispute, this time with the United Steelworkers, put it to death in 1969.

Metroland Magazine, Nov. 17, 1988



Brown, Dee, Hear That Lonesome Whistle Blow, 1977, Holt, Rinehart & Winston, New York, NY

Dyer, Frank Lewis, and Martin, Thomas Comerford, Edison: His Life and Inventions, Vol. I, 1910, Harper & Brothers, New York, NY

Hart, Larry, "Tales of Old Dorp," Schenectady Gazette, Nov. 6, 1979, Schenectady, NY

Hart, Larry, Tales of Old Schenectady, Vol. I, 1975, Old Dorp Books, Scotia, NY

Josephson, Matthew, Edison, 1959, McGraw Hill, New York, NY

MacDonald, Forrest, Insull, 1962, University of Chicago Press, Chicago, IL

Nelsen, John W., archivist, American Locomotive Company Historical Society, conversations with the author.

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