The Entrepreneurial Character

Abraham Abrahamsson and his descendants remained local entrepreneurial dynasties, but at the other end of the hierarchy were enterprises that assumed vast dimensions, those that we willingly recognize as the flagships of the Industrial Revolution. In the following sections we examine ten of them^[1]—all of them family firms—to see how dynasticity was in the making at the very pinnacle of the entrepreneurial status hierarchy, the status that was comparable to the aristocracy or, perhaps, the highest aristocratic tier, councillor dynasties.

The oldest family enterprises in my top ten list are owned by the Warburgs, the Rothschilds and the Krupps, all German-based firms founded at the turn of the eighteenth century. The Warburg family firm (Chernow 1994, 5-7) started as a bank in 1798. Moses Marcus Warburg (1763-1830) is considered the founder of the Warburg banking dynasty, although his father actually bequeathed his money changing, pawnbroking firm to his two eldest sons, Moses Marcus and Gerson, who worked together until Gerson’s death in 1825. Because he was childless, Moses Marcus Warburg became the sole proprietor of the bank, but he emerged as a natural leader from very early on. He played a dominant role in running the bank, which was indeed renamed after him as M.M. Warburg & Co. The Rothschilds, another German banking dynasty (Ferguson 1999, 42-5), was founded by Mayer Amschel Rothschild (1744-1812), who began his business career as a dealer of rare coins and medals. After 20 years as a coin dealer, Rothschild expanded to banking at the beginning of the 1790s. This proved to be a masterstroke. By 1797, he was one of the richest Jews in Frankfurt and the sole proprietor of the bank. The German Krupp family enterprise, Friedr. Krupp of Essen (Manchester 2003, 28-37), was founded in 1811. In this case too, the firm had existed long before its formal date of establishment. The foundation of the firm was credited to Friedrich Krupp (1787-1826), who in the said year of 1811 set up Cast Steel Works in Essen. The start of the new business coincided with the transition to a new technology, comparable with the shift from moneylending and coin dealing to banking in the Warburg and the

Rothschild family firms, but the Krupp family’s rise to real prominence took place later on when the production of steel cannons got under way.

In the United States, one successful early starter in business was Cornelius Vanderbilt (1794-1877) (Vanderbilt II 2013, 6-12, 27-32; Wolmar 2013, 12-35). He began his business with steamboats, whose heyday lasted from the 1810s to the 1830s. They generated substantial profits, but when they were overtaken by railroads in the 1840s (Wolmar 2013, 18-21), Vanderbilt sold off his fleet of more than 100 steamboats to the Union and plunged into this new, much more lucrative business and amassed his huge fortune from railroading. Another American captain of industry was Junius Morgan (1813-90), founder of J.S. Morgan and Company (Chernow 2010, 4-15). He started his business career as a partner in George Peabody’s London-based merchant bank, which offered financial services for Americans. The partnership began in 1854, but since Peabody was a bachelor and therefore without a legitimate son, he decided to bequeath his fortune to Morgan, his married partner who had a son and who had made a substantial contribution to the bank. The changeover took place in 1864, when Morgan renamed the firm after his own name. The third American business baron in my data set is John D. Rockefeller (1839-1937), who founded the American Standard Oil Company in 1870 with two partners, one of whom was his brother William (Chernow 2004, 100, 132-3, 194-5, 279-80). From the outset John was clearly more domineering in Standard Oil than William, and this was reflected in the apportionment of shares: John owned twice as much of the company as William and the third partner. Leadership in the firm was divided accordingly: John held the presidency of the company, William was nominated vice president and the third partner secretary and treasurer. The American Henry Ford (1863-1947) entered the auto industry (Bak 2003, 29-54) at more or less the same time as many other car factories were being established in the United States and Europe, that is, at the turn of the twentieth century (Landes 2007, 173-5; Bak 2003, 21-30; Friedman 1989). Henry Ford and his partners set up the Detroit Automobile Company in 1899. It collapsed the following year, but Henry did not let this discourage him from trying again. In 1901, he established the Henry Ford Company with five other investors. However, an additional injection of capital was needed to get the firm running productively. The only solution was to approach potential stockholders, and as a result, a dozen investors were rounded up. Finally in 1903, the incorporation papers for the Ford Motor Company were officially filed. Henry Ford was named vice president and general manager. As early as 1906, five shareholders sold out. In the redistribution of shares, Henry became the major shareholder and president of the Ford Motor Company.

The other top-ranking enterprises in my data set are from Sweden, Italy and Finland. Compared with Germany and the United States, these countries were relative latecomers in large-scale industry and banking (Rokkan and Urwin 1983), and even their most successful firms did not operate at the international cutting edge. The Swedish Stockholms Enskilda Bank (SEB) (Olsson 2006, 18; Nilsson 2005, 165-84) originates from the same time as the Morgan Bank. It was founded in 1856 by Andre Oscar Wallenberg (1816-86) and partners. As the central figure of the bank, Wallenberg was appointed managing director. In Italy, the Fabbrica Italiana di Automobile Torino or F.I.A.T. (Friedman 1989, 25-7) was founded by Giovanni Agnelli (1866-1945) in 1899. He was a cavalry officer but had other plans for his future. News of the invention of a horseless carriage offered an absorbing opportunity to do business, and Giovanni seized it with both hands. In 1898, he joined forces with a count who was looking for investors. Shortly after that, in 1899, the Fiat Company was founded, but Giovanni was not content to remain a mere partner in a company of several shareholders, made up largely of a group of ‘eccentric’ Turin aristocrats. Within a few years, some of the original partners sold out to Giovanni, who thereby increased his shareholding and hence effective control over Fiat. The Finnish engineering giant Kone (Michelsen 2013, 43-98) is the biggest family enterprise in Finland and therefore deserves a place in my data set, even though it rose to this position much later than the other magnate dynasties. Kone was originally part of a rather prosperous company specialized in the production of electric devices, including lifts. At the time Harald Herlin (1874-1941) was not a partner, but a co-owner of another company that produced water pipes and heating systems. This company was founded in 1904 by several investors, but before long Harald was the major shareholder. However, Harald left the company and sold his shares. This gave him the necessary capital to buy a majority shareholding (80 per cent) in Kone. Although Kone was founded long before Harald Herlin became the firm’s major shareholder, its foundation is dated at 1924 when he purchased the company.

It seems imperative to record one man as the founder of dynastic- to-be enterprises, even when the firm was originally set up by two or more partners. Other partners sold out, or their shares were bought up by one owner to gain the largest shareholding. This seemed to be important because majority ownership justified power in the firm. It was easier to expel non-related partners than brothers who shared the ownership. There were constant squabbles about firm leadership between Moses Marcus and Gerson Warburg, as well as between John and William Rockefeller. The position of inferior brothers echoes that of younger princes in royal families—and in fact in these two mentioned cases, the inferiors were younger brothers. It was also customary to record only men as founders, although in the case of the Krupp family a woman, the matriarch of the family, could just as well have been credited. Helene Amelie Krupp, the founder’s grandmother, worked tirelessly and successfully to expand the family firm (Manchester 2003, 29-30). Yet it was impossible to recognize her as the founder. Instead, this honour was bestowed on Helene Amelie’s grandson, Friedrich, whom she brought up to run the firm because Friedrich’s father predeceased him.

The founders of the ten entrepreneurial dynasties entered new fields of business that turned out to be extremely profitable—the metal, oil, railroad and automobile industries as well as investment banking, a necessary venture for the growth of large-scale business. They came from a variety of family backgrounds, but most often from families with at least some business experience in one or several generations. The Rothschild, Warburg and Krupp ancestors had been small-scale merchants, money lenders or coin dealers for generations (Morton 1998, 18; Chernow 1994, 4-5; Manchester 2003, 24). There were four second-generation businessmen: Harald Herlin, whose father was a merchant but grandfather a chaplain; Junius Morgan, whose father was an investor but his ancestors had earned their living as farmers; John D. Rockefeller, whose father was a travelling salesman but his ancestors had been farmers; and Henry Ford, whose father was a carpenter but grandfather a farmer (Michelsen 2013; Chernow 2010, 18; 2004, 9-23; Bak 2003, 1-10).

In these cases the decisive factor for entering into business, it seems, was that at least the father or in some cases ancestors in several generations had detached themselves from farming. Henry Ford grew up hating the drudgery involved in living close to the land and left the homestead for the factory, a promise of a better future. Cornelius Vanderbilt was the only founder whose father was a farmer (Vanderbilt II 2013, 5-6).

In contrast to all others in my sample of entrepreneurial dynasties, the founders of SEB and F.I.A.T. came from higher social backgrounds and without any business experience in the family. Oscar Wallenberg’s forefathers were peasants, the progenitor of the family was a rusthall peasant, his son a sheriff, his sons were priests and finally Oscar’s father was a bishop (Wetterberg 2013b, 50-1), a typical social rise to bishopric in Sweden and Finland. But Oscar Wallenberg was more interested in doing business, which he started at an early age before going into banking. Giovanni Agnelli’s father and grandfather were wealthy landowners in Piemonte, northwestern Italy (Friedman 1989, 24), which explains why many of his partners were noblemen.

Although it is risky to generalize about family backgrounds on the basis of just ten cases, some tentative conclusions can, nonetheless, be made because my findings are supported by information from other sources. It appears that the founders of nationally or internationally first-ranking entrepreneurial dynasties rarely came from noble, officer, civil servant and clerical families, that is, from the social segments that were concomitant with the old regime. The most opportune family background for big business, it seems, was business experience in preceding generations. Socialization into the world of business was a great asset and advantage at a time when schooling for business was practically non-existent. Yet running a small-scale business based on old-fashioned methods was very different from the world of big business that these small-scale businessmen’s sons were now entering. In these cases the sons’ own status differed greatly from their fathers’ status, giving rise to many rags-to-riches tales. The immensely rich Henry Ford and his carpenter father and equally rich John D. Rockefeller and his travelling salesman father are the most archetypal tales, which according to McClelland (1961, 63-5), are a mark of ‘achieving societies’. Such societies, he claims, are economically much more successful than societies where status is ascribed.

The purpose of these tales, regardless of whether they are true, is to make understandable the socially long journey from low to high status. Dynastic histories do this by rolling out a long list of qualities possessed by the dynasty founders. The characterizations bring to mind Weber’s (2003) theory of the Protestant ethic as the driving force behind modern capitalism. At a general level, Weber described the Protestant ethic as a spirit in society that was uniquely favourable for doing business, but at an individual level it was a personal character or orientation internalized as part of one’s personality. It is this latter perception that dominates sagas of entrepreneurial dynasties. Weber (2003, 48-56) employed this strategy in his inspection of Benjamin Franklin’s autobiography, where Franklin recorded the virtues he had adopted as his guiding principles. “Remember, that money is of the prolific, generating nature. Money can beget money, and its offspring can beget more, and so on.. .After industry and frugality, nothing contributes more to the raising of a young man in the world than punctuality and justice in all his dealings.. .The sound of your hammer at five in the morning, or eight at night, heard by a creditor, makes him easy six months longer; but if he sees you at a billiard- table, or hears your voice at a tavern, when you should be at work, he sends for his money the next day; demands it, before he can receive it, in a lump”. According to Weber, the peculiarity of this philosophy of avarice appears to be the ideal of the honest man of recognized credit, and above all the idea of a duty of the individual towards the increase of his capital, which is assumed as an end in itself.

The histories of the family enterprises in my data corpus contain an abundance of references to such qualities that Weber associates with the entrepreneurial character. In certain cases, the authors refer overtly to Weber when describing the pioneer’s character, most conspicuously in John D. Rockefeller’s case. According to Chernow (2004, 55-6), he was the very model of an ascetic Protestant entrepreneur a la Weber, the Protestant work ethic in its purest form, leading a life so consistent with Weber’s classic essay that it reads like his spiritual biography. Rockefeller’s very special character is explained by his firm Baptist faith, from which his personal virtues flowed. He was indeed a devoted Baptist all his life and never yielded to the temptation of waste, however rich he became— or at least this is how Rockefeller’s character is described in his biography.

Rockefeller is said to have been hard-working, remorseless, ruthless, and to have shown great business acumen and drive. Another Benjamin Franklin enthusiast was the Swedish Oscar Wallenberg. In Boston, at the age of 20, he became acquainted with Benjamin Franklin’s texts, which influenced him more than anything else. Oscar learned the same as Rockefeller: that money is something that needs to be used productively with the aim of earning more money. Oscar propagated Franklin’s theses and followed them faithfully throughout his life (Nilsson 2005, 33-4).

Some other founding fathers, however, do not quite fit Weber’s archetypal model. In contrast to his view on the superiority of puritan Protestantism as the driving force of capitalism, it appeared that Judaism too was an enormous asset for the foundation of prosperous dynastic firms. The founder of the Rothschild enterprise, Mayer Amschel Rothschild, was a devoted Jew, but he possessed similar qualities as those used to describe John D. Rockefeller, a devoted Baptist. Rothschild is praised for his business acumen and purposefulness, necessary characteristics for anyone committed to increasing profits and capital accumulation (Ferguson 1999, 47-54). Another Jew, Moses Marcus Warburg, founder of the Warburg Bank, is characterized in the same way. However, it is clear from fraternal differences that an individual’s industry was not dependent on family background or religion alone. While Moses Marcus was the steady, decisive brother, the Orthodox Jew and community leader, Gerson, his younger brother and partner in the Warburg Bank, was a cheerful, uninhibited bachelor, irreverent and fun loving (Chernow 1994, 6). In the same vein, while John D. Rockefeller was an unrivalled mannequin of Protestant ethics, William, his younger brother and partner, preferred to indulge in a luxurious lifestyle rather than put in the hours for Standard Oil (Ferguson 1999, 195, 221). By all accounts it was always the industrious and purposeful brother who took the lead in the firm, while the not so industrious brother remained in the sidelines.

But there were many other achievers who were not devoted practis- ers of religion, such as Junius Morgan, founder of the Morgan Bank. The history of the Morgan House points out that he was no ‘Weberian Calvinist’ (Landes 2007, 77). Rockefeller and Morgan are said to have been antithetical types, offering a vivid contrast between the ascetic and the sybarite (Chernow 2004, 389). Despite these tendencies, Morgan successfully ran his businesses and became one of the most prosperous bankers of his time; after all, he was energetic, ambitious and skilled in business matters, as we learn from the history of the Morgan House. Henry Ford, for his part, was nominally Episcopalian though not a religious person, but all the same, he was exceptionally ambitious and displayed vigorous self-confidence (Bak 2003, 13, 41-2). The foundation of a prosperous enterprise was not even dependent on the founder’s business-determined virtues, provided that his successor did possess such virtues, as was true for the Krupp businesses. The founder, Friedrich Krupp, is said to have been the most incompetent of all in 11 generations of merchants and executives, whereas his heir, Alfred, fashioned his life differently, as the long list of his virtues prove. He had a peculiar strength of will; he was sensitive, proud, possessed by violent drives; he was restless, brilliant, imaginative, tormented, far-sighted, supremely practical, perfectionist; and he showed a compulsive devotion to work (Manchester 2003, 30-48).

It is difficult to gauge to what extent the success of the family firms surveyed here depended on the founders’ personal qualities. Certainly they were needed, but there is no question that there were hundreds and thousands of other founders of firms who were equally qualified personalities yet whose businesses did not come to fruition. In 1900, for example, there were 72 automobile companies in the United States, one of which was Henry Ford’s first enterprise, the Detroit Automobile Company, founded in 1899, but it soon collapsed. The vast majority of other car companies met the same fate, as indeed did most of the 142 automobile companies that started up over the next three years (Bak 2003, 30). Ford’s first enterprise did not succeed, nor the second one, but the third one, the Ford Motor Company, did—more spectacularly so than any other automobile factory in the United States and eventually in the world. It is impossible to say how much Ford’s entrepreneurial character counted for in the fierce and bitter competition, but it is better not to take the personal qualities mentioned at face value, but rather as a metaphor of entrepreneurship. As Cornelius Vanderbilt is said to have done: he cut rates, drove away the competition, raised rates, cut services, cut expenses and raised profit (Vanderbilt II 2013, 11-13). Many tycoons-to-be used this aggressive method when trying to bankrupt other companies and then to take them over at a premium price (Josephson 1962).

Personal qualities of a certain type are also highlighted in order to underscore the distinctiveness of entrepreneurs as self-made men: they were a new type of human being, proud to be independent and free to follow their business instincts. The first era of the Industrial Revolution from the mid-nineteenth century onwards was the time of laissez-faire, insofar as it was ever put into effect in Europe, with Free Trade as its institutionalized guarantee (Hobsbawm 1990, 225-37). Self-made men were an appropriate formula for this era, condensing its frame of mind into a wording that was also an apotheosis of individualism and freedom. Obviously it does not explain the victories achieved in capital accumulation and profit-making, but it does make them understandable. As a whole, such virtues constituted the individual entrepreneurial character. This was equivalent to ‘royal blood’ in the sense that it condensed the individual’s virtues into a kernel phrase that captured deserved success in business, no matter how immense its profits, just as royal blood justified inherited power at the top of state governance. But crown princes did not need to compete for power; hence they cannot be winners, in contrast to entrepreneurs who must constantly compete each other. Competition sifts out the winners, who cannot but be the best, humans with the best qualities.

• [1] One criterion for the selection of family firms was that they had been passed down for at leastthree generations, the same criterion that Landes (Landes 2007, 34) uses for the definition of entrepreneurial dynasty. The other criterion was gigantic size: the family firm was to have been at thevery top of entrepreneurs’ status hierarchy and hence entrepreneurial dynasties. Otherwise thesample of top-ten family firms was drawn randomly, except that I considered it important to selectthem from different countries, including the United States, and that the firms represented differentfields of business.