Bringing Invention To The Marketplace
Although no one could ever patent it, one of the most important inventions of the late nineteenth century was the modern corporation, and of those who might lay claim to it, Isaac Leopold Rice was perhaps the most brilliant. At his best, a corporate entrepreneur like Rice was as much an innovator as was the inventor of a practical machine or process, for he institutionalized the useful. Rice was extraordinarily shrewd about patents, building more than fifteen corporations to sell technologies devised by other men. His astonishing versatility contrasted sharply with the single-mindedness of many captains of industry, while his cultivated personality differed just as strongly from the flamboyance of the Goulds and the Edisons. Curiously reticent for one so talented, he gave his name only to a now-forgotten gambit in chess, a particularly audacious sequence of moves. Musicologist, lawyer, professor, writer, publisher, financier, and founder of the companies that ultimately became General Dynamics, Rice moved from career to career as if they were squares on the beautiful inlaid chessboards he loved.
The Rice gambit called for a calculated sacrifice, and Rice himself often abandoned eminence in one field to pursue it in another. In February 1893, as head of the financial syndicate trying to rescue the Philadelphia and Reading Railroad, Rice hastily returned to America when the company filed for bankruptcy. He had been in London raising money on the line’s coal assets as part of his scheme to reorganize the railroad and its mining ventures into the elements of a corporate holding company. This strategynovel for its day—was sabotaged when the company’s president borrowed still more money for further expansion. Disgusted, Rice resigned his chairmanship in May and over the next several months watched from the sidelines as a new syndicate headed by J. P. Morgan stole Rice’s own reorganization plan by forming the Reading Company.
Railroads have been called America’s first big business, but everywhere they lay in disarray, their weaknesses exposed by the depression of 1893. Consolidation and reorganization of the railroads was a glamorous enterprise in the late nineteenth century, but the ailing giants required more money and influence than Rice could mobilize. From his experience with railroads, however, he had learned new techniques of organization, finance, management, and competition, and the success of inventions during this crucial period depended directly on the emergence of precisely those institutional structures. It was no longer enough merely to invent a better mousetrap, nor was it enough simply to back it. To be exploited profitably, an invention had to be patented, developed, and perfected, its manufacture assured, demand for it created, its virtues advertised, and distribution systems put in place. The corporation evolved to meet those diverse needs, and Isaac Rice used his corporations to transform electrical, automotive, and naval novelties into familiar commercial and social realities.
Inventions “might be called my ‘fad,’” he later said. At the time they seemed to be everybody’s. Since 1882, for example, Americans had applied for patents on some three thousand electrical inventions each year. Nearly all those gadgets seemed to be on display at the Chicago exposition of 1893. Although the largest crowds surged around the huge, humming dynamos, Rice noticed that most of the exhibits demonstrated machines powered by batteries. Despite their potential, the expensive dynamos performed erratically, especially at times of peak demand. The much cheaper batteries were heavy, corrosive, and leaky, but they stored the dynamo’s energy—as “pickled amperes”—so that it could be delivered on demand for virtually any purpose.
Rice also noticed at the exposition that one particular battery ran such diverse machines as Otis’s elevator, the electric launches that glided around the midway’s lagoons, and Edison’s new motion-picture cabinet, the Kinetoscope. That battery was the chloride accumulator, manufactured by the Electric Storage Battery Company of Philadelphia, where Rice had grown up. Built since 1888, the accumulator incorporated Clement Payen’s idea for plates of fused lead chloride and the principles of Charles Brush, the Cleveland electrical pioneer. Designed for large capacity and rapid recharge, it was prized by those who wanted dependable power. It was also enveloped in patent chaos. Inexpert examiners in the overworked Patent Office could scarcely distinguish one battery from another, and misinformed court decisions had invited patent infringements and inflated claims by any company that could coax current from an electrolyte. As Edison remarked, “When a man gets on to accumulators his inherent capacity for lying comes out.” Constantly attacking or being attacked, Electric Storage Battery was close to ruin. The chloride accumulator needed an entrepreneur.
Schooled in railroad and patent law, Rice established order by using the tools of monopoly and consolidation. He distinguished between financial monopoly, which crippled competition, and temporary patent monopoly, which encouraged not just a particular industry but others as well. Too often, he wrote, gearing up a factory could consume half the seventeen years of a patent’s life; if the courts could not protect the inventor’s right to exploit his discovery fully, then the entrepreneur would have to do it for him. To wield monopoly as an instrument, however, he first had to acquire it.
Using his railroad profits, Rice bought enough shares of the Electric Storage Battery Company to acquire a directorship. Then, acting as the firm’s attorney, he began buying patents—more than five hundred. Some he bought to use, some to prevent others from using them. He spent $250,000, a frightening sum for a company whose gross receipts in 1894 were only $300,000. He reduced the risk, however, by incorporating or buying what he called “cognate industries”: the Consolidated Railway Electric Lighting and Equipment Company, the Car Lighting and Power Company, the Railway and Stationary Refrigerating Company, the Lindstrom Brake Company, and the Quaker City Chemical Company. All these companies used storage batteries, and all of them shared patents for electrical and chemical products, ranging from refrigerators and axle generators to electrolytes. As president of each company, he could consolidate them at will, just as he had consolidated patents.
For all the apparent sleight of hand, Rice’s corporate approach was honest. He invited investors to join him in his ventures but insisted that they risk their own capital. Remembering his railroad defeats, he admitted to a “holy horror of debts, loans, bonds.” He did not want the money of widows or orphans, nor would he manipulate shares of stock. Rice encouraged investors to consider him an inventor, and he was. By combining certain kinds of patents, he invented a hybrid battery, the best in the world. By exploiting still others, for containers, connections, frames, and switches, he invented a market. In 1895 the Electric Storage Battery Company grossed a million dollars from batteries designed to fit lathes, drill presses, sewing machines, telephone and telegraph stations, switchboards, fans, fire alarms, phonographs, hospital tools, automated pianos. Sixty years later the firm could still claim that the Exide battery (a trade name adopted in 1900) affected the life of every American every day.
Such entrepreneurial inventiveness stimulates a whole economy. By removing the threat of litigation that had retarded new applications, Rice nurtured two huge industries. Massive lead cells between the bogies of trams became familiar to millions of Americans as traction companies in Philadelphia, Chicago, and New York switched from overhead trolleys to battery-powered mass transit. More important, the Electric Storage Battery Company installed giant arrays of batteries in the central power stations of dozens of cities to safeguard the supply of electricity during peak hours, once again to the benefit of millions. Noting these sales in 1896, The New York Times announced that accumulators were profitable at last. By 1897, now president of the company and long since a wealthy man, Rice had achieved virtual monopoly over the manufacture of batteries in the United States.
Rice was America’s most urbane, most intellectual, and most unlikely industrial czar. As paradoxical as the nervous, distinguished gentleman seemed to his business contemporaries, however, he was merely an entrepreneur of his own passions; he just had more of them than most people. Born in 1850 in Bavaria, Rice emigrated with his parents to Philadelphia. Little is known of his youth there until he graduated from Central High School. Sure of his artistic inclination, his mother sent him to Paris to study music and literature. To support himself, he became at eighteen the Paris correspondent for the Philadelphia Evening Bulletin . He was an accomplished pianist and taught pupils first in London, then, on his return to the United States in 1869, in New York. For almost a decade he taught music and languages and wrote for newspapers. In 1875 he published What Is Music? , a book on theory, following it in 1880 with a second, How Geometrical Lines Have Their Counterparts in Music .
The logic Rice found in music led him to the study of law. He enrolled at Columbia University’s School of Law in 1878 and graduated in 1880. Now thirty, regarded as brilliant, with a “genius for bibliography,” he became the librarian of Columbia’s new School of Political Science and then one of its first instructors. After 1884 he taught in the Law School as well. Academic life lost its appeal, however, when he began actually to practice law; he resigned from his teaching post at Columbia in 1886. The previous year he had married Julia Hyneman Barnett of New Orleans, with whom he was to have six children. As a gift to his bride, he founded The Forum: A Magazine of Politics, Finance, Drama, and Literature . For as long as the Rices owned it, from 1886 to 1910, The Forum enjoyed the prestige conferred by contributors like Thomas Hardy, Jules Verne, Henry Cabot Lodge—and Isaac and Julia.
Not that he had much time for writing. Rice won his first major legal case, on behalf of the bondholders of the Brooklyn Elevated Railway, by reorganizing the company to conform to municipal regulations, and he became fascinated by electrical power in the process. Asked to restructure the ailing St. Louis and Southwestern Railway, a line whose tracks, he said, looked like the Atlantic in a gale, he did the job so swiftly that the Texas Pacific Railroad also requested his services. His clients and colleagues found the polished attorney eccentric but energetic, witty but calculating. His “electric” personality inspired trust but not warmth. His reserve disappeared with his children, who adored him, and with chess players, who thought of him as the father of organized American chess.
Every year, Isaac Rice played chess against “athletes of the intellect,” as he referred to his opponents, at Simpson’s in London or the Café de la Régence in Paris. Perhaps the ease with which he did so many other things made the challenges of chess addictive. In 1895, his obsession ignited by the energy spilling over from his patent battles, he invented the Rice gambit, a variation on the Kieseritzky gambit. Not a ploy for beginners, the dangerous strategy called for white to sacrifice a knight. Clearly he based his hopes for immortality upon its success, and boldly he urged formal trials of its validity. As his wealth grew, he furnished trophies for American players and financed chess tournaments in the world’s major cities.
That wealth swelled with his growing entrepreneurship. On September 7, 1896, in the first auto race on a track held in America, at Narragansett Park, Rhode Island, two electric automobiles—traveling at an average speed of twenty-five miles per hour—sped past three gasoline-powered Duryeas. One of the two was the Electrobat, built by Henry G. Morris and Pedro G. Salom, two inventors from Philadelphia. The next year Morris and Salom put thirteen of their electric hansoms on the streets of Manhattan—the first automotive taxicab fleet in the United States. The battery king quickly bought their Electric Carriage and Wagon Company. The new president changed the name to the Electric Vehicle Company, drew up a contract guaranteeing a discount on batteries from the Electric Storage Battery Company, built another eighty-seven Electrobats, and streamlined service to the public.
The electric taxis were a sensation. Quiet and comfortable if not speedy (ten miles per hour), they could carry passengers for about twenty miles between charges. When the batteries ran low, the driver wheeled into one of ten stations spotted around Manhattan. Inside the garage a hydraulic lift removed the entire nine-hundred-pound array of chloride accumulators from under the chassis and replaced them with freshly charged cells. The cab was back on the street in minutes. Unable to lessen a weight that frequently crushed the wheels, Rice took over the Consolidated Rubber Tire Company, maker of Kelly tires, to ensure a cheap supply. Rice dubbed the blue-coated drivers “lightning cabbies” in honor of the electricity that propelled them.
Unfortunately Rice’s success attracted unwanted attention of a different kind. The speculators Thomas F. Ryan and William C. Whitney, who controlled a near-monopoly on surface transit in New York, bought the Pope Automobile Company, also a maker of electrics. Envious of Rice’s battery monopoly, Ryan and Whitney mounted a proxy fight for control of the Electric Storage Battery Company. In 1899, when resistance became pointless, Rice sold most of his holdings in the company for several million dollars. He may have known that Thomas Edison, confident that he could build a light-weight car battery, was about to start work on his alkaline cell.
In taking over the battery company, Ryan and Whitney discovered that it was contractually obligated to supply batteries at cost to the Electric Vehicle Company, a favored relationship that undermined their plans for the Pope company. When they refused to honor the contract, Rice threatened litigation. The impasse ended with Ryan and Whitney buying the Electric Vehicle Company for an additional two million dollars. Ryan and Whitney soon bought the rights to the Seiden gasoline engine and thus achieved for the Electric Vehicle Company the patent monopoly over American automobile manufacture that Rice had lacked time to build. (Henry Ford broke the monopoly in 1911.) Having accepted the sacrifice of his two largest companies, Rice checkmated his opponents by announcing that he had just bought William Griscom’s “master patent” on electric drive trains, that it probably applied to both electric automobiles and electric trams, and that he was prepared to destroy their companies should they try more proxy maneuvers. He had reason to think that William Whitney, a former secretary of the Navy in Cleveland’s first cabinet, had his eye on Rice’s real queen: the world’s most advanced submarine.
Julia Rice, by now a national advocate of a “safe and sane Fourth of July,” probably did not know that her dignified husband spent July 4, 1899, submerged in six fathoms of water about three thousand yards from the Statue of Liberty. Invited to sail in the Holland by the Holland Torpedo Boat Company, a nearly bankrupt customer for storage batteries, Rice resurfaced as a convert to submarines. With characteristic speed the entrepreneur incorporated the Electric Boat Company. This time, to ward off speculators, he encouraged capital from respectable bankers like the Rothschilds. Electric Boat purchased Holland’s firm and then two other companies—the Electro-Dynamic Company of Philadelphia, manufacturers of fine electric motors, and the Electric Launch Company of Bayonne, New Jersey, makers of luxury yachts. Over the years, Rice added the Industrial Oxygen Company, to supply compressed air, the National Torpedo Company, to furnish weapons, and three research and development corporations, to amass six hundred mechanical, marine, and armament innovations. With these key patents he was to dominate the submarine industry.
When Rice bought John P. Holland’s submarine, it was already superior to all others because of five features. Unlike European subs, the Holland was truly buoyant even with its ballast tanks flooded; moreover, it was stable underwater, circulated its own air instead of relying on snorkels, and was powered by dual motors: a gasoline model for surface cruising and a fume-free electric plant for underwater running. Most important, it free-dived like a porpoise. The submarine built by Simon Lake, Holland’s only significant American competitor, simply sank on an even keel to the bottom, where it trundled about on wheels. In 1895 the Navy had insisted that Holland build the Plunger , a steam-powered submarine of impractical design. Disappointed with the result, the Navy now refused to buy the Holland .
Holland claimed that naval officers disliked the submarines because they had no decks to strut on, but their reluctance actually stemmed from a traditional preference for battleships, an understandable fear that underwater vessels were dangerous, and a simple lack of imagination. To put public pressure on the Navy, Rice used the tactics of the entrepreneur. He ordered a crew to sail the Holland from Brooklyn down the Intracoastal Waterway to Washington and once there to advertise exhibitions just offshore in the Potomac River. The Navy bought the Holland on April 11, 1900. Lobbying hard before appropriations committees, Rice secured contracts for seven more boats in 1901 and for another four in 1905.
Although the Spanish-American War had convinced Congress that the United States was now a world military power, the government had not yet adopted the military spending patterns of future decades. Knowing that his only additional customers would be sovereign nations, Rice turned Electric Boat into America’s major international arms dealer. He sold five boats outright to Japan in 1904 but preferred “working arrangements” with foreign companies. Traveling four months every year, he licensed patents and furnished the plans to the Société Française de Sous-Marine, for France; to the Nevski Works, for Russia; to the Emprezia Dimprairo Industrial Portugueza, for Portugal; to De Scheide, for the Netherlands; to the Whitehead Torpedo Company, for Austro-Hungary; to Deutsche Parsons Turbionia and to Krupp, for Germany; and to Vickers Sons and Maxim, for Britain. The agreements were masterpieces of cunning, with features, Rice admitted, that were “unique in patent experience.” The licensees put up all the capital and returned part of the proceeds at no risk to the Americans. For example, Electric Boat received two-thirds of the net receipts on any submarine Vickers sold for a specified period and half for any sold thereafter—even if the British shipyard made the vessel to a different design. Rice had created a market where there was none.
When the first British submarine nearly turned turtle, rumors spread that Holland, an Irish Republican sympathizer, had deliberately botched his own drawings. While not true, the story alluded to Holland’s discontent, the result of a classic collision between genius and commerce. Holland had built submarines since 1878, each more wonderful than the one before, had done so despite insolvency and ridicule, and now was unhappy that he could not experiment at will. Rice was not sympathetic, perhaps because neither he nor those whose patents he had bought had been emotionally involved with the inventions he promoted. Paradoxically, the less complex battery had been a more collective effort; the submarine was the child principally of one man. Friction was bound to develop between an inventor who most wanted to perfect his boat and the corporation that most wanted to sell the model it had. For his part, Rice pointed out that Holland could not build a submarine by himself and implied that if the submarine was the engineer’s invention, then Electric Boat was Rice’s. Still, there was something shabby about Holland’s salary, only ninety dollars a week, and the mere fifty thousand dollars he had been paid for his patents. When Holland resigned from Electric Boat in 1904, Rice for some years after thwarted the inventor’s efforts to construct new submarines, on the ground that Holland was infringing on patents now held by the company.
Rice’s energy surged on into the new century. Excited by the discovery that casein, a milk product, could be used for paints, paper sizing, and glue, he founded the Casein Company of America and then incorporated his usual cognate industries. He built on Riverside Drive in New York City a mansion lavish enough for a robber baron. Unlike those less sophisticated tycoons, however, he actually played the piano in the music room, and he spent days in the chess room blasted out of rock beneath the house. There he refined the Rice gambit and sponsored local tournaments on his gorgeous tables. J. P. Morgan merely purchased his art; Rice lived his.
But Electric Boat was faltering, kept alive only by the foreign licenses. The American Navy was in no hurry to expand its fleet, and overseas competition had eaten into the foreign market. The 54-foot, 73-ton Holland had metamorphosed into the 105-foot, 180-ton Octopus , whose screws drove it at 11 knots on the surface and whose hull permitted dives of 200 feet. Development and construction cost more than the price it brought. Rice, moreover, was a better entrepreneur than corporate executive. Excited by the future, he sometimes neglected the technologies of the present. The financial panic of 1907 increased Electric Boat’s short-falls and eroded its lines of credit. Rice covered debts with his own millions, siphoned funds from his profitable companies, and, against his principles, borrowed more from Vickers. To add to the company’s troubles, the House of Representatives in 1908 opened hearings to investigate charges that representatives of Electric Boat had paid off members of Congress, journalists, and naval officers in a successful bid for seven submarines in 1907. As in most such cases, the smoke probably indicated some fire, but the committee decided, after weeks of testimony, that the unproved accusations had originated with the Lake Torpedo Boat Company, angered that the Navy had once aeain rejected its submarine.
Aware that newspaper cartoons depicted Electric Boat as a shark, Rice as a witness seemed exasperated: “You see I may control the President of the United States and Congress, but it is really asking too much that I should control all the parliaments of the entire world.” He managed nevertheless to conceal the fact that Vickers, a foreign company, now owned a large fraction of one of America’s biggest defense contractors. The other notable feature of his testimony was the pride he displayed in his role as an entrepreneur. He was not really a promoter, he said, or just a corporate head; he founded whole industries.
Rice took the hearings in stride; he was a veteran witness at commissions. But the bankers’ panic of 1907 had strained his companies and wiped out large personal assets. Feeling pinched, he sold his house on Riverside Drive for less than it had cost. That was not entirely to be regretted, for the place had become uncomfortable. Julia Rice, now head of the Society for the Suppression of Unnecessary Noise, had campaigned against the ebullient tooting and whistling that accompanied water traffic in New York Harbor. As a consequence, every night vessels passing on the Hudson River aimed their searchlights at the Rice mansion, then let loose with sirens, horns, and klaxons. (The redoubtable Mrs. Rice was not to be intimidated; every quiet school zone or hospital zone in America owes its existence to her.) After 1908 the family headquarters was a large suite at the Ansonia Hotel, a splendid building still standing at Seventy-third Street and Broadway.
There the Rices lived quietly, devoting themselves to cultural affairs like the Poetry Society of America, which began in their apartment, and, somewhat ironically, considering the armaments business, the Peace Society. Although Rice did not lose any of his companies, Electric Boat remained shaky. Its stock drifted down to ten dollars a share. Selling a submarine was not like selling a battery; it was not a versatile technology, adaptable to other uses. Tired, Rice lost interest in innovation. When Westinghouse won the 1911 patent suit over the interpole motor, into whose development he had poured $145,000, Rice refused to finance a new diesel engine, so his employees paid for it themselves.
Rice’s momentum had slowed, but his faith in the submarine was about to be vindicated. He traveled to St. Petersburg on business just before Europe erupted, and was taken seriously ill while in Russia. He was still recuperating back at the Ansonia on September 22, 1914, when the U-9 torpedoed and sank the British cruisers Aboukir , Cressy , and Hogue off the Dutch coast. The U-boats, although a considerable departure from the original patents Rice had licensed to Germany, were still essentially Holland’s invention. In November the British admiralty sent an emergency order to Electric Boat for twenty submarines. The market Rice had carefully built suddenly boomed.
Rice arranged to have the vessels transshipped through Canada to avoid America’s neutrality restrictions and then, because of his illness, stepped down as president of Electric Boat. As the company’s stock soared, he sold twenty-eight thousand shares for about three and a half million dollars. Had he waited another three months, as his obituaries pointed out, he could have realized sixteen million. He died on November 2, 1915, before Germany’s policy of unrestricted submarine warfare brought the United States into the conflict.
The great economist Joseph Schumpeter might have used Rice’s career to illustrate his thesis that innovative capitalists revise both the technologies of their times and their very cultures. The entrepreneur not only adapts inventions to fit the demands of his time but also alters demand itself. He does not rely on the “invisible hand” of classical competition; he intervenes. Rice’s interventions were memorable. His most obvious achievement was to reconfigure the navies of the world. Less visibly he pioneered patent law and fostered literature, music, and chess. Brief as his sojourn in the young automobile industry was, it confirmed his entrepreneur’s instinct for the important. His batteries powered machines that changed the domestic and social lives of his fellows. Although his method was monopoly, he democratized technology by making it cheap and available. In so doing, he stimulated other inventions and engineered growth across a broad range. Most lastingly, he invented business structures that affect Americans today. He can still stand as a model for the American entrepreneur.
The Rice gambit never achieved the fame its inventor hoped for, but a corporation, as Daniel Boorstin has remarked, is potentially immortal. In 1952, in a reorganization Rice would have applauded, Electric Boat, Electric Launch, and Electro-Dynamics became General Dynamics. The corporation’s Trident submarines, F-16 fighters, and Atlas missiles are Rice’s monuments. There is one other memorial. After her husband’s death Julia Rice gave money for an elaborate sports complex to be built in his honor in New York City’s Pelham Bay Park. With an odd sense of homage, the city fathers renamed the streets around the park Watt, Ohm, and Ampere in recognition of Rice’s contributions to the electrical industry. Only the concrete shell of the Isaac Leopold Rice Memorial Stadium stands now, but in its shadow neighborhood kids still play a little chess.