John Stuart Mill: Victorian Firebrand
The First Tycoon: The Epic Life of Cornelius Vanderbilt
The Snowball: Warren Buffett and the Business of Life
This year’s best business biographies — volumes on the lives of John Stuart Mill, Cornelius Vanderbilt, and Warren Buffett — weigh in at a hefty eight and a half pounds, in toto. Fortunately, the varied and numerous rewards that readers will find in these three engaging books more than compensate for the risk of hernia and the obvious toll on the eyes of poring over 2,295 densely printed pages. Each of these biographies is meticulously researched, masterfully written, and replete with insights relevant to the lives of contemporary businesspeople. Because each book delights in a different way, the judgment of which of the three is best depends more on the reader than this reviewer.
Champion of Liberty
My personal preference among the three is British journalist Richard Reeves’s critical biography, John Stuart Mill: Victorian Firebrand. Mill (1806–1873) was a true polymath — political economist, philosopher, polemicist, parliamentarian, and a prime mover in the 19th-century reform movement that transformed Britain from an aristocracy into a modern liberal democracy.
Homeschooled by his father, noted scholar James Mill (with an occasional assist from Mill family benefactor Jeremy Bentham), the young Mill mastered Latin at age 6 and Greek two years later, and was writing a treatise on political economy by his 12th year. Philosopher Isaiah Berlin deemed Mill’s education “an appalling success.” Indeed, years of nothing but study, coupled with immersion in Bentham’s coldly rational utilitarian philosophy (in which happiness is reckoned by a “felicity calculus”), turned Mill into the heartless thinking machine dubbed “Arithmetic Mill” by Thomas Carlyle. Eventually, a childhood and adolescence of all work and no play exacted a heavy toll on Mill: In his 20s, he suffered what he termed a severe “crisis,” or psychological breakdown.
What finally snapped him out of it was love, sweet love. Mill fell madly, adoringly, and enduringly in love with Harriet Taylor, who would become his lifelong soul mate and collaborator. Unfortunately, there was also a Mr. Taylor, whose existence would ordinarily have constituted a formidable obstacle in Victorian England, where divorces were rare and extramarital affairs were viewed as several degrees worse than scandalous. Undaunted, Mill and the Taylors entered into a kind of ménage à trois in which she had, in effect, two husbands. Taylor would retreat to his gentleman’s club when Mill visited. Things went on that way for two decades until John Taylor died, thus clearing the way for a happily-ever-after marriage between the persistent lovebirds.
Mill controversially claimed that Harriet Taylor was not only his inspiration for, but basically the coauthor of, some of his most important works. Reeves documents how she greatly influenced the conclusions in Mill’s multivolume Political Economy, often cited as the 19th century’s leading work on the subject, and in the classic On Liberty, the book on which his lasting reputation is based. Without a doubt, Harriet disabused Mill of his beliefs in doctrinaire utilitarianism: He would henceforth add a touch of poetry to Bentham’s mathematics.
Mill was, and still is, known as the “champion of liberty.” His “harm principle” is commonly used to define the proper limit of governmental authority over the individual: “The only purpose for which power can be rightfully exercised over any member of a civilised community, against his will, is to prevent harm to others. His own good, either physical or moral, is not a sufficient warrant.” He applied this principle to countless controversial domestic issues, including state control of prostitution, gambling, and the sale of alcohol. His conclusion will resonate with contemporary libertarians: Any activity should be legal to the extent it doesn’t harm others. (He also applied his principles to foreign policy, reasoning that a country has a duty to try to prevent a powerful nation from attacking a weak neighbor but, conversely, no nation has the right to intervene in the domestic affairs of another, even if the intent is to rid that country of a tyrannical leader.)
Unlike modern libertarians, Mill believed the prime threat to freedom in a democratic country is not the nanny state but what he called the “despotism of society.” He argued that in countries like Britain and the U.S. the tyranny of the majority and the intolerance of powerful religious and ideological minorities constitute the real threats to individual liberty. For example, by questioning the patriotism of dissenters, vocal minorities can effectively kill off healthy discussion of policy alternatives. Because Mill believed that no one is ever either all right or all wrong, he saw the function of liberty as guaranteeing that all perspectives could be aired so that the inevitable shortcomings of any policy were more likely to be identified.
What most distinguishes Mill from other great minds of his time is that, in hindsight, he turns out to have been on the right side of history with respect to almost every significant issue he addressed. He was a forceful advocate of free markets and private business ownership (at the same time that Karl Marx was reaching quite the opposite conclusions). Mill’s favorite cause was universal, compulsory education, and he was the first to advocate a school financing system that we would call vouchers. He was a leader of the anti-slavery movement and one of the most vocal British advocates of the Union cause during the American Civil War. He fought for free speech and the right of assembly (Speakers’ Corner in London’s Hyde Park is his lasting legacy). He was an early environmentalist, calling for a tax on coal to reduce its consumption and for accessible green spaces. He advocated birth control, fought for Irish home rule, sought a ban on smoking in public places, and legislated to prevent fraud in voting. Most significantly, he worked ceaselessly to expand the right to vote to the British middle and working classes — and not just to those of the male persuasion.
Not surprisingly, almost all of Mill’s views were unpopular among the landed aristocrats who dominated British politics at the time, but none of his causes irked them more than his ceaseless advocacy of the rights of women. If British feminism can be said to have had many mothers (foremost of whom was Harriet Taylor), it had only one father: J.S. Mill. His uncompromising stand that women were entitled to full equality in political affairs, in workplaces, and in the home was viewed as dangerously extremist in an era when women were denied the right to vote and hold office, could work only as domestic servants, and were viewed as mere legal wards of their husbands (in most cases, wives couldn’t own property in their own names). Mill’s views about women were the logical extension of his fundamental philosophical belief that the good life consists of continual learning and growth. He argued that people develop character through their habits — for example, through participating in political, community, and workplace activities. Because women were manifestly denied the opportunity for such development, he felt they were denied their basic humanity.
Moreover, he believed that everyone should be able to develop that character in whatever manner each saw fit. He didn’t believe the state could, or should, make people happy; instead, he argued that the proper role of government was to free people from the involuntary constraints that prevented those who wished to do so from developing their character to the fullest. At the same time, Mill balanced his libertarianism with an equal measure of communitarian responsibility. He believed that we are not isolated islands unto ourselves but, instead, members of moral communities. For example, to build character among the working classes, he believed that established companies ultimately should be owned by their employees (he advocated that a financing system similar to today’s employee stock ownership plans be put in place after the deaths of founding entrepreneurs). He reasoned that workers who were also owners would behave more responsibly and productively than if they were mere hired hands, to the benefit of society and the economy. They would have the opportunity to grow as responsible individuals and, as a fillip, the inequities of capitalism (which led Marx to call for revolution) would be addressed through peaceful reform as every man and woman became a capitalist.
Mill loved entrepreneurs, those independent and unconventional sorts who defied the tyranny of custom through experimentation and innovation. Because he saw them as the drivers of social and economic progress, he did not want to hamper their motivation by taxing their income. By the same token, he disapproved of those who lived on “unearned” income, namely the idle inheritors of great wealth. In his view, trust fund babies were unproductive members of society who had no incentive to improve their character. He thus advocated high inheritance taxes as the fairest, and least economically inefficient, means of generating state revenue.
Reeves concludes that Mill was the “voice and conscience” of the greatest era of progress and wealth creation in history. Yet it is nearly impossible to pigeonhole him in ideological terms. Was he liberal or conservative, Democratic Socialist or free marketer? Mill’s admirable many-sidedness, his belief that no one is ever wholly right or wrong, and his tolerance of those who advocated the most unpopular of causes made him simply and admirably “the champion of liberty.”
The Original Robber Baron
As portrayed in T.J. Stiles’s The First Tycoon: The Epic Life of Cornelius Vanderbilt (1794–1877), Vanderbilt might, at first blush, appear to be the type of custom-breaking entrepreneur Mill admired. A self-made man without formal education, Vanderbilt was universally afforded the high naval title “commodore” because of the great steamship line he created from scratch (starting with the single sailboat that he skippered himself to ferry passengers between Staten Island and Manhattan). In the process, he transformed shipping through consolidation and price cutting, creating a modern industry in which his giant ships dominated the lucrative North Atlantic route and transported men from New York to work in the goldfields of California in the 1850s.
As the Civil War drew to a close and Vanderbilt entered the eighth decade of his life, he daringly sold all his ships to concentrate his efforts on the emerging railroad industry. In a spectacular second act, Vanderbilt transformed the railway business as thoroughly as he had transformed shipping. In a short span of time, he consolidated numerous small trunk lines competing for business between Chicago and New York into one mammoth, integrated network that would become the New York Central Railroad.
When he died, Stiles says, Vanderbilt was probably the richest man in the U.S., with a fortune that represented US$1 out of every $20 in circulation in the country, including cash and demand deposits (to put that in perspective, Bill Gates’s wealth in 2008 represented $1 out of every $138). But Stiles has much more in mind in this weighty tome than simply documenting the rise of one fabulously wealthy man. The real subject of his book is the transformation of the U.S. economy from the solo-owner, small-scale capitalism of the 18th century to the modern age of giant, publicly held corporations. To make that potentially arid topic appealing, Stiles casts Vanderbilt as the personification of that historical shift, beginning his career as the sole owner of a business in a simple industry characterized by many small competitors and ending it as the major investor in a huge company that, for all intents and purposes, is a monopoly.
The book succeeds brilliantly as a history of the rise of American corporate capitalism. Stiles has great command of the ins and outs of national economics and corporate finance. He explains in clear language and authoritative detail just how the U.S. came to have a national currency of “greenbacks,” and what caused the panic of 1873 and the decade-long depression that ensued (conditions in that sorry era sound enough like our current economic crisis to give a reader the willies). Similarly, he draws on internal corporate records to document exactly when, why, and how this or that corporate takeover (or bankruptcy) occurred. As history, this is great stuff.
Where the book doesn’t quite work is in regard to Vanderbilt the man. In my reading, he is an imperfect instrument for the complex tune Stiles wishes him to play. The Commodore, for all his wealth and power, was a rather one-dimensional character. Doubtless, he was a financial genius, and one of the first to understand how the game of publicly trading corporate shares could be made to work in favor of investors (he was the first to “corner the market” for a major stock). That said, had the book focused solely on the life of Vanderbilt, it would have been repetitious at 200 pages. Thus, what we get is a paragraph or two about the man, followed by long, fascinating asides on the culture, politics, or economy of his time. Occasionally we lose sight of Vanderbilt altogether, which isn’t necessarily a bad thing because the historical context Stiles describes is usually more interesting than the life of the man.
Vanderbilt was a ruthless competitor: opportunistic, aggressive, greedy, egotistic, monomaniacal, and vindictive. He believed in winning at all costs, and some of the methods he employed — for example, stock-price manipulation — were unethical even by the lax standards of his era and would be outright illegal today. He was a hypocrite to boot, a professed anti-monopolist who sought to create legal monopolies. Notwithstanding those manifest faults, Stiles bends over backward to offer a balanced portrait, trying to get us to at least respect his protagonist, even if we can’t like him. The main line of defense is that, for all his faults, Vanderbilt lived by “a strict code of honor in business.” In fact, he does seem to have been as “good as his word” — invariably a point of pride with even the most patently unethical entrepreneurs. Perhaps there is honor among thieves, but that doesn’t make thieves honorable.
Although Vanderbilt was the first to earn the sobriquet “robber baron,” he was not the least admirable of the group. That distinction goes to his archenemies, James Fisk and Jay Gould, owners of the Erie Railway, who had the pleasure of being among the few of Vanderbilt’s competitors ever to best him in a deal. In one tricky maneuver described by Stiles,
[Fisk and Gould] secretly purchased some six thousand head of livestock in the West. Then...they announced they were cutting the Erie’s livestock rates to $1 per car. The move forced the [New York] Central to follow suit, as they knew it would. Shortly afterward, Gould and Fisk boasted to the press that they had shipped their livestock over the Central at these absurd rates, reaping a huge profit at the Commodore’s expense. The Central instantly raised rates to $40 per car.
Vanderbilt predictably went ballistic, but he didn’t pull back from competition. Many of his investments turned out to be significant losses, and he took them like “the man” he prided himself in being. But he won many more than he lost and, in the end, “proved himself an expert at using the stock market to concentrate capital or avenge himself on his enemies.” Alas, there was little else about his life that merits reporting. Aside from betting on cards and horses (he helped establish harness racing as a sport), he had no discernible interests. He was an absent, perhaps even abusive, husband and father (he had his first wife briefly committed to an asylum so he would be free to dally with their servant girl); uninvolved in politics (except to lobby both parties in the service of his investments); unmoved by culture (his “only notable work of art was a bust of himself”); and lacking in almost any philanthropic inclinations (the exception being his funding of Vanderbilt University, which was far less expensive than one might expect).
In Vanderbilt’s own eyes, he was the avatar of the Jacksonian promise: the hardworking, nearly illiterate son of a poor boatman who, by dint of his own efforts, created wealth far in excess of anything produced by the privileged sons of America’s decadent landed gentry. Paradoxically, he then spent the last years of his life trying to create his own dynasty, leaving the bulk of his investments in the hands of his eldest son in hopes that the Vanderbilts would carry on for generations like the aristocratic Astors and Schuylers. He should have read Mill. Within two generations, his ne’er-do-well descendants had pretty well dissipated the fortune and lost their social standing. His remaining monument is Manhattan’s Grand Central Station, the terminus of his New York Central Railroad. If you crane your neck, you can make out his statue way up there over the entrance, staring out over Park Avenue South.
The Oracle of Omaha
There is no greater contemporary “conjurer in the financial ether” than Warren Buffett, the subject of Alice Schroeder’s surprisingly objective biography, The Snowball: Warren Buffett and the Business of Life. The book is not what I (or, apparently, Buffett) expected from an “approved” bio written with the full cooperation of the subject. Far from being an adoring hagiography, this is as thorough and honest an account of Buffett’s life and career as one could ask for. Significantly, showing Buffett’s warts ultimately serves more to humanize the man than diminish the mogul.
It is hard to imagine there is anything new to write about the eccentric and humble multibillionaire who, as we know, drives his own SUV, carries his own luggage, lives in the same modest house in Omaha where he has resided for decades, works out of an unadorned office with minuscule staffing, dresses like an engineering undergrad, and subsists on a diet of burgers and cherry Coke. And we all know about his oracular annual letter to Berkshire Hathaway shareholders, in which he offers sage investment advice and commonsense insight into the arcana of corporate finance, and the related stadium-filling shareholder meetings at which he and longtime sidekick and business partner Charlie Munger proclaim on all manner of subjects economical and commercial (some 30,000 Berkshire Hathaway stock owners showed up in 2007).
But it turns out we really didn’t know him all that well. Schroeder offers us a nuanced portrait of a surprisingly complex and insecure man whose life is full of paradoxes and contradictions, one who somehow combines a career quite similar to Vanderbilt’s with a philosophy much like Mill’s. The son of an abusive mother and an ideologically wacko father who represented Iowa in the U.S. Congress, Buffett grew up socially awkward, needy, and nerdy. Immature and maladjusted throughout his prolonged adolescence, he was a chronic pilferer of golf balls from the local Sears store.
His saving grace was that he was a born entrepreneur. In high school he started a pinball machine business and had accumulated on the order of 50 grand (in today’s dollars) by age 16. He drifted until graduate school, when he came under the influence of two Columbia University B-school profs, David Dodd and Benjamin Graham, who taught him the virtue of low-risk investing, primarily by scrounging for “cigar butts” (obscure stocks trading below the liquidated value of a company’s assets). He quickly learned how to do the research and analysis required to find these gems in the rough, developing the mind of an actuary in his ability to calculate risks and future returns. It was all about the math of compounding (that’s the “snowball” effect of the title). Buffett was quick to appreciate that it is far better in the long term to reinvest than to spend. Where others saw a dollar today, he saw a hundred in 20 years. Hence his legendary tightfistedness (when a millionaire friend once asked to borrow a dime for a phone call and Buffett found only a quarter in his pocket, he went looking for change).
Buffett developed his own simple formula for what to do with a cigar butt once he owned it: Take out all the cash and raise prices. That worked well for a while, until it became harder to find undervalued companies. It was then that Munger — a charmingly crotchety lawyer — stepped in to wean Buffett off bargain hunting and teach him to appreciate the value of “great businesses.” Once Buffett added the art of qualitative assessment to his prodigious quantitative skills, the rest was history. Buffett and Munger’s holding company, Berkshire Hathaway, would become a major shareholder or outright owner of companies with such perennially strong brands as Coca-Cola, Fruit of the Loom, Geico, Gillette, and See’s. By 1974, Buffett was on his way to fortune and fame, thanks to being featured in “Adam Smith’s” bestseller, Supermoney, as not only a genius investor, but an honest one too — almost a saint among the demons of Wall Street.
Buffett’s reputation would grow with his wealth. In 1987, the value of a Berkshire share had increased 23 percent per annum for 23 years (an initial investment of $1,000 was worth $1.1 million — there’s that snowball!). In the process, his name became synonymous with careful, prudent, and patient investing and with traits such as openness, integrity, and extreme honesty. It was all about the basics, starting with living by Dale Carnegie’s sensible rules for success (“Ask questions instead of giving direct orders”) and Buffett’s own homespun common sense (“Be long-term greedy, not short-term greedy”). Although his personal expertise was limited to finance, Buffett appreciated the value of strong enterprise management and knew great leaders when he saw them (then he invested in their companies and left them in place to run their businesses without interference). He was ahead of his time in calling for independent boards, the expensing of stock options, and an end to excessive executive compensation and, especially, unconscionable perks. Most famously, he was a constant critic of Wall Street and often cautioned managers not to take expedient actions to satisfy the short-term thinking of stock analysts.
That’s the story we all know — the official line that “media-shy” Buffett turns out to have promulgated and carefully managed for decades. But Schroeder shows us another, more complicated and factual, version of the legend that is Buffett, one in sharp contrast to his “aw-shucks” image.
How to explain the dichotomy between Buffett figuratively sitting on the front porch with a glass of lemonade, telling folksy stories and teaching through homilies, and his long history of sophisticated business feats? What was he doing as interim chairman of an investment bank while talking and writing about Wall Street as a gang of con men, sharpies, and cheats?
As a major investor in and a board member at Salomon Brothers, Buffett was the logical choice to step in to chair that firm in the early 1990s when the head of its government bond business was caught making illegal trades that netted about $4 million in profits. That act would cost Salomon some $800 million in “lost business, fines, penalties and legal fees.” The episode nearly led to Salomon’s demise as its reputation was blown to smithereens. In great detail, Schroeder documents how Buffett’s actions — most notably his willingness to capitalize on his own reputation for integrity — saved the firm. In the process, she also shows that he was no naive outsider in the investment industry but, instead, one of its shrewdest players. And the contradictions continue: More recently, he was a vocal critic of the derivatives game, in 2003 calling them “financial weapons of mass destruction.” Later, it turned out that companies in his own portfolio were major players in derivatives markets. (And, in 2008, he spectacularly became one of the largest investors in Goldman Sachs, arguably the master of the derivatives game. In hindsight this investment appears to be so potentially lucrative that it may offset his recent heavy losses in the Great Recession.)
It is when explaining derivatives and other technical issues, such as the shortcomings of the “efficient-market hypothesis,” that Schroeder shines as a writer. A former staffer at the Financial Accounting Standards Board, she displays profound financial expertise and the ability to employ that knowledge to clarify and simplify complex concepts for the benefit of readers. She is also good at explicating the many contradictions in Buffett’s personal life. For example, while he keeps his modest house in Omaha and hangs out at the local diner, he has hobnobbed throughout most of his adult life with the richest and most powerful people in America. He has been a jet-setter par excellence (with his own jet), most often in the company of his closest friend (and, possibly, more), Katharine Graham, the now-deceased publisher of the Washington Post and one of the nation’s leading socialites and power brokers. And it wasn’t his wife who was in that ol’ house. For decades, he had a most unconventional marital relationship with, in effect, two wives: Susie, the one he was legally married to, living in San Francisco and seeing him regularly, and the other, Astrid, Susie’s good friend, living at the Omaha house. After Susie’s death, he married Astrid. Shades of Harriet and John (and John)!
Buffett’s life and career actually resemble Vanderbilt’s: Each man was an eccentric stock speculator, competitive in the extreme, sure of himself in business matters to the point of arrogance, and fixated on moneymaking. Both were mavericks in their business dealings, often willing to swim against the tide of conventional investment wisdom. (Buffett has said, “You can’t do well in investing unless you think independently.”) Other similarities are striking: Both men were incapable of expressing emotion to their wives and children, and both habitually retreated behind a hand of cards to compensate for being socially maladroit.
But there is also a crucial difference: Unlike the Commodore, the Oracle has a sense of humor about himself and understands his own limitations. Buffett truly seems to appreciate that good luck was a major factor in his success. Although he is proud of the fact that he has worked hard for what he has rightly earned — Munger calls him a “learning machine” — Buffett is quick to point out that he also was a winner in “the ovarian lottery.” He notes that had he been born the son of an Alabama sharecropper or in an underdeveloped nation, he doubtless would not have become one of the richest people on the planet. Hence, he has adopted a Millian philosophy of political economy, believing that the “ideal was a world in which winners were free to strive, but narrowed the gap by helping the losers.” His belief in meritocracy, coupled with his sense that winner-take-all capitalism is unjust, has led him to take a principled, vocal stand against the repeal of the estate tax (“I am not an enthusiast for dynastic wealth”). In this regard, at least, his words have matched his deeds: He has insisted that his own children largely make their own way in the world. And the philanthropic act that has capped his unconventional career is indicative of virtuous character: Instead of funding monuments to himself, he has chosen to give the bulk of his vast fortune to the Bill & Melinda Gates Foundation, with the proviso that the entire sum be spent quickly on the major social problems that his friends and protégés the Gateses have targeted for aid. Buffett came to the honest and humble conclusion that the couple were far more skilled philanthropists than he would ever be. Doubtless, Mill would have approved.
- James O’Toole is the Daniels Distinguished Professor of Business Ethics at the University of Denver’s Daniels College of Business and coauthor, with Warren Bennis and Daniel Goleman, of Transparency: How Leaders Create a Culture of Candor (Jossey-Bass, 2008).