The Very, Very Rich and How They Got That Way (5 page)

“You see?” he said.

They saw, but they weren’t quite sure what to do about it.

Stone knew, however. It was now obvious to him that he would have to inoculate his salesmen with the all-purpose success medicine, PMA. Having built his business in the booming 1920s, when almost anybody could sell almost anything, he hadn’t paid much attention to the individual salesmen and their selling methods and attitudes. He had simply hired them – by mail in many cases – had given them some standard insurance sales literature to read and had then turned them loose. Most had done tolerably well in those golden years of surplus money. But now, up against a real test, they were collapsing.

So Clement Stone launched his first sales-training campaign. He began sending out bulletins to his sales offices enunciating general PMA principles and giving specific pointers on salesmanship. Simultaneously he embarked on an 18-month tour of the country. He talked to his troubled salesmen and went out on selling trips with them. He showed them how he, the master, approached his art.
The attitude of the salesman, not the prospect
...

Many of the salesmen were too weary and discouraged to absorb the medicine. Many quit. The 1000-man force shrank to fewer than 200, but those 200 were now well trained and thoroughly turned on with PMA. By the mid-1930s they were producing a bigger sales volume for Stone’s agency than the 1000 had produced before. By the end of that decade Clem Stone was a millionaire.

He now decided it might be pleasant and profitable to set up his own insurance company instead of just selling other companies’ policies. Looking around for a feasible way of accomplishing this end, he found what seemed to be a perfect setup. The Pennsylvania Casualty Company, once a thriving organization, had run into sundry depression-bred problems and had suspended operations. Its owner, the Commercial Credit Company of Baltimore, wanted to sell it for $1,600,000, exactly the worth of the defunct company’s liquid assets.

Stone wasn’t much interested in the liquid assets. What caught his eye was a non-liquid asset, potentially much more valuable: Pennsylvania Casualty, though out of business, still owned valid licences to sell insurance in 35 states.

“Do it now!” said Stone to himself. The morning after he learned about this setup, he was in Baltimore with his lawyer to see the people at Commercial Credit. In condensed form the conversation went something like this:

STONE: “I want to buy your insurance outfit.”

COMMERCIAL CREDIT: “Fine. Cost you a million-six. You got that much?”

STONE: “No, but I can borrow it.”

CC: “Who from?”

STONE: “You.”

It was an audacious gambit. But, as Stone quite reasonably pointed out, Commercial Credit was in the business of lending money. It was true that the proposed deal had a peculiar round-robin quality: Commercial Credit was to sell a piece of property to a buyer who, in payment, would simply give Commercial Credit its own money back. Yet it wasn’t an impossible deal to conceive and after some initial grumbling, Commercial Credit went along with it.

This was the foundation of Clem Stone’s present empire. The original small insurance company evolved step by step into today’s giant Combined Insurance Company of America, which sells in all states and abroad (1970 sales volume: $213 million) and has some 5000 salesmen, all inoculated with PMA in regular doses. (At sales meetings they all stand up and shout, “I feel ter-
riffic
!”) Most of them are comfortably well off. At last count 20 or so were millionaires.

While building Combined Insurance, Stone was getting involved in other lucrative ventures. In the mid-1950s a brilliant young man named Leonard Lavin came to him with a request for a loan. Lavin wanted to start a small cosmetics company. Stone listened to the request and found it praiseworthy, for his purchase of Pennsylvania Casualty had taught him that one way to get rich is to use what he reverently calls OPM – Other People’s Money. He gave young Lavin a brief, fatherly lecture about the business benefits of wise borrowing. He then cooked up a deal in which he and Lavin both used OPM. Instead of directly putting up his own money, Stone guaranteed a bank loan of $450,000 to Lavin. In return Stone got a one-fourth interest in Lavin’s new company.

The company Lavin formed was Alberto-Culver, one of the more impressive growth companies of the 1960s. Stone’s share of the stock, which he had acquired without actually spending a dime of his own, reached a value of roughly $30 million by the end of that decade.

Meanwhile, Stone was off on another venture. He was going into the publishing business.

In 1960, acting more out of missionary zeal than any need to make money, he collaborated on a book called
Success Through a Positive Mental Attitude
. His co-author was the late Napoleon Hill, who had previously struck pay dirt with an inspirational best seller called
Think and Grow Rich
. The Stone-Hill book sold over a quarter million copies. Delighted to see the PMA faith being spread so well, Stone in 1962 wrote another book covering substantially the same subject matter:
The Success System That Never Fails
. This book, too, sold to thousands of would-be tycoons.

To keep the faith spreading, Stone next founded a magazine named
Success Unlimited
. It was set up as a subsidiary of his insurance operations. It contains articles by and about successful men, an occasional inspirational treatise by Stone himself, great dollops of PMA and a wide selection of start-your-own-business ads placed by franchising companies and others. The magazine is heavily soaked in Stone’s own Bible Belt morality and right-wing political philosophy (a recent article grumbled about the current liberalizing of pornography laws, for instance), but somehow it avoids the dreary, sermonizing sound that might be expected of such a publication. Many readers have been startled to find it sprightly, informative and even directly useful in the task of getting rich.

Stone’s final step in the publishing world was to buy his own book company in the mid-1960s. The original publisher of his success books, Prentice-Hall, owned an imprint called Hawthorn Books. Hawthorn wasn’t making any money, and Prentice was glad to get rid of it. Stone merged it with some other publishing properties that he bought – among them the old Appleton-Century-Crofts textbook business – and rapidly quadrupled Hawthorn’s sales volume. Today, though Hawthorn is a mere bag of peanuts next to the giant combined Insurance and Alberto-Culver enterprise, it makes money. And it gives Stone a pulpit from which to preach PMA.

Some of Stone’s other activities are less easy to explain in terms of the main roads of his life. For a while he helped finance the ESP studies of Dr. Joseph Banks Rhine at Duke University. He is also involved with an odd organization called the Foundation for the Study of Cycles, which thinks many cyclical phenomena such as economic booms and busts, sunspots, weather and suicide rates may be interrelated.

But PMA will always remain Stone’s most absorbing interest. He likes to talk of the famous men to whom he has given copies of his books. One of them is Richard Nixon (to whose election campaigns Stone has been a heavy cash contributor).

Has the president read the books? The White House says yes. Does he use PMA, and does it help? The White House declines further comment.

Horatio Alger was, in fact, the granddaddy of all capitalist success teachers. His very name is a cliché used to describe a man’s rise from humble beginnings to large wealth. “His is a Horatio Alger story,” it might be said (and indeed has been, several million times) of Clement Stone and most other men you will meet in this book. The cliché, like an old horse, is tired and deserves to be led out to the fields where it can die peacefully. But before we bestow our last affectionate pat on its rump and send it on its way, lets see where the old horse came from and what races it has run.

Horatio Alger, Jr., was born at Revere, Massachusetts in 1834. His father was a Unitarian minister and evidently a dourly sanctimonious one. He preached at the boy endlessly, made him memorize virtually the entire Bible, filled him so full of religious mumblings that the kids in school called the boy Holy Horatio. But while one half of young Horatio was striving to obey and emulate his pious parent, the other half was seething with typical youthful rebellion. The result, as he drew to manhood, was a double personality of the bizarre type later fictionalized by Robert Louis Stevenson in
The Strange Case of Dr. Jekyll and Mr. Hyde
.

Psychoanalysts have since speculated that Alger was a schizophrenic. Who knows? The fact is, he spent much of his adult life – until he grew old and the flame burned down – shuttling back and forth between piety and high jinks. One year he would be the very model of his clergyman father, a sour, stern, cold-eyed man who seemed to feel any form of fun was against God’s will. The next year he would abruptly turn into the 19th century version of a swinger – or as the phrase went in those days, a dissolute and degenerate rake.

First he went to divinity school, dutifully preparing himself for the ministry as his father wished. He supported himself by tutoring and by selling scholarly and inspirational articles to newspapers and magazines. After graduation, instead of getting himself ordained and going to work as a minister, he suddenly disappeared. He turned up in Paris. (Where did he get the money? Nobody knows for sure.) He did what young Americans in Paris have always done: drank, gambled, kept company with young ladies of low inhibition, slept till noon and generally defied the good old Protestant ethic.

Just as abruptly, he returned to Massachusetts at age 30, was ordained as a minister and preached fervently against everything he had just finished doing in Paris.

Two years later he quit the ministry, went to New York and did everything he had just finished preaching against in Massachusetts.

Then came a period of relative calm. There was a generous, warmhearted side to Alger’s sundered psyche, and while prowling New York’s streets at night, he became aware of the great numbers of drifting, apparently homeless kids – street urchins, as they were then called. Wondering about their fate, he began asking questions about various charitable institutions that had been set up to house, feed and educate the urchins. One such outfit, the Newsboys’ Lodging House, was near the seedy tenement where he lived, and he got into the habit of dropping in there whenever he felt like talking to somebody. He became friendly with the superintendent, started doing odd jobs around the place, read biblical and other stories to the boys at night, tutored some of them, preached at them, ended by becoming a kind of general busybody and unpaid assistant superintendent.

Meanwhile, he had been earning his meagre living as a journalist. Since his Paris days he had harbored the dream of writing a great novel about Love, Death, Truth, Humanity and grand things like that. One night, chatting with the lodging-house superintendent, he speculated on what might become of all these homeless boys as adults. Would they all go down the drain? Or would some of them, perhaps, through prayer, thrift, industry, honesty, pluck, perseverance and other admired attributes of the Protestant ethic, rise to material wealth? Was it inconceivable that one of them might someday become president? Or a great merchant? Or ...?

And so Horatio Alger’s famous books were born. The first was a serial story called
Ragged Dick
. Alger sold it to a boys’ magazine. Boys and parents alike gobbled it up. A Boston publisher immediately commissioned Alger to write more books about the same character, following Dick’s zigzag fortunes all the way from his boyhood in a city orphanage to his young manhood as a budding entrepreneur. This series was followed by dozens more, including
Luck and Pluck
and
Tattered Tom
. Alger went on to write well over 100 books, and some 20 million copies were sold during his lifetime.

The astounding success of Alger’s books is difficult to explain today. All followed essentially the same formula: A street urchin triumphs over adversity by applying rules from the good book. Sheer coincidence helps him on his climb (a rich benefactor can always be counted on to turn up at the darkest hour), but the implication is that such lucky breaks come the young hero’s way because he deserves them: works hard, prays a lot, thinks clean thoughts. The books offer little in the way of narrative momentum or suspense, and as for characterization, it isn’t there at all. Every Ragged Dick and Tattered Tom is the perfect model of upright, clench-hawed, stiff-spined, red-blooded American boyhood, while the villains are the meanest, wiliest, sneakiest aggregation of blackguards ever to skulk the streets. Their hobby is foreclosing orphanage mortgages.

Every Alger book is this way. When you’ve read one you’ve read all. Yet millions of people bought book after book after book.

Sociologists and economists and others have speculated ever since about the reasons behind this popularity. One likely surmise is that the Alger type of rags-to-riches story was just then (mid-19th century) beginning to seem possible in America. Only a few times before in the whole history of the world had a nation, a society and an economic setup existed in which the masses of poor and middle-income people could seriously dream about the possibility of getting rich. The Dutch had enjoyed such a setup in the early 17th century, but it had all gone down the drain a century later. Ever since, and through most of history before that, a man born poor could do little but resign himself to his fate. You’re born poor, you die poor; such was God’s will. To struggle was futile. Some lucky individuals did get rich, but the percentage was so small and the odds against the average man so large that to dream any such dream was universally considered to be ridiculous.

But now, quite suddenly, a crazy new place called America had arisen before the world’s startled gaze. This America had existed for a long time without attracting much attention. It was widely considered to be, and, in fact, for a century was, a vast, empty place dotted with rural villages, most of whose inhabitants were poor and had virtually no chance of ever becoming otherwise. But at the beginning of the Industrial Revolution, while the world wasn’t looking, this huge country in the middle of nowhere had become an economic colossus. And not only that – it had become the kind of place in which poor men could get rich.

They were calling it the “land of opportunity”. Among the poverty-trapped millions of Europe, there were many in the late 1800s who came to believe literally that New York’s or Boston’s streets were paved with gold. Obviously, America wasn’t quite that wealthy. Indeed, many of the ragged immigrants who poured into the country so hopefully not only failed to grow rich – they grew poorer. But the dream of making a fortune was fulfilled enough times to keep the dream alive. Andrew Carnegie emigrated from Scotland, landed in New York with less than a dollar in his pocket, went on to become the multimillionaire founder of U.S. Steel. John D. Rockefeller, the oil tycoon, began his career as an underpaid, half-starved clerk in a Cleveland shipping office. Joseph P. Kennedy’s father fled a potato famine in Ireland, landed in Boston with an empty belly and no worldly assets whatever, lifted himself by his own bootstraps into a comfortable middle-income bracket, saw his son go on to become a multimillionaire.

Real-life stories such as these made Horatio Alger’s yarns seem believable. People read Alger’s books to reinforce their hopes and dreams. Alger was saying, “See, this is what can happen to people in America.”

He was also saying something else that may have been still more interesting to some. For centuries the major Western religions had been trying to convince people that virtue is its own reward – that, in fact, poverty is preferable to wealth, since too much money inevitably leads to dissolution and damnation. Money was conceived to be the root of evil. A wise man didn’t work for money but for the sake of the work itself. Work was purifying. Sweat was holy in the eyes of the Lord. Millions of poverty-trapped people had been forced to swallow this philosophy, for it was the only consolation they had. A man could think, “I may be starving, but, by God, I’m holy!”

And now Alger came on the scene with a different view. He suggested that money is fine in the Lord’s eyes. He went even further. He preached that the Lord will reward virtue with money. To get rich, he said, all you need do is combine virtue with a certain degree of ordinary business acumen. The payoff will be in cash.

It was a grand new way to look at things. Alger wasn’t its originator, of course, only one of its key spokesmen. The originators were the very businessmen who were then building what was to become the world’s greatest economic power. Men such as Rockefeller, Carnegie and J.P. Morgan sincerely believed the accumulation of capital was a thoroughly righteous activity, something like prayer. In fact, some of them actually felt themselves to be divinely appointed custodians of the nation’s cash. Because of their upright characters, God had singled them out to be great gatherers of money. It was their job to watch over this money for the welfare of less prudent and less virtuous men.

Horatio Alger, preaching this new financial religion, touched a nerve in millions of people. He gave them a heady dose of optimism. He assured them they could get rich simply by developing the attributes ordained in the good book, plus a few others such as thrift, pluck (the willingness to take a business risk) and perseverance.

Alger himself, as it turned out, failed to apply his own formula with what could be called smashing success. His book royalties brought him a very big income but he never seemed to master the virtue of thrift. Some of the money went out in the form of generous gifts to the Newsboys’ Lodging House and to individual orphans and foundlings whom Alger unofficially adopted as sons in all but name. (He never married and is not known ever to have fathered a child of his own.) The rest of the money simply vanished in plain, old-fashioned profligacy. Alger savored wine and women in New York, Paris, San Francisco and other scarlet places where a man’s money could be drained away rapidly. Finally, old and tired, he crept back to the green tranquillity of rural Massachusetts and moved in with his sister. He died there in 1899, flat broke.