Founders: #307: The World's Great Family Dynasties: Rockefeller, Rothschild, Morgan, & Toyada

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There was no internet in John D. Rockefeller's day. There was no internet in JP Morgan's day. But

one thing is for sure, if there was, they would have both used meter to make sure that their

business internet was fast, secure, reliable, and could scale up as their businesses expanded.

These families that I'm about to talk to you about, the Rockefellers, the Rothschilds, the

Morgans, the Toyotas, they spent their days. They were very busy laying the foundation for their

dynastic domination. You are busy building a world-class business. In both cases, it would be

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one monthly rate. Check out their website by going to meter.com. It will explain all the

value that meter can provide your business. That is meter.com. As you're about to hear with the

Toyota family dynasty, sometimes the smartest thing a founder can do is actually sell their business.

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and they respond within 48 hours. Of course, you can learn more from their incredibly designed

website at tiny.com. One more thing before we jump into the episode, I've been getting a lot of

messages about people wanting to hear more about my personal history. I think the single best source

for that is this interview I did on one of my favorite podcasts. It's on the Invest Like the

Best podcast with my friend Patrick. I'm going to leave a link down below, but whatever podcast

player you're listening to this in, if you don't already follow that show, search for Invest Like

the Best, follow that show, and then listen to episode 292, which is David Senra, Passion and Pain.

This is a book about family and business. At its heart is the dynasty, the succession and

interaction of family members over generations, and the firm, the business unit that embodies and

expresses this interaction. I shall define a dynasty as three successive generations of family

control. No small achievement. Growth, diversification, and technological advance can all work against

the continuity of the family firm. To these factors, I shall add another. Success. Simply put,

as the firm develops power and prestige, the heirs find many interesting and amusing things to do

rather than run their business. Typically, rather than wear the shirt sleeves of their

forefathers, they finish in silks and velvets and focus on politics, culture, and the unabashed pursuit

of the good life. As a historian, I was drawn into the drama of these stories and the larger than

life qualities of many of these competitors for wealth. These tales trace the entangled histories

of legendary lineages such as the Fords, the Rockefellers, and the Guggenheims. But one that

need not be a Rothschild or a Toyota to have use for the lessons in this book. Our own families

play central roles in most of our lives, and the successes, failures, and cautionary notes of these

narratives can inform and inspire us all. We can learn a great deal about business from these

dynasties. These are extraordinary men and women full of eccentricities and geniuses. As an example,

consider the legendary patriarch, the bold enterprises who sets out to do well for himself

and ends up founding an empire. Nathan Rothschild fits this bill. He had a super keen mind, a sharp

tongue, and a sense of dignity and authority that some families need many generations to acquire.

Nathan quickly moved from selling merchandise into banking and outdid the best of his competitors.

The Brits, his existing competitors, were not always ready or able to understand the force

of this outsider who ignored the rules of proper behavior. This is an example of one of my favorite

maxims, which is those on the margins often come to control the center, those on the margins often

come to control the center. One day, a powerful, wealthy English dignitary pushed his way into

Nathan's office and interrupted the busy banker at his task. Nathan told him to take a chair that

he'd be with him in a minute. The man was offended. Don't you know who I am, he said, pointing to the

royal crest on the lining of his top hat. Nathan's reply, then take two chairs.

Another time, someone asked him how he had made his fortune, and he answered, by minding my own

business, it is from such brash, keen, dedicated entrepreneurs that great dynasties are founded.

That was an excerpt from the book that I'm going to talk to you about today, which is dynasties,

fortunes and misfortunes of the world's great family businesses, and it was written by David

Landys. So I've told you before, one of my favorite things to do is spend time and use bookstores,

and this is where I stumbled upon this book, picked it up, read within like two minutes.

I was like, oh, I'm definitely buying this book. What it is, is the author is a historian and he

profiled 11 family dynasties throughout history in three primary industries. So you got banking,

automobiles, and then natural resources. And so before I jump into the first family dynasty,

this is what, after studying all these different families across all these different industries,

this is what he realized was the largest predictor, or the largest cause rather,

for their eventual like decline and downfall. And the way you and I have spoken about this in

the past is the fact that they, it's very common in human nature that they go to sleep on a wind

and they wake up with a loss. And so this is what I mean here, the biggest threat to continuity,

meaning dynastic family continuity, okay? The biggest threat to continuity was enrichment and

success. We will see this story repeated across industries. Once the family had the

wherewithal to indulge their inflated ambitions, they tended to copy their better. So I need to

pause there. So what are you talking about? Almost all the dynasties started as outsiders.

This is something that's very obvious in this book, but also very obvious if you read, you know,

a couple hundred biographies of some of the great history of entrepreneurs. That's why I said one

of my favorite maxims actually comes from Game of Thrones, the one I mentioned in the intro,

that those on the margins often come to control the center. So what happens after those on the

margins get to control the center, you see this over and over again. Once the family had the

wherewithal to indulge their inflated ambitions, they tended to copy their betters, meaning they

started on the outside, they usually overtake their competitors, they wind up generating wealth,

and what do they do? They just copy and imitate the people that they are replacing. So that's what

he means. That is, they tend to buy estates, they purchase honors and titles, and live the life of

idleness and self-indulgence that was the mark of gentility. And so all of these dynasties without

exception can be traced to one formidable individual, somebody that's intensely and insanely focused on

the building up of both their business and their family. Think about what David Ogrevy told us last

week. I think it was on episode 306. He says, great industrial leaders are always fanatically

committed to their jobs. They are not lazy are amateurs. These are power law type people,

of course individual families are not going to be able to produce multiple family members of the

same caliber. That doesn't mean they can't continue on. And so the first family I'm going to talk about

is the one that really, out of everybody in the book, kind of buck the trend, and that's the

Rothschilds. And we'll get into there, because there's never been another Nathan Rothschild,

but they have been able to muster enough talent and discipline to not squander the wealth that's

been built up over the last few centuries. And so David has a great way of putting the

difference in mentality between the founder of the dynasty and those usually the people that come

afterwards. He writes it in French, so I had to actually go and translate this. This is the

first time I've come across this maxim and it's excellent. Something I already put in a read

wise, something I'm going to like keep reminding myself of. And he says, for many of the great

founders, appetite comes with eating. I was like, what the hell does that mean? And it's a saying

that means that the more you have, the more you want to have. The great founders are obsessed

with what they're doing. They want to continue doing more of it. They enjoy it. It's like work as

their own hobby. Their descendants just like the fruits of the labor, in many cases, the labor

that they did not themselves do. And so they like these like lazy, what he calls a life of idleness

and self indulgence. But that is one of my favorite lines in the entire book. For many of the founders,

appetite comes with eating. The more that you have, the more you want to have. And I think that's

obvious if you look back on a lot of the founders that you and I've talked about, a lot of the founders

that you and I have read biographies on, their ex's strategy is death. They found their life's

work and they had no intention of retiring and they just kept doing it because they enjoyed

to do it. Okay, so with that, the first family, I picked four families that I'm going to talk about.

Many of them, three out of the four families I've done multiple podcasts on. What I will do is I

would use this podcast, this episode, as like a jump off point, I will list in the show notes,

you can find on your podcast player and at founderspodcast.com, all of the episode and the

episode numbers of all the different podcasts I've done on the Rothschilds, the Rockefellers,

and the Morgan family. This would be the first time I talk about the Toyota family, which I actually

really enjoyed. And then from there, based on what you hear in here, if you want to go deeper,

you can use that as a reference point. But I do want to start with the Rothschilds because they

seem to be the exception to the rule, at least in the 11 families profiled in this book. It says,

more than anything, the Rothschilds are a case study, in tenacity, and a dynasty in which the

traits of persistence and intense focus have been passed down from one extraordinary generation

to the next. Their family dynasty is going to start in a ghetto, I think it's the world's actually

first Jewish ghetto in Europe. It's Frankfurt, it was the ancestral home of the Rothschilds,

and it was neither a pleasant nor an auspicious place to start a global empire. It was home to

the first Jewish ghetto in Europe, which is created in 1460. First thing that pops out here is number

one, the Rothschilds' capability of turning a liability into an asset. The ghetto is a terrible

environment in which to live, but the adversity and oppression bred traits that would be central

to the rise of the Rothschilds. First, a network of Jewish traders and financiers developed who

offered one another support. Second, the Rothschild learned that family was their greatest resource,

the one place where they could place absolute trust. So no one wants to be born into an environment

like this, but the people that are capable of surviving, they develop a very unique set of

skills. From this environment, they fought to overcome oppressive conditions and became stronger,

more savvy, and better connected as a result. And there's really only two generations of Rothschilds

that have to deal with this. So the founder of the Rothschild dynasty, I did a two-part series on

the Rothschilds. Episode 197 is on the dad, mayor, and episode 198 is more on his sons. So let's go

over a few traits that he had that are valuable. Number one, he had an innate talent for his trade.

Starts out, they're merchants, but they're also money lenders and money changers. Mayor had a

good head for figures, meaning he's good at math, which was great advantage in a world of multiple

monies, multiple currencies is what they mean there. Number three, he took time and built a

foundation of the empire by gaining specific knowledge, very valuable specific knowledge.

One specialty of money changers, which is their business, their initial business,

was a knowledge of the rare coins that passed through their hands. There was a significant

market among collectors for these items, and savvy dealers, which was what mayor was, would

begin systematically hunting for rarities, which then they resold to specialists. So that skill

and specific knowledge is valuable and interesting. But what makes it even more powerful is that

mayor combines it with a trait that actually bucks human nature. He thought that long-term

relationships were more valuable than short-term profit. That may be easy to say when you're

already rich. This guy is living in a ghetto. He's living in a two-room house, but I think

they have something like 10 kids. So let me give you an example of this. Mayor was a go-getter.

He would shave his margin or even sell it a loss for important people. The readiness to

prefer connections to immediate profit testified to his long-term horizon. Second thing he did,

he realized that they were without a lot of financial resources at the time. So everybody in

the family had to help the business. This is something that they would continue over the

next few generations. So they're changing money. They're collecting coins, but they're also selling,

dealing merchandise. So they would sell things like fabrics, yarn, goods from tropical lands.

They would sell spices, teas, coffee, and chocolate. Where's he going to put all this stuff? He's

got to put it in his house. His crowded house was jammed with crate barrels and stacks of

merchandise. The family occupied what little space was left. There was one bedroom for mayor and

his wife. In the other bedroom, the children, boys and girls of all ages, were piled together atop

one another. As they grew old enough, they were all enrolled in the business. As the children

got old enough to marry, their spouses were also joined in the enterprise as employees,

but never as partners. He actually puts that rule in writing on his last will and testament.

They were very, very fearful of outsiders. In another way, they avoided this,

which I'll get into a little bit. There was a lot of incest. Eventually, this is something that's

going to reoccur. Like I said, all the dynasties can be traced down back to one formidable individual.

We're going to call people the power law person. Eventually, the power law person will appear,

and that is going to be for the Rothschilds. That is going to be Nathan Rothschild.

It was mayor's third son, Nathan Rothschild, who gave the Rothschilds a special advantage

when he immigrated to England. Nathan was bright and enterprising, and he had the kind of pride

that exacerbated those who expected Jews to be suitably meek and deferential.

And as we'll see, he also had extreme, extreme levels of self-confidence

way before. I always talk about there's this great maxim that belief comes before ability.

He had extreme levels of self-belief. Way before there was any evidence that that belief was

justified, we'll get into that in a minute. He quickly made a fortune in cotton's and then married

the daughter of one of the richest Jews in England. When his prospective father-in-law asked for proof

of his prospects, meaning this is very common, like, are you going to be able to provide for

my daughter? Like, what's your business? How much money do you make, that kind of stuff?

Well, this is what I mean about excessive self-belief. When his prospective father-in-law asked

for proof of his prospects, Nathan told him that if he was concerned about having his

daughters provided for, he might as well just give them all to Nathan and be done with it.

Whoa. Nathan then moved to London and began competing with other bankers for a share of

government issues. That's going to be the main source of, like, they're going to have a bunch

of different businesses, but essentially, like, they're financing governments, they're financing

wars, they're having some of the most powerful people in Europe indebted to them. Nathan became

the commanding general of the Klan, of his entire family. Even though his father is still alive,

he's the third son. They all recognized him for as just this unique, formidable genius.

He ran his office under strict rules of privacy and discipline. No one could enter unless summoned.

This is something I already mentioned in the intro, but it's one of my favorite stories,

so I'm going to repeat it. One day, an English dignitary pushed his way in.

Nathan recognized the visitor and said, take a seat. I'll be with you in a minute. The visitor

was offended by such offhand disrespect. Don't you know who I am? He said, showing Nathan the royal

crest on his hat. Nathan was in no way disconcerned. Then take two seats. It was a great time to work

and earn in London. So it's something that you see over and over again. Some of this is just,

you know, randomness, luck, whatever you want to call it, but Nathan was the right person at the

right place, at the right time in history with the right set of skills. And this is an example

of that. It was a great time to work and earn in London. British businessmen were far ahead

of anyone else in industrial enterprise, and they needed a constant flow of funds. Nathan had come

along just at the right time. So the order I have that I'm going to talk to you about,

start with the Rothschilds, then I'm going to go into the Morgans. Because the Morgans,

just like every... I don't even know why I'm repeating this, because this is so obvious at

this point. The Morgans padded themselves off the great people that came before them. So they

literally studied the Rothschilds, and they looked at the career of the Rothschild family

dynasty and said, okay, how can we do that? What did they learn over the course of their career

that we can use on our own, right? And what is fascinating to me is, so the Rothschilds started

in London, they're at the right place, right? They miss, at this point in history, you'd rather be

in London than anywhere else. Now, what the Morgans growth of the Morgan family dynasty is,

the Morgans are going to play that role, but in America, and the Rothschilds had the opportunity

to expand to America before the Morgans, and they didn't think they needed to do so because all

their power derived from Europe. And so that gap in the market that the Rothschilds seeded,

the Morgans jumped into. And so therefore, you could also argue that JP Morgan was the right

person, the right place, at the right time with the right set of skills, and in the right geographic

location. Okay, so moving on, at the beginning of this chapter on Rothschild, which is like 10,

15 pages earlier, within where I am in the book right now, something that was fascinating says

the Rothschilds developed the technique of absolute discretion to perfection. It's like, okay,

what does that mean? Later on, it gets into some of the services that they're offering these great

like royal houses all throughout Europe. And a lot of them, not only did they need financing,

but they also needed the Rothschild to help them hide and then move their wealth around the continent.

And so when you go back and you read books on the Rothschilds, a lot of it was the value of the

network they built, not only the network for business people, but also like the logistical

network. The Rothschild scrambled around using special carriages, horse-drawn carriages,

pre-arranged relays of horses, and hidden compartments. They also had a network of ships

where they could move things over water. Nathan's biggest coup was lending the British government

the money it needed to finance Wellington's campaign against Napoleon. Nathan had just bought

800,000 pounds in gold from the East India Company. Now here's the problem, because they're such a

secretive family, there's more unanswered questions than there are like no knowns about the Rothschild.

So like this one section, when they're talking about this, where they made an unbelievable amount

of money, it starts, there's just a bunch of questions on this page like how, why, where,

and the answer to a lot of these questions are we don't know. It says Nathan made this money

available to the British crown, though we have no record of this operation in the Rothschild archive.

But it is believed that this was the single most lucrative transaction that the Rothschilds ever

made. So Nathan is running his family even though his father is alive. However, when his father dies,

he leaves behind like a list of guiding principles for the family. They adhere to this pretty strictly

for the next, let's say two generations, there's one, one or two deviations. And then eventually,

you know, it changes over time. Obviously, the further away you get from Mayor's death,

he died in 1812. But I want to tell you a little about this. Before he went, he drew up a partnership

agreement and a will that laid out the principles he felt should guide the family enterprise into

the future. These clear rules for order, family behavior, and the succession of power very much

distinguished the Rothschilds from the other banking dynasty. So that's why I wanted to start

with them, because they are the ones that are the exception to the rule, the ones that buck the trend.

He began by distinguishing his direct male descendants from any other Rothschild relations.

There would be no room in the business for son-in-laws. They could work as employees,

but they cannot, they have no ownership and they have no say in the management.

And then very similar to Sam Walton's autobiography that he's writing when he's dying, he says,

you come with any of this foolishness, I will come back and haunt you from the grave. He has

like a line that's very similar to that in his autobiography. We see that Mayor puts this in

his will. I shall never forgive my children if they should, against my parental will,

take it upon themselves to disturb my sons in the peaceful possession of their business.

I do want to get into one way that the Rothschilds try to keep the business in the family, and this

is what I referenced earlier. 16 of the 18 matches made by Mayor's grandchildren were between uncle

and niece or first cousins. So Nathan dies young at the time of his death. He is likely the richest

person in the world. Nathan died in 1836 when he was only 59. He may have been the richest man in

the world, but he had the misfortune to live in an age where that did not know about antisepsis.

He was infected by an abscess on his lower back. And then this line is a great description of what

I was explaining earlier that you shouldn't expect there to be another Nathan, especially in the

own family. The brilliant entrepreneur and innovator was gone and his life would not be found again.

And so what happens next should be expected. Human nature is constant. The family's rigid

adherence to Mayor's rules began to lose force as time marched forward and future generations came

of age. This was inevitable. One cannot become enormously rich, drink and dine with high status

dignitaries and play and flirt without absorbing new values and habits. And so it was with the Rothschilds.

And really what they're about to describe is the difference between a founder and a manager.

The founder wants to innovate, he wants to grow, wants to keep on going. The family's already

rich. They just don't want to lose what they already have. The passage of time changed the family

gradually from an active promoter and investor to a custodian of family fortunes. So then we

have this guy named Frank Harris who talks about this conversation he has with one of the grandchildren

and the grandchildren or adults and running the business at this point in history. And it says,

Harris reports gleefully on the profits made by Berings, which is another family dynasty. They

actually covered it in this book on this transaction they did for the Guinness Brewing Company and

where Berings made over a million dollars. And this would have been in the mid to late 1800s.

And so Harris says, don't you wish that you had done the deal? And the Rothschild

descendant returns a soft answer. We did have it and we turned it down. Harris said,

aren't you sorry now? And the Rothschild grandchild said, when I turn down deals, I go home at night

carefree and easy. When I take on a project, I can't sleep. The tacit rules of the Rothschild

dynasty now were aimed at preserving sleep and peace of mind. And so when I got this page,

I left a note to myself. And I think the reason this happens over and over again

is because if your goal is just accumulation of more money, like that's probably the right move.

You are already one of the richest families in the world, if not the richest family,

and being abundantly cautious is probably the correct move. If the just the continuation of

continual accumulation of money and then pass it down to the next generation is the goal.

And we are living almost 200 years after the events that you and I are discussing this book.

And we can't tell how much money they have, but we know they have a lot. Or I should say it is

likely that they have a lot. The author is then comparing and contrasting Nathan, the power law

person, power law founder, with his descendants. Nathan had given himself heart and soul to making

money. His descendants worked rather to spend it. A theme that we show see repeat itself for many

of the great dynasties. But unlike many of the great dynasties, where the offspring began to stray,

many Rothschilds remain powerful in the business world. It is as if they possessed a secret genetic

gift for making money. And then this summary of the section is exactly why I wanted to talk about

them. First, the Rothschild family is perhaps the most important and tenacious dynasty in modern

business history. Only a few dynasties have shown as much persistence across centuries.

Okay, let's jump right into the Morgans. The great thing about the Morgan chapter is

the author does a lot of the work for UNI, where he is going to constantly reference,

I guess, compare and contrast the Morgans and the Rothschilds. So says the Morgans offered a very

different response to success and growth from that of the Rothschilds. The Rothschilds insisted

that their bank be an exclusively family enterprise. No outside partners. And they have held to that.

The Morgans were not numerous enough to do that. Nor did they see outside partners as intruders. On

the contrary, they needed them. The result was that the family bank moved on to a Morgan less

managerial corporation. So I just want to pause there because they're like, Hey, the Morgans

couldn't do what the Rothschilds did, because there just wasn't enough of them. I can't remember

which other family it's talked about in the book on another another family. I'm not going to profile

where they realized that the essentially if you want to build a family dynasty, they would recommend

that you have a bunch of kids, eight, 10, 15 kids, whatever the case is, you're going to because

the natural distribution of let's say you have 10 kids, a handful of them are not going to be

interested in business. Maybe one or two are going to have the same level of drive and intensity

that maybe the founder or similar drive and intensity that maybe the founder of the family had.

But that was explicitly stated in the book where they're like, Okay, the only way to get around

this if you want to have a family dynasty lasts a long time is you have to have a bunch of kids

and then you have to convince your children to have a bunch of kids. And so I'm pretty sure JP

Morgan's dad, Junius, who I'm going to talk about in a second, I think he only had two sons. And

when they say kids in this time, you know, it's obviously it's going to be the male line of the

family that they're optimizing for. Before I get to Junius, I want to talk about Junius's dad. The

Morgan family dynasty is interesting because the actual Morgan company wasn't even started by a

Morgan, we'll get to there in one second. But there was a lot of wealth transferred down over

multiple generations. So they were successful that like they are a case study and successfully

saying, Hey, we start with Joseph Morgan, he's going to make a bunch of money, he's going to give

some of that money to his son Junius, Junius is going to make a bunch of money, give that money to

his son JP. And so they were successful in taking an inheritance and growing it and passing it on

to the next generation. So JP Morgan, his grandfather was this guy named Joseph Morgan,

he did a bunch of things. But what he is most well known for is that he was, he made a lot

of money in real estate, but he was also one of the founders of the Etna Fire Insurance Company.

So Joseph Morgan is the first person in the Morgan family where he has a knack and a love for business

and then he passes along that love and passion for business to his son. So it says most important,

Joseph put his son Junius Spencer into the trade. So Junius is going to have 10 years of experience

in banking and in commercial trade before his father passes away. Joseph left in a state of

over a million dollars. So that would be about 40 to 50 million dollars when this book was published,

his book was published 20 years ago, so it's even more now. Junius took this money and then went

after bigger game. Now he does something really smart here, he winds up moving from America,

the Morgan's are Americans, he moves to America because this is 1854, where is the center of

commerce in the world at this point in the Western world, clearly London, he moved to London,

and then send his son JP Morgan to school in France and Germany. On the past episodes I've

done on the Morgan family, I told you before that I found Junius to be the most impressive

of all the Morgans. This is an example of that, this untypical breakout from local to regional to

national to international over the course of generations was the building of a global family

fortune. Junius to me seems the most driven, we have evidence of this here, he is, he set out,

he's like I want a dynasty. From the beginning Junius had far-reaching aspirations, he would

build a dynasty, his models were the bearings and the Rothschilds, both European banking family

dynasties both are covered in this book. So it talks about his son JP Morgan, JP's health left

much to be desired throughout his entire life, work had to be compensated by intervals of recovery

and repose. He would engage in fierce spells of activity, followed by long vacations and months

of travel. You can still get, if you're in the right business, you could still get really wealthy

by doing this like sprint, sprint, rest cadence. That's very different from I would say most of

the founders at UNI cover, they're grinders. When I got to this part, all the way back on Episode

124, I did a three-part series on Larry Ellison, there's this fantastic biography of Larry Ellison

called Soft War, an intimate portrait of Larry Ellison in Oracle, and Larry Ellison was like

this too. He states in that book, he's like listen Bill Gates is a grinder, I'm a sprinter,

and so let me just read a quote from the biography of Larry Ellison. He says,

although he always talked about technology in Oracle with passion and intensity, he didn't have

the methodical relentlessness that made Bill Gates so formidable and feared. By his own admission,

Ellison was not an obsessive grinder like Gates. I am a sprinter. I rest, I sprint, I rest, I sprint

again. Ellison had a reputation for being easily bored by the process of running a business and

often took time off leaving the shop to senior colleagues. That is very much in my mind the

model I have of J.P. Morgan. And I think he was bored by the process of running a business.

I think he said he did something like, I can't remember the exact number, like he would do a

year's worth of work in three months or maybe a year's worth of work in nine months, something

like that, but I know he took at least three months off every year. But that comes later in

the Morgan family history. This is what I meant that makes their dynasty so interesting because

the actual, the launching point, not including the money from their grandfather and Junis'

father, Joseph, comes from George Peabody. He's not even a Morgan. Says George Peabody was also

an American living in London. He was a high quality merchant banker of London. Peabody is

going to run across Junis and recruit him to take over. I'm pretty sure Peabody was like this like

miserly figure. I think at one point I'd read about him previously. Let's say he was making like

$300,000 a year. He would live on like $3,000. Like he wouldn't spend any of his money. I think,

you know, let's say he's making $300,000. He would live on like $3,000. Like he would actually

spend like $3,000 a year. So anyways, I'm pretty sure he didn't have any kids. So he recruits Junis,

almost like this adoptive son. And it's from this, this is the like a prehistory of what becomes

now in our modern day and age, JP Morgan Chase. Chase Manhattan obviously buys out JP Morgan,

I think for $30 billion. That's how this chapter ends. This was a great opportunity,

not only because Peabody was the leading house in Anglo-American trade. Peabody himself was also

approaching retirement. He had run into Junius Morgan in various transactions, liked what he saw,

and offered him a partnership in 1854. When Peabody then retired 10 years later, the firm became

J.S. Morgan & Company. J.S. Morgan & Company. When Junius retires, it's taken over by JP,

that becomes JP Morgan & Company. That is the company that Chase Manhattan buys many, many

years later. I love what the author points out because this is exactly how I felt when I was

reading the history of the Morgans a few years ago. The history of the House of Morgan tends to

glide too quickly over the career of Junius. And yet it was he who won the family place and fame in

international banking. And their first big break comes from, again, we talked about this earlier.

Your competitor is always going to leave gaps in the market. He is very much Junius, is very much

pattering his family off the Rothschilds, the bearings that even came before the Rothschilds.

They're all operating in Britain at the time. This is the center of the financial universe.

And there is this war between Prussia and France that France loses and needs a bunch of money for

restoration. This is in 1870. But the leading British bankers, including the bearings and the

Rothschilds, had little faith in this opportunistic French political creation. So they're like,

now we're going to pass on this. Junius is like, oh, I'll take this up. I'll take you up on this.

It was at this point that J.S. Morgan & Company stepped forward and agreed to underwrite the

loan. And so there's a bunch more detail about what happens. I'm just going to get to the punchline.

Junius made a fortune from this unanticipated windfall. It estimated he made about $450 million

in today's money from this one single transaction. Like the Rothschilds, after the Napoleonic wars,

he now felt himself a legitimately important player in international finance. And like the Rothschilds,

then he found the old-timers beginning now with the Rothschilds unwilling to concede status to

this brash newcomer, just like in the story of Nathan Rothschild, the people that were in power,

the powerful families, powerful business owners at the time in England did not want to see their

position to this young upstart. Now, I think a generation, two generations later, we have Junius

playing the role of Nathan Rothschild. Junius sends his son, JP, to America. Junius is going to stay

in London. So they're going to have like basically the Bank of Morgan and the House of Morgan becomes

like this two-headed monster. And this was perfect timing again. And this is probably why JP Morgan is

so much well-known throughout history than his dad was, even though his dad might have even been a

more impressive person. It's because he's at the right place where you're going to have this gigantic

explosion in the American economy. And that is where his son is. Junius, Morgan continue to thrive

by doing business with American exporters and importers. Much of this rise was the work of his

son, JP. And so for the next 30 years, and this is terrible that this happened, JP winds up burning

all these letters. But for the next 30 years, we just have Junius, you have 30 years of history of

Junius and JP writing letters back to each other. And Junius is really trying to shape and get his

son ready to take over the family dynasty. A little bit of detail about that here. Junius did his best

to provide his enterprising son with experience, guidance, and working connections. Junius was a

tough act to follow. The father was determined to shape the son to the highest standards. His

technique was to scold and chastise and give no praise. And this is something he also had in common

with how Nathan Rushschild, that he did the same thing that Junius did. JP exerted himself to meet

these boundless demands, driving himself to fatigue, depression, and even physical illness. But not

even his father could keep JP in line. JP would not haggle and he dealt with others on a take it

or leave it basis. Biographer Ron Trinnell describes JP as a young, moralist turned despot. JP found

it hard to find collaborators. He thought no one was good enough. When he did find a man

that he wanted as a partner and he offered him a job, he would not take no for an answer.

Hours at Morgan's Bank in America exceeded normal endurance. The house was known as a partner killer.

And so now we got to the point where I mentioned earlier that JP is at the perfect time in history.

The Rushschilds had missed the American boat. Junius Morgan with his son's firm in New York

had not. This frontier nation was a different world, different world in Europe. It was large-scale,

full of business syndicates and monopolistic. And JP was the man to find the funds and take

these things in hand. There's also a bunch of quotes in this book that give you an idea of

who JP Morgan was as a person. I think this isn't a good example of that. JP once said,

a man always has two reasons for the things he does. A good one and the real one. And so even

though JP Morgan was not the richest of the robber barons, he was like involved in all the

different important industries at this time. So that's why he's so well known. The American

economy took off after the Civil War at the heart of its growth were the railroads. So he was

involved in railroads. He also was involved in oceanic transportation. And then he winds up

getting involved in steel and iron. So it says linked to both the transport industries was iron and

steel. And it was Morgan that in 1901 put together US Steel. This is the world's first billion-dollar

corporation. Part of that was buying, he bought a bunch of businesses, but he winds up, the main

thing was buying Carnegie Steel, Andrew Carnegie's company. And the reason Morgan bought him out is

because Morgan wanted to compete in steel and Carnegie had built by far, by far the best steel

company. Morgan did this, meaning bought out Carnegie, because Carnegie was responding to moves

by other steelworks by integrating backward and forward. And Carnegie could undersell those other

mills. Morgan wanted to allay this potential competition. And it just so happened that Carnegie

was in the mood to listen. So he winds up buying out Carnegie for like 400 something million dollars.

I think out of that, Carnegie said, I think Carnegie's end after paying out his partners

was something like 250 million. What I've read in the past is that at that point,

at that point, he took it in cash. He did not want stock in US Steel. At that point,

it was highly likely that Andrew Carnegie had the world's largest liquid fortune.

When he saw the growth of US Steel, it was like, oh, I sold out too cheaply. Carnegie came to feel

that he sold too cheaply. Carnegie told Morgan that he should have asked for 100 million more.

There's a great book on this. I covered it all the way back in episode 142. It's excellent. I

highly recommend if you're looking for something to read right now to buy the book. It's called The

Hour of Fate, Theodore Roosevelt, JP Morgan, and The Battle to Transform American Capitalism.

And I think the description in that book is even better. It says, Andrew Carnegie celebrated too

quickly. He later admitted to Morgan that he had sold out too cheap by at least 100 million dollars.

And Morgan replied, very likely Andrew. And so if you look at all the deals that JP did,

I do think this author really hit the nail on the head here with this. He said, JP had one great

strength. He had a feel for new technologies and the business opportunities they created.

It was not an accident that he had formed the General Electric Company. And I'm going to interrupt

this paragraph because this is another demonstration. You want to know these people exist. You may

not want to be friends. You probably don't want to be friends with them. And you definitely don't

want to work with them because they are ruthless. Henry Villard, president of Edison Electric,

had come to Morgan for help in taking over Edison's company. This was a mistake. Morgan

was not by nature a helper. He was a driver. He arranged a counter coup.

And so then you can argue with JP's death, which is about to happen here, that this was actually

the end of the Morgan dynasty. JP felt burned out and prepared to take one of his European yacht

trips that had always done so much to revive him. In a conversation with George Baker before

leaving, he asked his old friend to assume his role in the event that he, JP, did not return.

He was not feeling well and indeed his premonitions were justified. He suffered an acute breakdown,

was very tired mentally and physically, kept going downhill, and he stopped eating. On March 31,

1913, he died in his sleep. And this is when the Morgans permanently deviate from the Rothschilds.

After JP's death in 1913, the firm needed outside talent more than ever. 10 years later,

they had 13 managing, outside managing partners. This dependence on partners and managers was so

different from the Rothschilds. And it was reinforced by genealogical decline. And what they

mean there is one, they didn't have enough male heirs, and the ones they did were just not the

same quality of JP or Junius. JP had matched or even surpassed his father, Junius. John Junior was

not in the same class as his father, and his sons were simply not cut out for business.

Okay, so now I want to move on to a family dynasty. I am ashamed to say I have never done a Founders

episode on, and I'm going to rectify this as soon as I can. If you have any great biographies or books

on the Toyota family, please send them my way. This was one of the shortest chapters in this book,

and it was, it might be my favorite chapter. Okay, so, and these names are Japanese, there's no way.

You know, by now, I don't think you expect me to pronounce anything correctly, but there's no way

I'm going to pronounce these correctly. I'm just going to try to pronounce them phonetically.

The founding father of Toyota was Sakichi Toyoda. The patriarch of Toyota got his start in the

textile industry. He was born in 1867, the son of a carpenter in a remote country village.

So in the area he's growing up, the men are working in agriculture, the women are expected to

earn additional income for the family by weaving cotton cloth. So most homes where he was born in

the area he lived had a hand loom. That's really important because he's going to build his, the

seed money for Toyota motors comes from the patriarch of the Toyota dynasty selling his

technology on a more efficient and they call it like a power loom, which I'll get to in one second.

From a young age, Sakichi was fascinated with the challenges presented by these looms. He set

himself to making improvements, much to the spare of his father who felt his son should stick to

carpentry. Sakichi had his own ideas. He traveled to Tokyo to visit an industrial exposition that

showed him modern mechanical marvels that he had not imagined. A year later, he patented a new wooden

hand loom that increased productivity by 40 to 50 percent. So when I read that paragraph, the first

thing I wrote down is one of my favorite quotes from the book Zero to One by Peter Thiel, which I

covered on episode 278 for the second time. Properly understood, any new and better way of doing things

is technology. The patriarch of what is soon to be the Toyota family dynasty is creating his initial

wealth by creating new technology. He then moves to Tokyo where he shifted his focus to a power loom

which would truly alter the dominant mode of production in textiles. His first marriage failed,

he had to move back to his home village, he then divorced and remarried. He left behind his first

wife, but then he brings his kids and this is important because his son, Kichiero, who as we

shall see becomes a world-class entrepreneur as an adult. And on the very next page is a bunch

of fascinating ideas on how to build your business. From the patriarch of the Toyota dynasty, here's

some notes I left myself, do it yourself, insist on quality, make something that will benefit society

and pick a mission that is bigger than yourself. In Japan, the sons and laws are often brought

into the family with all the rights of a child by birth. This contrasts with that of the Rothschilds.

So it is through marriage, the marriage of one of his daughters, that Sakichi gets a new son. It's

this guy named Risa Burrow, who was 10 years older than his biological son, which is Kichiero.

So it says Risa Burrow took the Toyota name as his last name and became in effect Sakichi's eldest

son and the first heir to his fortune. Okay, so that's very, very different from the European

and American dynasties that you and I have been studying. Sakichi's looms tested better than his

German and French competitors, but never quite so well to beat the British, which had the highest

quality looms. This is fascinating because his response was fantastic. This only stimulated him

to work harder. It is impossible to create an innovative product, he wrote, unless you do it

yourself. Pay attention to every detail and then to test it exhaustively. This sounds like James

Dyson. Never entrust your creation of a product to others. That also sounds like James Dyson.

For that will inevitably lead to failure and cause you deep regret. That whole sentence,

those multiple sentences could have come out of James Dyson's

mouth. Episode 300, if you have not listened to it, I've got a ton of messages in the last few

weeks about that episode. People seem to really love it. These new looms found a ready market abroad,

so that was important. Let me pause there. He's like, I'm beating the Germans, I'm beating the

French, can't beat the British, I'll just have to work harder. He winds up improving it. That

wind up being really important because that leads to a sale, that sale then leads to the seed money

that's going to give birth to the Toyota automobile fortune. These new looms found a ready market

abroad, but instead of continuing to expand the company's cloth and loom business,

Sakichi made a radical choice. In 1929, he sold his patents. That sale bought in the seed money

for the Toyota Motor Company. Sakichi also does something very smart, realizes, hey, I built my

business and my fortune in one industry. The world has changed in a generation, just like it always

does. My son, you have to figure out what your path forward is, and he gives them ideas like,

well, I was just in America. These cars seem to be, this automobile industry seems to be exploding,

maybe we should get into that. Sakichi himself was too old to undertake auto manufacturing,

but a visit to the United States convinced him that cars had a mighty future. He saw this as a

suitable task for his son, Kichiero. This is the biological son, whom he admonished. I devoted most

of my life to inventing new kinds of looms. Now it is your turn. You should make an effort to make

something that will benefit society. That is the most important sentence in this entire chapter.

I will read it again. You should make an effort to make something that will benefit society.

He challenged Kichiero to build a Japanese car with Japanese hands. So Kichiero goes to America,

and he does what Sam Walton did. He visited his soon to be competitors, more than anybody else.

He visited automobile plants and took copious notes on what he saw and heard, just like Sam

Walton did. I don't remember if I mentioned on this recent SoulPrice episode, I did a few episodes

ago, but they caught Sam Walton walking through like a price club I think at the time, and I think

SoulPrice's son was the one running the business at this point, and he had been walking around,

not just taking notes, but he had like a recorder, a tape recorder. He's walking around like a

microphone, and he's just notes to self, do this, do that, do that, minds are getting caught.

They confiscate his tape recorder and the tape. Sam Walton writes a letter to Robert Price, which

is the son of SoulPrice. He's like, Hey, I understand if you don't want to give me my tape back, but

can I at least have my tape recorder back? And Robert's like, you know, I'm not going to like,

we're not going to destroy your tape. We're going to send him back, you know, all the notes,

didn't delete anything. And just like, here, Sam, take it. Okay, so let's go back into the early

development Toyota. Remember, keep this in mind, 1929 is when they have the idea.

1929 is when they have this idea that we should do cars. Okay, this is going to be

the success is multiple decades in the making. At this point in history, Japan had no true

automobile industry, even 30 years after major companies have been established, automobile

companies have been established in Europe and America. Japan's like, Oh, we need to fix this,

the state appointed a committee to look into developing a national automobile industry and

urge a trio of producers. Check out the names. I think all these names are still around, maybe

not Azuzu. They asked Nissan Azuzu and Toyota design a standard chassis. For all of them,

this was the easy part. The big problem was the engine. They did not know how to make an engine,

like the Americans and Europeans did at this point. Now, his starting point is fascinating,

right? He's like, anybody can build a chassis, we need to figure out how to make an engine. He's

going to wind up copying an engine. And I'll tell you why I think that's smart. But from the very

beginning, he realizes like, listen, we're not just making a car, we're making a system of production.

He understood that he was creating not only products, but an industry and a new system of

production. This understanding of the importance of developing successful processes lay and still

lies at the center of Toyota success. So when you look at books on Toyota, a lot of them goes into

the Toyota production system, which then spread to many industries outside of the automobile

industry. What I found interesting is Keicho decided like, okay, we've never manufactured an

engine before. And essentially, he reversed engineers and he copied the Chevy engine.

And so I'm going to read this one sentence. I'm going to read the note that came to mind

after this. It says, the result was an engine so exact that it could accept Chevy replacement parts.

A major advantage when the inevitable breakdown occurred so a Toyota engine could break down.

Toyota does not have an abundance of natural resources. They don't have a lot of money. But

what they could do and they don't have a bunch of excess inventory waiting, just sitting there

waiting around. And so it's like, oh, wait, my Toyota engine breaks down, we can just order

parts from Chevy and then we could fix our car. This is a smart move with a country with limited

natural resources for this actual industry that they're in. Now later on, obviously, you want to

control as much as possible. But at this point, he's like, okay, we just want to make sure one,

that we can build a car that's reliable and two, that we can sell them. There's a weird parallel

that just came to mind. My friend Andrew Wilkinson started this company. He's the co-founder of

Tiny. He owns a bunch of companies, like 30 something companies. But he started an email

management company called Mailman. And so he had mentioned it. And so I went to the Mailman site,

it's mailmanhq.com. And I was like, oh, this is really smart. Mailman starts as a Gmail plugin.

And what it does, it just gives you more control over like when and what email lands in your inbox,

right? But I think there's actually an interesting parallel to where we are in the story of Toyota.

Now, making a Gmail plugin where you have, you know, 2 billion Gmail users out there

is a great way to test if there's a market for the product. And if in that market, people are

willing to pay out their hard earned money, I highly suspect that this is true. And then from

there, it's like, okay, we can expand this, we can stay with the plugin, maybe it's a wonderful

business, or we can create our entire own email, vertically integrated email service.

But this idea of starting out with something smaller to prove what you're doing to see if

there's a business there. And then if there is a business and a demand for there, going and building

out and controlling more aspects of the customer experience is exactly what I think Mailman could

do and is exactly what Toyota is doing at this point in the story in the book. I think that

is a recurring theme in the history of entrepreneurship that the greatest entrepreneurs

are usually start out resource constrained. It forces you to be more creative, to be more

resourceful and to actually test to see if there's actually enough demand to build a valuable

business for the product that you think that you're trying to put out into the world. And so this

idea of lean production is a major theme in the Toyota family dynasty. Kichiro also began

to experiment with new systems of supplying materials. He cut back on traditional cash

outlays because he didn't have it by deliberately decreasing warehouse capacity. The goal was to

produce vehicles on order and to use the proceeds to pay for materials and parts as needed.

Kichiro's idea came to be known as lean production. And so remember earlier, I said remember 1929,

this is successful many decades in the making the note I have on the next page. How many other

car companies had to pivot to making food so they didn't starve to death? This is in the middle

of this Japanese imperial expansion. They're always at war. They're eventually going to go

into war with America, which obviously is a bad move on their part. Toyota workers who unbeknownst

to them had barely escaped a murderous bombing scheduled by the American command for the next

week wept at their machines. So they're closing down the Toyota factory, right? This is after

they lost the war, World War II to America. And now they have to pivot. They're like,

we cannot make cars. There's no demand. We have to make food. The outlook for Toyota was grim.

They transferred their manufacturing efforts to focus on subsidence. Employees were set to

planting vegetables and the company built a flour mill, a bakery, and a charcoal plant to

take care of food and cooking. The family put other Toyota units set to making pots and pans.

This was a family that did not know the meaning of quit and tirelessly continued seeking income

in those activities that were linked to survival and everyday living. That is crazy. How many other

car companies had to pivot to making food so they didn't serve to death? Very few. Now the weird thing

is this liability winds up flipping into an asset because post World War II, Japan is occupied

by the American army and they need transportation. So they look around like, who can build us a

bunch of trucks? Turns out Toyota has the capability of doing that. The Americans needed

transportation. They asked Toyota to start making trucks again. That is in the mid to late 1940s

and 1950s. Toyota has a huge influx in money from America again because of the Korean War.

And then in 1950s, the company was momentarily rescued by the Korean War. America needed friendly

manufacturing in Asia and Japan was in the perfect position to supply the U.S. Department of Defense.

Between 1950 and 1954, nearly $3 billion in industrial contracts flowed into Japan

and Toyota took its share. Here's another smart thing that Kichiro did. He's getting towards

the end. He's about to retire. This has been going on for multiple decades. He's like, listen,

we've been making money, but we've been making money. We've been saved by this artificial market

from the U.S. government. We need to have the skills to survive in a free market.

Towards the end of his presidency in a memo that became something of a moral call to arms,

he said, the Japanese auto industry has been fostered and protected in a controlled economy

and has never braved the rough ways of a free market system. It is like a hot house plant.

Moreover, viewed impartially from a global standpoint,

Toyota is far from being a first class company. Because of Japan's defeat in the war, we see

ourselves as something like a third class auto company. So he's like, all right, we need to fix

this. Kichiro retires and he leaves in charge his cousin Ejai. And Ejai does something smart. He

goes to the United States. Who could dream that a Japanese car maker at this point in history

would ever be able to compete with an American giant? At the time, Toyota was making 40 cars a

day. Ford was making 20,000. Ejai learned much of value on his trip to the United States. Most

important, he returned with the sense that nothing he'd see and he saw in America was beyond Toyota's

ability. They just have to find a way to do it with their limited natural resources. Ejai is

still really young. So the actual real power in the Toyota company at this time was with this guy

named Ono, that's his last name, Ono, who was a professional manager and a mechanical engineer.

Ono had vision. It was he who developed and implemented Kichiro's idea of lean production

into a system that became known as TPS or the Toyota production system, which could be used in

making not only automobiles, but all manner of complex industrial products. TPS was perhaps the

most important technical innovation since Ford's successful implementation of the moving assembly

line. And the Toyota production system has transformed manufacturing throughout the world.

The aim was to waste neither time nor space, which they did not have an abundance of.

They were lean and mean. Workers didn't need to move about and materials were delivered to them.

Materials arrived only when needed are quote unquote just in time, which cut down considerably on

waste. Much of what Ono wanted ran against deep-rooted Japanese habits of hoarding against

feared shortages. His lean manufacturing process took several decades to develop and perfect,

so the great benefits were not clearly visible at first. And so in 1967, the family finally

thought that Eji Toyota was ready to take back the reins. He finally got his chance and he took

over as president, the first family member by bloodline to hold the position since Kichiro.

Growth continued at a rapid pace. In 1972, the company's annual production hit 2 million cars.

In 1980, it was 3 million. By the early 1990s, Toyota could compete with anyone on equal terms.

The seed of this success in 1990 was planted in 1929 by Sakichi Toyota 60 years earlier.

To this day, Toyota is still a family enterprise.

Okay, so then let's end the episode on dynasties talking about a family that's not an actual

dynasty. The Rockefellers are an interesting case study and any examination of dynasties.

Everyone thinks of the Rockefellers as a dynasty. Everyone knows the Rockefeller name and is aware

that the Rockefellers remain active in powerful business, politics, and philanthropy. When it

comes down to it though, the Rockefeller story is really that of the mediocre eyes of one person,

the patriarch, John D Rockefeller. Rockefeller was a brilliant but difficult man and perhaps it

ought not to be surprising that a person of his drive and ruthlessness did not inspire a passion

in his descendants to take command of the family enterprise as he had. And so Rockefeller is another

example of right person, right place, right time, right set of skills. Rockefeller's luck

came from time and place. The Cleveland of his early years was a small boom town, a place that

favored energy and ambition, and John had plenty of both along with cleverness and cunning.

Part of this was due to his upbringing. I cheat my boys every chance I get, his father bragged.

I want to make him sharp. I trade with my boys and I skin him, and I just beat him every time that

I can. As a Rockefeller did the same to the rest of his competition in the oil industry,

his father's lessons paid off. John went to work as an office boy and a bookkeeper and caught the

eye of his employers as an intelligent and zealous young man. Feeling underpaid, he left it to begin

his own mercantile partnership. For this he needed a thousand dollars, which his father was ready to

lend him at 10 percent above the then prevailing interest rate. But John was happy to take it.

At 19 he was his own boss. He went down on his knees and begged the Lord to bless his new enterprise.

Rockefeller met with immediate success because he was patient and methodical.

His life aim was to get money and then use it as wisely as possible. This pursuit of wealth

was a sacred calling. I've done multiple episodes on Rockefeller. I will continue to do

multiple episodes on Rockefeller in the future because he may be arguably the most important

entrepreneur in history. This is so important to understand Rockefeller. Me and you may look at

this as like this is obviously not true. He believed that he was put on the earth by God

to make as much money as possible and then therefore he could give it away for the betterment of

humanity. From the outside there's this huge disconnect between his methods and his accumulation

of monopolistic power and his divine belief in his mission. But just as you and I believe that

the sky is blue, Rockefeller believed this. The pursuit of wealth was a sacred calling.

Wealth was a sign of God's grace and poverty then the sign of heavenly disapproval. Rockefeller

believed that he would be rich and he believed that this was because God wanted him to be.

So he has this fundamental religious belief but he's also one of the most talented entrepreneurs

that's ever walked the face of the planet. Rational, thoughtful, systematic, committed,

and diligent. He also cultivated an intense curiosity, a spirit of calculation, and an

attention to opportunity. His competitors and associates were amateurs by comparison

and he saw them for what they were. More on the right place, right time, right set of skills.

John D. did not look for oil. Oil came to him. He was partners with this guy named Maurice Clark,

a boyhood friend of Maurice Clark is going to make Rockefeller aware of the opportunity

in oil. I'll get there in one second. People had long known that oil was abundant in western

Pennsylvania but looked on it as a nuisance. It stained the water and spoiled the ground for

cultivation. This guy named George Bissell changes all that. He came to the idea that rock oil might

outdo coal oil as illuminant and so he sent a sample to a professor at Yale and asked him to

analyze it. The answer came back positive. Not only could the kerosene and rock oil provide light,

but the oil would yield a number of other useful components. This was all took and the oil rush

was on. Sam Andrews was an industrial chemist who knew how to cleanse the oil and just happened to

come from the same hometown as Maurice Clark. Andrew would visit Clark and Rockefeller and talk

up the possibilities of them investing in industrial refining. The result was a major shift

in the content and direction of the partnership. The story of oil was in large part a story of

transportation. So the question became how are you going to move this stuff? And so they realized

well the best choice at this point, this is before they mentioned the pipelines by the way,

the best choice is railways. And so it says anyone who looked at the situation at that point would

have declared that railways are going to be the inevitable winner. They could squeeze producers

and refiners within an inch of their survival yet that is not what happened. And so this is the idea

that John D. Rockefeller and his partner Henry Flagler come up with that gives them a major edge

over every single one of their competitors. The idea was to elicit discounts and rebates,

not only on one's own shipments by rail, but on those of the competitors. And what could be better

than to have your competitors working for you, especially when the railways raised rates to

cover the cost of rebates to Rockefeller and company. Rockefeller won on every count. Published

railway tariffs, meaning what they're putting out publicly as this is what it costs to move your

goods on my railroad. It's fake. Published railway tariffs were for the small man. They were not for

major shippers who could pay, who could play one railroad against another while promising steady

cargo. This is why this is the most important fact that this all hinges on. Rockefeller was

such a large producer that he could promise the railways steady amount. As you probably know,

there's a history of booms and busts with railway traffic just like in many other industries,

just like in the oil industry. And Rockefeller was like, I'll smooth that out for you, but I want

the best prices available. Another important part. This was secret. When it was found out,

it was made illegal. These were not seen as ethical so that in the long run, federal legislation made

preferential rates illegal. By then the game had long been played out. Rockefeller succeeded in

persuading just about every refiner of importance to join his cartel. That was the only way that

they could obtain good rail rates. The stubborn holdouts, meaning the other oilmen, the stubborn

holdouts went under and died hating him. The wise ones sold. Most of them took cash. The smart ones

took stock and became rich. John D told them to do that. Good advice. Even so, they hated him.

And this goes back to that predilection for long term thinking when most other humans can only see

what's right in front of their face. John D deserves credit for vision. The vision of what could be

if only the industry could have been gotten under control. Where others could think only of quick

profits and fast living, he thought of restraint, organization, rationality, and frugality.

He also knew he was best in class in a brand new industry. His business was by far better. It was

run more economically. In fact, that advantage fed kept like kept compounding. This is one of my

favorite all time Rockefeller stories is he'd go, he's approaching all these different oil companies.

He's going to, you know, build, he's going to monopolize this entire industry. And he's like,

listen, just, just you can't compete against me. Better. Let me buy you out. I'll give you cash

if you want, but you can get stock in the best oil company that the world has ever seen. And one of

his closers was that he would actually give the people he's trying to overtake. Look at our books.

Look at, how can you think that you're going to compete with me? His clincher was to offer the

victim a look at the books of standard. A potential seller was dumbfounded to learn that

standard was able to sell at less than his own cost of production. They could kill him whenever they

pleased. Another smart move that John D Rockefeller did, and I've told you about in the past, he's

bought, you wouldn't even know if he bought up other companies. He would say, Hey, listen,

it is very important to keep these contracts confidential, keep the deal secret, even from

your wife. And this is also another advantage to compound. So let's say there's oil company A

oil company B, right? Rockefeller wants to buy A and B approaches them both B says, hell no,

I'm not going to sell to you. I know what you're doing. Company A sells to him. Rockefeller now

secretly owns and controls company A. And then he has people from company A go, Hey, let's go to

company B and we can stand up and fight against Rockefeller. You just got to sell to me and B

is like, Okay, to get back at Rockefeller, I'm the owner of company B, I'm going to sell to you,

not realizing that company B had secretly sold to Rockefeller thinking that he was just selling

to company A. That is another reoccurring theme in the history of entrepreneurship, bad boys move

in silence. And so the reason the author says that Rockefeller dynasty properly understood is

actually not a dynasty at all, is because Rockefeller never tried to have the continuation of the

business run by his family. He had partners with Standard Oil, says well into their lives,

the Rockefeller children were kept in ignorance of the family fortune. And when Rockefeller retired,

and I say retired and like quotation marks, because he's still running the show, he's just

not showing up at the office anymore, what's fascinating is that he actually retires before

the mass production of cars. And so all the demand that the automobile industry will bring for oil.

So he actually gets much richer in retirement, technically retirement than he did when he was

actually working at the office today. But when he chooses to retire, he actually picks his

hand appointed successor who still reports directly to him. And you need to pick a son,

he put this guy named John Archbold. And so the strange decision that Rockefeller does here is

he gives a ton of money to his son, but actually doesn't try to teach him the business. Between

1917 and 1922, John D gave almost half a billion dollars to his children. Almost all of it went

to junior. I think he had one son and maybe three daughters from her correctly or maybe two.

Junior did not have the same taste for business that his father did. And by age 36, he stepped

aside from many of his duties at Standard Oil to focus on the family's philanthropic work.

The old patriarch wasn't doing anything to familiarize the next generation with the oil

business. The founder who built the dynasty failed to influence his descendants in any way other

than by encouraging a commitment to thrift and philanthropy. That urgent money making impulse

was lost, as was the sense of the family business, which was transformed to merely the family fortune.

And that is where I'll leave it for the full story. I recommend getting the book. The great

thing about the book is each chapter, each family is covered in about 30 to 40 pages,

and you don't have to read in chronological order. So if you like a family that's profiled,

you can go look for a more in-depth and longer biography to go a little deeper.

I will leave a link down below. If you buy the book using that link, you'll be supporting the

podcast at the same time. Another great way to support the podcast is to sign up for Founder's

Premium. I've been doing a bunch of these AMA episodes. You can listen to the AMA episodes and

ask me questions directly. That link is down below if that sounds interesting to you. And finally,

if you haven't yet joined my email newsletter, for every book I read, I usually take somewhere

between like 50 to 100 different highlights. I go over all my highlights after I'm done

recording, try to distill that down to my top 10 highlights from every book, and then I email you

those top 10 highlights. That link is also down below and available at FoundersPodcast.com.

That is 307 books down, 1000 to go, and I'll talk to you again soon.

Machine-generated transcript that may contain inaccuracies.