Posts Tagged With: Edison

How Nikola Tesla Threw Away A Billion Dollar Fortune Then Died Penniless…..

In 1884, a 28 year old Serbian-born inventor named Nikola Tesla immigrated to America from Paris. As he passed through Ellis Island, Tesla’s entire worldly possessions consisted of a book of poetry, a letter of recommendation and exactly four cents in American currency. That letter of recommendation was addressed to one of the most famous businessmen in America at the time, Thomas Edison. Edison and Tesla collaborated for a short time, but their partnership eventually soured. Over the next decade, their heated rivalry set off an electrical revolution that drastically changed the lives of every human being on earth. Tesla’s electrical innovations blew Edison out of the water and are still the standard today, more than 100 years later. Tesla’s 300 different patents brought him fame and incredible fortune in his lifetime. At one point, the royalty payments on his Alternating Current patent were worth the inflation adjusted equivalent to hundreds of millions dollars. By most estimates, Tesla’s royalties were so valuable that he easily should have become the world’s first billionaire and the richest person on the planet, by a long shot. But none of that happened. Unfortunately, not only did Tesla burn through his entire personal fortune on failed projects, he also threw away away his most lucrative patent and subsequently his chance to become a billionaire. When Tesla died in 1943, he was bankrupt, alone and teetering on the verge of insanity. How on earth did that happen?

Nikola Tesla

Nikola Tesla – Billion Dollar Fortune

When Tesla came to America, he immediately landed a job at Edison General Electric. The job came with a weekly salary of $18 which is equal to $440 in 2013 dollars. Edison also offered a $50,000 bonus ($1 million in modern dollars) if he could redesign and significantly improve the current Direct Current electrical motor system. Tesla triumphantly accomplished that feat within just two months but Edison refused to pay him the $50,000, claiming the bonus was just a joke. Edison explained “Tesla, you don’t understand our American humor” and instead offered him a $10 a week raise. Tesla refused the raise and quit that very same day. Tesla’s next endeavor was the Tesla Electric Light & Manufacturing company, but that soon failed and he found himself forced to dig ditches in the street to earn money.

Thomas Edison

Thomas Edison – Direct Current

Alternating vs. Direct Current

Prior to 1880, no home on earth had electricity. In 1879, Thomas Edison first demonstrated his incandescent light in Menlo Park, New Jersey, and soon after founded his company Edison General Electric. Edison was a pioneer of Direct Current (DC) electricity. Direct Current is a simple system but also comes with some extreme limitations. Since nothing else existed at the time, DC became the standard system around the world. In the United States, Edison Electric made a fortune building hundreds of DC power sources all over the country. As the country became addicted to electricity, Edison personally earned a fortune off his Direct Current patent royalties.

In April 1887, the Tesla Electric Company was founded. Within a few months, Tesla built and patented what would become his most significant invention of all, the Brushless Alternating Current Motor. This newAlternating Current (AC) motor quickly proved to be vastly superior to the standard DC system. The three phase AC induction motor was by far the most efficient way to convert electricity to mechanical power. Not only could AC produce significantly higher voltages, it could transmit that electrical power exponentially longer distances, at a cost that was 1000 times cheaper than DC. To illustrate this point, we can use a simple modern example: Today every single household in America is wired with AC outlets but DC power is still used for things like batteries. Imagine how many batteries you would need to power a refrigerator and how quickly those batteries would run out of juice. Not only are batteries expensive, it would be a huge pain to constantly replace them to keep your refrigerator running. Alternatively, when you plug a refrigerator into your standard AC wall outlet, it will be powered continuously for relatively small amount money and zero hassle.

Another major drawback was that each DC power source could only provide electricity for 10-15 homes at any given time, and each home needed to be within 2 miles of the power source. On the other hand, a single Tesla AC power source could transport electricity hundreds of miles and provide electricity to tens of thousands of homes simultaneously.


AC vs DC

Tesla Cashes In

After word spread of AC’s superior capabilities, Tesla was approached by the Westinghouse Electric & Manufacturing Company and offered a generous deal to license his technology. In 1888 Tesla met with company founder/president George Westinghouse and agreed to license his patents for the sum of $60,000, plus 150 shares of stock and a $2.50 royalty per horsepower generated by his AC motor. Tesla was also given a $2000 a month salary to work for Westinghouse, the equivalent of $48,000 per month today. Furthermore, the $60,000 lump sum was worth roughly $1.4 million in today’s dollars. But Tesla’s real windfall didn’t come from stock, salary or bonuses, it came from those royalties. As AC power slowly became more widely adopted across the country, Westinghouse happily paid Tesla hundreds of thousands of dollars in royalties each year. By 1890, just one year before his 35th birthday, Tesla had become a full fledged millionaire. To give some perspective, $1 million in 1890 would be worth a little more than $25 million today.

War of Currents

Not surprisingly, Edison was not happy to see his Direct Current cash cow patent threatened into obscurity. He did not go down without a fight. Edison and his company quickly launched a PR campaign that spread lies about the lethal dangers of AC power. Their smear campaign often involved Edison conducting public electrocutions of stray cats and dogs in order to convince the American people that AC power was totally unsafe. He even publicly electrocuted an elephant in front of a large crowd on New York’s Coney Island. Ironically, these morbid public displays actually led Edison to invent and patent the Electric Chair. Edison’s electric chair was christened in 1890 on a condemned man named William Kemmler at Auburn Prison in Auburn, NY. In response to these false accusations and lies, Tesla went on a PR tour of his own where he would amaze crowds by passing one million volts of AC electricity through his body to prove that the only true downside of Alternating Current was a bad hair day.

Unfortunately, the War of Currents took a big financial toll on Westinghouse. Edison could weather the storm because he was backed by the millionaire financier J.P. Morgan. By 1907, after nearly 20 years of fighting with Edison, Westinghouse was more than $10 million in debt and teetering on the verge of bankruptcy. Out of desperation, George Westinghouse approached Tesla with a proposition. Westinghouse begged Tesla to lower or temporarily rescind his royalty in order to allow the company to survive. Westinghouse further explained that if the company went bankrupt, Tesla would be faced with the nearly impossible task of retrieving his royalties from a stingy bank creditor. To Westinghouse’s amazement, Tesla tore up the original contract on the spot. Tesla was grateful to Westinghouse for believing in him when no one else would. By tearing up the contract and relinquishing his royalties, Tesla single-handedly saved the Westinghouse Electric company. In return, Westinghouse paid Tesla a $216,000 lump sum for the right to use his AC patents in perpetuity (that’s worth roughly $5.4 million today).

Throwing Away A Billion Dollar Fortune

In retrospect, Tesla may have been a brilliant inventor but he was a terrible capitalist. In 1907, when he tore up the contract, bankers estimated the value of his patents to be $12 million. Shockingly, $12 million in 1907 is equal to more than $300 million in today’s inflation adjusted dollars.

Obviously, the smarter move would have been for Tesla to offer a five year reprieve from the royalty payment to allow Westinghouse to get back on its feet and destroy Edison. Over the next decade, Alternating Current wiped out Direct Current and became the standard electrical system across the world. Had Tesla held onto his royalty over this time, he easily would have become one of the wealthiest people on the planet. Even by conservative estimates, he should have become the richest person on the planet and the first person with a $1 billion net worth. Had he not ripped up that contract, today those same AC motor royalties would generate billions of dollars every year for Tesla’s relatives.

Tesla Reading

Unfortunately, Tesla’s luck and sanity deteriorated over the next 30 years. He was involved in a handful of very expensive and very public failed electrical projects between 1920 and 1935. When Tesla died in 1943 at the age of 87, he was bankrupt and living alone in a New York hotel surrounded by pigeons. His hotel room and meals were paid for by George Westinghouse, who remained one of Tesla’s loyal friends to the end.

In recent years Tesla’s legacy lives on through some of today’s brightest most famous innovators. Google founders Larry Page and Sergey Brin are said to be huge admirers of Tesla and his achievements. Page was inspired to become an engineer after reading a Tesla biography at the age of 12. When paypal billionaire Elon Musk founded his new electric car company, he chose the name “Tesla Motors”. The Serbian city of Belgrade is home to the Nikola Tesla Airport. Tesla also appears on the Serbian dollar bill.

Karma would eventually bite back at Thomas Edison. His company Edison General Electric wracked up its own mountain of debt during the War of Currents. J.P. Morgan used the debt to gain full control of the company away from Edison. Morgan then merged Edison General Electric with the Thomson-Houston Electric Company of Massachusetts. Edison’s name and responsibilities were removed from the newly formed company “General Electric”. As you may know, General Electric is still a thriving company today that owns thousands of businesses and has a market cap of $244 billion. Similarly, Westinghouse would go on to thrive for for decades and even purchased television network CBS in 1995. Westinghouse and CBS were purchased by Viacom in 1999.

Elon Musk with a Tesla car

Elon Musk – Tesla Motors

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Categories: Billionaire, Edison, Electricity, Tesla | Tags: , , , , , , , , , | 18 Comments

Nikola Tesla’s Earthquake Machine……..

Tesla has been called everything from a genius to a quack. The fact remains that the alternating current electrical system now used worldwide was his conception, and among other inventions he perfected a remote controlled boat in 1897&emdash;only a few years after the discovery of radio waves. This device was publicly demonstrated at Madison Square Garden the next year to capacity crowds.

In 1896, Tesla had been in the United States for 11 years after emigrating from his native Croatia. After a disastrous fire in his former laboratory, he moved to more amenable quarters at 46 Houston St. in Manhattan. For the past few years, he had pondered the sigificance of waves and resonance, thinking that along with the AC system, there were other untapped sources of power waiting to be exploited. The oscillators he designed and built were originally designed to provide a stable source for the frequencies of alternating current&emdash;accurate enough to “set your watch by.”

He constructed a simple device consisting of a piston suspended in a cylinder, which bypassed the necessity of a camshaft driven by a rotating power source, such as a gasoline or steam engine. In this way, he hoped to overcome loss of power through friction produced by the old system. This small device also enabled Tesla to try out his experiments in resonance. Every substance has a resonant frequency which is demonstrated by the principle of sympathetic vibration&endash;the most obvious example is the wine glass shattered by an opera singer (or a tape recording for you couch potatoes.) If this frequency is matched and amplified, any material may be literally shaken to pieces.

A vibrating assembly with an adjustable frequency was finally perfected, and by 1897, Tesla was causing trouble with it in and near the neighborhood around his loft laboratory. Reporter A.L. Besnson wrote about this device in late 1911 or early 1912 for the Hearst tabloid The World Today. After fastening the resonator (“no larger than an alarm clock”) to a steel bar (or “link”) two feet long and two inches thick:

He set the vibrator in “tune” with the link. For a long time nothing happened-&endash;vibrations of machine and link did not seem to coincide, but at last they did and the great steel began to tremble, increased its trembling until it dialated and contracted like a beating heart&endash;and finally broke. Sledge hammers could not have done it; crowbars could not have done it, but a fusillade of taps, no one of which would have harmed a baby, did it. Tesla was pleased.

But not pleased enough it seems:

He put his little vibrator in his coat-pocket and went out to hunt a half-erected steel building. Down in the Wall Street district, he found one&endash;ten stories of steel framework without a brick or a stone laid around it. He clamped the vibrator to one of the beams, and fussed with the adjustment until he got it.
Tesla said finally the structure began to creak and weave and the steel-workers came to the ground panic-stricken, believing that there had been an earthquake. Police were called out. Tesla put the vibrator in his pocket and went away. Ten minutes more and he could have laid the building in the street. And, with the same vibrator he could have dropped the Brooklyn Bridge into the East River in less than an hour.

Tesla claimed the device, properly modified, could be used to map underground deposits of oil. A vibration sent through the earth returns an “echo signature” using the same principle as sonar. This idea was actually adapted for use by the petroleum industry, and is used today in a modified form with devices used to locate objects at archaelogical digs.

Even before he had mentioned the invention to anyone he was already scaring the local populace around his loft laboratory. Although this story may be apocryphal, it has been cited in more than one biography: Tesla happened to attach the device to an exposed steel girder in his brownstone, thinking the foundations were built on strudy granite. As he disovered later, the subtrata in the area consisted of sand&endash;an excellent conductor and propogator of ground vibrations.

After setting the little machine up, he proceeded to putter about the lab on other projects that needed attention. Meanwhile, for blocks around, chaos reigned as objects fell off shelves, furniture moved across floors, windows shattered, and pipes broke. The pandemonium didn’t go unnoticed in the local precinct house where prisoners panicked and police officers fought to keep coffee and donuts from flying off desks. Used as they were to the frequent calls about diabolical noises and flashes from Mr. Tesla’s block, they hightailed it over. Racing up the stairs and into the lab, they found the inventor smashing the vibrator to bits with a sledgehammer. Turning to them with accustomed old-world aplomb, he apoligized calmly: ” Gentlemen, I am sorry. You are just a trifle too late to witness my experiment. I found it necessary to stop it suddenly and unexpectedly in an unusual way. However, If you will come around this evening, I will have another oscillator attached to a platform and each of you can stand on it. You will I am sure find it a most interesting and pleasurable experience. Now, you must leave, for I have many things to do. Good day.” (Actually, another story is related of Tesla’s good friend Mark Twain, a regular visitor to the laboratory, standing on the vibrating platform to his great surprise and pleasure, extoling its theraputic effects while repeatedly ignoring the inventor’s warnings to get down. Before long, he was made aware of its laxative effects and ran stiffly to the water closet.)

One source has it that the device “bonded to the metal on an atomic level” and Tesla was unable to get at the controls, but it seems more likely that the wild movements of the girder, combined with the panic that he might bring the neigborhood down, moved Tesla to this unsubtle action. He later mused to reporters that the very earth could be split in two given the right conditions. The detonation of a ton of dynamite at intervals of one hour and forty-nine minutes would step up the natural standing wave that would be produced until the earth’s crust could no longer contain the interior. He called his new science “tele-geodynamics.” Newspaper artists of the time went nuts with all manner of fanciful illustrations of this theory. Tesla’s fertile imagination posited a series of oscillators attached to the earth at strategic points that would be used to transmit vibrations to be picked up at any point on the globe and turned back in to usable power. Since no practical application of this idea could be found at the time that would make money for big investors or other philanthropic souls, (one can’t effectively meter and charge for power derived in this way) the oscillators fell into disuse.

In the 1930s, Tesla revived the idea of tele-geodynamics to create small, relatively harmless temblors to relieve stress, rather than having to wait in fear for nature to take it’s course.

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