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.By1898 his company owned all the generating capacity in his distributionarea and had doubled the size of the Harrison Street plant.But when hebegan to supply power to Chicago s streetcars and elevated railways, heneeded still more power.Insull decided to gamble on a radical new technology.Steam-powered generating equipment up to this time had used reciprocatingengines, where pistons pounded up and down, turning a crank shaft toproduce the power.They were noisy and, at maximum output, vibratedalarmingly.They needed constant maintenance.On a trip to EnglandInsull had seen a speedboat that was powered by a new type of steamengine invented by Charles Parsons, called a turbine.Instead of pistonrods pounding up and down, the turbine spun smoothly, turned bysteam acting on blades of propellors, at much higher speed, producingfar more power per unit of fuel and needing less maintenance.Insull thought the steam turbine was ideally suited to producing elec-tricity, but had to cajole General Electric into producing engines of thesize he wanted, far larger than had ever been built.And his own boardwas so nervous that Insull had to personally guarantee the company 306 AN E M P I R E O F WEAL THagainst loss if the new turbine-powered plant he planned on Fisk Streetdidn t work.When the plant was ready to go on line for the first time, theengineer told Insull to step away in case something went wrong and theturbine blew up. Well, Insull replied, if it blows up, I blow up with itanyway.I ll stay. It didn t blow up, of course.It revolutionized the electricity-generating business, greatly lowering costs per kilowatt-hour.The steamturbine immediately became the standard means of producing electric-ity, which it remains to this day.The biggest problem with lowering the cost of electricity, however, isthe fact that electricity, almost uniquely among major commodities, can-not be stored.Instead, it must be produced at the instant of demand.Thus generating capacity must be large enough to meet peak demand,even though that means there will be very expensive excess capacity 95percent of the time, the expenses of which must be pro-rated.Again on a trip to England, Samuel Insull found a partial solution to theproblem.The first electric meters had merely measured how much currentwas used between readings, as most house meters still do.(Thomas Edisonhad devised a meter wherein a small amount of the current being usedmelted zinc, which dripped onto a plate below.The meter reader wouldweigh the plate to determine how much electricity had been used.) But inthe resort town of Brighton, on England s south coast, Insull talked to aman who had invented a meter that not only kept track of how much wasused, but, crucially, when it was used.Electricity usage over the course of a day varies widely but pre-dictably, peaking in the hours between 4 P.M.and 8 P.M.and reaching itslowest point between 2 A.M.and 5 A.M.Insull realized that any electricityhe could persuade users to use at slack times was, in effect, found money,whatever he charged for it, while getting customers to shift away frompeak periods lowered his capital costs by reducing the capacity he had tobuild and maintain.In the first year the new meter was in use in Chicago, electric rates fell Getting Prices Down to the Buying Power307by 32 percent, while demand began to soar.It came first to stores, facto-ries, and advertising, but by 1910 one household in six in Chicago waselectrified and the percent climbed steeply thereafter.By the 1920s thegaslight business was nearing extinction.The ever increasing use of electricity in the United States is one of thewonders of the twentieth century.In 1902 the United States used 6 bil-lion kilowatt-hours of electricity, about 79 kilowatt-hours per person.In1929 it was 118 billion, and 960 kilowatt-hours per person, well over tentimes as much per capita.Today usage is a staggering 3.9 trillion kilowatt-hours, more than 13,500 per person, more than 170 times as much elec-tricity as was used per person in 1902.This astonishing rise in the use of electricity came about not onlybecause more and more people were switching over to electric light, butalso because more and more tasks were being powered by electricityrather than by other means.This affected the American economy inmany ways.For one thing, it changed the very shape of factories.Steamengines are very inefficient in terms of the amount of energy in the fuelthat is converted into work-doing energy.And the smaller they are, themore inefficient.So nineteenth-century factories were tall, with as large asteam engine as possible in the basement.The engine powered a shaftrunning up the side of the building, from which horizontal shafts oneach floor took power.It was important that these shafts be as short aspossible.But small electric motors are just as efficient as large ones (more so insome ways), so it made sense, once the price of electricity dropped suffi-ciently, to power each machine separately by electricity, eliminating theneed for shafts to transmit power.(An electric motor is exactly the samemechanism as an electric generator, only working backward.The firstuses electricity to produce power, the latter uses power to produce elec-tricity.) Once freed from the need to connect machinery to the shaft fromthe steam engine, factories began to spread out horizontally on one level.The rapidly widening use of electricity also caused productivity to 308 AN E M P I R E O F WEAL THsoar in the 1920s, increasing output per worker by 21.8 percent in thatdecade.This helped to push manufacturing output up by more than 90percent.Although electricity and the small electric motor had beenaround for two decades, the full effects of their use on industrial produc-tivity came only in this decade.This is always the case with new tech-nology because of what economists call the installed base problem.Theold technology is already in place and paid for.Therefore it makes noeconomic sense to replace it until it wears out.The Erie Canal, renderedobsolescent by the railroads in the 1850s, was still carrying freight as lateas 1970.Today the personal computer is the main engine behind theextraordinary gains in productivity in recent years although the personalcomputer has been around for nearly a quarter of a century.More important, small electric motors began to power an ever-increasing number of household appliances in the 1920s, refrigerators,electric irons, vacuum cleaners, hair dryers, washing machines, radios,and phonographs among them.These began replacing servants in largenumbers, and the servants moved on to more wealth-creating jobs
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