On this day in economic and financial history ...
What would life be like without instant communication? We can't imagine a world without the ability to send and receive messages in real time across thousands of miles, but for thousands of years there was no way to get messages across vast distances without physical transmission -- one person to another. The crippling slowness of long-distance communication finally began to speed up on Jan. 6, 1838, when Samuel Morse performed the first successful test of his electrical telegraph system in Morristown, N.J.
Morse wasn't the first to develop an electrical telegraph. European inventors had been tinkering with the technology for years, and American scientist David Alter created and demonstrated an electric telegraph two years before Morse's test. However, it was Morse who pushed the technology into the mainstream by developing Morse code, which became the global standard, and through his advocacy in the halls of Washington, D.C. In 1843, the federal government approved $30,000 in funding to construct the first telegraph line of any real length, between the capital and Baltimore. A year later, Morse demonstrated the telegraph to the public for the first time by transmitting the Biblical phrase "WHAT HATH GOD WROUGHT" from the U.S. Capitol.
Western Union (NYSE:WU) was founded eight years later in New York. It quickly became a leader in this new communications technology, completing the first transcontinental telegraph line only a decade after its founding. Five years after the transcontinental line opened, America connected itself to Britain via the world's first trans-Atlantic telegraph cable. By this point, more than 100,000 miles of telegraph cables linked American cities together in a web of instantaneous connections. The age of slow messaging was over.
Telegraphy continued to dominate global communications for decades thereafter, and it also played an important role in the modernization of American stock markets. AT&T (NYSE:T), although known primarily for telephone services, also maintained significant telegraph operations (that's the second "T" in AT&T) and even merged with Western Union in 1909. Telegraphy's importance to the American economy earned Western Union a spot on Charles Dow's earliest precursor to the Dow Jones Industrial Average (DJINDICES:^DJI) in 1884, and although it was absent from the first true Dow Industrials index, it would return in 1916. By this point, Western Union was transmitting about 100 million telegrams per year.
The telegraph faded from common use as AT&T and others built out efficient and inexpensive long-distance telephone lines, and it was finally rendered functionally obsolete by the advent of networked computing and the Internet. Western Union ceased telegram services in 2006, 168 years after Morse's first successful test. How long will it be until a superior technology displaces the Internet? Will it even last a century?
Anyone for a road trip?
The gasoline internal combustion engine has dominated the world's car culture for decades, but diesel is also a vital part of our transportation infrastructure. On Jan. 6, 1930, the first diesel-powered road trip wrapped up in New York City after beginning in Indianapolis 25 hours earlier, proving the engine's potential as a superior long-haul option. C.L. Cummins, founder and president of diesel engine maker Cummins (NYSE:CMI), was the driver for those 792 miles. His four-cylinder engine used only 30 gallons at a cost of $1.38 -- that's in total, not per gallon. The stunt seems to have worked, as Cummins is today one of the largest manufacturers of diesel engines in the world.
MVP: Most Valuable Pooh
Winnie the Pooh might seem like a hapless innocent, but the human beings behind his popularity are much cleverer. On Jan. 6, 1930, Pooh and the supporting cast orbiting his fictional life became the first licensed characters in the world. That day, creator A. A. Milne sold a broad spectrum of trade rights to Stephen Slesinger for $1,000 and a 66% cut of future income. A year later, Pooh was a smash hit, earning $50 million across merchandise, television, recording, and other properties. Slesinger had become the father of the licensing industry.
Today, Disney (NYSE:DIS) produces and markets Pooh to millions of children around the world, thanks to a 1961 licensing agreement with Slesinger's widow. However, the Slesinger company and Milne's descendants have not always been fully pleased with the arrangement. Stephen Slesinger filed lawsuit against Disney in 1991, and Milne's daughter tried to end the copyright transfer to Slesinger in 1998. Both lawsuits failed, but Slesinger gained a small measure of success in 2009, when a judge ruled that all of Disney's future uses of Pooh would require royalty payments. That must be reassuring to the Slesingers, since Pooh merchandise generated an estimated $1 billion in merchandising revenues in 2003 -- more than Mickey Mouse, Donald Duck, and Goofy combined.
The origin of a Wall Street superstar
On Jan. 6, 1914, Charles E. Merrill opened his investment company on Wall Street. Within a year he was joined by Edmund C. Lynch, and the world-famous Merrill Lynch investment firm took shape. The firm made several notable investments before the Crash of 1929, most notably acquiring RKO Pictures outright, and also acquiring a controlling interest in Safeway (UNKNOWN:SWY.DL). Under Merrill Lynch's stewardship, Safeway grew from a small grocery in 1926 into the nation's second-largest supermarket chain by 1953.
After two large mergers in the early 1940s, Merrill Lynch became the leading securities broker in the United States. Merrill was hailed in his 1956 obituary as one of the few to sound early warnings against the impending 1929 crash. In 1928, the firm had sent a letter to clients, cautioning:
Now is the time to get out of debt. ... We do not urge you to sell securities indiscriminately, but we advise you in no uncertain terms that you take advantage of present high prices and put your own financial house in order. We recommend that you sell enough securities to lighten your obligations, or better yet, pay them entirely.
This fiscal prudence was nowhere to be found during the housing bubble, and the global financial crisis of 2008 nearly ruined Merrill Lynch. By mid-September, the company was sold to Bank of America (NYSE:BAC), which assumed billions of dollars in shaky debts in the $50 billion acquisition. That sale price was only 30% of Merrill Lynch's peak value of the year before.