A Power Story


June 2016
Ivan Obolensky

How a technology develops and takes root is instructive on many levels. It is not necessarily dependent on the vision of those who conceived it. Technological success seems to follow a different path altogether. It is a process, with cost-effectiveness as the primary driver over the long term. In this, it follows nature, because nature is always frugal.

The rollout of the Internet was not the only widespread technology that divided human history into a before and after. There was another.

Today, it is hard to imagine a world without light or even one only dimly lit by open flame, but prior to the 1880s, such a world existed.

The harnessing of electric power and the expansion of the power grid was modern technology at the turn of the 20th century. It irrevocably changed the fabric of life throughout the United States and the world. It was the dawn of a new age.

How it came about is a complicated story of genius, industrial espionage, cutting-edge science, patent litigation, corporate mergers, electrocutions both accidental and deliberate, and the first use of contemporary public relations. More fundamentally, it is a story of power and vision, but the results followed a path none expected.

Looking back, it was called the Battle of the Currents, and it started with the first commercially practical electric light bulb, invented by Thomas Edison.

Edison did not invent electric light, nor even the first electric light bulb.

In 1802 Humphrey Davy invented the first electric light. It was called the arc light, the kind used in search lights. It produced light but in such copious amounts, it was better suited for outdoor use. For home, or business, it was not only impractical, but dangerous.

The light bulb, too, had been around for some time, but Edison perfected it after thousands of trials. He combined a reliable incandescent material, a better vacuum, and a practical means of powering it. The simple fact was it worked and worked well, far better than any other made before.

Edison used a filament made of carbonized bamboo that lasted 1,200 hours. He patented it. By 1880 Edison founded Edison Electric Light Co. to market his invention.1

To understand what follows next and why, one must know something about electricity and its transmission.

A useful but not perfect analogy to electricity is the pumping of water through a pipe to a higher level. A typical battery is like the pump. By raising the height of the water, the water has more potential energy. The pressure difference between water that is up high and water at ground level could be thought of as the voltage.  A faucet has pressure behind it but no flow unless it is opened. A battery has no flow unless it is connected to a closed circuit. The pressure is similar to the voltage of the battery.

In a typical showerhead, for example, the holes are small, and the water comes out quickly. In drought-prone areas, special small-holed showerheads restrict the flow of water, letting less through, but give the impression that a lot of water is coming out. Standing directly below a high-volume shower with larger holes is similar to drowning in comparison. The volume of water that passes through the shower is analogous to the amount of current that passes through an electric line.

The last part of the analogy is the size of the hose. A large hose lets a lot of water through. A small one restricts it. When a wire is small compared to the amount of electricity pushed through it, the flow generates heat, which is energy lost to the circuit. Put too much current through a small wire and the wire burns. This is resistance.

In a shower, the water flows in one direction. Electricity flowing in one direction is called Direct Current (DC).

With these points in mind, Edison’s light bulb took the direct flow of electricity and turned it into heat and light. The filament glowed. It incandesced; hence the name, the incandescent light bulb. Edison’s filament had high resistance to electricity, but not so much as to prevent it from passing through completely. The vacuum in the bulb allowed the filament to glow without it immediately burning up. Getting the balance exactly right as to materials and the amount of electricity to make it work at the user end was Edison’s major breakthrough. The bulbs he made would last several months. With the user part handled, his focus shifted to electricity generation and the transmission of it from a power plant to the home or business.

This is where the trouble began.

Edison’s light bulb worked best when the voltage applied to it was around 100 – 110 Volts DC (this is the reason that 110 Volts is the typical voltage of household devices in the US even today), but electricity kept at 110 Volts, when transmitted over long distance, is inefficient; so much so, that the maximum useful limit at the time was one mile even using large diameter expensive copper cable. This meant that power plants utilizing Edison’s patented technology had to be located within urban centers and that customers had to be within a mile radius. This was a major constraint.

Enter the alternative: Alternating Current.

Alternating Current (AC) rather than flowing in a single direction like a battery, periodically reverses and flows the other way at a rate of 60 cycles per second. The key to transmitting power efficiently is to use much higher voltage, but high voltage is dangerous when mishandled. It is like being hit with a water balloon dropped from thousands of feet up. Survival is doubtful.

Alternating Current was first developed in Europe. The problem was how to step the high voltage down to less dangerous levels. Enter the next key technology component besides Edison’s electric light bulb: the transformer.

Electricity generates a magnetic field when its flow is reversed. A changing magnetic field can generate electricity. Using coiled wires and fixed magnets one can make either generators, or electric motors.

When Alternating Current is connected to a primary wire coiled around an iron rod, it induces an alternating magnetic field in the core. Wrapping a secondary wire around the same core induces an alternating electric current in the secondary wiring. By adjusting the ratio of the number of windings of the primary coil and the number of windings of the secondary coil, the voltage applied can be stepped up or down.

Enter George Westinghouse.

George Westinghouse was an engineer and invented a railroad braking system using compressed air that was universally adopted by the railroad industry. He moved on to railroad switching, which then used oil lamps. He needed something brighter and more efficient. Edison had demonstrated his first commercial lighting venture in lower Manhattan in 1882 by lighting 59 homes. It was a sensation.

Westinghouse started to develop his own DC lighting system.

In 1885 George Westinghouse read about Alternating Current and the transformer system in a British engineering magazine. Realizing the extraordinary opportunity and competitiveness of scale that AC represented, he imported a number of transformers and bought the patents. The new design could not only handle high voltages but was easily manufactured.

In 1886 he installed the first multi-voltage system in Great Barrington, Massachusetts. It transmitted at 3,000 volts and stepped down the voltage to 110 Volts at the user-end point.

By 1887 there were 121 Edison DC stations and 68 Westinghouse AC stations.

The battle lines were drawn.

The battle began when Edison commented to the press that Westinghouse’s AC system would kill a customer within six months. In an 1887 letter to the New York State Commission, he suggested that the best way to execute a prisoner was to wire him up to one of Westinghouse’s AC generators. By 1888 Edison was in full cry as to the dangers of high-voltage alternating current.

Enter another genius, Nicholas Tesla. In 1884 Tesla emigrated to the US, where he was hired by Edison. Tasked to redesigning Edison’s DC generators, he was successful, but a disagreement as to pay resulted in Tesla striking out on his own. He tried to convince Edison of the efficiency of AC over DC, but Edison was not convinced. He thought his DC system was safer, and he held the patents to the electric light bulb.

In 1887 Tesla had developed a low-maintenance electric motor that came to Westinghouse’s attention. Tesla was hired by Westinghouse. By acquiring Tesla’s motor and doing a workaround on the light bulb technology, Westinghouse had a workable AC system in place, but the costs of purchasing patents and development kept him from moving forward immediately.

In the meanwhile, Edison’s right-hand man, the PR-savvy Samuel Insull, launched a scare campaign against Westinghouse’s AC System, which not only included an 84-page pamphlet outlining the safety concerns of high-voltage AC, but through political connections pushed through the legislation to implement the electric chair as a demonstration of its deadly high voltage potential.

Enter Harold P. Brown, an electrical engineer with no apparent connection to Edison. He lobbied in front of the New York Board of Electrical Control to limit the voltage transmitted through power lines to only 300 Volts in the interests of safety. By a series of scandalous public demonstrations and publishing the results after electrocuting a series of dogs using higher voltages, he was sure the board would sanction his voltage limit. They didn’t.

Neither Edison nor Westinghouse wanted their equipment to be used to power the first electric chair, but Brown colluded with Edison for three Westinghouse AC generators to be used. Brown claimed there was no connection, but letters stolen from Brown’s office and published in 1889 showed Edison’s involvement.

In addition, Brown attacked Westinghouse through professional journals and asserted that 30 deaths occurred from Westinghouse’s AC system. Westinghouse had one magazine investigate further. Only two deaths could be attributed to Westinghouse.

In the end, Edison’s prediction of a customer death proved correct.

Lower Manhattan was a spaghetti of wiring that included hundreds of lines suspended above the busy streets of New York. They included DC, high voltage AC, as well as telegraph. On October 11, 1889, John Feeks, a Western Union lineman, was working high above the ground in a tangle of cables.

During lunchtime, he grabbed a line that had fallen on a high-voltage cable some blocks away. He died immediately. His body fell and was caught in the web of cables where he sparked and smoldered for almost an hour. Newspapers exploded with outrage. Westinghouse was shown to be a villain. The lines were cut down and New York plunged into darkness through the remainder of the winter. Legislation eventually put the lines underground, but Edison personally denounced AC current and stated that deaths would simply occur underground. He vowed that Edison Electric would never adopt AC.

Even with these setbacks, the AC system continued to make progress against Edison’s DC. The Current Wars eventually wound down.

Edison moved on to other projects and lost control of his company, which consolidated through a merger into a new company called General Electric, dropping Edison’s name.

In 1892 Westinghouse Electric underbid GE for the contract to power and light the World’s Columbian Exposition. This helped Westinghouse to win the bid to build an AC power station at Niagara Falls.

GE, seeing the economies of scale that the AC system realized, also moved into the AC arena. GE was awarded various contracts and by hiring many talented engineers, closed the gap.2

Europe meanwhile adopted the 220-240 Volt AC system.

In the end, it was the economic advantage of AC power transmission that won the day. The AC transmission and distribution system was the more cost-effective. It took many more years before a universal AC power grid was in use, requiring much more technical innovation.

Using lower voltage lines may have been the safer solution, but economies over the long term tend to move toward the lowest cost alternative. Efficient power distribution trumped other considerations.

Technology gravitates toward better efficiency, which ultimately reduces costs. In nature it is called minimal energy expenditure and nature constantly evolves toward the least energy expended for the maximum energy gained. In physics and mathematics there is a whole subject devoted to the matter. It is called the Calculus of Variation.

Money, too, can be conceived as a form of energy, and economies as a whole can be thought of as energy distribution systems similar to a power grid. Money, like energy, can be bought and sold. Interest rate levels are an indication of the cost of money, just like the price of electricity. When energy is cheap, prices are low.

The money as energy analogy breaks down when fractional banking and the simple expedient of creating money by central banks is taken into account.

Created money means there are few or no consequences for allocation errors. Yet in spite of this supposed disconnect, without money it is not possible for participants to purchase actual goods such as cars, housing, or even food.

Is the disconnect between money and energy so improbable when finance interacts with the physical world in a real way? Is nature’s emphasis on efficient energy allocation not valid in real-world economics? Current central bank policies imply this is the case.

In the previous article, Negative Interest Rates and Deflationary Banking, the point was made that central banks are in a holding action. What are they waiting for? There are two alternatives on the table so far: the first is that the poor investments (as represented by non-performing loans) are zeroed out creating a financial black hole with the potential of economic fallout. The second is the rise of another technology similar to the story of electricity outlined above. But note the following: the rollout was a messy process that took time, cost lives, and cost billions in today’s dollars.

Even a technology as obviously worthwhile as electricity took time, was far from simple as it developed, and ultimately followed the path of cost-effectiveness just like nature.

If this is the case, central banks may have a while to wait.


  1. A. (N.D.) History of the Light Bulb. Retrieved June 7, 2016 from http://www.bulbs.com/learning/history.aspx
  2. Jones, J. (2003) Empires of Light: Edison, Tesla, Westinghouse, and the Race to Electrify the World. New York, NY: Random House

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© 2016 Ivan Obolensky. All rights reserved. No part of this publication can be reproduced without the written permission from the author.

  1. Craig Houchin
    Craig Houchin06-11-2016

    Ha! Great article. Thanks. It’s the grandaddy of the Betamax vs VHS, Coke vs Pepsi, and Mac vs Windows battles — sort of. Anyway, your economic tie-in makes me think about our long, long tradition of storytelling. How many heroes and villains, from Og the caveman hunter to Greek gods, to politicians and bankers, have taken a fall because they thought the laws of nature did not apply to them?

    SILVIA LL06-11-2016

    Wow, this was a very, very interesting article. I feel I learned some things about electricity, its evolutions and its participants.

    Evolution is what occurred and many other fields are also evolving and growing.

    As far as applying this to economics I do not have an opinion about it as I do lack some understanding about their mechanics.

    But If I keep reading these articles I may be able to figure it out.

    Thank you Ivan for writing this. Keep it up

  3. Libby A.
    Libby A.06-13-2016

    Loved it!! Especially the ending about the Central banks.

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