3. A Man With A Better Plan

On June 6, 1976, oil tycoon J. Paul Getty, widely considered to be the richest man in the world, died at his estate in England. Not long after the death of his rival for the title Howard Hughes, one week later the Sunday times of London ran an article asking, "After Getty, who is the world's richest man?" According to the experts, the man upon whose elderly and seemingly reluctant shoulders the mantle must fall is the almost completely unknown American tycoon Daniel K. Ludwig. Six years later, Ludwig topped the inaugural Forbes list of the 400 richest Americans as the only multi-billionaire. Raising an obvious question, "Who the heck was Daniel K. Ludwig?" "You can't take it with you!" Hello and welcome to You Can't Take It With You, a podcast about the life and afterlife of America's greatest fortunes. I'm Eric Schoenberg, a psychologist interested in why some people accumulate large amounts of wealth that they don't spend on themselves. In the last episode, I explored the story of John McDonough, whose detailed plan for his wealth after his death was notably unsuccessful. Against his wishes, his real estate empire was dismantled within a decade of his death. The proceeds fell far short of his charitable bequests, and his plan for colorblind education was ignored for over a century. In this episode, I give you a toofr. Two men, with strangely parallel stories, who lived almost exactly a century and a half apart, both of whom came far closer to their goals of leaving virtually all their wealth to charity, despite facing equally, if not more difficult legal challenges, the McDonough. Both men came from seafaring families, both started their long careers at very young ages, both made their first fortunes in shipping, and then multiplied them via successful investments to become the richest American of their times. And most improbably, both had wives who gave birth to a daughter, then in one case most likely wasn't his, and in the other case definitely wasn't. I begin with the story of Stephen Gerard, who is number four on the list of the richest Americans ever according to the book The Wealthy 100. He was so rich that he literally bought out the bank of the United States, and then used it to save his young adopted country. When he died in 1831, he left in a state worth around $7 million, by far the largest yet seen in America. Like McDonough, Gerard wrote a lengthy and detailed will, 35 pages long, which would become perhaps the most litigated will ever in American history. The subject of ten cases brought to the Supreme Court of Pennsylvania, and three which made it to the Supreme Court of the United States. Yet none of these cases succeeded, and meaningfully altering the terms of the will until 1968, 140 years after Gerard's death. He was born at Tian Gerard in Bordeaux, France on May 21st, 1750, the oldest son in a sailing family. His childhood was not easy. He lost his right eye in an accident, and his mother died soon thereafter. And after an argument with his new stepmother, he shipped out to see as a 14-year-old cabin boy, with financial backing from his mildly prosperous father. Within less than a decade, despite lacking the required experience in the French Royal Navy, and at 23 being two years younger than the supposed minimum age, he was granted a royal license to serve as a ship's captain. He first set foot in colonial New York in 1774, where he joined a partnership trading in the Caribbean. Then, at the dawn of the American Revolution, he was sailing towards New York when a bank of fog and a nearby British warship caused him to flee up the Delaware River to Philadelphia, where he settled, becoming an American citizen in 1778. Over the next 40 years, Gerard managed a trading empire that spanned the globe. It was a rough and tumble time for merchants. Political turmoil meant that a ship could arrive at a port only to discover a newly hostile government ready to seize both cargo and ship. Gerard played the game with gusto, paying bribes, mislabeling cargo, and quickly changing the flags flown by his ships to avoid seizure. He invested his considerable profits in developing real estate in Philadelphia, and a variety of other enterprises. When the United States Congress declined to reauthorize the first federally chartered bank of the United States in 1812, Gerard bought out the bank, lock stock and barrel, for $120,000, turning it into the privately owned bank of Stephen Gerard. Two years later, the United States was at war with Great Britain and in dire financial straits, and an attempt to raise a much needed $5 million loan for the embattled government was in danger of failing. Gerard committed to providing $3 million, a commitment viewed so favorably by the financial community that in the end, he only had to provide $1 million of it himself. But like Macdonough, Gerard's business success was not matched in his private life. In 1777, he married a beautiful young woman named Mary Lomb, and for eight years they had a happy but childless marriage. Then in 1785, Mary began to exhibit uncontrolled emotional outbursts, which eventually turned into violent rage, leading to her being put under restraint. After five years of attempts at convalescence in a countryside estate, in August 1790, Stephen had her committed to a private room in the insanity ward of the Pennsylvania hospital. Four months later, the hospital reported to Stephen that Mary was pregnant and suggested that she return home to give birth, but he refused, telling the hospital that he did not believe the child was his, and on March 28th, she gave birth to a daughter who was given to a wet nurse, but died within a few months. Was the child actually his? Well, Gerard would never remarry, but he would go on to have too long-time mistresses and had no children with either, so it seems likely that he was infertile, but we cannot know with certainty. Regardless, Stephen continued to pay for Mary's care until she died a quarter century later in 1815. Now, I pause to note that this story might sound suspicious to some, and indeed in 1976 a play titled "The Insanity of Mary Gerard" claimed that Stephen had married committed because she had become pregnant by another man. But as far as I can tell, most historians think that she did indeed have a serious mental illness, which Gerard tried to do everything he could to cure, reluctantly agreeing to her commitment when that seemed impossible. I also think that one counterintuitive piece of evidence for Gerard's legitimate concern for Mary is that Gerard did petition the Pennsylvania legislature twice for a divorce on the grounds of insanity, but was unsuccessful both times. Now, why would he do this? He never remarried even after she died, so it wasn't that he wanted a new wife who could give him a legitimate heir. And he certainly could and did keep mistresses without divorcing Mary. In fact, one was hired as both Housekeeper and Mistress while Mary was still living at home. So why on earth go through the incredibly hard work of petitioning the legislature twice for divorce? The answer, I think, is that he was motivated by concerns about his money rather than concerns about his sex life. Gerard started giving serious thought to the disposition of his estate from a surprisingly early age, likely a legacy of significant conflict with his own siblings and step-siblings over their father's will. Only a year or so into Mary's illness, when he was 37 and merely affluent, not yet super rich, he wrote a letter to his brother, Jean, about having consulted with a lawyer about writing a will. The law of Pennsylvania allows the wife one-third of the income from the real estate left by her husband at his death, and in addition she receives absolutely one half of the personal property. As I wish to be just, I think that having been so unfortunate as to marry this unfortunate woman, it is my duty to see that she is provided for to the best of my ability. I shall therefore leave her instead of the above mentioned rights, a life annuity which I believe will be sufficient. But he would discover that a wife's inheritance rights were not altered by her insanity. So Gerard petitioned the legislature for divorce in 1807, and again in 1813, offering to provide a $20,000 trust for his wife in exchange for her giving up her rights to inherit. But the legislators insisted her trust funds go to Mrs. Gerard's heirs when she died and Stephen refused. Why all the fuss? Presumably because Stephen had decided that virtually all his money, which by this time amounted to about a million dollars, should eventually go to philanthropy. Mary's death in 1815 freed him to focus on the question of how to give. According to his lawyer, he conceived his plan for devoting a large chunk of his money to his school for orphans in 1826. But it wasn't until the end of 1829 that Gerard spent several months working on the drafting of the ultimately 32-page will, which he signed in February 1830. In it, he left $100,000 spread among six relatives in America, $40,000 spread among eight relatives in France, and a total of $65,000 to a variety of friends and former employees, including $300 yearly to his housekeeper/mystress, and also to each of her two sisters. The rest went to philanthropy, $300,000 to the state of Pennsylvania for canal import development, and the remainder, close to $6,500,000 to charities and public projects in the city of Philadelphia, with much of it dedicated to building and operating the school. By doing so, Gerard made clear that he wanted to diminish the build on taxation now most oppressive, especially on those who are the least able to build. Gerard's relatives thought he should have been more concerned about them than about the taxpayers of Philadelphia, and would sue many times over the next 50 years trying to get more of Gerard's wealth after he died at the age of 81 in December 1831. But before getting into the afterlife of Gerard's fortune, I return first to the surprisingly parallel life story of Daniel Keith Ludwig. Like Gerard, DK Ludwig came from a family of sailors, but their connection was not to the ocean, but to Lake Michigan, on whose shores he was born June 24, 1897. Like Gerard, DK lost his mother at a young age. His father, Daniel Sr., left his wife for reasons unknown when DK was 15, after which DK left school to begin working for a shipping firm. He bought his first ship, an old paddle steamer, at age 19, using a $5,000 loan co-signed by his father. Ludwig continued to use borrowed money to buy and build more and ever bigger boats, including eventually the earliest oil super tankers. It wasn't always a smooth ride. In 1926, DK was blown 25 feet in the air by an explosion on one of his ships, severely injuring his back. And soon after he was back on his feet physically, the Great Depression knocked him off them again financially. It required all of DK's ingenuity and persuasiveness to survive the 1930s, but by 1956, Time Magazine reported that he owned the second largest shipping fleet in the world. He went on to make large investments in oil refineries in Panama and Scotland, in an enormous saltwater conversion plant in Mexico, in coal mines in West Virginia and Australia, in an orange plantation in Panagia. And in real estate in the United States, South Africa, and throughout Latin America, where he initiated the most ambitious project of his career, a plan to develop three and a half million acres of the Amazonian rainforest in Brazil for forestry and agriculture. This project proved to be too ambitious, however, and after investing almost a billion dollars, Ludwig turned it over to a group of Brazilian businessmen in 1982, in exchange for nothing more than they're assuming it's remaining debt. Forbes estimated that as a result, his wealth got cut in half, but still listed DK as a billionaire when he died in August 1992. Yet despite being widely considered the richest man in the world by the late 1970s, DK was such a private and secretive person that large portions of his life remain mysterious. The biographer of his contemporary, and sometime business partner Howard Hughes, who famously became a total recluse during the last decades of his life, one said that compared to Ludwig, Hughes was a press agent's dream. In 1957, when Business Week decided to write the first profile of DK to ever appear in print, they were unable to locate a photograph of the then 59-year-old. The two biographies of Ludwig available today on Amazon are titled "The Invisible Billionaire and the Reclusive Billionaire." As a result, the only information Ludwig's biographer was able to discover about his first wife Gladys, other than the fact that they married in Florida in 1928 and divorced in 1937, came from an official at the South Haven, Michigan Chamber of Commerce, who told him about a phone call he had received a few years before from a former friend of DK's who had this to say about the marriage. Ludwig had fallen madly in love with the chorus girl named Gladys, and after a whirlwind courtship had married her, the marriage was not a happy one. Ludwig was gone a lot on business, and Gladys wasn't the type to sit patiently at home. When he found out that she'd been playing around, he was devastated. There were stormy fights, and in 1937, shortly after Gladys gave birth to a daughter, Ludwig filed for and obtained a divorce. Ludwig agreed to give his ex-wife and the child Patricia, $200 a month, but in 1939, claiming to be in financial difficulties, Ludwig convinced Gladys to accept $3,000 as a final payment. 40 years later, she sued the now billionaire, claiming he had deceived her, but she died before her suit came to trial. He probably did deceive her, but then again, so did she. Ludwig's second marriage was far more successful, lasting 55 years until Ludwig's death, but produced no children. Though his wife survived him by a year, and though she had one or two children by a prior marriage, even that is uncertain, Ludwig, like Gerard, decided to give all his wealth charity in his case cancer research. But Ludwig faced a challenge. Under common law, a child born while a couple is married is assumed to be legitimate, which meant that Patricia would have a claim on his estate. But I leave Daniel Ludwig in the lion's den to return to the story of Stephen Gerard. The first attempt to invalidate his will came in 1833, only two years after his death, when members of his family successfully petitioned a court to distribute to them some real estate on a technicality, a strategy that would also win the family ownership of coal-bearing land northwest to Philadelphia. But gaining those two relatively small assets, where the only victories the family would have. Their most important challenge would be argued before the United States Supreme Court in 1844, with the family represented by none other than former and future, Senator and Secretary of State, Daniel Webster, in a landmark legal case called Vidal versus Gerard's executors, François Vidal being Gerard's French niece. The family claimed the will was invalid on multiple grounds, but Webster focused on one in particular. Gerard's will had included many instructions for the operation of his plan school for orphans, including this. I, and join and require that no ecclesiastic missionary or minister of any sect whatsoever shall ever hold or exercise any station or duty whatever in the said college, nor shall any such person ever be admitted for any purpose or as a visitor within the premises. In making this restriction, I do not mean to cast any reflection upon any sect or person whatsoever, but as there is such a multitude of sects and such a diversity of opinion amongst them, I desire to keep the tender minds of the orphans free from the excitement which, clashing doctrines and sectarian controversy, are so apt to produce. My desire is that all the instructors and teachers in the college shall instill benevolence towards their fellow creatures and a love of truth, sobriety and industry, allowing the students to adopt as adults such religious tenets as their matured reason may enable them to prefer. Webster's argument was that this clause made the entire enterprise contrary to the public interest and thus invalid. This device is no charity at all because the plan of education proposed by Mr. Girard is derogatory to the Christian religion. Tens to weekends, men's reverence for that religion and their conviction of its authority and importance, and therefore in its general character tends to mischief. and not to useful ends. Unfortunately for the family and for Webster, the Supreme Court disagreed that the will was hostile to Christianity, ruling at Valid in 1844, which was fortunate for the orphans since Gerard College, and I should note that Gerard hadn't suggested the name, which was chosen after his death. Finally opened in January 1848 with the first class of 108-year-old boys, and by 1884, 1100 were enrolled in the school. While Gerard's relatives kept offering new theories why the will was invalid, losing cases decided in 1863, 1867, '68 and '69, 1870 and 1880. Eventually it became clear that the will could not be broken by them. But there was another piece of Gerard's instructions for the school that would ultimately be broken. Because unlike John McDonough, who explicitly wanted to educate students of all races, Stephen Gerard's will said his school was to be for "po-await-male orphans between the ages of six and ten years." Now nobody should be surprised that the family never questioned the will because of that restriction, and neither did anybody else for over a century, until 1954, when the City Council of Philadelphia decided to seek a court ruling as to whether such discrimination on the basis of race was still legal in the light of the recent Supreme Court decision, Brown vs. Board of Education. But the Pennsylvania Supreme Court decided that Gerard's white-only rule should be left in place on the overriding principle that an individual has the right to dispose of his property by gift or will as he sees fit. It took another 14 years until March 1968, when the United States Court of Appeals finally ruled that Gerard's restriction was illegal racial discrimination and a violation of the 14th Amendment. Six months later Gerard College admitted four African-American and two Asian boys. Sadly, and not only because of that change, that also marked the beginning of a still continuing decline in the schools enrollment, leading to further changes in particular the admission of girls starting in 1982. Whatever the future holds for Gerard College, the fact remains that the school educated perhaps ten thousand poor Philadelphiaans over the course of a century. Which raises a question, why was Gerard's will more successful than MacDonnis? Begin with the fact that MacDonnis will gave lengthy detailed instructions about how to manage his real estate empire to generate more wealth. While Gerard's will gave lengthy detailed instructions about how to use his wealth to accomplish his goal of educating orphans. But the more important reason is that wealth and wills are social constructs, subject to the ideas, beliefs, and social mores of the community. Although Gerard's banning of clergy was controversial, his white's only rule fit the social prejudices of the time. While MacDonnis attempt to offer race-blind education did not, and was therefore stymied by the realities of racist New Orleans, only once the social mores had decisively changed, was Gerard's plan finally challenged and broken. But if I had to choose the single best example of a state planning ever, I might well nominate Daniel K. Ludwig. He began by giving much of his wealth away well before he died. In 1971, he created the Ludwig Institute for Cancer Research in Switzerland. Over the following few years, he gave it virtually all his foreign assets. He created a similar foundation in New York, which would eventually receive the bulk of his remaining assets when he died in August 1992. But those still substantial remaining assets meant that he faced the risk that Patricia Ludwig would make a claim on his estate, as indeed she did in 1995, three years after he died. The lawyers for his estate replied to her suit by asserting that he was not her father, putting into evidence four letters between DK and her mother Gladys. But DK himself provided the coup de gras from Beyond the Grave. In 1982, and twice again in 1988, he had had blood samples taken and stored by his lawyers, which were now used to prove definitively that DK was not Patricia's father, Mike Drop. So, why did Gerard and Ludwig accumulate so much wealth? Were they doing it in order to give it to orphans and cancer research? Well, first and foremost, contrary to economic theory, but just like Mark Hopkins and John McDonough, Gerard and Ludwig liked to work. In a letter to a friend in 1804, Gerard wrote, "I do not value fortune. The love of labor is my highest ambition." And shortly before his death, he was reported to have said, "When death comes for me, he will find me busy unless I am asleep in bed." If I thought I was going to die tomorrow, I should plant a tree nevertheless today. As for Ludwig, a business week reporter noted in 1957 that with Ludwig, work is almost in obsession. Business gets almost 100% of his attention. He willingly gambles on an idea that looks good, but is formula is to add a large dose of hard work to the gamble. And that same year, in his only extensive interview in Fortune magazine, Ludwig remarked, "I'm in this business because I like it. I have no hobbies." Fortune went on to note, "As one friend summed him up, Ludwig doesn't drink much. He doesn't smoke at all. He doesn't entertain lavishly. His only bad habit is work, and that, he can't stop." Like Mark Hopkins in John McDonough, Ludwig also didn't really like to spend. According to his obituary in The New York Times, Ludwig was casual and unpretentious in his personal life, using the same plastic raincoat for years, and often flying economy class. While his biographer said, "Ludwig was concerned with the wealth itself, not its trappings, making money, not spending it was his passion." He took special pride in being the biggest in the world at whatever he undertook. He wanted the biggest ships, the biggest fleets, the biggest fortune. His luxury yacht was built in 1950 for $2 million, more than what he had paid to build a super tanker nearly 100 times the size. But it was more for business entertainment than personal leisure. For him, the yacht was as much a business craft as any of his tankers, and probably earned him more money than any of them. But if Ludwig wasn't motivated to spend money on himself, he didn't want to spend money on other people, either. His biographer said that he had the reputation of being the scrooge of the shipping industry. Respectable tanker men looked on Ludwig's ships as hardly more humane than the ships of the African slave trade. American seamen are never tempted to sign on any of Ludwig ships. One former employee called him "the meanest man I've ever worked for." So why did the scrooge end up giving everything to cancer research? $2.5 billion of funding provided over the last few decades and an endowment still valued at around $1.5 billion. Many of his early critics thought that he had done it as a tax dodge. Indeed, for at least the first decade after its founding, the institute gave away only small amounts of money annually. The only thing that seems clear is that like the heirs of Mark Hopkins, DK knew who he didn't want to get his money. His wife's daughter with another man. Gerard by contrast was known as philanthropic his whole life. In one of its many decisions regarding his estate, the Pennsylvania Supreme Court described some of his most notable episodes not only of generosity, but even heroism. In the great yellow fever of 1793, Mr. Gerard distinguished himself by visiting and attending upon the sick. In 1797 and 1798, the fever again prevailed in Philadelphia with fearful violence. And again, Mr. Gerard exhibited the same enlarged philanthropy and the same disregard of danger by liberal contributions and personal services to the sick and dying. He also lived more lavishly. The exiled King of Spain, Napoleon's brother, was a regular dinner guest and Gerard's niece married a member of his court in exile. But in obituary soon after Gerard's death observed, he sought money not from avarice, but from a desire for power. Money was the only avenue by which he could obtain the eminence that he coveted. Not money to be dissipated in rich salons and splendid equipages and livery servants bearing his badge, but wealth to be exercised as the Archimedean lever, by which he could move the fiscal world. This was the master spirit which conquered his soul. Gerard's philanthropy, in fact, like that of John McDonough, was very much driven by the same Protestant ethic that hard work was its own reward. Once, a man came to Gerard looking for work. So he hired him for the day and asked him to move a pile of bricks from one side of his yard to the other. The man finished unexpectedly quickly, so Gerard asked him to move the bricks back. When the man realizing the whole effort was pointless, indignantly refused, Gerard paid and dismissed him, but added in an aggrieved manner. "I certainly understood you to say when you came that you wanted any kind of work." Like MacDonna, Gerard was happy to help his relatives, but had no interest in providing them with lives of leisure. And what should we make of Gerard's exclusive interest in helping poor white male orphans? Well, of course it's racism. That's pretty much the definition. But let me suggest that it might also be described as "egotism." Gerard wasn't strictly speaking in orphan, but having lost his mother and left his home at such a young age to forge his own way in the strange new world of America. It's not too hard to imagine that Gerard saw himself in those who lost their parents early. As one historian wrote, soon after his death, he wished to hand himself down to immortality by the only mode that was practicable for a man in his position. He wrote his epitaph in those extensive and magnificent blocks and squares which adorned the streets of his adopted city, and in the public works and elimosinary establishments of his adopted state. Ultimately then, I would argue that neither Ludwig nor Gerard became rich because they wanted to give money away. Rather, they gave money away because they had become very rich and they couldn't take it with them. In the next episode, I'll move from the childless to the childful. Isaac Singer, creator of the first practical sewing machine, who had 22 children by five different women, only two of whom he was married to. You can't take it with you was produced and engineered by Jim Latham, vocal acting by Andrew Lehman, Sean Branny, Mark De Carlo, Kai Corbin, James Latham and Wendy Dalton. If you're interested in learning more about this story, I recommend John McMaster's book, The Life and Times of Stephen Gerard, Dr. Marilyn Lambert's essay on Stephen Gerard, Husband and Jerry Shields' book, The Invisible Billionaire.