Kevin Lamarque / Reuters

There’s finance, and then there’s everything else. The fundamental categorical distinction between selling goods and services (building and operating a casino, for example, or a hotel, or a real-estate development) and raising money in order to sell those goods and services sets finance apart, and is, at least in part, what makes a capitalist economy capitalist.

Recently, a team of British scholars—Steve Toms and Nick Wilson of the University of Leeds, and Mike Wright of Nottingham University—have used the finance/everything-else distinction to understand important moments in world-historical capitalist innovation. They use a two-by-two matrix:

Product Innovation No Product Innovation
Financial Innovation Venture capital and leveraged buyouts, 1980s Credit expansion, credit rating, and crowd funding, 1980s to present
No financial innovation British industrial revolution, 1770s Most business ventures in most times and places

The examples that Toms, Wilson, and Wright use to fill the quadrants are just that—examples; many other periods of capitalist innovation could be sorted this way. Their analytical point is a broader one: Sometimes the state of innovation in products and finance is misaligned, leading to missed opportunities in entrepreneurship. Though they are careful not to say it, one could also interpret their work to suggest that product innovation has more often proved transformative to the economy than financial innovation. They are more forthright in arguing that financial innovation in the absence of product innovation has often been quite harmful. This last argument is a variety of the now-common analysis of “financialization”—the process by which an economy becomes overly focused on finance and thereby suffers from slower growth and widening income disparity. (Also note that the last quadrant is not analyzed or specified with an example—if we are interested in innovation, we will not find it here.)

This two-by-two matrix of Toms and his colleagues may, perhaps, be useful to future historians of capitalism. It is definitely useful in explaining the significance—and success—of Donald Trump.

Though best known for his work developing and managing casinos, hotels, and real-estate developments, Donald Trump’s true claim to innovation—to creative destruction, as economist Joseph Schumpeter put it a long time ago—is in his approach to finance. In the 1980s (the period featured in two of the three quadrants that Toms, Wilson, and Wright examine), Donald Trump began to harness the power of modern celebrity to win favorable terms from investors, both when they put money into his projects and when they tried to take it back out. Though not entirely unprecedented, charismatic finance became something new in Trump’s hands—the cornerstone of a business strategy and a gateway to other opportunities in television, politics, and the new economy of celebrity. The customer of finance rather than the financier himself, Donald Trump inspired a new metric that investors would use to identify a select and privileged few, from Oprah Winfrey to Kim Kardashian. How often are you on the cover of a magazine? How much does the public know about your love life? How famous are you?

Casinos are relatively new and “real-estate development” can cover a pretty broad spectrum of activities, so for the sake of historical comparison let’s focus on Trump’s work as a hotelier. Here’s what a Toms-Wilson-Wright two-by-two looks like for the hotel industry over the past two centuries:

Product Innovation No Product Innovation
Financial Innovation Paran Stevens Donald Trump
No financial innovation E. M. Statler, Conrad Hilton Most hotel developers and managers

Paran Stevens, a mid-19th-century hotel developer and manager, built the first hotel chain and possibly the first chain of any kind in the world. By the Civil War, one could stay in Stevens’s hotels in Boston, New York, Philadelphia, and Mobile, Alabama. Stevens brought many product innovations to the industry—he installed the first hotel elevators, legitimating the technology as a mode of transport for passengers as well as freight, and in the 1870s he was a pioneer of a mutation of the hotel called the apartment house—but the creation of the chain was his most important contribution to capitalist enterprise. By bringing a common brand and standard of luxury to an assortment of hotels, he signaled to his customers that they ought to remain loyal to his product when they traveled from city to city. And, in publicity coups, he got both Jenny Lind, the famed singer known as the Swedish Nightingale, and the Prince of Wales to do just that.

But Stevens was also an innovator in the game of wooing and managing investors. Before Stevens, hotel design was mostly the product of a conversation between investors and their architects. Stevens inserted himself, the hotel manager, into the process, essentially inventing the occupation of hotel developer and using it to reorder the power relationship among people who designed, financed, and ran hotels. As historian Molly Berger describes in her book Hotel Dreams, Stevens used this new role most fully during construction of the Continental in Philadelphia. Though investors balked at many expenses, especially a pricey elevator model, Stevens kept them in line and ultimately won all the concessions and funding he required.

Paran Stevens was the greatest hotelier of the 19th century, but at the dawn of the 20th, E. M. Statler changed the hotel game completely. His slogan “a bed and a bath for a dollar and a half” identified two radical shifts to the traditional business model. Every room would have an attached bathroom, making travel more amenable to tourists and families, and the price was a bargain reached through efficiency and economies of scale. For example, he invented the “Statler plumbing shaft,” the concept of stacking bathrooms on top of each other in a building so that sets of pipes could run straight up and down, making construction and maintenance cheaper and easier. This innovation was quickly adopted in all sorts of large-scale construction, including, probably, the building you are sitting in as you read this article.

In the past, top hotelkeepers had boosted profits by increasing luxury, raising costs, and targeting wealthy customers, but Statler, by appealing to a broad and growing middle class, found a way to make a lot more money. To do all this, Statler found no need for new forms or strategies of financing; product innovation moved forward swiftly without any financial innovation. The same is true of Conrad Hilton, the greatest hotel developer of the Cold War era. As Charles Harvey and Mairi Maclean show in a forthcoming book, Hilton built on Statler’s innovations (and eventually bought his chain), developed the concept of the airport hotel, and spread American-style hotels around the world as representatives of freedom and democracy and bulwarks against Communism. Product development, perhaps, but not financial development.

And then there is Donald Trump. His hotels provided no new innovations in product design—developers had been putting casinos in hotels for decades, and his short ownership of the Plaza Hotel in New York demonstrated his commitment to tradition.

But Trump, like Paran Stevens before him, used his position as a consumer of finance to change how the game was played. Using celebrity to sell a product was nothing new, and even Stevens had used celebrity to win favorable borrowing terms, but with the celebrity of his customers, not his own—at the end of 1860, his credit report from R. G. Dun noted approvingly that “S. has had a streak of remarkable luck in having successively the Prince of Wales and suite at his hotels in Phila. New York and Boston, giving him great profits and greater eclat.” Trump followed this strategy when he opened Trump Tower, and the gossip columns reported that Johnny Carson, Steven Spielberg, and Liberace would be moving in. Trump even leaked a rumor that Prince Charles and his new bride Diana would be purchasing; unlike Paran Stevens, he never actually convinced a Prince of Wales to come stay at his place.

By the mid-1980s, though, Trump no longer had to rely on the celebrity of his customers for publicity—he was a media superstar in his own right. He built this self-publicity in many ways: Courting cover articles in periodicals like Gentleman’s Quarterly, Town & Country, Business Week, Newsweek, Time, and The New York Times Sunday Magazine; buying a football team in the short-lived United States Football League and reaping coverage in the sports pages; renovating Wollman Memorial Rink in Central Park as an extremely high-profile act of civic duty; naming buildings after himself (and using gaudy three-foot brass letters above the front doors to make sure everyone knew); licensing his name for use by companies manufacturing pens, eyeglasses, and a board game; and floating the idea of a run for president as early as 1988.

For Trump this publicity was an end in itself. “If I get my name in the paper, if people pay attention,” he once told his lawyer Jerry Schrager, “that’s what matters. To me, that means it’s a success.” It also helped bring tenants to his buildings and gamblers to his casinos.

But the novel aspect of Trump’s love for publicity seems to have been the effect it had on his creditors. Once upon a time, he had used charm, political connections, and hard work to secure financing for his projects; by the end of the 1980s, his fame was bringing him even better deals from bankers. When he moved to purchase the Plaza Hotel, a group of investors led by Citibank offered him a loan of $425 million, almost $20 million more than the price of the hotel, (which, Trump admitted, was itself an overpayment—he bought the hotel for prestige, not for profit). Blanche Sprague, a Trump executive, later reminisced that Trump “was like an international superstar…Donald would walk in and shake a few hands and smile, and then boom, there was the money.” Around this time, Trump abandoned the investment bank Bear Stearns, which had financed his first two casino purchases, because Merrill Lynch offered to leverage his properties at ever-higher levels through sales of more than half a billion dollars in junk bonds. As Bear Stearns’ head Ace Greenberg later said, “the world was offering him deals we could not and would not compete with.” Those who had known and worked with Trump for years could not quite believe the favorable terms from newcomers that his celebrity bought him. As Trump biographer Gwenda Blair writes, Trump convinced “major banks and other financial institutions that his name made any asset worth more and that they could therefore ignore their usual lending guidelines and demands for collateral.”

If this use of charismatic finance helped Trump on his way up, it also softened the landing on his way back down. As Blair reports, in the early 1990s, when Trump began to miss large interest payments on his debt ($43 million on Trump Castle bonds, $30 million to Manufacturers Hanover, etc.), he undertook a first round of negotiations that ended with an immediate additional loan of $20 million and another $65 million over five years, lowered interest rates, and a suspension of interest payments on almost half his debt to the banks. The agreement included a budget for his personal expenses, but it was extremely generous—$450,000 a month. He did not lose any of his properties. Non-celebrities did not win those kinds of terms. Over the next couple of years, restructuring continued—including the first two of his four famed bankruptcies—and in each case, his fame played a role in helping him back from the brink.

Trump’s most unusual, perhaps ingenious financial maneuver also happened during these years, another tale Blair recounts. His father Fred sent a lawyer to Trump Castle to buy more than $3 million in poker chips and hold onto them. State law required that in the case of a casino default, chip holders would be repaid first, so this was essentially a loan to Trump that was insured against insolvency. Technically this was illegal—a license from the Casino Control Commission of New Jersey was required to loan money to an Atlantic City casino, and Fred Trump had no such license—but Fred had received a verbal approval from the Commission beforehand, and in the end he only paid a fine of $65,000 and was certified after the fact by the Commission as a lending source. Though the poker chip maneuver did not itself rely on Donald Trump’s fame, its resolution may have. He recovered from his financial troubles in the early 1990s, and within a few years was again raking in stunning amounts of money from investors—a $125 million mortgage from Deutsche Bank for 40 Wall Street, $58.5 million from the Korean conglomerate Daewoo to build Trump World Tower near the United Nations. He pulled through similar problems in the next decade, his name again hardly scathed.

Does Donald Trump see this strategy of charismatic finance as his invention? Perhaps not—for Trump, it seems that fame has always been the first priority, not a means to win better terms from investors (or earn more profits from those investments). He must be aware that his celebrity has helped him with creditors, and this, more than any luxurious detail or over-the-top marquee, is his greatest legacy as a capitalist.

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