The Match King: Ivan Kreuger and the Financial Scandal of the Century
Profile Books, 288pp
Review by Jeremy Leasor
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F ame has all the lure of solidity and permanence but it is seldom any more substantial than smoke on the wind. How eagerly it is sought, at what a terrible price, how brief its life and how bitter its taste, when even a colossus may leave no more lasting impression than his shadow on the ground.
The Match King tells the remarkable story of a man who rose from obscurity to become one of the wealthiest men in existence with an empire spanning the globe, encompassing everything from mining, including the world’s third largest gold mine, banking, communications and real estate to the film business — all built on the back of safety matches.
This man stood at the heart of a seven-year stock-market boom and developed many financial instruments which were then revolutionary but came to dominate the financial world. His securities were among the most widely held and traded. He was the confidant of presidents, dictators and film stars, but when the end came and his empire imploded, those who had once hailed him as a genius, a saviour and a high priest of business denounced him as the greatest swindler in history.
He was indeed a colossus who had achieved worldwide fame, but who now remembers Ivar Kreuger?
Kreuger was born in 1880 in Sweden. His father was the manager of a small match factory that his ancestors had built in Kalmar, by the Baltic. After Ivar graduated from engineering school in Stockholm he worked in construction in America and Mexico, formed a construction partnership in London and then expanded into film, real estate and communications. By the outbreak of the World War I he was a millionaire. He then decided to return home to exploit the enormous potential of matches.
From the point of view of the 21st century, safety matches might seem a somewhat unusual foundation for an empire, but it must be remembered what an essential commodity they were at the time. Most people smoked, everyone needed to cook, and the easiest way to light cigarettes, stoves and fires was with a match. Electric cookers were still a thing of the future.
By 1922, Ivar’s company, Swedish Match, was producing two-thirds of the world’s matches, 20 billion boxes a year. The secret of his success was simple: he created a monopoly. First he secured the sources of the necessary raw materials and then he bought the competition or put it out of business. He was now free to set his own prices. His vision was to repeat this globally and to sell the dream to America.
Monopolies were outlawed in the US, but Kreuger’s genius was to give American investors the opportunity to profit from monopolies abroad, which the governments had granted him in return for loans funded by the investors’ subscriptions. It seemed almost too good to be true. That was what appealed to the investors. The media rapturously likened him to the Medicis.
In this fascinating book, Frank Partnoy describes in detail Kreuger’s spectacular rise and seemingly inevitable fall. Partnoy spent six years researching Kreuger and had access to papers ignored by commentators at the time. Had they bothered to look, they would have discovered a rather different story from the popular myth that Kreuger had perpetrated the greatest financial fraud in history and then committed suicide (or did he?
There was speculation that he might have been murdered and even that he faked his own death). Not much has changed since then. Why let the facts get in the way of a good story which also happened to be very convenient?
Kreuger has been described as the Bernie Madoff of his time, but this again ignores the facts. Madoff operated a Ponzi scheme, a pyramid confidence trick promising impressive returns, where the dividends paid to the earliest investors come from the subscriptions of those who follow. Kreuger did not operate a Ponzi scheme; his investments were later found to have had real value. A number of his companies survived and thrive today.
W here The Match King is particularly interesting is as a record of human folly. Not so much the folly of Kreuger — like the founders of most great fortunes, he took enormous risks and sometimes overstepped the boundaries of legality — but that of the bankers, politicians and investors who revered him as a messiah and were desperate for anything he could sell them. When it all collapsed they looked for a scapegoat: Kreuger.
He was not responsible for the great crash of 1929. He was not even one of its causes. His companies’ stocks retained their value longer than most. If anything, he was one of its victims.
It is inevitable that comparisons are drawn between that unhappy time and the present. The student of human nature will be amused, but not surprised, by the similarities: politicians bleating about inadequate regulations and calling for more control, bankers and investors claiming that they were victims like everyone else, and the public demanding witch-hunts. The politicians, venal and craven as ever, are happy to oblige in the hope that it might deflect attention from their own culpability. In truth, all are to blame.
Then, as now, it was not so much that regulations were inadequate as that existing ones were either not enforced or had been tampered with for short-term political gain. Regulations were in any case a red herring, then as now.
The real issues, which no amount of control or regulation can ever eliminate, are simply greed, ambition, wilful ignorance and a lack of common sense. The crash of 1929 and the current recession were part of a cycle. Both were predicted. The signs were always there for those who cared to see.
Predictably at such times there is much talk of lessons needing to be learnt. But what are those lessons? They never change. The most important is that no one ever learns from them and the cycle is doomed to continue.