Electric guitars: capitalism built that

Chris Edwards Director of Tax Policy Studies, Cato Institute
Font Size:

The magazine Guitar World is not known for addressing public policy questions, but a recent issue reminded me of President Obama’s July 13 comments on business. The president said, “If you’ve got a business, you didn’t build that. Somebody else made that happen.” Les Paul and other guitar industry pioneers must have turned over in their graves.

Guitar World usually reports on musicians and playing techniques, but a new issue focuses on the guitar companies that powered the 20th-century music explosion. Behind every company is a story of entrepreneurial struggle. There are failures, successes, and innovations that have improved the lives of millions of music lovers — and the word “government” isn’t mentioned anywhere.

The electric guitar story usually begins with Les Paul, who was a musician and a tinkerer. During the 1930s, Paul experimented with electrifying acoustic guitars, but he realized that an electric guitar with a solid body might be even better. In 1941 he took his creation — “the Log” — to established guitar maker Gibson in Michigan. The company laughed at Paul’s strange instrument and “saw no reason to take a chance with some newfangled solid body contraption,” says Guitar World.

Paul also ran into doubters with his multi-track recording experiments. In 1947 one of his multi-track guitar songs sounded so weird that his label Decca Records refused to release it. So Paul took his talent to Capitol Records and recorded many hits for them. Paul also got the last laugh with Gibson. Rival guitar maker Fender had successfully released the Broadcaster in 1950, which became the world’s first commercially produced solid body electric. Gibson, realizing its mistake, scrambled to get Paul’s help in designing its own solid body electric.

There was no grand plan in Les Paul’s advances. He simply loved exploring new ideas and getting feedback from musicians and the public. Guitar World notes that Paul “created extraordinary opportunities where none existed.” Paul faced many challenges, but he noted: “If it was all a gravy train, you wouldn’t fight so hard and you’d probably never accomplish anything.”

Leo Fender was a lot like Les Paul. He fiddling around with electronics at his California radio shop, and he also stumbled on the idea of making a solid body electric guitar. His Broadcaster, renamed Telecaster in 1951, was a sleek design that used modern manufacturing techniques and “broke with centuries of luthier tradition.” Like many entrepreneurs, Fender’s idea was to produce a high-quality product at the lowest possible price so that as many consumers as possible could enjoy it.

Fender and Gibson have long been the dominant electric guitar makers, but to the benefit of consumers they have faced intense competition. Both firms began failing in the 1970s. Leo Fender sold his guitar company to conglomerate CBS in 1965, and within a few years musicians began noticing substantial drops in product quality. A similar quality decline happened at Gibson in the 1970s, which was also controlled at the time by an ineffective corporate parent.

Japanese guitar firm Ibanez saw an opportunity. The company had expanded into electric guitars in the 1960s with the idea of making cheaper copies of American products. But by the 1970s the firm realized that it could make higher-quality products than the American firms, but at very competitive prices. And like Honda and Toyota in automobiles, Ibanez focused on product innovation, while the American firms seemed to rest on their laurels. Ibanez has been a big success, and it is one of the top guitar firms today.

Many other firms were entering the market for guitar equipment. Randall Smith started guitar amplifier company Mesa Boogie in his California workshop in the late 1960s. Smith told Guitar World that he saw the decline of Fender and Gibson in the 1970s, and he was determined to “avoid that fate and remain dedicated to the instruments and the musicians that play them.” Smith’s company went on to invent an array of new features for guitar amps that have become standard in the industry.

Hartley Peavey has a similar story. As a teenager in Meridian, Mississippi, Peavey began building guitars and amps for his friends, which led to his founding Peavey Electronics in 1965. He wanted to offer consumers better value for money than the gear on the market at the time. Peavey’s early years were tough, but he used innovative manufacturing techniques to keep his costs down and to challenge Fender and Gibson with quality guitars at lower prices. Today, Peavey is one of the largest names in amps and guitars, and it ships many of its products worldwide from factories in Mississippi.

Hartley Peavey says that he has been driven to “to be the best.” That description also matches Paul Reed Smith, whose name graces his high-end Maryland guitar company. Smith started building guitars in college in the 1970s, and he eventually dropped out to focus on his business. In the early years, he lugged his guitars to rock concerts and nagged famous bands to give them a try. His hard work paid off, and today Smith’s guitars are known throughout the world for their beauty and craftsmanship.

As for Fender and Gibson, they finally got back on track after investor buyouts. By the early 1980s, Gibson was “floundering” and “might well have gone under,” notes Guitar World. Fender was “all but dead,” according to the company’s official history. But Fender was bought out in 1985 and Gibson was bought out in 1986 by teams of investors determined to revive the traditions of quality at the firms. Today, Fender and Gibson are back on top of this very competitive industry.

In Obama’s July 13 comments, he said that “if you’ve been successful, you didn’t get there on your own.” But when you read about the gutsy entrepreneurs behind many industries, you can see why the president’s comments offended people. It is true that some industries rely on the government, such as the defense industry. But most industries are like electric guitars — they were built by individuals with the drive and vision to try and make something new.

Chris Edwards is director of tax policy studies and editor of DownsizingGovernment.org.