(FORTUNE Magazine) – The golf course has been the stage for some truly high-powered moments in business. Andrew Carnegie was on the links in 1901 when he was persuaded to sell his empire to J.P. Morgan, creating the first billion-dollar corporation, U.S. Steel. John D. Rockefeller was playing his personal 12-hole course when told of the Supreme Court ruling that broke up Standard Oil. A game that took place in mid-July in Sun Valley, Idaho, may not match those two games in historic import, but it may have set a new record for aggregate economic might. The players included the CEO of the world's largest company, the world's most successful investor, and the world's richest man. Picture all that raw clout piled into one battery-powered cart, and you have the right visual to open this, FORTUNE's Power Issue.

Singling out "power" for a special issue of FORTUNE is a bit like Sports Illustrated devoting an issue to "athletics." Power defines FORTUNE--it's what we write about every issue, special or not. Back in 1929, founder Henry Luce was even thinking of naming his new magazine Power. While we're grateful he passed on that one (as well as Tycoon), Luce was onto something. Business, like golf, isn't solely about power--sinking those putts counts too--but power is in business's soul.

People acknowledge power's presence in ways we're not even aware of. Put two people in a room, research by Steve Ellyson of Youngstown State University has found, and the less powerful one seeks more eye contact while listening (See, I'm taking in everything you say, boss) and less eye contact while speaking (I'm expressing my thoughts but am not a threat to you). The more powerful one, other studies show, tends to smile less, sits in weirder positions, and does more "steepling." Touching one's fingers together in a raised position--Sherlock Holmes and The Simpsons' Mr. Burns both do it--turns out to be a dominance display that's most potent "right at eye level," notes Ellyson, "so one person has to look through the other's hands."

It's difficult to look at Edward Steichen's 1903 portrait of J.P. Morgan and not think "power" and, probably, "menace." The famous image, in which the most powerful businessman who ever lived wields a penetrating scowl and what appears to be a gleaming dagger, is a photographic trompe l'oeil: The dagger is the metal handle of his chair, the scowl a fleeting reaction to Steichen's requests. Yet even knowledge of the illusion doesn't dilute its force. Here is Morgan--a man who controlled assets equal to two-thirds of the nation's output and stemmed a 1907 panic by locking 50 bankers in his offices--experienced as an elemental force, his gaze powerful enough to part crowds.

But recognizing power is one thing. Ranking it is another. When FORTUNE set out to create a list of the 25 most powerful people in business, our goal was simple: to provide a snapshot of who controls the commanding heights of the American economy. Our definition of power was straightforward: the ability to affect the behavior of other people--whether in a company, an industry, or the world at large. The simple part pretty much ended there. We soon came to understand the four immutable laws of the quantification of power.

Law One. Power, like gravity, can't be observed directly. Only its effects can. If, for instance, your corporate name is popularly used as a verb ("Have you Googled him yet?"), it's an indication you have some power, but not proof positive. If it shows up in Eminem's lyrics ("I watch TV/and Comcast cable"), you're getting closer. If you're able to get Jack Grubman's kid into Manhattan's 92nd Street Y--now we're in top 25 territory.

Law Two. Absolute power, though it may corrupt absolutely, doesn't exist in business. Instead, everyone exerts power over someone else. The CEO who looks and acts like a captain of industry often turns out to be a captive--to Wall Street, to pensions, to lawyers, and especially to the CEO's own workers. The power that subordinates hold over their bosses, notes West Point leadership professor Col. Thomas Kolditz, is routinely underestimated. "I was interviewing Iraqi prisoners of war," he relates, "and most of them said that if their bosses had tried to make them fight, they'd have shot them."

Law Three. Power flows from a variety of sources, as Samson (hair), Popeye (spinach), and Mao (barrel of a gun) could have told us. There are those who are powerful among the powerful --Rasputins, headhunters, and Herb Allens--and those who change the behavior of the masses (Starbucks' $3 coffee). There's the power of the disrupter--the Napster that throws the game board in the air just as your hotels on Boardwalk were making money--and the power of the chokeholder, who exacts tribute from all who pass through his Gates. Then there's that indirect form of power known as "influence," which is how Steve Jobs manages to punch above his company's relatively puny weight.

Law Four. Comparing Apples to Microsofts ain't easy, which makes for a lot of highly spirited debate. (Also: fist banging.) It's like a game of rock-scissors-paper--rocks smash scissors, scissors cut paper, paper covers rocks. Which object is best to have? Well, is the most powerful person: (1) the megacompany CEO whom 100,000 employees salute as boss, (2) the bond trader who cuts the megacompany's value in half whenever he blows his nose, (3) the economist whose ideas subtly dictate the bond trader's moves, or (4) Lockheed Martin CEO Vance Coffman, who has enough air power to ionize all of the above? Rock, scissors, paper, Hellfire missile.

Picking through these intricate layers, one begins to see that the chest-thumping, Zeus-with-a-thunderbolt notion of power is merely the cartoon version. "It's an art form," says the historian Robert Caro, "a type of genius that's different from any other type of genius." Caro's two massive biographies--of Lyndon Johnson and New York's master builder Robert Moses--are among the most nuanced studies of power ever written. Both men were ruthless in their pursuit of it; Johnson as he ascended to leadership in the Senate, Moses as he tore up whole swaths of metropolitan New York for his roads and bridges. And yet their methods were different entirely. Johnson, notes Caro, "saw every man as a tool," using the magnetism of his personality to pull people close enough to find their weakness; once grasped, the weakness became the tool's handle. The misanthropic Moses--who hated to be touched--couldn't see the leverage points in men's psyches but worked the leverage points in New York's political system so single-mindedly that for 40 years and five mayors, he was untouchable. Caro recalls watching Moses stand with his pencil before a giant map of New York: "He was like an artist painting an entire urban and suburban region--one with 21 million or 22 million people--and seeing it as a single canvas. But of all the paints he used to paint that canvas, the most important was power. Without that, none of it would have worked."

Caro's main point: "The acquisition of power is a creative act." It was a cliche that no one could lead the Senate; LBJ created a way to lead it. It was a cliche that New York was ungovernable; Moses invented a way to govern it. For that matter, it was a cliche that nobody could make money in the computer business; Michael Dell found a new way to do it.

After several rounds of internal debate about our power list, two things became clear: first, that power is a really deep topic; second, that any list we published would provoke the same howls of protest and counterprotest that filled our offices. ("How can the CEO of Pfizer not be in the top ten?!") And yet in one area a strange civility broke out: When it came to deciding the list's highest slots, there was something close to unanimity. In fact, we'd narrowed the top three contenders to the trio who, coincidentally (hand on the Bible here), were set to play golf in Sun Valley.

We had our three biggest fish. That left the question: Who's the kingfish?

There's no debating who runs the most powerful company. Lee Scott's Wal-Mart is reshaping about 20 industries at once and would probably qualify for a spot on the UN Security Council if that body's membership weren't limited to "countries." Yet Scott may also be the most replaceable of the three. Bill Gates, as lead brain in a company powered by brainpower, is still Mr. Microsoft--and as Huck Finn might have said, he's got a powerful lot of green matter to go with his gray. Yet the company's $46 billion war chest is only potential, unrealized power unless it finds new behavior-changing ways to use it. Lately Microsoft has been parceling it out to investors as dividends.

Which brings us to our third golfer. Besides overseeing an empire known as Berkshire Hathaway, Warren Buffett has his finger in a lot of important pies (Coca-Cola, Gillette, the Washington Post Co.) and a personal fortune second only to Gates'. But the most arresting fact about Buffett may come from a recent Duke University survey of graduating MBAs: After their own father, the person the graduates admire most--more than the President, more than the Pope, more than Gandhi--is Warren Buffett. That remarkable stature gives him a power of moral suasion that's been made all the stronger by his sparing use of it. It's the ability to shape the behavior of people far beyond his direct reach merely through his words, and it's added to Buffett's image as American capitalism's unofficial Lord Protector.

He's got the rock, the scissors, and the paper. And now he's got something else: the top spot on our list.

AND NOW, FOR OUR LIST OF THE 25 MOST POWERFUL PEOPLE IN BUSINESS >>>