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Andrew Carnegie
1835 - 1919
 


The Scottish-born American industrialist and philanthropist Andrew Carnegie was one of the first "captains of industry." Leader of the American steel industry from 1873 to 1901, he disposed of his great fortune by endowing educational, cultural, scientific, and technological institutions.
 

 

Andrew Carnegie typified those characteristics of business enterprise and innovation that changed the United States from an agricultural and commercial nation to the greatest industrial nation in the world in a single generation - between 1865 and 1901. The era has sometimes been called the "Age of the Robber Barons" on the assumption that because no public regulation or direction existed large fortunes were built by unprincipled men who corrupted officialdom, despoiled the country's natural resources, and exploited its farmers and labourers. Surely, there were some men who manipulated the corporate securities of the companies they controlled in the stockmarket for their own gain, but the only victims were their fellow speculators.

The entrepreneurs of the period not only built and modernized industry, but because they were technologically minded, they increased the productivity of labour in agriculture, mining, manufacturing, and railroading. As a result, the real wages of workers and the real wealth of farmers went up sharply.

In all this, Carnegie was a pacesetter. He was a stiff competitor; ploughing back company earnings into new plants, equipment, and methods, he could lower prices and expand markets for steel products. In years of recession and depression he kept running his plants, undercutting competitors, and assuring employment for his workers.

These 19th-century entrepreneurs were successful in a dog-eat-dog world for several reasons. Government followed a hands-off policy: it did not regulate; it also did not tax. Government had not yet made commitments to social justice, protection of the poor, or more equitable distribution of the national product. At the same time, the customs, attitudes, and sanctions of the period - and the law writers, courts, economists, Protestant clergy, and even the trade unionists affiliated with the American Federation of Labour - accepted the unequal distribution of wealth. In fact, success in the marketplace was equated with the virtues of hard work, thrift, sobriety, and even godliness.

It was in this kind of world that Carnegie, a man of boundless imagination and great organizational skills, built his companies and made steel efficiently and cheaply. He fought competitors and also efforts at market and price controls by the mergers and oligopolies that began to appear in the 1890s. Because he was successful, he had to be bought off: this was the origin of the U.S. Steel Corporation in 1901, the greatest merger of the era; and it was the end of Carnegie's career as a steel-master. But it was not his end as a citizen, for he closely followed national and international developments, particularly the search for world peace, and expressed himself forcefully in writings and before legislative committees on questions of the day; and he helped lay plans for the organizations he set up to use his very large endowments.


Youth and Early Manhood

Carnegie was born on Nov. 25, 1835, in Dunfermline, Scotland, the son of William Carnegie, a home linen weaver, and Margaret Morrison Carnegie, daughter of a tanner and shoemaker. It was a time of ferment in Scotland as machine looms displaced skilled cottage workers like Carnegie's father, and social and political inequalities radicalized such humble craftsmen. Because they lived in a caste-ridden society, agitations for reform were unsuccessful. When he came to contrast Britain with America in his Triumphant Democracy (1886), Carnegie said, "it is not to be wondered at that, nursed amid such surroundings, I developed into a violent young Republican whose motto was 'death to privilege."'

In 1848 the family moved to the United States, settling in Allegheny City, across the river from Pittsburgh. The father obtained employment in a cotton factory, which he soon quit to return to his home handloom, peddling damask linens from door to door; Andrew, in the same mill, became a bobbin boy at $1.20 a week. The fierce desire to rise and to help take care of the family (he was soon its chief support for the father died in 1855) pushed Andrew to educate himself and to learn a craft. He became an indefatigable reader, a theatre-goer who knew his Shakespeare so well he could recite whole scenes, and a lover of music with a cultivated taste.

At the age of 14 Carnegie became a messenger boy in the Pittsburgh telegraph office, and 2 years later a telegraph operator. So quickly did he improve himself that at 18 Thomas A. Scott, superintendent of the western division of the Pennsylvania Railroad, made Carnegie his secretary at $35 a month, soon raised to $50 - a large enough salary to buy a house for his mother.

Carnegie stayed with the Pennsylvania Railroad until 1865, by which time he was a young man of real means. During the Civil War, when Scott was named assistant secretary of war in charge of transportation, Carnegie went to Washington to act as Scott's right-hand man and to organize the military telegraph system. But Carnegie soon was back in Pittsburgh, succeeding Scott as head of the Pennsylvania's western division. He was one of the backers of the Woodruff Sleeping Car Company, the original holder of the Pullman patents, and also bought into a successful petroleum company. He became a silent partner in a number of local small iron mills and factories; the most important was the Keystone Bridge Company, formed in 1863, of which he owned a one-fifth share.

Between 1865 and 1870 Carnegie became a self-designated capitalist. He travelled in and out of England, peddling the bonds of small United States railroads and publicly chartered bridge companies. He probably sold as much as $30 million in bonds and may have made in commissions from them, and from the iron products he also sold, $1 million.

During this time Carnegie watched the revolutionary changes taking place in the English iron industry as a result of the adoption of the Bessemer converter. Steel, he saw, was bound to replace iron for the manufacture of rails, structural shapes, pipe, wire, and the like.

In 1870 Carnegie decided that instead of being a "capitalist" with diversified interests he was going to be a steelman exclusively. Using his own capital, he erected his first blast furnace (to make pig iron) that year and the second in 1872. In 1873 he organized a Bessemer-steel rail company, a limited partnership. Depression had set in and would continue until 1879, but Carnegie persisted, using his own funds and getting local bank help. The first steel furnace at Braddock, Pa., began to roll rails in 1874. Carnegie continued building despite the depression - cutting prices, driving out competitors, shaking off faltering partners, ploughing back earnings. In 1878 the company was capitalized at $1.25 million, of which Carnegie's share was 59 percent; from these policies he never deviated. He took in new partners from his own "young men" (by 1900, he had 40); he never went public, capital being obtained from undivided profits (and in periods of stress, from local banks); and he kept on growing, horizontally and vertically, making heavy steel alone. From 1880 onward, Carnegie dominated the steel industry.


Continued Growth

In the 1880s Carnegie's two most important acquisitions were his purchase of majority stock in the H. C. Frick Company with vast coal lands and over 1000 coking ovens in Connellsville, Pa., and the Homestead mills outside of Pittsburgh. Frick became his partner and, in 1889, chairman of the Carnegie Company. Carnegie had moved to New York City in 1867 to be close to the marketing centres for steel products; Frick stayed in Pittsburgh as the general manager. Frick and Carnegie made an extraordinary team. Carnegie, behind the scenes, planned the expansion moves, installation of cost and chemical controls, and modernization of plants. Frick was the working director who rationalized the mass-production programs necessary to keep prices down. It was Frick who saw that vertical integration was imperative and achieved the company's control (by purchase and lease) of iron ore mines in the Lake Superior area, linking Carnegie ore ships and railroads with the Pittsburgh complex of furnaces and mills.

Carnegie was wise enough to use his leisure for traveling, writing, and expanding his tastes. His first book, Round the World (1881), was a modest recital of widening horizons. His second, An American Four-in-Hand in Britain (1883), related a coaching trip through England and Scotland with his mother. The third, Triumphant Democracy (1886), surveyed the social and economic progress of the United States from 1830 to 1880, but woven in was a secondary theme: the contrast between American egalitarianism and the unequal, class societies of Britain and the other European countries. To Carnegie, easy access to education was the key to American democracy's political stability and industrial accomplishments. He said, "Of all its boasts, of all its triumphs, this is at once its proudest and its best."

In 1889 Carnegie published an important article, "Wealth" (republished in England as "The Gospel of Wealth"), in which he held that it was the duty of rich men to get rid of their fortunes, administering them personally for the welfare of the community. He did not gloss over the inequality of wealth, but he saw wealth as a stewardship to be employed productively, for modern industrialization and mass production had wide social benefits. As a result, he said: "The poor enjoy what the rich could not before afford. What were the luxuries have become the necessities of life."

Carnegie remained a bachelor until his mother died in 1886; a year later he married Louise Whitfield (their only child, Margaret, was born in 1897). The couple began to spend 6 months each year in Scotland, but Carnegie kept in close touch with developments and problems in the ramifying Carnegie Company, no minute detail of management escaping his attention.


Trials of the 1890s

The 1890s presented three serious challenges: two were surmounted, and one left a deep hurt and stained Carnegie's reputation. The bitter nationwide depression of 1893-1896 resulted in plant shutdowns, mass unemployment, and collapsing markets. But the Carnegie Company, by following Carnegie's famous injunction "Take orders and run full," pushed prices down, retained its workers, and made profits. Carnegie was hostile to pools, that is, collusive arrangements among steel companies to limit production and steady prices. He withdrew from them and undersold his competitors.

Carnegie's absence from the United States, together with his silence during the Homestead strike of 1892, was a tragic error. The Carnegie Company had acquired Homestead in 1883, invested $4 million in new plants and equipment, increased production 60 percent, and automated many of its operations, thus sharply stepping up productivity per man-hour but cutting down the number of skilled manual workers needed. These workers belonged to a craft union, the Amalgamated Association of Iron and Steel Workers, a member of the American Federation of Labor. From 1875 on the Carnegie Company had been negotiating wage and work agreements on a 3-year basis with this union. Thus, the Carnegie Company was not antiunion, and in two articles that Carnegie wrote in 1886 he declared that workers had a right to negotiate with management through their unions. He recognized the right to strike, as long as the action was peaceably conducted; management on its part was to shut down its plants and make no effort to use strikebreakers or protect them with private guards. Strikes, he said, should not degenerate into warfare but were to be regarded as trials of strength, with peaceful negotiation terminating the contest.

To show his good faith, Carnegie suggested a so-called sliding scale for wage determination in his own shops. There would be a guaranteed wage minimum, but rates would go up or down as market prices for steel products rose or fell. The union accepted such a contract for Homestead in 1889, but it was terminating on July, 1, 1892, and the union sought to renegotiate with the sliding scale. Frick had submitted a counterproposal calling for a lowering of the minimums from which wage rates were to be scaled, because modernization had resulted (in modern terminology) in more capital inputs and less labor inputs. Labor's contribution to the increased productivity had declined, as had the number of skilled manual workers. The two sides met head on; neither would yield, and on June 30, 1892, the Homestead mill shut down as a result of both a lockout and a strike.

Carnegie had departed for Scotland in the spring, having instructed Frick that in the event of a strike there was to be a complete shutdown and no strikebreakers. Apparently when Frick refused to meet with union spokesmen a second time, he meant to smash the union. Carnegie's silence, despite his previous statements, meant approval. In any event, Frick decided to open the company properties by force, and he hired the notorious strikebreaking Pinkerton Agency. It is beside the point whether Frick's intention was simply to protect the Carnegie properties (as he contended) or to recapture the plants and use strikebreakers (as the workers believed).

On July 6 two barges carrying 300 Pinkertons moved up the Monongahela River and were fired on from the hills and the shore. The Pinkertons also fired, but they were unable to land and surrendered, asking for safe conduct back to Pittsburgh. Five strikers were killed, three Pinkertons fatally wounded, and scores on both sides injured. The strikers had won the battle of Homestead; the company property was still virtually in their possession. Five days later the governor of Pennsylvania sent in 8,000 militia to restore order and open the plant.

Carnegie, from abroad, said nothing, except, in a letter dated July 17: "We must keep quiet and do all we can to support Frick and those at Seat of War…. We shall win, of course, but have to shut down for months." On July 27 the Homestead works reopened under military protection; new workers were hired, and old ones were permitted to return on an individual basis. The militia was withdrawn in September, and 2 months later the union called off the strike; thenceforth the Carnegie Company (and U.S. Steel which succeeded it) remained nonunion until the middle 1930s.

Carnegie never got over the consequences of Frick's actions. Years later he wrote: "I was the controlling owner. That was sufficient to make my name a by-word for years." But, as controlling owner, he had neither intervened nor repudiated Frick.

In the 1890s Carnegie, for the first time, began to meet with stiff competition from giant corporations which had been put together, recapitalized, and made public by the investment houses of J. P. Morgan and Company in New York and the Moore Brothers in Chicago. Because they were overcapitalized, these companies were interested in stability in an industry with excess capacity and fluctuating market conditions. They wanted controlled prices, prorations of the market, and tying agreements rather than Carnegie's ruthless competition with all comers.

The new combines made heavy steel and light steel; and because the second group was tied into the first by "communities of interest," they threatened to cut down their purchases from Carnegie unless he was willing to play their game.

Carnegie had thought of selling out and retiring in 1889: his annual income was $2 million, and he wanted to cultivate his hobbies and develop the philanthropic program that was taking shape in his mind. But the threats that now came from the West as well as the East were too much for his fighting spirit and his sense of outrage, and he took the war into the enemy camp. He would not join their pools and cartels; moreover, he would invade their territories by making tubes, wire and nails, and hoop and cotton ties and by expanding his sales activities into the West. He ordered a new tube plant built on Lake Erie at Conneaut, which at the same time would be a great transportation center with harbors for boats to run to Chicago and a railroad to connect with Pittsburgh.

Thus originated the U.S. Steel Corporation in 1901, through the work of J.P. Morgan. The point was to buy Carnegie off at his own price - as he was the only disturbing factor that held back "orderly markets and stable prices." The Carnegie Company properties were purchased for almost $500 million (out of the total capitalization of the merger of $1.4 billion); Carnegie's personal share was $225 million, which he insisted upon having in the corporation's first-mortgage gold bonds. At last Carnegie was free to pursue his outside interests.


Development of Taste

Carnegie had started cultivating his interests in books, music, the fine arts, learning, and technical education early in life. He began to set up trust funds "for the improvement of mankind." The first were for "free public libraries"; some 3,000 were scattered over the English-speaking world. In 1895 the magnificent Carnegie Institute of Pittsburgh was opened, housing an art gallery (at his request, one of the first to buy contemporary paintings), a natural history museum (which also financed archeological expeditions), and a music hall. Originally under the institute (but separated in 1912) was a group of technical schools which blossomed into the Carnegie Institute of Technology, today the basis of the Carnegie Mellon University. The Carnegie Institution of Washington was set up to encourage pure research in the natural and physical sciences. He built Carnegie Hall in New York City. The Foundation for the Advancement of Teaching was created to provide pensions for university professors. Carnegie established the Endowment for International Peace to seek the abolition of war.

In all, Carnegie's benefactions totaled $350 million, $288 million going to the United States and $62 million to Britain and the British Empire. The continuation of his broad interests was put under the general charge of the Carnegie Corporation, with an endowment of $125 million. Carnegie died on Aug. 11, 1919, at his summer home near Lenox, Mass.
 


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Industrialist and philanthropist. Andrew Carnegie's awesome prowess in getting wealth and giving it away enriched his adopted nation even more than himself. The circumstances of his boyhood fostered both passions. His mother exemplified the proverbial thrift and enterprise of his native Scotland. The plight of his father, a weaver whose skill was made worthless by new machinery, brought home the pain and humiliation of poverty. But money was not the sole concern of Carnegie's family; his father and uncles were zealous in the cause of political democracy and social justice. When Andrew was twelve, the family set out for America, the land of promise for both material ambition and social idealism.

Kin and countrymen in the new land smoothed the Carnegies' way and led them to Pittsburgh, well fitted by natural resources and river transport to soar with American industry in its rocketing takeoff. Young Andrew rose with it. As a bright, alert, cheerful telegrapher he won the favour of Thomas A. Scott, a high official of the Pennsylvania Railroad. At twenty-four, Scott's protégé became superintendent of the western division of the railroad. With Scott's help in the form of a loan, advice, and influence, Carnegie was already making money in stocks, and by his thirties he was a wealthy investor, promoter, and entrepreneur in a variety of enterprises. During the depression of the seventies, with properties cheap and the Bessemer process coming into its own, Carnegie concentrated all his resources and energies in the making of steel. He hired the best people in steel technology and plant management, shrewdly held on to absolute control of his enterprise the better to plough back profits into capital improvements, and outgeneralled all his rivals in the field. By applying the coordinating and cost accounting techniques he had learned from the Pennsylvania Railroad, holding down wages and salaries, keeping up with the latest technology, and "hard-driving" both his men and his furnaces, he held costs to a minimum and prices below his competitors', thereby capturing an ever-growing share of the market and maximizing return on plant investment. By his sixties, having vertically integrated his holdings from ore to finished products, he dominated the American steel industry, which he had done much to make first in the world. When he sold out to the Morgan-created United States Steel Corporation in 1901 for $250 million in U.S. Steel bonds, he found himself one of the world's richest men.

But despite his wealth-getting, his wage-cutting, and his responsibility for a bloody labour dispute at his Homestead plant in 1892, Carnegie had not forgotten his heritage of concern for social justice. In his 1889 article "Wealth," he gloried in the cheap steel his leadership had given the American consumer but also proclaimed the moral duty of all possessors of great wealth to plow back their money into philanthropy with the same judgment, zeal, and leadership they had devoted to getting rich. And he lived up to that precept, paying for thousands of library buildings, setting up trusts and foundations, endowing universities, building Carnegie Hall in New York and the Peace Palace at The Hague, and much more. He once wrote that the man who dies rich dies disgraced. He had some sins to answer for, and it took him a while, but in 1919 at eighty-three Andrew Carnegie died in a state of grace by his own agnostic definition.


 

 

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This web page was last updated on: 21 December, 2008