Andrew Carnegie Read online

  Andrew Carnegie was born on November 25, 1835, in the attic of a small, one-story house in the ancient town of Dunfermline, Scotland, that had been the medieval seat of Scottish kings. He was, by his own account, the child “of poor but honest parents.” When he was forced to leave Dunfermline to emigrate to the United States with his family in 1848, he could not possibly have imagined that one day he would return, the wealthiest man in the world, to build a castle of his own, where his personal bagpiper would awaken him every morning.

  Carnegie’s father, William, a master linen weaver, was well known in radical circles in Scotland as an organizer of workers’ marches against repressive English laws and an activist in the Chartist movement, which sought to democratize the British Isles by opening Parliament to representatives of the working people.

  On his mother Margaret’s side, Carnegie came from even more radical stock. Her father, a shoemaker by trade, was one of Scotland’s most irrepressible labor agitators. A fiery and eloquent speaker, he campaigned for democratic elections, an English republic modeled on the United States, new factory laws, freedom of trade, destruction of hereditary privileges among aristocrats, and the abolition of kings, the monarchy, and armies.

  Carnegie’s free-spirited parents lived only briefly in the house where he was born. They soon began to enjoy a booming damask-weaving trade that would last for another ten years. Formal schooling for Andrew began at the age of eight, his parents having kept him home until he declared himself ready. He was allowed to spend his days wandering the surrounding hills, soaking up the history of his homeland. His tutor was his uncle, George Lauder, a dreamy romantic who operated a grocery store but preferred to spend his time teaching Andrew about flowers, music, and the poetry of Robert Burns and William Shakespeare. Meandering through the fanciful setting where Macbeth and Malcolm had drawn swords, young Carnegie learned about democracy as he memorized Burns’ revolutionary verses. His uncle also taught him all he knew - and much that he imagined - about the United States and men such as George Washington, Thomas Jefferson, and Benjamin Franklin.

  The Carnegie family’s decline was rapid and unexpected. In 1836, Will Carnegie had such a good year that he bought a bigger house and three more looms and hired more apprentices. Seven years later, when a water-powered, damask-weaving mill opened in Dunfermline, Will would never again find steady work. The family hung on for five years, selling off one loom after another, letting apprentices go, selling their house, and moving back to a one-room cottage where Margaret learned to cobble shoes and ran a little dry-goods store out of her living room.

  Finally, in 1847, Will, a broken man at forty-two, told his son, “Andra, I canna get nae mair work.” Andrew Carnegie never forgot that day: “I remember that shortly after this I began to learn what poverty meant. Dreadful days came when my father took the last of his webs to the great manufacturers - and I saw my mother anxiously awaiting his return. It was burnt into my heart then that my father had to beg (for work). And then and there came the resolve that I would cure that when I got to be a man.”

  It was Carnegie’s gritty, determined mother who decided the family must emigrate. They would follow two of her sisters to America - to the grimy, smoky industrial town of Pittsburgh, Pennsylvania, the center of iron manufacturing in the United States. Borrowing from relatives the last twenty pounds they needed to pay for passage, the Carnegies embarked on a journey that took eleven weeks - the entire summer of 1848 - by steamer, sailboat, and Erie Canal barge. They were so broke by voyage’s end that they spent the last night of their journey sleeping on a wharf. Without a penny to their name, the Carnegies moved into two rent-free upstairs rooms in a dingy factory neighborhood called Slabtown.

  Andrew Carnegie subsequently went from Slabtown to uptown, and his life has lessons every leader can learn.

  An Exultant Breadwinner

  With the help of relatives and old friends who had left Scotland earlier, the entire family, except five-year-old Tom, found jobs. At age twelve, Andrew had the thrill of earning his first wages. He went to work oiling newly made bobbins in the cotton mill where his father labored. They left the house together before dawn, and, except for a forty-minute lunch break, worked until after dark. Andrew liked the regular pay, later writing that, “I was now a helper of the family, a breadwinner.”

  Pittsburgh had jobs enough for everyone. Soon, another emigrant from Dunfermline offered Andrew $2 a week to work for him in the cellar of a textile factory, where the young man ran a steam engine and fired the boiler that kept the machinery working. The responsibility “was too much for me,” he said. “I found myself night after night sitting up in bed trying the steam gauges.”

  The employer’s self-interest and Carnegie’s neat handwriting soon came to his rescue. He became a clerk in the office, making out weekly bills, writing correspondence a few days a week, and dipping bobbins in preservative oil the other days. The smell of oil would make him sick for the rest of his life. As much as he appreciated making more money, he admitted, “I never succeeded in overcoming the nausea.”

  Within a few months, another opportunity appeared: A friend of an uncle was managing a new telegraph office and needed a bright lad. As a telegraph-delivery boy, Andrew earned $2.50 a week.

  He was small (five feet, three inches), fast, and learned the city quickly. He also developed an uncanny knack for “reading” the telegraph key by ear before messages could be printed out. He had taught himself Morse code. Carnegie soon won promotion to telegrapher at a wage of $4 a week. He had more than tripled his earnings in a single year.

  By age sixteen, Andrew Carnegie had gained a reputation as the best telegrapher in Pittsburgh just as the Pennsylvania Railroad arrived in the city. Thomas A. Scott, the superintendent of the line’s western division, was often in the telegraph office and took a liking to the young man he called “my boy Andy.” Scott saw something of himself in Carnegie - both were ambitious and both had grown up dirt-poor. Scott offered Carnegie a job as his personal telegrapher and private secretary at the then-enormous sum of $35 a month. Carnegie leapt at the chance.

  Learning from the Ground Up

  As Scott’s secretary, Carnegie had a unique vantage point. Present at the creation of the era’s most modern and efficient business system, he watched and learned as the railroads adapted traditional management and finance techniques to fit their vast size and complexity. In twelve years with the Pennsylvania Railroad, the young man gained priceless experience. His job gave him managerial skills, a knowledge of economic principles, and a network of business colleagues.

  A new kind of business was taking shape. Because railroads demanded vast amounts of capital to expand, Carnegie learned that selling shares of corporate stock and bonds enabled growth with less risk than that associated with borrowing and paying interest. But to pay regular dividends to investors and salaries to workers, the railroads had to be run efficiently, with passenger and freight trains going round-the-clock. There was no product other than efficient service.

  The emerging railroad system was the first business to adapt a military-style system of rank and discipline, and it became the apex of corporate bureaucracy ceaselessly carrying out complex operations.

  Carnegie participated in the brisk growth that made the Pennsylvania the largest private business in the world by the end of the Civil War. The railroad comprised 3,500 miles of track, 30,000 employees, hundreds of locomotives, and thousands of railroad cars. As Tom Scott’s right-hand man, young Carnegie not only learned to deal with the new managerial class, but also had a master class in how to earn the loyalty and hard work of people on the front line. Having grasped the railroad’s operations so thoroughly in his first year, Carnegie was soon taking on greater respo
nsibility. For instance, when a train derailed early one morning before his boss arrived, he telegraphed orders - signing them with Scott’s initials - to burn the cars blocking the main rail line and get traffic moving again.

  Carnegie learned all this at Scott’s knee. And he appreciated it: “All the hero worship that is inherent in youth,” Carnegie would write years later, “I showered upon him.”

  A Lucrative Goose

  Tom Scott repaid Carnegie’s loyalty and work by giving him his first investment opportunity. He assured the young man that if he bought $500 of Adams Express stock, he would prosper. But Carnegie didn’t have $50, let alone $500. When he told his mother about Scott’s offer, she unflinchingly asked an uncle for the money and mortgaged the house they had just bought. When Carnegie’s first $10 dividend check arrived, he took it to his friends and, showing off its fancy scroll, exclaimed, “Eureka! Here’s the goose that lays the golden eggs!” Later, he wrote: “I shall remember that check as long as I live. It gave me the first penny of revenue from capital, something I had not worked for with the sweat of my brow.” He soon was earning $1,400 a year on that first $500 of borrowed money.

  As assistant to the railroad’s operating executive, Carnegie seemed to be in the path of opportunities. While riding the train one day in 1858, a “farmer looking” man carrying a small green bag introduced himself as T.T. Woodruff and took out a small-scale model of a sleeping car. Impressed, Carnegie arranged a meeting with Scott, who, in turn, invested in Woodruff’s company. A grateful Woodruff offered to sell Carnegie a one-eighth interest in the new Woodruff Palace Car Company. And a banker taken with the young Carnegie slapped him on the back and lent him $217. The investment was soon yielding dividends of $5,000 a year.

  “Oh, I’m Rich! I’m Rich!”

  When the Civil War broke out, Scott dispatched Carnegie with the first brigade of Union troops on a train bound for Washington, D.C., to protect the city. Scott became Abraham Lincoln’s assistant secretary of war, in charge of all military transportation and organizing the Union’s railroads. In turn, Scott gave the twenty-six-year-old Carnegie responsibility for setting up a telegraph system. After the First Battle at Bull Run, it was Carnegie who personally managed the retreat by rail of the defeated Union forces from Virginia, loading train after train with the wounded.

  The American iron industry grew rapidly as a result of the Civil War, expanding to meet sustained demand for large amounts of iron to build cannon, gun barrels, bayonets, ironclad ships, and other equipment. Carnegie saw firsthand the need for iron railroad bridges to replace rickety and flammable wooden trestles.

  He also foresaw the consequences of a Union victory: Millions of acres of land available under the Homestead Act of 1862 would open the American West to veterans and millions of new immigrants, necessitating transcontinental railroads spanning the Mississippi and Missouri rivers and the Rocky Mountains. Seizing opportunity, Carnegie helped to organize the Keystone Bridge Company, the first successful manufacturer of iron railway bridges. He also invested in the fledgling oil industry in western Pennsylvania just as a process to distill kerosene from crude oil was being developed, making whale oil obsolete for home heating and lighting.

  By 1865, Carnegie’s side interests were so lucrative that he decided to leave the railroad business. Although he had been promoted to superintendent, Carnegie’s $2,400-a-year salary paled alongside his investment earnings, which were nearing $50,000 a year. At age thirty, he quit his executive job with the world’s largest business to become a full-time capitalist. About this time, an old friend asked how Carnegie was doing. “Oh, I’m rich, I’m rich!” he exclaimed.

  His single-minded pursuit of wealth prevented Carnegie from marrying until he was fifty-one. “Nothing could be allowed to interfere for a moment with my business career,” he explained. Breaking time-honored rules laid down for him as a boy, he borrowed to invest, almost never using his own money. And he chanced everything on each roll of the speculative dice, his dictum being: “Put all your eggs in one basket and then watch the basket.” Never doubting the restorative powers of the United States, he expanded his businesses during economic depressions while others were cutting back, theorizing that he could cut prices and have material ready to sell when prosperity returned.

  Carnegie had incredible luck, playing out a Horatio Alger rags-to-riches story that could have landed him, as it did many others, on the pavement. There were no income or corporate taxes to diminish his gains, but there were also no insurance policies or government safety nets in case of failure.

  “Watch the Costs”

  Moving to New York City to pursue a wider range of business opportunities, Carnegie and his mother took a suite at the St. Nicholas, then one of the city’s finer hotels. In New York, he built on his railroad background. When George Pullman began to cut into the Woodruff sleeping-car business, Carnegie confronted Pullman, pointing out that only the railroads would benefit from the competition. He proposed to a stunned Pullman that the companies be combined into a new one, then clinched the deal with flattery: He offered to name the new entity the Pullman Palace Car Company. His shrewd tactic may have won over Pullman, but, eventually, Carnegie would own most of the stock.

  The growth of Andrew Carnegie’s fortune parallels the rise of other millionaires of the new industrial age, and his tactics were no better or worse. At one time or another, Carnegie locked horns or interlocked interests with John D. Rockefeller, J.P. Morgan, Henry E. Huntington, Jay Gould, Commodore Vanderbilt, and Henry Clay Frick. His approach to financial growth employed every device of the rough-and-tumble, unregulated business milieu of the times - mergers and acquisitions, pools designed to control market share, pricing and distribution, commercial piracy, and even outright fraud in selling overpriced, substandard, steel armor plate to the U.S. Navy.

  Yet, neither chicanery nor corruption explains Carnegie’s phenomenal success. Rather, he was an astute observer of his times who seldom shied away from risk and was also a consummate salesman. On his annual trips to Europe, his briefcase bulged with bonds and prospectuses, securities given him by other American tycoons that he sold to European investors, earning large commissions for himself. On one trip alone, he made $150,000 ($4.5 million today).

  A watershed moment occurred during a summer visit to England when Carnegie was introduced to the Bessemer process for converting iron into steel. He instantly became a steel enthusiast, dashing home to form his own business - Carnegie, McCandless, and Company - which later became Carnegie Steel. His first plant, located in Braddock, Pennsylvania, near Pittsburgh, was shrewdly named the Edgar Thomson Works after the president of the Pennsylvania Railroad. The Pennsy president gave the facility its first order - 2,000 rails.

  Carnegie was obsessed with costs. He put in place systems that monitored expenses by the day and the penny. “Watch the costs,” he liked to say, “and the profits take care of themselves.” To build the plant, he invested his own money plus large sums borrowed from the bank.

  Carnegie’s steel business would, in time, produce more steel each year than Great Britain, the erstwhile world leader. His steel replaced the iron in railroad ties, bridge construction, office buildings, ships, and machinery. And the founder’s secret weapon for expanding his company was to hire a team of brilliant managers whom he made partners. He spotted talent early and pitted his men against one another, buying their loyalty with shares of company stock.

  Just one-sixth of a 1 percent share of Carnegie Steel would eventually pay a partner $50 million. Carnegie held 58 percent of the stock, and partners could only sell their shares to the company or one another. The boss applauded his managers’ cost-cutting measures and rewarded them for pushing their workers hard and for inventing devices and processes that made skilled artisans obsolete. After all, unskilled replacements could be paid lower wages.

  “Trial of My Life”

  In an atmosphere of ruthless corporate competition, the most callous men accrued the most powe
r. A case in point was Henry Clay Frick, the coalfield baron whom Carnegie chose as chairman of the Carnegie Steel board. Frick was the man on the embattled scene, as Carnegie absented himself more and more from day-to-day operations to pursue capital in New York and Europe. Carnegie had built a reputation as a friend of labor - a bad reputation among businessmen, but something like hero status among his own workers. So nothing had prepared his staff for what turned out to be the worst labor confrontation of the 1890s.

  Shortly after Frick, who was known for regularly using strikebreakers in his coal mines, took control, he vowed to break the power of the Carnegie Steel craft unions. Carnegie had acceded to a generous pay increase for workers at his newest steel plant at Homestead, Pennsylvania, the linchpin of the fifteen-mile-long belt of Carnegie plants stretching from Pittsburgh south to Braddock. Privately, Carnegie was pressuring Frick to cut wages by 20 percent, while proclaiming pro-labor sentiments, most notably in two magazine articles appearing in 1886. In them, he denounced strikebreaking, coining an eleventh commandment for labor: “Thou shalt not take thy neighbor’s job.”

  The contract between the steelworkers and the management at Homestead was set to expire on July 1, 1892, shortly after Carnegie sailed to his summer home in Scotland. When talks broke down in late June, Frick declared he would close the mill on July 1 and reopen five days later, admitting only non-union employees. He built a huge fence around the entire plant stretching to the Monongahela River. Then he secretly hired 300 armed Pinkerton detectives to steam upriver under cover of darkness to occupy the plant.

  When the barges tied up, gunfire broke out. An all-day battle ensued in which the strikers overwhelmed the strikebreakers. Three Pinkerton men and ten strikers died that day, but Frick refused to yield. Some 8,000 National Guardsmen were called in to lock out the workers. Eventually, 40 percent of the men were rehired after the union gave up its five-month strike.