by Peter Krass
From the advantageous position of being Scott’s clerk and telegrapher, Andy was privy to other investments and sophisticated business decisions made by his boss and Thomson that would affect his philosophy. In particular, the concept of setting up an allegedly independent company that would have the Pennsylvania Railroad as an immediate and reliable customer or client was very enticing. Scott and Thomson did the very thing in 1856 when they established their own construction company, the Western Transportation Company, to build the Pittsburgh & Steubenville Railroad, which was to be owned and controlled by the Pennsylvania Railroad—a nifty interlocking of companies bound to augment their bank accounts. This new company required a Virginia charter and to obtain it they hired the well-connected Simon Cameron, a U.S. senator from Pennsylvania who would prove a profitable partner, especially when he became secretary of war in the Lincoln administration. While Andy did not have the capital to join them in these other ventures, he continued to absorb their methods of both speculating in advance of the railroad and creating parasitic entities to feed off existing railroad operations.
Andy was also exposed to the political astuteness of Scott and Thomson. Although the railway business boomed, the one thorn in Thomson’s side was the freight tonnage tax levied against the Pennsylvania by the state legislature. Its original purpose was to protect the state-owned canal business, but it eventually resulted in raising the transportation costs to such a degree that it hurt local industries. The cost of domestic coal was pushed to a point where it was cheaper to buy imported English coal in Philadelphia than Pennsylvania or West Virginia coal mined not more than a few hundred miles away. In addition, there was the state-controlled and strategically located Philadelphia & Columbia Railroad, which charged the Pennsylvania Railroad high tolls for through traffic. To win lower taxes and tolls, Thomson took his argument to the state legislature, using personal appeals and lobbyists, as well as giving free train passes to the right people and placing newspaper advertisements to arouse public pressure. Meanwhile, Scott convinced newspaper editors to take their side by pledging heavy advertising; he also promised prominent business leaders preferred rates if they used their influence with state politicians to eliminate the tonnage tax. As a result of his aggressive campaign, charges of bribery were leveled against Scott, who tended to push his tactics to the edge of impropriety. Regardless, not only was the tonnage tax repealed, but the Pennsylvania became the new owner of the Philadelphia & Columbia Railroad.5
As the Pennsylvania Railroad expanded, competition with other railroads, canals, river steamboats, and Great Lakes steamers became fierce. To prevent crippling rate wars, Thomson and Scott joined price-fixing schemes—yet another opportunity for the prodigal capitalist Andy to learn from his masters. Because the executives feared not knowing what their competition was up to, officers from the Pennsylvania Railroad, the Baltimore & Ohio, and the Ohio & Mississippi, among others, started meeting annually at New York City’s St. Nicholas Hotel to fix rates. The key was to charge high-enough prices to enjoy healthy profits, but keep them low enough to encourage capacity traffic. The newspapers quickly got wind of the meetings but reported on them without prejudice; it was assumed both big business and the people would benefit.6 Everyone knew free competition was harmful, and it was quite natural for Andy to join similar schemes in the iron and steel industry, even after price-fixing was made illegal by the Sherman Antitrust Act in 1890.
Invariably, price wars broke out, alliances were shattered, and the railroad officers were forced to start from scratch frantically in a business world not ready to wholly pursue the doctrine of survival of the fittest. (Charles Darwin’s On the Origin of Species was published in 1859 and would have a profound impact on both evolutionary and social thinking.) Such fickle maneuvering was not foreign to Andy’s Scottish blood; his hero the Robert the Bruce, as well as many a clan throughout the centuries, had formed and broken alliances to further their own agendas.
Changes at the Pennsylvania Railroad were afoot in late 1857, prompted by a stock sell-off on Wall Street and a financial crisis in autumn. Railroads had issued vast amounts of watered stock during a period of rapid expansion, Europeans had sought safe haven in U.S. investments during the Crimean War, and easy money had encouraged stock manipulation. But now, with the war over, the European bankers withdrew their prodigious funds, crippling an already stalled U.S. economy and contributing to a spike in unemployment. Wall Street’s gambling pirates were blamed for the financial panic as bread riots erupted in New York and other cities. To survive, Thomson desperately needed greater efficiencies, especially a new organizational structure that would both remove him from the daily operations and provide him with more accurate cost information for setting rates and determining profits. His thoughts turned to what the Erie Railroad had done two years prior, which was to decentralize, segmenting the company’s line into operating divisions. Thomson decided to reorganize the company into staff and line departments, with each line department responsible for a segment of the Pennsylvania Railroad and with the corporate staffs coordinating efforts between the segments. Lower-level employees were empowered to make decisions, authority and accountability were clearly defined, forms were standardized, and information was directed through efficient channels. Empowering managers and knowing the costs were crucial to success in the new industrial order, and Thomson’s reorganization, effective on January 1, 1858, of one of the largest companies in the United States was a major step in the evolution of business management.
Andy, who was digesting Thomson’s every move, was affected as Scott was promoted to general superintendent, which required the transfer of him and his protégé to Altoona, almost a hundred miles east.7 Having to leave family and friends behind, Andy was initially melancholy about the move. “This breaking up of associations in Pittsburgh was a sore trial,” he reflected, “but nothing could be allowed to interfere for a moment with my business career. My mother was satisfied upon this point, great as the strain was upon her.”8 The Carnegie family nucleus remained tight, extending to Aunt Annie and the relatives in Ohio, where the Carnegies spent summer vacations.
At age twenty-two, Andy rightly considered himself a man, but his most striking features were his short stature (five-foot-three), his particularly small hands and feet, and his clean-shaven baby face. He took his diminutive traits in stride, even recounting more than once a story about how he bet a young lady friend he could fit in her shoes and won, exclaiming, “My foot wabbles in it.” To project a more rugged image, the once-dapper Andy now preferred wearing heavy boots and an overcoat, as opposed to the shined shoes and the pressed suits from his telegraph days. Any limitations in physical stature were made up for by a personality that filled the room with its animation. He was cocksure and opinionated, charming and inquisitive, both at work and in social settings. To some acquaintances, his extreme confidence bordered on arrogance; however, one of the more poignant observations concerning Andy discerned that it was his “absorbing self-reliance” that “made him appear arrogant and disregardful of the opinions of others.”9 After the depravities his family had suffered, no less than a puritanical self-reliance should have been expected.
The first months in Altoona did indeed require self-reliance on the part of Andy and Scott. They shared a hotel room, were without family, and had few friends; and to make matters worse, the trainmen were threatening to strike for better wages. Thomson, who considered the laborers as just another resource to be had at the lowest cost, demanded wage cuts ranging from 10 to 25 percent, depending on the job. The cuts went into effect on November 1, 1857, and by early 1858 Scott faced a spreading rebellion as the trainmen and shop workers organized work stoppages. Unexpectedly, Andy found himself in the position of playing spy. One night, walking home, he realized he was being followed. Turning to confront his shadow, he recognized a blacksmith for whom he had found work. Feeling obliged to Andy, the blacksmith explained in a hushed tone that “a paper was being rapidly signed by the
shopmen, pledging themselves to strike Monday next.”
“There was no time to be lost,” Andy recalled. “I told Mr. Scott in the morning and he at once had printed notices posted in the shops that all men who had signed the paper, pledging themselves to strike, were dismissed and they should call at the office to be paid.”10 The aggressive tactic to preempt the strike succeeded. And Grandpa Thomas Morrison rolled over in his grave. Had Andy forgotten the weavers’ strikes back in Dunfermline and the desperate fight for a decent life, for something more than a starving wage? Had he turned his back on his radical heritage because it no longer served him? Or was he taking Greeley’s view that although the workingman must be supported, strikes were disharmonizing and a waste of time? Beyond such speculation, there were two key business lessons here: depressed markets justified harsh wage cuts, and strikers had to be dealt with in a unilateral manner.
Margaret and Tom eventually joined Andy in Altoona. They set up home in a rented house with an added luxury; able to realize his dream of relieving his mother of toilsome housework, Andy hired a servant. It was time for her “to play the lady.”11 Horses were another luxury he could now afford, and with the help of the railroad’s chief mechanic, Colonel John L. Piper, Andy bought a spirited horse named Dash. Hard riding in the surrounding hills became a favorite pastime. After a day on horseback together, Tom Miller determined his friend to be “reckless.”12 It was also time for the spirited young man to learn how to play the gentleman.
Scott, whose wife died the same year Andy’s father did, had settled into a new home with his two daughters and niece, Rebecca, who served as governess. Andy took a liking to Rebecca, but not in a romantic way—at least he didn’t admit as much. A smoking locomotive was his best girl for now, according to lifelong friend Miller, who, in a series of letters, recorded incidents from those days. In illuminating Andy’s dedication to the railroad, he recalled how his friend had “to go to 26th Street, 2 miles or more and no street cars and snow quite deep and falling—but there was a wreck at Derry, and you buttoned your great coat on, and were off in a burst of glory, as if going to see your best girl—!”13 As for Rebecca, Andy wrote in his autobiography, “she played the part of the elder sister to me to perfection, especially when Mr. Scott was called to Philadelphia or elsewhere. We were much together, often driving in the afternoons through the woods.”14 When with Rebecca, Andy had to soften the rough edges he had acquired around the trainmen, and she taught him etiquette and how to socialize. Once, when Tom Miller came to visit, Rebecca had them over for a formal dinner. Years later, Tom reminded his friend of “the awe you felt—or was it exultation?—when I took dinner with you at Scott’s and ‘Beck’ Stewart was our hostess? She went out for some service, and you hastily took up a cream pitcher and said ‘Real Silver, Tom!’”15 By the way he reacted to the silver, one would think Andy was still playing the ragamuffin boy from a Dickens novel—or, more likely, in another measure of personal success, he was touting his rich friends to Tom.
His relationship with Rebecca became more complicated when Scott asked them to hold two stocks in their name for him. He made inside investments in the Phoenix Lumber Company and the Y. H. & Y. Coal Company; but to avoid attracting the attention of the companies’ respective board members, he preferred to hold his shares anonymously. Andy and Rebecca were eventually to pay him the cost and interest on his investment, and then later they would be allowed to assume ownership of the stocks.16 While this discreet practice was not uncommon, Scott was slowly pulling Andy into suspect territory. On the other hand, the most important investment in Andy’s life fell into his lap while living in Altoona, courtesy of Scott.
T. T. Woodruff, the celebrated inventor of the sleeping car, had started his business career as an apprentice to a wagon maker and progressed from there until he became a master railroad car builder for the Terre Haute, Alton & St. Louis Railroad. Legend has it that Woodruff was riding atop a freight car when he was knocked off by a low bridge, after which, while recovering, he sketched out plans for his sleeper. In December 1856, the Terre Haute, Alton & St. Louis Railroad’s chief engineer Orville W. Childs helped Woodruff obtain two patents necessary for his sleeping car—one for a seat and another for a couch that converted into beds.17 After securing financial backing, Woodruff organized T. T. Woodruff & Company, later to be renamed the Central Transportation Company, and built the first demonstrator car; orders from several railroads soon followed. When he pursued a contract with the Pennsylvania Railroad, he found the perfect customer in Thomson.
The Pennsylvania’s president was forward-thinking when it came to plant and equipment (another trait Andy would adopt), always demanding first-class conditions and seeking new developments to incorporate into his railroad. Under Thomson, the Pennsylvania introduced iron bridges, gas lighting, and stoves to heat the cars, and was one of the first railroads to experiment with and then to widely use coal-burning fireboxes. He immediately recognized the value of Woodruff’s sleepers, but just to be certain, he requested Scott’s opinion. Once Scott concurred, an order for four sleeping cars was placed. There remained just one issue: Woodruff needed capital to meet the burgeoning orders. Because it was another interlocking investment that couldn’t fail, as far as Scott and Thomson were concerned, they stepped in with money and took shares in Woodruff’s company. “One of the conditions of the said agreement was that a certain specified interest therein should be held for another person,” Woodruff later wrote, “and represented (as the talk ran) by a boy then in the superintendent’s office at Altoona. . . . When we came to consummate the agreement in a written form, I learned that the boy alluded to was ‘Andie Carnegie.’”18 He was given a one-eighth interest in the firm.
Although Andy was considered a deserving son, there can also be no doubt Scott recognized the prodigal capitalist in Andy. From the day the Scotch Devil had the guts and vision to get the trains running in the name of his boss, Scott perceived Andy’s ability to see patterns, to understand cause and effect, and to organize with efficiency. In the near future, Scott knew, the young man would be a very valuable partner, a vigilant protector of their investments, so he fronted the money for the Woodruff investment. To repay this latest IOU, Andy borrowed $217.50 from a local bank and then used dividends.19 How could Andy fail? The trio was invested in a company of which they were a large customer. There can be no mistake concerning the importance of the one-eighth interest Andy was given in the Woodruff concern; by 1863, it was generating a superlative $5,050.00 in annual dividends and providing the funds for other lucrative investments.20 Carnegie later conceded that “the first considerable sum I ever made was from this source. . . . Blessed be the man who invented sleep.”21
The vice president of the railroad, William B. Foster, died unexpectedly in late 1859, and it was rumored Scott would take his place in Philadelphia, where there was no supporting role for Andy. He dreaded a catastrophe, as such a move would leave him with either a new boss or in the cold. He recalled, “To part with Mr. Scott was hard enough; to serve a new official in his place I did not believe possible. The sun rose and set upon his head so far as I was concerned. The thought of my promotion, except through him, never entered my mind.”22 After a ceremonial interview with Thomson in Philadelphia, Scott was indeed given the job and returned to Altoona to discuss Andy’s fate. He explained that Enoch Lewis, a division superintendent, was to be promoted to general superintendent, which would make him Andy’s new boss.
“Well,” Scott continued, “Mr. Potts [superintendent of the Pittsburgh Division] is to be promoted to the transportation department in Philadelphia and I recommended you to the president as his successor. He agreed to give you a trial. What salary do you think you should have?”23 Surprised by the sudden turn of events, Andy blurted out that the money didn’t matter, just the job. To be in charge of a division, now called the Western Division, to be signing the initials A. C. instead of T. A. S. to every order, was glory enough for Andy. Money did matter, of course, and
Scott promptly offered him $1,500 a year, a substantial raise over the $780 he was then making. On December 1, 1859, Andy took charge, his march up the corporate ladder astoundingly quick. He was only twenty-four years old and already had his first taste of real power.
The Carnegie family moved into a downtown house on Hancock Street, later renamed Eighth Street, and here they experienced smoky Pittsburgh in all its industrial might with soot permeating every corner of their home. “If you placed your hand on the balustrade of the stair,” Carnegie recalled, “it came away black; if you washed face and hands they were as dirty as ever in an hour. The soot gathered in the hair and irritated the skin, and for a time after our return from the mountain atmosphere of Altoona, life was more or less miserable.”24 The city had continued to expand; it was the sixteenth largest in the United States now, and home to one hundred different industries. Iron and metalworking was the most important sector, with twenty-six rolling mills, followed by glassmaking, with twenty-three glassworks.25 Paddle steamers lined the wharves like magnificent horses at a trough. Irish and German immigrants shouted for friends and family as they clamored down gangplanks by the thousands, eager to make their fortune. The city was soon to be a metropolitan polyglot. And the Carnegies wanted out.
David A. Stewart, Scott’s nephew and the division’s freight agent, suggested a move to Homewood, where he lived. Located about ten miles east of Pittsburgh, Homewood—or Point Breeze, as it was also known—was described as a “romantic place, highly cultivated,” and was served by two railroad stations. The family immediately took his advice and, to their delight, discovered one of their neighbors was the Honorable Judge William Wilkins, who had served under President Andrew Jackson as minister to Russia and under President John Tyler as secretary of war.26 The Wilkins home, a redbrick mansion with a Greek portico entrance and a marble roof supported by fluted Ionic pillars set on 650 acres, was the epicenter of the Homewood social and political scene. It took only a few social gatherings for Andy to realize that for all of his self-improvement, he was unrefined compared to the aristocratic social set he now found himself among. But he was not totally unprepared.
