Carnegie

by Peter Krass

  Capitalism now dominated Andy’s consciousness. When he wrote Dod, it was not to debate the sociopolitical scene, but to encourage him to invest in the fledgling oil industry, which his cousin did for a short time before deciding to withdraw. Andy was sorry he did, but continued to push the industry on his cousin, wanting to know if he should send him listings for oil property lots for sale that Dod might want to market to firms in Scotland.

  Once bitten by oil fever, a marked change came over Andy; while always conscious of material progress, he was suddenly far more focused on accumulating money and reveling in luxury. When Dod wrote that he was determined to “put money in his purse,” Andy responded that it was a “noble resolution.” In the same June 1863 letter, he continued: “Isn’t it strange how little ambition most of our Scotch acquaintances have to become independent and pthen enjoy the luxuries which wealth can (and should) procure. For my part I am determined to expand as my means do and ultimately to own a noble place in the country, cultivate the rarest flowers, the best breeds of cattle, own a magnificent lot of horses and be distinguished for taking the deepest interest in all those about my place. . . . There, my boy! Such a picture should incite you to the extremest measures.”28 Amid the ruins of the Civil War—the bloodbaths at Chancellorsville and Gettysburg—business ruled his conscious.

  Notes

  1. Edwin Bennett to AC, May 16, 1905, Bennett Family Papers, ACWPHS, MFF2190.

  2. AC to W. R. Plum, November 25, 1879, ACSHC, ser. 1, subser. 3.

  3. David Homer Bates, “Lincoln in the Telegraph Office,” Century Magazine, 74 (May 1907), p. 124.

  4. Ibid., p. 128.

  5. Carnegie, Autobiography, p. 96.

  6. James M. McPherson, Battle Cry of Freedom (New York: Ballantine, 1988), p. 347.

  7. AC to W. H. Holmes, July 26, 1861, ACLOC, vol. 1.

  8. Carnegie, Autobiography, p. 97.

  9. Ibid., pp. 98–99.

  10. Leland D. Baldwin, Pittsburgh: The Story of a City (Pittsburgh: University of Pittsburgh Press, 1937), p. 317; Lorant, p. 137.

  11. AC to Enoch Lewis, October 5, 1861, ACLOC, vol. 1.

  12. Ibid.

  13. AC to Enoch Lewis, October 4, 7, 10, and 18, 1861, ACLOC, vols. 1, 2, 3.

  14. Ward, p. 128.

  15. Andrew Carnegie, An American Four-in-Hand in Britain (New York: Charles Scribner’s Sons, 1883), p. 112.

  16. Lorant, p. 119.

  17. Ibid., p. 25; Paul H. Giddens, The Birth of the Oil Industry (New York: Macmillan, 1938), p. 82.

  18. Ibid., p. 133.

  19. Carnegie, Autobiography, p.132.

  20. Giddens, p. 82; see also Andrew Carnegie’s statement of earnings for 1863, ACLOC, vol. 3.

  21. Carnegie, Autobiography, p. 125.

  22. Articles of Agreement, February 1, 1862, and May 21, 1863, ACWPHS, Keystone Bridge Files.

  23. Ward, p. 127.

  24. AC to George Lauder Jr., May 26, 1862, ACLOC, vol. 3.

  25. Carnegie, Autobiography, p. 106.

  26. Ibid., p. 106.

  27. Ibid., p. 107.

  28. AC to Dod, June 21, 1863, ACLOC, vol. 3.

  CHAPTER 7

  An Iron Coup

  When Tom David stopped by that winter for a visit and asked his buddy how life was treating him, Carnegie exclaimed, “Oh, Tom, I’m rich. I’m rich!”1 So he was. During these first years of the Civil War, Carnegie had answered a pivotal question for himself: Did he want to play the conservative company man, or did he want to assume risk, extend himself financially, and put money to work? Did he want a few chickens in the backyard, or did he want a gaggle of geese laying golden eggs? He chose the latter. He took advantage of his Homewood friends—William Coleman, Thomas Miller, David Stewart, and John Vandevort—and his Pennsylvania Railroad contacts to secure the inside track on buying stock in a variety of sure thing companies—at a discount, of course.

  When preparing his personal taxes, levied by the Federal government to pay for the war, Carnegie made a statement for his 1863 income on Pennsylvania Railroad Company notepaper. It listed investments in a dozen concerns, including a few shares of Western Union, that generated over $45,000 for the year, while his railroad salary contributed a paltry $2,400. It was the railroad, however, that made it all possible. Over the next two years, he would buy into another oil field called Pit Hole; purchase stock in two insurance companies, several coal-mining companies, and a brick manufacturer, as well as increase his Western Union holdings; and acquire Homewood land.2 He was often joined in these investments by his brother, as well as Miller, Pitcairn, Stewart, Vandevort, and John Scott, a fellow railroad executive.

  Carnegie reveled in owning a piece of a company; it was like owning a piece of the glorified Republic. He bathed gleefully in his riches. Making money was noble, as he told Dod. Being rich was to be celebrated, as he demonstrated with his exclamations to Tom David. Under Scott’s tutelage, he had developed a lust for money that he expressed openly, and determined to succeed on a grander scale than his father had failed, he would continue to extend himself, borrow money to invest, and assume ever-greater risk. Money dictated his thoughts and his actions. It was pathological. It gave him respect, too.

  While not quite a bon vivant, Carnegie was living the high life in ritzy Homewood, a far cry from his radical heritage. He was cultivated, refined; he attended fancy parties at the Wilkins mansion and knew how to drink tea.

  Confidence brimming, Carnegie bulled his way into a web of intrigue in the fall of 1863. He was determined to help his friend Thomas Miller, who had found himself caught in a complex relationship with a local iron firm that would severely test friendships and prove to be another pivotal turning point in Carnegie’s life. It eventually involved his third and final significant investment during the Civil War, a $10,000 investment in the iron firm that was the seed for the world’s greatest steel empire.

  Competition in the Pittsburgh iron industry was intense, including more than fifty firms, and the leading firms were determined to break the small establishments; as one ironmaster declared, “The big fish are going to swallow up the little ones.”3 Two little fish who wanted to become big fish were Anthony and Andrew Kloman, Bavarian immigrants operating a small Allegheny City forge with one trip-hammer and a steam engine. Quickly gaining a reputation for making extremely durable axles using their patented process, they couldn’t keep pace with demand. Eager to expand, but without capital, Andrew Kloman approached Miller, their customer at the Fort Wayne, Pittsburgh & Ohio Railroad, and offered him one-third of the business if he anted up $1,600, the money needed to buy another trip-hammer, which would double the firm’s output. Miller was intrigued. Between Kloman’s expertise and his connections with various railroads—such as the Pennsylvania, where his friend Andy worked—it seemed a safe bet. There was one problem, however: Miller had a conscience. Uncomfortable with the impropriety of connecting himself with a supplier, he told Kloman he wanted to invest but would have a friend represent him.4 It was not an unusual arrangement, and Kloman acquiesced.

  The friend was Henry “Harry” Phipps, whose older brother John had been part of the Original Six until killed in a horseback riding accident at age eighteen. Still living at his father’s home in Allegheny City, Harry was a bookkeeper; and with his bland features, a broad forehead, and a receding hairline, he had the countenance of a numbers man. His penny-pinching was legendary among his friends; his preferred restaurant served free bread with codfish balls. Keen to add some excitement to his dull life, he agreed to give Miller half of the $1,600 to join the scheme. This would require Phipps’s father to mortgage their home, however, so Miller, having assumed the role of big brother to Harry, agreed to fund the entire $1,600 with Phipps paying off his half out of profits. The Klomans, Miller, and Phipps came to terms on November 16, 1861; the new company was called Iron City Forge, and in the articles of partnership Miller’s name was left out as agreed on.

  Iron City Forge flourished during the Civil War as go
vernment orders for gun carriages and axles poured in. Profits soared, but unfortunately for the other partners, Anthony Kloman became more interested in hoisting drinks in local taverns than he did iron. An overwhelmed Andrew Kloman asked Miller to buy his brother out; after a heated argument, Anthony agreed to sell his share for $20,000.5 Trouble erupted again when Kloman, whose greed appeared to increase with profits, decided he wanted a bigger share. He aligned himself with the weaker character of his two partners, Harry Phipps, and convinced him that they should force Miller out. Kloman went so far as to place an advertisement in the newspaper stating that Miller was not a member of the firm.6 Miller couldn’t believe it: he had invited Phipps into the business; he had contributed capital when needed; and now they wanted to eject him. In the fall of 1863, he turned to Carnegie to arbitrate the matter.

  “For some weeks,” Carnegie recalled, “scarcely a day passed that I did not see one or more of the parties. Hearing both sides, I was fully satisfied I could not establish harmony upon the basis of a common partnership.” Once it was clear to him there were irreconcilable differences between Miller and the other two, he recommended a reorganization of the company to both boost its capitalization and to redistribute the balance of power. Acknowledging Carnegie’s more sophisticated business experience, the trio agreed to his suggestions, which included increasing the firm’s capital to $60,000, with Kloman taking a 50 percent interest and Miller limited to only a one-sixth share. Since Phipps could not afford the remaining $20,000, Carnegie insisted his brother take half of it. He argued that Tom would bring balance and an evenhandedness to the management. Tom, with soft, dark eyes, wispy muttonchop whiskers, and a reserved manner, was exceptionally affable and was said to make friends even as he was asking for a favor. Whereas Andy tended to force his views on others and ruffle feathers, Tom was the one who smoothed the ruffled feathers. Kloman agreed to the arrangement, but he still held serious reservations about Miller. To protect against any Miller reprisals, Carnegie suggested a clause in the partnership articles allowing Kloman and Phipps to buy Miller out with 60 days’ notice if his actions were deemed detrimental. It was also agreed that if Miller were expelled, one-half of his interest would go to Tom Carnegie, who now borrowed money from his older brother for his one-sixth share of the company. For the first time, Andrew Carnegie had a sizable investment, albeit a loan to his brother, in iron.

  It wasn’t long before squabbling broke out, and Kloman and Phipps gave Miller his notice. Miller considered Phipps’s actions traitorous and disowned him, but the intrigue didn’t end there. He vowed to drive Kloman and Phipps into bankruptcy. Certain his friend had been wronged, Carnegie reacted rashly and agreed to join forces with Miller to build a competing iron mill from scratch. It didn’t matter that neither had any practical experience in the industry. Together they scouted property, and on July 1, 1864, they quietly leased a five-acre plot of farmland located a mere four blocks from the Kloman concern. Half-grown cabbages were cleared to make way for the foundation of a 230-foot-long by 80-foot-wide mill. On October 14, their new firm was officially registered and capitalized at $100,000, with Miller the majority owner. Also included were Carnegie, John Piper, Aaron Shiffler, John C. Mathews, who would be the manager, and Thomas Pyeatte, the company’s bookkeeper. It was a savvy move bringing in Piper and Shiffler; Carnegie knew the iron firm would have a loyal customer in the bridge-building concern.

  They christened the firm the ominous-sounding Cyclops Iron Company, after the one-eyed giants from Greek mythology who devoured men. In Homer’s Odyssey, the hero was captured by a Cyclops named Polyphemus. To escape, Odysseus tricked the Cyclops into becoming drunk and then put a spear through his single eye. These monsters were also linked to the iron industry. According to myth, the Cyclopes were once companions of Hephaestus, the fire god; using great hammers, they worked molten bronze and iron drawn from Hephaestus’s furnace. The question now was whether Carnegie would be blessed by the fire god or become another Polyphemus. And to those watching the construction of a new iron mill, it appeared Carnegie had turned on his brother.

  Despite the distractions offered by the Kloman-Phipps-Miller squabble, “Scott’s Andy,” or the “Little Boss” as he was also nicknamed, continued to perform admirably for the Pennsylvania Railroad. Under the assumption that he was protected by the Conscription Act of 1863, which exempted locomotive engineers and other railroad employees vital to operations from serving, he was shocked when the federal government drafted him in the summer of 1864. At age twenty-eight and single, he was a perfect candidate, even though the Pennsylvania Railroad’s ranks had thinned and the company was so desperate for competent help it was recruiting men from Europe. Still, in the eyes of the government, Andrew Carnegie was expendable. He weighed his options. Leaving cozy Homewood and joining the war was not particularly attractive. General Ulysses S. Grant, who was being denounced as a butcher, had begun his relentless drive for Richmond which, over seven weeks in May and June, had left sixty-five thousand Union soldiers dead, wounded, or missing. His other two choices, allowed under the terms of the Conscription Act of 1863, were to pay the government $300 to avoid service or to hire an alternate. Not wanting to completely dodge his patriotic duty, Carnegie hired an alternate through the services of H. M. Butler, a Pittsburgh draft agent. He paid $850, and Butler found a willing substitute in John Lindew, an Irish immigrant. Carnegie prudently signed the Certificate of Non-Liability on July 19; the deal was good for three years.7

  With his tenure now secure at the railroad, rumors reached Carnegie toward the end of 1864 that he was to be offered the position of assistant general superintendent under Enoch Lewis. The next steps would be general superintendent and then a vice presidency, just like his mentor Scott. Thomson himself made the offer, but Carnegie hesitated in accepting. He had to weigh his loyalty to the railroad against his strong feelings of predestination for greatness. His mother certainly thought her boy Andra should answer to no man, and his radical heritage had infused him with fierce individualism. There were his personal investments to consider, too; income from them far exceeded his salary, and his portfolio demanded more attention. “I declined,” Carnegie later explained with a hint of piety, “telling him that I had decided to give up the railroad service altogether, that I was determined to make a fortune and I saw no means of doing this honestly at any salary the railroad company could afford to give, and I would not do it by indirection.”8

  But then Carnegie had a crisis of conscience. It wasn’t about leaving the railroad. It was about becoming a capitalist. On New Year’s Day of 1865, while in a reflective and rare sentimental mood, he had a sudden urge to return to Scotland; more specifically, to take a consular position in Scotland working for the government. He wrote to Scott, hoping he could use his influence with Simon Cameron to win the appointment for him. Scott obliged, but with the war still raging and Cameron’s reputation compromised, nothing could be done.9 This brief episode, filled with doubt and questions, was Carnegie’s first crisis of conscience of several, for out there, beyond the dark perimeter of material gain, he suspected there was a nobler existence.

  It was a bittersweet moment on March 28, 1865, when Carnegie sat down to pen his letter of resignation. He expressed his “deep regret” at parting after twelve years of “pleasant intercourse” with the Pennsylvania Railroad and the “painful” change of breaking with intimate associates.10 As he crafted the letter, Carnegie reflected on the first time Mr. Scott had tousled his white hair; on earning the moniker Scotch Devil; and on his first investment in the Adams Express Company. Going deeper into his personal odyssey, he had survived the Hungry Forties in Scotland and the seven-week ocean voyage as an immigrant faced with the ravages of typhus and cholera; he had worked as a bobbin boy and in the inferno of John Hay’s bobbin factory for such a pittance that it amounted to slave labor; he had been lifted to the heavens all because of a checkers match and ridden the wave of a new technology that annihilated time and distance, the te
legraph; and he had joined the railroad just as it was beginning to transform America socially and economically. He justifiably believed the gods were with him, the nonchurchgoer.

  As the young Napoléon of business stood on his pedestal and eyed the industrial landscape, preparing for his unrelenting march to fortune, he brought with him a number of weapons given to him by Scott and Thomson. He knew intimately how to speculate in advance of the railroad, to create interlocking investments, to finance projects through bond sales, to control costs, to sink profits back into the business, to motivate lieutenants, to create alliances with competitors and subsequently to break them, to preempt organized labor movements, and to manipulate politicians. The railroad had been the first industry to require complex organizational hierarchies relying on accurate information, and Carnegie had been immersed in it.

  The first order of business was to deal decisively with the traitorous Phipps and the iron business. Despite their inexperience, when Carnegie and Miller organized Cyclops their prospects appeared to be much better than the Kloman enterprise; after all, Cyclops had a ready-made market in the Piper and Shiffler Company, while Kloman would lose business at war’s end. But when Cyclops manager John Mathews ordered his men to fire up the machinery in the early spring of 1865, the supporting structure proved too weak for safe operation; it appeared to be the spear to the ogre’s eye. Carnegie was beside himself with disbelief and frustration, which he took out on Mathews, who in turn complained it was a result of Carnegie and Miller demanding he “build a $400,000 mill on a $100,000 capital.”11

  It was an unmitigated disaster for Carnegie. This mill was his first true business venture, one in which he had enlisted the financial support of friends, and it was an embarrassment. The situation had to be remedied posthaste. To some businessmen it appeared that Carnegie desperately needed Kloman’s mechanical help, while to others it was still the Kloman concern that ultimately needed Carnegie’s help to obtain customers. The truth was they both needed each other. And so, as General Grant slowly encircled Lee in the final phase of the Civil War, brothers Tom and Andrew opened negotiations on merging the two firms. All members of the Kloman and Cyclops concerns were amicable to merging, except for Miller, who was still smarting.