Carnegie

by Peter Krass

  When Carnegie visited Bessemer at his Sheffield steelworks in the spring of 1872, the inventor was fifty-nine years of age. As Carnegie often did, he practically worshiped the accomplished older man. He was extremely impressed by the Bessemer process and the steel plant; it was far more successful than the struggling efforts he had witnessed in the United States. Although it was still a noisy, dirty, and hot business, the wonder of steelmaking was more alluring to him than that of iron. It involved an attraction best described by John Fitch, a social worker who, even in exploring the underside of the steel business, couldn’t help but be impressed: “There is a glamor about the making of steel. The very size of things—the immensity of the tools, the scale of production—grips the mind with an overwhelming sense of power. Blast furnaces, eighty, ninety, one hundred feet tall, gaunt and insatiable, are continually gaping to admit ton after ton of ore, fuel, and stone. Bessemer converters dazzle the eye with their leaping flames. Steel ingots at white heat, weighing thousands of pounds, are carried from place to place and tossed about like toys. Electric cranes pick up steel rails of fifty-foot girders as jauntily as if their tons were ounces. These are the things that cast a spell over the visitor in these workshops of Vulcan.”9 So, while names like Morgan and Rothschild intoxicated Carnegie, the power of fire and molten iron was also alluring. Powerfully so.

  As Carnegie stood before the dazzling Bessemer converter, the white ingots glowed in his eyes and the heat of the blow inflated his five-foot-three-inch frame until he was as big as President Ulysses S. Grant. He felt a surge of power, of enthusiasm, of confidence that steel would indeed replace iron, and he became determined to build a majestic steel mill. This 1872 visit with Bessemer finally convinced him of what Bessemer had comprehended the moment he had discovered steelmaking: “[W]hat a perfect revolution it threatened in every iron-making district in the world was fully grasped by the mind as I gazed motionless at that glowing ingot,” Bessemer wrote, “the mere contemplation of which almost overwhelmed for the time.”10 Now that the pioneers had worked out most of the early problems associated with the Bessemer process, Carnegie, who was fond of saying, “Pioneering don’t pay,” knew the time was ripe to erect a steel mill, for making rails in particular; but if he were going to do it, nothing less than the largest, most advanced mill yet would satisfy him. As he was prone to exclaim when a great idea hit him, he had “got the flash.”

  Over the years, a debate arose as to whose idea, among the Carnegie crowd, it was to enter the steel business. Carnegie’s personal secretary for a time, James Howard Bridge, credited William Coleman, Tom Carnegie’s father-in-law, with hatching the idea. Once he had convinced Tom, Coleman then elicited the help of Homewood neighbors and business associates David Stewart and John Scott, while Tom attempted to interest Andrew. According to Bridge, the elder Carnegie was strongly opposed to the project until he visited the Bessemer works.11 Taking a contrary position was William L. Abbott, who served as president of Carnegie’s steelworks for several years. Even though the two parted over strained relations, Abbott claimed entering steel was entirely Carnegie’s idea and that his Union Mills partners had little enthusiasm for it. Tom, for example, he said, “did not have Andrew’s vast ambition. He was content with a good, prosperous, safe business and cared nothing for expansion. He disapproved of Andrew’s sky-rocketing tendencies, regarded him as a plunger and as a dangerous leader. Tom wanted earnings in the shape of dividends, whereas Andrew insisted on using them for expansion. The fact was that Tom, though fraternally fond of Andrew, was temperamentally unsympathetic.”12 Considering Abbott’s observations and that Carnegie took the largest financial stake in the steel mill, Andrew Carnegie was the driving force.

  On his return from England in 1872, Carnegie traveled to Cresson for a quick rest and then on to Pittsburgh to propose the construction of a magnificent mill for making Bessemer steel. His enthusiasm was unrequited. Carnegie did find one ally, however. William Coleman, although now sixty-five years old, had been following developments in the Bessemer process, too, and had just completed a tour of Bessemer works in the United States, including a successful operation just fifty miles away at the Cambria Iron Works in Johnstown, Pennsylvania. It didn’t appear to be such a risky affair: production problems had been resolved; the railroad boom continued; and in 1871 the protective Schenk Tariff put a costly duty on imported rails. Once the venerable Coleman voiced his support, Tom and the others joined.

  Before partnership papers were even signed, Carnegie sought a name for the steelworks; after all, names were important to him. He proposed Edgar Thomson to pay homage to the great man . . . and to win his favor for when it came time to hand out profitable steel rail contracts. This playing on vanity, a recurring theme, was the same technique he had used as a child to motivate the neighborhood kids to feed his rabbits and had used in negotiating with George Pullman. All the partners agreed, so Carnegie dashed off a flattering note to Thomson requesting his permission, fawning over him by writing, “we have nothing to say except to assure you that there is not one of our party who is not delighted that an opportunity has arisen through which expression can be given, however feebly, to the regard they honestly entertain for your exalted character & career.”13

  While Carnegie waited anxiously for Thomson’s reply, the Articles of Co-Partnership were drawn up, signed, and filed on November 5, 1872; the company would be called Carnegie, McCandless and Company. The partners included Andrew Carnegie, Tom Carnegie, Harry Phipps, Andrew Kloman, William Coleman, David McCandless, David Stewart, and John Scott.14 Two new additions to Carnegie’s iron and steel trade circle were McCandless, a highly respected local businessman whose name they wisely included in the company’s to lend the affair more respect; and Stewart, who was president of Columbia Oil and expected to lend his management skills. Once again, Carnegie was surrounding himself with very capable, seasoned men. Capital was set at $700,000, with Carnegie contributing $250,000, much of it from his recent windfall selling bonds. Coleman anted up $100,000 and the other six partners $50,000 each, which left $50,000 to be given to the man who would manage the operation. (To ensure the capital was there to inject in the Edgar Thomson Mill, the original Kloman mill, otherwise known as the Lower Mills of Union Iron Mills, was sold to Wilson, Walker and Company, although Carnegie still held a large interest. A trusted friend, John Walker, was one of the principals.) Considering the average steelworks had capital of $156,000 in 1869 and $267,000 in 1879, Carnegie’s vision was pretty grand indeed.15 He intended for the steel mill to catapult him into the upper echelon of the country’s business elite.

  Thomson soured the plans somewhat when he expressed doubts about giving his name to the mill itself because he believed U.S.-made steel rails were not up to par with the “foreign article,” and he didn’t want to sully his reputation. Tenacious as ever, Carnegie explained who was involved in the affair and argued that this time would be different—their rails would be up to snuff.16 Brimming with confidence, he also suggested Thomson invest in the affair. Thomson, who knew Coleman, McCandless, and Scott well, reconsidered. On November 14, he wrote his old protégé: “As regards the Steel Works you can use the name you suggest, if the names you sent me are individually liable for its success and as I have no doubt will look after its management. I have no funds at present to invest, having been drained by the Texas & California—and Sanborne’s Mexican project.”17 The “Texas & California” Thomson referred to involved a bid by Tom Scott and several other railroad chieftains to build a second transcontinental line by connecting Texas with California and Texas with the Pennsylvania Railroad’s lines, and thus the East Coast. Scott had borrowed heavily and Carnegie had invested a small amount, so Thomson “having been drained” should have been a warning signal of events to come.

  That fall and winter, Tom Carnegie and his father-in-law scouted property and found a strategic location for the mill about twelve miles outside of Pittsburgh at Braddock’s Field, where the English general Edward Bra
ddock had suffered a humiliating defeat at the hands of the French in 1755. Along the north edge of the 107-acre property ran the Pennsylvania Railroad, through the center the Baltimore & Ohio Railroad, and along the southern edge flowed the Monongahela. Considering the importance of cheap transportation, it was indeed strategic. As to who should design and oversee the construction of the Bessemer steel mill, Carnegie was only interested in procuring the brightest man available: the dashing and brilliant Alexander Holley. An 1853 graduate of Brown University, Holley was described as being “fairly Apollo-like in personal beauty,” sporting a thick mustache curled upward at each end and wavy brown hair swept back. He had a keen mind, was cultured, and was a prolific writer—all traits that made him extremely attractive to Carnegie. While investigating armor plate and armament in Europe in 1862, Holley had visited Bessemer’s works in Sheffield and had become convinced steel was the future. He procured a license from Bessemer and, along with several businessmen, organized Albany and Rensselaer Iron and Steel. As manager of the construction, Holley added a number of refinements and new ideas to Bessemer’s work, prompting one observer to note, “Where Bessemer left the process which bears his name, Holley’s work began.”18 After Troy, Holley went on to build a Bessemer plant for the Pennsylvania Steel Company and then for Cambria. By the time Carnegie requested his services, Holley clearly knew what was required to build the most technologically advanced Bessemer mill in the world.

  Carnegie and his partners were savvy enough to give Holley free reign in the design, and he let form follow function. First he sketched in the railroad tracks and then laid out each building—the converter house with two six-ton converters, the boiler house, the gas generator house, the rail mill—ensuring highly efficient transportation of raw and finished material. After the spring thaw, excavations for the mill’s foundations were started at once, during which the men uncovered numerous relics from Braddock’s 1755 battle, including bayonets and swords. It was quite an exciting time for both the common laborer and Carnegie.

  There was one unforeseen obstacle that threatened not only the construction, but the very survival of the steel mill: a financial panic and the country’s first great depression, which would last six years. Over that time, Carnegie would demonstrate his incredible resolve to preclude external conditions from affecting his operations.

  That money had become tight Carnegie knew from Thomson, as well as Scott, who both declared they had no funds to invest in the steel mill at Brad-dock. Pierpont Morgan also recognized credit was tightening; wary of a financial panic, he increased cash reserves and steered clear of any speculative investments. In April 1873, he informed his father, Junius, that he was only floating bonds “which can be recommended, without a shadow of a doubt, and without the least subsequent anxiety, as to payment of interest.”19 The very next month the Vienna stock market collapsed, creating a domino effect that hit Berlin, Amsterdam, Paris, and London—it was a global economy long before most realized it—and European investors dumped their American securities. As for gauging the economy’s health, all one needed to know was that in 1872 the railroads had built seventy-five hundred miles of track; in 1875, the year Edgar Thomson was to open, the cash-starved railroads would only build sixteen hundred miles.

  Although the economic situation deteriorated dramatically in September, Carnegie, who was still unaware as to how dire the situation would become, felt flush enough to donate $25,000 to Dunfermline for public baths, which were to be built on the site of an old slaughterhouse. It was his first major philanthropic effort, and while notable, he had yet to develop the philosophy for benefaction that would ultimately lead to him giving away more than $300 million. It did make the New York papers on September 6, publicity that didn’t sit well with Carnegie’s attorney, Lewis Sanders, who dashed off a note to the budding philanthropist: “I see by this morning’s Tribune that Mr. Andrew Carnegie a wealthy citizen of this city has donated $25,000 as a refresher to his native town. How do you expect your lawyer to keep you off jury duty & keep your taxes down when you advertise yourself as a resident of N.Y.?”20 It appeared that while Carnegie preached American righteousness, he was not so anxious to pay his civic dues. His lawyer’s scolding became the least of his problems.

  Carnegie was relaxing in Cresson when disastrous news reached him, a day he vividly recalled: “The works were well advanced when the financial panic of September, 1873, came upon us. I then entered upon the most anxious period of my business life. All was going well when one morning in our summer cottage, in the Allegheny Mountains at Cresson, a telegram came announcing the failure of Jay Cooke and Co. Almost every hour after brought news of some fresh disaster. House after house failed.”21 The banking house of Jay Cooke had been trying to keep the Northern Pacific Railroad afloat with a series of short-term loans, but the railroad had finally defaulted. Subsequently, Cooke failed on September 18. Because the company was the government’s leading private banker, the event shocked Wall Street. “To say that the street became excited would only give a feeble view of the expressions of feeling,” a New York Times correspondent reported. “The brokers stood perfectly thunderstruck for a moment, and then there was a general run to notify the different houses in Wall Street of the failure.”22 The ensuing panic forced another fifty-seven investment banks to fail, the stock market crashed, and for the first time ever the New York Stock Exchange closed its doors on September 20. The post–Civil War boom, which had taken a breather or two, now came to an abrupt end.

  So very vulnerable to the health of the railroads, Carnegie took two direct hits. The Davenport & St. Paul Railroad, for which he had sold bonds to the very cautious Sulzbach banking house, failed. Seeking vengeance in court, the Sulzbachs, among others, brought suit against the railroad, the construction company Carnegie created to build the road, as well as Carnegie, Scott, Thomson, and the other directors and trustees. Court proceedings would open in 1874 and entangle Carnegie for ten years. More damaging to Carnegie, however, was the tottering financial position of Scott’s Texas & Pacific Railroad. The company had to be propped up immediately to pay interest on $2 million in loans or it, too, would fall into bankruptcy.23

  Scott turned to his Andy for help, explaining that a $300,000 loan was due that Morgan and Company was willing to cover as long as Carnegie joined in the temporary financing. After all that Scott had done for the young man, he was certain Andy would pull through; but Carnegie hesitated and then, to Scott’s surprise, declined. “It was one of the most trying moments of my whole life,” Carnegie later explained. “Yet I was not tempted for a moment to entertain the idea of involving myself. The question of what was my duty came first and prevented that. All my capital was in manufacturing and every dollar of it was required. I was the capitalist (then a modest one, indeed) of our concern. All depended upon me. My brother with his wife and family, Mr. Phipps and his family, Mr. Kloman and his family, all rose up before me and claimed protection.”24 How self-serving his reflections were and how dependent his partners were on him was up for debate; however, he and his partners were, in fact, financially squeezed—so much so that to raise funds for the steel mill, McCandless had just sold Pittsburgh investment property owned by himself, his son Gardner, and the Carnegie brothers, among others.25

  Scott now turned to Thomson and asked him to plead his case before Carnegie. The railroad icon was also struggling and was only too willing to approach Carnegie about endorsing the loan. Again the answer was no, that he had no money to cover such a perilous loan. Thomson, who stood to lose about $750,000, wrote Carnegie a second letter, hoping to pressure him into recruiting friends to help.26 It was to no avail, and the Texas & Pacific went under. The failure also broke the health of both Scott and Thomson and poisoned their personal relationships with each other and Carnegie. “This marked another step in the total business separation that had to come between Mr. Scott and myself,” Carnegie sadly reflected in his autobiography. “It gave me more pain than all the financial trials to which
I had been subjected up to that time.”27 Carnegie had turned his back on the very men who had given him his start. Despite his claims that he had to consider his family and partners invested in the steel mill, and his contrite reflections on the pain it gave him, Carnegie had betrayed Scott, who suffered a relatively mild humiliation when the railroad went bankrupt.

  There was another, murkier reason for his infidelity that can’t be discounted. Scott had stolen a girl Carnegie was smitten with. When living in Homewood, Carnegie had fallen in love with a Miss Anna “Annie” Duke Riddle, the beautiful daughter of the owner of the Pittsburgh Journal. Intent on a more permanent relationship, Andy told his friend Tom Miller he was going to introduce Miss Riddle to Mr. Scott for his opinion of her.

  “Be careful, Andy,” warned Miller. “Scott is a handsome man and you are not. If he sees Annie, he’ll win her away from you.”

  “Well, if any other man can win Annie Riddle away from me, he’s welcome,” rejoined Carnegie boldly. He took her to meet Scott, expecting his mentor to appraise her character and report his findings as though studying another business proposition, but Scott decided Miss Riddle required further evaluation. The two continued to meet on a regular basis. She fell for the handsome, personable railroad magnate, as Miller had warned, and they were married.28 Although Carnegie claimed the loss of Annie Riddle was not a great one, he was deeply wounded. He always claimed he held no grudges, but that wasn’t true; Carnegie could be very spiteful and never forgot what Scott had done. The friendship had been poisoned long before 1873, and old loyalties now meant nothing. Old loyalties certainly weren’t going to hinder Carnegie’s own success.