by Peter Krass
The same day Carnegie offered to pay the men in gold, he wrote an effusive letter to Henry Curry, manager of an independent blast furnace company named the Lucy Furnace Company (after Tom’s wife) that Carnegie had created to supply his iron and steel works with pig iron: “I desire to congratulate upon the extraordinary results of the past two weeks. I am at last satisfied that we are getting the results we had a right to expect. . . . You will soon have the 2 greatest Furnaces in the country under your charge and you are bound to make a national reputation if you continue to manage them as you are doing.”40 This lavish praise of Curry, however, opened another rift between Shinn and Carnegie.
The pig iron the Lucy Furnace Company was supplying to E.T., Shinn charged, cost more than the competition’s; not only that, on several occasions the quality was suspect. Troubled by this unforeseen obstacle thrown in the road by supposed allies, in April 1877 Shinn wrote Carnegie a letter marked private and confidential. Quite reasonably, Shinn argued that if the Lucy Company was to furnish most of the pig iron, then “it is of the utmost consequence that we should have the fullest confidence in each other, and that we could feel assured at all times, that no material would be used to cheapen the metal, that would or could injure our product.” In fact, he continued, cheap pig iron had recently resulted in a batch of brittle, defective rails, even though Phipps had assured everyone changes had been made to ensure quality at the furnaces. “You are most interested in our getting and keeping a reputation for making the best rails in America,” Shinn reminded Carnegie, “and to do that we must use the best material. My reputation as well as my capital, is involved in the matter, and if I am to make it my life occupation, and cut loose from all RR. Associations, it can only be, as you can readily see, upon a basis of full confidence between us, and between us all as associates, in all our relations.”41 Shinn suggested that not only had Phipps been less than straightforward, but that perhaps Carnegie was guilty of unspecified surreptitious behavior, too, undermining their trust in each other. No doubt, Carnegie did not appreciate the tone of this personal letter, but the man required appeasing. Within days, he tantalized Shinn with a large partnership in a reorganized company that would consolidate all the iron and steel interests.42
Convinced any internal conflicts had been resolved, by the fall of 1877 Carnegie was again riding his men hard, harping on costs. Still paying the Lucy Company what he considered a premium for ore, Shinn responded bitterly, “You say that ‘there is but one thing for us to do, get cost down, etc.,’ We will do all we can in that respect, but when Vulcan can get metal at from a dollar to a dollar fifty below us, we have not the best show in the world for meeting them in their market.”43 Attacked repeatedly over wage reductions and other costs, Shinn’s bitterness was becoming more apparent. His relationship with Carnegie began to sour, slowly at first, initiated by Carnegie’s bullying, but then accelerating as Shinn’s resentfulness grew over the pressures placed on him by his much younger boss. Now he secretly coveted more money and power as compensation, and he dreamed ambitious dreams that were beyond his ability to attain. It would soon become a question of whether he would heed Carnegie’s advice—“Don’t be too greedy”—or would take Kloman’s path.
While a tempestuous Carnegie, who found it difficult to have an even-tempered relationship with anyone (except his mother) both wooed and flagellated Shinn, he pressed Jones for more productivity in a barrage of letters. In stark contrast to Shinn, who was forever on the defensive and looking for excuses, Jones took a belligerent, yet pleasantly confident, posture with Carnegie. When Carnegie specifically demanded higher production to beat an aggressive Illinois competitor, the North Chicago Rolling Mill, the superintendent rejoined with confidence and coolness: “Your last two letters have been received. In reply to last, I am free to confess what North Chicago put out is hard to beat. Yet I doubt if it would be good policy for us to attempt to beat it. . . . I feel confident that it is utterly impossible to make that amount of rails in the time specified and meet the requirements of such roads as the Pa. R. R. and its connections. I know what rail making is out west. I feel confident that at the end of the year, we will not be far behind the best. . . . We still have many difficulties to contend with, but are getting rid of them as fast as we can. Have patience and I think I can show you a thing or two.”44 Patience was one trait Carnegie was not imbued with.
At times, Jones could not hide his exasperation with his doubting, heavy-handed boss and was compelled to confront him when he didn’t give credit when credit was due. On one occasion, to prove his labor cost per ton was cheaper than that of the Pennsylvania Steel Company, a prime competitor, he sent figures for both firms and demanded that his boss “be candid enough to give us credit.” Captain Jones finished his letter with a flourish: “In conclusion I do think that no works in the world, can point to so successful a record as we can claim, and show, and today I am in receipt of letters making inquiries ‘how we do this,’ and ‘how we do that?’ The oldest asking the youngest for information.”45 The letter had little effect on Carnegie. The barrage of criticism, suggestions, and sundry Scottish proverbs about minding the pence continued.
The next year, when Carnegie continued to harp on labor costs, Jones, rather than whining like Shinn would, bluntly told Carnegie what was to be done: Nothing. “I must earnestly say let us leave good enough alone,” he demanded. “Don’t think of any further reductions. Our men are working hard and faithfully, believing that hard pan has been reached. Let them once get the notion in their heads that wages are to be further reduced and we will lose heavily. . . . Now mark what I tell you. Our labor is the cheapest in the country. Our men have ‘Esprit de Corps,’ and our cost of maintenance is way under that of any other works. Low wages does not always imply cheap labor. Good wages and good workmen I know to be cheapest labor. Our men are taking good care of our property and are pulling with us so heartily that I even cant dream of again attacking them.”46 Jones likened the workmen to a spirited horse difficult to rein in; they must be given their head and wages. To cultivate the esprit de corps, he encouraged his various crews on different shifts to form baseball teams and play each other, knowing the competitive spirit would carry over to steel production. He even built a baseball diamond right inside the Edgar Thomson plant.47
His relationship with Carnegie also became extremely competitive, each egging the other on. Supremely confident, the Captain bet Carnegie a new suit that E.T. would beat Pennsylvania Steel’s production—and when E.T. did triumph, Jones wrote to collect on the bet, offering a piece of his mind, too:
I guess you had better send that order for suit of clothes, for I fear that by the time you have compared our results with that of other works, you will feel sure that I am entitled to two suits.
Now in conclusion, you let me handle this nag in this race. I think I will keep her on the track, and may keep her nose in front. I think at the end of this year, I will have her ahead, and when we stop to rub down, you will find her in excellent condition.48
Finally, Carnegie conceded that Jones was doing a superb job. He even asked his advice on prospects for expansion, and on consolidating the E.T. and Lucy companies. Shocked by the chance to give solicited advice, Jones unleashed a host of pent-up ideas. In particular, he recommended expanding their works and building more furnaces.49 Jones, who was always eager to implement the latest technology, continued to shape Carnegie’s ideas and reinforce what the Scotsman had learned from Thomson on reinvesting dividends. Reinvestment equated to greater production and greater profits in the future. As Carnegie had and would with other lieutenants and partners, he recognized Jones’s brilliance and would heed his advice. But expansion would have to be paid for with money that would otherwise go toward dividends, and Carnegie, who came to believe dividends should be limited to 25 percent of the profits, would find it exceedingly difficult to convince his partners to forgo the short-term gain. Everyone’s relationships would become more complicated—especially his and
Shinn’s—as profits complicated most everything.
Carnegie was setting the tone for the steel industry by spring of 1877 and had only scorn for the other firms sniveling over the bitter contest for rail orders. He was pushing the entire industry to a higher level of performance, forcing competitors to seek greater efficiencies and to discover new processes. By challenging the status quo, he elevated American industry. The demoralized patricians, however, decided to attempt a rail pool. Realizing it would only succeed if Carnegie were included, they reluctantly invited him to a meeting in Philadelphia.
Carnegie prepared diligently for the meeting by buying stock in each of his publicly traded competitors to receive their reports, by investigating the executives who would be there, and by estimating the costs each of their respective mills incurred in making rails. At the table, no faces surprised him. There was Edward Y. Townsend and Morrell from Cambria, Samuel Felton from Pennsylvania Steel, Walter Scranton from Scranton Iron and Steel, Benjamin Jones from Jones and Laughlin, and Joseph Wharton from Bethlehem Steel. Carnegie was stunned, however, to discover the group of elders had already decided each firm’s share of the rail pool. Cambria was to receive 19 percent and Pennsylvania 15 percent, while E.T. was designated a paltry 9 percent.
By the late 1870s, Carnegie was setting the tone in the steel industry. He also remained a most eligible bachelor. (Courtesy of the Carnegie Library of Pittsburgh)
After looking over the documents handed to him, Carnegie calmly stood, drawing himself up to his full five feet three inches, and then pounded the table. Taken aback, the haughty steel masters turned their attention to Carnegie, who declared in no uncertain terms that E.T. would have as large a piece as Cambria. The announcement was greeted with chortles of laughter. Pale and indignant, Carnegie gave them a piece of his mind. He informed them he was a stockholder in their concerns and therefore had access to their financial reports. Then, singling out each president in turn, he stated their salary and personal expenses, hoping to embarrass them. “Moreover,” Carnegie declared, “Mr. Holley, the engineer who built the Edgar Thomson works has informed me that it is the most complete and perfect in the world and will turn out steel rails at cost far lower than its competition. So gentlemen, you must be interested to know that I can roll steel rails at $9 a ton. [He was bluffing.] If Edgar Thomson Co. isn’t given as high a percentage of this pool as the highest, I shall withdraw from it and undersell you all in the market— and make good money doing it.”50 By the end of Carnegie’s tirade, the laughter had subsided, but his demands were not met and negotiations fell apart. One of the major reasons the steel masters were not overly enthused about creating a pool was because they had already established another means for controlling the industry.
In 1866, the Pennsylvania Steel Company and several other established steel manufacturers had created the Pneumatic Steel Association, later called the Bessemer Steel Association, with the sole objective of buying and controlling the patents, such as Bessemer’s, required for making steel. If the patricians wanted to limit the competition, they simply refused to license the patents or charged exorbitant fees. Pools weren’t that necessary because the association effectively controlled the market. By 1877, Carnegie wielded enough power that he was granted membership in the Bessemer Steel Association, about the only friendly relationship he established with the steel aristocracy. And even then he complained bitterly about the royalty fees he had to pay.
With his men under continuous strain, Carnegie began to realize an alliance with a competitor was necessary to relieve the pressure. Although a rail pool remained elusive, a partnership with another powerful firm would bring some stability to prices and thus eliminate the incessant drive for lower costs. It would also provide Edgar Thomson with more rail orders as the respective sales forces worked in concert. In particular, he wanted to join forces with another firm to generate the critical mass necessary to attack the firms based in Chicago, now a powerful steel center, that were blocking his entry into western markets. If he could entice Cambria into a partnership, he calculated, they could crush the competition together; and then, with the others subdued, Carnegie would deal with Cambria. He struck up a relationship with E. Y. Townsend, the president of Cambria, and suggested an alliance. He wrote, “I know there is more profit for each of us in harmonious working than in fierce competition for every order that comes upon the market, and I am disposed to try any plan you think likely to make.” To bolster his argument, he provided the example of two coal companies warring that eventually partnered and achieved unparalleled success:
In like manner, if our two works obtain a lead & go forward prosperously, we shall both grow in various directions & make always a large proportion of the steel made in this country.
I have been charged with demoralizing the Rail Mkt. but should war between our concerns result in prices now almost undreamt of, I decline to share the responsibility.51
Townsend realized he could no longer ignore the threat that Carnegie posed, so he agreed to share rail orders equally, provided all sales were approved by him and all sales agents reported to him. Carnegie, more interested in the money, willingly acquiesced on this issue of control. Yet he did not entirely trust Cambria, as he apprised Shinn: “The division of orders, between Cambria and ourselves, will be made by dividing each order as far as practicable, and I will arrange the matter of division, otherwise, very carefully.”52 Now Carnegie believed he would reap a good portion of the Pennsylvania Railroad bounty that Cambria and Pennsylvania Steel had feasted upon.
In the autumn of 1877, with his Cambria relationship proving amicable enough, Carnegie pursued John Fritz, the general manager at Bethlehem Steel, as his next ally to build an even stronger regional alliance for stabilizing the local market and combating competitors. To show his interest in Bethlehem’s welfare, as well as to engage in a little reconnaissance, Carnegie visited with Fritz at Bethlehem in December, then reported back to Tom and Phipps. He included information on the mixture of fuel and iron Bethlehem used to make its pig iron, along with costs for each ingredient, as well as labor.53 Such information allowed him to evaluate where he stood and gave him the weapon needed to kindly induce his own managers to strive for lower costs. On the same day he relayed his findings to Pittsburgh, Carnegie wrote a glowing, complimentary note to Fritz, concluding with a cataclysmic line: “I might say that everything I saw tended to convince me that, on the Darwinian principal of survival of the fittest, you have no reason to fear the future.”54
Even though he was seeking a harmonious relationship with Bethlehem and Cambria, after the heated battle to establish his steel mill survival of the fittest as a socioeconomic philosophy was now imbedded in Carnegie’s conscious and part of his lexicon. Of course, it was Spencer who coined the social thought down to a couple of catchphrases. What mattered to Carnegie was that the survival of the fittest mentality justified any ruthless action and confirmed his elevated view of himself.
During the brutal depression, he realized life’s many battles did indeed result with the victor being the one who was most fit to survive. For evidence, he only had to look as far as his own associates: Thomson was dead and Scott mired in financial chaos; Kloman had fallen prey to greed and Coleman to the panic and credit squeeze. But he, with mother Margaret at his side, he had the intellectual and moral strength to survive. He was one of Calvin’s blessed. He stood alone, the fittest.
Notes
1. Joseph G. Butler, Recollections of Men and Events (New York: G. P. Putnam’s Sons, 1927), p. 151.
2. William R. Jones to E. V. McCandless, February 25, 1875, quoted in Bridge, pp. 81– 82. This letter was to be shared with David McCandless and William Coleman.
3. AC to William P. Shinn, June 11, 1875, ACWPHS, Letterbook, 1874–1875.
4. AC to Samuel Reeves, December 29, 1870, ACWPHS, Iron Beam Agreements File.
5. D. J. Morrell to William P. Shinn, June 10, 1875, ACWPHS, Edgar Thomson Operating File; L. S. Durfee, July 14, 1875, A
CWPHS, Pneumatic Steel Association File.
6. AC to William P. Shinn, December 9, 1875, ACWPHS, Letterbook, 1875–1876.
7. AC to William P. Shinn, November 20, 1875, quoted in Temin, p. 175.
8. AC to William P. Shinn, November 29, 1875, ACWPHS, Letterbook, 1875–1876.
9. AC to William P. Shinn, December 9, 1875, ACWPHS, Letterbook, 1875–1876.
10. AC to William P. Shinn, January 15, 1876, ACWPHS, Letterbook, 1875–1876.
11. William P. Shinn to AC, December 13, 1875, ACWPHS, Edgar Thomson Operating File.
12. AC to William P. Shinn, December 14, 1875, ACWPHS, Letterbook, 1875–1876.
13. William P. Shinn to AC, November 26, 1875, ACWPHS, Edgar Thomson Operating File.
14. AC to William P. Shinn, November 30, 1875, quoted in Hendrick, Carnegie, vol. 1, p. 217.
15. AC to William P. Shinn, April 10, 1876, ACLOC, vol. 4.
16. See agreement between AC and William Coleman, May 1, 1876, ACWPHS, Edgar Thomson Operating File.
17. Hogan, p. 117.
18. Carnegie, Autobiography, pp. 129–130.
19. Ibid., p. 169.
20. AC to Tom Carnegie, April 19, 1869, ACWPHS, Union Iron Mills Letterbook, March 2–June 28, 1869.
