Carnegie
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Jones was a great cultivator of men, but he could be exceptionally hard-driving and spiteful, too. When a group of his men prompted their reverends and priests to call for an end to Sunday work, Jones’s reaction was venomous. “I have notified our bigoted and sanctimonious cusses that in the event of their attempting to interfere with these works,” he wrote Carnegie, “I will retaliate by promptly discharging any workman who belongs to their Churches and thereby get rid of the poorest and most worthless portion of our employees. If they don’t want to work when I want them, I shall take good care that they don’t work when they want to. We bet a dollar they will be glad to drop the agitation.”28 Clearly, the Captain was a gambling man. But then, just a few months after his lethal tirade, Jones informed Carnegie that Reverend C. DeLong, a local pastor, had approached him about procuring a Sunday school library for the church. “I listened carefully to his statements and concluded to do all I could to assist him. Rev De Long is full of faith, but minus money. I told him I knew a gentleman in New York that possesses D ——— d little faith, but had lots of money, and was liberal in matters of this kind.”29 Jones urged Carnegie to purchase a library of books for the congregation, while he would have E.T.’s carpenters erect the building. What a pair Carnegie and Jones made, both steeped in contradiction. Yet, in the end, Jones protected his men more than he castigated them, and he acted as a thick buffer between them and the profit-hungry Carnegie. Such a buffer was needed to maintain a reasonably congenial relationship between capital and labor, and it would be absent when needed most.
To reduce production costs during the merciless price war, Carnegie pursued cheaper raw material and was not above associating himself with the unsavory coal mining industry, including one Henry Clay Frick, the reputed king of coke and a man who would have a profound impact on Carnegie’s business legacy. Coke, a strong, smokeless fuel used in iron and steel manufacturing, was derived from coal, and the best coal for coking was found in the Connellsville area of southwest Pennsylvania. Coking entailed dumping coal into beehive ovens, which were circular, dome-shaped brick structures resembling . . . beehives. Built in rows, with twelve-foot base diameters and seven-foot heights, they had openings in the top so a train could pull alongside and quickly unload the coal into the stoked ovens. For the next forty-eight hours, gases and volatile matter trapped in the coal were burned off. Front brick doors were then broken open, the coke was washed, and laborers using long-handled scrapers pulled out the coke.
Early in his iron adventure, Carnegie had discovered that determining the proper amounts of coke and the other raw materials for the concoction proved elusive and led to inconsistent quality. Advice from quack doctors was no longer welcome. Carnegie the positivist wanted facts, so the company hired a chemist—the first to do so, according to legend. (However, their competition, Cooper and Hewitt, had one on the payroll in 1867, two years prior to Carnegie, and that may have inspired him to hire one.)30 Procuring a steady source for coke was another difficulty, so Carnegie had invested in ovens at Larimer Station, conveniently located along the Pennsylvania’s line to supplement his needs. Desiring to grant his cousin Dod’s wish to emigrate to America, he hired his cousin, who had gained expertise in washing coal, to manage the operation in the early 1870s. A partner for the next twenty-five years, Dod was expected to cover Naig’s back, but he also provided honest appraisals: when Carnegie questioned Dod on their coke facility’s production, his cousin acerbically replied, “I judge from your telegram that you must have got imbued with some strange notion of the magnitude of the works here.”31 As Carnegie often said, “Dod is the balance-wheel.”32
In fact, not only were the works inadequate by the 1880s, it was costing Carnegie more to operate them than to buy all his coke from an independent source. It was an unacceptable situation. Desperate to unload the small but costly ventures, in late 1881 Tom Carnegie approached Frick to ascertain whether he would consider buying the properties. After studying the assets, Frick agreed, but then matters took an interesting turn. Having acquired a fair debt load, Frick was in need of a capital infusion, and figured who better to approach for financing than his anxious customer Andrew Carnegie. If Carnegie gave him money, Frick would relieve him of the coke works.
The Scotsman was very much open to investing in Frick. “The one vital lesson in iron and steel that I learned in Britain,” he later wrote, “was the necessity for owning raw materials and finishing the completed article ready of its purpose.”33 An investment in Frick would be another step toward achieving that vertical integration and self-sufficient independence. Also, as early as January 1880, thrifty Harry Phipps had suggested they invest in Frick’s company because it appeared quite profitable, yet no action was taken until now.34 Learning that Frick and his wife, just married in December 1881, would be passing through New York on their way to a European honeymoon, Carnegie arranged a luncheon at the Windsor Hotel. At the table, Carnegie sized up his potential partner: Although of a medium build, slight figure, with an undistinguished trim beard, Frick possessed hard, studious eyes that made the objects of his gaze uncomfortable; these eyes displayed the genius Carnegie sought in all men. What he failed to see was the putrid bowels of the coal industry investigated by Mother Jones and the Pennsylvania secretary of internal affairs.
Born in 1849 to a bumbling southwestern Pennsylvania farmer, Frick nevertheless had ambition. He had a rich grandfather, and during rides in his fancy carriage the young man became determined to emulate him. After spending his childhood performing chores on the family farm, at age 15 he left home to live with an uncle and attend Westmoreland College and then Otterbein University. Eventually, Frick’s grandfather hired him as his chief bookkeeper, but in 1870 the old man died, at which point his elder cousin, Abraham Tintsman, invited him to become a partner in a modest coke business. On March 10, 1871, Frick signed his name to the partnership papers and put in capital for a one-fifth interest in the firm Overholt, Frick, and Company. Relying on the venerable Thomas Mellon, who had been friendly with Frick’s mother since her well-to-do childhood days, Frick procured loans for expanding the operations. Two years after having entered the partnership, he gained control and renamed the firm Frick and Company. At times coldblooded and machinelike, he was a formidable man. Under his command were two hundred ovens and four hundred acres of coal land. For all the toughness it took to succeed in the steel industry, it took that much more to survive in the brutal coal mining industry, in which labor violence and accidents took hundreds of lives. But Frick had the guts, motivation, and vision to triumph—as well as the callousness, for he wrung every penny he could from his men.
Many years after escaping the Connellsville coal region, Ben Shedlock, whose father and brothers worked for Frick, depicted life in the Frick realm as totalitarian. The town they lived in “was under the control of the Coal Iron Police, hired by the company. They were like the Gestapo.” All purchases had to be made at the company store, which charged high prices, or the men faced losing their jobs. “They robbed the people blind in those stores,” said Shedlock. “The men in the coal mines were slaves. They worked 12 hours a day. I remember my Dad coming home in winter, his clothes frozen to his body from working in the water in the mines. Of course, if you were killed in the mines, the company paid your family nothing.”35
Conditions were so bad the Pennsylvania secretary of internal affairs opened an investigation and accused Frick of charging $9.60 for a barrel of flour when it could be bought elsewhere for just $8. The investigation also confirmed that if the Frick men didn’t spend their wages in the Frick store, they were summarily fired. Over a fourteen-month period, the Frick Company made $33,000 from their stores, which were supposed to benefit the men.36 But men paying a premium for flour, or men dying of pneumonia, or collapsed mines burying dozens alive, or explosions killing scores more were taken in stride by such captains of war as Henry Clay Frick—or Clay, as he was known to friends. By the summer of 1881 he had earned the reputation as the c
ruelest employer in the industry.37
Frick’s reputation as a human being didn’t concern Carnegie, who was obsessively focused on beating his competition. Certainly, the taciturn Frick and buoyant Carnegie made for a seemingly incompatible combination, but before the New York luncheon was over they were partners. “Ah, Andra,” his mother, who was also in attendance, whispered, “that’s a verra good thing for Mr. Freek, but what do we get out of it?” A partner that would affect Andrew Carnegie’s standing in history, for one. From Frick, Carnegie now had an agreement that provided for a cheaper source for coke that translated to cheaper prices for his steel rails. Effective January 1, 1882, Carnegie’s company owned 11.25 percent of the H. C. Frick Coke Company, with Frick holding 11,846 shares, his prior partners, E. M. and Walton Ferguson, 23,654 shares, and Carnegie 4,500.38 In turn, Carnegie had to buy all his coke from Frick.
The arrangement proved so profitable that unknown to Frick, Carnegie started pressing the Ferguson brothers to sell him additional shares so he could gain even more negotiating leverage over coke pricing. The steel master had little respect for them, especially after Phipps observed, “In our various negotiations have found Mr. Frick clear-headed but can not say as much for his two associates.”39 Little by little the Fergusons capitulated, and by mid-1883 Carnegie was the largest shareholder in the H. C. Frick Coke Company. To strengthen his hold on the company, over the next two years Carnegie brought in his allies, including Tom, Phipps, Stewart, Vandy, John Walker, Dod, and even Captain Jones, among others, who all became individual stockholders via shares Carnegie sold to them.40 By August 1885, the scorecard would stand at Carnegie with 13,711 shares, H. C. Frick with 8,668, E. M. Ferguson with 8,667, Walter Ferguson with 8,665, Phipps with 3,955, and Tom with 3,780.41
The old fox had tricked the young one. It was a sudden reversal of fortune that didn’t sit well with Frick and set a contentious tone for their relationship. Frick’s displeasure with the situation was quite evident in how he reacted when Carnegie struck down a proposal to buy more operations. Assuming a snide voice, Frick wrote, “I am free to say, I do not like the tone of your letter. Outside of my desire to follow and accept your views as the largest stockholder in our Company—I have great admiration for your acknowledged abilities and your general good judgment, and would much prefer to defer to your views—in the matter of the values of the properties in question and the propriety of increasing our stock I shall have to differ from you and I think the future will bear me out.”42 Convinced of his superior knowledge when it came to coke, Frick was not going to kowtow to Carnegie or anybody else, but he came to accept the circumstances. He even dangled the prospect of more stock under Carnegie’s nose when just three months after his snide letter Frick again asked for money to buy three competitors. Hoping to win approval for the deals, he encouraged Carnegie to purchase $500,000 more of Frick stock, adding suggestively. “You will then be the owner of half of Frick Coke Co.”43 Dod warned Carnegie: “I do not see why we would wish to take these properties into the Frick Co. They are well enough as they are. . . . Let Frick worry with them is my verdict.”44 For all his vanity, Carnegie knew when to heed his lieutenants’ advice and did so. By the end of the year, he and his allies controlled 50 percent of the stock, anyway, and there was nothing Frick could do about it except prove his worthiness for remaining at the helm.45
Carnegie was well prepared when a price war threatened his relationship with Cambria in 1882 and when, on the heels of that conflict, a debilitating war broke out with Chicago-area steel mills. The spirited competitor in Carnegie made it difficult to maintain a harmonious relationship with any of the industry’s old guard, even Edward Townsend at Cambria. The trouble first surfaced when Townsend, who claimed he didn’t want rail prices below $55 a ton, allegedly permitted his agents to sell some orders at $50. Carnegie’s sales agents immediately reported the sudden drop in price, and he then discovered Townsend had scooped a nine-thousand-ton order. Incensed, he wrote “Dear Mr. Townsend” that “it will be impossible to overlook your recent action,” and he called his actions “pernicious.” Carnegie suggested they split the order and prevent future lapses: “I greatly hope that my suggestion, after you think it all over will seem to you fair & reasonable. It would be source of much personal gratification to me if you accede to it as in that case it would be unnecessary for me to report to my Brother & Mr. Stewart that a misunderstanding has arisen between us. . . . Consider it all over & try to think whether you have done to your colleagues as you would like to be done by.”46 Interestingly, Carnegie used his brother as a threat. Why? For the simple reason Tom Carnegie did indeed carry much more respect in the Pittsburgh business community than did Andrew, and a derogatory word from Tom would hurt Cambria’s reputation far more than his brother’s blustery tirades.
The very next day Townsend fired back: “I can furnish you evidence of many instances wherein sales have been made by your Company without any respect to the provisions of Article 4 that you quote & more ‘pernicious to our agreement’ that the case now under discussion.”47 Offended by the allegations, Carnegie responded not to “My Dear Mr. Townsend.” Instead, he wrote:
Dear Sir,
I have received your favor of 21st instant. If you have any charge to make against us for which you have not already accepted our explanation as satisfactory and thus closed them, you have only to present them. I assure you we do not intend to reap any advantage from violations of our obligations to you or to anyone. These, however, have nothing whatever to do with our request that you shall justify your recent action before an arbiter as required, by our contract, unless upon reflection you accede to my suggestion and place the negotiation to joint account. . . . While trying to advance our mutual interests by holding up the prices of Rails here to figures approved by you, I little expected to be stabbed in the back by the hand whose duty it was to co-operate with me.48
Considering it was the first time Townsend had allegedly betrayed Carnegie’s trust, the Scotsman’s reaction was violent and demonstrated just how strongly he felt about anyone crossing him. But as impetuous as he was, he was equally conciliatory when it benefited him, so he quickly negotiated a truce with Townsend. At this time, they also formulated a battle plan to capture more rail orders in booming western markets controlled by their arch competitors in Chicago. Together they would use radical price cuts in taking the battle to Chicago in an attempt to scoop the market.
The very next year their alliance was successfully cutting into enemy territory. After one triumph, Carnegie’s sales agent, A. L. Griffin, reported that he beat the Chicago mills for an order of seventeen thousand tons for the St. Paul, Minneapolis & Manitoba Railway, one of the strongest in the West: “There was more fighting and excitement among the Chicago Mills in getting this order than anything yet offered, and my taking it, and your taking Chicago Burlington & Quincy has given them the worst black-eye they have yet had. . . . Yours and Mr Townsend’s idea was to hit them a square blow between the eyes, before they had time to dodge—We did it!”49 Nothing brought more pleasure than hitting Orrin W. Potter, who was the reigning monarch in Chicago, and the competition between Carnegie and the Chicago firms would remain heated as he invaded western markets that were once unassailable due to the higher cost of transportation. The deal with Frick had negated those added costs.
On Carnegie’s home turf, a more imminent threat from Pittsburgh’s iron aristocracy emerged. Andrew Kloman and several well-established ironmasters were behind it. After parting ways in 1878, Kloman had leased an old mill in Allegheny City to make structural steel for bridges, and when the lease expired the following year he began construction on his own mill in Homestead, Pennsylvania, just one mile down the Monongahela River from E.T. Several Pittsburgh businessmen offered Kloman financial backing if he joined them in a more ambitious project, and, on October 21, 1879, he and five partners formed the Pittsburgh Bessemer Steel Company, intent on building a steel mill to compete with Carnegie. Along with the H
omestead plant came labor trouble that threatened to destabilize the entire Pittsburgh market.
For Kloman, who had harbored ill-feelings toward Carnegie for years, it was a chance for revenge, and several of his partners also relished the thought of beating the Scotsman. Although the new firm wouldn’t roll its first rail until August 1881, not far into the construction Carnegie realized the planned size of the operation made Kloman a very potent threat, which contributed to his desire to gain efficiencies in the interim, like his partnering with Frick. With no intention of giving up center stage to the aristocracy, he also decided to consolidate his interests—Union Mills, E.T., and the Lucy Furnace Company—which were to be called Carnegie Brothers and Company, Limited, effective April 1, 1881, and increase capital to $5 million to immediately fund any expansion or retooling required to stay ahead of the competition.50 The seven partners included Andrew Carnegie with a $2,737,977.95 share, Tom Carnegie with $878,096.58, Harry Phipps also with $878,096.58, David A. Stewart with $175,318.78, John Scott with $175,318.78, Gardner McCandless with $105,191.00, and John W. Vandevort with $50,000.51 Just two months after the reorganization, the Lucy Furnace Company was spun off and sold to Wilson, Walker and Company, owned by Carnegie allies.52 The reason for this sudden about-face was that E.T. now had two furnaces of its own, so the Lucy people were given their freedom to go after customers without worrying about E.T.’s needs. Carnegie and his partners figured an independent management would be more effective in doing so— a savvy move.
The Prussian Kloman never lived to see Carnegie squirm, however; he died in December 1880. When Jones relayed the news to Carnegie, the Welshman’s only concern was that Kloman’s “patent for rolling eye bars may be thrown on the market,” a crucial patent Carnegie had licensed exclusively years ago.53 (Control of such patents made a critical difference in an industry where a penny a ton gain in efficiency could translate to millions of dollars.) If there was any doubt about the mutual dislike between Carnegie and Pittsburgh’s iron upper crust, one only had to read the statement issued by the Pittsburgh Bessemer Steel Company in a tribute to Kloman’s character, which included this remark: “In broad charity, in great patience, in uncomplaining endurance of wrongs, in conscientious veracity and uprightness of integrity, in calmness and serenity of manner, we recognize the higher type of Christian manhood.”54 All swipes at Carnegie.