Carnegie

by Peter Krass

  By September, Carnegie was forced to acknowledge to stockholders that he could no longer help them. Somewhat deceitfully as he was wont to do, he shifted the blame; this time from himself to a change of management at Western Union.33 As for McCargo, who had first warned Carnegie of trouble in the upper ranks, he was left without a job. Loyalty never forgotten, Carnegie worked to find his old friend a job. In a letter to Pennsylvania Railroad executive George Roberts, Carnegie praised his old friend: “For integrity and devotion to his duties he is unsurpassed, and I feel quite sure if when you are in want of a man such as is here indicated, you will have cause to congratulate yourself, should you appoint Mr. McCargo.”34 What was so maddening about Carnegie was that one minute he was a deceitful trader profiting at others’ expense, and the next he was demonstrating a righteous quality such as loyalty. He was imbued with qualities one despised and adored.

  Another opportunity to display his deft salesmanship and to profit from insider trading arose when Carnegie clashed with George Mortimer Pullman, a Chicagoan who was intent on making his fortune in the sleeping car business. Born in 1831 and raised on a farm south of Buffalo, Pullman took over the family’s building raising and relocation business when his father died in 1853. Like Carnegie, he was the family breadwinner, supporting his mother and three younger siblings. To find jobs, he started traveling as far as Chicago, which had become a major grain reception point by the mid-1850s, and he eventually moved there.

  On a visit to Buffalo, he paid for a berth in the sleeping car, but he found it cramped and poorly ventilated and the bed uncomfortable, which prompted him to enter the industry. An independent soul who—again like Carnegie— hired a substitute to serve in the Civil War, Pullman didn’t give a damn about patents and incorporated many of T. T. Woodruff’s inventions into his own sleeping cars. Where Pullman excelled was introducing plush luxury to his car’s design, which, in 1865, the Daily Illinois State Register declared was “superior to any that we have ever inspected.”35 Although Pullman’s Palace Car Company was blocked from expanding east by the Central Transportation Company, which counted Carnegie and Pennsylvania Railroad executives among its major shareholders, Pullman solidified his position in the Midwest by selling shares of his company to railroad executives located in the Chicago area. There was one prize on the horizon he keenly eyed: the right to operate cars on the nearly completed transcontinental line, divided between the Union Pacific in the east and the Central Pacific Railroad in the west. Of course, he was not the only one interested in securing a juicy deal.

  Andrew Carnegie was busy securing contracts with various railroads on behalf of the Central Transportation Company. He was also preparing his pitch for the Union Pacific officials, who had summoned to the St. Nicholas Hotel in New York all those interested in bidding for the right to operate sleeping cars on their transcontinental line. Confident that his company’s size, experience, and connections through Scott and Thomson would carry the day, Carnegie was surprised to discover that George Pullman was in New York and being given equal consideration. What Carnegie didn’t know was that the Union Pacific’s vice president, Thomas C. Durant, had been a passenger on one of Pullman’s cars and was so impressed he had made it his personal car. On finally meeting Pullman face-to-face, Carnegie quickly assessed his competitor, a strapping man with dark, piercing eyes and a bushy beard falling to his chest. “He was, indeed, a lion in the path,” reflected Carnegie.36

  He considered his options: he could go head-to-head with Pullman or, perhaps, negotiate a partnership with him. The best solution, he decided, was to create a separate and entirely new company jointly owned by Central Transportation and Pullman. One evening, after a round of meetings with the Union Pacific officials, Carnegie just happened to mount the broad staircase in the St. Nicholas Hotel at the same time as none other than George Pullman. “Good-evening, Mr. Pullman!” he said charmingly. “Here we are together, and are we not making a nice couple of fools of ourselves?”

  Pullman played it coy. “What do you mean?”

  Carnegie explained that to obtain the Union Pacific contract they were both offering sacrifices that would hurt their respective firms in the future, even if they were to win.

  “Well,” Pullman said, “what do you propose to do about it?”

  “Unite. Make a joint proposition to the Union Pacific, your party and mine, and organize a company.”

  “What would you call it?” he asked.

  Thinking quickly, Carnegie knew the way to Pullman’s heart was to play on his vanity, just as he had with his playmates in Dunfermline when he allowed them to name rabbits after themselves. “The Pullman Palace Car Company,” he said.37 (It would be called the Pullman Pacific Car Company.) The idea of a partnership was a unilateral decision on Carnegie’s part—he had not conferred with Central Transportation executives—but he was displaying that same willingness to accept risk that he had when taking the death message years ago. It was this willingness to stake it all on a single roll of the dice that would eventually yield unheralded riches.

  Pullman agreed to the plan, but now Carnegie had to win approval from the Central Transportation executives, including President Otis Childs, who was not pleased. In fact, he was preparing to bring suit against Pullman for patent violations. Scrambling to save face, Carnegie proposed that the partnership agreements include compensation from Pullman for use of the patents; after all, he reasoned, a legal battle could become protracted and give Pullman time to win other rich contracts, thus providing the funds to pay any fines levied against him. Childs and company acquiesced, but then Pullman refused to consider several propositions concerning compensation. Childs was now determined to take him to court. Anxious to resolve the matter, in May 1867 Carnegie warned Pullman that the case against him was strong and insisted it was time for him offer a proposal for compensation or face the consequences. He then suggested a royalty arrangement for settling the dispute.38 Just like the early iron adventures with Kloman, Phipps, and Miller, Carnegie had a foot in each camp, straddling a delicate situation that could turn against him with a wrong word or action, this time using his knowledge of Childs’s position to help Pullman find a solution. Carnegie didn’t think of himself as a Benedict Arnold aiding the enemy; instead, he viewed himself as a facilitator of peace. He believed that such conflicts were ludicrous when everyone could be profiting.

  Finally, Pullman agreed to pay $20,000 for use of the patents, and the Pullman Pacific Car Company was organized that summer. To everyone’s consternation, Pullman didn’t pay the $20,000 and, ignoring Carnegie’s offer of “sage counsel & advice,” went about his business of organizing the new company as he saw fit.39 Almost a year later, Carnegie was under increasing pressure to resolve the matter, so he wrote Pullman an imploring letter, which included a warning: “The Central Transportation patentees notify me they now wish this matter closed. Please let me hear how you propose to arrange it.”40 Pullman was too busy pouring money into construction to heed Carnegie’s plea; in fact, the brazen sleeping car baron demanded money from Carnegie, who, having agreed to buy his share in the company through installments, currently owed $6,400. Along with the money, Carnegie sent a note: “It is difficult to imagine how you require so much money all at once, or indeed how we can judiciously put $400,000 into Cars to equip 1200 miles of line through the desert—I fear your anticipations of business upon it are not to be realized. However you know better than I. I only hope your estimates are correct.”41 For once, Carnegie feared he was in over his head. And he was, for this drama played out simultaneously with the Keystone Telegraph venture, on top of his interests in iron and bridge building.

  George Pullman, who was determined to triumph over the Central Transportation gang, had never trusted Carnegie, Childs, or Woodruff; and when Childs initiated a patent infringement lawsuit against him in 1870 he knew his instincts were correct. Of course he invited the suit by not paying the $20,000 fee. At this time, Central Transportation was in a strong positio
n— the company had recently recapitalized at $2 million, and the stockholders had realized an 18 percent return on investment in 1869—so both Pullman and Carnegie knew the infringement suit had the potential to be lengthy and costly.42 Also, Carnegie continued to receive grief from Childs for originally agreeing to the $20,000 that was yet to be paid, so by early 1870 he wanted to wash his hands of the whole affair.

  Quietly, Carnegie and Pullman opened negotiations with the former presenting two options: consolidate their sleeping car companies, or have the Pullman Pacific Car Company lease the rolling stock, franchises, equipment, and patents from Central Transportation. At the January 31, 1870, Pullman stockholders’ meeting, it was agreed that the company would lease Central Transportation for $264,000 a year for ninety-nine years. In addition, the Pullman board issued a bonus of three thousand shares of stock to Richard Barclay, the alleged trustee of the Central Transportation negotiators, for distribution.43 Barclay was the front man for Carnegie, Scott, and Thomson, so it was highly unlikely anyone but those three benefited from the stock. Also, Carnegie and Scott immediately began buying more Pullman stock, which was bound to rise once the announcement of the leasing arrangement was formally made. On signing the lease agreement, Central Transportation president Childs and the other stockholders, whom Carnegie mockingly derided as “the cautious old men in Philadelphia,” were finally pleased with his performance; it certainly involved deft statesmanship. When they considered that their company realized net earnings of just over $250,000 for the fiscal year ending in August 1869, a $264,000-a-year lease was a solid victory. Carnegie had made amends for his prior failure.44

  This triumph and the sellout to Western Union had involved quite a circus act, from juggling knives to leaping through rings of fire, but instead of moderating his investment philosophy after these treacherous episodes and enjoying the fruits of victory, Carnegie forged ahead. Building on his success, he became more brazen in speculating on businesses associated with the railroads.

  Notes

  1. Carnegie, Autobiography, p. 137.

  2. Herbert N. Casson, The Romance of Steel (New York: A. S. Barnes & Company, 1907), p. 86; AC to Margaret and Tom Carnegie, Travel Letters, 1865–1866, quoted in Wall, Carnegie, p. 230. The travel letters are still privately held by Carnegie descendants and were unavailable at the time.

  3. John Franks Letterbook, Dresden, November 19, 1865, ACLOC, vol. 3; John Franks Letterbook, Frankfurt am Main, October 18, 1865, ACLOC, vol. 3.

  4. AC to Margaret and Tom Carnegie, Amsterdam, November 5, 1865, Travel Letters, 1865–1866, quoted in Wall, Carnegie, p. 231; AC to Margaret and Tom Carnegie, Amsterdam, November 5, 1865, Travel Letters, 1865–1866, quoted in Wall, Carnegie, p. 233.

  5. Carnegie, Autobiography, p. 137.

  6. AC to Margaret and Tom Carnegie, Mannheim, October 16, 1865, Travel Letters, 1865–1866, quoted in Wall, Carnegie, p. 232.

  7. John Franks Letterbook, Frankfurt am Main, October 18, 1865, ACLOC, vol. 3; John Franks Letterbook, quoted in Hendrick, Carnegie, vol. 1, p. 139.

  8. Excerpts from AC’s letters to Tom Carnegie, summer and fall of 1865, Travel Letters, 1865–1866, quoted in Wall, Carnegie, p. 236.

  9. AC to Margaret and Tom Carnegie, Adlesburg, Austria, December 3, 1865, Travel Letters, 1865–1866, quoted in Wall, Carnegie, pp. 236–237.

  10. AC to Margaret and Tom Carnegie, London, July 26, 1865, Travel Letters, 1865–1866, quoted in Wall, Carnegie, p. 234.

  11. AC to Margaret Carnegie, Dunfermline, September 2, 1865, Travel Letters, 1865– 1866, quoted in Wall, Carnegie, p. 232.

  12. AC to Tom Carnegie, n.d. (autumn of 1865), Travel Letters, 1865–1866, quoted in Wall, Carnegie, p. 234.

  13. AC to Margaret and Tom Carnegie, Mannheim, October 16, 1865, Travel Letters, 1865–1866, quoted in Wall, Carnegie, p. 235.

  14. J. Edgar Thomson to AC, March 12, 1867; J. Edgar Thomson to AC, March 12 and 15, 1867, ACWPHS, Dodd Patent Files.

  15. AC to Messrs. Cass & McCullough, September 1, 1866, and AC to A. Stone, September 1, 1866, ACWPHS, Union Iron Mills Letterbook, 1866–1869.

  16. AC to Henry Blackwell, November 4, 1867, ACWPHS, Union Iron Mills Letterbook, 1866–1869.

  17. AC to Thomas A. Scott, March 8, 1869, ACWPHS, Union Iron Mills Letterbook, 1866–1869.

  18. See agreements between AC and the Pacific and Atlantic Telegraph Company, September 13, 1867, ACWPHS, Telegraph File.

  19. Ibid.

  20. G. H. Thurston to AC, November 6, 1867, ACWPHS, Telegraph File.

  21. AC to George H. Thurston, November 9, 1867, ACWPHS, Telegraph File.

  22. AC to Thomas A. Scott, January 19, 1869, ACWPHS, Union Iron Mills Letterbook, 1866–1869.

  23. AC to W. D. Judson, November 4, 1867, ACWPHS, Union Iron Mills Letterbook, 1866–1869.

  24. Ward, p. 185.

  25. Reid, p. 520.

  26. David McCargo to AC, January 17, 1872, ACWPHS, Telegraph File.

  27. Wall, Carnegie, 218.

  28. Henry Spackman to AC, May 23, 1873, ACWPHS, Telegraph File.

  29. AC to William Orton, June 3, 1873, ACWPHS, Telegraph File.

  30. Henry Spackman to AC, June 9, 1873, ACWPHS, Telegraph File.

  31. W. G. Johnston to AC, May 24, 1873, ACWPHS, Telegraph File.

  32. W. G. Johnston to AC, June 3, 1873, ACWPHS, Telegraph File.

  33. AC to J. W. Weir, September 4, 1873, ACWPHS, Telegraph File.

  34. AC to George Roberts, May 26, 1874, ACWPHS, Letterbook, 1873–1874.

  35. Liston E. Leyendecker, Palace Car Prince: A Biography of George Mortimer Pullman (Niwot: University Press of Colorado, 1992), p. 77.

  36. Carnegie, Autobiography, p. 154.

  37. See ibid., pp. 154–155, and Leyendecker, pp. 100–102.

  38. AC to George M. Pullman, May 29, 1867, ACWPHS, Central Transportation File.

  39. AC to Charles W. Angell, May 21, 1868, ACWPHS, Union Iron Mills Letterbook, 1866–1869.

  40. AC to George M. Pullman, February 22, 1869, ACWPHS, Central Transportation File.

  41. AC to George M. Pullman, March 1869, ACWPHS, Central Transportation File.

  42. Ward, p. 184.

  43. Leyendecker, pp. 146–147.

  44. Ward, p. 184; Leyendecker, p. 102.

  CHAPTER 9

  Bridges to Glory

  Carnegie was certain his destiny lay among the lions of Wall Street. During negotiations with George Pullman and the Union Pacific, he had been seduced by New York City, the preeminent financial center in the United States. In late 1867, he decided to move there, to take up residence in a city ruled over by the notorious “Boss” Tweed and his Tammany Hall cronies, as well as Wall Street scoundrels like “Jubilee” Jim Fisk and Jay Gould.

  “No large concern could very well get on without being represented there,” he later wrote, explaining his decision, and he had grand visions of an empire, no doubt.1 In New York, the streets were awash with money, and there was ample opportunity for him to secure more lucrative contracts for his iron and bridge-building concerns, as well as to capitalize on investment prospects not available in Pittsburgh. The move also made sense for the Carnegie family because it amounted to a divide-and-conquer maneuver, with Tom overseeing affairs in Pittsburgh. Another motivating factor in Carnegie’s move was that New York, like London, was alluringly cosmopolitan, had a strong intellectual presence, and offered a plethora of music, opera, and theater, among other arts agreeable to him. Tom, who had finally married Lucy Coleman, took the Homewood house, while Andy, who got to keep Mom, took up residence on lower Broadway in the plush St. Nicholas Hotel, which had greatly impressed him when there for the Union Pacific meetings. He rented an office at 19 Broad Street and a hung a sign on the door: Investments. That said it all, except that a year after his move an episode suggested Carnegie harbored doubts about the direction his life was taking.

  Precisely four years after his first crisis of conscience, when he had sought a consular position in Scotland,
a second crisis attacked Carnegie. In December 1868, he penned a surprising letter to himself: it was wrought with introspection as he questioned the purpose of his existence; it was a desperate attempt to reconcile his Scottish past with his American present; and it was a violent reaction to what he discovered in Gomorrah, the underside of Gotham, his newly adopted city.

  The Christmas holiday season was in full swing and the St. Nicholas Hotel shone, itself a spectacular ornament. Promoted as “the largest house of public entertainment in the world,” the six-story hotel boasted six hundred rooms. Behind the white marble facade rising above Broadway were Carrara stairways and balustrades, fluted Corinthian columns, crystal gaslit chandeliers, lofty frescoed ceilings, walnut wainscoting, hot running water, central heating, steam-powered washing machines, and a telegraph in the lobby. There was even an army of private detectives to protect the clientele from prying eyes and unwanted visitors. Here Carnegie and his mother were ensconced in adjoining apartments, pampered by servants on duty in the hotel’s opulent parlors and stately dining room. But as Carnegie sat at his desk on that cold December night and evaluated his various business endeavors and portfolio, the sparkling opulence faded and a certain year-end melancholy took hold.

  There was little satisfaction as he scribbled down his investments, noting the number of shares, dollar holdings, and income from more than twenty concerns. His personal assets were $400,000 that year, yielding a bountiful return of over $56,000.2 The top money winner was the Union Mills, which generated $20,000, while income from an old favorite, the Columbia Oil Company, had fallen to $2,000. Despite the material triumphs, something nagged at him. He wasn’t satisfied, and after completing his financial review, he mulled over his station in life. It was, he knew, of singular dimension: money. With deliberate penmanship, reflecting Carnegie’s deep reflection and forethought, he concisely expressed his thoughts: