Carnegie

by Peter Krass

  With the fall of Scott, Carnegie found himself the target of an inquisition by the Exchange Bank of Pittsburgh, which had loaned substantial sums to him for the construction of the Edgar Thomson Mill. During an emergency meeting with the bank’s directors, the president of the Exchange Bank, a Mr. Shoenberger, decided to call in the loans before the money simply disappeared into the panic’s vortex. It wasn’t a surprising decision; after all, in the eyes of the older business community, this young Carnegie had a reputation as being somewhat reckless and the largest borrower in the state. Luck had been with him, but it appeared to have just run out as Shoenberger summoned him to Pittsburgh. On his arrival at the bank, an imposing Greek Revival structure built with granite, he was escorted to the director’s room, where the still boyish-looking Carnegie found himself surrounded by severe, upper-crust inquisitors. The questions began. Are you connected with the Texas & Pacific? Yes. Are you a stockholder? Yes. For how much? Two hundred fifty thousand dollars. The men drew in a sharp breath of air. How much on margin? Carnegie quieted the older men with a sly grin and explained his investment was free and clear, his finances sound. He retold the story of how he had turned down Scott’s request for money and for endorsing a loan, much to the bankers’ relief. To Carnegie’s relief, they did not call in the loans; but more money was not forthcoming from anyone, and the construction of Edgar Thomson would be halted for several months.

  Although Carnegie, closing in on thirty-eight years of age, fared better than Scott and Thomson—especially Thomson, who would die on May 27, 1874, at the age of sixty-six—the financial panic took its toll on him, too. He fell terribly ill, lost weight, and was confined to bed for some time. Once-stimulating New York now offered Carnegie no solace. As he walked the streets that winter, he encountered ambitious development projects frozen in time, foreclosed properties being auctioned off, and FOR LET placards plastered across office buildings. Unemployment shot to 25 percent, forcing men, women, and children to beg in the streets. Carnegie had to circumnavigate the lines outside thirty-four soup kitchens feeding five to seven thousand daily. In 1873, five thousand families were receiving aid; the next year it was twenty-four thousand. Tramps became such a nuisance that the New York Times advised its readers to buy dogs that knew how to use their teeth. On January 13, 1874, a rally was held in Tompkins Square in support of the suffering poor, an event the media called communist agitation and the mayor responded to with force. Unsympathetic to the crowd of seven thousand, the police charged into the square with clubs flailing.29

  Wall Street had threatened, the banks had threatened, even Scott had threatened, but Carnegie had survived. Now a new and far more dangerous menace arose: his partner Andrew Kloman. Kloman, imagining himself a financier à la Carnegie, had borrowed heavily and secretly created his own interlocking investment by becoming a partner in the Escanaba Furnace Company, a smelting company, and the Cascade Iron Company, a mining company. He then made certain Carnegie operations bought ore from his new investments. Escanaba and Cascade now failed, however, and the creditors came after Kloman, who could no longer hide the investment from the Carnegies and Harry Phipps, especially when the creditors threatened to seize his shares in Union Mills and Edgar Thomson. It was unthinkable to Carnegie that a third party, just days before unknown to him, might seize sizable interests in their businesses.

  Subsequent meetings between Kloman and his partners were tense, the tone acidic, as they desperately sought a solution. Carnegie, who thrashed him mercilessly, recalled, “This gave us more of a shock than all that had preceded, because Mr. Kloman, being a partner, had no right to invest in another iron company, or in any other company involving personal debt, without informing his partners. There is one imperative rule for men in business—no secrets from partners. Disregard of this rule involved not only Mr. Kloman himself, but our company, in peril, coming, as it did, atop the difficulties of my Texas Pacific friends with whom I had been intimately associated.”30 There was but one choice: Carnegie insisted Kloman declare bankruptcy, have his estate assessed, and then Carnegie would buy his shares at the assessed value, which would occur in 1876. If not for Kloman’s mechanical ingenuity, he would have then been thrown out of the firm, and possibly the city; however, he was permitted to keep his position.

  Carnegie’s outrage over Kloman typified his hypocritical streak because he found himself in the same precarious position once the Sulzbach case, among several other Davenport-related lawsuits, went to trial in 1874; as a matter of fact, Carnegie was so worried about the consequences that he kept the lawsuits hidden from brother Tom and Phipps.31 If he were to lose, the court could very well seize his assets—and yet his own legal quandary didn’t stop him from assailing Kloman. But he was not about to forfeit everything he, his mother, and his brother had worked for. Desperate measures were called for. In a covert defensive move, he and one of his codefendants living in Iowa, George French, hired an agent to lobby the Iowa congress to pass legislation that would explicitly protect members of the Davenport and St. Paul Construction Company, which had been set up to build the railroad, from personal liability. “All are agreed that the matter must be handled quietly and with as much secrecy as we can command,” French wrote to Carnegie.32 With a more devious tone, he also reported that the Davenport & St. Paul Railroad offices had burned down, conveniently destroying all records. Investigators and observers could only speculate as to who was behind the burning, if anyone.

  The legal battles continued through the late 1870s. Joining Sulzbach Brothers in the suit was the First National Bank of Davenport, with the bank seeking monetary damages for a loan default and misappropriated funds; namely, it alleged that $5,000 was wrongly given to a lobbyist to influence Congress to pass an act that would give Carnegie and his cronies the right to build a bridge over the Mississippi. Tom Scott testified in the Sulzbach case, as did representatives of the Thomson estate, who placed the blame squarely on Carnegie’s shoulders. Carnegie was forced to hire a top trial lawyer in New York, Colonel Ingersoll, who appreciated a wee dram of Scotch and the poet Robert Burns, and the well-connected steel master eventually emerged unscathed. In March 1879, a judge determined that the members of the Davenport and St. Paul Construction Company were not liable for the company’s debts, but the decision would be appealed.33 Suits against the Davenport and St. Paul Railroad continued to wind their way through the courts until 1884, when the U.S. Court of Appeals dismissed the case against Carnegie. Of all the men involved, only the deceased Edgar Thomson, and thus his estate, was held liable—a very convenient conclusion—for about $1 million.34 According to the court, Thomson, a Davenport trustee, should have been more diligent.

  In response to the Sulzbach lawsuit and to take advantage of a new law passed by the Pennsylvania legislature that allowed the organization of limited liability companies, crucial at this hazardous time, Carnegie, McCandless and Company was dissolved in October 1874 and reorganized as a limited partnership under the name Edgar Thomson Steel Company.35 Carnegie’s personal assets were now better protected.

  One disaster followed another at the onset of the depression. On January 23, 1874, a blustery day, a fatal accident occurred at the mill construction site. Just as the men were positioning the roof frame for the converting works, a heavy squall caused it to collapse.36 It couldn’t have come at worse time, delaying construction and adding to the cost. It seemed as though the gods of fate were intent on turning against Carnegie on every front. Throughout 1874, money trickled in and work proceeded slowly until, finally, that December, Carnegie secured a loan through John Scott. He excitedly ordered his men to begin taking bids for the materials needed to finish the job and to recommence construction. Although construction had been delayed, Carnegie could take comfort in the discovery that material and men came much cheaper as the depression took hold. The cost of the plant—$1,250,000, which included $11,000 in patent fees paid to Bessemer and Holley—turned out to be three-fourths of what it might have been to build either be
fore or after the severe years of the depression.37 Contrary to the conservative philosophy of battening down the hatches and waiting out the storm, he realized economic downturns provided an opportunity for expansion. “Mr. Carnegie was a genius in two points,” William Temple, a contemporary who became commissioner of the Steel Plate Association, said. “In the first place he exceeded any man I ever knew in his ability to pick a man from one place and put him in another with the maximum effect. . . . His other point of genius was to realize that the real time to extend your operations was when nobody else was doing it.”38 Carnegie would employ this strategy for expansion in every subsequent economic downturn and each time emerge stronger.

  Success, Carnegie understood, was not contingent on financial health alone; there was also the crucial human element. Just as he had insisted on choosing Holley, the foremost expert on building a steel mill, he now demanded the best possible candidates for the general manager and superintendent positions at Edgar Thomson. He turned his eyes on the competitive ranks and they rested on Daniel Morrell, the general manager and a partner at Cambria in Johnstown, Pennsylvania, who was a no-nonsense man, antiunion, and adept at forcing down wages. He approached Morrell to become both the general manager and an investor, but while Morrell was interested in the job, money was tight and he couldn’t “think of anyone that has the money to invest just now.”39 Carnegie offered him the job anyway, and he accepted. When brother Tom received a telegram with a perfunctory statement that Morrell was hired at an astounding $20,000 salary, he was flabbergasted at his brother’s unilateral decision making. He quickly summoned John Scott and David McCandless for a meeting, and all agreed such a salary was unreasonable, especially considering the steelworks wouldn’t earn a penny until blown in, and because Morrell was not investing. Fortunately for everyone, Morrell had second thoughts about leaving Cambria. Carnegie, realizing his impetuous behavior had chagrined his partners, didn’t encourage otherwise.40

  For general manager, Edgar Thomson partner John Scott championed William P. Shinn, who was an exceptionally competent vice president of the Allegheny Valley Railroad. Shinn was a solemn man, and to match his personality he had dour looks, with an almost fully receded hairline revealing an aesthetically displeasing bumpy skull, a gray beard pulling his long face and nose even longer, and round, determined eyes. He was a man whose only interest in life was business, and he excelled at cost management—a perfect choice. His connection with the railroad would also yield an immediate customer. By the end of January, Carnegie was won over and Shinn, who would retain his position at Allegheny, was named secretary-treasurer at a $5,000 annual salary.

  As for the top candidate for superintendent, the man who would be in the trenches, he was a seasoned former Cambria employee who had been pushed out by Morrell. His name was Captain William “Bill” Jones, and he would be the initial power behind Carnegie’s reputation as a steel master. A large-boned, muscular man, with red, ruddy cheeks, a half-smiling mouth, and soft blue eyes that twinkled merrily one moment and turned steely hard the next, the clean-shaven Welshman had a booming bass voice and volatile temper.

  Captain Jones, born in 1839 to a Welsh nonconformist preacher and Chartist, had been in the workforce since age ten, laboring as a farmhand and then a lumberjack, afterward learning the iron business. At the outbreak of the Civil War, Jones, who was in Chattanooga, Tennessee, working on the construction of a blast furnace, subsequently fled to Pennsylvania, where he found work at Cambria. An abolitionist, Jones enlisted as a private, fighting at Fredericksburg and Chancellorsville. During one particular skirmish, Jones and his company had to wait while engineers erected a pontoon bridge across a river, but impatient to engage the enemy, he cried, “Hanged if I’ll wait for the bridge,” and he dove into the muddy river. It was only a few feet deep, and he split open his nose. He was also promoted to captain. After the war, Jones returned to Cambria, where he was promoted to assistant superintendent. When Cambria built its Bessemer works in 1869, he became well acquainted with Alexander Holley, who designed the mill and oversaw the construction.

  Tom Scott introduced young Andy Carnegie to the art of financial speculation.

  Captain Bill Jones greatly influenced Carnegie’s ideas on management and manufacturing.

  Jones’s boss at Cambria was Morrell, a stern Quaker with unforgiving eyes set in a large, oval-shaped face. He was not so appreciative of how Jones motivated his men, which included baseball games and going to the horse races, resulting in the occasional shutdown of the mills. When it came time to promote a new superintendent and Jones was passed over, he quit. Holley then hired him as an assistant to manage the Edgar Thomson construction. Jones drove his crews hard and always spoke his mind, which endeared him to Carnegie. After having been acquainted with Jones for well over a year, in late 1874, Carnegie and the other Edgar Thomson directors voted him superintendent. Again, he was the preeminent choice; he was highly experienced in steelmaking and had an excellent rapport with the laborers, which was immediately made evident when, as Edgar Thomson neared completion, he recruited some two hundred disenchanted Cambria men, promising better working conditions than Morrell offered. The blessed Carnegie found himself with a highly experienced crew of Bessemer steelmakers.

  Despite the promises Jones made, the town of Braddock offered bleak living accommodations in these first months. One worker was quoted as saying, “We would go in some times, after having done a hard day’s work, sit down to the table, a half dozen or dozen of us as it might be, look at each other and wink, taking it good-naturedly, but there was scarcely anything but bread and molasses. This did not go far after a hard day’s work. Many a time we would make up our minds to quit; thoroughly discouraged and blue, the clouds hanging over us thick and black. We would go down to see Captain Jones, and after talking with him fifteen minutes, there was a ray of sunshine that pushed all the clouds away, and with a promise from him that things would be better and that he would look out for our welfare, the sky cleared, and we were made as happy as ever, and went back to work with vim and determination.”41 Jones earned his pay with charisma alone.

  The first steel rail rolled off the line at Edgar Thomson on September 1, 1875, and the official opening celebration took place three days later. More integrated and larger than any steel mill in the world, the first Bessemer steel mill in the immediate Pittsburgh area was a technological marvel, a magnificent summation of all of Holley’s experience and knowledge. The various dignitaries who arrived aboard a special train from Pittsburgh were greeted by a high-stepping Carnegie, who gave them a personal tour of the sprawling works, with block-long buildings and towering chimneys spewing smoke. They watched with trepidation as the workmen, some wearing colored glasses to protect their eyes, blew a blast of air through the egg-shaped converter and scintillating sparks the size of quarter dollars erupted in a pyrotechnics display. Less courageous observers took a step backward, fearing an explosion, a fear not all together unwarranted. Experienced hands knew well the dangers.

  “When a charge of metal was poured into the vessel,” steel master John Fritz recalled, “the blast put on, and the vessel turned up, our anxiety commenced, and as the heat increased our anxiety increased in a corresponding ratio, until both became intense. It was when the heat was greatest that accidents were most likely to happen.” The molten metal might burn through the vessel’s lining, hit the wet floor, and result in an explosion that sent hot metal blowing in all directions; or, if the ladle into which the steel was poured gave out, the molten metal would again spill to the floor with a good chance of causing an explosion; or highly combustible fumes might become trapped and ignite, setting off a bomb.

  “When an accident occurred anywhere about the works,” Fritz explained, “the first question asked would be: ‘Is anyone hurt?’ If not, we would go to work at once to repair with that object only in mind. If, on the contrary, some of the workmen were seriously injured, it is impossible to describe the distress of mind that the person i
n charge had to endure. . . . Altogether the difficulties we encountered were enough to appall the bravest hearts. My brother George once said, when at Cambria, that he did not believe there was a man who ever went onto the Bessemer business, and was responsible for the result, who did not at times wish he had never gone into it.”42 Even experienced men like Captain Jones could not avoid exposure to fatal danger, but the Captain never dithered before the great converter. “I have no patience with a wavering person,” he once said, and then added prophetically, “Thank God, when I die, I will die like a man at my post of duty, or whatever helm it is.”43 Death marked pioneering efforts in American industry, whether running railroads or steel mills; the hope for men like Carnegie was that it wouldn’t touch them or their valuable lieutenants.

  A setback due to disaster at the mill was of the least importance as Carnegie sought to establish himself in the steel industry, which was already dominated by several well-established firms. To offset potential losses at Edgar Thomson in the first years of operation, Carnegie was counting on dividends from Union Mills, but the depression continued to have a crippling impact on the iron and steel industry. In November 1874, demands by the Pittsburgh iron manufacturers, including Carnegie, for wage reductions resulted in a lockout, which would last into 1875 as the owners, willing to sacrifice profits, tried to break the workers. The president of the Amalgamated Association of Iron and Steel Workers (AAISW), Joseph Bishop, observed sadly that the workers had little hope as time progressed: “Distress, misery, want and destitution stare them in the face and for the first time they have known what it was to want bread for themselves, their wives and little ones.”44 In Pittsburgh, the Sons of Vulcan union, which represented the ironworkers, organized relief efforts, as did the genteel rich.