Carnegie
Page 22
Strikes and violence in the coalfields also affected the iron and steel industry by disrupting the flow of coal. In particular, it appeared the Molly Maguires were again active in the eastern Pennsylvania anthracite coal region. The Maguires, quite determined to have better working and living conditions at any cost, were a secret society that originated in north-central Ireland and was transplanted by immigrants in Pennsylvania in the late 1840s. Arriving Irish natives clashed with British miners, their employers, and authority figures in general. During the protracted coal miner’s strike in 1874 and 1875, the group was accused of murdering a chief burgess, a justice of the peace, a policeman, a superintendent, two foremen, a watchman, and a miner.45 When rumors spread the group was planning a new campaign of agitation, a prominent coal mine owner, Franklin B. Gowen, hired Allan Pinkerton. Pinkerton’s agents did a superb job by posing as Irishmen to infiltrate the Molly Maguires, and a series of arrests between 1875 and 1878 resulted in twenty hangings, some justified.
The most potent threat Carnegie faced in establishing his position in the steel rail business was simply finding customers. With each passing year, railroad building declined dramatically. By 1876, half of the country’s railroads would be in receivership. The average price per ton of domestic rails also fell, from $112 in 1872 to $68.75 in 1875.46 It was going to be an extremely depressed market to enter, and Carnegie had been counting on his patron, Mr. J. Edgar Thomson, at the Pennsylvania Railroad to provide orders. The Pennsylvania Railroad had been ordering rails from the Pennsylvania Steel Company and Cambria for a number of years, but with his mill named after Thomson, Carnegie had been certain that he had an instant, gluttonous customer of steel rails. Now Thomson was dead. Come 1875, the success of the Edgar Thomson steel mill was in serious doubt as the obstacles appeared insurmountable.
Notes
1. Hendrick, Carnegie, vol. 1, p. 225.
2. David Wiltshire, The Social and Political Thought of Herbert Spencer (Oxford, U.K.: Oxford University Press, 1978), pp. 197, 199; Jonathan H. Turner, Herbert Spencer (London: Sage Publications, 1985), p. 38.
3. Hendrick, Carnegie, vol. 1, p. 223.
4. Ibid., p. 221.
5. S. M. Shoemaker to AC, December 2, 1871, ACWPHS, Box 5, Folder 2.
6. Frances C. Cooper to Burton Hendrick, July 5, 1927, ACLOC, vol. 239.
7. Hendrick, Carnegie, vol. 1, pp. 227–228.
8. Carnegie, Autobiography, p. 170.
9. John A. Fitch, The Steel Workers (Pittsburgh: University of Pittsburgh Press, 1989), p. 3.
10. Henry Bessemer, An Autobiography (London: Offices of Engineering, 1905), pp. 153– 154.
11. Bridge, pp. 72–75.
12. Burton J. Hendrick interview with William L. Abbott, August 1929, ACLOC, vol. 239.
13. AC to Edgar Thomson, October 30, 1872, ACWPHS, Edgar Thomson Operating File.
14. See Co-Partnership agreements, ACLOC, vol. 4.
15. Peter Temin, Iron and Steel in Nineteenth-Century America (Cambridge, Mass.: Massachussetts Institute of Technology, 1964), p.166.
16. See AC to Hon. W. D. Bishop, January 22, 1877, ACWPHS, ser. III, subser. 4.
17. J. Edgar Thomson to AC, November 14, 1872, ACWPHS, Edgar Thomson Operating File.
18. Thomas J. Misa, A Nation of Steel (Baltimore: Johns Hopkins University Press, 1995), p. 17.
19. Strouse, p.150.
20. Lewis Sanders to AC, September 6, 1873, ACWPHS, Miscellaneous Files.
21. Carnegie, Autobiography, p. 182.
22. New York Times, September 19, 1873.
23. New York Times, September 21, 1873.
24. Carnegie, Autobiography, p. 167.
25. AC to G. F. McCandless, July 30, 1873, ACWPHS, Superior Iron File.
26. J. E. Thomson to AC, October 3, 1873, ACNYPL.
27. Carnegie, Autobiography, p. 167.
28. Thomas N. Miller to AC, April 10, 1903, ACLOC, vol. 95.
29. See Burrows and Wallace, pp. 1020–1032, for a detailed description of New York City during the depression.
30. Carnegie, Autobiography, p. 187.
31. See G. F. McCandless to AC, April 8, 1879, ACWPHS, Davenport and St. Paul File.
32. George French to AC, February 24, 1876, ACWPHS, Davenport and St. Paul File.
33. George French to G. F. McCandless, March 22, 1879, ACWPHS, Davenport and St. Paul File.
34. George Dallas to AC, February 12, 1884, ACWPHS, Davenport and St. Paul File.
35. See Limited Partnership papers dated October 12, 1874, ACWPHS, Edgar Thomson Operating File.
36. William P. Shinn to AC, January 24, 1874, ACWPHS, Edgar Thomson Operating File.
37. Wall, Carnegie, pp. 318–319.
38. United States Steel Corporation: Hearings Before the Committee on Investigation of the United States Steel Corporation: House of Representatives (Washington, D.C.: U.S. Government Printing Office, 1911–1912), p. 1738.
39. D. J. Morrell to AC, November 14, 1872, ACWPHS, Edgar Thomson Operating File.
40. D. J. Morrell to AC, December 3, 1872, ACWPHS, Edgar Thomson Operating File.
41. Captain Jones Manuscript, n.d., ACLOC, vol. 243.
42. William Thomas Hogan, Economic History of the Iron and Steel Industry in the United States, vol. 1 (Lexington, Mass.: Heath, 1971), pp. 34–35.
43. Captain Jones Manuscript, n.d., ACLOC, vol. 243.
44. Kleinberg, p. 291.
45. For a detailed account, see Kevin Kenny, Making Sense of the Molly Maguires (Oxford, U.K.: Oxford University Press, 1998).
46. Hogan, p. 117; Burrows and Wallace, p. 1022.
CHAPTER 11
Template for Domination
Profits were for those who pursued business relentlessly,” reflected Joseph Butler, one of Carnegie’s peers in the steel industry.1 Certainly, that importunate pursuit and absolute discipline in managing the steel mill were necessary to survive the first years of Edgar Thomson’s (E.T.) operation, but while Carnegie garnered a reputation as a management genius, it was, in fact, his top lieutenants who greatly influenced his philosophy and efforts during this initial struggle. They were indispensable in hiring a motivated labor force, introducing progressive manufacturing processes, and managing that all-important fixation—costs.
To Carnegie’s amusement and benefit, he quickly discovered that Captain Jones considered himself on equal footing with any man—Jones’s salutation for Edgar Thomson’s majority shareholder was not Mr. Carnegie, but simply Andy, and to Carnegie Jones was always Bill—and fearlessly expressed his opinions on the business. Shortly before E.T. opened, Jones presented his management manifesto, which set the tone:
1st. We must be careful of what class of men we collect. We must steer clear of the West where men are accustomed to infernal high wages. We must steer clear as far as we can of Englishmen who are great sticklers for high wages, small production and strikes. My experience has shown that Germans and Irish, Swedes and what I denominate “Buckwheats”—young American country boys, judiciously mixed, make the most effective and tractable force you can find. Scotsmen do very well, are honest and faithful. Welsh can be used in limited numbers. But mark me, Englishmen have been the worst class of men I have had anything to do with; and this is the opinion of Mr. Holley, George and John Fritz.
2nd. It should be the aim of the firm to keep the works running steadily. This is one of the secrets of Cambria low wages. The workmen, taking year in and year out, do better at Cambria than elsewhere. On steady work you can calculate low wages.
3rd. The company should endeavor to make the cost of living as low as possible. This is one bad feature at present but it can be easily remedied.
These are the salient points. The men should be made to feel that the company are interested in their welfare. Make the works a pleasant place for them. I have always found it best to treat men well, and I find that my men are anxious to retain my goodwill by working steadily and honestly, and instead of dodging are anxious to show me what a good day�
��s work they have done. All haughty and disdainful treatment of men has a very decided and bad effect on them.2
Jones had a very clear vision for managing the works that at times would put him at loggerheads with Carnegie. But imbedded in this letter, this template, were ideas Carnegie would adopt and expand upon. The slighting of Englishmen put a smile on Carnegie’s face, but it was the notion of keeping “the works running steadily” that appealed most to him. This dictum, which Carnegie would adapt to run full, was the cornerstone of his success in steel. To run full demanded that he produce rails at the lowest possible cost so that he could sell them at cutthroat prices and therefore scoop the market; that is, win orders away from the competition. In turn, it would generate the volume needed to keep the works running steadily. Carnegie savored driving his competitors from the field, just as he had wanted when he was a railroad superintendent in Pittsburgh. Achieving the necessary efficiencies to do so took time, and he relied on brother Tom, Phipps, and Shinn to institute the processes required while he played flogging taskmaster. At the moment, Carnegie focused his efforts on winning rail contracts.
Carnegie was a traveling salesman, feverishly peddling bridges, iron, and now steel rails in Philadelphia, Harrisburg, Baltimore, and other industrialized towns. He aggressively “got orders” as they said, but the prize he now desired eluded him: if E.T. could win a rail contract from the Pennsylvania Railroad, it would give the fledgling company immediate legitimacy. When Thomson had died the prior year, Tom Scott succeeded him, and the tension between him and Carnegie made it very questionable as to whether Scott would give his Andy the inside track on orders. When Carnegie heard the railroad would be ordering five thousand tons of rails in 1875, he realized it was possibly his one and only chance to convince Scott to send business his way. Without Scott’s help, Carnegie knew his top two competitors, Pennsylvania Steel and Cambria, would arrange to split the order. He told Shinn, “The harder we fight for this the sooner our friends will agree to our sharing of orders”—especially if Scott demonstrated his old patronage of Andy.3 Sharing orders with the competition, or establishing a pool, was another means for immediately gaining a foothold and thus survival.
Pools, which were the forbearers of monopolies and trusts, sought to regulate entire industries. Some of the so-called pools were no more than gentlemen’s agreements that carried little weight. True pools, however, involved formal pacts for dictating prices, quotas, and geographic territories for each participating company, as well as sharing orders. Sometimes pool members even paid other companies to stay out of a particular market. The participating capitalists knew the benefits; they knew free competition wasn’t good business, and in the iron industry pools were a matter of survival in a wildly gyrating market, where sustaining prices was the difference between profitability and bankruptcy. Of course, when the market was particularly strong there was a tendency to break any agreements; likewise, when the market softened, companies were quick to shatter the pool by cutting prices to keep business.
The day he had entered the iron business almost twenty years earlier, Carnegie had discovered an aristocracy made up of well-established Pittsburgh families who controlled the industry through pooling agreements. They openly resented upstarts like Carnegie, who was not welcome in their tight social circle. Because these more powerful firms attempted to dictate how business was done, he revolted. He drew a very definite us-them line and viewed himself as the underdog who would fight to the death. His contentious relationship with the Pittsburgh aristocracy explains the ruthless tactics he later employed in the steel industry.
In 1869, Carnegie entered his first pool—for iron beams—with three other firms. As with most pools, it was only a matter of time before paranoia and greed tore it apart with the venomous words and spite more suitable to lovers scorned. By late 1870, the four iron companies were sneaking about, making surreptitious deals, undercutting one another, and causing enough mischief for Carnegie to fear free enterprise at its worst—no-holds-barred competition. “The last effort at reconciliation having finally failed,” he wrote fellow member Samuel Reeves at Phoenix Iron Company, “I beg to express my regret at the sad spectacle soon to be afforded to the public in general at the sole cost and expense of four unfortunate manufacturers who prefer to waste their energies and profits in an unwise attempt to injure each other. When the day of sober sense and due repentance arrives, you will always find us ready to cease the discreditable warfare.”4 Of course, Carnegie accepted no share of blame for the impending discreditable warfare. Carnegie’s fickle relationship with Reeves, among other ironmasters, continued for years as a variety of pools were organized, only to be shattered. Like an adolescent couple at a town dance, these men would then come back together, awkward, unsure, but wanting each other. For Carnegie, it resembled the days of yore, he playing King Robert the Bruce, making and breaking alliances to secure ultimate victory. He was indeed able to firmly establish Union Mills, and now he was eager to join a pool for steel rails.
Here Carnegie had to contend with the aristocracy of the steel industry— the so-called patricians—including Daniel Morrell at Cambria, Samuel Felton at Pennsylvania Steel, Benjamin F. Jones at Jones and Laughlin, and Joseph Wharton at Bethlehem Steel. This elitist group, the original nucleus of America’s steel industry, didn’t look favorably on the upstart Carnegie, who now had a habit of publicly expressing his disdain for the aristocracy and what he considered to be their antiquated mills. Nevertheless, earlier in the summer of 1875, Morrell had invited Shinn to a meeting in Philadelphia to discuss important issues in the steel rail trade. But following that meeting, when Carnegie suggested a rail pool, an agreement among the steel rail manufacturers to establish pricing and sales quotas that would bring stability to the market, he was met with an indignant rejection.5
The Pennsylvania Railroad finally ordered a mere morsel of two thousand tons of rails, thanks to Scott. Unfortunately for Carnegie, the railroad’s powerful board of directors played favorites in handing out contracts. Because he no longer enjoyed a favored status in the wake of the Texas & Pacific Railroad debacle, he suggested sealed bids for winning rail orders, knowing he could undercut the competition. The board rejected the idea. Desperate, Carnegie wrote an anxious note to Shinn, instructing him to enlist the help of their partners John Scott and David Stewart, who had some influence at the Pennsylvania. “Wont you please show this to Messrs. Scott & Stewart & urge them to go down. If Mr. S. went he could incidentally ascertain just where we stood—We are in grave danger—the importance of starting right is so obvious I need say nothing to impress you—now is the time to get the E.T. just right on its feet—Please telegraph me what is decided upon.”6
That autumn, as Carnegie waited nervously for a more sizable order from the Pennsylvania, he again pushed for a rail pool; but all meetings failed to yield any agreements. Dejected, Carnegie wrote Shinn: “Of course we are in for a year of low prices. I have seen this from the day of our failure to combine, but if we meet it rightly the track will be clearer after the war is over— One year without dividend on Cambria, Penna. Steel, Joliet and North Chicago will make some amicable arrangement possible.”7
His back against the wall, Carnegie comprehended that only aggressive tactics would win the day. Just nine days after warning Shinn that low prices were inevitable, on November 29, the irrepressible Carnegie delivered his charge:
Two courses are open to a new concern like ours—1st Stand timidly back, afraid to “break the market” following others and coming out without orders to keep our works going—that’s where we are going to land if we keep on.
2nd To make up our minds to offer certain large consumers lots at figures which will command orders—For my part I would run the works full next year even if we made but $2 per ton.8
Carnegie was willing to sacrifice profits in order to undercut the competition and eventually win a sizable market presence that would then yield a plentiful bounty. “Please call our people together & a
dvise me just how low you are willing to go,” he instructed Shinn. “You know my views—fill the works at a small margin of profit—get our rails upon the leading lines next year. The year after, take my word for it, you will make profit enough.”9 Shinn began by selling steel rails for $66 a ton, whereas the other firms were at $70 a ton, but that wasn’t low enough for Carnegie. “I have known from the first that our hope for profit lay for sometime to come in the fact that our cost was less than others,” he informed Shinn, and then added, “Don’t be too greedy—‘small profits & large sales’ in golden letters above your desk is respectfully recommended.”10
The patricians were extremely irritated with Carnegie for now selling rails at $61.50 a ton and immediately directed their wrath toward Shinn. Succumbing to their pressure and his own anxieties, Shinn expressed his concerns about a bloody price war as early as December: “The feeling is that we are incurring unnecessarily the opposition of the older Companies & getting down so low on our first bids as to have no room for further reduction when other large contracts are in the market. . . . The Cambria people are becoming very bitter against us for making, as they claim, unnecessary concessions in prices, so early in the season.”11
This was war, a matter of survival, and no wavering would be tolerated by Carnegie. He had staked his entire fortune on E.T., and he viewed the steel aristocracy with the same contempt he and his ancestors viewed the British aristocracy. Here was a chance for him to win a battle over what he viewed as the privileged class, and his ruthlessness emerged. He exhorted Shinn to become “bitter too” and to take any order that offered a profit.12 Because their performance would make or break E.T. in these first, fragile months, Carnegie kept unrelenting pressure on both Shinn and Jones.