Carnegie

by Peter Krass

  The deal did raise questions, considering that Carnegie and Magee were tight, as was Magee with Baird and Rhodes, as were Knox and Frick with Magee and Baird. The newspapers accused the men of collusion, but Baird claimed he was representing an unnamed party. It appeared he was telling the truth on July 31 when Carnegie cabled Frick to settle with the “interloper” promptly to procure the property’s strategically essential flat part along the river. Now, perhaps, the $25,000 he had offered Knox for certain expenses might come in handy. Bought-and-paid-for political connections helped as Magee stepped in and gave Baird an ultimatum: deal with the Carnegie concern or else. Using code, Knox reported to Frick: “Angel [Magee] sent success [Baird] to me demanded dot band fifty con [$150,000] down now to give or take half success [Baird] represents the people we thought am on whole combination are trying to work it from both sides am satisfied attempt will be made Monday or Tuesday to Pittsburgh must act.” Baird wanted $150,000 for his troubles, but Knox also had to mollify the unnamed party and work matters from “both sides.” Baird finally succumbed to the pressure on August 1, as Knox informed Frick: “Everything fixed Suspend judgment on Angel until you get all facts.”18

  Apparently, the third party had been compensated, for two days later the city councils approved the deal, the speed of the usually rusty government wheels surprising the entire community. The Pittsburgh Post reported, “Those who know how the city of Pittsburgh is regularly milked by the professional politicians who acquire their living and their fortunes through its necessities, real or imagined, will not readily discard the idea that there was a job, and a big one, in the poor farm sale and purchase.”19 Fallout continued. In September, one Charles Straub sued the city, Mayor Gourley, Baird, and Carnegie, Phipps, and Company over what he considered to be irregularities in the transaction. A brazen Knox represented Carnegie, Phipps, and Company, and the city! Knox won the case before Judges Ewing and White—who were friends of his, of course. Finally, on November 20, the sale was consummated and Carnegie, Phipps, and Company paid the city $370,906 and Baird $125,000. The Post concluded that the deal was an outrageous swindle.

  Carnegie may or may not have broken laws, may or may not have bribed city officials, but he certainly excelled at manipulating the system. Monetary rewards, whether in the form of campaign contributions or outright bribes, ruled the day at all levels of politics.

  Carnegie had friends in Washington, friends on the Pittsburgh city councils, and friends on the bench—how could he ever lose? Armament, he was now convinced, was another winner. The day after the City Poor Farm sale was approved, he extolled the virtues of armor making to Frick from the Royal Hotel in Thurso, Scotland: “No specialty can be had equal to this. Further study of the situation convinces me that we can easily succeed. Lauder shows me that we require little ground for new machine shop. . . . Lauder says it’s not half the task I thought. . . . I think we can average a million per year out of this department with ease.”20 Cousin Dod was fast becoming the company’s expert on armor and had convinced Naig there were indeed profits to be had. In fact, Carnegie was already thinking about other potential customers such as Russia, as well as dividing orders with Bethlehem Steel. So much for it being a patriotic duty to defend the great Republic; Russia needed a helping hand, too.

  In October, the U.S. Navy took bids to supply armor for three “coastline” battleships, the genesis of America’s rise as a naval power. Carnegie easily won a contract to supply six thousand tons of the needed nickel-steel battleship armor. The day was nearing when the pacifist would pay for his hypocrisy.

  Notes

  1. AC to the president’s secretary, September 21, 1891, ACNYPL.

  2. Carnegie, Autobiography, p. 341; AC to President Harrison, January 25, 1892, ACNYPL.

  3. Harry J. Sievers, Benjamin Harrison: Hoosier President (Indianapolis: Bobbs-Merrill, 1968), p. 193.

  4. Hogan, p. 347.

  5. Andrew Carnegie, “Do Americans Hate England?” North American Review (June 1890); Andrew Carnegie, “Summing Up the Tarriff Discussion,” North American Review (July 1890); Andrew Carnegie, “The McKinley Bill,” Nineteenth Century (June 1890).

  6. Nevins, Abram S. Hewitt, p. 423.

  7. Andrew Carnegie, “ABC of Money,” North American Review (June 1891).

  8. Andrew Carnegie, “The Bugaboo of Trusts,” North American Review (February 1889).

  9. Andrew Carnegie, “Pennsylvania’s Industrial and Railroad Policy,” reprinted in Burton J. Hendrick, ed., Miscellaneous Writings of Andrew Carnegie, vol. 1 (Garden City, N.Y: Doubleday, Doran, 1933), pp. 265–305; Philadelphia Times, April 8, 1889.

  10. Misa, p. 111.

  11. W. H. Emory to AC, June 30, 1890, ACLOC, vol. 11.

  12. AC to Mr. Tracey, n.d., ACLOC, vol. 11.

  13. AC to Mr. Tracey, July 5, 1890, ACLOC, vol. 11.

  14. AC to Philander Knox, March 22, 1890. All letters pertaining to the City Poor Farm purchase are quoted from Paul Krause, The Battle for Homestead, 1880–1892: Politics, Culture, and Steel (Pittsburgh: University of Pittsburgh Press, 1992), pp. 387–389.

  15. AC to Philander Knox, March 22, 1890.

  16. AC to Philander Knox, March 25, 1890.

  17. Krause, p. 275. See also pp. 273–281 for a detailed explanation of the entire transaction.

  18. Philander Knox to Henry C. Frick, August 1, 1890.

  19. Krause, p. 279.

  20. AC to Henry C. Frick, August 3, 1890, quoted in Warren, p. 147.

  CHAPTER 20

  Prelude to Homestead

  The year Harrison was elected a changing of the guard also took place at Carnegie Brothers. It was one event in a series of management changes, some by design and some forced by fate, over the next two years that would profoundly affect Carnegie’s operations and his legacy. Exhausted from a near-thirty-year battle in iron and steel, Harry Phipps, who had replaced Tom Carnegie as chairman of Carnegie Brothers, retired on October 16, 1888. Nevertheless, he would remain a partner and an active promoter of the firm’s interests.1 Carnegie’s longtime friend David Stewart was elected chairman, but then Stewart died unexpectedly. To fill the sudden vacuum in upper management, Carnegie turned to Frick, who, on January 14, 1889, was elected president of Carnegie Brothers. Under him was the Edgar Thomson operation as well as his coke firm, a daunting challenge.

  No doubt Frick knew the steel business or Carnegie would never have selected him, but in his first months in office he was tentative and actually admitted to Carnegie that “I have many things to ask you about.”2 Such an admission tickled Carnegie, and he let loose with a barrage of the usual advice on running full, wages, railroad rates, and coke costs. Before Frick had been in office six months, he was compelled to forcibly cut Carnegie off: “I cannot stand fault-finding and I must feel that I have the entire confidence of the power that put me where I am, in a place I did not seek. With all that, I know that I can manage both Carnegie Brothers and Co. and Frick Coke Co. successfully.”3 Carnegie eased off quickly, and the next month he acknowledged Frick’s worth: “Let me express the relief I feel in knowing that the important departments of our extended business are in the hands of a competent manager. Phipps and I exchanged congratulations upon this point. Now I only want to know how your hands can be strengthened.”4 These flattering words echoed precisely what Carnegie had written to Shinn a decade earlier—and Shinn’s ejection had been a messy one.

  Carnegie had good reason for wanting to strengthen Frick’s hand. A recent consolidation of steel companies in Illinois presented a forbidding specter, while a new Pittsburgh competitor started rolling out steel rails in March 1889. As for the Illinois threat, North Chicago Rolling Mills, Joliet Steel, and Union Steel merged to form Illinois Steel, which now had a rail-making capacity twice the volume of Carnegie. It was now the world’s largest steelmaker and a serious menace. Behind the second competitive threat, the Pennsylvania concern, were some of the same names who had founded Homestead, including William Clark’s son Edward, wh
o, in addition to profits, had revenge on his mind. First organized as the Duquesne Steel Company in 1886 and then reorganized and renamed Allegheny Bessemer Steel, the company built a technologically advanced mill across the Monongahela, a stone’s throw upriver from Braddock, to purposefully intimidate Carnegie.

  With Illinois Steel a hearty enemy he could not immediately crush, Carnegie concentrated on answering the Allegheny Steel challenge. He was particularly worried about this competitor’s new method, the direct rolling process, for rolling rails that offered dramatic savings on cost. At Carnegie’s E.T., steel ingots were reduced to blooms (steel bars) and then reheated and rolled into rails, whereas at Allegheny they were successfully skipping the bloom stage and rolling rails straight from the ingots. It was efficient, effective, and allowed Allegheny to undercut Carnegie’s prices. It was an intolerable situation, so much so that Frick confessed to Carnegie that Allegheny was “a great nuisance.” He also apprised fellow steel man Jay Morse, “This Allegheny Bessemer business has been costing us a great deal of money, but I think we are pursuing the right course.”5 The course included a three-pronged attack.

  The first prong was obvious: match Allegheny’s prices to prevent the company from gaining market share. The next two thrusts were a bit more devious. In an attempt to discredit the direct rolling process and thus Allegheny, Carnegie sent out a circular to the railroads, warning them that Allegheny’s methods led to a lack of homogeneity and defective rails, and to incite alarm he implied the rails could cause fatal accidents—an unfounded implication. In his sly use of propaganda, he was careful not to lie outright about his competitor’s rails; rather, he selected perfectly suggestive language. Carnegie understood that words, like money, could bring power. The third strategy put into play was to ban Allegheny from participating in the rail pool, forcing the company to chase small, low-profit sales and offer ever-lower prices. Adding to the Allegheny’s troubles, it experienced a number of labor disruptions even though the mill was nonunion.

  Before its first year of operation was out, Allegheny Steel was feeling the squeeze, and the proprietors were forced to contribute an additional $300,000 of capital. Like a vulture, Carnegie kept an eye on the company, and in the fall, he ordered Frick to approach William Park, a principal partner, about selling. Frick found him receptive and offered $600,000, half of what it cost to build the plant, which was rejected. The next year, there was an economic downturn and rail orders slowed dramatically for Allegheny. Facing bankruptcy, Park had no choice but to approach Frick, who now offered $1 million. It was accepted, and Carnegie and his partners assumed control on November 21, 1890. The purchase became a coup of legend within the industry. Instead of paying cash, Carnegie issued five-year bonds; by the time the bonds came due in 1895, the plant had paid for itself six times over. Never before or after was there such a bargain, and Carnegie again triumphed over Pittsburgh’s iron aristocracy.

  Once Carnegie took control of the works, Charlie Schwab and J. G. A. Leishman investigated the direct rolling process and agreed it saved time and money without compromising quality. The Duquesne mill, now managed by Thomas Morrison, reputedly a distant relative of Carnegie’s, was so efficient, Frick wrote Carnegie, that to keep up “Schwab will have to hump himself.”6 In an ironic twist, Edgar Thomson was modified to make rails using the direct rolling process, the process the devious Carnegie had so vehemently discounted.

  The labor troubles that had hampered Allegheny Bessemer Steel also affected Carnegie’s competitiveness and were not so easily solved. The Amalgamated had continued to gain strength and now had six lodges entrenched at Homestead; just four years earlier there had been only two. Although there’d been no labor strife since Carnegie conquered Homestead, he feared the Amalgamated’s growing strength. Also, by the summer of 1889 he wanted drastic wage reductions in place and the installation of the same sliding scale that had enhanced Edgar Thomson’s profitability. Nothing could stand in the way of Carnegie’s majestic life at Cluny Castle and his plans to become the most renowned philanthropist the world had known. But Carnegie, who had been focusing so much attention on life away from the mills, was unaware of how hard the fight would be to win significant concessions. It was a fight designed for a man like Frick, but Frick was in charge of the Edgar Thomson side of the business. No, this fight was for another rising star in the company: William Abbott.

  Abbott, with full lips, thick, wavy hair, and the looks of a star in the theater, had started with Carnegie, Phipps, and Company as a clerk in the iron mills. In 1888, he succeeded Walker as chairman of Carnegie, Phipps and was given a partnership. Naturally, Carnegie rode Abbott like he would a Cluny saddle horse, demanding weekly reports on the back of which the taskmaster Carnegie scribbled his comments, questions, suggestions, and explosions of temper and exasperation. “I think (if you will excuse me) that for the success of your administration it will be wise for you to let office work go for a while,” he opined in Abbott’s first year, “and visit every competing works often and get posted about their modes, costs and men if you find a real man anywhere get him in your service—It can never be accepted by your partners that you can’t compete with and whip others—This is what our young partners are partners for.”7 Demonstrating his attention to every minute detail, he even critiqued Abbott’s letters: “My Dear Boy . . . You did well, and let me say that your letter is creditable as a literary production. Not one superfluous word and all excellent English.”8 In early 1889, he prepared Abbott for the upcoming negotiations with the union and instructed him to get labor figures for Homestead in “proper shape” to justify the wage cuts.9

  While Carnegie was preparing to crack down on Homestead, on March 30, he presided over the opening ceremony of his Braddock library, a Romanesque Revival structure built with sandstone that would soon turn black with soot. Dedicating his first American library (the Allegeny library would open the next winter) filled him with unalloyed pleasure, and he considered it a very proper administration of wealth. In his speech, he proclaimed, “Believe me, fellow workmen, the interests of capital and labor are one. . . . I am just as much entitled to the proud appellation of ‘working man’ as any of you, and I hope you will remember this hereafter and treat me with proper respect as one of the great guild of those who labor and perform a use in the community, and who upon that basis alone founds his claim to live in comfort.”10 Within the subtext, there was a clear warning: respect me or else. Here was Carnegie at his schizophrenic best: the hardened chieftain and sentimental benefactor, the man who could growl one minute and smile adoringly the next.

  Abbott had the numbers ready in early May 1889, and Carnegie presented his demands to the local union officials. They included a dramatic reduction of wages, amounting to 25 percent for some men, and the institution of the sliding scale in effect over at Edgar Thomson, which meant the wages for the month were to be based on the average price of steel billets during the previous month.11 The agreement was to go into effect on July 1 and hold until the strategically important date of January 1, 1892—when the men were most vulnerable due to the weather and the accompanying business slowdown—at which time it would be renegotiated. Naturally, the men balked. Before leaving for his annual Scottish sojourn, Carnegie reiterated to Abbott, who was to handle the negotiations solo, that the men had to agree to their proposed scale. “If not it is fight to finish,” he wrote, sounding more like Frick than a progressive employer. “There is this to be said for the plan. If they don’t agree then our consciences will be easier—We shall have offered fair and agreed not to break with organized labor.” At this point, Carnegie was willing to accept the union at Homestead.

  Before serious discussions could occur between Abbott and the union, tragedy struck Johnstown, Pennsylvania, home to Cambria. On May 31, a dam above the town burst after heavy rains and a forty-foot wall of water roared down the valley and crashed through Johnstown, killing more than two thousand citizens. Captain Jones closed Edgar Thomson and, along with three hun
dred of his men, rushed to help with rescue efforts and the cleanup. The shutdown cost Carnegie $15,000 a day.12 He could not complain, however, considering that the dam’s purpose was to create a lake for the South Fork Fishing and Hunting Club, an exclusive resort for Pittsburgh’s wealthy, in which he was a member. In Paris for the World’s Fair, Carnegie escaped the inquisition that followed. The other club members, including Frick and the Mellon family, donated thousands of dollars toward relief, but they never paid a dime for their crimes even though the club was certainly guilty of negligence in maintaining the dam.13

  After the flood and the scandalous revelations, the Homestead men were in no mood to accept the severe terms Carnegie demanded. They went on strike on July 1. Rumors immediately circulated that workers in other Carnegie-owned mills would walk out in a sympathy strike, so, to keep Edgar Thomson out of the fray, Carnegie instructed Abbott to have Captain Jones order his men to keep clear of the fight until Andy could return home for a chat. As for the Homestead strikers, Carnegie advised Abbott to take no action.14 Despite this advice, Abbott decided to break the strike by advertising in newspapers for willing scabs and hiring employment agents to secure them. To block any attempt to restart the works, the Homestead men patrolled the perimeter of the mill. Finally, when the first trainload of scabs rolled in, the strikers attacked, threw the scabs out of the cars, and, wielding brickbats, chased them into the surrounding hills. Upping the ante, Abbott brought in the Allegheny County sheriff to protect the strikebreakers; but when the sheriff arrived on July 10 with another trainload of scabs, an army almost two thousand strong blocked his way through the gates. Two days later, the sheriff returned with 125 deputies to take control of Homestead, but the strikers disarmed them, took their coats and caps, and sent them packing. Word then circulated that on July 13, workers at E.T. and the Upper and Lower Union Iron Mills had in fact voted for a sympathy strike.