by Peter Krass
For now, Frick, the temperamental coke king, was brought in line—even broken, it seemed. He sold almost half of his 11 percent interest back to the company; the next month, he met with Rainey at the Duquesne Club, afterward claiming he “had quite a pleasant chat with him.”43 Carnegie continued to push hard for the consolidation, but, in the end, despite all the encouragement, time, money, and the fight with Frick, the untrustworthy Rainey demanded too high a price and the deal was never consummated.
Late in the spring of 1895, the steel market began to improve and the Carnegie Steel men, who had suffered repeated wage cuts, started grumbling for an increase. When the board of managers discussed an upward adjustment to the sliding scale, Carnegie, in repose in southern England, quickly voiced his objection. Nothing but a severe crisis should alter the wage scale, he declared, and suggested giving the men a bonus based on a percentage of their wages.44 The advantage of giving the men a bonus was clear: it was a onetime deal. Frick was given the honor of announcing a 10 percent bonus on wages.
Profits would jump 25 percent to $5 million in 1895, money needed for Carnegie’s big expansion plans; he was determined to take advantage of the still depressed economy and prices, as he had done in the past, by making improvements and expanding operations. These plans included four new furnaces, a major capital expenditure. Frick, for once, concurred with his philosophy; but Phipps, hungry for dividends to support his lifestyle, that of a country squire, was most disgruntled and now threatened to incite a mutiny. “Would much prefer increasing our cash capital and have it ready to pay retiring Partners,” he wrote Carnegie. Hoping to strum a chord of guilt, he pointed out that John Vandevort, Carnegie’s old traveling companion, was in need of money, too. “I know it must annoy & bore you my giving opposite views— have not hesitated much when it seemed duty. . . . We get in sight of div’d. then like Phillip Nolan (‘man without a country’) he sees his native land— then a new ship, a new voyage—and never lands, each time a new & deeper disappointment, so with our divd’s.”45
To pressure Carnegie, Phipps enlisted Dod’s help, urging him to study the firm’s books. After reviewing the finances, Dod joined the mutiny:
I have a long communication from Harry on the question of dividends v. improvements. His position seems to me unassailable.
But apart from all urges, I cannot see why you do not make dividends. In the first place it would only take what money Harry needs out of the firm and that I suppose he will have to get anyway . . . . Lovejoy [the firm’s secretary] has just been shewing me a statement that shews we are in a better condition financially than we have been since 1888. . . . If I am not right about this I would like to know it. If I am, why do you not make dividends?46
Carnegie’s policy had been to take 25 percent from profits for dividends, the remainder to be plowed into plant and equipment, and he had no intention of swerving from this course. So, from the impregnable Cluny Castle, the tightfisted Scotsman’s answer was: we’re going to build. Despite all the trouble over the previous two years, Carnegie remained relentless and ruthless.
To dominate the local pig iron market, Carnegie insisted that his men build the four furnaces in double time. In August, he instructed Leishman to publicize the expansion to dissuade other firms from thinking of entering the market.47 On the steel rail front, Carnegie, fearing there was overcapacity unless railroad building “heats up,” was also on the attack and negotiated a dominant piece of the latest rail pool. The allotments: Pennsylvania and Maryland Steel, 15.74 percent; Lackawanna, 15.74 percent; Cambria, 7.87 percent; Bethlehem, 7.87 percent; and Carnegie Steel, 52.78 percent.48 Carnegie was so confident of their grip on the market that he wrote Leishman, “I do not think you need pay outsiders very much to keep out of the rail business next year, especially if you arrange with them soon, as you are very wisely trying to do.”49 He forged a profitable armor pool agreement with Bethlehem, as well.50 Ultimately, Carnegie’s unilateral demand for improvements, expansion, and aggressive tactics would prove insightful as profits mushroomed in the coming years. He was the steel industry’s undisputed Napoléon; he just had to avoid his Waterloo.
As the general, emperor, and absentee partner inspected his troops, he realized his lieutenants were restless and greedy. Frick wanted power, Phipps and Dod wanted money, and Leishman was a gambler. To suppress these errant impulses, more control had to be exerted, which required continuously gauging the attitudes, opinions, and character of his entire board of managers in Pittsburgh—a very challenging task while he resided in New York and Scotland. Carnegie solved this management quandary by insisting on more detailed minutes of the weekly board meetings. Moreover, shortly after Leish-man took the helm, Carnegie insisted “that the votes of each member, pro and con, in the board shall be recorded” and that no new projects or methods be undertaken except by a two-thirds majority vote of the total number of the board.51 By requiring a vote, Carnegie could track who voted how—a simple and effective method of control. Later in 1895, Carnegie extended the purpose of the minutes. “My idea is that there should be a permanent record of every vote of every voter,” he wrote Leishman. “This is provided for; but there should also be recorded the reasons given for any vote which a voter may ask to have recorded. The idea is this: The shareholders should be able to read a record of proceedings which would enable them to judge of the judgment displayed, good or bad, by every manager. I do not see how we can in any other way form a correct judgment of the ability of our managers.”52 He also notified the company’s secretary, Francis Lovejoy: “The Minutes . . . should record every reason or explanation which a member desires to give. If this were properly done then any of us looking over the Minutes would be able to judge of the judgment displayed by the voter, which of course would affect his standing with his colleagues. It would bring responsibility home to him direct. The Minutes cannot err in being too full, the fuller the better. They can err in being too much curtailed.”53 It was all about Carnegie’s obsessive need to control and to judge: Who wanted money? Who made slapdash recommendations? Who didn’t provide facts? Who was too hesitant? Who was too optimistic? After digesting the minutes, he would write critical comments, which he called “Thoughts on Minutes” or “Notes on Minutes,” on the back and then send them to the appropriate person. If you weren’t catching hell from Carnegie’s pen, that was a compliment.
The greatest tool for controlling his partners, especially the junior partners, was the Iron Clad Agreement. It was used to eject as well as to buy back the interests of fifteen partners over thirteen years beginning in 1887. While quick to expel those who didn’t perform, Carnegie was equally enthusiastic in promoting those with potential. As he told Frick, “Every year should be marked by the promotion of one or more of our young men. I am perfectly willing to give from my interest for this purpose, when the undivided stock is disposed of. . . . We cannot have too many of the right sort interested in prof-its.”54 Always on the lookout for the next Frick or Charlie Schwab, Carnegie once divulged to Charles Scribner, “I do not believe it possible to found a really great business except upon the Napoleonic plan: every soldier carried in his knapsack a possible Marshal’s baton. To bring an outsider in over the heads of men in service is unjust and should create a revolution. . . . Promotion from the ranks should be the motto.”55 True to his word, over the years, thirty of thirty-three superintendents rose through the ranks, and a derisive comment Carnegie enjoyed repeating over the years was “Mr. Morgan buys his partners, I grow mine.” He was more than willing to give a man “a trial. That’s all we get ourselves and all we can give to anyone. If he can win the race he is our racehorse; if not he goes to the cart.”56 It was survival of the fittest in the Carnegie ecosystem, a constant feeding frenzy as each man fought to beat the other to avoid the cart and being shackled by the Iron Clad. In this jungle, average men became superlative, for as William Abbott observed, “Most of Carnegie’s partners were ordinary men. . . . Yet Carnegie could take this commonplace materia
l and make out of it a truly great organization.”57
Now, as an increasingly paranoid Carnegie sought to solidify his power in the wake of Frick’s threatened resignation, the Iron Clad was more important than ever. Since the last fully executed agreement dated back to 1887, Carnegie pressed Lovejoy to update the document: “It is highly important that every shareholder shall sign that, just as he has signed these By-Laws, because we do not know what day someone may ‘fall from grace,’ or do something which will require the interests of the firm to sever connection with him.”58 But not until September 1, 1897, was a revised Iron Clad submitted for every partner’s signature. Of particular interest were the clauses stating that upon the demand of three-fourths of the partners in numbers and interest, a partner could be ejected, and that upon ejection or death, the company’s treasury would purchase the former partner’s interest at book value. The company’s current total value was $45 million, putting Carnegie’s share at over $26 million.
When the agreement was mailed to Phipps, Carnegie sent an explanatory note: “My Dear Squire—A small interest now in our firm amounts to so much that the first agreement has to be changed, certainly. . . . My suggestion is that we should not agree to pay cash for our interests at all, but long time certificates bearing interest, which is as good an investment as any one should get.”59 If Carnegie were to die, according to the new Iron Clad, the partners were given fifty years to absorb his shares, while paying 5 or 6 percent interest.
As Phipps mulled over the Iron Clad, it dawned on the retired man that if he signed the agreement he was subject to the whims of Carnegie and the junior partners and could be ejected from the firm and bought out at a less than desirable price. He declared the document illegal and refused to sign it.60 Carnegie was deeply hurt. His boyhood friend, who had already stabbed him once by siding with Frick during the 1894–1895 resignation dispute and who was forever quibbling over dividends, stood against him once again. Most appalling to Carnegie was the fact that when he had almost died in 1886, it was Phipps who so desperately wanted the Iron Clad to protect himself. His unabashed, self-serving greed was painful to confront. Even so, it was Carnegie who sought to smooth Phipps’s ruffled feathers. To do this, he enlisted Frick’s help, warning him that Phipps “seems unduly alarmed about matters.”61
At an October 1897 board meeting, Frick dispelled Phipps’s claim that the Iron Clad was illegal and said he believed Phipps would “withdraw his objections after he has talked the matter over with Mr. Carnegie and with the members of the Board.” If Phipps persisted in his refusal to sign, Frick continued, there was always the 1887 agreement that “we believe to be legally operative until this revision has been signed, as the only changes made, other than the extension of the stipulated terms of payment, are for the better understanding and carrying out of the details.”62 Harry Phipps Jr. never did sign the Iron Clad, the consequences to be realized in good time.
Between the board meeting minutes, the Iron Clad Agreement, suppressing stories to the newspapers, and spying, Carnegie’s current regime embodied totalitarianism. But for all the control he exerted, his world continued to experience upheavals, in both business and politics, and over the next several years he would find himself involved in escalating battles on multiple fronts.
Notes
1. AC to Grover Cleveland, April 22, 1893, ACLOC, vol. 20.
2. Cleveland to the United Press, April 23, 1893, quoted in Alan Nevins, ed., Letters of Grover Cleveland: 1850–1908 (Boston: Houghton Mifflin, 1933), p. 324.
3. Hogan, p. 237.
4. Pittsburgh Dispatch, November 10, 1893, quoted in Warren, p. 126.
5. Brody, p. 5.
6. AC to Henry C. Frick, February 13, 1894, ACLOC, vol. 24.
7. John Gates’s testimony before the Stanley Commission, May 27 and June 8, 1911.
8. Edison Electric Illuminating Co. of New York to AC, September 26, 1893, ACLOC, vol. 22.
9. Henry C. Frick to Charles Schwab, September 16, 1893, quoted in Warren, p. 154.
10. See Hessen, pp. 45–58, for more details on the armor scandal.
11. Washington Post, December 21, 1893, quoted in New York Daily Tribune, March 2, 1894.
12. AC to Grover Cleveland, December 20, 1893, ACLOC, vol. 23.
13. AC to Grover Cleveland, December 27, 1893, ACLOC, vol. 24.
14. Burrows and Wallace, p. 1187; and for more details, pp. 1185–1190.
15. New York Daily Tribune, January 5, 1894.
16. AC to Henry C. Frick, February 13, 1894, ACLOC, vol. 24.
17. New York Daily Tribune, March 2, 1894.
18. New York Herald, May 30, 1893, ACLOC, vol. 21.
19. AC to Mr. John Dalzell, December 6, 1893, ACLOC, vol. 23.
20. AC to Senator Arthur P. Gorman, January 2, 1894, ACLOC, vol. 24.
21. AC to Andrew White, April 28, 1894, ACLOC, vol. 24.
22. New York Daily Tribune, August 31, 1894.
23. Krause, p. 358.
24. AC to Mr. Ditch, July 3, 1895, ACLOC, vol. 32.
25. AC to Henry C. Frick, September 7, 1894, quoted in Warren, p. 157.
26. Henry C. Frick to AC, September 19, 1894, ACLOC, vol. 27.
27. Henry C. Frick to AC, December 18, 1894, ACLOC, vol. 29.
28. Henry C. Frick to C. A. Stone, October 30, 1894, quoted in Warren, p. 214.
29. Henry C. Frick to Millard Hunsiker, November 8, 1894, quoted in Warren, p. 214.
30. Henry C. Frick to AC, December 18, 1894, quoted in Warren, p. 215.
31. AC to Henry C. Frick, December 18, 1894, ACLOC, vol. 29.
32. AC to Henry C. Frick, December 18, 1894 (second letter), ACLOC, vol. 29.
33. Henry C. Frick to AC, December 20, 1894, ACLOC, vol. 29.
34. Henry Phipps to AC, December 22, 1894, ACLOC, vol. 29.
35. AC to Henry C. Frick, December 23, 1894, ACLOC, vol. 29.
36. Henry C. Frick to AC, December 24, 1894, ACLOC, vol. 29.
37. AC to J. G. A. Leishman, December 24, 1894, ACLOC, vol. 29.
38. AC to Henry C. Frick, December 26, 1894, ACLOC, vol. 29.
39. Henry C. Frick to AC, January 1, 1895, ACLOC, vol. 30.
40. AC to Henry C. Frick, January 3, 1894, ACLOC, vol. 30.
41. AC to Board of Managers, November 26, 1899, quoted in Whipple, p. 61.
42. Warren, p. 218.
43. Henry C. Frick to AC, February 14, 1895, quoted in Warren, p. 220.
44. AC to Carnegie Steel, May 16, 1895, ACLOC, vol. 31.
45. Henry Phipps to AC, June 2, 1895, ACLOC, vol. 32.
46. George Lauder Jr. to AC, June 12, 1895, ACLOC, vol. 32.
47. AC to J. G. A. Leishman, August 5, 1895, ACLOC, vol. 32.
48. Warren, p. 97.
49. AC to J. G. A. Leishman, September 2, 1895, ACLOC, vol. 32.
50. AC to Robert P. Linderman, February 25, 1895, ACLOC, vol. 31.
51. AC to Francis Lovejoy, February 11, 1895, ACLOC, vol. 30.
52. AC to J. G. A. Leishman, December 23, 1895, ACLOC, vol. 35.
53. AC to Francis Lovejoy, December 9, 1895, quoted in Hendrick, Carnegie, vol. 2, p. 44.
54. AC to Henry C. Frick, December 30, 1896, ACLOC, vol. 40.
55. AC to Charles Scribner’s Sons, December 30, 1896, ACLOC, vol. 40.
56. Hendrick, Carnegie, vol. 1, pp. 297–298.
57. Hendrick Notes, August 1929, ACLOC, vol. 239.
58. AC to Francis Lovejoy, January 20, 1896, ACLOC, vol. 36.
59. Quoted in Hendrick, Carnegie, vol. 2, p. 73.
60. Henry Phipps to AC, September 25, 1897, ACLOC, vol. 45.
61. AC to Henry C. Frick, October 9, 1897, ACLOC, vol. 45.
62. Board Meeting Minutes, Carnegie Steel, October 19, 1897, ACLOC, vol. 46.
CHAPTER 23
Seeking a Measure of Peace
At the very time Carnegie was exerting greater control over his men, he witnessed the realization of his greatest benefaction to date and inserted himself as a peacema
ker into an international dispute between the United States and Britain. His desire for munificence and peace on a grand scale was to compensate for the Homestead tragedy, the armor scandal, and oppression of the working class; it was, he hoped, to bring him a measure of internal peace as he sought to reconcile himself with his ruthless business tactics. This dichotomy of behavior, which brought public denunciation and praise, would prompt B. C. Forbes, founder of Forbes magazine, to observe of Carnegie, “He has been invested with all the virtues of a saint—and condemned as a bloodstained tyrant and slave-driver.”1
Saintliness took time to buy. But Carnegie was patient and, over five years, built a cathedral of knowledge that took the public’s breath away. On November 5, 1895, he dedicated the Carnegie Library of Pittsburgh, which included a science wing, an art gallery, and a music hall, all part of what would soon become the Carnegie Institute.
After Pittsburgh had accepted the million-dollar gift in 1890, Carnegie’s first order of business was to handpick William N. Frew to lead the Carnegie Free Library Commission, which was to oversee the construction. They then had to settle on a location. Downtown Pittsburgh was too congested, but three miles to the east was Oakland, an outlying village perched on a high plateau of limestone terraces. The city was evolving toward Oakland, connected by cable car and trolley, and it was the best location for creating a center of culture. There, Carnegie’s partner Harry Phipps had already built a magnificent and dreamlike conservatory, which, at the time of its dedication in 1893, was the largest enclosed botanical garden in the country. So Carnegie wrested twenty acres of Oakland property from the city, and then his Library Commission, in what became a heralded national competition, invited architectural firms to submit their ideas. The winner was Longfellow, Alden and Harlow, a Pittsburgh firm.
One of Carnegie’s few prerequisites was that the building was functional, without ornament; therefore, to dress up a rather plain exterior, it was decided to carve in the entablature the names of great authors, musicians, and painters. But when Carnegie, who was very active in overseeing the entire project, read the proposed names in the Pittsburgh Dispatch, he immediately protested: “I cannot approve the list of names published in the Dispatch of the 10th instant as those selected for the cornice decorations. Some of the names have no business to be on the list. Imagine Dickens in and Burns out. Among painters Perugini out and Rubens in, the latter only a painter of fat, vulgar women, while a study of the pictures of Raphael will show anyone that he was really only a copyist of Perugini, whose pupil he was. Imagine Science and Franklin not there. . . . As I am to be in Pittsburgh very soon, I hope you will postpone action in regard to the names.”2 To call the Flemish painter Rubens, best known for his intricate detail, his dynamic use of light and color to dramatize action, and his decorative works for churches and palaces, a mere painter of fat, vulgar women displayed both Carnegie’s ignorance of art and his squeamish prudishness.