The Tycoons: How Andrew Carnegie, John D. Rockefeller, Jay Gould, and J. P. Morgan Invented the American Supercompany

by Charles R. Morris

  The consolidation and scaling up of Holley-style continuous-process manufacturing businesses in the 1870s and 1880s—besides iron and steel, in oil, chemicals, flour, meat—eliminated many traditional craft categories. Labor historians sometimes speak of the “de-skilling” of manufacturing, which is not entirely accurate. It took considerable judgment and experience to be a senior operator in a high-speed rail rolling mill, and, often enough, the tasks eliminated were the most dangerous and exhausting ones, like hand-pouring molten steel into ingot molds. A British team visiting in the 1880s commented that American steelworkers “have to be attentive in guiding operations, and quick in manipulating levers . . . [but they] do not work so hard as the men in England.” But even if the work was easier, the new process model entailed an immense loss of power for established craftsmen. The skills required in the modern factory were invented and controlled by the employer, and didn’t take years of apprenticeship to acquire. The same visitors were struck by the short training periods required for raw hands in American mills; one Carnegie executive claimed he could make a farmboy into a melter, previously one of the more skilled positions, in just six to eight weeks. Integrated operations also eliminated the last vestiges of internal contracting. Line employees now worked only for other hired hands, increasing their psychological distance from senior managers. One labor historian has summed up the transition as one “from artisans to workers.”

  The new factory model prompted the first halting moves toward industrial unions; “worker in a steel plant” became a more important category than “iron puddler,” so it made no sense to fragment labor along the old craft-based union lines. The Roman-candle growth of the Knights of Labor in the 1870s was one of the first expressions of that impulse, but the Knights collapsed after the 1886 Haymarket Square bombing, a victim of fierce repression and its own disorganization. (Haymarket Square, in Chicago, was the scene of a labor rally following a violent confrontation at McCormick Reaper. The bomber was never found, but he was more likely to be an anarchist, who were active in Chicago, than a Knight, although both were involved in organizing the rally. Seven policemen were killed, just one by the bomb, the rest from gunfire, which may have been mostly their own.)

  The Amalgamated Iron and Steel Workers was one of the strongest industrial unions to emerge after the debacle of the Knights, although it still officially represented only skilled tradesmen. The confrontation between the Amalgamated and Carnegie Steel at the Homestead Works in 1892 is not only a permanent blot on the history of American labor relations—there may have been as many as thirty-five deaths—but a disfiguring stain on the character and reputation of Andrew Carnegie. From a longer view, the government’s intervention against the Homestead strikers, and two years later during the famous Pullman strike near Chicago, was so unhesitating, and so crushing, that it effectively squelched the industrial union movement. After Homestead and Pullman, an intimidated labor movement retreated to the cautious, craft-based tactics of Samuel Gompers’s American Federation of Labor (AFL)—until John L. Lewis rekindled the cause by leading his miners out of the AFL in 1935.

  Homestead

  Labor issues created terrible conflicts for Carnegie. He panted after public adulation and couldn’t resist an applause line, even when it exposed him to charges of flagrant hypocrisy. Since the early 1880s, he had taken to spending approximately half of each year in England and Scotland, where, flaunting his Scots Chartist roots, he purchased a small stable of Radical newspapers and contributed generously to Radical causes (“Radicals” were roughly equivalent to modern “Liberals”). When he began to publish essays broadly defending the rights of labor against his benighted fellow executives, Glad-stonian reformers practically canonized him as the paragon of the enlightened modern capitalist. How, indeed, could they have resisted a cherubic, open-pursed little tycoon spouting elegantly phrased reformist maxims? A sample of Carnegie’s preachments:

  I am a strong believer in the advantages of Trade Unions, and organizations of work men generally, believing that they are the best educative instruments within reach.

  We expect from the presumably better-informed party representing capital much more than from labor; and it is not asking too much . . . that they should devote some part of their attention to searching out the causes of disaffection among their employees.

  To expect that one dependent upon his daily wage . . . will stand peacably and see a new man employed in his stead is to expect much. . . . [T]he employer of labor [should rather] allow his works to remain idle . . . than to employ a class of men who can be induced to take the place of other men. . . . There is an unwritten law among the best workmen: “Thou shalt not take thy neighbor’s job.”

  The most deplorable features of the Homestead tragedy—the fierce commitment to cutting pay rates despite high profits, the insistence on breaking the union, the use of Pinkerton guards to protect strikebreakers—are usually laid at the feet of the steel company’s chief executive, Henry Frick. While publicly supporting Frick, privately Carnegie assiduously shifted the blame to his “young & rather too rash” partner. Every aspect of the Homestead episode, however, was consistent with Carnegie’s previous policies. He constantly focused on wage-cutting, with only Captain Jones resisting him: “I do not like a prospective reduction of wages.” Jones wrote him in 1878, “Our men are working hard and faithfully . . . Now mark what I tell you. Our labor is the cheapest in the country.” And in 1884, “We cannot reduce mechanics more than 10%. We are not paying at present any extravagant wages to our mechanics.”

  Jones’s one major victory was a three-shift, eight-hour day on the grounds that it was “entirely out of the question to expect human flesh and blood to labor incessantly for twelve hours”; he argued as well that the extra productivity would more than cover any additional costs. Under Jones, the Edgar Thomson Works was the only three-shift steel plant in the country,* and while it was also the most efficient and profitable as he had promised, Carnegie hated the thought that other companies may have had lower labor costs. The 1883 acquisition of Homestead, a two-shift plant, besides bringing an unruly labor force, created conflicting manning profiles within the Carnegie empire. In 1888, roughly the period of his most prominent pro-union declarations, Carnegie ruled that the ET would go to twelve-hour shifts. The ET men struck, and Carnegie closed the plant. He did meet personally with the strike leaders and thought he had reached a settlement. When that fell through, Jones was instructed to hire Pinkertons and reopen the plant with strikebreakers, while Carnegie retreated to Atlantic City. Although it received little outside notice, the confrontation dragged on for almost five months with only “the usual disorders” and “a slight loss of life.” There was more violence at the ET in 1891 (Jones’s death in a blast furnace accident occurred in 1889), but the company used its own armed men, deputized by the local sheriff, rather than Pinkertons. At least one worker was killed in the disorders, apparently by other workers.

  Frick made a temptingly convenient scapegoat for Homestead. Fourteen years younger than Carnegie, he had built his H. C. Frick Co. into the dominant vendor of iron-smelting coke when he was still in his early twenties; by age thirty he was a millionaire. Although he could be charming, no one called him lovable. Widely acknowledged as a superb manager, he was taciturn, grimly intense, and subject to explosive rages—and he made no secret of his antipathy to organized labor. Carnegie had been an admirer of the coke company, and Frick, who was hungry for growth capital, encouraged him to invest to the point where Carnegie and his companies owned a majority position. Carnegie recruited Frick to the steel business after his brother Tom’s death, and his own serious illness, in 1886, and Frick became president of the ET company in 1889. At Frick’s urging, in 1892 Carnegie merged all his steel properties into a new company, Carnegie Steel, the largest steel organization in the world, with Frick as chairman and chief executive. Their relations were never easy. With the notable exception of Jones, Carnegie was intolerant of independent executiv
es; although nominally only a shareholder and “advisor,” he insisted on being informed on everything, freely overruled the men supposedly in charge, and could be extremely patronizing in doing so.* As John W. Gates, another steel executive, put it: “No one in the Carnegie organization controlled Mr. Carnegie, but he controlled every other man.”

  There is little dispute about the bare facts of the Homestead strike. At the time of the strike, it was Carnegie’s only union plant, in the sense that in 1889 the Amalgamated, much to Carnegie’s irritation, had managed to establish itself as exclusive bargaining agent for the roughly eight hundred workers in the skilled categories. The Amalgamated, however, took an enlightened view of technological progress, expressly accepting that tonnage-based pay scales would fall as productivity rose, and that mechanization would gradually eliminate traditional job categories. (British steel executives would have found such flexibility extraordinary.) Carnegie executives, however, detested making job classifications a matter for union discussion, since the agreements tended to accrete into binding precedents and practice rules.

  The union had not expected a serious confrontation in 1892; the only scheduled negotiation was a fairly routine updating of the wage scale. Both Carnegie and Frick, on the other hand, were resolved on a break; as one director put it, the “Amalgamated placed a tax on progress, therefore the Amalgamated had to go.” At one point, Carnegie even drafted an announcement withdrawing recognition from the union, but Frick preferred to come to a negotiating impasse first, and began active preparations for a long strike, laying in supplies, reinforcing the plant fence, and building a sales inventory of high-margin products.

  A key issue in assessing Homestead is Carnegie’s attitude toward the use of strikebreakers, which he privately insisted was “foolish . . . repugnant to every feeling of my nature.” Before he took off for Scotland, Carnegie met with Frick in New York and handed him a memo that restated his public position against the use of strikebreakers. It is hard to know what to make of that memo, especially since Carnegie himself had used strikebreakers at the ET not long before. Perhaps he had already repressed the memory, as he was fully capable of doing, or he may have regretted his action. But the use of a written memo at a private discussion, instead of a forceful oral presentation, looks like he was speaking for the record. Conceivably, Carnegie thought a written statement would be a salutory curb on Frick’s antiworker impulses. More likely, he was creating a paper trail for posterity. Since the two men had already devoted “long and serious talks” to a possible strike, it is hard to believe that the topic of strikebreakers hadn’t already come up. It would have been in character for Carnegie to have expressed reservations on strikebreakers, but to have left Frick a free hand while taking care to tidy up the record in case things went badly. Frick could hardly have cared, for he was delighted that Carnegie was leaving. Back when Frick was still managing his coke company, Carnegie, as majority shareholder, had forced a strike settlement favorable to the workers because the loss of coke supplies was costing him steel profits. Frick resigned and had to be cajoled back by Carnegie, but had no confidence in his consistency or judgment.

  As it turned out, Frick and the union almost reached a settlement, and negotiations stretched to the point where Carnegie urged him to break them off. But they eventually foundered just as the old contract was ending, and Frick closed the works. As management’s intentions had become clear, the Amalgamated had also made careful preparations, particularly taking pains that the entire workforce would act together. On July 1, workers’ committees, with many of the men armed, took over the plant to ensure a complete shutdown. When the local sheriff declined to assault the plant, Frick ordered a force of three hundred Pinkertons, which he had assembled in Philadelphia, to take the plant from the river. The Pinkertons, almost all raw recruits with no training, and who were paid even less than the steelworkers, arrived on July 6 on a barge towed up the Monongahela. The workers had assembled on high ground above the disembarkation point and trapped them in a hail of gunfire. In the ensuing gun battle, the tug took off, leaving the barge floating helplessly. After some hours, and with the barge set afire, the Pinkertons surrendered and were allowed off the barge and up the bank. There they met an enraged, mostly female, gauntlet and were severely beaten before being hauled into the town as prisoners. A standard estimate—there are no precise numbers—is that one Pinkerton and seven workers were killed in the initial gunfight and three more Pinkertons were killed by the gauntlet. (Larger fatality numbers include estimates of deaths from disease and other factors during the long work stoppage.)

  The fight ended with the workers’ committees in full control of the town and the plant, but they sensibly gave way when eight thousand militiamen arrived on July 12. Carnegie, distraught and raging in Scotland, cabled that he would return to take control, but was shouted down by his partners. So he stayed firing off cables back home, while hiding from the press and Republican political leaders who feared that the confrontation could cost them the fall presidential election. (Democrat Grover Cleveland indeed unseated President Benjamin Harrison.) One of his first angry reactions, to his cousin and fellow director, George Lauder, however, is about tactics: “Matters at home bad—such a fiasco trying to send guards by Boat and then leaving space between River & fences for the men to get opposite landing and fire. Still we must keep quiet & do all we can to support Frick & those at Seat of War.”

  Public sympathies shifted radically when Alexander Berkman, an anarchist and longtime consort of Emma Goldman, walked into Frick’s office on July 23, shot him twice in the neck, and then stabbed him three times. Amazingly, Frick wrestled Berkman to the ground and prevented his swallowing a lethal poison as he was being subdued by guards. Frick then remained at his desk, refusing anesthetic so he could guide a surgeon in removing the bullets lodged in his back and neck. After his wounds were dressed, he stayed at the office a while longer cleaning up paperwork and preparing a press statement: “I do not think I shall die, but whether I do or not, the Company will pursue the same policy.” At home, a son, who was born on the day of the fight with the Pinkertons, lay dying. Frick attended the baby’s funeral a week and a half later and a few days after that took his regular trolley car back to the office. His preternaturally cool performance won wide admiration, although as his biographer notes, it also suggests “something of a fanatical quality.”

  Under militia protection, a thousand men, or more than a quarter of the normal complement, were back at work by the end of July—many of them slept at the plant to avoid retribution at home. The other Carnegie plants were relatively undisturbed, although the Duquesne Works, a new plant recently acquired by Frick, had gone out for a week. Samuel Gompers made a speech calling for boycotts of Carnegie products, but refused to call for sympathy strikes. By October, Carnegie was expressing irritation that the plant was still not running full bore. The union officially threw in the towel in November, precipitating its rapid decline. Carnegie plants were nonunion from then on, and after the 1901 steel mergers, U.S. Steel remained a nonunion shop until the late 1930s. Management took full advantage of its victory. After allowing some months for the passions from Homestead to subside, wage scales were cut very sharply—by as much as 60 percent, according to a local newspaper, which reported that “These are the lowest scales of any in this section, union or nonunion.”

  The company’s resistance to negotiated manning schedules is understandable. In just three years, the Amalgamated’s manning agreement at Homestead had accumulated fifty-eight pages of footnotes explicating the rules of job classification. But Carnegie’s and Frick’s fierce commitment to cutting pay makes almost no sense, particularly when it so regularly provoked debilitating strikes. The 1890s marked the peak of the mechanization drive that had characterized the Carnegie company from its inception, and the labor content of a ton of steel was dramatically and continuously falling. As early as 1883, Captain Jones reported that he had reduced the labor cost of rails by a quarter, fr
om 20 percent to 15 percent. New machinery in 1885 eliminated fifty-seven of sixty-nine men on the heating furnaces and fifty-one of sixty-three hands in the rail mill. In the 1892 Homestead negotiation, the company hoped to eliminate 325 of about 800 skilled positions. By 1897, Homestead had a quarter fewer men than in 1892, although production was far higher. Between 1896 and 1897 alone, labor costs per ton of Bessemer steel were reduced by 20 percent, while in open-hearth the labor cost reduction was about a third.

  The extraordinary productivity at Carnegie plants put them in a different class from their competition. During a rail price war in 1897 Carnegie Steel pushed the other companies to the wall by driving rail prices from a previous low of $28 a ton to only $18, and at one point to an almost unimaginable $14. The chief executive of Illinois Steel, its biggest rail competitor, conceded that no one could match Carnegie’s costs. In a year when almost no other steel company was operating profitably (Illinois actually prepared bankruptcy papers), Carnegie Steel racked up a stunning, record-high $7 million in profits, a number that tripled over the next two years. At the time of the Homestead strike, labor costs at Carnegie Steel were only 15.7 percent of sales, while earnings on sales were 8.6 percent. An offer of a 5 percent wage increase, which workers would have found quite generous, would have cost the partners less than 10 percent of that year’s $4 million in earnings. By the end of the decade, profits on sales had soared to a remarkable 20 percent, while the labor costs of sales had dropped to only 10.5 percent. As one historian wrote of the entire industry, its “dismal labor policies represented a social choice to retain profits rather than distribute them as wages”—an observation that applies with even more force to Carnegie than to his competitors.