Despite these momentous steps toward a grand future, it was a period of significant personal difficulty. When he found himself called up by the Union to fight in the Civil War in mid-1864, a stunned Carnegie pondered the alternatives, then spent $850 to hire a substitute to undertake his service for him. It was an option that was legal and often exercised by young men of means at the time, and one that Carnegie defended as a patriotic gesture. After all, he reasoned, the draft law of 1863 gave him the choice of paying the government a mere $300 to avoid service altogether. In Carnegie’s eyes, he had expended $550 that he didn’t have to, and, instead of evading service, had seen to it that another body had been added to the fray.
Shortly thereafter, word reached Carnegie of another potential complication, this time life-altering rather than life-threatening: he was about to be offered a promotion to Tom Scott’s old job of superintendent by the board of the Pennsylvania Railroad. It was a difficult choice for a man who had risen to his present lofty station through his association with the company, but Carnegie saw himself as guided by his conscience. Determined to make a fortune and certain that he could never do so as a salaried man (“I saw no means of doing this honestly, at any salary the railroad company could afford to give”), he tendered his resignation to the Pennsylvania Railroad and turned his energies to iron.
Since neither Carnegie nor his new partners in Cyclops Iron knew much about the manufacturing business, the newly formed company experienced considerable difficulty in gearing up for actual production. As a result, the ever-pragmatic Carnegie turned to the principals of the competing firm, in which his brother Tom still maintained an interest, and brokered a merger, despite considerable rancor between several parties on opposing sides. While the exercise cost Carnegie the intimacy of his old friend Tom Miller, the newly formed Union Iron Works was a great success, providing him with an additional income of $20,000 in 1867.
Had he known what was to come, Carnegie might well have redoubled his efforts in iron, but he had climbed to where he was via telegraph and railroads, and perhaps that accounts for his temporary retreat to more comfortable haunts.
The telegraph business was dominated in the 1860s by Western Union, guided by the able and tough-minded William Orton, a former commissioner of the Internal Revenue Service. Orton’s determination to dominate the telegraph business led to the demise of many a lesser competitor, but also to creative responses from those in danger of being gobbled up. Carnegie hoped to join the ranks of a number of lesser players who had begun to organize smaller, regional telegraph companies with no real intention of doing significant, long-term business of their own. The idea was to organize sufficiently to present one’s firm as an up-and-comer, a potential competitor, and then accept a handsome buyout from Orton.
Following this tack, Carnegie first formed his own company, Keystone Telegraph, and then secured a contract with the Pennsylvania Railroad to run lines along the company tracks from Pittsburgh to Philadelphia. Before he could even approach Western Union, however, an intermediary firm, the Pacific and Atlantic Telegraph Company, came courting. In the resulting merger and stock swap, Carnegie tripled the value of his telegraph holdings without having strung a single mile of wire.
Using his new position as a major stockholder in the P&A, Carnegie engineered the appointment of a good friend as its general superintendent. Then, in the final step, he went behind the backs of all his new partners to engineer a secret deal for a merger with Western Union and profited further by snatching up shares of the P&A from unwary stockholders in advance. Though what he did was legal at the time, when word leaked out, there was a stampede by stockholders to cash in, not only putting an end to Carnegie’s scheme but painting him in the eyes of critics as a Machiavellian figure, profiting at the expense of fellow stockholders. It was the first time that Carnegie felt the sting of negative public opinion, and for what he considered normal business practice. He reacted in what would become typical Carnegie fashion, blaming a change in Western Union management for cutting off the buyout before all his friends could be taken care of.
At nearly the same time, a second investment pitted him against another legendary businessman. George Pullman, as owner of the sleeping-car company that bore his name, had blithely lifted any number of patented features from those designed by T. T. Woodruff for Carnegie’s Central Transportation Company (CTC), enhancing them to create the luxurious Pullman car, a fixture on many Western rail lines. Pullman, however, was intent on seeing his new and improved cars roll on rail lines coast to coast. Because of Carnegie’s influence, Pullman’s prospects of bypassing the influence of the Chicago-based CTC seemed dim until Carnegie learned that Union Pacific officials were considering adopting Pullman’s cars for use on their fast-growing network.
Instead of drawing a battle line, Carnegie deployed his skills as a backroom negotiator. He approached Pullman one evening after a round of negotiations with Union Pacific in New York City and made a proposal that startled the sleeping-car magnate: he should simply stop all this going-it-alone and join forces with Carnegie. Pullman had only to agree to merge with Central Transportation, creating a new company; the newly melded group could then strike a far better deal with the Union Pacific than they could while battling each other for the coveted contracts. The only hitch was that Pullman would have to agree to pay $20,000 to aggrieved officials of the CTC, who were ready to sue Pullman for patent infringement.
Taken with Carnegie’s brazenness, Pullman agreed to the plan, though he never did pay the agreed-upon fees. Instead, Carnegie would have to broker another deal that finally ended the impasse. In an elegantly devised scenario, Pullman’s newly formed company agreed to lease all the equipment and patents owned by CTC for 99 years, at $264,000 a year, a sum $14,000 greater than the company’s net earnings for 1869. Why go to the bother of running a company, then, when you could earn more for sitting on your hands, reasoned CTC officials—and thus yet another Carnegie deal was struck.
In the meantime, Carnegie had made another significant decision: he had left his adopted hometown of Pittsburgh, taking up residence in New York City at the opulent St. Nicholas Hotel, the very place where he had first met with Pullman during the railroad talks. His mother, Margaret, was installed in an adjoining apartment, while his brother, Tom, stayed behind to tend to Carnegie business interests in Pittsburgh.
Carnegie had been drawn to New York by the same charms that had lured other tycoons of the day, including the Vanderbilts and the Rockefellers. He had also decided that if he aspired to join the ranks of society’s greats, he should have a presence among them. The fact was that, at the tender age of thirty-three, he listed personal assets of some $400,000 and, at a time when an average wage earner might bring home about $300, Carnegie enjoyed an annual income of more than $50,000 (equivalent to about $10 million in current dollars). The canny Scotsman was no longer a workingman, but a bona fide capitalist who had borrowed less than a thousand dollars to end up with everything he had.
With railroad building at an all-time high and westward expansion in full swing, Carnegie’s imagination was fired by the prospects inherent in his Keystone Bridge holdings. A number of bridges had been proposed for rail lines crossing the Mississippi River, and the thought of such feats of engineering appealed to the adventurer as well as the investor in Carnegie. He joined forces with a Midwestern contractor, the Keokuk and Hamilton Bridge Company, to win one 2,300-foot Mississippi-crossing contract, then landed the contract for the more formidable St. Louis Bridge, a project with an estimated cost of more than $5 million.
In order to finance the latter, the directors of the St. Louis and Illinois Bridge Company decided to sell bonds (which would be retired by the profits from leases sold to railway companies using the bridge). Carnegie, who was already in line to profit from proceeds to Keystone as builder of the bridge, as well as from the inevitable increase in the St. Louis and Illinois stock he would take as partial payment for his work, struck next upon a third str
eam of revenue from the same project.
Aware of the growing interest among European investors in the booming economy of the post–Civil War United States, Carnegie proposed to the St. Louis and Illinois executives that he travel to London carrying the right to sell $4 million in bonds to build the St. Louis Bridge. If successful, Carnegie would receive $50,000 in St. Louis and Illinois stock—stock that would of course increase dramatically in value once the offering had been completed.
The board agreed, and Carnegie was off to sell his bonds. In London, he met with Junius Morgan, an American banker who specialized in selling United States securities to the British market. Though leery at first, Morgan was impressed with Carnegie’s assurances that the new bridge was the gateway to westward expansion and a portal that would enjoy a virtual stranglehold on American rail commerce. In the end, Morgan agreed to buy a substantial portion of the bonds at 85 percent of their face value. Carnegie had not only fattened his bank account but had added “bond salesman” to his résumé.
Though he was drawn to the easy profits to be made in bond sales and enjoyed great success initially due to his business reputation and influential friends, bond sales would also give Carnegie his first true tastes of failure and deceit. When a Davenport-to-St.-Paul railroad project for which he had sold the bonds collapsed because of mismanagement, Carnegie’s commission was withheld; then there came an involvement with the Union Pacific Railroad and a brief but troubled stay on its board during the scandal-ridden days of 1872, when it was discovered that other UP officials had bribed members of Congress to overlook questionable financing tactics during the race to complete the construction of the transcontinental railroad.
At the same time, Carnegie and some of his old associates, including George Pullman and Tom Scott, had been selling off significant amounts of their newly acquired stock in the UP, taking advantage of the boost in prices their appointment to the board had spurred. Compared with the actions that earned Martha Stewart a few months in a “cupcake” facility, such baldfaced manipulations might today garner their perpetrators twenty years at hard labor. Even in the relatively unregulated business climate of 1872 (the Sherman Anti-Trust Act would not become a reality for another eighteen years), moral indignation was high. The resulting scandal forced Carnegie and his friends out of the Union Pacific and engendered a round of finger-pointing as to whose idea the sell-off had been.
Although he would escape any legal consequences, it was a bitter lesson for the Calvinist-born Carnegie, and provides a glimpse of the internal contradictions that would bedevil him throughout his life. Carnegie’s upbringing had predisposed him toward honesty and a high regard for the opinion of others. But those attributes sometimes collided with his overwhelming ambition.
Four years earlier, in fact, he had penned himself a letter in which he stated, “Man must have an idol—The amassing of wealth is one of the worst species of idolatry. No idol more debasing than the worship of money. . . . To continue much longer overwhelmed by business cares and with most of my thought wholly upon the way to make more money in the shortest time, must degrade me beyond hope. . . . I will resign business at Thirty five.” It was a noble pledge, but one he was too ambitious to honor.
In a move that foreshadowed his rupture with Frick, Carnegie sought to resolve the matter by shifting the blame for the 1872 scandal to the Union Pacific founders. And he would later write self-servingly of his disappointment in his autobiography. “I saw that I was still young and still had a good deal to learn,” he concluded. “Many men can be trusted, but a few need watching.”
Whatever the truth of the matter, Carnegie found himself in 1872 driven from the board of what had become one of the country’s most notorious corporations, and denied payment from the vaunted Keokuk Bridge project, which collapsed, never to be built. He was not only two years past his own imposed deadline for retirement, but was wallowing in the very moral quagmire he had warned himself against.
He could scarcely forget that his own father had been ground down by “progress,” his hard-won skills as a weaver made obsolete by the emergence of machine-made goods. In addition, his maternal grandfather, Thomas Morrison, had been a radical-minded Dunfermline politician and publisher early in the century, whose passionate calls for land reform and equality—“Each shall possess; all shall enjoy. . . . Every man a lord; every woman a lady; and every child an heir”—would echo not only in Carnegie’s father’s consciousness but in his own.
It was that very concept of equal opportunity which had given young Andrew Carnegie the sense that he could outstrip his humble origins, and that formed the basis of his eternal gratitude for the “land of opportunity” that allowed him his meteoric rise. So while Carnegie could be ruthless in his pursuit of material success, he could be equally passionate in his defense of justice for the common man.
While still working as a telegrapher’s assistant in Pittsburgh, for instance, he was incensed to discover that the Mechanics’ and Apprentices’ Library, where he spent his few leisure hours in pursuit of knowledge, had changed its policies to require a subscription fee from all but formally apprenticed young workers. Carnegie wrote an outraged letter to the editor of the Pittsburgh Dispatch that persuaded the library board to rescind its edict.
And while his steadfast desire to “improve himself” despite his scanty formal education might be viewed only as an effort to gain entrance to circles of influence from which he would otherwise be excluded, the record suggests otherwise. According to biographer Wall, it was an enduring disappointment for Carnegie, whose expectations had been colored by the example of his widely read father and uncles, to discover that so many of the successful men with whom he now hobnobbed were so limited culturally. He complained that he had only met one railroad executive capable of quoting a line from Burns or Shakespeare.
Long after his arrival in New York, Carnegie continued his pursuit of knowledge for its own sake. Having heard of Anne Lynch Botta, a devotee of the arts, at whose home Edgar Allan Poe had delivered the first public reading of “The Raven,” Carnegie made it a point to meet and befriend her, a connection that would prove momentous.
In earlier days, Botta’s regular guests had included William Cullen Bryant, Daniel Webster, and Ralph Waldo Emerson. By the time she and Carnegie met, her guest list included the likes of Julia Ward Howe, Matthew Arnold, Henry Ward Beecher, and another well-to-do progressive thinker, Courtland Palmer. Palmer introduced Carnegie to a discussion group of his own making, and soon Carnegie was a regular at the monthly meetings of the Nineteenth Century Club, a forward-leaning assemblage that included a young man named Theodore Roosevelt, and where the writings of the British philosopher Herbert Spencer held considerable influence. Spencer’s provocative arguments applied the still-startling principles of biological evolution laid out by Darwin in his Origin of Species (1859) to social development.
In Spencer’s view, social change was driven not, as philosophers of the Enlightenment would have it, by a benign and invisible hand, but by the ceaseless struggle for survival between individuals. Spencer argued that this ongoing contest had produced the laissez-faire industrial society, which was proof, in his eyes, of the ever-improving nature of the process.
To Carnegie, who had been able to pull himself up by his bootstraps, Spencer’s notions were more than compelling. They seemed, from his vantage point, to be irrefutable truths, inextricable from the fact of his own being. If Carnegie had succeeded, then anyone could succeed, and those who fell by the wayside did society a favor. The central tenets of Social Darwinism appeared to Carnegie to explain the mysteries of existence itself; he would evermore fasten upon the principles of just reward when he found them convenient, and just as conveniently ignore the implications for the less fortunate.
As he would write in his autobiography, “I had found the truth of evolution. ‘All is well since all grows better’ became my motto, my true source of comfort. Man was not created with an instinct for his own degradation, but
from the lower he had risen to the higher forms. Nor is there any conceivable end to his march to perfection.” Carnegie would return to these notions time and again, both as foundation for his own writings and as justification for his most momentous actions, some of which history would applaud, many of which it would condemn.
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CONVERGENCE OF THE TWAIN
BOLSTERED BY THE NOTION THAT HIS rise in the business arena would pay dividends for society as a whole, and conditioned by years of operating at full throttle, Carnegie began to rethink his earlier determination to quit the field of battle at an early age. If what was good for Andrew Carnegie led inevitably to the betterment of the world around him, then perhaps it made more sense to end the scattershot approach to accumulating wealth and “put all good eggs in one basket and then watch that basket,” as he wrote.
The question was, which eggs and which basket? He had already soured on bond sales, and the disappointment and scandal that he had narrowly avoided in railroad building put him off that direction as well. He still had his holdings in oil, but the rough-and-tumble of that still-unproven business where John D. Rockefeller and Henry Flagler were quickly gaining a stranglehold in northern Pennsylvania held little attraction for him. In the end, Carnegie’s interests turned back to the field he had entered almost by accident more than a decade before: iron and steel.
One of the men with whom he had met on his foray to England to sell rail bonds in 1872 was the inventor Henry Bessemer. As a result of the process for transforming iron to steel that bore his name, a quantity of steel that might formerly have taken as long as two weeks to produce could now be made in fifteen minutes. Though Bessemer had based his work upon the earlier experiments of a bankrupt Kentucky steelmaker named William Kelly, who had received his first patent in 1856, it had taken considerable time to transform the process into one that was consistent and economically feasible. As Carnegie had seen firsthand when the Pennsylvania Railroad experimented with steel-capped rails in the mid-1860s, the quality of the finished product varied widely, and the costs, when compared to iron, were still prohibitive.
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