Had such unalloyed sentiments been expressed in a novel, experienced readers would have known to expect the worst. This being real life, however, the players in this drama forged blithely ahead.
8
FIRM HAND AT THE WHEEL
SURELY THERE WERE OTHER men in the Carnegie organization who might have been tapped to succeed Phipps and Stewart, men who might have managed well enough at the head of what had become a vast and diverse business empire propelled onward by the force of its own internal energies. As one modern American president confided during a singularly candid television interview, “You come to Washington with these grand ideas, but the truth is that government is so massive and so complex that it is almost impossible for any individual to make a huge difference. It’s like being the captain of an enormous ocean liner. It is going to keep on going no matter who is at the wheel.”
Phipps had done well enough at the wheel of Carnegie Brothers, of course, and Stewart would likely have done as well, if he had lived. But to Carnegie, Frick represented something special. Not only had Frick risen up from nothing, as Carnegie had, and not only had he proven himself the master of an allied industry—an essential subsidiary to that of steel—Frick had an ambition, a singleness of purpose, and a lack of self-doubt that even Carnegie envied.
Not only did Frick share Carnegie’s formulaic view of the manufacturing enterprise, he exhibited no compunction whatsoever about putting theory into practice. For Frick, there were no paeans to his former brethren among the ranks and no convoluted justifications as to just how and why the rights of workers might somehow be maintained without interfering with a steady flow of profit. Men worked in Frick’s plants under the conditions dictated by a competitive marketplace. You either liked it or you went flying down an embankment with your worldly goods hurtling right after you. To operate otherwise was, in Frick’s view, financial suicide.
Had Freud’s theories taken hold by that time, outsiders might have seen in Frick the embodiment of Carnegie’s unfettered id: the perfect profit-driven creature, untroubled by any pusillanimous ego. As it was, most of the others on the Carnegie Brothers board surveyed the complex web that their enterprise had become, and they nodded in agreement when Carnegie decreed that Henry Frick’s time had come.
OVER THE YEARS, Carnegie’s holdings had steadily diversified. To ensure that his Union Mills had a steady supply of “pig” iron, the most basic form of the substance that is molded into usable products, Carnegie had in 1870 formed a separate company to build a huge blast furnace in Pittsburgh dubbed, following the custom of the time, “Lucy,” after Tom Carnegie’s wife. Though the giant furnace was soon producing 300 tons of iron per day (100 tons had previously been considered a phenomenal output), even that was not enough to satisfy the appetite of Union Mills and Edgar Thomson.
A second furnace went up at Lucy in 1877, and two more were soon installed on the grounds of Braddock’s Edgar Thomson works. Much of the pig iron produced by these operations was sent along to other Carnegie works, but at times of slack demand, iron was sold to competitors, and the effort required in maintaining this separate enterprise was formidable.
Additionally, in October 1883, Carnegie had acquired the holdings of one of his nearby rivals, the Pittsburgh Bessemer Steel Company at Homestead, just two and a half miles west of Edgar Thomson, on the south side of the Monongahela River. Pittsburgh Bessemer, built in 1881 on a site where farms had once sprawled, featured two of the most modern and efficient versions of the converters that gave the company its name. Because of a downturn in demand for rails and chronic labor problems, however, the plant was struggling in 1883.
Also key to the plant’s struggles was the fact that most of the skilled workers at Pittsburgh Bessemer were members of the Amalgamated Association of Iron and Steel Workers, one of the more powerful national organizations of its type. The AAISW had been formed in the mid-1870s, not as a radical, strike-prone group, but as one dedicated to achieving its goals through negotiation and persuasion. As its own literature proclaimed, “[I]ts history proves it to have been conducted on the theory that the labor organization which secures to its members their rights with the least friction is the one that recommends itself most highly to workmen, to employers and to the public.”
Moderate sentiments, perhaps, but to William Clark, the general superintendent of the original Homestead operation, any union was a bad union. Within four months of Pittsburgh Bessemer’s opening, Clark called on his skilled workers to resign from the AAISW. When they refused, Clark locked the doors and announced that even those men who agreed to his demands would have to return to work at reduced wages. At that, the entire workforce walked out and a ten-week impasse ensued. Clark finally gave a verbal concession to his workers, who agreed to return, but on the following day he reneged on his agreement and the workers walked out again.
The company’s board of directors had had enough by that point, and they sacked Clark and agreed to terms with the union. Hardly had production begun again, however, than rail prices slumped and the firing of a union worker threatened another stoppage. At that point it was the Pittsburgh Bessemer stockholders who rebelled, voting for a sellout of the plant and an end to the headaches of such a business.
Carnegie, who had viewed the struggles of his rival with some interest, and likely with considerable glee, was not surprised when he was approached with an offer. Always ready to snatch up a bargain, and undaunted by a lull in the volatile steel market, Carnegie agreed to buy out Pittsburgh Bessemer’s stock at face value, and even offered an exchange of Carnegie Brothers stock for those who preferred it.
As it turned out, nearly everyone took the cash, except for one W. H. Singer, who exchanged his $50,000 stake for Carnegie stock. Singer’s choice was a wise one: by 1902 his investment had grown to be worth $8,000,000.
Carnegie also profited, of course. He had paid just about cost for what was generally agreed to be the most modern steel plant in the country, one that could easily be converted from the production of rails to that of steel beams. Carnegie anticipated a leveling-off in the rail business and accurately predicted that the next boom in steel would come from its use as a structural material in building. By 1885, when 70 percent of steel production was still in rails, Carnegie’s new Homestead operation was rolling I-beams off the line. (By the early 1900s, rails would constitute only 28 percent of total steel production.)
At the time of Homestead’s conversion, however, the management of all these disparate business entities was becoming unwieldy. As a result, in 1886 Carnegie formed a new company—Carnegie, Phipps—merging the operations of the Lucy Furnaces and the Homestead Mill. The structure of the new concern paralleled that of Carnegie Brothers, where he also held a controlling interest.
He might have combined all his operations under one umbrella but for his concerns about the growing “trust-busting” tendencies among politicians. By keeping the two entities distinct, Carnegie could more easily maintain that they were independent, even though he, as majority partner in both, could easily manipulate the flow of materials and services whenever he saw the advantage. Though antitrust law would one day put an end to such maneuvering, Carnegie reasoned that he was only employing sound business practice.
With Phipps gone from both organizations, Carnegie’s need for a management “genius” was genuine, and the eager Frick was the natural choice. The new chairman commenced the exercise of his duties with relish, immediately firing the company’s accountant and replacing him with his own man. According to biographer George Harvey, Frick worked from dawn till dusk, taking no holidays and familiarizing himself with every detail of the company’s business.
By the middle of the summer, Frick’s solicitations of advice from Carnegie had turned into notes suggesting he be left alone: “I cannot stand fault-finding and I must feel that I have the entire confidence of the power that put me where I am.” If he sounded a bit paranoid, perhaps the incident of the previous year, when Carnegie had undercu
t him during the coke strike, was still fresh in Frick’s mind.
Carnegie was quick to reassure Frick. “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,” he wrote, adding that “Phipps and I exchanged congratulations on this point.” It was apparently enough to assuage Frick’s concerns, and the partnership seemed off to a solid start.
Frick would soon prove his worth in matters outside the direct realm of management. In 1888 another competitor, the Allegheny Bessemer Steel Company, had commenced operations five miles or so upriver from Homestead, featuring “direct-rolling,” an innovative method of processing steel that eliminated one of the traditional but costly steps of cooling and reheating ingots before they were pressed into rails and the like. Carnegie, distraught when he got the news that a competitor had found a leg up on costs, came up with one of his more imaginative responses.
Knowing he could never match the price of steel produced in this way, he sent a letter to every railroad company in the United States, advising them of the new process known to be in use at Allegheny Bessemer and warning that the elimination of the time-honored second heating of ingots would result in a lack of “homogeneity” in the rails, even implying that this could lead to rail failure and fatalities. There was not one scintilla of evidence for Carnegie’s claim, scientific or otherwise; he had simply plucked the “homogeneity” concept out of thin air, and he couched his warning in language vague enough to preclude a legal response.
But if the implications were subtle, the effect was profound and immediate. Orders to Allegheny dried up in an eyeblink. Even the investment partners at the firm began to question their plant managers about the validity of their methods. Intermittent labor disputes slowed production even further, and before long the original partners were desperately seeking a fresh infusion of capital in order to maintain operations. Partners in the enterprise fretted that they would never be able to escape the cloud under which Carnegie’s absurd charges had placed them.
And then in stepped Frick to the rescue, offering the major stockholders in Allegheny Bessemer $600,000 for a plant that had cost more than $1 million to build. Frick’s initial offer was rejected, but he had expected as much. When he returned with an offer of $1 million, to be paid in the form of bonds issued by Carnegie Brothers (and not to mature for five years), the anxious partners snapped it up.
By the time the bonds matured, operations at the innovative Duquesne mill—their supposedly inferior practices having been put immediately into place at all Carnegie plants—had paid for themselves half a dozen times over. Even given the standards of a far more brawling and far less litigious era, the acquisition would go down as perhaps the most scurrilous episode in the annals of a fiercely competitive industry, and certainly as the greatest bargain in the history of steelmaking.
In his Inside History of the Carnegie Steel Company, James Howard Bridge quotes a Carnegie partner of the time who was questioned about whether or not he thought Carnegie’s tactics were legitimate. The unidentified partner responded by saying that “under ordinary circumstances he would not have thought it legitimate; but the competition set up by the Duquesne people was also not legitimate, because of their use of this direct rolling process. . . . If they had made rails by our method, we would have recognized them as legitimate competitors.”
Whether or not he endorsed such specious logic, Carnegie was ecstatic about the acquisition of Allegheny Bessemer, and his faith in his new manager was validated: “F. is a marvel,” he exclaimed to his partners. “Let’s get all F’s.”
WHILE CARNEGIE WAS DELIGHTED to have acquired the holdings of the last of his serious steel-producing rivals in the Monongahela Valley, and clearly assigned credit for the feat to Frick, he was as pleased with having subsumed the methods of production at Duquesne as he was with having acquired the mill itself. What he had purchased in terms of know-how would pay far greater dividends at Carnegie Steel than would ever show up in the balance sheet at Duquesne.
As more than one of Carnegie’s managers would recall, the owner was always more interested in what it cost to produce goods than in revenues or profits. Carnegie would repeat the mantra time and again: profits and prices were cyclical, subject to any number of transient forces of the marketplace. Costs, however, could be strictly controlled, and in Carnegie’s view, any savings achieved in the cost of goods were permanent. Carnegie rarely balked when his managers suggested improvements to the physical plants of his operations, not if the goal was greater efficiency in production.
During a visit to England in 1885, for example, Carnegie got wind of the fact that his British counterparts were beginning a shift in their methods of steel production, as significant a change as the adoption of the Bessemer converter nearly twenty-five years before. In the late 1870s a young amateur chemist by the name of Sidney Gilchrist-Thomas, a clerk at a London police court, had, in his spare time, concocted a method of steel refining that would allow the use of a much lower grade of iron ore than could be used in the Bessemer converter. Thomas had discovered that applying a heat of about 2,500 degrees Fahrenheit (about 500 degrees hotter than was used in the Bessemer converter) would drive off the high levels of phosphorus found in much of the low-grade ore indigenous to the British Isles. Thomas had developed a new “basic” lining that he claimed would allow retrofitted Bessemer converters to withstand the higher heat.
Carnegie had been interested in the Thomas process from the beginning, but the practical results had been mixed, and ore reserves in the United States were generally of a much higher grade than those available in Europe anyway. What Carnegie learned in 1885, however, reignited his earlier enthusiasm.
Over the past few years the British, too, had discovered that the Thomas process produced uneven results in their Bessemer plants, and had begun to lose faith in it, until new tests revealed a surprising fact: when used in open-hearth furnaces, the Thomas process functioned flawlessly, even with low-grade ore. It was a discovery that would revolutionize the industry.
The open-hearth method, developed by German craftsman Charles Siemens, had been around since the early 1860s, but it had been deemed too expensive for all but a few applications. If Thomas’s advancements meant that the far more widespread and vastly cheaper reserves of low-grade iron ore could be used to produce steel, however, then everything changed.
Quite distinct from the Bessemer process, which involved the propulsion of a blast of air upward through a bell-shaped container, the open-hearth method had two fires blazing at either end of an “open” vat of molten iron. When alternating currents of air and gas were forced through the flames and over the iron, impurities were burned off, and the waste gases produced were trapped and used to superheat the next cycle of air and gas, a cycle that continued until the iron had turned to steel of sufficient quality.
Bessemer steelmaking was not for the faint of heart, as Sir Henry Bessemer himself made clear: “The powerful jets of air spring upward through the fluid mass of metal. The air expanding in volume divides itself into globules, or bursts violently upward, carrying with it some hundredweight of fluid metal which again falls into the boiling mass below. Every part of the apparatus trembles under the violent agitation thus produced; a roaring flame rushes from the mouth of the vessel, and as the process advances it changes its violet color to orange, and finally to a voluminous pure white. . . .
“During the process the heat has rapidly risen from the comparatively low temperature of melted pig-iron to one vastly greater than the highest known welding heats; the iron becomes perfectly fluid, and rises so much above the melting-point as to admit of its being poured from the converter into a founder’s ladle, and from thence . . . to several successive moulds.”
Tending to the Bessemer process was an arduous if spectacular endeavor, often leading to fatalities when converters exploded from heat or overflowed; however, the open-hearth process could be even more dangerous, requirin
g considerable endurance and physical dexterity from workers as they braved intense heat to dump additives into the enormous open vats of molten metal. More than one worker had tumbled from an overhead catwalk into a pool of red-hot steel, “creating his own mold,” as it was said, and countless others were burned and blinded by flying splatters.
Though at the time the open-hearth process was almost unknown within the United States steel industry, Carnegie had learned of Siemens’s work early on and had authorized the installation of two open-hearth furnaces at the Edgar Thomson works in 1873. He soon discovered, however, that aside from special orders requiring a final output of the very highest grade of steel, the process was of limited value, and though he kept the furnaces in functional order, he had given them little attention until he came back from Britain in 1885.
Now that his earlier faith in the Thomas process had been reinvigorated and his British counterparts were predicting an end to the use of the time-honored Bessemer converter, Carnegie did not hesitate. He ordered the installation of an open-hearth furnace using the Thomas method at the Homestead plant, and in March 1888 the first run was completed. The results were so heartening that by December Carnegie had become convinced that basic hearth furnaces represented the future of steelmaking.
Although it meant scrapping hundreds of thousands of dollars’ worth of Bessemer converters, Carnegie was undeterred. As he wrote to William Abbott, Frick’s counterpart at Carnegie, Phipps and Company, “Even if we save half a dollar per ton by the changes, it would justify a large additional expenditure now.”
If he had to make a case concerning costs with Abbott, Carnegie had no such difficulty with Frick, for on this issue the two men were of one mind. Frick had made his way in coke by the same reckoning that Carnegie had in rail and then in steel: if you knew your costs down to the penny, you were always on firm ground. Furthermore, Frick had always understood how essential new technologies were in driving costs down. Each man, however, had his own particular province where cost control became nearly an obsession.
Meet You in Hell Page 9