The rise of Andrew Carnegie
There are but a few men in the history of humanity who have accumulated fortunes like that of Andrew Carnegie, a man who was as complex as he was rich. After selling his company, his net worth would equal a staggering 2% of America’s GDP. In today’s video, we’ll explore how one Scottish immigrant armed with just 5 years of schooling would rise from poverty to the status of the world’s richest man. With weaving technology rapidly improving, his father’s loom business would crumble, finding himself crushed by the Industrial Revolution. Watching his father suffer as he begged for work would impact the young Carnegie profoundly. In 1848, the Carnegies set out in search of a better life outside Scotland. After selling all of their possessions and borrowing 20 pounds, the family embarked on their journey to the land of opportunity—America. They would restart their lives from scratch in Pittsburgh, the hub of manufacturing, but still found themselves unable to escape hardship in their new country. His father and mother both struggled to find work, leaving Andrew no choice but to drop out of school to support his family.
He would finally catch a break from the scorching heat of the boiler rooms when he landed a job at a local telegraph office. As a messenger boy, he would deliver telegrams by bike all over Pittsburgh. He would memorize the faces of everyone he delivered to so that he could greet them by name if he saw them outside of work. It would provide Carnegie with a unique opportunity to familiarize himself with the city’s business community. At 17, he would perfect his telegraph skills. He would grow increasingly skilled at hearing Morse code. Impressively, he could recite messages without needing to write them down. This caught the eye of Thomas Scott, a regional manager for the Pennsylvania Railroad Company, who hired Carnegie to be his personal telegrapher and private secretary for the sum of $35 a month. At the time, the Pennsylvania Railroad Company was the largest corporation in the world. For the business-savvy Carnegie, it was an opportunity like none other—a front-row seat on how to run a successful business.
Tom Scott, his boss, realized Carnegie’s potential and decided to take the boy under his wing, mentoring him like a second father. It would later be Tom’s advice to invest in stocks that provided Carnegie with his first taste of capitalism. Fast forward to the American Civil War. Carnegie is drafted into the Union, but instead of fighting in the war, Carnegie would profit from it. He was able to escape harm’s way after paying $850 for a substitute to take his place on the battlefield. It was during this time that Carnegie noticed that the wooden bridges were easily burnt by the troops and that there was a desperate need for iron bridges to replace them. He capitalized on the opportunity, launching the Keystone Bridge Company, but it would be his next move that would define him as an astute businessman.
Keystone didn’t just build bridges. They also had their very own iron mills, which provided the iron that was needed for constructing the bridges. Owning the iron source meant that Carnegie’s bridge-building company would not be dependent on mining or extracting companies for iron, like their competitors. This not only gave Carnegie more control over the entire process, it also improved their margins. After the bridge was built, he would leverage his connections in the railroad industry to make money there, too. Essentially, he was operating a triad of three companies, each strengthening one another. First, a mining extraction company. Second, a bridge-building company, which used the iron provided from his mining company. And then, once the bridge was built, his third business would monetize by selling rail. The concept worked to a T.
Always looking for the next big opportunity, Andrew set his sights on New York City, the undisputed business capital of the world. In the city, he expected to find a hustling culture and mingle with other distinguished businessmen, but what he found instead was disappointment. He would describe the wealthy individuals around him as “scoundrels.” Carnegie wrote a note to himself promising that in two years, when he turned 35, he would retire and focus on making the world a better place. But this note would go unfulfilled.
In 1856, a new invention by Henry Bessemer called the Bessemer Converter, a pear-shaped furnace, would allow for the mass production of steel, something previously thought to be impossible. For the first time ever, it would finally become feasible to create large structures from steel, eventually giving birth to the first skyscrapers, forever transforming a city’s skyline. Carnegie moved with lightning speed, successfully building America’s first steel plants. In doing so, he hired the best engineers and architects that money could buy. He focused maniacally on increasing efficiency, always using the latest technology and pushing his employees to their maximum physical and mental capabilities. He was also notorious for requiring employees to work 364 days a year, only allowing for rest on the 4th of July.
As technology continued to advance, he would seek ways to replace his workers with machines at every possible opportunity. Unlike men, machines didn’t need sleep, they also didn’t ask for raises, and they certainly did not try to unionize. Carnegie, a master salesman, decided to name the venture not “Carnegie Steel,” but rather “J. Edgar Thompson Steelworks,” the name of one of his customers in the railroad industry. Carnegie hoped a steel mill named after a customer would show his appreciation for their business and maybe even secure more orders from their railroad. And it did. The first order from Thompson consisted of 2,000 steel rails. Naming a mill after a customer was more than a sales gimmick, it was part of a larger strategy, showing appreciation in public for others. Acts like this would continue to pay massive dividends throughout the Titan’s career.
To help run Carnegie’s steel mills, he would bring on board a cutthroat executive known for his ruthlessness and attention to the bottom line, Henry “Clay” Frick. As a team, Carnegie and Frick were a powerful force to be reckoned with. And to show how ruthless the two could be, look no farther than the story about Duquesne Works. With the help of Frick, Carnegie spread a rumor which alleged that Duquesne’s mill was producing defective steel. It wasn’t true, but it didn’t matter. Carnegie claimed to Duquesne’s railroad customers that their rails lacked what he called “homogeneity.” Few, if anyone, actually knew what the word meant, but that wasn’t important. Carnegie used the word because it sounded scary enough to frighten off railroads who were concerned that they weren’t getting good products. If Duquesne’s sales slowed, they would eventually become unprofitable and run out of money.
To expedite their demise, Carnegie and Frick would proceed to undercut Duquesne on price, further squeezing the company. Within two years, Duquesne’s finances were in ruins, leaving it no other choice than to sell to none other than Carnegie at a bargain price. For Frick and Carnegie, the rules of engagement were clear. Do whatever it takes to win. But this ruthlessness came with a hefty price, as they would soon discover at one of their largest steel plants in Homestead, Pennsylvania. Carnegie had just invested millions of dollars optimizing the efficiency of Homestead, enabling it to produce more steel than any other mill comparable to its size. But there was another part of the profit machine that was yet to be optimized. Labor costs.
This posed a problem for Carnegie, who had been working on rebranding his image from an oppressive steel factory billionaire to a champion of workers’ rights. So instead of risking his reputation, he would have his right-hand lieutenant, Henry Frick, execute the dirty work. Meanwhile, Carnegie would distance himself, traveling abroad to his home country of Scotland. Carnegie knew that he wouldn’t want to be around the plant after cutting wages for 10,000 already frustrated low-paid workers.
In 1892, tensions between workers and mill owners were particularly heightened, after an ever-widening wealth gap continued to grow. The richest people in America were accumulating fortunes faster than at any time in American history. Meanwhile, workers felt that they were property of the rich, and that their shrinking voice could only be heard through a union. To make things even worse, Frick, who took his orders from Carnegie, demanded increased factory production, which would mean even more hours slaving away. But to top it all off, Frick would not be increasing their income. He’d be reducing it.
Longer hours and less pay put Homestead at a boiling point. The strikers also demanded safer working conditions, and for a good reason. In 1898, 9% of all steelworkers, industry-wide, would die on the job. When the workers refused Frick’s aggressive demands for longer hours and less pay, he decided to lock out all employees and bring in a substitute group of immigrant workers who would be willing to do their dangerous jobs for less. To escort the immigrant workers as they made their way to the factory, Frick called on a 300-person army-for-hire called the Pinkertons. Armed with rifles, they made their way to the factory, where they were met by 10,000 angry strikers refusing to give up what they called home.
Historians don’t know who fired the first gunshot, but what we do know is that the day would no longer be called the Homestead Strike, but rather the Homestead Massacre. By the end of the battle, 9 factory workers and 7 Pinkertons would be dead. Hundreds would be injured. The fighting was so extreme that the governor ordered 8,000 militia troops to provide backup. Under the protection of the state’s troops, the factory would be reopened. And unfortunately for Carnegie’s workers, they would be returning with lower pay, longer working hours, and the same safety conditions.
Another collateral damage from Homestead came in the form of Carnegie’s reputation. Prior to the tragedies at Homestead, he would often advocate in public for better conditions in steel mills and increased wages. But these words were far from aligned with his actions. Hypocrisy was incredibly prevalent. While he preached increased wages and improved safety conditions, he was simultaneously reducing labor costs by slashing paychecks and doing little, if anything, to make his factories a safer place to work.
Carnegie was widely called a coward for using Frick as his scapegoat, not only for the tragedy, but for all the other dirty work that he didn’t want his name to be associated with. But in spite of the tensions and animosity, the steel mills continued to thrive. In fact, by 1900, the company would produce more steel than the entire nation of Great Britain. But in 1901, Carnegie grew tired of the game and wanted to spend time with his wife and daughter. Financier J.P. Morgan was a rising competitor in the steel industry, and Carnegie, now nearing 70, became open to the idea of selling the company he’d spent his entire life building.
Carnegie wrote on a scrap of paper what he would be willing to accept. Charles Schwab, the president of Carnegie Steel, delivered the offer to Morgan. As the story goes, J.P. Morgan glanced at the offer and without hesitation accepted it. Morgan would buy Carnegie Steel for $480 million, making Carnegie the single richest man in the world at the time. Carnegie would completely cut ties with his business life and dedicate 100% of himself to serving the world through philanthropy. Not a single dollar would be left to his family. Because Andrew had only 5 years of schooling, he had a soft spot for libraries, which he credits for helping him achieve the financial success he acquired.
Over the course of his life, he would donate over 2,500 libraries to cities all around the world. But it wasn’t all self-promotion. He was generous for generosity’s sake. His name was only displayed on less than 500 of those libraries. One example of his generosity is Carnegie Hall, one of New York’s most recognizable landmarks. Built in 1891, Carnegie built and donated the building as the Music Hall. But its original name of “The Music Hall” was only changed to the current version after his death, and not by his request but through the Music Hall’s board members. And from 1901 until his death in 1919 in Lenox, Massachusetts, Carnegie’s full-time job was giving away the vast wealth he had built up for himself. As we mentioned at the beginning of this story, Carnegie was a man who was as complex as he was rich. Did he employ abusive labor techniques to keep his factories producing maximum profit? Yes. Was he hypocritical? Of course. Did he make up slander to put his competitors out of business? Absolutely. Until next time, stay smart.
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