Building an empire of steel
But all this was only a preliminary to the success attending his development of the iron and steel industries at Pittsburgh, Pennsylvania. Carnegie made his fortune in the steel industry, controlling the most extensive integrated iron and steel operations ever owned by an individual in the United States. His great innovation was in the cheap and efficient mass production of steel rails for railroad lines.
In the late 1880s,
The largest manufacturer
Carnegie Steel was the largest manufacturer of pig-iron, steel-rails, and coke in the world, with a capacity to produce approximately 2,000 tons of pig-metal a day. In 1888, he bought the rival Homestead Steel Works, which included an extensive plant served by tributary coal and iron fields, a railway 425 miles long, and a line of lake steamships. An agglutination of the assets of he and his associates occurred in 1892 with the launching of the Carnegie Steel Company.
Andrew Carnegie's Birthplace
By 1889, the U.S. output of steel exceeded that of the U.K., and Andrew Carnegie owned a large part of it. Carnegie had risen to the heights he had by being a supreme organizer and judge of men. He had the talent of being able to surround himself with able and effective men, while, at the same time, retaining the control and the direction of the enterprise. Carnegie's businesses were uniquely organised in that his belief in "democratic principles" found itself interpreted into these businesses. This did not mean that Carnegie was not in absolute control, however.
The businesses incorporated Carnegie's own version of profit sharing. Carnegie wanted his employees to have a stake in the business, for he knew that they would work best if they saw that their own self interest was allied to the firm's. As a result, men who had started as labourers in some cases, eventually ended up millionaires. Carnegie also often encouraged unfriendly competition between two of his workers and goaded them into outdoing one another. These rivalries became so important to some of the workers that they wouldn't talk to each other for years.
Incorporating his enterprises
Carnegie maintained control by incorporating his enterprises not as joint stock corporations but as limited partnerships with Carnegie as majority and controlling partner. Not a cent of stock was publicly sold. If a member died or retired, his stock was purchased at book value by the company. Similarly, the other partners could vote to call in stock from those partners who underperformed, forcing them to resign.
The internal organisation of his businesses was not the only reason for Andrew Carnegie's rise to pre-eminence. Carnegie introduced the concept of counter-cyclical investment. Carnegie's competitors, along with virtually every other business enterprise across the globe, pursued the conventional strategy of procyclical investment; manufacturers reinvesting profits in new capital in times of boom and high demand. Because demand is high, investment in bull markets is more expensive. In response, Carnegie developed and implemented a secret tactic.
He shifted the purchasing cycle of his companies to slump times, when business was depressed and prices low. Carnegie observed that business cycles alternated between "boom" and "bust". He saw that if he capitalized during a slump, his costs would be lower and profits higher. During the years 1893 to 1897, there was a great slump in economic demand, and so Carnegie made his move. At rock bottom prices, he upgraded his entire operation with the latest and most cost effective steel mills. When demand picked up, prosperity followed for the Homestead & Edgar Thompson Steel Works, the Carnegie, Phipps & Company, and Carnegie Bros. & Company as a flood tide of profit. In 1900, the profits of Carnegie Bros. & Company alone stood at $40,000,000 with $25,000,000 being Carnegie's share.
Carnegie's empire grew to include the J. Edgar Thomson Steel Works, (named for John Edgar Thomson, Carnegie's former boss and president of the Pennsylvania Railroad), Pittsburgh Bessemer Steel Works, the Lucy Furnaces, the Union Iron Mills, the Union Mill (Wilson, Walker & County), the Keystone Bridge Works, the Hartman Steel Works, the Frick Coke Company, and the Scotia ore mines. Also, Carnegie, through Keystone, supplied the steel for and owned shares in the landmark Eads Bridge project across the Mississippi River in St. Louis, Missouri (completed 1874). This project was an important proof-of-concept for steel technology which marked the opening of a new steel market.
The formation of U.S. Steel
The king of industry and once the richest man in the world, Andrew Carnegie, visits Stoke Library in 1914. Click through for more fascinating pictures plus you can hear what life was like by clicking the links on the right for some very rare footage.
In 1901, Carnegie was now 65 years old and was considering retirement. He reformed his enterprises into conventional joint stock corporations as preparation to this end. Carnegie, however, wanted a good price for his stock. There was a man who was to give him his price. This man was John Pierpont Morgan.
Morgan was a banker and perhaps America's most important financial deal maker. He had observed how efficiency produced profit. He envisioned an integrated steel industry that would cut costs, lower prices to consumers and raise wages to workers.
First corporation in $1,000,000,000
To this end he needed to buy out Carnegie and several other major producers, and integrate them all into one company thereby eliminating duplication and waste. Negotiations were concluded on 2nd March with the formation of the United States Steel Corporation. It was the first corporation in the world with a market capitalization in excess of $1,000,000,000.
The buyout, which was negotiated in secret by Charles M. Schwab (no relation to Charles R. Schwab, the brokerage house founder), was the largest such industrial takeover in United States history to date. The holdings were incorporated in the United States Steel Corporation, a trust organized by J. P. Morgan, and Carnegie himself retired from business. His steel enterprises were bought out at a figure equivalent to twelve times their annual earnings; $480 million, which at the time was the largest ever personal commercial transaction.
50 year gold bonds
Andrew Carnegie's share of this amounted to a massive $225,639,000 which was paid to Carnegie in the form of 5%, 50 year gold bonds. The letter agreeing to sell his share was signed on the 26th February, 1901. On the 2nd March 1901, the circular formally filing the organisation and capitalisation (at $1,400,000,000 - 4% of U.S national wealth at the time) of the United States Steel Corporation actually completed the contract. The bonds were to be delivered within two weeks to the Hudson Trust Company of Hoboken, New Jersey in trust to Robert A. Franks, Carnegie's business secretary. There, a special vault was built to house the physical bulk of nearly $230,000,000 worth of bonds.
It was said that "....Carnegie never wanted to see or touch these bonds that represented the fruition of his business career. It was as if he feared that if he looked upon them they might vanish like the gossamer gold of the leprechaun. Let them lie safe in a vault in New Jersey, safe from the New York tax assessors, until he was ready to dispose of them...."
Carnegie the philanthropist
Andrew Carnegie spent his last years as a philanthropist. From 1901 forward, public attention was turned from the shrewd business capacity which had enabled Carnegie to accumulate such a fortune, to the public-spirited way in which he devoted himself to utilizing it on philanthropic objects. His views on social subjects and the responsibilities which great wealth involved were already known from Triumphant Democracy (1886), and from his Gospel of Wealth (1889). He acquired Skibo Castle, in Sutherland, Scotland, and made his home partly there and partly in New York and then devoted his life to the work of providing the capital for purposes of public interest and social and educational advancement.
In all his ideas, he was dominated by an intense belief in the future and influence of the English-speaking people, in their democratic government and alliance for the purpose of peace and the abolition of war, and in the progress of education on nonsectarian lines. He was a powerful supporter of the movement for spelling reform as a means of promoting the spread of the English language.
Opening libraries
Among all of his many philanthropic efforts, the establishment of public libraries in the United States, the United Kingdom, and in other English-speaking countries was especially prominent. Carnegie libraries, as they were commonly called, sprang up on all sides. The first of which was opened in 1883 in Dunfermline, Scotland. His method was to build and equip, but only on condition that the local authority provided site and maintenance. To secure local interest, in 1885, he gave $500,000 to Pittsburgh for a public library, and in 1886, he gave $250,000 to Allegheny City for a music hall and library, and $250,000 to Edinburgh, Scotland, for a free library.
In total Carnegie funded some 3,000 libraries, located in every U.S. state except Alaska and Delaware. Carnegie also built libraries in Canada and overseas in Britain, Ireland, Australia, New Zealand, the West Indies, and Fiji.
He gave $2 million in 1901 to start the Carnegie Institute of Technology (CIT) at Pittsburgh and the same amount in 1902 to found the Carnegie Institution at Washington, D.C.. He would later contribute more to these and other schools. CIT is now part of Carnegie Mellon University. In Scotland, he gave $2 million in 1901 to establish a trust for providing funds for assisting education at the Scottish universities, a benefaction which resulted in his being elected Lord Rector of University of St. Andrews.
He was a large benefactor of the Tuskegee Institute under Booker Washington for African American education. He also established large pension funds in 1901 for his former employees at Homestead and, in 1905, for American college professors. He also funded the construction of 7,000 church organs.Also, long before he sold out, in 1879, he erected commodious swimming-baths for the use of the people of his hometown of Dunfermline, Scotland. In the following year, Carnegie gave $40,000 for the establishment of a free library in the same city. In 1884, he gave $50,000 to Bellevue Hospital Medical College to found a histological laboratory, now called the Carnegie Laboratory.
Carnegie Hero Fund
He also founded the Carnegie Hero Fund commissions in America (1904) and in the United Kingdom (1908) for the recognition of deeds of heroism, contributed $500,000 in 1903 for the erection of a Peace Palace at The Hague, and donated $150,000 for a Pan-American Palace in Washington as a home for the International Bureau of American Republics.
By the rough and ready standards of 19th century tycoons, Carnegie was not a particularly ruthless man, but the contrast between his life and the lives of many of his own workers and of the poor, in general, was stark. "Maybe with the giving away of his money," commented biographer Joseph Wall, "he would justify what he had done to get that money." By the time he died in Lenox, Massachusetts, on August 11, 1919, Carnegie had given away $350,695,653. At his death, the last $30,000,000 was likewise given away to foundations, charities, and to pensioners.