Andrew Carnegie

Andrew Carnegie (November 25, 1835 – August 11, 1919) was a Scottish-American businessman, a major philanthropist, and the founder of the Carnegie Steel Company which later became U.S. Steel. He is known for having, later in his life, given away most of his riches to fund the establishment of many libraries, schools, and universities in America and worldwide.

Andrew Carnegie was born on November 25, 1835, in Dunfermline, Fife, Scotland. He was the son of a hand loom weaver, William Carnegie. His mother was Margaret, daughter of one Thomas Morrison, a tanner and shoemaker. Although his family was impoverished, he grew up in a cultured, political home.

Many of Carnegie's closest relatives were self-educated tradesmen and class activists. William Carnegie, although poor, had educated himself and, as far as his resources would permit, ensured that his children received an education. William Carnegie was moreover a militant political activist and was involved with those organising demonstrations against the Corn laws. He was also a Chartist. He wrote frequently to newspapers and contributed articles in the radical pamphlet, Cobbett's Register edited by William Cobbett. Amongst other things, he argued for abolition of the Rotten Boroughs and reform of the British House of Commons, Catholic Emancipation, and laws governing safety at work, which were passed many years later in the Factory Acts. Most radically of all, however, he promoted the abolition of all forms of hereditary privilege, including all monarchies.

Another great influence on the young Andrew Carnegie was his uncle, George Lauder, a proprietor of a small grocer's shop in Dunfermline High Street. This uncle introduced the young Carnegie to such historical Scottish heroes as Robert the Bruce, William Wallace, and Rob Roy. He was also introduced to the writings of Robert Burns. It was, perhaps, Burns who most influenced Carnegie, who regarded Burns as one of the greatest preachers of Democracy. Lauder had Carnegie commit to memory many pages of Burns's writings, writings that were to stay with him for the rest of his life.

George Lauder was additionally interested in the United States. Lauder saw the U.S.A. as a country with "democratic institutions".

Another uncle, his mother's brother, "Ballie" Morrison, was also a radical political firebrand. A fervent nonconformist, the chief objects of his tirades were the Church of England and the Church of Scotland. In 1842, the young Carnegie's radical sentiments were stirred further at the news of "Ballie" being imprisoned for his part in a "Cessation of Labour" (strike). At this time, withdrawal of labour by an hireling was covered by criminal law.

Andrew Carnegie's direct descendants still live in Scotland today. William Thomson CBE, the great grandson of Andrew, is Chairman of the Carnegie Trust Dunfermline, a trust which maintains Andrew Carnegie's legacy.

In the late 1860s and into the 1870s, Carnegie was "out and about and all over the place". Carnegie now had new investments aside from the iron venture, the Keystone Bridge Company. Carnegie had added to his investments in Pennsylvania oil investments in Texas, which earned him a small fortune, and, after the war, undertook several trips to Europe selling railroad securities on a commission basis for, among others, the London firm of Junius S. Morgan & Company. The last of these trips was in 1872, the commission earned being $150,000. Andrew Carnegie's multiple successes in bond selling, oil trading, and bridge building were so rapidly successful that the conservative Pittsburgh business community regarded him with a certain circumspection. It was during these trips to Europe and to Britain, in particular, that Carnegie came into contact with British steel makers, then the world leaders. He obtained a working knowledge of the Bessemer process of steel making and became a friend of its inventor, Sir Henry Bessemer.

In 1868, he introduced the Bessemer steel making process into the U.S.A. and, in 1873, decided on a now famous gamble. He decided to "put all his eggs in one basket, and then watch the basket." That year he staked all his wealth on steel making. His fellow Americans did not realize it at the time, but the day Carnegie decided to take this gamble was the day the eventual industrial supremacy of the U.S. became certain. It took Andrew Carnegie only a matter of a few years to become the principal owner of the Homestead & Edgar Thompson Steel Works, and only a short time more to be heading the firms of Carnegie, Phipps & Company and Carnegie Bros. & Company, as well.

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, 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.

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 organiser 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. 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 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.

In 1901, Carnegie was now 65 years old and was wanting to retire. 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. 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 [1], which at the time was the largest ever personal commercial transaction. 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...."

As they signed the papers of sale, Carnegie remarked, "Well, Pierpont, I am now handing the burden over to you." In return, Andrew Carnegie became one of the world's wealthiest men. Retirement was a stage in life that many men dreaded. However, Carnegie was not one of them. He was looking forward to retirement, for it was his intention to follow a new course from then on.

Besides steel, Carnegie's companies were involved in other areas of the railroad industry. His company, Pittsburgh Locomotive and Car Works, was noted for its building of large steam locomotives at the turn of the 20th century. His associates and partners included Henry Clay Frick and F. T. F. Lovejoy.

He owned 18 English newspapers, which he controlled in the interests of radicalism.

At the height of his career, he was the second richest person in the world, behind only John D. Rockefeller.

Wikipedia information about Andrew Carnegie
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