The Giants of Finance: Andrew Carnegie

There is a very good chance that Andrew Carnegie's name is decorating at least one building in your city. At least, that's the case for most major towns in the U.S. Although far better known as a philanthropist now, Carnegie built a fortune from the ground up—a fortune that he gave away later in life.

The Scottish Immigrant

Andrew Carnegie was born in Dunfermline, Scotland, on Nov. 25, 1835. His parents were both in the weaving and sewing trade. Never well off, the Carnegie family saw their meager source of income dry up as the invention of power looms took over the industry. When Carnegie was 12, the family left for the United States in search of better opportunities. Finding those opportunities, it turned out, was something for which young Andrew had a knack.

Messenger to Railroad Superintendent

Carnegie worked at a cotton mill in his new home of Allegheny, Pa. (now Pittsburgh), and soon moved on to a job as a telegraph messenger. In the course of this work, Carnegie tried to make up his lack of formal education with self-study. Gaining access to private libraries (with some difficulty), Carnegie read voraciously and also taught himself to translate telegraph signals by ear. This latter ability was the source of Carnegie's next promotion to a clerk at the telegraph office, and then to telegraph operator at the age of 17.

Carnegie's able mind and charm advanced him quickly up the ranks of the railroad until he found himself serving as the secretary for the Pennsylvania Railroad superintendent, Thomas A. Scott. Under Scott's tutelage, he learned valuable lessons about management and investment. Carnegie began investing in railroad companies and the industries that supported them. By 1863, he was making thousands of dollars a year from dividends. When Scott left the railroad to form the Keystone Bridge Co., Carnegie took over his post as superintendent. In 1865, Carnegie joined his mentor at Keystone and helped mold the successful company.

Forging an Empire With Iron and Steel

Carnegie's investments and partnerships resulted in him having a controlling interest in several apparently diverse businesses. He owned sleeping cars used in the railroad, a portion of Keystone, several iron works supplying Keystone, an oil company, and a steel-rolling mill. Carnegie thought iron would be the base for tying together his businesses, and he began to consolidate his ownership by vertical integration (buying up businesses on all levels of the production process).

On one of his trips to raise capital by selling bonds to European investors, however, Carnegie noticed the demand for steel was growing and might outpace that of iron. He changed his strategy and began to focus on steel holdings in 1873. Carnegie and his partners focused on building new mills with modern innovations that would out-produce the competition.

Around this time, Carnegie created two basic business rules to guide him. The first was that profits would take care of themselves if costs were carefully monitored. And secondly, that the presence of gifted managers was worth more than the actual mills they ran.

Carnegie's mills had some of the most modern inventory and cost controls of that time, and his management team included Charles M. Schwab, who later became famous as the head of Bethlehem Steel.

Buying When Others Sold

Carnegie's mills were already running more efficiently than their competitors, so he was in the best position to buy when the economy hit a six-year slump in 1873. Carnegie snapped up competing mills as well as companies on other levels of production. He renovated the older mills up to modern standards and was back to outproducing and outearning his remaining competitors when the economy recovered. The economy hit another rut in 1883 and Carnegie made two acquisitions that would both cement his empire and harm his reputation. Contrarian investors find value in the worst market conditions.

Henry Frick and Homestead

Carnegie bought up his biggest competitor, Homestead Works, and a controlling interest in Henry Frick's coke empire. Coke was essential to the steelmaking process, and Frick owned a lot of it.

Although Carnegie and Frick were very different men (Carnegie was charming and jovial where Frick was hard and taciturn), Carnegie saw that Frick had the ability to take over the daily operations of his considerable empire. In 1892, Carnegie combined his companies into one Carnegie Steel Co. and named Frick the chair.

Frick was staunchly anti-union, and it happened that the Homestead plant went on strike in the same year he became chair. The price of steel had dropped and the cost-conscious Frick wanted to reduce wages to maintain a profit. The union was against any reduction, and a lockout strike ensued. Carnegie was out of the country, and Frick was determined to break the strike rather than give in to the demands—something Carnegie often did. Frick brought in guards from the Pinkerton Detective Agency to protect non-union workers who were brought in to reopen the plant.

The Homestead War

A fight broke out between the strikers and the guard and seven people were killed. Gunfire, bombs, clubs, and stones characterized the ongoing clashes between the union, non-union workers and guards. The militia was eventually called in and the mill went back into operation with non-union workers, but the fight continued. An assassin, unrelated to the union, shot and stabbed Frick a week into the hostilities. Frick not only survived but bound up his own wounds and finished his workday. Seeing what they were up against, the union folded and accepted reduced wages to get back their jobs. The Homestead strike marred Carnegie's image because many felt he had supported Frick throughout by silent consent.

Morgan Buys Out Carnegie

Carnegie began to focus more and more on writing and philanthropy after the Homestead strike. In 1889 he penned an article called "The Gospel of Wealth" in which he stated that an industrialist's life should have two phases: one where he accumulates as much wealth as he can, and the second where he gives it all away to benefit society. In 1901, Carnegie was given the chance to make good on his word when he sold his company for $480 million to a group of investors headed by J.P. Morgan. Carnegie Steel became the centerpiece of U.S. Steel, a trust controlling 70% of the country's steel production. Carnegie began his philanthropic phase with one of the world's largest personal fortunes.

Rewriting History

From 1901 until his death in 1919, Carnegie gave away the modern equivalent of billions of dollars. Perhaps remembering his trouble getting books as a youth, he funded over 2,500 public libraries in the U.S. and abroad—all bearing the Carnegie name. He also financed Carnegie Hall, Carnegie Mellon University, The Carnegie Institution of Washington, The Carnegie Hero Fund Commission, The Carnegie Foundation for the Advancement of Teaching, The Carnegie Foundation, and so on.

Although perhaps a little too fond of his own name, Carnegie shared the stage with Rockefeller as a new breed of industrialist, driven to build a fortune only to give it away. Even now, very few extremely wealthy people disperse their entire fortunes. In doing so, Carnegie was able to replace his image as one of the hard-nosed robber barons with that of a modern-day Santa Claus—an image reinforced by his white beard and twinkling eyes. His considerable business and investment expertise may be forgotten over time, but thanks to his philanthropy, his name will not be.

Article Sources

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  1. Carnegie Corporation of New York. "Andrew Carnegie: Pioneer. Visionary. Innovator." Accessed May 14, 2021.

  2. University of Pittsburg Library System. "Guide to the Records of the Carnegie Steel Company, 1853-1912." Accessed May 13, 2021.

  3. U.S. Department of the Treasury. "Financial Panic of 1873." Accessed May 14, 2021.

  4. Carnegie Corporation of New York. "The Gospel of Wealth." Accessed May 13, 2021.

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