Andrew Carnegie: The Richest Man in the World

Andrew Carnegie was the quintessential American, the archetypal self-made man. A poor immigrant boy, Carnegie rose to become a titan, advancing key theories of integration in business, producing more steel than all of England,1 creating the first billion-dollar corporation,2 and leaving an indelible legacy of colleges, arts, and libraries. His was an exceptional life and, in his time, he became the world’s richest man.

According to Charles R. Morris, author of The Tycoons, Carnegie stood five-foot-three, had small hands and feet and a boyish face, and, to the irritation of some, was a “tireless bundle of bouncing, gabbling energy, opinionated and obsequious, fawning and provocative.”3 A widely recognized optimist, Carnegie wrote in his autobiography that “[a] sunny disposition is worth more than fortune. Young people should know that it can be cultivated; that the mind like the body can be moved from the shade into sunshine.”4

This bright outlook had been forged in poverty. Blond-haired, blue-eyed “Andra,” as he was called in his youth, was born on November 25, 1835, in a one-room cottage in Scotland. His father, Will, was a handloom weaver; his mother, Margaret, stayed home to care for and raise Andra and his younger brother, Tom. Both parents came from families of eccentrics, radicals, and activists.5

Andra’s relatives regaled him with tales of the daring Scottish hero William Wallace fighting the British monarchy and offered him money in reward for memorizing Scotland’s history. Carnegie later remembered his youth in Scotland as a series of lessons in rebelliousness: “The denunciations of monarchical and aristocratic government . . . the grandeur of the republican system, the superiority of America . . . a home for freemen in which every citizen’s privilege was every man’s right—these were the exciting themes upon which I was nurtured.”6

His mother’s relatives, wary of formal education (which they said created imbeciles), emphasized hard work, practical training, and self-reliance. Andra was taught to trade value for value at an early age. In his first business deal, he would name one of his pet rabbits after any friend who would gather dandelions and clover to feed them.7 He later wrote of his home life: “I am grateful every time I think of the trouble my father took to build a suitable house for these pets. Our home became headquarters for my young companions. My mother was always looking to home influences as the best means of keeping her two boys in the right path. She used to say that the first step in this direction was to make home pleasant.”8 Called upon by a teacher to recite a religious proverb on the first day of school, Andra proudly responded, “Take care of your pence, the pounds will take care of themselves.” A round of hearty laughter followed, at his expense, for the phrase came not from the Bible—but from his mother.9

When Andra was still a baby, his father walked up to a local Calvinist minister following a diatribe on original sin and declared: “If that be your religion and that your God, I seek a better religion and a nobler God.” Remembering Calvinism as a “nightmare” of his youth, Andrew would later become an agnostic, rejecting original sin,10 and writing that “Man was not created with an instinct for his own degradation, but from the lower he had risen to the higher forms. Nor is there any conceivable end to his march to perfection. His face is turned to the light; he stands in the sun and looks upward.”11

The Carnegies struggled to survive in England’s changing economy. By 1847, most of Scotland was using steam-powered looms and Will Carnegie’s skills as a handloom weaver were not in demand. Unemployed, he decided to take his family to America. With money given them by family members, the Carnegies left on May 17, 1848,12 Will singing to his sons, Andra and Tom:

“To the West, to the West, to the land of the free,

Where the mighty Missouri rolls down to the sea;

Where a man is a man even though he must toil

And the poorest may gather the fruits of the soil.”13

The Carnegies settled in America’s new industrial center. Pittsburgh—nestled in rolling green hills at the intersection of two rivers that meet to form the mighty Ohio River—would prove to be perfect for Andrew Carnegie. One businessman during the time observed: “This is one of the most active, business-like places I have ever seen . . . iron abounds in every valley, and bituminous coal of the best quality comes cantering down from surrounding mountains. . . . A place so situated must rise to greatness.”14

Teenager Andrew calculated that his family could earn $300 per year, which he figured was the sum required to keep them from being dependent upon others.15 Andrew initially worked in a bobbin factory for $1.20 a week, firing the boiler of a small steam engine that powered the machinery.16 However, Carnegie later considered the real beginning of his career to be his job delivering telegraph messages to area businesses and residences, which made him feel “that my foot was upon the ladder and that I was bound to climb.”17

As a telegraph messenger, fourteen-year-old Andy, as he was known in America, was using new technology, gaining access to crucial business correspondence, learning which businesses were growing and which were failing, acquiring inside knowledge about detailed transactions, and making himself known to top judges and businessmen—all of which he would later use to his advantage.18 He worked diligently, memorizing streets and the names of message senders and recipients, yet making time to attend Shakespeare’s Macbeth (“Never before had I realized what magic lay in words”) and, later, enroll in night school to learn double entry bookkeeping.19 Andy was soon promoted to the position of telegraph operator and paid $20 per month. By the time he was sixteen, he was his family’s top breadwinner. Unfortunately, within four years, he was the only breadwinner. His father died at the age of fifty-one, although not without first telling his son, “Andra, I am proud of you.”20

Andy’s abilities were soon noticed by a customer named Thomas Scott—who happened to be the general superintendent for the Pennsylvania Railroad’s western division. The railroad had strung its own telegraph lines, and Scott, a rising executive, was looking for an assistant who could also work as an operator.21 Carnegie was the ideal candidate, and he eagerly accepted Scott’s offer.22

“Carnegie,” Morris writes, “plunged into the job.”

He kept a telegraph station in his home and was on the railroad lines day and night, supervising repairs, rerouting traffic, shoring up system weak points, instinctively grasping, as few railroad men had, that the core challenge was to keep traffic flowing . . . he shocked fellow executives by burning stalled cars to clear lines. It was the classic Carnegie technique: focus on an objective, then cut brutally through any conventions, competitors, or ordinary people who stood in your way.23

Within a couple of years, he began taking major risks and soon made his first investment, in a package delivery company that relied on the Pennsylvania Railroad.24 By 1859, he was promoted to Scott’s job. He now earned $1,500 a year and could afford to move, with his mother, to an upscale suburb of Pittsburgh.

As he learned to run a railroad and deliver customer goods, he honed his ability to leverage risk, make investments, and form partnerships. With the nation on the verge of civil war, Andy was making and cashing in on several investments, earning his first major return from his 8 percent stake in the newly invented sleeping car. Soon, one of Andy’s wealthy neighbors, William Coleman, formed the Columbia Oil Company and sought Andy’s support. Always cautious and calculating, Andy researched the prospect—by heading up the Allegheny River with Coleman to visit the oil field. In his memoirs, Carnegie reported on what he saw:

It was a vast picnic, full of amusing incidents. Everybody was in high glee; fortunes were supposedly within reach; everything was booming. On the tops of the derricks floated flags on which strange mottoes were displayed. I remember looking down toward the river and seeing two men working their treadles boring for oil upon the banks of the stream, and inscribed upon their flag was “Hell or China.” They were going down, no matter how far.25

Satisfied with what he observed, Carnegie used money he made from his sleeping car investment to buy $11,000 in shares of Columbia Oil. A short time later he was paid dividends of $17,868.67. Andy promptly used the dividends to make new investments and rewarded those with whom he had built relationships, offering investment opportunities to his brother, Thomas Scott, and Scott’s boss at the Pennsylvania, J. Edgar Thomson.26 In 1863, Carnegie reported an income of $42,000 (roughly $6 million adjusted for inflation)27—a mere $2,400 of which was his Pennsylvania Railroad salary.

At twenty-eight years old, Andy was rich.

In 1865, Carnegie retired from his post at the Pennsylvania Railroad, borrowed $40,000 from Scott, and reorganized one of his investments as the Keystone Bridge Company, named for his home state. He would soon establish the Keystone Telegraph Company as well, making a deal with the Pennsylvania Railroad to string wire across the railroad’s telegraph poles and, later, merging with Pacific and Atlantic Telegraph Company. (Carnegie eventually sold his telegraph holdings to Western Union.)28 At this point, Carnegie was so sure of his future earnings that he pledged to retire from business by the age of thirty-five, live on a $50,000 annual salary, and donate the rest of his fortune to charity. He had not yet entered the steel business.

Having worked in railroads, he knew that some of the worst U.S. rail disasters had been caused by the structural failure, exacerbated by wind pressure, of iron bridges. Carnegie was determined to build better bridges. Bidding for a bridge at the Mississippi River in Dubuque, Iowa, Carnegie pointed out that his competitors’ designs called for cast iron supports, which, he argued, would break if hit by a steamship. Wrought iron supports, on the other hand, would merely bend under such circumstances. Carnegie’s Keystone Bridge Company, whose designs called for using wrought iron, got the contract.29

Perhaps Keystone’s greatest structural success was the St. Louis Bridge—a bold venture described by architect Louis Sullivan as “sensational and architectonic,” a forerunner of the Brooklyn Bridge that went “vaulting across the Mississippi in a single five-hundred-foot leap of iron and steel.” In an early example of vertical integration, Keystone, which constructed the bridge, bought its structural iron and almost all other iron from the Carnegie-owned Union Iron Mills.30 Unexpected difficulties and delays nearly bankrupted the St. Louis Bridge and threatened Carnegie’s entire network of enterprises, but Carnegie eventually triumphed and completed the bridge.31

Carnegie had been studying steel since British inventor Henry Bessemer made large-scale production possible in the 1850s. (Bessemer had discovered that, if he injected cold air into a chamber of molten iron, the oxygen in the air would, by itself, ignite the carbon in the iron, burn off the impurities, and strengthen the steel.)32 During a trip abroad to sell bonds, Carnegie made an appointment to see Bessemer, who had applied for and been granted an American patent on his steelmaking process. Meeting at Bessemer’s Sheffield, England, plant in 1872, Carnegie was so impressed with what he saw that he became convinced that steel would replace iron and committed to building a magnificent steel mill of his own.33

Back in the United States, Carnegie, now thirty-eight, set about deciding what to name the plant. As he had done with his pet rabbits in Scotland, Carnegie decided upon a name with the potential to influence an important associate. He chose “J. Edgar Thomson,” Thomas Scott’s boss and the president of the Pennsylvania Railroad, which Carnegie hoped would order rails made of Carnegie Steel. After he sent a fawning letter to Thomson seeking permission to use his name and praising his “exalted character & career,” Carnegie’s first steel mill, the Edgar Thomson (known as the “ET”), was born. Despite the great depression that was underway, the great mill opened in 1875. Carnegie Steel’s first order: two thousand rails for the Pennsylvania Railroad.

As one historian pointed out, Carnegie achieved vertical integration by making his own line of steel products—ships, rails, military ordnance—from the steel he made from raw materials his company extracted.34 Carnegie secured ample supplies—iron ore for pig iron to produce his steel, and coke and coal to fire the blast furnaces—and built a fleet of steamships and a railroad for transporting materials to his mills. “From the moment these crude stuffs were dug out of the earth until they flowed in a stream of liquid steel in the ladles,” a contemporary noted, “there was never a price, profit, or royalty paid to an outsider.”35 This vertical integration kept prices low and drove out competition. In fact, notes Morris, within twenty years, “Carnegie Steel, Inc.—the product of successive reorganizations that consolidated all of Carnegie’s steel-related properties, including the ET, the Lucy Furnace Works, the Union Iron Mills, acquisitions like the Homestead Works, and a host of coke, coal, and ore properties—was the largest steel company in the world . . . the most profitable by leagues, and was widely perceived as the market leader.”36

Clearly heeding his mother’s phrase—“Take care of your pence, the pounds will take care of themselves”—Carnegie held to this distinctively integrative approach to business, realizing the grandest visions by the most efficient means. Morris concluded that, while Carnegie was no technologist, he was “rather a masterful consumer of invention. His plants were always the biggest, the most automated, the most focused on pushing prices down. He had the simplest of business mantras: cut costs, take share, gain scale. Profits would take care of themselves.”37

Clearly, Carnegie Steel’s best asset was Andrew Carnegie. Morris credits him for his relentless drive to reduce costs, to make any deal to keep the plants fully productive, and to invest earnings in larger plants, the latest equipment, and the best technology. Other companies went through cycles of rise and decline, Morris notes, as founders got comfortable, shareholders demanded payouts, or good times allowed workers and managers to cruise a bit—as almost the entire British steel industry did after the great rail boom of the 1880s. But, for twenty-five years, “Carnegie never let up.”38

As Carnegie Steel’s top owner and salesman, Carnegie was able to balance production with pricing, while calculating profitability. Morris points out that he grasped “the subtle absorptions of fixed costs that improve margins as production is pushed further out the curve of the possible.”39 As Carnegie himself put it after the ET opened: “Two courses are open to a new concern like ours—1st stand timidly back, afraid to ‘break the market’ [or] . . . 2nd To make up our minds to offer certain large customers lots at figures which will command orders—For my part I would run the works full next year even if we made but $2 per ton.”40

Carnegie stated his business philosophy in his autobiography: “What others could not or would not do we would attempt, and this was a rule of our business which was strictly adhered to. Also we would make nothing except of excellent quality. We always accommodated our customers, even although at some expense to ourselves, and in cases of dispute we gave the other party the benefit of the doubt and settled. These were our rules. We had no lawsuits.”41

Carnegie’s ability to build and maintain mutually beneficial relationships was crucial to his success. When a manager explained that he did not want company stock as compensation, but thought he deserved to be among the highest paid for those in his position, Carnegie granted his wish—and added more. When the manager asked for an annual salary of $20,000, telling Carnegie that he would settle for $15,000, Carnegie paid him $25,000, binding his loyalty for life.42

When he discovered that his workers’ savings caused them anxiety, Carnegie offered to take each worker’s savings, up to $2,000, and pay 6 percent interest in a trust fund with which to finance loans for those who wanted to build homes for themselves.43 (Today, this fund exists as the Teachers Insurance and Annuity Association-College Retirement Equities Fund [TIAA-CREF].)

Although Carnegie supported the right to form a labor union, his companies were chronically troubled by labor disputes. Here too he was typically able to diffuse tensions. In one case, Carnegie wrote that he “went to Pittsburgh and was surprised to find the furnaces had been [disabled], contrary to agreement. I was to meet the men in the morning upon arrival at Pittsburgh, but a message was sent to me from the works stating that the men had ‘left the furnaces and would meet me to-morrow.’ Here was a nice reception! My reply was:

‘No they won’t. Tell them I shall not be here to-morrow. Anybody can stop work; the trick is to start it again. Some fine day these men will want the works started and will be looking around for somebody who can start them, and I will tell them then just what I do now: that the works will never start except upon a sliding scale based upon the prices we get for our products. That scale will last three years and it will not be submitted by the men. They have submitted many scales to us. It is our turn now, and we are going to submit a scale to them.’”

Carnegie’s scale was adopted.44

Another labor-related incident, this one in 1892, did not end as peacefully—and constitutes the first confrontation between a modern corporation and a fully organized union.45

The union’s contract at Carnegie Steel’s Homestead Works mill expired while Carnegie was on vacation and had left president Henry Clay Frick in charge. Homestead workers, upset by reports of Carnegie’s globetrotting, lucrative military contracts, and enormous acts of charity, had been organizing a strike, which began when Frick locked them out. Frick had prepared for this eventuality by hiring private security agents to protect replacement workers, among them blacks who were barred from joining the union.46 When the agents arrived, a twelve-hour gunfight ensued, resulting in the deaths of one agent and seven workers. When the outnumbered agents surrendered, they were forced to pass through a mob of union workers and their wives, who attacked and beat them, killing three and severely injuring twenty. The governor of Pennsylvania dispatched the state militia to restore order, and strikebreakers were hired to reopen the Homestead steel mill.

Days later, Frick was the victim of an assassination attempt by an anarchist and was seriously wounded, but survived. The labor movement suffered in the aftermath, but so, too, did Carnegie’s reputation as a kind industrialist. Nevertheless, Carnegie wrote that his attitude toward the value of labor was unchanged and that, following the strike, he still regarded “capital, labor, and employer [as] a three-legged stool, none before or after the others, all equally indispensable.”47

By 1901, due to Carnegie’s leadership, Carnegie Steel had become an enormous success—and an attractive takeover target. Banker and financier J. P. Morgan set out to purchase leading steel companies and merge operations to create the largest steel company in the world and, with it, he hoped to achieve greater profits via increased economy of scale. Accordingly, Carnegie Steel was a natural acquisition. Carnegie, whose daughter was born in 1897, had long wanted to retire in order to concentrate on personal affairs, and Charles M. Schwab, who had become Carnegie Steel’s president after Frick departed, supposed that Carnegie would sell his steel business under the right circumstances.48 Working with Schwab, Morgan made an offer to purchase Carnegie’s steel business. Carnegie slept on it. The next day, he handed Schwab a single sheet of paper with his terms spelled out in pencil: The price he wanted for his steel business was $480 million.49 J. P. Morgan accepted and purchased Carnegie Steel, making Carnegie the richest man in the world.

The consortium that Morgan and his associates formed, U.S. Steel, was the world’s first billion-dollar company, primarily comprising three steel manufacturers—Carnegie, Federal, and National—with Carnegie Steel accounting for 42 percent of combined capacity. Morris writes:

But the final deal valued each ton of Carnegie Co. capacity at $105, compared to $55 for Federal and only $31 for National. More than 60 percent of the Carnegie purchase price, moreover, was paid in first mortgage gold bonds, whereas shareholders in all the other companies got only stock. Since the bonds traded at a much higher price than the stock, the true per-ton consideration paid for Carnegie was six times that paid for Federal and nine times the price for National. There was no way to justify that premium [a congressional committee] suggested, except as ‘the price of peace’—in effect as a bribe to get Andrew Carnegie out of the business.50

A congressional report summed up the deal: “[T]he United States Steel Corporation . . . paid not only for tangible assets, but also—and very liberally, for earning power, and, perhaps more important still, for the elimination of Mr. Carnegie.” The plan worked—albeit too well. Without Andrew Carnegie, U.S. Steel floundered, its American market share declining from about two-thirds in 1901 to one-third by the 1930s.51

Having excelled in business beyond anyone’s wildest imagination, sixty-five-year-old Andrew Carnegie turned most of his attention to a longtime interest: philanthropy. Carnegie’s thoughts on charity were complicated. On the one hand, Carnegie argued that the rich have a moral obligation to help others, an ethical ideal also accepted by other industrialists of his time. On the other hand, his approach to charity was conditional, and he often emphasized the terms of giving over the morality of doing so, for instance, that those he helped strive to help themselves. Thus a strong case could be made that Carnegie conceived his charity as an expression of his values, not as indiscriminate giving.52

Carnegie benefited from charity during his youth—from Scottish relatives funding the voyage to America to donations by Pittsburgh’s wealthiest citizens. Pittsburgher Col. James Anderson opened his 400-volume private library to working boys on the condition that they could check out one book at a time. As a messenger boy, Andy was considered ineligible, so he wrote a letter to the Pittsburgh Dispatch arguing that messenger boys were working boys, too, and the criteria ought to be expanded. They were, and Andy, who was later introduced to the colonel, benefited enormously from the gift, as evidenced by this recollection: “Every day’s toil and even the long hours of night service were lightened by the book which I carried about with me and read in the intervals that could be snatched from duty.”53

Carnegie modeled himself on Colonel Anderson’s example, and enumerated what he held to be the most worthwhile acts of charity: first, establish a university; second, designate the best gift for a community (his answer: a public library); third, build “hospitals, medical colleges, laboratories and other institutions connected with the alleviation of human suffering”; fourth, create public parks; fifth, make music halls; and, sixth, open public baths. The last worthy cause he cited was churches.54

In his hometown of Pittsburgh, Carnegie offered to build a large library, on the condition that it be regularly and contractually maintained by the city’s government. The city initially refused to accept Carnegie’s terms. However, when Pittsburgh later reversed its decision and agreed to his terms, Carnegie happily offered to increase the amount of his donation—from $250,000 to $1 million. “This is my monument,” Carnegie wrote, “because here I lived my early life and made my start, and I am to-day in heart a devoted son of dear old smoky Pittsburgh.”55

When he became aware that, after building his libraries in the South, blacks were barred from entry, Carnegie offered to build special libraries for them so that they too would have access to the books that were so important to his own development. Years later, he again came to the aid of blacks in education, donating hundreds of thousands of dollars to Berea College, Hampton Institute, and the Tuskegee Institute, as well as supporting Tuskegee’s first principal, one of Carnegie’s heroes, Booker T. Washington. In his autobiography, he wrote, “that the colored people in such numbers risked all for liberty is the best possible proof that they will steadily approach and finally reach the full stature of citizenship in the Republic.”56

As with the Pittsburgh library, Carnegie offered to pay for Carnegie Hall in 1889 on a condition: that it be funded by an autonomous company and run like a business, with its own president and board of directors. He watched his $2 million investment grow into an Italian Renaissance style acoustical achievement that was home to New York City’s first permanent orchestra. The opening ceremonies included Peter Tchaikovsky as the guest of honor—whose attendance, which cost $2,500, was also paid for by Carnegie. Tchaikovsky later wrote in his diary that Carnegie “made the whole company laugh by imitating my conducting. This he did so solemnly, so well, and so like me, that I myself was quite delighted.”57

Carnegie’s other philanthropic projects included the university he founded (which became Carnegie Mellon); Madison Square Garden, in which he was an investor; the New York Botanical Garden; and the Palace of Peace in The Hague. He was not a passive patron or investor, merely lending his name and money for vanity or posterity. He chose projects that were dear to his values, he took pride in them, and thus he actively participated in their creation to ensure that each vision became a reality.

When Carnegie, who had moved to New York, returned to Pittsburgh to see the construction of the Allegheny City library, he described it as a “kind of domestic Taj” and reported to his wife, Louise, that seeing “many people standing gazing and praising the big words Carnegie Free Library just took me into the sweetest reverie and I found myself wishing you were at my side to reap with me the highest reward we can ever receive on earth, the voice of one’s self, saying secretly, well done!”58 As if twinkling in celebration of his rich life from beyond the grave, Andrew Carnegie, who died on August 11, 1919, at Shadowbrook in Lenox, Massachusetts, with an estate valued at $22 million, inserted into his will an item that would forever bestow a gift upon the White House: Scotch whisky.59

About Scott Holleran

Scott Holleran is a freelance writer and journalist whose articles have appeared in numerous print and online publications, including the Philadelphia Inquirer, Dallas Morning News, and Los Angeles Times. He has covered news, sports, and the arts, and has interviewed Sen. John McCain and former President George W. Bush. A large selection of his writing can be found at www.scottholleran.com/writings.htm.

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