Andrew Carnegie And The Rise Of Big Business

In the late 1860s, Carnegie puts his newfound skills as an investor to work, engaging in numerous clever deals that earn him both incredible wealth and a reputation as a manipulator. Carnegie begins to engage in deals of speculation, which are risky deals that offer large profits if successful.

In 1867, Carnegie forms the Keystone Telegraph Company alongside Scott and Thomson. The major benefit of the Keystone Telegraph Company is its ability to use the Pennsylvania Railroad’s existing telegraph lines for Keystone’s own business. A rival, the Pacific and Atlantic Telegraph Company, makes a deal to sell $150,000 shares of stock in exchange for $50,000 shares of Keystone’s stock. Carnegie prints off the stock certificates without paying any money for them, effectively earning $150,000 for himself “out of the air” (63). Carnegie, now on the board of the Pacific and Atlantic, pushes them to expand their telegraph lines, and then funnels the resulting construction jobs into his own construction companies.

Carnegie engages in similar manipulation in his dealings with George M. Pullman, who had created a sleeping car that rivaled those sold by Carnegie’s company. Both Carnegie and Pullman are vying for a contract with the Union Pacific, a new transcontinental railroad. Carnegie convinces Pullman to join with him and create a new company, flattering Pullman by suggesting they name it after him. The new corporation is formed with $500,000 worth of stock—again earning Carnegie money from nothing, as he had not paid any money in forming the company.

Carnegie begins traveling to Europe to sell bonds for the construction of new bridges. In 1869, Carnegie works with the London investment bank of Junius S. Morgan to sell off bonds for the St. Louis Bridge Company. Though American investments were known by European investors to be risky, Carnegie successfully convinces the British investor Cornelius Sampson to buy the bonds. Afterwards, Carnegie asks the St. Louis Bridge Company for $200,000 from the bonds he had just sold, lying and saying that he plans to use the money to finish a bridge project. Instead, Carnegie turns around and invests the funds right away, effectively manipulating the deal for his own gain.

Though Carnegie again and again proves deft at earning money through speculation, he begins to have a crisis of “conscience” (71). He feels embarrassment at his speculative deals, and longs to earn his money from “creat[ing] something visible of his own” (71). In 1868, he writes a life plan for himself, detailing his desires to leave business, educate himself at Oxford, and become a philanthropist. Though he fails to fully exit the business world, Carnegie begins visiting the salons of Anne Lynch Botta, where he meets “New York’s literati” and begins to educate himself in literature and philosophy (74).

Carnegie decides to enter the iron manufacturing business in 1864, creating a mill called Cyclops Iron Works with fellow businessman Tom Miller. Carnegie and Miller erect their iron mill a “half-mile upstream” from a railroad axle manufacturer that Miller had previously fought with (83). The two companies soon merge into a single corporation, Union Iron, with Carnegie holding a majority stake in the company. In the process, Carnegie engages in vertical integration—the act of uniting two separate stages of the manufacturing process into a single corporation. Such a business move saves money as it “eliminates the middleman” (87). As the iron industry had never before been vertically integrated, Livesay argues that this is the first time that Carnegie acts as “an innovator in manufacturing” (83).

In Union Iron, Carnegie sets about implementing the business strategies he learned from the railroad business. The prevailing practice in the iron industry was to settle books once a year, only discovering if they made a profit or loss at the year’s end. Carnegie recognizes that such a practice is untenable for a large business, and he institutes an accounting system so that the cost of every step of the process could be tallied. In turn, Carnegie can make alterations to the company with two goals in mind: “first, speeding up flow in order to produce more goods per dollar of capital; second, cutting labor costs while maintaining production levels” (86).

Carnegie’s innovations are initially met by resistance from the iron manufacturers, who are reluctant to change their centuries-old practices. However, Carnegie’s decisions are always backed-up by cost-data. In 1872, Carnegie constructs a new blast furnace (nicknamed “Lucy”). Manufacturers traditionally “coddled” blast furnaces so as not to break them. However, Carnegie instructs his manufactures to “hard-drive” the furnace, running it at maximum capacity regardless of any “wear and tear” (88). Though such a practice requires replacement furnaces to be bought, Carnegie’s data shows that more profit can be made even with having to pay for new furnaces.