American Experiment (169 page)

American capitalism had its saints as well as its rascals. Its finest leader and role model in the late nineteenth century was heroic in almost everything except appearance: five foot three, broad of face and nose, so youthful in features that even after he became a railroad superintendent and was clearing up a train wreck, a burly Irishman in a busy work crew picked him up and carried him to the side, saying, “Get out of my way, you brat of a boy.” In his career and achievements Andrew Carnegie was a Hero of Capitalist Production.

That career read as though it had been contrived by a master scenarist of Victorian dramas full of clichés and stereotypes.
Rags to riches:
he was born in the attic of a Scottish weaver’s cottage and died in his eighty-fourth year the owner of one of Manhattan’s finest mansions and one of Scotland’s most ostentatious castles.
Poverty-stricken but determined mother:
Margaret Carnegie tried for a time to shore up the family earnings by binding shoes and other cottage work, then bundled up her husband and sons and belongings, borrowed twenty pounds, and took passage to America.
The rungs of the ladder of success:
bobbin boy (at $1.20 a week) to engine tender, to telegraph messenger boy, to telegraph operator, to personal secretary to the superintendent of the western division of the Pennsylvania Railroad, to superintendent himself, to Civil War head of transportation and communications, all by his early forties.

There was, however, a far more extraordinary side to Carnegie’s life. He came from a family of fiery Scottish Chartists who for years had been agitating for political liberty, human rights, and religious toleration; his uncle had been arrested for “seditious activity.” When his father’s linen hand-loom weaving succumbed to the factory system, young Andrew would never forget his coming home in despair, saying, “Andra, I can get nae mair work.” But the father and an uncle had time to educate the boy in Scottish lore, the plebeian poetry of Robert Burns, and the evils of the
Monarchy and Established Church. As a boy in Allegheny, Pennsylvania, where the immigrant family settled, he became an ardent reader and a letter writer to the New York
Tribune,
especially on slavery. His whole early life—his roots in poverty and radicalism, his long trip to America across the Atlantic and then up the Hudson and along the Erie Canal and by lake and canal to Allegheny, his daily work in Pittsburgh among factory boys and railroad laborers—he had converted into a self-schooling in democracy.

None of this, however, seemed to slow Carnegie’s determined rise through the capitalistic system. Observant, quick, steady, resourceful, everlastingly competent, he may not have rescued the boss’s daughter from a runaway horse, but he was able on one occasion, when all the trains in his division were held up because of a wreck and his boss was late, to unscramble the whole mess on his own initiative and get the trains running. He was then not yet twenty. His passion was to make things work. When wrecked freight cars blocked service, he coolly ordered them burned—an act that astonished his colleagues but later became standard procedure with the Pennsylvania Railroad.

In 1865, at the age of thirty, Carnegie left the Pennsylvania to branch out into other fields. He invested his railroad income shrewdly in oil, sleeping cars, bridges, and other railroads, as steel became a kind of common denominator in his investments. In Europe, he came to know Sir Henry Bessemer and the Bessemer process. Already Carnegie was showing the daring and imagination that attracted attention from his rivals in Pittsburgh and abroad. Bridges especially challenged him; with Captain Eads he shared the agony and glory of building the first great bridge over the Mississippi. By 1872, staking his hopes on Bessemer and other improved technology, he was ready to make an irreversible commitment to steel.

The story of Carnegie’s rise to czar of steel is the story of organization, cost-cutting, and competition. Take away his steel mills, his ores, his railroad lines, his coal, he liked to say, but leave him one thing and he would repeat his success. That one thing was
organization,
by which he meant picking skilled subordinates such as Captain “Bill” Jones, Henry Clay Frick, and Charles M. Schwab, and by which he also meant something that was still revolutionary in American industry—vertical integration. By such moves as acquiring massive iron deposits in the Mesabi range and buying railroads that linked Pittsburgh with the northwest water routes, Carnegie by the end of the century came to control raw materials, transportation, manufacturing, distribution, and finance. He stood astride the whole steel process, from mining ore to delivering railroad cars, boilers, nails, wires.

Cost-cutting was virtually an obsession at Carnegie Steel. The boss
watched every nickel. “I cannot understand
Lime,”
he complained; “13 tons of lime used to each ton of metal. It can’t be lime, that is certain, half rock—I suspect.” Or: “I am surprised at two items in cost. Coke 1/2 ton per ton rails—8 bushels should smelt the pig and certainly 4 bushels the Spiegel. How do you account for the remainder?” He fretted over labor costs. “Profits, for Carnegie, were always tangential to and a mere consequence of reduced costs of production,” in Joseph Wall’s estimate. “To reduce costs, he would quickly scrap a new machine, a new process, or an entire mill in favor of more efficient operations. Labor was simply another item of cost, but if wages were low, so also were salaries of management.” Carnegie’s salary, however, was not low.

All this made Carnegie a ferocious competitor. His attitude toward his rivals was, “Come, let’s compete.” He said this in absolute confidence that he would outcompete them, and so he did. He fought not only with rival steel makers but also with railroads. His old association with the Pennsylvania Railroad did not deter him from forcing down its ore, coke, and limestone rates. “What are you fighting the Pennsylvania Railroad for?” a Pennsylvania chief asked him. “You were brought up in its service. We were boys together.” In answer, Carnegie handed him a list of his competitors’ rates.

The growth of American steel-making was simply phenomenal. In just a few years, Carnegie and the others far outstripped Britain, long the heart of world iron- and steel-making. American steel production quadrupled in the last thirty years of the century. Benefiting from economies of scale, in 1870 the industry produced 60 pounds of metal for each dollar invested; in 1900, 112 pounds. Carnegie did far better than the rest, more than doubling his per-dollar production between 1880 and 1900. In those same twenty years he cut his cost per ton of rail from $28 to less than $12.

All through these years, however, the “other” Carnegie seemed to hover over the steel magnate, reminding him of youthful dreams and ideals. At the age of thirty-three, in the first flush of success, he had promised himself: “By this time two years I can so arrange all my business as to secure at least 50,000 per annum. Beyond this never earn.” The reason? “No idol more debasing than the worship of money.” Yet Carnegie continued to worship that idol, as he built a fortune of hundreds of millions of dollars even while preaching the “Gospel of Wealth”—the doctrine that making money was laudable, but only if the rich used their money to help the poor and benefit the whole community.

The most extraordinary manifestation of the “other Carnegie” appeared each spring when Carnegie returned to Scotland and England and reasserted his old Chartist faith. He had forgotten none of it during all the
years of moneymaking. During the 1880s he bought out or into seven British dailies and ten weeklies and converted them into muckraking organs against the British monarchy, hereditary privileges, and limitations on the right to vote. He bored his radical friends and outraged his conservative foes with his fulsome tributes to American democracy. So stridently did Carnegie’s newspapers attack the aristocracy that even Carnegie’s liberal friends, including Prime Minister William Gladstone himself, felt embarrassed and heaved a sigh of relief when their American friend left for home every fall. Still, they could not help wondering at the man who supported radical political change, equality, and even striking coal workers on one side of the Atlantic, only to return to the Republican and capitalistic fold on the other.

Despite failures and frustrations, Carnegie never lost his Chartist faith—in the British Isles. Especially rewarding to him were the literary friendships he made among Britain’s intellectual elite. Matthew Arnold, Herbert Spencer, and John Morley, among other littérateurs, befriended Carnegie intellectually in Britain and were entertained by him royally on their trips to America. Carnegie wrote articles for the
Fortnightly Review
and letters to
The Times.
He rarely resisted an opportunity to mount the platform, from which he excoriated special privilege, lauded America’s form of democracy, and seemed far less the calculating capitalist than the arm-pumping radical—which in England he was.

By the end of the century, Andrew Carnegie was crowned in the press as the world’s richest man, succeeding Jay Gould. But waiting to assume the golden throne was a man who differed from Carnegie in almost every way except in the ability to make—and to give away—hundreds of millions of dollars. John D. Rockefeller was the son not of a poor Scot but of a roving upstate New York salesman, speculator, spurious physician, and apparent bigamist. Sometimes absent for months, the father was home often enough to teach his son the importance of money, the sanctity of contracts, and how to make a profit. In his early boyhood, it is said, John bought candy by the pound and sold it piece by piece to his siblings at a profit.

After a good high school education and a business college stint, young Rockefeller drew up a list of sound Cleveland firms, made the rounds of all of them seeking a job, and was stolidly starting around the circuit a second time when he got a job in a commission house as a bookkeeper. A frugal, industrious, deeply religious young man, Rockefeller loved bookkeeping—meticulously checking and rechecking figures, handling
thousand-dollar bills, and learning every aspect of the firm’s business. Three months before his twentieth birthday, he and a young partner opened their own commission house. The firm prospered during the Civil War boom.

At the same time, Rockefeller and his associates became involved in the oil refineries that were springing up around Cleveland. Sensing that Cleveland could never outbid Chicago for the grain and meat trade, but that its railroad facilities would enable it to dominate oil-refining, he struck out boldly on his own. Slowly, methodically, he expanded his operation, taking advantage of the continuing oil boom. As his firm grew bigger, he found it easier to dictate terms to suppliers and railroads, and to profit from petroleum by-products. But Rockefeller came to fear and detest the chaos of the oil industry—the hundreds of tiny firms that sprang up in boom times and then folded, the ferocious competition of railroads and cities for business, the collapse of rates and prices to the point of bankruptcy for many firms. By 1870, when Rockefeller and his partners organized the Standard Oil Company (Ohio), the refining industry’s capacity was three times the demand.

Rockefeller’s answer to this problem was not Carnegie’s kind of competition but his own brand of order and stability, achieved through alliances, “voluntary” associations, combinations, and ultimately trusts. Rockefeller did not talk much at the time—a kind of aggressive silence was one of his main weapons—but later he bluntly argued the case for combination over competition.

“We wanted a new idea to prevail,” he said, “we wanted the old struggle to cease in the ugly forms it had assumed…. [We wanted] men to take their full share of the business, to be content with a fair share ... and thus work together for the economies and enjoy together the success.... I think that it is fair to say that the strong men who were competitors in the oil refining business, the aggressive men …were the men who were most likely to take up the idea of cooperation…. The thing that caused the effort to be made to centralize the business was the exercise of this uncontrolled freedom for every man to have his own way in utter disregard of the rights of his neighbors.”

How Rockefeller effected these combinations aroused as much controversy as the combinations themselves. His basic strategy was not to out-compete his rivals but to eliminate them, in the name of a higher cooperation. He denied using pressure tactics, but his critics said he did not need to—he had the power, and everyone knew it. Quiet, soft-spoken, even polite, he could suddenly intimidate his rivals with his “gunpowder eyes” and, even more, his ample funds. Through cost-cutting, favorable rebates, a big marketing organization, purchase of competitors, occasional
price-cutting, Rockefeller and allied firms developed common ownership of refineries, lubricating oil plants, pipelines, cooperage companies. The Standard Oil combination of firms came to control about nine-tenths of the oil industry by 1881.

For all their differences—and their contrasting capitalisms—Carnegie and Rockefeller ended up with one great interest in common: philanthropy. Of the several hundred million dollars that Carnegie made, he gave $350 million for libraries, education, and world peace. Of Rockefeller’s fortune of over $800 million, the oil tycoon gave over $550 million for medical research, education, religion, and, especially in the South, agricultural improvement. Neither man questioned the need for such giving; each considered it a duty. To radicals’ charges that they had exploited the masses, skimmed off enormous profits, and kept much for themselves, they would have answered—if they condescended to answer—that they had given the public something it needed more than material improvement: they had given it education, health, more assurance of world peace, greater opportunity for spiritual and moral development.

As for the argument of Marxists and others that, while of course the masses did have higher needs than the economic, it was up to the people as a whole, not their economic overlords, to define those needs, probably neither Carnegie nor Rockefeller would have understood the argument, and certainly neither would have deigned to answer it.