From Rags to Riches – the Story of Andrew Carnegie, Steel Magnate

Andrew Carnegie, Entrepreneur and Steel Magnate

A Rags to Riches Success Story

No one could say that there was a greater self-made man than Andrew Carnegie.
He was born in Dunfermline, Scotland in 1835.  In 1848, he and his parents emigrated to America, where he found a job as an ordinary factory worker in a bobbin factory.


Shortly after he became a messenger boy and progressed up the ranks of a telegraph company.
He later created the Carnegie Steel Company, which was later joined together with Federal Steel Company and several other small steel companies to create U.S. Steel.
After making a fortune in the steel industry, he became a philanthropist.  He built Carnegie Hall, Carnegie Mellon University, the Carnegie Institute of Washington, the Carnegie Museums of Pittsburgh, and many other foundations.  He is often regarded the second richest man in history after John D. Rockefeller.
His net worth, in 2007 dollar value, amounted to $298 billion dollars.

Andrew Carnegie had very humble beginnings.  His father was a weaver, and his mother bound shoes for a living.  He and his parents shared half of a large, ground floor apartment with another poor family.  This room served as kitchen, sleeping room and living room.  After a time, Andrew’s father began getting orders for heavy damask, and the family moved to a new larger apartment.  Young Carnegie’s uncle read him stories of famous Scottish heroes like William Wallace, Rob Roy, and others which were a driving force in Andrew’s life.  With the family on the verge of starvation, Carnegie’s father had to borrow money to bring his family to America.  They settled at Allegheny, PA.  With only 13 years, young Andrew worked 12 hours a day, 6 days a week as a bobbin boy making $1.20 a week.

 

 

Two years later, young Carnegie found work as a messenger boy at a telegraph company, making $2.50 week.  This job not only doubled his pay but offered better benefits, including free admission to the local theater where he developed an appreciation for Shakespeare.   As a messenger boy he memorized the locations of important Pittsburgh businesses and names of clients, making many connections with his friendly efficiency. He also took advantage of his employer’s offer to working boys to come study in his personal library on Saturday nights.  An avid reader, alert and hardworking, Carnegie was able to create opportunities where there were none.  Within a year, he was promoted to an operator.
In 1853 at the age of 18, he was hired as a secretary/ telegraph operator for the Pennsylvania Railway Company, increasing his pay to $4.00 week.   The Railway Company was fundamental to his success because railways were among the first big businesses to develop in the U.S. and the Pennsylvania A Railway Company was the largest.  There he learned about management and cost control from his supervisor, Thomas A. Scott.  He also learned the basics of investing, which were actually insider trading deals between Scott and the firms that the Railway Company did business with.  At one point he even took $500 from his mother’s refinance on her $700 home to risk a trade with Scott which was later rewarded by receiving shares in the Woodruff sleeping car company.  By reinvesting his returns in railroad related industries, like iron, Andrew Carnegie slowly began to accumulate capital.
Just before the Civil War broke out, Carnegie (now Supervisor at Pennsylvania Railway) arranged a merger between Woodruff’s company and George M. Pullman, resulting in the first class Pullman sleeper car, ideally for businessmen traveling over 500 miles.  The investment was a big success, and all parties profited from this venture, including Carnegie.  In spring 1861, Carnegie was promoted to Superintendent of Military Railways.  He took full responsibility to help re-establish contact with Union troops in the East and establish dependable passage of wounded troops after the Union defeat at Bull Run.  Carnegie escorted the first railway transport and helped the telegraph service smoothly operate, aiding the Union in its eventual victory.
The War demonstrated just how integral the telegraph and railway industries were in the organization and delivery of munitions required in winning the war.

In 1864, Andrew Carnegie invested $40,000 at Story Farm, Pennsylvania.  In only one year this investment netted him a million dollar profit in cash dividends plus oil well income from petroleum discovered on the property.  Seeing the potential in steel, Carnegie invested further in iron and its subsidiaries.  When the Civil War came to an end in 1865, Carnegie decided to leave the railway field and concentrate solely on the steel industry.  He developed the Keystone Bridge Company and Union Ironworks.

A successful business man by the age of 30, Carnegie was 36 years old when he left the Railroad and Telegraph industry to concentrate on steel.  He amassed the majority of his enormous fortune in the steel industry.  Up to this time, steel production was very costly.  Carnegie used the Bessemer method, a newly developed technique which cut steel production costs in half.  At this time, Carnegie was the largest manufacturer of pig iron, producing 2,000 tons per day.

 

He maintained close ties with two of his mentors, Thomas Scott and J. Edgar Thompson.    These connections helped him tremendously in developing contacts, creating opportunities and winning clients for his steel-making firm and other ventures.  Pennsylvania Railway was among his best customers.

Carnegie was blessed with alertness, a feel for business, and the ability to work hard and persevere.  He never forgot who his friends were, and named an important steel mill after J. Edgar Thompson.

In 1888, Carnegie managed to buy out his largest competitor, Homestead Steelworks, which included an extensive railroad and a steamship line.  In 1892 he combined his assets to create the Carnegie Steel Company.   American steel production was now leading world steel production, positioned slightly ahead of the United Kingdom’s, and Carnegie was largely responsible for it.

Perhaps due to his humble upbringing, he always considered himself a writer and a humanitarian.  His colossal wealth served a greater purpose.

He clearly stated in that he needed no more than $50,000 / year salary to live well.  The rest, he concluded, could be shared with those less fortunate.  He was very interested in educating the poor.  He was also among the first of his day to promote spelling reform.  He felt that the illogical spelling rules of the English language were an unnecessary barrier for the poor and the illiterate.  Besides being hard working and persistent, he had charm, and was very good at his promoting his personal causes in the influential public circles of his day.  An avid reader, Andrew Carnegie was in the constant pursuit of knowledge, education, culture and refinement.  These attributes helped him constantly improve himself, and life had great meaning for him.

In 1901, Carnegie was 66 years old and preparing for retirement.  He organized his subsidiary companies into a joint cooperative with the probable intention of transitioning to his humanitarian stage.  John Pierpont Morgan, one of America’s most prominent bankers and deal makers, was highly impressed with Andrew Carnegie’s cost efficiency and ability to make a profit, year in and year out.  With the Carnegie buyout and other steel producing competitors, J.P. Morgan created U.S. Steel.  This giant merger combined resources, thus avoiding duplication and unnecessary waste.  A milestone in business deals; it was the first company in the world to have $1 billion in capital assets.

Carnegie sold his firm at a buy-out price of 12 times the annual earnings of $480 million totaling $5,670,000,000, ($13.7 billion in 2011 dollars).  Carnegie’s share of the purchase amounted to nearly $230,000,000 in 50-year gold treasury bonds netting 5% annually.  Oddly, he did not want to see or touch these bonds, and they stayed in a safety vault in New Jersey awaiting their eventual disposal in the future.  His career was largely finished, except for writing, study and the devotion of his time to humanitarianism.  Needless to say, he never had to worry about money again.

After 1901, Carnegie continued to befriend many learned men, maintained correspondence with many of the American presidents and continued to read and learn.

 

Carnegie respected and appreciated his mother and he never forget where he came from, which was a large part of his greatness.  He escorted his mother on a trip to Scotland when she was 70 years old where she helped open the Carnegie funded Dunferline Library.  He also built a as a bathing – swimming facility for the citizens of his childhood home.

Among his many donations, he erected an extensive  historological laboratory at New York Medical Center.  He built world famous Carnegie Hall, the world famous concert hall for the citizens of New York.  He built many cultural and historical museums in Pittsburgh, PA which was the city where his career first began.

Carnegie also funded the Carnegie Foundation of New York, the Carnegie Endowment for International Peace, the Carnegie Institute of Washington, Carnegie Mellon University.

Carnegie strongly believed in the potential of the common man.  He openly criticized British society, but was instrumental in acting as a catalyst in bridging the gap between Britain’s past monarchies and the British Republican future that he envisioned.  He purchased many British newspapers to help expound his views of this new Republic.  He was a man seeking a solution, and continued influencing and making many friends in British politics, including Prime Minister Gladstone.

Carnegie also made a fantastic offer to the Philippine people at the end of the 19th century.  When Spain sold the Philippines to the United States for $20 million, Carnegie offered the Filipinos a loan of $20 million so that they could “buy back their freedom”, seeing the deal as imperialistic in nature.
Carnegie had always written extensively, and published books.  He read newspapers regularly and submitted letters to the editors.  He also published three books on travel.
He believed that a person’s life should be divided into three concrete sections:
•    The first third should be devoted to getting as much education as possible;
•    The second third – in making as much money as possible;
•    …and the last third should be devoted to giving away as much money as possible for humanitarian causes.
Opposed to the accumulation of wealth as a form of idolatry, he nevertheless was interested in the dynamics of wealth accumulation.  He commissioned a talented newspaper reporter, Napoleon Hill to survey 500 wealthy achievers to discover the common elements in their successes.  Hill produced “The Law of Success” in 1928, and the phenomenally successful “Think and Grow Rich” which has not been out of print since its initial publication in 1937.
Carnegie kept his distance from organized religion, calling himself a positivist, closely following the teachings of John Bright.  He is the father of one child, Margaret Carnegie Miller, who was named after his mother.
Carnegie died on August 11, 1919, of bronchial pneumonia.  He was 83 years old.  He was buried at Sleepy Hollow Cemetery in North Tarrytown, NY.  At his death, he had already given away nearly $351,000,000, the equivalent of $4.3 billion in 2005 dollars.  The remaining $30,000,000 was given to pensioners, charities and humanitarian foundations.

 

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