THE AGE OF STEEL
Looking back to-day it seems incredible that only forty years ago
(1870) chemistry in the United States was an almost unknown agent in
connection with the manufacture of pig iron. It was the agency, above
all others, most needful in the manufacture of iron and steel. The
blast-furnace manager of that day was usually a rude bully, generally
a foreigner, who in addition to his other acquirements was able to
knock down a man now and then as a lesson to the other unruly spirits
under him. He was supposed to diagnose the condition of the furnace by
instinct, to possess some almost supernatural power of divination,
like his congener in the country districts who was reputed to be able
to locate an oil well or water supply by means of a hazel rod. He was
a veritable quack doctor who applied whatever remedies occurred to him
for the troubles of his patient.
The Lucy Furnace was out of one trouble and into another, owing to the
great variety of ores, limestone, and coke which were then supplied
with little or no regard to their component parts. This state of
affairs became intolerable to us. We finally decided to dispense with
the rule-of-thumb-and-intuition manager, and to place a young man in
charge of the furnace. We had a young shipping clerk, Henry M. Curry,
who had distinguished himself, and it was resolved to make him
manager.
Mr. Phipps had the Lucy Furnace under his special charge. His daily
visits to it saved us from failure there. Not that the furnace was not
doing as well as other furnaces in the West as to money-making, but
being so much larger than other furnaces its variations entailed much
more serious results. I am afraid my partner had something to answer
for in his Sunday morning visits to the Lucy Furnace when his good
father and sister left the house for more devotional duties. But even
if he had gone with them his real earnest prayer could not but have
had reference at times to the precarious condition of the Lucy Furnace
then absorbing his thoughts.
The next step taken was to find a chemist as Mr. Curry's assistant and
guide. We found the man in a learned German, Dr. Fricke, and great
secrets did the doctor open up to us. Iron stone from mines that had a
high reputation was now found to contain ten, fifteen, and even twenty
per cent less iron than it had been credited with. Mines that hitherto
had a poor reputation we found to be now yielding superior ore. The
good was bad and the bad was good, and everything was topsy-turvy.
Nine tenths of all the uncertainties of pig-iron making were dispelled
under the burning sun of chemical knowledge.
At a most critical period when it was necessary for the credit of the
firm that the blast furnace should make its best product, it had been
stopped because an exceedingly rich and pure ore had been substituted
for an inferior ore--an ore which did not yield more than two thirds
of the quantity of iron of the other. The furnace had met with
disaster because too much lime had been used to flux this
exceptionally pure ironstone. The very superiority of the materials
had involved us in serious losses.
What fools we had been! But then there was this consolation: we were
not as great fools as our competitors. It was years after we had taken
chemistry to guide us that it was said by the proprietors of some
other furnaces that they could not afford to employ a chemist. Had
they known the truth then, they would have known that they could not
afford to be without one. Looking back it seems pardonable to record
that we were the first to employ a chemist at blast
furnaces--something our competitors pronounced extravagant.
The Lucy Furnace became the most profitable branch of our business,
because we had almost the entire monopoly of scientific management.
Having discovered the secret, it was not long (1872) before we decided
to erect an additional furnace. This was done with great economy as
compared with our first experiment. The mines which had no reputation
and the products of which many firms would not permit to be used in
their blast furnaces found a purchaser in us. Those mines which were
able to obtain an enormous price for their products, owing to a
reputation for quality, we quietly ignored. A curious illustration of
this was the celebrated Pilot Knob mine in Missouri. Its product was,
so to speak, under a cloud. A small portion of it only could be used,
it was said, without obstructing the furnace. Chemistry told us that
it was low in phosphorus, but very high in silicon. There was no
better ore and scarcely any as rich, if it were properly fluxed. We
therefore bought heavily of this and received the thanks of the
proprietors for rendering their property valuable.
It is hardly believable that for several years we were able to dispose
of the highly phosphoric cinder from the puddling furnaces at a higher
price than we had to pay for the pure cinder from the heating furnaces
of our competitors--a cinder which was richer in iron than the puddled
cinder and much freer from phosphorus. Upon some occasion a blast
furnace had attempted to smelt the flue cinder, and from its greater
purity the furnace did not work well with a mixture intended for an
impurer article; hence for years it was thrown over the banks of the
river at Pittsburgh by our competitors as worthless. In some cases we
were even able to exchange a poor article for a good one and obtain a
bonus.
But it is still more unbelievable that a prejudice, equally unfounded,
existed against putting into the blast furnaces the roll-scale from
the mills which was pure oxide of iron. This reminds me of my dear
friend and fellow-Dunfermline townsman, Mr. Chisholm, of Cleveland. We
had many pranks together. One day, when I was visiting his works at
Cleveland, I saw men wheeling this valuable roll-scale into the yard.
I asked Mr. Chisholm where they were going with it, and he said:
"To throw it over the bank. Our managers have always complained that
they had bad luck when they attempted to remelt it in the blast
furnace."
I said nothing, but upon my return to Pittsburgh I set about having a
joke at his expense. We had then a young man in our service named Du
Puy, whose father was known as the inventor of a direct process in
iron-making with which he was then experimenting in Pittsburgh. I
recommended our people to send Du Puy to Cleveland to contract for all
the roll-scale of my friend's establishment. He did so, buying it for
fifty cents per ton and having it shipped to him direct. This
continued for some time. I expected always to hear of the joke being
discovered. The premature death of Mr. Chisholm occurred before I
could apprise him of it. His successors soon, however, followed our
example.
I had not failed to notice the growth of the Bessemer process. If this
proved successful I knew that iron was destined to give place to
steel; that the Iron Age would pass away and the Steel Age take its
place. My friend, John A. Wright, president of the Freedom Iron Works
at Lewiston, Pennsylvania, had visited England purposely to
investigate the new process. He was one of our best and most
experienced manufacturers, and his decision was so strongly in its
favor that he induced his company to erect Bessemer works. He was
quite right, but just a little in advance of his time. The capital
required was greater than he estimated. More than this, it was not to
be expected that a process which was even then in somewhat of an
experimental stage in Britain could be transplanted to the new country
and operated successfully from the start. The experiment was certain
to be long and costly, and for this my friend had not made sufficient
allowance.
At a later date, when the process had become established in England,
capitalists began to erect the present Pennsylvania Steel Works at
Harrisburg. These also had to pass through an experimental stage and
at a critical moment would probably have been wrecked but for the
timely assistance of the Pennsylvania Railroad Company. It required a
broad and able man like President Thomson, of the Pennsylvania
Railroad, to recommend to his board of directors that so large a sum
as six hundred thousand dollars should be advanced to a manufacturing
concern on his road, that steel rails might be secured for the line.
The result fully justified his action.
The question of a substitute for iron rails upon the Pennsylvania
Railroad and other leading lines had become a very serious one. Upon
certain curves at Pittsburgh, on the road connecting the Pennsylvania
with the Fort Wayne, I had seen new iron rails placed every six weeks
or two months. Before the Bessemer process was known I had called
President Thomson's attention to the efforts of Mr. Dodds in England,
who had carbonized the heads of iron rails with good results. I went
to England and obtained control of the Dodds patents and recommended
President Thomson to appropriate twenty thousand dollars for
experiments at Pittsburgh, which he did. We built a furnace on our
grounds at the upper mill and treated several hundred tons of rails
for the Pennsylvania Railroad Company and with remarkably good results
as compared with iron rails. These were the first hard-headed rails
used in America. We placed them on some of the sharpest curves and
their superior service far more than compensated for the advance made
by Mr. Thomson. Had the Bessemer process not been successfully
developed, I verily believe that we should ultimately have been able
to improve the Dodds process sufficiently to make its adoption
general. But there was nothing to be compared with the solid steel
article which the Bessemer process produced.
Our friends of the Cambria Iron Company at Johnstown, near
Pittsburgh--the principal manufacturers of rails in America--decided
to erect a Bessemer plant. In England I had seen it demonstrated, at
least to my satisfaction, that the process could be made a grand
success without undue expenditure of capital or great risk. Mr.
William Coleman, who was ever alive to new methods, arrived at the
same conclusion. It was agreed we should enter upon the manufacture of
steel rails at Pittsburgh. He became a partner and also my dear friend
Mr. David McCandless, who had so kindly offered aid to my mother at my
father's death. The latter was not forgotten. Mr. John Scott and Mr.
David A. Stewart, and others joined me; Mr. Edgar Thomson and Mr.
Thomas A. Scott, president and vice-president of the Pennsylvania
Railroad, also became stockholders, anxious to encourage the
development of steel. The steel-rail company was organized January 1,
1873.
The question of location was the first to engage our serious
attention. I could not reconcile myself to any location that was
proposed, and finally went to Pittsburgh to consult with my partners
about it. The subject was constantly in my mind and in bed Sunday
morning the site suddenly appeared to me. I rose and called to my
brother:
"Tom, you and Mr. Coleman are right about the location; right at
Braddock's, between the Pennsylvania, the Baltimore and Ohio, and the
river, is the best situation in America; and let's call the works
after our dear friend Edgar Thomson. Let us go over to Mr. Coleman's
and drive out to Braddock's."
We did so that day, and the next morning Mr. Coleman was at work
trying to secure the property. Mr. McKinney, the owner, had a high
idea of the value of his farm. What we had expected to purchase for
five or six hundred dollars an acre cost us two thousand. But since
then we have been compelled to add to our original purchase at a cost
of five thousand dollars per acre.
There, on the very field of Braddock's defeat, we began the erection
of our steel-rail mills. In excavating for the foundations many relics
of the battle were found--bayonets, swords, and the like. It was there
that the then provost of Dunfermline, Sir Arthur Halkett, and his son
were slain. How did they come to be there will very naturally be
asked. It must not be forgotten that, in those days, the provosts of
the cities of Britain were members of the aristocracy--the great men
of the district who condescended to enjoy the honor of the position
without performing the duties. No one in trade was considered good
enough for the provostship. We have remnants of this aristocratic
notion throughout Britain to-day. There is scarcely any life assurance
or railway company, or in some cases manufacturing company but must
have at its head, to enjoy the honors of the presidency, some titled
person totally ignorant of the duties of the position. So it was that
Sir Arthur Halkett, as a gentleman, was Provost of Dunfermline, but by
calling he followed the profession of arms and was killed on this
spot. It was a coincidence that what had been the field of death to
two native-born citizens of Dunfermline should be turned into an
industrial hive by two others.
Another curious fact has recently been discovered. Mr. John Morley's
address, in 1904 on Founder's Day at the Carnegie Institute,
Pittsburgh, referred to the capture of Fort Duquesne by General Forbes
and his writing Prime Minister Pitt that he had rechristened it
"Pittsburgh" for him. This General Forbes was then Laird of
Pittencrieff and was born in the Glen which I purchased in 1902 and
presented to Dunfermline for a public park. So that two Dunfermline
men have been Lairds of Pittencrieff whose chief work was in
Pittsburgh. One named Pittsburgh and the other labored for its
development.
In naming the steel mills as we did the desire was to honor my friend
Edgar Thomson, but when I asked permission to use his name his reply
was significant. He said that as far as American steel rails were
concerned, he did not feel that he wished to connect his name with
them, for they had proved to be far from creditable. Uncertainty was,
of course, inseparable from the experimental stage; but, when I
assured him that it was now possible to make steel rails in America
as good in every particular as the foreign article, and that we
intended to obtain for our rails the reputation enjoyed by the
Keystone bridges and the Kloman axles, he consented.
He was very anxious to have us purchase land upon the Pennsylvania
Railroad, as his first thought was always for that company. This would
have given the Pennsylvania a monopoly of our traffic. When he visited
Pittsburgh a few months later and Mr. Robert Pitcairn, my successor as
superintendent of the Pittsburgh Division of the Pennsylvania, pointed
out to him the situation of the new works at Braddock's Station, which
gave us not only a connection with his own line, but also with the
rival Baltimore and Ohio line, and with a rival in one respect greater
than either--the Ohio River--he said, with a twinkle of his eye to
Robert, as Robert told me:
"Andy should have located his works a few miles farther east." But Mr.
Thomson knew the good and sufficient reasons which determined the
selection of the unrivaled site.
The works were well advanced when the financial panic of September,
1873, came upon us. I then entered upon the most anxious period of my
business life. All was going well when one morning in our summer
cottage, in the Allegheny Mountains at Cresson, a telegram came
announcing the failure of Jay Cooke & Co. Almost every hour after
brought news of some fresh disaster. House after house failed. The
question every morning was which would go next. Every failure depleted
the resources of other concerns. Loss after loss ensued, until a total
paralysis of business set in. Every weak spot was discovered and
houses that otherwise would have been strong were borne down largely
because our country lacked a proper banking system.
We had not much reason to be anxious about our debts. Not what we had
to pay of our own debts could give us much trouble, but rather what we
might have to pay for our debtors. It was not our bills payable but
our bills receivable which required attention, for we soon had to
begin meeting both. Even our own banks had to beg us not to draw upon
our balances. One incident will shed some light upon the currency
situation. One of our pay-days was approaching. One hundred thousand
dollars in small notes were absolutely necessary, and to obtain these
we paid a premium of twenty-four hundred dollars in New York and had
them expressed to Pittsburgh. It was impossible to borrow money, even
upon the best collaterals; but by selling securities, which I had in
reserve, considerable sums were realized--the company undertaking to
replace them later.
It happened that some of the railway companies whose lines centered in
Pittsburgh owed us large sums for material furnished--the Fort Wayne
road being the largest debtor. I remember calling upon Mr. Thaw, the
vice-president of the Fort Wayne, and telling him we must have our
money. He replied:
"You ought to have your money, but we are not paying anything these
days that is not protestable."
"Very good," I said, "your freight bills are in that category and we
shall follow your excellent example. Now I am going to order that we
do not pay you one dollar for freight."
"Well, if you do that," he said, "we will stop your freight."
I said we would risk that. The railway company could not proceed to
that extremity. And as a matter of fact we ran for some time without
paying the freight bills. It was simply impossible for the
manufacturers of Pittsburgh to pay their accruing liabilities when
their customers stopped payment. The banks were forced to renew
maturing paper. They behaved splendidly to us, as they always have
done, and we steered safely through. But in a critical period like
this there was one thought uppermost with me, to gather more capital
and keep it in our business so that come what would we should never
again be called upon to endure such nights and days of racking
anxiety.
Speaking for myself in this great crisis, I was at first the most
excited and anxious of the partners. I could scarcely control myself.
But when I finally saw the strength of our financial position I became
philosophically cool and found myself quite prepared, if necessary, to
enter the directors' rooms of the various banks with which we dealt,
and lay our entire position before their boards. I felt that this
could result in nothing discreditable to us. No one interested in our
business had lived extravagantly. Our manner of life had been the very
reverse of this. No money had been withdrawn from the business to
build costly homes, and, above all, not one of us had made speculative
ventures upon the stock exchange, or invested in any other enterprises
than those connected with the main business. Neither had we exchanged
endorsements with others. Besides this we could show a prosperous
business that was making money every year.
I was thus enabled to laugh away the fears of my partners, but none of
them rejoiced more than I did that the necessity for opening our lips
to anybody about our finances did not arise. Mr. Coleman, good friend
and true, with plentiful means and splendid credit, did not fail to
volunteer to give us his endorsements. In this we stood alone; William
Coleman's name, a tower of strength, was for us only. How the grand
old man comes before me as I write. His patriotism knew no bounds.
Once when visiting his mills, stopped for the Fourth of July, as they
always were, he found a corps of men at work repairing the boilers. He
called the manager to him and asked what this meant. He ordered all
work suspended.
"Work on the Fourth of July!" he exclaimed, "when there's plenty of
Sundays for repairs!" He was furious.
When the cyclone of 1873 struck us we at once began to reef sail in
every quarter. Very reluctantly did we decide that the construction of
the new steel works must cease for a time. Several prominent persons,
who had invested in them, became unable to meet their payments and I
was compelled to take over their interests, repaying the full cost to
all. In that way control of the company came into my hands.
The first outburst of the storm had affected the financial world
connected with the Stock Exchange. It was some time before it reached
the commercial and manufacturing world. But the situation grew worse
and worse and finally led to the crash which involved my friends in
the Texas Pacific enterprise, of which I have already spoken. This was
to me the severest blow of all. People could, with difficulty, believe
that occupying such intimate relations as I did with the Texas group,
I could by any possibility have kept myself clear of their financial
obligations.
Mr. Schoenberger, president of the Exchange Bank at Pittsburgh, with
which we conducted a large business, was in New York when the news
reached him of the embarrassment of Mr. Scott and Mr. Thomson. He
hastened to Pittsburgh, and at a meeting of his board next morning
said it was simply impossible that I was not involved with them. He
suggested that the bank should refuse to discount more of our bills
receivable. He was alarmed to find that the amount of these bearing
our endorsement and under discount, was so large. Prompt action on my
part was necessary to prevent serious trouble. I took the first train
for Pittsburgh, and was able to announce there to all concerned that,
although I was a shareholder in the Texas enterprise, my interest was
paid for. My name was not upon one dollar of their paper or of any
other outstanding paper. I stood clear and clean without a financial
obligation or property which I did not own and which was not fully
paid for. My only obligations were those connected with our business;
and I was prepared to pledge for it every dollar I owned, and to
endorse every obligation the firm had outstanding.
Up to this time I had the reputation in business of being a bold,
fearless, and perhaps a somewhat reckless young man. Our operations
had been extensive, our growth rapid and, although still young, I had
been handling millions. My own career was thought by the elderly ones
of Pittsburgh to have been rather more brilliant than substantial. I
know of an experienced one who declared that if "Andrew Carnegie's
brains did not carry him through his luck would." But I think nothing
could be farther from the truth than the estimate thus suggested. I am
sure that any competent judge would be surprised to find how little I
ever risked for myself or my partners. When I did big things, some
large corporation like the Pennsylvania Railroad Company was behind me
and the responsible party. My supply of Scotch caution never has been
small; but I was apparently something of a dare-devil now and then to
the manufacturing fathers of Pittsburgh. They were old and I was
young, which made all the difference.
The fright which Pittsburgh financial institutions had with regard to
myself and our enterprises rapidly gave place to perhaps somewhat
unreasoning confidence. Our credit became unassailable, and thereafter
in times of financial pressure the offerings of money to us increased
rather than diminished, just as the deposits of the old Bank of
Pittsburgh were never so great as when the deposits in other banks ran
low. It was the only bank in America which redeemed its circulation in
gold, disdaining to take refuge under the law and pay its obligations
in greenbacks. It had few notes, and I doubt not the decision paid as
an advertisement.
In addition to the embarrassment of my friends Mr. Scott, Mr. Thomson,
and others, there came upon us later an even severer trial in the
discovery that our partner, Mr. Andrew Kloman, had been led by a party
of speculative people into the Escanaba Iron Company. He was assured
that the concern was to be made a stock company, but before this was
done his colleagues had succeeded in creating an enormous amount of
liabilities--about seven hundred thousand dollars. There was nothing
but bankruptcy as a means of reinstating Mr. Kloman.
This gave us more of a shock than all that had preceded, because Mr.
Kloman, being a partner, had no right to invest in another iron
company, or in any other company involving personal debt, without
informing his partners. There is one imperative rule for men in
business--no secrets from partners. Disregard of this rule involved
not only Mr. Kloman himself, but our company, in peril, coming, as it
did, atop of the difficulties of my Texas Pacific friends with whom I
had been intimately associated. The question for a time was whether
there was anything really sound. Where could we find bedrock upon
which we could stand?
Had Mr. Kloman been a business man it would have been impossible ever
to allow him to be a partner with us again after this discovery. He
was not such, however, but the ablest of practical mechanics with some
business ability. Mr. Kloman's ambition had been to be in the office,
where he was worse than useless, rather than in the mill devising and
running new machinery, where he was without a peer. We had some
difficulty in placing him in his proper position and keeping him
there, which may have led him to seek an outlet elsewhere. He was
perhaps flattered by men who were well known in the community; and in
this case he was led by persons who knew how to reach him by extolling
his wonderful business abilities in addition to his mechanical
genius--abilities which his own partners, as already suggested, but
faintly recognized.
After Mr. Kloman had passed through the bankruptcy court and was again
free, we offered him a ten per cent interest in our business, charging
for it only the actual capital invested, with nothing whatever for
good-will. This we were to carry for him until the profits paid for
it. We were to charge interest only on the cost, and he was to assume
no responsibility. The offer was accompanied by the condition that he
should not enter into any other business or endorse for others, but
give his whole time and attention to the mechanical and not the
business management of the mills. Could he have been persuaded to
accept this, he would have been a multimillionaire; but his pride, and
more particularly that of his family, perhaps, would not permit this.
He would go into business on his own account, and, notwithstanding
the most urgent appeals on my part, and that of my colleagues, he
persisted in the determination to start a new rival concern with his
sons as business managers. The result was failure and premature death.
How foolish we are not to recognize what we are best fitted for and
can perform, not only with ease but with pleasure, as masters of the
craft. More than one able man I have known has persisted in blundering
in an office when he had great talent for the mill, and has worn
himself out, oppressed with cares and anxieties, his life a continual
round of misery, and the result at last failure. I never regretted
parting with any man so much as Mr. Kloman. His was a good heart, a
great mechanical brain, and had he been left to himself I believe he
would have been glad to remain with us. Offers of capital from
others--offers which failed when needed--turned his head, and the
great mechanic soon proved the poor man of affairs.[33]
[Footnote 33: Long after the circumstances here recited, Mr. Isidor
Straus called upon Mr. Henry Phipps and asked him if two statements
which had been publicly made about Mr. Carnegie and his partners in
the steel company were true. Mr. Phipps replied they were not. Then
said Mr. Straus:
"Mr. Phipps, you owe it to yourself and also to Mr. Carnegie to say so
publicly."
This Mr. Phipps did in the _New York Herald_, January 30, 1904, in the
following handsome manner and without Mr. Carnegie's knowledge:
_Question:_ "In a recent publication mention was made of Mr.
Carnegie's not having treated Mr. Miller, Mr. Kloman, and yourself
properly during your early partnership, and at its termination. Can
you tell me anything about this?"
_Answer:_ "Mr. Miller has already spoken for himself in this matter,
and I can say that the treatment received from Mr. Carnegie during our
partnership, so far as I was concerned, was always fair and liberal.
"My association with Mr. Kloman in business goes back forty-three
years. Everything in connection with Mr. Carnegie's partnership with
Mr. Kloman was of a pleasant nature.
"At a much more recent date, when the firm of Carnegie, Kloman and
Company was formed, the partners were Andrew Carnegie, Thomas M.
Carnegie, Andrew Kloman, and myself. The Carnegies held the
controlling interest.
"After the partnership agreement was signed, Mr. Kloman said to me
that the Carnegies, owning the larger interest, might be too
enterprising in making improvements, which might lead us into serious
trouble; and he thought that they should consent to an article in the
partnership agreement requiring the consent of three partners to make
effective any vote for improvements. I told him that we could not
exact what he asked, as their larger interest assured them control,
but I would speak to them. When the subject was broached, Mr. Carnegie
promptly said that if he could not carry Mr. Kloman or myself with his
brother in any improvements he would not wish them made. Other matters
were arranged by courtesy during our partnership in the same manner."
_Question:_ "What you have told me suggests the question, why did Mr.
Kloman leave the firm?"
_Answer:_ "During the great depression which followed the panic of
1873, Mr. Kloman, through an unfortunate partnership in the Escanaba
Furnace Company, lost his means, and his interest in our firm had to
be disposed of. We bought it at book value at a time when
manufacturing properties were selling at ruinous prices, often as low
as one third or one half their cost.
"After the settlement had been made with the creditors of the Escanaba
Company, Mr. Kloman was offered an interest by Mr. Carnegie of
$100,000 in our firm, to be paid only from future profits. This Mr.
Kloman declined, as he did not feel like taking an interest which
formerly had been much larger. Mr. Carnegie gave him $40,000 from the
firm to make a new start. This amount was invested in a rival concern,
which soon closed.
"I knew of no disagreement during this early period with Mr. Carnegie,
and their relations continued pleasant as long as Mr. Kloman lived.
Harmony always marked their intercourse, and they had the kindliest
feeling one for the other."]