MILLS AND THE MEN
The one vital lesson in iron and steel that I learned in Britain was
the necessity for owning raw materials and finishing the completed
article ready for its purpose. Having solved the steel-rail problem at
the Edgar Thomson Works, we soon proceeded to the next step. The
difficulties and uncertainties of obtaining regular supplies of pig
iron compelled us to begin the erection of blast furnaces. Three of
these were built, one, however, being a reconstructed blast furnace
purchased from the Escanaba Iron Company, with which Mr. Kloman had
been connected. As is usual in such cases, the furnace cost us as much
as a new one, and it never was as good. There is nothing so
unsatisfactory as purchases of inferior plants.
But although this purchase was a mistake, directly considered, it
proved, at a subsequent date, a source of great profit because it gave
us a furnace small enough for the manufacture of spiegel and, at a
later date, of ferro-manganese. We were the second firm in the United
States to manufacture our own spiegel, and the first, and for years
the only, firm in America that made ferro-manganese. We had been
dependent upon foreigners for a supply of this indispensable article,
paying as high as eighty dollars a ton for it. The manager of our
blast furnaces, Mr. Julian Kennedy, is entitled to the credit of
suggesting that with the ores within reach we could make
ferro-manganese in our small furnace. The experiment was worth trying
and the result was a great success. We were able to supply the entire
American demand and prices fell from eighty to fifty dollars per ton
as a consequence.
While testing the ores of Virginia we found that these were being
quietly purchased by Europeans for ferro-manganese, the owners of the
mine being led to believe that they were used for other purposes. Our
Mr. Phipps at once set about purchasing that mine. He obtained an
option from the owners, who had neither capital nor skill to work it
efficiently. A high price was paid to them for their interests, and
(with one of them, Mr. Davis, a very able young man) we became the
owners, but not until a thorough investigation of the mine had proved
that there was enough of manganese ore in sight to repay us. All this
was done with speed; not a day was lost when the discovery was made.
And here lies the great advantage of a partnership over a corporation.
The president of the latter would have had to consult a board of
directors and wait several weeks and perhaps months for their
decision. By that time the mine would probably have become the
property of others.
We continued to develop our blast-furnace plant, every new one being a
great improvement upon the preceding, until at last we thought we had
arrived at a standard furnace. Minor improvements would no doubt be
made, but so far as we could see we had a perfect plant and our
capacity was then fifty thousand tons per month of pig iron.
The blast-furnace department was no sooner added than another step was
seen to be essential to our independence and success. The supply of
superior coke was a fixed quantity--the Connellsville field being
defined. We found that we could not get on without a supply of the
fuel essential to the smelting of pig iron; and a very thorough
investigation of the question led us to the conclusion that the Frick
Coke Company had not only the best coal and coke property, but that it
had in Mr. Frick himself a man with a positive genius for its
management. He had proved his ability by starting as a poor railway
clerk and succeeding. In 1882 we purchased one half of the stock of
this company, and by subsequent purchases from other holders we became
owners of the great bulk of the shares.
There now remained to be acquired only the supply of iron stone. If we
could obtain this we should be in the position occupied by only two or
three of the European concerns. We thought at one time we had
succeeded in discovering in Pennsylvania this last remaining link in
the chain. We were misled, however, in our investment in the Tyrone
region, and lost considerable sums as the result of our attempts to
mine and use the ores of that section. They promised well at the edges
of the mines, where the action of the weather for ages had washed away
impurities and enriched the ore, but when we penetrated a small
distance they proved too "lean" to work.
Our chemist, Mr. Prousser, was then sent to a Pennsylvania furnace
among the hills which we had leased, with instructions to analyze all
the materials brought to him from the district, and to encourage
people to bring him specimens of minerals. A striking example of the
awe inspired by the chemist in those days was that only with great
difficulty could he obtain a man or a boy to assist him in the
laboratory. He was suspected of illicit intercourse with the Powers of
Evil when he undertook to tell by his suspicious-looking apparatus
what a stone contained. I believe that at last we had to send him a
man from our office at Pittsburgh.
One day he sent us a report of analyses of ore remarkable for the
absence of phosphorus. It was really an ore suitable for making
Bessemer steel. Such a discovery attracted our attention at once. The
owner of the property was Moses Thompson, a rich farmer, proprietor of
seven thousand acres of the most beautiful agricultural land in Center
County, Pennsylvania. An appointment was made to meet him upon the
ground from which the ore had been obtained. We found the mine had
been worked for a charcoal blast furnace fifty or sixty years before,
but it had not borne a good reputation then, the reason no doubt being
that its product was so much purer than other ores that the same
amount of flux used caused trouble in smelting. It was so good it was
good for nothing in those days of old.
We finally obtained the right to take the mine over at any time within
six months, and we therefore began the work of examination, which
every purchaser of mineral property should make most carefully. We ran
lines across the hillside fifty feet apart, with cross-lines at
distances of a hundred feet apart, and at each point of intersection
we put a shaft down through the ore. I believe there were eighty such
shafts in all and the ore was analyzed at every few feet of depth, so
that before we paid over the hundred thousand dollars asked we knew
exactly what there was of ore. The result hoped for was more than
realized. Through the ability of my cousin and partner, Mr. Lauder,
the cost of mining and washing was reduced to a low figure, and the
Scotia ore made good all the losses we had incurred in the other
mines, paid for itself, and left a profit besides. In this case, at
least, we snatched victory from the jaws of defeat. We trod upon sure
ground with the chemist as our guide. It will be seen that we were
determined to get raw materials and were active in the pursuit.
We had lost and won, but the escapes in business affairs are sometimes
very narrow. Driving with Mr. Phipps from the mills one day we passed
the National Trust Company office on Penn Street, Pittsburgh. I
noticed the large gilt letters across the window, "Stockholders
individually liable." That very morning in looking over a statement of
our affairs I had noticed twenty shares "National Trust Company" on
the list of assets. I said to Harry:
"If this is the concern we own shares in, won't you please sell them
before you return to the office this afternoon?"
He saw no need for haste. It would be done in good time.
"No, Harry, oblige me by doing it instantly."
He did so and had it transferred. Fortunate, indeed, was this, for in
a short time the bank failed with an enormous deficit. My cousin, Mr.
Morris, was among the ruined shareholders. Many others met the same
fate. Times were panicky, and had we been individually liable for all
the debts of the National Trust Company our credit would inevitably
have been seriously imperiled. It was a narrow escape. And with only
twenty shares (two thousand dollars' worth of stock), taken to oblige
friends who wished our name on their list of shareholders! The lesson
was not lost. The sound rule in business is that you may give money
freely when you have a surplus, but your name never--neither as
endorser nor as member of a corporation with individual liability. A
trifling investment of a few thousand dollars, a mere trifle--yes, but
a trifle possessed of deadly explosive power.
The rapid substitution of steel for iron in the immediate future had
become obvious to us. Even in our Keystone Bridge Works, steel was
being used more and more in place of iron. King Iron was about to be
deposed by the new King Steel, and we were becoming more and more
dependent upon it. We had about concluded in 1886 to build alongside
of the Edgar Thomson Mills new works for the manufacture of
miscellaneous shapes of steel when it was suggested to us that the
five or six leading manufacturers of Pittsburgh, who had combined to
build steel mills at Homestead, were willing to sell their mills to
us.
These works had been built originally by a syndicate of manufacturers,
with the view of obtaining the necessary supplies of steel which they
required in their various concerns, but the steel-rail business, being
then in one of its booms, they had been tempted to change plans and
construct a steel-rail mill. They had been able to make rails as long
as prices remained high, but, as the mills had not been specially
designed for this purpose, they were without the indispensable blast
furnaces for the supply of pig iron, and had no coke lands for the
supply of fuel. They were in no condition to compete with us.
It was advantageous for us to purchase these works. I felt there was
only one way we could deal with their owners, and that was to propose
a consolidation with Carnegie Brothers & Co. We offered to do so on
equal terms, every dollar they had invested to rank against our
dollars. Upon this basis the negotiation was promptly concluded. We,
however, gave to all parties the option to take cash, and most
fortunately for us, all elected to do so except Mr. George Singer, who
continued with us to his and our entire satisfaction. Mr. Singer told
us afterwards that his associates had been greatly exercised as to how
they could meet the proposition I was to lay before them. They were
much afraid of being overreached but when I proposed equality all
around, dollar for dollar, they were speechless.
This purchase led to the reconstruction of all our firms. The new firm
of Carnegie, Phipps & Co. was organized in 1886 to run the Homestead
Mills. The firm of Wilson, Walker & Co. was embraced in the firm of
Carnegie, Phipps & Co., Mr. Walker being elected chairman. My brother
was chairman of Carnegie Brothers & Co. and at the head of all. A
further extension of our business was the establishing of the Hartman
Steel Works at Beaver Falls, designed to work into a hundred various
forms the product of the Homestead Mills. So now we made almost
everything in steel from a wire nail up to a twenty-inch steel girder,
and it was then not thought probable that we should enter into any new
field.
It may be interesting here to note the progress of our works during
the decade 1888 to 1897. In 1888 we had twenty millions of dollars
invested; in 1897 more than double or over forty-five millions. The
600,000 tons of pig iron we made per annum in 1888 was trebled; we
made nearly 2,000,000. Our product of iron and steel was in 1888, say,
2000 tons per day; it grew to exceed 6000 tons. Our coke works then
embraced about 5000 ovens; they were trebled in number, and our
capacity, then 6000 tons, became 18,000 tons per day. Our Frick Coke
Company in 1897 had 42,000 acres of coal land, more than two thirds of
the true Connellsville vein. Ten years hence increased production may
be found to have been equally rapid. It may be accepted as an axiom
that a manufacturing concern in a growing country like ours begins to
decay when it stops extending.
To make a ton of steel one and a half tons of iron stone has to be
mined, transported by rail a hundred miles to the Lakes, carried by
boat hundreds of miles, transferred to cars, transported by rail one
hundred and fifty miles to Pittsburgh; one and a half tons of coal
must be mined and manufactured into coke and carried fifty-odd miles
by rail; and one ton of limestone mined and carried one hundred and
fifty miles to Pittsburgh. How then could steel be manufactured and
sold without loss at three pounds for two cents? This, I confess,
seemed to me incredible, and little less than miraculous, but it was
so.
America is soon to change from being the dearest steel manufacturing
country to the cheapest. Already the shipyards of Belfast are our
customers. This is but the beginning. Under present conditions America
can produce steel as cheaply as any other land, notwithstanding its
higher-priced labor. There is no labor so cheap as the dearest in the
mechanical field, provided it is free, contented, zealous, and reaping
reward as it renders service. And here America leads.
One great advantage which America will have in competing in the
markets of the world is that her manufacturers will have the best home
market. Upon this they can depend for a return upon capital, and the
surplus product can be exported with advantage, even when the prices
received for it do not more than cover actual cost, provided the
exports be charged with their proportion of all expenses. The nation
that has the best home market, especially if products are
standardized, as ours are, can soon outsell the foreign producer. The
phrase I used in Britain in this connection was: "The Law of the
Surplus." It afterward came into general use in commercial
discussions.