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.
[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.”]