Andrew Carnegie: Robber Baron, Entrepreneur, Philanthropist, Scot

Rarely do I review books that disappoint, but there's a first time for everything, and I want to report that in my opinion David Nasaw's 850+-page  Andrew Carnegie (Penguin:  2007) is skippable.

This is a shame.

Carnegie, aside from being perhaps the most successful entrepreneur and businessman of the Gilded Age next to John D. Rockefeller, was a rags-to-riches story, one of the greatest philanthropists in modern history (in inflation-adjusted dollars), and, notably, a Scot.  First, a bit on Carnegie's life itself, and then more on why I can't recommend this treatment.

Carnegie arrived in Pittsburgh, then the center of industrial North America, in 1848 at age 12, son of a rather feckless and unsuccessful father and a hard-working mother from Dunfermline, Scotland.  With only the most rudimentary education, but an energetic, sunny disposition, and no fear of hard work, he started as a messenger boy in the telegraph office—the key hub in the only information network that mattered in those days—and soon became the most sought-after telegraph operator in the company because of his speed and accuracy.  Connections there (only the powerful regularly sent and received telegrams) enabled him to gain an introduction to the local manager of the Pennsylvania Railroad where, not yet 20 years old, the president offered him the opportunity to buy shares in another company (with a loan) and shortly thereafter receive his first dividend check:

"I shall remember that check as long as I live," he wrote many years later. "It gave me the first penny of revenue from capital -- something I had not worked for with the sweat of my brow.''Eureka!' I cried. 'Here's the goose that lays the golden eggs.'"

Spoken like the true capitalist that he was. 

By 1865 his reported income was $38,735, roughly $5.6-million today (according to Nasaw—not independently calculated by me), and by the time he sold Carnegie Steel to J.P. Morgan in March 1901 it was worth $400-million, or perhaps $80-billion today (same caveat). 

What few realize about Carnegie was that his  insatiable drive for more and more wealth, without limit, was tied linearly to his conviction that it was his duty to give it all away by the time of his death—so that, the richer he became, the more beneficent he could be.  Now, depending on one's view, this is either charming, or perverse, or a transparent excuse for rapacious behavior.  Here's how Carnegie expressed it, in decidedly Spencerian and, to our ears, antiquated, terms:

"Carnegie formulated a 'gospel of wealth,' relying heavily on Herbert Spencer, that rebutted 'protests against the unequal distribution of wealth by arguing that the common good was best served by allowing men like himself to accumulate and retain huge fortunes. The more wealth that landed in wise hands, the more that could be given away -- wisely -- by the retired capitalist acting 'as trustee and agent for his poorer brethren, bringing to their service his superior wisdom, experience, and ability to administer, doing for them better than they would or could do for themselves.'"

Despite his lack of formal education, Carnegie was the classic autodidact and after the Civil War he began offering regular unsolicited advice to US Presidents and other luminaries.   Oddly full of insecurities for one so spectacularly successful, he didn't marry until his early 50's, although the marriage then was by all accounts remarkably happy and strong.  His work habits could be said to be odd, at the very least; he spent months and months of every year far away from Pittsburgh, either in New York (a full day's journey and more) or in Scotland, managing by telegram, with only the lightest finger on the tiller, delegating essentially everything (including the notorious, murderous, put-down of the Homestead steel strikers) to his managers on the ground.

Finally, by the time he died in 1919 he had nearly succeeded in his goal of giving away his entire fortune.

Now, what's wrong with this picture?

As full as it is of Carnegie the man (almost too full:  the book could easily be cut by 200 pages without material damage to its narrative thrust), it's almost devoid of insight into Carnegie the entrepreneur.  We only learn by inference how relentlessly innovative and determined he was. 

In a sense, he was in the perfect place at the perfect time.   As I said, Pittsburgh was the hub of industrial North America in the second half of the 19th Century and Carnegie's claim to wealth and fame was of course steel-making.   It was fortunate his parents saw fit to settle there rather than, say, New York City or upstate, and it was incredibly fortunate that the great continental build-out of the railway network was about to commence, which (we now know) would create immense demand for steel rails.

Prior to the Civil War, steel could only be made in small batches of 50-75 pounds or so at a time, making it prohibitively expensive for widespread industrial-scale use.  Rail track was made of iron, which rusted, wore out, and even shattered under heavy loads.  It was only when Henry Bessemer invented his eponymous converter that steel could suddenly be made at the rate of 25 tons at a crack (with enormous energy savings to boot), opening up the railroads as major league customers. 

In 1860 the entire United States produced about 1,600 tons of steel, but by 1900 Carnegie Steel alone was producing more than the entire output of the British steel industry.

"Voila," you may be saying?  Perfect place at the perfect time?

My question is slightly different:  How is it possible that no one but Carnegie saw this perfect confluence of immense demand (railroads for rails) and sudden ready supply (the Bessemer converter process).

Of course, it's not possible in the slightest; it would have been as plain as day.  And this is where Nasaw utterly fails to lend insight into why Carnegie Steel came to dominate and not, say, Frick Steel or Rockefeller Steel or (say) O'Reilly, Schultz, or Mancini Steel, there being plenty of Irish, German, and Italian immigrants alongside the Scots.

Reading between the lines, my diagnosis is that Carnegie was the master of creative destruction, including creatively destroying his own not-so-old mills by replacing them with new and improved equipment as soon as it became available.  He ran the mills relentlessly, 24/7, and was not in the least afraid to sell at or below cost in order to keep his hyper-productive mills running at the expense of competitors.  But these are conclusions one must infer, as they are not explained—certainly the economic and business consequences of his practices are not explained.

If I'm right, Carnegie's true competitive genius lay in his courage to continuously destroy his own competitive advantage in order to redouble it with the next generation of equipment and processes.  I am sure he never heard, much less uttered, the phrase, "If it ain't broke...."  Nor—listen up, lawyers—would he have countenanced the question/objection, "Who else is doing it?"  If no one else is doing "it" (it being the next generation in steel-making), that was precisely Carnegie's golden opportunity.

(Parenthetically, we may note that the sad dinosaur carcass that US Steel, successor to Carnegie Steel, became in the second half of the 20th Century was precisely because of its highly risk averse culture and its refusal to embrace the "mini-mill" technology introduced by the Japanese steel industry and such nimble domestic competitors as Nucor, which relied heavily on recycled steel as an input and produced relatively small-bore and unimpressive products such as thin rolled steel for kitchen appliances rather than massive trusses, stanchions, and I-beams.)

The ultimate question about Carnegie's life, of course, is whether his philanthropy trumps his ruder business practices or vice versa.  On this Nasaw prudently withholds judgment.  For my part, I think his almost furious philanthropy redeems whatever he may have done to amass his wealth.  Business standards 100 and 150 years ago were not as they are today, and it's blinkered and unfair to judge him by our nobler sensibilities (say we with loud self-satisfaction).  Some of what he did surely would qualify as insider trading today; other behavior was, as noted, murderous strike-breaking; and still other was simply pressing advantages without mercy.  But from the very earliest of ages he was driven, I believe, not by wealth for his or its own sake, but in order to multiply what he could give away.

According to Wikipedia, between 1883 and 1929 Carnegie and his trust funded the construction of 2,509 libraries,1,689 in the United States, 660 in Britain and Ireland, 156 in Canada, and others in Australia and New Zealand among other places. At the turn of the last century, more than half the libraries in existence in the US were Carnegie funded. He had vowed as a very young man to see to it that no one should be deprived of books growing up as he had been, and he came shockingly close to achieving this dream.

A complex fellow indeed.  I'm sorry this enormous effort by the indisputably talented Nasaw did not gain my critical favor.