44. Andrew Carnegie - The Steel Magnate and Greatest Philanthropist
Updated: Jun 8, 2020
Who was Andrew Carnegie ?
Its a mesmerizing story of a poor and low educated Scottish lad and how he faced the harsh Business World and became Business Magnate and carved unique place for him in annals of Business World.
How he became the wealthiest man in his times and now approximately worth of $95 Billion in 2020 US GDP Terms, and then on to became great Phianthropist.
Lets dive into his life and explore the legend....!!
Andrew Carnegie (November 25, 1835 – August 11, 1919) - kar-NAY-gee[note - was a Scottish-American industrialist, and philanthropist. Carnegie led the expansion of the American steel industry in the late 19th century and became one of the richest Americans in history.
He became a leading philanthropist in the United States and in the British Empire. During the last 18 years of his life, he gave away $350 million (conservatively $65 billion in 2019 dollars, based on percentage of GDP) to charities, foundations, and universities – almost 90 percent of his fortune.
His 1889 article proclaiming "The Gospel of Wealth" called on the rich to use their wealth to improve society, and stimulated a wave of philanthropy.
Carnegie was born in Dunfermline, Scotland, and emigrated to the United States with his parents in 1848 at age 12. Carnegie started work as a telegrapher, and worked in a Pittsburgh cotton factory as a boy before rising to the position of division superintendent of the Pennsylvania Railroad in 1859. While working for the railroad, he invested in various ventures, including iron and oil companies, and made his first fortune by the time he was in his early 30s. In the early 1870s, he entered the steel business, and over the next two decades became a dominant force in the industry.
In 1901, he sold the Carnegie Steel Company to banker, John Pierpont Morgan for $480 million. It became the U.S. Steel Corporation. After selling Carnegie Steel, he surpassed John D. Rockefeller as the richest American for the next several years.Carnegie then devoted himself to philanthropy, eventually giving away more than $350 million.
Carnegie devoted the remainder of his life to large-scale philanthropy, with special emphasis on local libraries, world peace, education, and scientific research. With the fortune he made from business, he built Carnegie Hall in New York, NY, and the Peace Palace and founded the Carnegie Corporation of New York, Carnegie Endowment for International Peace, Carnegie Institution for Science, Carnegie Trust for the Universities of Scotland, Carnegie Hero Fund, Carnegie Mellon University, and the Carnegie Museums of Pittsburgh, among others.
I. Andrew Carnegie: Early Life and Career
Andrew Carnegie, whose life became a rags-to-riches story, was born into modest circumstances on November 25, 1835, in Dunfermline, Scotland, the second of two sons of Will, a handloom weaver, and Margaret, who did sewing work for local shoemakers. In 1848, the Carnegie family (who pronounced their name “carNEgie”) moved to America in search of better economic opportunities and settled in Allegheny City (now part of Pittsburgh), Pennsylvania. Andrew Carnegie, whose formal education ended when he left Scotland, where he had no more than a few years’ schooling, soon found employment as a bobbin boy at a cotton factory, earning $1.20 a week.
Did you know?
During the U.S. Civil War, Andrew Carnegie was drafted for the Army; however, rather than serve, he paid another man $850 to report for duty in his place, a common practice at the time.
Ambitious and hard-working , he went on to hold a series of jobs, including messenger in a telegraph office and secretary and telegraph operator for the superintendent of the Pittsburgh division of the Pennsylvania Railroad. In 1859, Carnegie succeeded his boss as railroad division superintendent. While in this position, he made profitable investments in a variety of businesses, including coal, iron and oil companies and a manufacturer of railroad sleeping cars.
After leaving his post with the railroad in 1865, Carnegie continued his ascent in the business world. With the U.S. railroad industry then entering a period of rapid growth, he expanded his railroad-related investments and founded such ventures as an iron bridge building company (Keystone Bridge Company) and a telegraph firm, often using his connections to win insider contracts. By the time he was in his early 30s, Carnegie had become a very wealthy man.
II. Andrew Carnegie: Steel Magnate
In the early 1870s, Carnegie co-founded his first steel company, near Pittsburgh. Over the next few decades, he created a steel empire, maximizing profits and minimizing inefficiencies through ownership of factories, raw materials and transportation infrastructure involved in steel making. In 1892, his primary holdings were consolidated to form Carnegie Steel Company.
The steel magnate considered himself a champion of the working man; however, his reputation was marred by the violent Homestead Strike in 1892 at his Homestead, Pennsylvania, steel mill. After union workers protested wage cuts, Carnegie Steel general manager Henry Clay Frick (1848-1919), who was determined to break the union, locked the workers out of the plant. Andrew Carnegie was on vacation in Scotland during the strike, but put his support in Frick, who called in some 300 Pinkerton armed guards to protect the plant. A bloody battle broke out between the striking workers and the Pinkertons, leaving at least 10 men dead.
The state militia then was brought in to take control of the town, union leaders were arrested and Frick hired replacement workers for the plant. After five months, the strike ended with the union’s defeat. Additionally, the labor movement at Pittsburgh-area steel mills was crippled for the next four decades.
In 1901, banker John Pierpont Morgan (1837-1913) purchased Carnegie Steel for some $480 million, making Andrew Carnegie one of the world’s richest men. That same year, Morgan merged Carnegie Steel with a group of other steel businesses to form U.S. Steel, the world’s first billion-dollar corporation.
III. Andrew Carnegie: Philanthropist
After Carnegie sold his steel company, the diminutive titan, who stood 5’3”, retired from business and devoted himself full-time to philanthropy. In 1889, he had penned an essay, “The Gospel of Wealth,” in which he stated that the rich have “a moral obligation to distribute [their money] in ways that promote the welfare and happiness of the common man.” Carnegie also said, “The man who dies thus rich dies disgraced.”
Carnegie eventually gave away some $350 million (the equivalent of 65 billions in 2019 ), Among his philanthropic activities, he funded the establishment of more than 2,500 public libraries around the globe, donated more than 7,600 organs to churches worldwide and endowed organizations (many still in existence today) dedicated to research in science, education, world peace and other causes.
Among his gifts was the $1.1 million required for the land and construction costs of Carnegie Hall, the legendary New York City concert venue that opened in 1891. The Carnegie Institution for Science, Carnegie Mellon University and the Carnegie Foundation were all founded thanks to his financial gifts.
A lover of books, he was the largest individual investor in public libraries in American history.
IV. Andrew Carnegie: Family and Final Years
Carnegie’s mother, who was a major influence in his life, lived with him until her death in 1886. The following year, the 51-year-old industrial baron married Louise Whitfield (1857-1946), who was two decades his junior and the daughter of a New York City merchant. The couple had one child, Margaret (1897-1990). The Carnegies lived in a Manhattan mansion and spent summers in Scotland, where they owned Skibo Castle, set on some 28,000 acres.
Carnegie died at age 83 on August 11, 1919, at Shadowbrook, his estate in Lenox, Massachusetts. He was buried at Sleepy Hollow Cemetery in North Tarrytown, New York.
V. Business and Life lessons From Andrew Carnegie
1. It is possible to become a Wealthiest man in One Generation.
Carnegie’s story is certainly a rags to riches story. Its a living testment of how a poor and low educated Scottish Boy can become a Weathiest man in his times in USA. His father was certainly not a go-getter and his mother needed to support the family (not such a big deal in this age, but in the 1800’s it wasn’t such a good look it seems).
His estimated Networth of $ 480 Million in 1901 is equivalent to $95 -100 Billion in 2020 GDP terms. Even today, he might be featured in 1-3 ranks in Forbes List of wealthiest people in the world.
2. Have rich friends
Carnegie got his initial start by getting the attention of people who did have wealth.In particular, the management of the Pensilvania Railway in the form of Tom Scott.
When Carnegie got invited to invest in companies by Tom Scott, Tom Scott would also provide the capital and provide a very friendly way of repaying that debt – through the dividends of from that investment. Talk about easy street!
By the time Carnegie got involved in Iron (which later became steel, and in turn became Carnegie Steel), he was independently quite wealthy.
3. In the tough times, run to capacity
Throughout the ups and downs, Carnegie insisted that his steel plants remain open and run at capacity — even if that meant forgoing top margins on your product.
This was smart in that it allowed Carnegie interest to not contract in size in the down times of the market. At the same time, his competitors would contract in size and after the market rebounded his concerns were much larger and capable of getting larger contracts. Oh, and now they were at much fatter margins.
4. Always have Financial Control of firms in terms of Equity.
Carnegie Steel was run as a partnership and there were several partners. Carnegie himself always retained more than 50% and profitability of the business was kept quiet.
It wasn’t until Henry Frick was booted out the company and Frick took Carnegie Steel to court to argue that his share value – that he was forced to sell back to the concern upon being kicked out – was worth significantly more than the book value. To establish market value, Frick outed the extremely high profitability of the firm which shocked everyone.
The benefit of this is that nobody can use your profitability as a bargaining chip when negotiating rates.
5. Manage the External Environment and Government
Carnegie was personally a friend or at least influential advisor, to almost every President of the United States from the time of starting Carnegie Steel. This gave him tremendous leverage in negotiating and getting deals.
6. Invest in technology.
One of the reasons that Carnegie Steel was so insanely profitable was because Andrew Carnegie constantly invested in the newest technology of the time to drive down the costs of production. This allowed him freedom thanks to higher margins.
7. Always Invest and be on Expansion Spree
Carnegie was often at odds with his other partners on the amount being paid out in dividends. He was always a fan of keeping more money in the business to invest in new technology, new plants and increasing the integration across the industry.
8. Cash is king
While early on Carnegie had relatively little cash (to his later life), he pushed hard to make his cash work for him when young. This was risky but it paid off.
Even early on in the life of what would ultimately become Carnegie Steel, he became the go-to man for the businesses he was involved in as well as friends.
If an investment looked smart he was always ready to take advantage of it.
9. Know the Purpose of Life, before it is too late.
He learnt this purpose of his life at right time and give away 90% of his wealth to Charities and Philanthropic activities
Its a certainly a stunning and Rags to Riches story.
How one young boy has created a Business Empire of his own with sheer hard work and determination without any inheritance and influence.
And, how he pulled and played the strings of Politics and Business.
Above All, how well he realised his life Calling of Philanthropy in right time.
This is the Business Legend and Great Philanthopist, whom world will remembers forever.