Andrew Carnegie: Flawed Genius
Hi Friends :)
I’m back with Andrew Carnegie. It took me an extra week to distill Peter Krass’ book. It’s a monster read with so many insights. As I read letters written 150 years back, I kept making connections back to something similar said by Jobs, Dyson, Musk. Great men learn from other great men who came before them. There’s so much more to read on the once richest man in the world. We’ll come back to him sometime in 2022.
Issue 8
The crypto of the 1850s
The quality of Andy’s life changed dramatically. Watching the telegraph operators, Andy learned of international, national, and local happenings. Most important, at age fourteen, Andy was riding the wave of new technology and privy to much business correspondence passing through the office. He learned which businesses were buying, which were selling, which were growing, and which were failing. He learned of deals for land, for resources, and for companies— all inside information that he eventually used to his benefit.
Here’s the goose that lays the golden eggs
While at the Georgia Railroad, Thomson first learned to speculate in advance of the railroad and made tremendous profits. Knowing where Georgia and other railroads were building, he bought into local real estate and commodities and also invested 51 in companies that would thrive from railroad construction. It was a technique he taught Scott, who would in turn teach Andy. After two and a half years with Scott, in May 1856, Andy was invited in on his first investment deal—the opportunity to buy $500 worth of stock in a package delivery company that relied on the Pennsylvania Railroad. Thrilled to be included, Andy regrettably had to admit he didn’t have much savings. Scott immediately offered to loan him the money. When the six-month date rapidly approached, Andy was forced to borrow $400 at 8 percent interest per annum from a George Smith, the stock certificates handed over as collateral. Shortly thereafter he borrowed another $100 from Smith to invest in the Insurance Company–Monongahela Company of Pittsburgh. Good dividends were expected, but the 8 percent interest paid to Smith ate into the family’s income, so Andy and his mother decided to mortgage their house, which had been paid off, at a lower rate than Smith offered and then pays him.
It was a series of crude transactions, but it worked. More significant, Andy was demonstrating a willingness to assume great risk—in this instance, the loss of their house—and the first inkling of complicated transactions to follow. In fact, he would make his early fortune in stocks and bonds, and that nest egg would finance his triumphant rise in the steel industry. Any current anxiety over taking risks was dispelled when the dividend checks started arriving. “It gave me the first penny of revenue from the capital—something that I had not worked for with the sweat of my brow,” he recalled. “‘Eureka!’ I cried. ‘Here’s the goose that lays the golden eggs.’”
Put all good eggs in one basket and then watch that basket.
Despite his enthusiasm to dabble in a myriad of ventures, whether business, philosophic, or scientific, by late 1872 Carnegie recognized that scattering his efforts and attempting to score quick windfalls was not the way to build an empire. He was beginning to understand what would later become one of his mantras: “Put all good eggs in one basket and then watch that basket.” In explanation, he wrote, “I believe the true road to preeminent success in any line is to make yourself a master in that line. I have no faith in the policy of Carnegie scattering one’s resources, and in my experience, I have rarely if ever met a man who achieved preeminence in money-making—certainly never one in manufacturing—who was interested in many concerns.” Hindsight helped, of course. He now turned to steel.
Chaos = Opportunity
Contrary to the conservative philosophy of battening down the hatches and waiting out the storm, he realized economic downturns provided an opportunity for expansion. “Mr. Carnegie was a genius in two points,” William Temple, a contemporary who became commissioner of the Steel Plate Association, said. “In the first place he exceeded any man I ever knew in his ability to pick a man from one place and put him in another with the maximum effect. . . . His other point of genius was to realize that the real time to extend your operations was when nobody else was doing it.” Carnegie would employ this strategy for expansion in every subsequent economic downturn and each time emerge stronger.
Machiavelli and Carnegie
The Carnegie brothers, and Andrew in particular, were accused of sinister, Machiavellian tactics in capturing control of what had once been Kloman’s iron firm. Carnegie’s loan to Tom for his share in Iron City Forge paid a handsome return of $4,250 in 1863, according to his income tax statement; but something was wrong there. Interest on a $10,000 loan to Tom should have amounted to no more than a few hundred dollars that year, strongly implying the $4,250 was, in fact, a share of the Kloman profits.
Carnegie innately executed the advice offered by Machiavelli in The Discourses for conquering a troubled city (Iron City): “The way to do this is to try and win the confidence of the citizens that are divided amongst themselves [Kloman, Phipps, Miller], and to manage to become the arbiter between them [Carnegie] unless they should have come to arms; but having come to arms, then sparingly to favor the weaker party [Miller], so as to keep up the war and make them exhaust themselves, and not to give them occasion for the apprehension, by a display of your forces, that you intend to subjugate them and make yourself prince. And if this course is well carried out, it will generally end in your obtaining the object you aim at.” Carnegie played the role of arbiter to perfection.
Words
Eternal life, he always recalled to comfort himself, was achieved through words: “What a man says too often outlives what he does, even when he does great things.”
Power > Money
Over the next year, their plans coalesced, and Carnegie returned to England in 1882 to oversee the launch of the newspaper syndicate. The trio now owned or controlled eight modest newspapers located in industrialized cities. He was able to amplify his personality and further define himself through the newspapers. That first summer Carnegie appeared often in the offices of the Wolverhampton Express and gave rousing speeches on the burning issues of the day. The trio’s campaign had an immediate impact as a wave of agitation swept through the laboring class, and the landed gentry feared upheaval.
“I do not think I would care much to enter Parliament even if I were a British citizen. The Press is the true source of power in Britain as in America. Members of Parliament sit merely to carry out the plans dictated by the press, the true exponent of the wishes of the people.” In a January 3, 1883, letter to Storey, he recommended higher advertising rates to boost revenue and also said he wanted more effort put into increasing circulation: “Nothing should be omitted to give it circulation. Money no object as compared with power.”
While he was concerned with costs and receipts, he recognized that the receipts equated to circulation, which equated to the volume of his voice, which equated to the power to influence.
Lessons for the Rising Man
The rising man must do something exceptional, and beyond the range of his special department. He must attract attention. . . . Always break orders to save owners. There never was a great character who did not sometimes smash the routine regulations and make new ones for himself. . . . Boss your boss just as soon as you can; try it on early. There is nothing he will like so well if he is the right kind of boss; if he is not, he is not the man for you to remain with—leave him whenever you can, even at a present sacrifice, and find one capable of discerning genius. . . . “Don’t put all your eggs in one basket” is all wrong. I tell you “put all your eggs in one basket, and then watch that basket.” . . . Look out for the boy who has to plunge into work direct from the common school and who begins by sweeping out the office. He is the probable dark horse that you had better watch.
Press vs Politics
What he really learned was that a thick skin was needed before climbing on the political stage, where the spotlight was harsh. Because the iron and steel trade papers had always supported him, Carnegie had never before faced such public criticism; in the end, he decided the trade-off of political power versus opening himself up to public attack was not worth it. From now on, he would limit his power plays to using his money to influence the men in high positions who wielded power directly. National politics took its toll on Carnegie, who wrote a friend, “Like yourself, I grow less and less keen about politics, which are upon the surface of things only. In the United States, the ablest people have already discovered that there are matters of much greater importance; therefore, our best men are not politicians.”
Money concentrates
“It is a waste of time to criticize the inevitable,” he concluded, and further justified the concentration of wealth in the hands of the few by stating matter-of-factly that talent is rare, as “proved by the fact that it invariably secures enormous rewards for its possessor, no matter where or under what laws or conditions.” He was also convinced that “wealth, passing through the hands of the few, can be made a much more potent force for the elevation of our race than if distributed in small sums to the people themselves.”
The Architect of Peace
So how would the income from a $10 million endowment be expended in the name of peace? The mission was “To promote a thorough and scientific investigation and study of the causes of war and of the practical methods to prevent and avoid it.”
Part of the process for preventing war involved infusing a new attitude in governments and people, he said. The principle of nationalism had to have superimposed on it a new political structure of internationalism, which involved shaping the evolution of the highest institutions in the judicial, legislative, and executive branches from viewing war as an accepted means for settling international disputes to embracing judicial methods for settling them. To begin such a noble crusade, the endowment secured the cooperation of some two hundred eminent international economists, historians, lawyers, and scholars to aid in the research and promotion of peace.
In July 1912, for example, the trustees appointed a commission to study and dissect the economic, social, and political causes and effects of the Second Balkan War. It was hoped that by publishing the outrages committed during the war and clearly illustrating how it could have been avoided, future bloodshed would be averted. Published reports and the endowment’s activities were disseminated on every continent. The endowment paid for exchange lecturers to travel to various countries to promote mutual understanding and peace. Money was donated to peace societies and kindred institutions. Spending the money was not a problem, as it turned out; finding useful causes yielding concrete results remained the difficult part.
Great ideas need great distribution
Writing had always been a means of purging his anxieties and restless energies, and over the next months, he expressed his evolving emotions in a surge of political and economic essays. First, he penned “The Worst Banking System in the World,” published in the February 29 issue of Outlook, in which he admitted the U.S. banking system was the most inferior in Western civilization. Once a devout laissez-faire capitalist, he was now not averse to the government guaranteeing individual deposits and creating a central bank. To promote his ideas, his contribution to the great banking debate from which would arise the Federal Reserve System, he had 70,500 reprints made of the essay and mailed them to every member of Congress, bank and manufacturer chiefs, and sundry men of importance.
The winner of the giveaway is Neha from India :)
The next issue of Intellectual Software comes out on 23rd Jan - We study the world view of the Medicis. I’m fascinated with Renaissance. It’s going to be the most comprehensive study of the family on Substack.
- Abhishek