This is the sixteenth in my series of posts about the five businessmen the History Channel profiled in a terribly inaccurate and un-historical TV miniseries titled The Men Who Built America. I’m writing these posts in response to several comments and e-mails from TV viewers who have expressed interest in a more accurate version of the story. (Click here to see all Al’s columns on the program and its subjects.)
Post #16: Carnegie Builds Cars and Bridges
The late 1860’s were a busy time for Andrew Carnegie. As the war was ending Carnegie resigned his position with the Pennsylvania Railroad to focus his energies on a handful of companies, mostly transportation and communication related, in which he held substantial blocks of stock.
One was the Keystone Bridge Company, a bridge building concern he had co-founded with a couple fellow railroad employees in 1862. Another was a telegraph company. A third was the Central Transportation Company, the sleeper car company he had co-founded with inventor Theodore Woodruff. Another important company, a portent of the direction his career would eventually take, was an manufacturing concern called the Freedom Iron and Steel Company that made components and equipment for the railroads.
Always a skillful deal maker, Carnegie functioned as the primary salesman for all four companies. His activities during this period increasingly brought him into contact with wealthy and powerful figures, and he moved in those circles with ease. Although his formal education had ended at age thirteen, Carnegie had always focused on self-education in whatever time he could spare from his work, and by the time he was in his twenties he was able to converse comfortably with well educated “old money” businessmen like Junius Morgan.
One of the deals Carnegie pulled together in the 60’s provided self-help guru Dale Carnegie (no relation) an illustration for one of the principles in his famous book How to Win Friends and Influence People. The principle is “Remember that a man’s name is to him the sweetest and most important sound in any language.” The story has to do with a merger Andrew Carnegie engineered between his Central Transportation Co. and a rival sleeper car company when the Union Pacific Railroad was soliciting bids for cars for the nation’s first trans-continental railroad in 1867.
Carngie’s companywas competing with several other sleeper car companies for the contract. One competitor was George Pullman’s Pullman Palace Car Company. Another was the Wagner Palace Car Company, owned in part by railroad magnate Cornelius Vanderbilt.
It was common for railroad executives to invest in the companies that did business with their railroads, so there was nothing unusual in Vanderbilt’s position. Pennsylvania President and VP Edgar Thompson and Thomas Scott, Carnegie’s erstwhile bosses, similarly both held shares in Central Transportation.
Carnegie’s Central Transportation Co. owned most of the patents for sleeper design, and might well have been able to prevail in court over Pullman, Vanderbilt, and any other competitor. In addition Central Transportation was very well financed, and Scott and Thompson’s ownership positions guaranteed that Central would have a steady flow of profitable business from the Pennsylvania, which with Vanderbilt’s New York Central was one of the two dominant railroad conglomerates in the nation.
But Carnegie recognized George Pullman as a highly capable businessman, and didn’t just want to put him out of business. Carnegie always valued human resources over every other kind, and he wanted Pullman on his team. Pullman had grown up poor and dropped out of school to earn a living early; just like Carnegie, Woodruff, Vanderbilt, and Scott. He impressed Carnegie with his work ethic, his management and marketing skills, and his aggressiveness.
Pullman was also extremely vain. He was a textbook illustration of that principle in Dale Carnegie’s self-help book.
Carnegie approached Pullman on a hotel staircase and suggested merging their two companies and pursuing the Union Pacific contract together. Pullman asked what the new company would be called, and without skipping a beat Carnegie gave the right answer: they would call it the Pullman Palace Car Company. “This suited him exactly,” according to Carnegie, “and it suited me equally well.”
Thier company became the dominant player in the sleeper car business. Eventually even Vanderbilt’s New York Central was using Pullman cars.
Around the time all of this was happening Carnegie started doing business with Junius Morgan for the first time.
In 1862 Carnegie had founded the Keystone Bridge Company to build railroad bridges out of iron, rather than wood, a radical idea at the time. He formed the company with a mechanic and an engineer from the Pennsylvania Railroad. Initially the Pennsylvania was the company’s only customer, but Carnegie’s salesmanship allowed them to broaden their customer base quickly.
In 1865, shortly after resigning his own position with the railroad, he persuaded Thomas Scott to invest $40,000 in the re-organized The Keystone Bridge Company. Carnegie used the extra capital to expand the company’s production facilities. He gave himself the job of drumming up enough business to keep the factory busy.
As early as 1864 Carnegie learned of the existence of the Illinois & St. Louis Bridge Company, a construction company formed specifically to build a bridge across the Mississippi River at St. Louis. He made it his goal to get a contract for part of the bridge construction once it started.
Carnegie coveted the trans-Mississippi bridge project for many reasons. First, of course, was the money. This was to be the largest and most expensive bridge that had ever been built in the United States, and by far the biggest order Keystone had ever had. No less important was the marketing value. The railroad industry was writing the nation’s story in the ninteenth century, and a bridge that would allow trains to cross the Mississippi carried an extremely high profile.
The engineer hired by the Illinois and St. Lewis was James Buchanan Eads, another self-made man. Eads grew up in a poor home and had to drop out of school at an early age and get a job to help put food on the family table. Like Carnegie, he educated himself in what little leasure time he could find. In Eads’ case the self-educational efforts focused on math, science, and engineering.
Eads was born in Indiana in 1820 and named after then-Congressman James Buchanan. Eads would not be the only “James Buchanan” to play a major role in the evolution of the railroad industry in America. In 1856, right after the politician was nominated for the Presidency, a couple in New York City named their newborn son James Buchanan Brady in honor of the event. James Buchanan “Diamond Jim” Brady would grow up to become a legendary railroad equipment salesman who would revolutionized American transportation by selling radical new technologies to reluctant railroad executives.
Construction on the trans-Mississippi bridge began in 1868. Eads’ design called for several granite pillars, two of them in the middle of the river, and an iron superstructure supporting a railroad deck. Carnegie’s Keystone company sub-contracted with the Illinois and St. Lewis Bridge Co. to build the superstructure. The bridge is still in service today; it looks like this.
Building the two granite piers in the middle of the Mississippi was an engineering challenge. The piers had to be built on bedrock, which lay under a hundred feet of water and mud. Eads solved this problem through the use of Caissons, huge structures filled with pressurized air that allowed workers to do their jobs in a dry environment deep in the river.
After the piers and pillars were built the Carnegie’s Keystone company went to work on the superstructure. Not surprisingly, Keystone bought virtually all of the structural iron for the project from Carnegie’s Freedom Iron and Steel Company. Not satisfied with double-dipping, Carnegie found a third way to make money from the nation’s most high-profile construction project.
The Eads Bridge project needed some $6,000,000 in financing before it could get started. American companies still had to depend on loans and investments from Europe in that era, so the bridge company needed someone who could cross the Atlantic to borrow the money. Carnegie persuaded the executives of the Illinois and St. Lewis to hire him to sell the bonds that financed the project.
Peabody and Company, the investment bank that employed both Junius and JP Morgan, made most of its revenue matching up promising investment opportunities in the US with wealthy investors in England and the Continent. JP Morgan worked in the New York office, while his father Junius worked in London. Carnegie traveled to London to negotiate the sale of the bonds, earning himself a $50,000 commission.
The Eads bridge was supposed to be finished by 1871, but fell behind schedule, largely because of Eads’ tendency to haggle with his sub-contractors over every detail. He insisted that Keystone use steel, rather than iron, for various bolts and staves. He demanded unprecedented levels of component testing that forced Keystone to build special machinery to test bridge components before shipment.
Carnegie quite naturally insisted on additional compensation every time Eads required something that had not been in the original bid specifications.
Finally in 1874 the bridge was completed. The general contractor opened it with much fanfare, first leading an elephant across in front of a herd of reporters, and then running heavy trains over it to prove the bridge’s strength.
The mutually profitable collaborations between Carnegie and the House of Morgan would continue for seventeen years before coming to a sudden and acrimonious end in 1885.
Next week’s post will be about the controversial railroad rebates that gave Rockefeller and an advantage over all his competitors.
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