CARNEGIE, MORGAN, AND THE AMERICAN STEEL INDUSTRY
Andrew Carnegie was an American success story. As a child he worked in a cotton mill for $1.20
a week. Young Carnegie soon began making remarkable successful investments. On different occasions
he was involved in bridge building, oil companies, and iron production. He achieved his greatest power
and wealth in steel production.
Carnegie led the consolidation movement in steel production. He formed Carnegie Steel
Company in 1892. In it he brought together plants from several different cities, basing his operations in
Pittsburgh. Carnegie was successful for several reasons. He constantly strove to increase production
levels in his plants. He desired to produce the highest quality product for the lowest possible cost. To
do this he hired the best chemists and metallurgists. He was an aggressive salesman who was ruthless
when dealing with competitors. Both legal and illegal actions were taken to drive his competitors out of
business. Carnegie also became involved in many industries related to steel production. This type of
involvement was known as “vertical integration.” He purchased mines to provide his plants with coal
and iron ore, and railroads and steamships to transfer the coal and ore to his factories. Carnegie was
the first to practice vertical integration on a large scale, and his pattern is a model that has been copied
by countless companies.
By 1901 Carnegie was an old man who had tired of the steel industry. He sold Carnegie Steel to
J.P. Morgan, a wealthy banker and railroad man, for $492 million, an enormous sum at the time. Freed
of the responsibilities of running his company, he devoted the rest of his life to giving away his fortune.
Carnegie once said, “The man who dies rich, dies disgraced,” and thousands of libraries, hospitals, and
colleges received money from Carnegie to finance new buildings.
While Carnegie distributed his fortune, J.P. Morgan continued the expansion of his steel empire.
Shortly after purchasing the company, Morgan refashioned it into the enormous U.S. Steel Corporation.
Morgan continued the process of vertically integrating the company. By controlling the raw materials
and transportation needed for steel production, Morgan was able to operated U.S. Steel without
worrying about the outside interference. At the formation of the company, U.S. Steel controlled 60% of
the steel production in America. It produced half of America’s rails and nearly all of its wire and nails.
Pittsburgh was the most important of the steel producing cities for nearly a century. It
possessed many of the ingredients necessary for a successful steel industry. It was near large coal and
limestone deposits, had a navigable river to provide transportation, and had a large enough business
com unity to provide investors and aggressive businessmen. It lacked iron ore, but his was easily
transported by freighters across the Great Lakes from Minnesota.
Men such as Carnegie and Morgan dominated the end of the nineteenth century. They piled up
riches in an age before income taxes, government regulations, or strong unions. In the last decades of
the nineteenth century, big business dominated American life and politics like it never had before and
never has since.
CARNEGIE, MORGAN, AND THE AMERICAN STEEL INDUSTRY
CHALLENGE QUESTIONS
1. Where did Andrew Carnegie work as a child?
2. What city was the base of Carnegie Steel?
3. What strategies did Carnegie employ that made him a successful businessman? How does this
exemplify Horatio Alger’s idea?
4. Carnegie was among the first to make his company “vertically integrated.” What does this mean?
5. What did Carnegie do with his money after he sold Carnegie Steel to J.P. Morgan?
6. What name did J.P. Morgan give his new company?
7. Why was Pittsburgh a good location for the steel industry? (Think about the idea, L-R-$-P)
8. What percentage of steel production did U.S. Steel control? Why does this matter? Is this good or
bad for the economy and why?
9. Few limitations were placed on businessmen in the nineteenth century. List two modern factors
that Carnegie and Morgan didn’t have to face.
10. What did Carnegie think about men who died wealthy? Why do you believe he thought that? What
affect do you think his philanthropy had on his legacy?