Andrew Carnegie – The Intelligent Collector Magazine

Today’s business tycoons would be wise to not forget the past

A statement on Union Iron Mills stationary signed by Andrew Carnegie and dated Sept. 29, 1870, sold for $6,572 at an April 2013 auction.

By Jim O’Neal

It may come as no surprise to learn that virtually all the major cities in California were incorporated in the same year. 1850 was also the year California became the 31st state to join the United States. It is now the most populous state and supports a $3 trillion economy, which ranks No. 5 in the world … larger than Great Britain. However, you probably don’t know that, in terms of land area, the three largest cities are Los Angeles, San Diego and (surprisingly) California City.

This large chunk of land was formed in the boomlet following World War 2 with the intent of rivalling Los Angeles. Southern California was flourishing due to temperate weather, Pacific Ocean beaches and nearby mountains. It seemed logical that with a large influx of people, all that was lacking were lots of affordable housing, automobiles, streets, freeways and plenty of water to drink and as irrigation for the orange groves.

An ambitious land developer spotted this unique opportunity and bought 82,000 acres of prime California City land just north of the SoCal basin. He commissioned a high-power, architectural master-plan community with detailed maps of blocks, lots and streets. Next was hiring a small army of 1,300 salesmen to promote land sales to individuals, while building a 26-acre artificial lake, two golf courses and a four-story Holiday Inn.

This was land speculation on a grand scale; they sold 50,000 lots for $100 million before the market dried up. Some reports claim that only 175 new homes were actually built. The fundamental reason was that Southern California land development primarily evolved south along the coastline toward San Diego and the prime ocean-front property in Malibu, Long Beach and Orange County. Although the scheme failed, California City was finally incorporated in 1965. Today, the 15,000 inhabitants, many from Edwards Air Force base, are sprinkled liberally over 204 square miles.

A prominent No. 4 on the list is San Jose, which narrowly escaped being destroyed in a 1906 earthquake that nearly leveled nearby San Francisco. When we lived there (1968-71), it was a small, idyllic oasis with plum trees growing in undeveloped lots in the shadow of the Santa Cruz Mountains. There were nice beaches an hour away and for $14.15, PSA would fly you 400 miles to LAX in 45 minutes. In addition to the short drive to San Francisco with all its wonders, Lake Tahoe offered gambling, except when it snowed on the Sierra Nevada, a mere 200 miles away.

Nobody dreamed that the miracle of Silicon Valley was on the horizon and the enormous impact of the Internet would result in the boom-bust of the dot.com era in the late 1990s. The stock market was up 400% and then down 80%, wiping out most of the gains. However, post 2002, and the proliferation of the personal computer, there was another technology revolution that would create more wealth than anyplace in the history of the world.

Apple, Google, Facebook, eBay, Intel, Cisco and Instagram are at the core of a technological society that has revolutionized our economy and communications, our lives and, by extension, the world. Smart phones, search engines and social-media giants – plus a community of 2,000 tech firms and venture capitalists – have generated enormous fortunes. Electric vehicles have morphed into driverless cars and trucks that will result in more creative destruction. AI and robotics will obsolete large swaths of production and elevate privacy and anti-trust concerns that will rival early 20th century government action to break up trusts.

Consider when Andrew Carnegie sold his Carnegie Steel Company to J.P. Morgan in 1901 for an astounding $303 million. He became the richest man in America, surpassing even John D. Rockefeller for several years. JPM then merged it with two other steel companies to form the first billion-dollar U.S. company, U.S. Steel. While Rockefeller continued to expand his oil monopoly, Carnegie devoted the last 18 years of his life to large-scale philanthropy. He literally lived by his credo: “The man who dies rich dies disgraced.” President Teddy Roosevelt would lead the trust-busting that became necessary.

Tim Cook, Mark Zuckerberg, the Google gang and Jeff Bezos would be wise to heed George Santayana’s aphorism: “Those who cannot remember the past are condemned to repeat it.” Especially when social media becomes more addictive than crack cocaine.

Intelligent Collector blogger JIM O’NEAL is an avid collector and history buff. He is president and CEO of Frito-Lay International [retired] and earlier served as chair and CEO of PepsiCo Restaurants International [KFC Pizza Hut and Taco Bell].

Twain’s ‘Gilded Age’ in retrospect resembles a warning – comeuppance wrapped in satire

A signed presentation copy of *The Gilded Age* by Mark Twain and Charles Dudley Warner sold for $5,750 at an October 2017 Heritage auction.

By Jim O’Neal

The Gilded Age was a fascinating time for millions of people. It is typically used as a metaphor for a period of time in Western history characterized by peace, economic prosperity and optimism. It is assumed to have started circa 1870 and extended until the horrors of World War I spread a plague of death, disease and destruction that consumed civilized nations and destroyed four empires.

In France, it was called La Belle Époque (Beautiful Era) dating from the end of the Franco-Prussian War (1871). In the United Kingdom, it overlapped the Victorian era, and in Spain the Restoration. In Australia, this period included several gold rushes that helped the “convict colonies” transform to semi-progressive cities. These are only a few of many examples.

Historian Robert Roswell Palmer (1909-2002) noted “European civilization achieved its greatest power in global politics, and also exerted its maximum influence upon people outside Europe.” R.R. Palmer was a remarkable and distinguished historian, educated in Chicago (taught at Princeton and Yale) who published A History of the Modern World in 1950. I believe it has been continually updated, the last time in 2013. Although I’ve never actually seen a copy, it gets high marks. At a reported 1,000 pages and weighing five pounds, it is not on any of my wish lists. (His wife once commented she felt sympathetic for his students having to lug it around!)

In the United States, the Gilded Age is considered to have started following the Panic of 1873. There were a number of contributing factors. Naturally, the post-Civil War era benefited from the cessation of mindless destruction in the Southern states. Then the extensive rebuilding boosted economic activity at the same time Western expansion to the Pacific Ocean created widespread urbanization.

With workers’ wages in the United States significantly higher than Europe, millions of immigrants were eager to join and this provided the manpower ingredient to natural-resource opportunities. It was a perfect fit – unlimited land, vast forests, rivers, lakes and unknown quantities of gold, silver and coal. We had fur-bearing animals, unlimited fish, millions of bison and weather that was moderate and dependable. In a 30-year period, real wages grew 60 percent as the silhouette of a new world power was taking shape. All without the tyranny that was so prevalent in the world.

Mark Twain (Samuel Langhorne Clemens) actually coined the terminology in a novel co-authored by Charles Dudley Warner in 1873. Their book – The Gilded Age: A Tale of Today – was a typical Twain satire that captured the widespread social problems that were masked by a thin gold gilding. It also obscured the massive corruption and wealth creation of the perpetrators.

This was well before his better-known work The Adventures of Tom Sawyer (1876), which described life on the Mississippi River. The sequel, The Adventures of Huckleberry Finn (1884), was even more popular. First published in England, it exposed the prevalence of racism and the frequent use of the “n” word. The U.S. publication in 1885 only fanned the flames of racial debate.

It was banned in many schools and libraries, remaining controversial during the entire 20th century. As late as 2016, both Huckleberry Finn and To Kill a Mockingbird were banned in a Virginia school. Of course, there was some irony in the fact that our first black president was serving his second term in office.

In fact, Twain’s Gilded Age was meant as a pejorative and didn’t really enter contemporary usage until the 1920s. But it was an apt description throughout the 1870s, until the late 1920s ushered in the crash of Wall Street. With the Union off the gold standard, credit was readily available and the U.S. monetary supply was far larger than before the war.

Northerners, largely insulated from the actual war, sensed the almost inevitability of an industrialize nation and railroads across the country like an iron spiderweb. The early days of the Gilded Age – before the name gained its truer historical meaning – were alive with the optimism and speculation on America’s potential. It was a great run and established America as the greatest country in the history of man.

Twain’s Gilded Age looks in retrospect like a prescient warning – comeuppance wrapped in satire. The Great Depression quickly evaporated the hopes and dreams of millions and then consigned them back to poverty pending another cycle of war followed by prosperity. Andrew Carnegie noted for posterity his opinion on wealth creation: “The proper policy was to put all eggs in one basket and then watch that basket.”

It is hard to draw lessons from these cycles if we consider the current federal government, the U.K. and their Brexit, Africa, most of Latin America, virtually the entire Middle East, and the possible outcome of Hong Kong-China. But we keep trying.

Here’s Why Rosenwald Belongs with Titans Like Rockefeller, Carnegie

A card with signatures and a photograph of President Calvin Coolidge, New York Governor Alfred E. Smith and Julius Rosenwald, circa 1930, went to auction in 2008.

By Jim O’Neal

One fact that is difficult to verify is the total net worth of the Rockefeller family fortune. John Davison Rockefeller Sr. (1839-1937) rose from pious beginnings to become the world’s richest man by creating America’s most powerful monopoly, Standard Oil Company. Scores of muckrakers (especially Ida Tarbell) scorned it as “The Octopus” and posters protested the company by showing it swallowing the world … whole.

He is definitely the most prominent and controversial businessman in our history, especially when the trust he created came from refining 90 percent of the oil produced and marketed in America. His vocal critics charged he was an unscrupulous man who colluded with railroads to fix prices, and conducted illegal industrial espionage and outright bribery of political officials. It took Teddy Roosevelt and his team of stalwart trustbusters to break the trust, but even that inured to his benefit since he had ownership shares in all the new, smaller entities that were created.

Although the business practices were as ruthless and corrupt as charged, he was a quirky, passionate, temperate advocate who was generous and gave enormous sums to organizations like the Rockefeller Foundation, University of Chicago and what is now Rockefeller University. As an old man (he lived to be 98), he was parodied as a harmless billionaire who delighted in giving shiny dimes to needy children.

The actual story has grown much more complex after his only son, John D. Rockefeller Jr. (1874-1960), took over the massive estate and had five sons of his own. The last one, David Rockefeller, died last year and his personal estate was auctioned off this month by an East Coast firm. The total net proceeds were consigned to 12 of his favorite charities, which will create another layer of veneer over the money. What we know is that 1,500 items sold for over $832 million, setting 22 records in the process.

Another son of Junior was Nelson Rockefeller (1908-1979), who was governor of New York and made unsuccessful attempts to snag the GOP presidential nomination in 1960, 1964 and 1968. After serving in other high-profile positions, he was chosen by Gerald Ford to be the 47th vice president of the United States after Richard Nixon’s resignation. Rockefeller holds the distinction of being the last VP to decline to seek re-election when he decided not to join the 1976 Republican ticket with Ford.

Andrew Carnegie (1835-1919) was another famous philanthropist who made a fortune in steel and spent the last 18 years of his life giving $350 million to charities, foundations and universities. “I should consider it a disgrace to die a rich man.” Both the Rockefeller and Carnegie names have been well known throughout the 20th century, primarily because of the numerous foundations and buildings that bear their names.

But let’s focus now on an equally generous man who is largely forgotten because no foundations and few buildings mention him.

Julius Rosenwald (1862-1932) made his fortune the old-fashioned way. He earned it. He started running a clothing store in Springfield, Ill., and then went to New York to learn about the garment business. When he returned to Chicago, he opened another modest clothing store, but also started shrewdly investing in a small catalog store with the undistinguished name of Sears, Roebuck & Company. When co-founder Richard Sears left the company in 1908, Rosenwald assumed a leadership role. With financial help from Henry Goldman (son of Marcus Goldman of Goldman Sachs), he expanded the company with a massive 40-acre mail-order plant on Chicago’s West Side.

Then, in an unprecedented move in 1906, an IPO with Goldman was created, and Sears became a public company. Rosenwald had climbed from a vice president to chairman and CEO, and the new plant in Chicago, with a staggering 3 million square feet, became the largest building in the world. In the process, Sears became America’s largest retailer and people all over the United States discovered how to order using the mail, after hours of thumbing through the sacred Sears catalog.

The demise of Sears is well known and the company is currently being dismantled and sold by brand. It may not be as quickly forgotten as Julius Rosenwald, who went to extremes to be modest. When he died in 1932, it is estimated that he had donated $2 billion to a wide range of interests, including projects that funded African-American education in the South. He funded a program to construct elementary and secondary schools in any willing black community. Over a 20-year period, 5,000 schools were constructed in the South, 90 percent of all buildings in which Mississippi’s black youngsters received an education.

Not bad for a generous man who had no need for recognition, just a desire to help needy people. Now another generation of people will know what he did, in such a humble and modest way, by insisting on closing his foundation after his death and opposing the attachment of his name to so many projects.

Bravo.

Carnegie Coveted Crown of Richest Man in the World

This Andrew Carnegie photograph – inscribed, signed and dated Dec. 11, 1917 – realized $1,015 at a September 2011 Heritage auction.

By Jim O’Neal

Jeff Bezos of Amazon is the world’s richest man, with an estimated net worth of more than $100 billion. A hundred years ago (1916), John D. Rockefeller became America’s first billionaire, which in today’s economy would be two to three times greater than Bezos’ fortune. In the late 19th century, Andrew Carnegie coveted this crown and saw steel as his road to stardom.

In the post-Civil War era, America grew rapidly as railroads crisscrossed the country and extended their reach to all four corners. Electricity arrived to light up buildings and homes, oil supplemented kerosene and coal, iron and steel production grew as demand soared to keep up with rapid economic expansion. Occasional booms/busts occurred since the markets were unregulated and coordination was difficult.

Carnegie had led the growth in the American steel industry and his ambition to snatch Rockefeller’s crown became more acute. One of the key industry developments involved the construction of a steel bridge to connect St. Louis and East St. Louis on opposite banks of the mighty Mississippi River. The Eads Bridge, named for its designer, engineer James B. Eads, relied heavily on steel for its revolutionary design. It was set to become the first significant bridge using steel girders and a cantilever form.

A young Carnegie supplied the financing and the steel, despite skepticism over the sturdiness of the structure after it was completed. A man named John Robinson came up with a clever way to dispel any doubts. Elephants were believed to have good instincts about where they stepped, so Robinson borrowed a fully grown one from a traveling circus. On June 14, 1874, he led the beast across the length of the bridge, with crowds on both ends going wild. Later, a convoy of locomotives were driven back and forth as a further (and final) test of soundness.

On July 4, 1874, the bridge officially opened with General William Tecumseh Sherman driving the last spike as 150,000 people looked on. Demand for steel exploded, forcing Carnegie to develop creative ways to boost production. One was a modified vertical production technique that maximized factory output. But that was still not enough. It became obvious that a 12-hour, six-day workweek was needed. The only problem was that workers’ health couldn’t keep up. Carnegie hired tough managers to impose the onerous schedule and he left for Scotland to escape the critics. Later, his guilty conscience led him to an unprecedented binge of philanthropy after he sold the Carnegie Steel Company to J.P. Morgan for $480 million. It became U.S. Steel, the first billion-dollar corporation in the world.

John D. Rockefeller took an even more devious strategy to his domination of the oil-refining industry. In 1872, he formed a shell corporation: the South Improvement Company (SIC). He then struck an agreement with large railroad companies whereby they sharply raised freight rates for all oil refineries, except those in the SIC (notably Standard Oil), which received substantial rebates – up to 50 percent off crude and refined oil shipments. Then came the most deadly innovation – SIC members also received “drawbacks” on shipments made by rival refineries. So when Standard Oil made shipments from Pennsylvania to Cleveland, they received a 40-cent rebate on every barrel, plus another 40 cents for every barrel of oil shipped by every competitor!

It has been called “an instrument of competitive cruelty unparalleled in industry.” In fact, it was collusion on a scale never equaled in American history. And it was only one of several techniques employed. But it did help Mr. Rockefeller and his investors achieve a 90 percent share of the entire U.S. oil business.

All Bezos has is the internet.

Carnegie Had a Simple Philosophy on How to Spend Your Life

A photograph dated May 1918, signed by Andrew Carnegie, his wife and his daughter, sold for $1,075 at a September 2011 Heritage auction.

“I should consider it a disgrace to die a rich man.” – Andrew Carnegie (1887)

By Jim O’Neal

Andrew Carnegie was born in 1835 in a one-room house in Dunfermline, Scotland, near the northern shore of the Firth of Forth – which is the estuary (firth) of several Scottish rivers, including the River Forth. One should not be surprised to learn that a major employer in Dunfermline today is Amazon. (How else to provide two-hour deliveries to Prime customers everywhere?).

The Carnegie family made it to Allegheny, Pa., and that’s where the young (uneducated) Andrew began his remarkable career. He started as a telegraph messenger boy for the Ohio Telegraph Company and culminated his career with the formation of the Carnegie Steel Company. By 1889, the production of steel in the United States had surpassed that of the entire United Kingdom … a mild embarrassment since Sir Henry Bessemer had invented the first inexpensive process for the mass production of steel using molten pig iron.

When Carnegie sold his companies to J. Pierpont Morgan in 1901, Morgan proceeded to consolidate the entire steel industry in America to form the United States Steel Corporation. This was the first corporation in the world with a market capitalization of over $1 billion. Carnegie’s share was $480 million, which temporarily vaulted him into first place for the Richest Man (a situation John D. Rockefeller soon rectified).

But Carnegie was always more concerned about the best way of dealing with the new phenomenon of wealth inequality and wrote about it in 1899 in The Gospel of Wealth, an article that described the responsibility of philanthropy by the new upper-class, self-made rich. He proposed reducing the stratification between rich and poor by having the wealthy redistribute their surplus instead of passing it along to heirs.

Thus, Andrew Carnegie became the rarest of multimillionaires when the enormously wealthy Scottish immigrant gave the nation one of the most remarkable gifts in history … 1,689 public library buildings in 1,421 communities. The value of his gifts – made between 1886 and 1917 – comes close to $1 billion when adjusted for inflation.

Carnegie funded library buildings in many expected cities, including Pittsburg (his adopted hometown) and New York, but also in places like Jennings, La., and Dillon, Mont. Another added twist was that he only donated money for a building, and only if the local taxing authority agreed to provide the site, then furnish and maintain the library with an annual pledge of 10 percent of the gift. This cleverly motivated local citizens to stay involved, something an outright donation might not have accomplished.

Carnegie had a simple philosophy on how a person should spend their life – the first third getting a first-rate education, the next third making money, and the last third on philanthropy. Not a bad plan. Carnegie focused his charity on promoting education, peace and equality. When he died, the remainder of his estate, some $30 million, was donated to his causes. The Carnegie name is on far too many buildings and foundations to list … you know many of them.

For some reason, it has always irked me to watch the ultra-rich of today shield their money from taxation by stuffing it in non-taxable, charitable foundations (run by their family), take their income in low-tax dividends, and then complain when their secretaries pay a higher income tax rate … then encourage the feds to raise the tax rate on my pension.