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.

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].

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.

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].

Gilded Age Created Super-Wealthy Americans and their Extremely Large Homes

Cornelius Vanderbilt at one point controlled 10 percent of all the money in circulation in the United States.

By Jim O’Neal

A recent New York Times edition has a follow-up story on America’s most expensive house – a 38,000-square-foot beauty listed at $250 million. The current all-time record is believed to be an East Hampton estate that sold for $147 million in 2014, followed by a California house that sold for $117.5 million in 2013. Apparently, there is another Bel Air project under construction that would dwarf all of these at $500 million.

This may seem like a modern-day phenomenon, but it hardly compares with the late 19th century – “The Gilded Age” – when truly vast fortunes were accumulated to the point it required “creative spending,” and real estate was a favored target. The Vanderbilts were a prime example, as shipping and railroad magnate Cornelius Vanderbilt stood out among other famous names of the day, such as Morgan, Astor, Rockefeller, Mellon and Carnegie. At one point, “Commodore” Vanderbilt (as he liked to be called) personally controlled 10 percent of all the money in circulation in the United States.

Naturally, all these wealthy Americans built homes on a grand scale. Grandest of all were the Vanderbilts. They built 10 mansions in New York alone, all on 5th Avenue, one with 137 rooms. And everyone built more palatial homes outside the city, particularly in Newport, R.I. The super-rich even had the nonchalance to call them “cottages,” despite the fact that they were so big even the servants needed to have servants.

This gaudy ostentation generated such widespread disapproval that a Senate committee seriously considered introducing legislation to limit how much a person could spend on a house (but not how many). These were the days when John D. Rockefeller made $1 billion a year (adjusted for inflation) and paid no income tax. No one did. Congress tried to introduce a 2 percent income tax over $4,000 in 1894 and the Supreme Court promptly ruled it unconstitutional.

Warren Buffet thinks we are better off today since rich folks back then couldn’t buy televisions, luxury cars (with GPS), cellphones, jet travel, microwaves, talking movies, air conditioners, Starbucks lattes … or lifesaving CT scans, organ transplants or statins/vaccines – since they didn’t exist. All they had was money.

So like the Commodore’s grandson George Washington Vanderbilt, they turned to real estate and homes. This Vanderbilt heir decided to build a cottage of his own in 1888, when he was still in his 20s. He bought 130,000 acres in North Carolina and built a rambling 250-room mansion. He hired 1,000 workers to build a dining room with a 75-foot ceiling that seated 76. The estate had 200 miles of road and included a town complete with schools, a hospital, churches, banks, a railroad station and shops for 2,000 employees and their families. The surrounding forests were logged for timber and the many farms produced fruit, vegetables, eggs, poultry and livestock.

He had planned to live there part-time with his mother, but she died before it was complete. So he lived there alone until he finally married and had a daughter. Then he died.

As F. Scott Fitzgerald supposedly once said to Ernest Hemingway: “The rich are different from you and me.” To which Hemingway replied, “Yes, they have more money.” (And thus a famous quote/counter-quote myth was born … with many variations.)

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 chairman and CEO of PepsiCo Restaurants International [KFC Pizza Hut and Taco Bell].

Chicago World’s Fair was More Than a Ferris Wheel, Buffalo Bill and Commemorative Coins

1893-worlds-columbian-exposition-admittance-ticket
A group of 18 World’s Columbian Exposition tickets, including this scarce Benjamin Franklin piece, realized $1,265 at a January 2011 Heritage auction.

By Jim O’Neal

In 2003, bestselling author Erik Larson wrote The Devil in The White City, a non-fiction narrative of a serial killer who murdered up to 200 people using the 1893 World’s Columbian Exposition (the Chicago World’s Fair) as a backdrop. Leonardo DiCaprio reportedly has the film rights and Martin Scorsese will direct.

There was a lot of competition for the fair between Chicago and New York City. NYC bolstered their bid when Cornelius Vanderbilt, William Waldorf Astor and J.P. Morgan pledged $15 million in support. But Chicago prevailed by matching the $15 million from Marshall Field, Philip Armour and Gustavus Swift (of meatpacking fame, who sold “Everything but the squeal,” a highly effective slogan highlighting how they used all animal parts to make other products and eliminate pollution).

However, what sealed the deal was a pledge by Lyman Gage, president of the powerful First National Bank of Chicago, to provide millions of dollars to help finance exhibitors. Gage would later serve as the 42nd Secretary of the Treasury under both William McKinley and Teddy Roosevelt.

Chicago was eager to host the event and demonstrate how much progress they had made after the disastrous Fire of 1871 involving Mrs. O’Leary’s cow. They painted so many stucco buildings white and had new electric lights illuminating so many streets that they earned the nickname “The White City.” They successfully conveyed the image of fresh, sanitary and new. There was also a major initiative called City Beautiful that included cleaning up trash in streets, empty lots and alleys.

A major mistake they made was denying William Frederick Cody (“Buffalo Bill”) permission to perform his famous Wild West Show. Ever the shrewd businessman, he simply set up shop outside the fairgrounds and siphoned off customers. However, the fair’s shaky finances received a big boost when Pittsburgh-based bridge maker George Ferris debuted his new invention – a 264-foot-tall Ferris Wheel. It could accommodate 2,160 people at a time and with a fare of 50 cents (double the cost of a fair ticket), it bailed out the fair and wiped out a big budget deficit.

The federal government also pitched in with the introduction of the country’s first postcards, a new commemorative stamp, and two new commemorative coins. One was a quarter featuring Queen Isabella – who financed the voyage of Columbus. It was the first time a U.S. coin honored a woman. The other was the 50-cent commemorative Columbus coin, both still popular with coin collectors today. The entire fair was an homage to Columbus, celebrating his voyage 400 years earlier, despite being one year late.

On July 12, American historian Frederick Jackson Turner skipped the Wild West Show and the docking of a replica from Norway of a Viking ship – just two of the hundreds of events that attracted up to 28 million spectators to the fair. Turner opted to put some finishing touches on his thesis before delivery at the Art Institute of Chicago that night.

More on his historic speech in my next post.

Jim O'NielIntelligent 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 Chairman and CEO of PepsiCo Restaurants International [KFC Pizza Hut and Taco Bell].