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].

J.P. Morgan was Crucial to the Financial Development of the United States

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An 1882 $5 Brown Back, National Bank of Commerce in New York note, bearing the signature of J.P. Morgan as vice president (lower right), went to auction in September 2007.

By Jim O’Neal

John Pierpont “J.P.” Morgan may have been the preeminent U.S. banker in the last half of the 19th century. He was born in 1837, avoided serving in the Civil War by paying a substitute the traditional $300 to take his place, and started his banking career … first in London with his father and then in New York City. In addition to becoming a famous financier, he accumulated a world-class art and precious gem collection.

It is his role in helping finance the development of the United States that provides the most interest. In fact, throughout the entire span of his lengthy financial career, there was a chronic lack of capital in the United States to fund economic development. This was primarily due to the lack of a strong national bank or a system to monitor monetary policy and ensure adequate liquidity … without triggering runaway inflation.

This situation was exacerbated by a series of “financial panics” that seemed to occur with regularity every 15 to 20 years due to myriad factors (e.g. bank failures, speculative bubbles, asset-liability mismatches, over-leverage, economic recessions, depressions, etc.). The United States had several in the 19th and 20th centuries and we almost collapsed the entire financial system in 2007-08 after the bursting of the housing bubble and too much bank leverage using exotic products. Central bankers around the world are still struggling with economic development while sovereign governments abdicate their fiscal responsibility.

morgan
J.P. Morgan

During Morgan’s career, there was also the issue associated with European investors being skittish about investments in America that were hard to monitor from 3,000 miles away. This was especially true for railroads that were enormously capital intensive. This void created a perfect role for Morgan in New York and his father in London. They could match up sound investments in the United States with eager foreign investors by taking “moral responsibility” (their term) for overseeing their clients’ investment through their bank.

If a railroad went bankrupt, J.P. would personally step in and take charge by managing the bankruptcy, replacing top management, restructuring the financing, installing a new board (often including himself) and staying until the company’s health was restored. This reorganization of railroads came to be called “Morganization.”

Once the essential railroad structure of America had been knitted together into a sound economic and geographic sector, he then turned his talent to industrial organizations. He put together the first billion-dollar corporation by combining several small steel companies with Carnegie Steel and creating U.S. Steel. Next was Edison Electric and Thomson-Houston to form General Electric, one of the original 12 Dow Jones companies.

He and his partners put together International Harvester, financed AT&T, bailed out the U.S. Treasury when they were about to run out of gold during the 1893 Panic, and almost single-handily stopped the Panic of 1907. In this case, he was a national hero, but within a short period many Americans were horrified that one private citizen had so much power. This led to a national monetary commission and eventually the Federal Reserve System of today.

When J.P. Morgan died in 1913 and billionaire John D. Rockefeller read in The New York Times that his estate was only worth $80 million, Rockefeller reportedly shook his head and said, “And to think, he wasn’t even a rich man!”

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].

Big-Money Elections Date Back More than 100 Years

Marcus Alonzo Hanna is considered one of the earliest “kingmakers” in American politics.

By Jim O’Neal

Bernie Sanders just announced his campaign has raised an astounding $222 million to date, with 99 percent coming from individuals!

Money has always been a factor in politics, however, modern political fundraising really got going in 1896 when William McKinley ran for president. It was due to the innovation of a successful Cleveland businessman who had made his personal fortune in the coal and iron industry.

Marcus Alonzo Hanna (1837-1904) was rejected for participation in the local Civil Service Reform Association, so he opted for the world of politics instead. He had some quirky habits like gorging on hard candy, eating chocolates by the box and a belief that government existed to serve business. He preferred the company of other wealthy men and scoffed at books and scholars alike.

He became recognized as the Republican Party boss of Ohio, a state that had produced Supreme Court Justices, presidential cabinet members, and five presidents (this would later increase to eight … the record). Ohio was a wonderful training ground for national politics.

Hanna had successfully backed McKinley (former congressman) for Ohio governor in 1892 and rescued him from bankruptcy in 1893 by paying off a $30,000 business debt. Three years later, he became McKinley’s full-time presidential campaign strategist after spending $100,000 of his personal money securing the Republican nomination for McKinley.

Hanna then positioned McKinley perfectly for the 1896 general election, first by successfully blaming the Democrats for the Panic of 1893 and then becoming the precursor of the modern media consultant. He controlled the political schedule and tailored a message that fit the strategy of the campaign. He insisted that McKinley simply sit on his front porch in Canton, Ohio, receive delegations from all over the country and occasionally issue a carefully worded public speech.

Even the railroads cooperated by reducing fares for Canton-bound Republican delegations. They flocked by the trainload. In a single day, McKinley spoke to 80,000 people, who in turn exchanged greetings and pledged their loyalty. Meanwhile, hundreds of orators crisscrossed the country spreading the word of the Ohio Republican. The campaign paid for the trips and Hanna personally approved every itinerary and all invoices.

Then they countered every speech by Democratic rival William Jennings Bryan by printing millions of documents in German, French, Italian, Dutch, Hebrew and Spanish and then distributing them in closely contested states. This combination of messaging and pamphleteering on such a vast scale cost more money than had ever been spent on any political campaign. New York banks, insurance companies and millionaires were expected to kick in 0.25 percent of their capital and even John D. Rockefeller’s Standard Oil Co. contributed $250,000!

The result was an overwhelming victory and legislators have been chasing “campaign finance reform” ever since. I wish them luck, as the price for admission today is a cool billion dollars. Even Mark Hanna might be shocked by today’s election economics, but I suspect he would adapt rather easily. He was one smart dude!

P.S. Hanna also made it into the U.S. Senate a couple of times before dying in 1904.

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].