UNITED STATES—Andrew Carnegie had been born in 1835 in a one-room house in Dunfermline, Scotland, the son of a handloom weaver. Its walls charred by the small hearth which kept it warm. But when the weaving of cloth was mechanized in the 1840s, the Carnegies became impoverished. Under the leadership of Carnegie’s strong-willed mother, the family emigrated to Allegheny, Pennsylvania, in 1848, when Andrew was 13 years old. With his formal education, such as it was, at an end, he found work as a bobbin boy in a cotton mill, earning $1.20 for laboring 12 hours a day, six days a week.
In 1849, Carnegie went to work at the Ohio Telegraph Company, earning $2.00 a week as a messenger boy. He soon mastered telegraphy, learning to “read” messages by ear, and was promoted to operator. There he met Colonel James Anderson, who let working boys borrow books from his personal library, a privilege Carnegie used to the full. He resolved that if he ever became rich, he would give other working boys the same opportunity.
By hook and by crook Andrew put together the largest steel company, that bore his own name. Carnegie. Scrutiny of large companies was intensifying, government prosecution against large companies was heating up. All the “Robber Barons” were getting spanked, even Rockefeller, as the Sherman Anti-Trust Act was applied. They were stay-at-home bankers, railroaders and industrialists bound by the limits of the continental United States. On the other hand, Allied Fruit, with its far-strewn plantations scattered throughout Central America, the very prototype for a Multi-National Corporation, to be emulated by those who followed, was a laboratory for unwatched, unchained capitalism that forged into the great unknown.
Now Andrew Carnegie frankly wasn’t getting younger. He had enough liquid cash to live for hundreds of years, without ever needing to see the money from the sale of the company. Most of his fellow partners at Carnegie Steel were also well off. At the end of the day, Carnegie wished his company would be well cared for after his own death. Carnegie’s personal share amounted to roughly $225 million, to be paid in 5% – 50 year Gold Bonds. That is the creative financing for the sales price of 480 million. Morgan’s new company personally delivered these bond certificates to Carnegie’s Trustee, who in turn had to build a special vault just to hold all of the paper. Carnegie never once went to see them, or had any desire at all to even touch them. I’m not sure if that is in fact true, but I’ve seen it cited close to a hundred times at this point.
And at the end of the day, J.P. Morgan, lover of eight-inch Meridiana Kohinoor cigars (named after the world’s largest diamond) had to secure those bonds with gold before their issuance. In theory at least. Don’t, however, underestimate the fact that Morgan practically controlled the entire US banking industry at this point. Frankly speaking, he could have issued those bonds without a single bar sitting in his vaults, and no one at the time would have dared stop him. Even the US Government couldn’t have stopped him. (Almost no banking regulations and no Federal Reserve at the time. Morgan hadn’t gotten around to doing that yet).
Carnegie knew this, and had to take Morgan at his word. And Morgan’s word, built over years of finely tuned dealings and sophisticated transactions, was for all practical purposes, better than gold itself.
To be continued…
