Thomas M. Carnegie - Career - The Lucy Furnace and Thomson Works

The Lucy Furnace and Thomson Works

Thomas Carnegie played a critical role in the expansion of the Carnegie Bros. & Co. company into the production of pig iron. Iron ore was usually smelted into pig iron first, a brittle but refined product (often cast in ingots) which was usually sold to other companies and turned into wrought iron or steel. Several investors in the Union Iron Mills wished to invest in companies producing pig iron, but William Coleman advised against it and advocated building a wholly owned modern furnace under the company's control. A division of the Union Iron Mills (named the Isabella Furnace Company) was organized on December 1, 1870, and the company's first blast furnace (named the "Lucy furnace" after Thomas' wife) was constructed on 51st Street in Pittsburgh. Most of the investors who joined the Isabella Furnace Company were Thomas' friends, not Andrew's. Thomas Carnegie supervised the operation of the Lucy furnace, and he was almost alone in contributing to its business success. The Lucy furnace was enormous—75 feet (23 m) high with a 20-foot (6.1 m) bosh (the widest part of the furnace and the hottest due to its proximity to the hearth)—and was producing a record-shattering 300 short tons (270 t) a day by 1872. A second Lucy furnace was built in 1877. In 1881, a two-thirds share in the company was sold to Wilson, Walker & Co. and James R. Wilson relieved Thomas Carnegie and John Phipps of their duties overseeing the operation of the furnaces.

Thomas Carnegie's experience in running the Lucy furnaces led him to co-found the Edgar Thomson Steel Works. In early 1871, William Coleman became interested in the new Bessemer process steel-making furnaces, and he traveled throughout Ohio, New York, and Pennsylvania to view these new works. Coleman invited Thomas Carnegie to join him in building the new steel works, and together they purchased 107 acres (43 ha) of land about 10 miles (16 km) north of Pittsburgh known as Braddock's Field (a historic battlefield where French and Indian forces from Fort Duquesne defeated British General Edward Braddock on July 5, 1755, in the Battle of the Monongahela). (Thomas borrowed the money for his investment from his brother.) Coleman and Carnegie lived near one another in Homewood and went to work together on the streetcar, and it was during these daily commutes that the men worked on their plans for the new steel works. Although Thomas asked Andrew to invest in the new mill, Andrew refused (considering it too risky a venture). Thomas then prevailed upon David McCandless, a wealthy Pittsburgh merchant and vice president of the Exchange National Bank. McCandless agreed, and brought in William P. Shinn (a Norman Medal-winning engineer) as treasurer. In the spring of 1872, Andrew Carnegie (while on a bond-selling trip) made a survey of Bessemer steel works in Europe and returned to the U.S. highly enthusiastic about the new project. Andrew subsequently invested $250,000 in the works. Meanwhile, Coleman, McCandless, Scott, and Thomas Carnegie had purchased a newly platted tract in Pittsburgh, subdivided it, and sold the lots at a significant profit. The partners then invested $50,000 each in the steel mill. A new company, Carnegie, McCandless & Co., was formed on January 13, 1873, to build the works.

Thomas was on vacation with Andrew and their mother at the upscale resort town of Cresson Springs in September 1873 when they learned of the failure of the investment bank of Jay Cooke & Company, which precipitated the Panic of 1873. The Panic created financial difficulties for the company, and it floated bonds to stay alive. J. Edgar Thomson, president of the Pennsylvania Railroad and a mentor and close friend to many of the partners, bought many of these bonds late 1873, helping keep the firm afloat. The partners dissolved Carnegie, McCandless & Co. to take advantage of a new Pennsylvania law permitting the formation of limited liability companies, and the Edgar Thomson Steel Company Ltd. was created on October 12, 1874. The company took its name from J. Edgar Thomson, who although not a large investor in the works had a superb reputation as an honest and trustworthy person (an important asset in risky financial times).

Over the next several years, Thomas Carnegie generally oversaw the Edgar Thomson Steel Company. His success in this endeavor was summed up by a corporate historian this way:

Mr. T.M. Carnegie's abilities were too numerous and complex to be summed up in a sentence. He was a man of sterling integrity; and it was a common saying in Pittsburg that his word was better than some men's bond. He had remarkable judgment; and his opinion on commercial questions was valued above that of much older and more experienced men. Quick and keen in his perceptions, cautious but progressive in his ideas, faithful to his engagements, and just in all his dealings, he gave to his company that which corporations are habitually lacking, namely, a conscience.

Other historical assessments conclude Thomas had a solid grasp of the steel business and was a respected manager, even if Andrew considered him overly cautious. William Abbott, chairman of Carnegie, Phipps, & Co., considered Thomas the better businessman than Andrew, "solid, shrewd, farseeing, absolutely honest and dependable." Thomas lacked Andrew's ambition, but "was content with a good, prosperous, safe business and cared nothing for expansion. He disapproved of Andrew's skyrocketing tendencies, regarded him as a plunger and a dangerous leader. Tom wanted earnings in the shape of dividends, whereas Andrew insisted on using them for expansion." Although he shied away from publicity, he was a hard worker and well liked by both management and workers. His one flaw was his drinking: He often left work at noon and drank heavily for the rest of the day.

Crony capitalism was an important part of American industrialism during this period. Thomas Carnegie, however, was not very adept at it. There is conflicting evidence as to whether he mixed widely in Pittsburgh society, with at least one scholar claiming he did and another that he did not. He was reserved at social gatherings, using his attendance at parties to pick up business gossip and industry buzz. He played cards on a weekly basis with Henry Clay Frick, Philander Knox, Andrew and Richard Mellon, and George Westinghouse. His closest friend was David A. Stewart, a co-partner in the Thomson works, and Stewart readily defended Thomas against the criticisms and jibes of others (particularly Andrew Carnegie).

Thomas sold half his interest in Edgar Thomson Steel to his older brother in 1876 after disagreement broke out over whether to build another "Lucy furnace." Thomas Carnegie, however, held no position on the Thomson board of directors, a situation Andrew Carnegie wanted rectified the moment a position on the board became available. This occurred in the summer of 1876, but William P. Shinn (the second-largest stockholder in the company) complained bitterly to Andrew (traveling in Europe) that the seat should have gone to him. Nonetheless, Thomas was not only added to the board but made chairman upon Andrew Carnegie's return to the U.S. a few months later. Shinn eventually had enough, and resigned as manager of the Thomson steel works in September 1879. Thomas replaced Shinn as manager.

Andrew Carnegie decided to stop relying solely on his company's own furnaces for coke, and began seeking to buy the fuel on the open market. Thomas and Henry Phipps had alerted Andrew to the need for a greater and steadier supply for coke for the growing steel works. In 1881, Andrew sent Thomas to meet with Henry Clay Frick, owner of H.C. Frick & Co.—the largest coke producing company in the U.S. Thomas' goal was to induce Frick to buy the Carnegie coke ovens. In November 1881, Thomas proposed selling the Monastery Coke Works near Latrobe, Pennsylvania, to Frick, or at least have Frick take over the marketing and selling of the coke produced there. Thomas' offer came as Frick was planning his wedding, and it fell to Andrew to meet with Frick and his new bride as they honeymooned in New York City. By this time, Thomas had negotiated most of an agreement with Frick, as well as planned the meeting with Andrew. Carnegie took a 10 percent interest in H.C. Frick & Co., Frick took a 50 percent interest in the Monastery coke works, and H.C. Frick & Co. would become the exclusive supplier of coke to Carnegie Bros. & Co. and the Edgar Thomson Steel Works. Thomas was assigned to negotiate the price of coke on an annual basis with Frick, and over the next two years H.C. Frick & Co. made a 23 percent profit on the coke sold. By 1885, Andrew Carnegie had purchased enough stock in H.C. Frick & Co. to own 50 percent of the company. Frick now attempted to buy into the Carnegie steel companies by selling 12 of the remaining 16 percent of the H.C. Frick which he still owned, but Thomas warned him not to try and to instead seek a position as a manager within the company.

Thomas also played a key role in the consolidation of Andrew's businesses. Thomas had become more involved with the management of Edgar Thomson Steel and less with the Isabella Furnace and Union Iron companies. It was Thomas who suggested to Andrew that the companies be consolidated into a single firm, and that Thomas' stake in the new firm be raised commensurate with his managerial role. His older brother agreed. On April 1, 1888, Andrew Carnegie reorganized his iron and steel businesses into one company, Carnegie Bros. & Co., with Thomas holding 17 percent of the stock. Included in the reorganization were the Lucy and Isabella furnaces, Union Iron Mills, and Homestead works.