Friday, December 28, 2007

Andrew Carnegie

I have just finished an interesting new book: Nasaw, David. 2007. Andrew Carnegie (New York: Penguin), which caused me a bit of embarrassment.

In Railroading Economics, I emphasized Andrew Carnegie's role in paying careful attention to the production process of steel in contrast to they banker-like perspective of the Morgan crew, which took over Carnegie Steel. This Nasaw's story is not entirely different, but the emphasis certainly is. Nasaw totally explains that Carnegie ignored any concern with the minutia of the production process, but merely demanded reductions in cost.

The most important cost for Carnegie was labor. He plowed back about 75% of the company's earnings into reinvestment, often in labor saving technologies. But even more important was the crushing of labor, especially the Homestead strike, which allowed him to increase the working day to 12 hours. This victory probably also greased the skids for the acceptance of new technology.

The book is a magnificent production. Nasaw had access to material that nobody else did.

Nasaw shows how important influence was in accumulating for Carnegie fortune. Carnegie reminds me of Balzac, who wrote:

"At the bottom of every great fortune... , there's always some crime -- a crime overlooked because it's been carried out respectably."

In the case of Carnegie, no great crime seems to have been responsible. Instead, Carnegie left a trail of innumerable crimes. Homestead was the most notable, but it had a number of less bloody precedents in his own company. In his earlier career as a bond salesman, Carnegie engaged in an almost habitual dishonesty along with continual shady dealings, such as kickbacks.

Carnegie was a master of accumulating political influence in the US and in Britain.

The most fascinating part of the book was Carnegie's philosophy. An early age, he anticipated the basic idea of Herbert Spencer, who later became his idol. He decided he would accumulate great wealth, then rather than hoarding it, he would distribute it for noble causes.

Smashing the workers at Homestead was a moral act for him. The workers would not know what to do with any extra money they earned. He wrote:

"... there are higher uses for surplus wealth than adding petty sums to the earnings of the masses. Trifling sums given to each every week or month -- and the sums would be trifling indeed -- would be frittered away, nine times out of 10, in things which pertain to the body and not to the spirit; upon richer food and drink, better clothing, more extravagant living, which are beneficial neither too rich or poor."

Libraries, museums, and concert halls would contribute more to human welfare -- especially for people working 12 hours a day.

3 comments:

Anonymous said...

A very minor point: I believe the 2007 edition is just a paperback reprint of the 2006 edition. On the other hand, at the rate I'm falling behind on my reading, I view anything published after 1980 as new.

nightowl said...

Nasaw is mistaken in calling David Brooks a "Scotsman" as he was 6th generation in this country. Nasaw also does not seem to know that Henry O'Reilly is married to Marcia Brooks, David's cousin, and that in the NYTimes obit for James Brooks Dill he is credited with settling the Carnegie Frick dispute with a fee of $1million. They are my relatives and my two cousins direct descendants of David and Marcia.

Nightowl

Robert D Feinman said...

I don't know when Carnegie decided to become a philanthropist, but his motives were questioned even at the time.

The newspaper character Mr. Dooley, spoke on Carnegie's motives. He pointed out that Carnegie built libraries with the great masters (including himself) listed along the frieze, but provided no money for books. An early form of edifice complex.

(The Dooley essay is available on Project Gutenberg, part of "Mr. Dooley Says").

Wealthy people trying to improve their image in history seems to be a popular motivator for philanthropists. I've been critical of philanthropy because of its basically undemocratic nature. If Bill Gates decides he wants to fight Malaria then that's what gets funding. If the money had gone to the government via taxes instead, the way it was allocated would be subject to public debate.

I've a short essay on many of the faults of philanthropy:

Abolish Philanthropy

I should add that I distinguish philanthropy from charity which is the giving a relatively small amounts of money directly to helping organizations. In charity the donor doesn't determine the way the money is spent, in philanthropy he does.