Put simply, Edgar Thomson was Edgar Thomson's biggest customer.
That probably sounds like the sort of deal they did at Enron, where executives traded with themselves in order to boost earnings. Not so. Andrew Carnegie, the man who built the Edgar Thomson Works, was far too upstanding for such shenanigans. (And by "far too upstanding," I mean he failed to come up with them first.) But Carnegie certainly knew which side his bread was buttered on.
It's easy to think of Andrew Carnegie as the original Horatio Alger story: the Scottish immigrant who, through hard work and luck, goes from rags to riches. That's not how it usually works, though -- Andrew Carnegie's father worked hard too, but was penniless and broken-hearted -- even in Horatio Alger stories. What usually happens instead is that the poor young man sucks up to a rich older man. That patron, impressed with the young man's hard work and assiduous bootlicking, sets him up in business, putting him on the road to riches.
In Carnegie's case, there were two such men: Thomas Scott, who worked for the Pennsylvania Railroad and hired Carnegie as a telegraph operator, and Edgar J. Thomson. Thomson -- note the absence of a "p," please -- was president of the Pennsylvania Railroad, which made him a useful guy to know in the 19th century. Scott and Thomson recognized Carnegie's genius early on and also became business partners on numerous speculative ventures. Carnegie grew in wealth and experience under their wing until he was ready to venture on his own.
Even then, he kept his mentors close, and in the 1870s he had good reason to. He was planning to build a mill in Braddock that would be the cutting edge of American steelmaking technology. But with the country just emerging from a recession, he was desperate for customers.
"What to call the Works was a question until 'Edgar Thomson' was suggested," Carnegie wrote Thomson, while apprising him of progress on the plant in 1872. "'Just the very thing' was the unanimous expression." Carnegie maintained the reaction was a tribute to "your exalted character & career."
Not to mention Thomson's bank account. In naming the plant, Carnegie's "primary object was to win Thomson's good will, and through him the good will of the Pennsylvania Railroad," writes Joseph Frazier Wall in his biography Andrew Carnegie. Since ET specialized in making railroad rails, and since the Pennsy was arguably the country's most important railroad, that good will was important. Not only did he need railroads to buy his steel, but to carry it to and from his plant. As Wall put it, "As both producer and seller [Carnegie] was at the mercy of the railroads, and anything to attract their friendly attention ... was worth a try."
It worked. According to The Corporation, a corporate history of U.S. Steel, the railroad "would be the works' biggest customer." He was also its first: In August 1875, he placed the first order from the works bearing his name: 2,000 steel rails.
More than Carnegie's personal charm deserves credit, however. For Thomson, investing in steel rails took courage. According the James Bridge's Inside History of the Carnegie Steel Company, in the 1860s Thomson tried out steel rails in high-use areas. They broke after a year. "Such a result might have been a crushing blow to the use of steel rails if it had happened under the management of a less sagacious man," says Bridge.
If Thomson had been a less forgiving man, Carnegie might have suffered a crushing blow himself. As Wall tells it, not long before work on ET began, Thomson and Scott were heavily invested in a Texas railroad that was about to go bust. Thomson pleaded with Carnegie to help out his old friends, urging that "You should tax your friends, if you have not the means yourself" to help. He then advised Carnegie, perhaps somewhat injudiciously, that "I shall be glad to get out of this ... with a loss of three times your [investment]." Carnegie spurned the offer, and the railroad went bust. He never forgave himself, and years later wrote that "I fear Mr. Scott's premature death can measurably be attributed to the humiliation which he had to bear" as a result.
Makes you glad Carnegie didn't get a chance to run Enron.
