In 1872 Andrew Carnegie began building the Edgar Thomson Steel Works in Braddock, Pennsylvania, and by 1874 it was turning out railroad rails at a 40 percent return on investment. The method was cost accounting brought over from railroading: he weighed coal, measured limestone and tracked labor hours per ton, while running two 12-hour shifts and holding wages down so he could undercut rivals in downturns and buy their mills cheaply. With George Lauder, Henry Phipps Jr. and Henry Clay Frick, he acquired the Homestead Steel Works in 1883 and tied his mills to Pittsburgh’s Allegheny, Monongahela and Ohio rivers, floating Frick’s coal on Carnegie barges straight to his own furnaces.
The open hearth furnace installed at Homestead in 1886 allowed metallurgists to test and adjust each batch, producing structural steel for skyscrapers and armor plate for the U.S. Navy and foreign militaries. Automation with cranes, hoists and charging machines eroded the bargaining power of skilled union men. In 1892, with Carnegie in Scotland, Frick fenced the Homestead mill with a three-mile barrier known as Fort Frick, and Pinkerton agents arrived by barge to a gun battle that left dead on both sides before the state militia secured the mill. By 1899 the firm earned $21 million in a year, and in 1901 J.P. Morgan bought it for about $492 million to form U.S. Steel.
- Carnegie left the steel frame of his 15-story Pittsburgh headquarters exposed for a year to prove its strength.
- The faster Bessemer process made steel fine for rails but too brittle for structural beams.
- George Lauder ran the armaments business that gave the company high-margin defense revenue during building slumps.
- Carnegie’s personal share of the sale was $226 million, which the episode puts at over $8.7 billion today.
- U.S. Steel kept the Carnegie Steel Company name alive as a subsidiary until 1936.
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