Andrew Carnegie's War with his Workers

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2:09Robert Smith! We're starting on July 23rd, 1892. One of my favorite eras. A guy named Alexander Berkman walked into the headquarters of Carnegie Steel in Pittsburgh, Pennsylvania. He said he was an employment agent. said he was there to help the company find new workers, which made sense because Carnegie's big homestead plant was shut down. The workers were out on strike. Berkman wanted to talk to Henry Clay Frick, the guy who was running the company and fighting the strikers. But Berkman was not, in fact, unemployment agent. What? He was an anarchist. He wanted a violent revolution that would bring about the end of the United States of America and set the workers free.

2:56And he thought the way that he could start that revolution was by killing Henry Clay Frick. So he forced his way into Frick's office and shot him. I'm Jacob Goldstein. I'm Robert Smith. And this is Business History, a show about the history of business. One really interesting thing to me about this shooting is at this moment in 1892, It would not have been that surprising to the people of America because this era, the 1880s, 1890s, was super intense and violent in America in a way that I really didn't fully understand before I put together this show. The country at the time was in the middle of a fight between capital and labor, between owners and workers.

3:45And this fight was a fight about ideas. It was a fight about the law. But it was also just a fight, a fight where people were punching each other and hitting each other with sticks and shooting each other and throwing literal bombs. And this moment, July of 1892, was one of the most violent and pivotal moments in that fight. It was entirely unclear which way things were going to go. And it turned out to be hugely important for the future of work in America. So we are going to spend not one but two episodes of business history talking about this 19th century fight between workers and owners. Worth it.

4:22We're going to talk about the ideas and the movements and the laws and the violence. And at the center of this story is going to be Andrew Carnegie on one side and on the other side, the workers at his homestead mill in Homestead, Pennsylvania. I want to start here. I want to get going now by quoting. You don't see this coming. I'm going to quote from a recent article from Bloomberg, Bloomberg News, Bloomberg Opinion. What? Ripped from the headlines. Ripped from the headlines. It's a piece by Adrian Wooldridge. You've probably read his stuff. He's a very smart writer about business and the history of business.

4:58And he recently wrote this thing, putting AI in its historical context, talking about why the backlash to AI is probably going to get bigger. And it's like a perfect setup for these next couple episodes about the 1880s and 90s in America. Economic revolutions produce grievances for three main reasons. They disrupt established ways of doing things, make a small number of people exceedingly rich, and deprive workers and citizens of a sense of agency. Resentment can smolder unnoticed, but then suddenly catch fire in the form of populist movements, wild conspiracies, and violent assaults on machines or people.

5:37I was reading this, thinking about these stories, and I was like, check, check, check, check, and check. So to start now, let's talk about a guy who got exceedingly rich by disrupting established ways of doing things. Andrew Carnegie. Carnegie, who for a moment would become the richest man in the world. Although now that I've said Carnegie four times, I am a little self-conscious. Like, should we talk about the pronunciation? Yeah, here in New York, it's pronounced Carnegie Hall and Carnegie Libraries. But I understand that his family pronounced it Carnegie. Carnegie. And they say it on NPR when the sponsor is some Carnegie Foundation.

6:16They say it that way, Carnegie. It's because he was Scottish. And in Scotland, that's how you say it. How do you get to Carnegie Hall? Practice, practice, practice. So who was he? Okay, well, he was born in Scotland. Like I said, his dad was a weaver, a skilled weaver. who kind of interestingly, in a business history way, was put out of work by automation. The first Industrial Revolution, of course, was largely about textiles. So they became very poor. He grew up extremely poor. They left Scotland, moved to Pennsylvania. And when Andrew Carnegie was like 12 or 13, he went to work in a factory, in a cotton mill.

6:58He worked 12 hours a day, six days a week, which was common at the time. When he was a teenager, he became a telegraph operator like Thomas Edison. It was kind of the thing to do if you were an ambitious young man at the time. And that led him to a job at the Pennsylvania Railroad. And that was where he really got going. He worked his way up and insider trading and kickbacks and what looks to us like just rank corruption, maybe it wasn't perceived that way at the time, was super common. We talked about this in The Gould Show. In The Gould Show, yeah. And so, you know, with those kinds of insidery deals, Carnegie got rich.

7:34He got normal guy rich, not world historically rich like he's going to get later. It's steel that makes him so rich, obviously. He is the steel guy. And the Carnegie and steel story fits in more broadly, you know, business history way with this era we're talking about. Because steel was a technology. We think of it as a basic material now. But there was all sorts of innovations about steel and its use in the railroads at the time. Yes, yes. Steel itself, people had known about it for a long time. Steel is just iron with a little bit of carbon mixed in. It's better than iron in a lot of ways. But it was really expensive to make, to turn iron into steel, until the 1850s or so, when this British inventor named Henry Bessemer figured out a more efficient way to make steel.

8:23Bessemer basically brought scale to steel, made it an industrial process. And Carnegie got into the steel business in part because of Bessemer. Carnegie went to England in 1872 to sell railroad bonds. He was still in the railroad business. He may have actually met Bessemer when he was there. In any case, he saw this Bessemer process, saw that it worked, saw that it was this new way to make steel much more cheaply. And he realized that the railroads were going to switch from iron to steel for their rails. And as a railroad man, he knew that this would be profound. And so he gets into the steel business at a great time, which is going to work out great for him, as we know.

9:11But importantly, he is not going to be making some kind of differentiated branded steel. He's not going to be making special steel that people will pay more for. He is going to be making commodity steel. Yeah, he's not signing his name to every steel beam, just being like, only Carnegie Steel will do. Because it's a commodity business, which means that it competes mainly on price. You do not care who made your steel as long as it's good enough. You are going to buy from anyone. And so what that means is that if you are in this business, you, yes, will innovate. You, yes, can expand and build giant factories.

9:49but you're doing it in order to make your product cheaper. You need to be the cheapest thing in the marketplace or at least have deals with people to buy your stuff. And both of those moves are Carnegie's moves. You know, you've got to get to scale and you have to be out on the technological frontier making this deal as cheaply as you can. And Carnegie really got that. A crucial insight he had was don't worry about the price. He is a price taker, as we say. He doesn't choose what to sell it at. He sells steel for the market price. And the market goes up and down. A lot. A lot, right? There's a glut, so the price falls, so people get out of the business, so the price goes up, so people get back into the business.

10:31But when the price falls, the companies that survive are the ones that can make the product the cheapest. So this is Carnegie's insight. He doesn't worry about the price. He worries about his cost, and he's willing to spend money to become more efficient. He'll use the newest technology so that he can get pennies out of his costs. And once you start looking at your business this way, you see that one of your big costs is the wages you are paying your workers. And a particularly interesting thing about Carnegie, a thing that really, really comes through in the historical record, is he becomes obsessed with paying his workers less at his business.

11:10But in his public life, he becomes this public figure, gives talks, writes essays. In his public life, he has a very different face, a very different persona. Well, he talks about himself as coming up, you know, in a poor town, working in a factory. All these things are stories we have through him. As he says, you know, I am one of the people. I am I was a worker myself. I brought myself bootstrapped myself up from poverty. That part is true. And in fact, the most famous thing he writes is this essay called The Gospel of Wealth that is about dealing with this gap between who he was, poor, and who he is, rich.

11:52Give us a line. The problem of our age is the administration of wealth so that the ties of brotherhood may still bind together the rich and poor in harmonious relationship. The ties of brotherhood. The ties of brotherhood binding the rich and the poor. He wrote about the huge inequality that had resulted from the industrial development of the U.S. And he argued that the solution was not to undo industrial development or, God forbid, to take the money from the rich people. But he said the rich people should voluntarily give away most of their money in ways that help the poor. The best means of benefiting the community is to place within its reach the ladders upon which the aspiring can rise.

12:36Was he full effective altruism? Was he like, I'll make the money and then I will give it away to the poor? Yes, he wouldn't have called it effective altruism. But yes, he thought that rich people would be better at deciding what to do with it than anybody else. That is actually what he thought. And he did, in fact, give away most of his money. Famously, he endowed thousands of libraries. He created what became Carnegie Mellon University. And he created the modern template for rich guy philanthropy. When you look at, say, the Gates Foundation today, that is very much in the model of the gospel of wealth.

13:13And beyond giving away his money and talking about giving away money, Carnegie talked explicitly about unions. And publicly, he was pro-union. He said workers have a right to form unions. He even understood when unions fought against companies bringing in replacement workers to break up strikes. Here's something he wrote in 1886. To expect that one dependent on his daily wage for the necessities of life will stand by peaceably and see a new man employed in his stead is to expect too much. Sounds like a great boss. Lovely guy. In public. In public. The private face, his business face, was quite different.

13:54Despite his impoverished childhood, despite, you know, harmonious ties of brotherhood, Carnegie really didn't like the fact that he had to pay his unionized workers more and more money over time. Didn't like that, didn't want to keep doing it. And eventually he decided he wasn't going to do it anymore. We'll talk about that in a minute.

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16:36If you listen to the ads, the ads are over. If you don't want to listen to the ads, you can join Pushkin+. So we've talked about one side of this story, the rich side, capital, as we call it, in the business business. And we have talked a lot about capital on this show. We have. Entrepreneurs are capital. So let's talk now about the workers. Let's talk now about labor and what it was to be a worker in this time, the 1880s, 1890s. It was a wild time for labor, as we'll talk about a lot on the shows. But first, let's talk about what it was to work in a factory. What it was was terrible, brutal. People often worked 12-hour days, six days a week, sometimes seven days a week.

17:18And that's in a normal factory. We're talking here about steel plants. Giant furnaces, molten metal, 100 degrees in a lot of parts of the factory. One guy said he lost 40 pounds when he started the job because he sweat so much, filled up his boots with sweat. And it was so dangerous. The main steel plant we're going to be talking about is the homestead mill, the homestead plant. And just looking at that one, you find these newspaper stories. Like here's one from 1889. Buried under molten metal is the headline. A ladle containing 30 tons of molten steel boiled over late in the afternoon at Carnegie's Homestead Steelworks.

17:59Another story. Explosion of hot metal. Explosion of hot metal killed another six people. A theme. Hot metal. It's really deadly. And I will note, these newspaper stories, they're not giant banner headlines. They're tiny little three-paragraph stories because this kind of thing happened all the time. And if you've ever been in a steel mill, like, they are moving this hot metal around. And in this era, you have guys, like, just walking unsecured on little catwalks over pools of molten metal. Occasionally, of course, they would fall in and die. This is called making your own mold. You know, no OSHA, no HR, no vacation time, just work, just brutal physical work and a few dollars a week in pay.

18:48And if we zoom out a little bit here and look at the history more broadly, one of the really interesting things about this moment is this whole thing is new. A giant company with multiple factories, with thousands of workers at one factory. This is new. If you go back a generation, a couple generations, there are not big private industrial firms like this. There are little partnerships. There are family businesses. There are, you know, masters and journeymen and apprentices. The division between capital and labor was not as severe as we see. It was not as vast, yeah. And, you know, you did see 50 years before this isolated things that look like labor doing stuff.

19:36You would see sometimes journeymen would organize against their masters in kind of wildcat strikes. They were actually tried for conspiracy. Interesting because they were conspiring sometimes. And in Lowell, Massachusetts, very early industrialization in the U.S., these teenage girls working at textile mills would sometimes spontaneously walk out. But you didn't get like a big national union until after the Civil War. The first big national labor union was called the National Labor Union. Goes in our list of old businesses that said what they were. General Electric, American Can. Just tell us what you do.

20:17National Lead. Don't hear so much about that one anymore. Business History. Show about the history of business. There was also one of the early labor groups kind of on the other end of the name spectrum was the Noble and Holy Order of the Knights of Labor. Ooh, sounds like a secret society, mystical. Casting spells over molten metal. I don't know. And then you had specialized trade unions like, crucially for our story, the Amalgamated Association of Iron and Steel Workers, the AAISW. I don't know why you need amalgamated and association. Doesn't that seem like it's saying the same thing? Too many words.

20:53There had been a bunch of different unions before. One of them had Vulcan in the name, which I really like. I wonder if the amalgamated and the association were different. So they're like, we are now the amalgamated association. This was the union that represented the skilled workers at Homestead. And so you had these different unions and they disagreed with each other about a lot. They were factions. But one thing they converged on was fighting for the eight hour work day. If they had bumper stickers back then, would have been a great bumper sticker. Eight-hour day. At this point, the 10-hour day was common.

21:2712 hours was not unusual. And in 1886, there is this moment, ends up being hugely important, when the different unions all come together and say, we are going to have a national strike. Lots of unions, lots of workers, cities around the country, a national strike for the eight-hour workday. We're going to do it on May 1st. And was this May 1st, International Workers' Day at the time? May Day, like it is today, big for the communists. It was not. It became that in part because of what's going to happen in 1886. Okay. So this happens, in fact, around the country. Hundreds of thousands of workers go on strike on May 1st.

22:06And Chicago was the heart of it. Chicago, this, you know, growing, like, crazy industrial worker city. Tens of thousands of workers went on strike in Chicago that day. The meatpacking plants shut down. The train stopped running. And at the McCormick factory, where they made farm equipment, the McCormick Reapers, this famous piece of farm equipment from the 1800s, at the McCormick factory, the workers stayed on strike. And management brought in workers to replace the strikers, common tactic at the time. And on May 3rd, the union workers attacked the replacement workers, and then the police started attacking the union workers.

22:49They started hitting them and shooting. The police started shooting, and the police killed two union workers. Now, this was rather common at the time. As I mentioned, this was a period of a lot of violence, a lot of, we would call it unrest. But unrest is this kind of sanitized word. People were fighting. People, there were physical fights over this. And so what makes this moment famous is not this fight. It's the reaction to it. It's what happens next. And do you know who is at the center of what happens next? Kind of hope it's the anarchists. The anarchists! The anarchists! So let's talk about the anarchists.

23:26I would like to talk about the anarchists because I have this impression these days when someone says they're an anarchist. They read some books somewhere, but they're solo actors saying, I want to destroy the government. But back then, anarchism was an actual philosophy. It was an organization. It was a thing. They had had a big conference in London a few years before this. If you have a conference with anarchy in its name, you're an anarchist. Lanyard, you know. There in Chicago, where we're talking about, there were at least two anarchist newspapers, one in English, one in German, because there were a lot of immigrant German workers.

24:03So it was real. It was a real movement. It wasn't just random, angry young men. They had a set of beliefs, and of course they disagreed amongst themselves. But the basic idea was the anarchists wanted a revolution to overthrow the government. But unlike the socialists and the communists, the anarchists did not want a dictatorship of the proletariat because they thought it would be heavy on the dictatorship and not so much about the proletariat. They were right. Not wrong. Yeah. What they wanted was to overthrow the government and replace it not with a new government, but with sort of no government.

24:40They wanted people to kind of organize into voluntary communes and collective smaller groups. Hence, hence the anarchy. Hence this idea of anarchy. And the way to get to this world, a lot of anarchists thought, was violence. Violence. Violence to start the revolution. Anarchist newspapers actually wrote how-tos about making bombs from dynamite, another new technology. So it wasn't just the result of their passion for anarchy. This is part of the plan. Yes, violence is part of the plan. They had this phrase, propaganda of the deed. The idea that some high-profile act like an assassination could trigger the revolution.

25:22And in fact, the guy who's going to assassinate President McKinley in 1901 said he was inspired by the anarchists. One of the anarchist leaders in Chicago, remember the city that we're talking about for this moment in 1886, was named August Spies. he'd come to America from what's now part of Germany, worked as an upholsterer, and ultimately became an anarchist. By this point, was editing one of the local anarchist newspapers. So it's May 3rd, that day when the workers were killed outside the McCormick factory. And Spies writes this flyer, essentially, to be printed up and spread around Chicago.