Chapter 74 - Carnegie
Today’s Chapter is based on the book “Carnegie”, a biography on Andrew Carnegie by Peter Krass. Carnegie, the founder of the Carnegie Steel Company, became one of the richest men in the world after selling his company to J.P. Morgan for over $480 million back in 1901. His life is a true rags-to-riches story.
“It’s a very interesting story. Carnegie started in absolute poverty and had only 4 1/2 years of grade school in a one-room schoolhouse with only one teacher for 170 or 180 students. From this beginning came Carnegie Steel and all of his eccentricities.”
— Charlie Munger
Here’s what I have learned:
Relentless Self-Education
“Anyone can become an expert in anything in six months, whether it is hydrodynamics for boats or cyclonic systems for vacuum cleaners. After the idea, there is plenty of time to learn the technology.”
— James Dyson
Andrew Carnegie’s story is a proof that with an insatiable ambition and tireless work ethic, even a poor immigrant worker can become one of the wealthiest industrialists of all time. From a very young age, Carnegie displayed an intense determination to elevate himself outside of poverty. As Carnegie started working by tying weaver’s knots in a factory, he was hardened by the work environment and, at the age of thirteen, “he was consumed with driving away the wolf of poverty.”
Despite being born from poverty and had minimal formal education, Carnegie decided to take things into his own hands; he would use all of his time outside of work to learn and to strengthen his personal knowledge. As a matter of fact, for Carnegie, free evenings were not for pleasure, they were for self-improvement.
“I can surely do something better than that if I don’t it will be my own fault, for any one can get along in this country, I intend going to night school this fall to learn something more and after that I will try to teach my self some other branches.”
— Andrew Carnegie
Not only that, Carnegie was extremely dedicated to learning at whatever position he was working at as a youngster. For example, when he was working as a messenger in Pittsburgh, at night, instead of wandering around, he was working on memorising the names and locations of all the various firms in the city. This was all because of his fear of being dismissed for not knowing the city as a newcomer.
Carnegie, was always quick to pounce on every opportunity and had the desire to learn everything about his own profession. In fact, Carnegie sought to work in different environments that were “conducive to his evolutionary progress”. Notably, he used to work at Colonel Anderson’s library, because he could read as many books as he wanted.
“Colonel Anderson opened to me the intellectual wealth of the world. I became fond of reading. I reveled week after week in the books. My toil was light, for I got up at six o’clock in the morning, contented to work until six in the evening if there was then a book for me to read.”
— Andrew Carnegie
This desire to learn never left Carnegie even after running his successful company Carnegie Steel. In fact, Carnegie once wrote that he would like to resign from business at the age of thirty-five, but that he would wish to “spend the afternoons in securing instruction, and in reading systematically.”
This concept of learning through books remind me of this quote from Charlie Munger:“In my whole life, I have known no wise people (over a broad subject matter area) who didn't read all the time-none, zero.” As we have learned previously, a big reason for Warren Buffett’s success as an investor is due to his understanding of the power of compounding not only in investing but also in acquiring new wisdom. As a matter of fact, a one percent improvement every day leads to 37x improvement in a year.
By constantly reading and learning about new industries, Warren Buffett was able to enlarge his own circle of competences and, by consequence, his potential investment opportunities. As Buffett once said, “Read 500 pages like this every day. That’s how knowledge works. It builds up, like compound interest. All of you can do it, but I guarantee not many of you will do it.”
In her book “The Snowball: Warren Buffett and the Business of Life”, Alice Schroeder goes over how Buffett uses compounding knowledge to his advantage:
“A lot of what the snowball is about the concept of learning, and creating, and the advantage of having the information and knowing it. When I came here today one of the things that I was thinking is that what you do is so much at the intersection, because retrieving information is different from having it already in your head. The internet is wonderful for being able to retrieve and get information.
What you do is different. You work on manipulating how you use the information. In fact, Warren Buffett and Charlie Munger have the files in their head. That’s why they aren’t really out there googling all the time looking for, trying to look stuff up, because they already know it.
There are applications that somebody who doesn’t have the upper digits memory and their computational power would need in order to be as successful as them. Sometimes when they say, we don’t use computers. An ordinary person can be them.
I think a lot of the work that you do here is helpful to the ordinary person, but Warren Buffett or Charlie Munger don’t need it. At the same time, the lesson that they have, which is that learning yourself, making yourself as smart as you can is extremely valid, and not just relying on a library where you can look something up all the time, because a lot of times when you need to make a decision, and you need 50 pieces of information, you need to know it then.
That’s been one of Warren Buffet’s greatest secrets of success.” — Alice Schroeder
Surround Yourself
“If I have seen further, it is by standing on the shoulders of giants.”
— Isaac Newton
What is the most curious about Andrew Carnegie’s story is the fact that he led the expansion of the steel industry in America despite not knowing a thing about steel. As Charlie Munger explained, “That’s what Andrew Carnegie did, of course, he didn’t know anything about making steel, but he knew a lot about judging whether the people he was trusting were good making steel, and of course that’s what Berkshire’s done if you stop and think about it. We have a lot of businesses at Berkshire that neither Warren nor I could contribute much to, but we’re pretty good at judging which people are capable of running those businesses.”
In my opinion, Carnegie learned everything about business by learning from successful entrepreneurs and considering them his mentors. Throughout his life, Carnegie demonstrated a keen ability to identify and learn from those who had already achieved great success, allowing him to navigate the challenges of the business world with remarkable acumen.
In his book, Peter Krass mentions that it is under the tutelage of Tom Scott that Andrew Carnegie learned “the management skills, the financial dealings, and the political maneuvers to build an empire.” Scott was prolific at profiting from railroads speculation. In fact, Scott made big profit by investing in local real estate and commodities and in companies that would thrive from railroad construction. By working under Scott as his clerk and telegrapher, Carnegie was in an advantageous position to not only learn from Scott but to also participate in great investment opportunities.
Moreover, Carnegie recognized the importance of surrounding himself with talented individuals who could provide guidance and expertise. In fact, when running the Carnegie Steel Company, Andrew Carnegie, was truly surrounded by a dream cast with the likes of Henry Clay Frick and Henry Phipps Jr. (both co-founders in Carnegie Steel) and Charlie Schwab.
“Never be so foolish as not to surround yourself with people who are smarter than you.”
— Andrew Carnegie
While Carnegie had the reputation of being a management genius. it was in fact, his top lieutenants who were truly leading the charge and influenced Carnegie’s business philosophy. They were primordial in hiring a motivated labor force, introducing progressive manufacturing processes and managing costs. As, William Temple, a contemporary of Carnegie, once said that, “Mr. Carnegie was a genius in two points. In the first place he exceeded any man I ever knew in his ability to pick a man from one place and put him in another with the maximum effect. . . . His other point of genius was to realize that the real time to extend your operations was when nobody else was doing it.”
Nonetheless, Carnegie was exceptional in the way that he directed his lieutenants into business. Carnegie is often compared to Napoleon Bonaparte due to his leadership skills. John Walker once said, “Don’t ever forget that Carnegie was the Napoleon—that is the commander and intuitive genius, who planned campaigns and executed them with a rapidity and boldness that swept all enemies from his path.”
Carnegie was similar to Napoleon in the way he motivated his troops. Carnegie was always looking for the next Henry Clay Frick or the next Charlie Schwab and he always preferred promoting from within the ranks of Carnegie Steel based on merits.
“I do not believe it possible to found a really great business except upon the Napoleonic plan: every soldier carried in his knapsack a possible Marshal’s baton. To bring an outsider in over the heads of men in service is unjust and should create a revolution. . . . Promotion from the ranks should be the motto.” — Andrew Carnegie
As we have seen previously, a big reason for Napoleon’s success as a motivator of troops was due to his understanding of human nature and of the power of incentives. As a matter of fact, all of an individual’s actions and behaviours can be explained if seen through his or her perspectives and interests. As Napoleon once proclaimed, “If I belong to a party, I am for my party; to an army, for my army; to a State, for my State. (…) That's the only truth.”
“Men are moved by two levers only: fear and self-interest.”
— Napoleon
Furthermore, similarly to Andrew Carnegie, Napoleon was all about taking advantage of opportunities presented in front of him. To Napoleon, nothing happens by coincidence. It is always the result of one's planning and wisdom. To him, being lucky is the ability to exploit accidents. As a matter of fact, for Napoleon, the art of war was just a matter of what he called “military science”. The difference between success in war is one's ability to calculate all the possibilities and to act accordingly.
As Napoleon once said, “A consecutive series of great actions never is the result of chance and luck; it always is the product of planning and genius. Great men are rarely known to fail in their most perilous enterprises. . . . Is it because they are lucky that they become great? No, but being great, they have been able to master luck.”
Philanthropy
“The man who dies rich…dies disgraced.”
— Andrew Carnegie
While Andrew Carnegie is renowned for being one of the wealthiest industrialists of all time, his true lasting legacy lies in his revolutionary approach to philanthropy. Carnegie had very specific beliefs about the responsibilities of the wealthy to give back to society in impactful ways. In fact, Carnegie wrote “The Gospel of Wealth” which is now considered a fundamental document in the field of philanthropy. It is said that Carnegie’s methodical approach to philanthropy inspired John D. Rockefeller to do the same.
In his book “Carnegie”, Peter Krass mentions that for Carnegie, it was the duty of the man of wealth to maintain a thrifty lifestyle and “to consider all surplus revenues which come to him simply as trust funds, which he is called upon to administer in the manner which, in his judgment, is best calculated to produce the most beneficial results for the community.”
As a matter of fact, Carnegie was deeply influenced by Peter Cooper, the founder of Cooper Union who once said:
“I cannot shut my eyes to the fact that the production of wealth is not the work of any one man and the acquisition of great fortunes is not possible without the cooperation of multitudes of men; and that therefore the individuals to whose lot these fortunes fall . . . should never lose sight of the fact that they hold them by the will of society expressed in statute law, so they should administer them as trustees for the benefit of society as inculcated by the moral law.”
— Peter Cooper
As such, Carnegie's vision was for the wealthy to serve as trustees who could apply their superior wisdom, experience, and ability to administer resources in ways that created the greatest good for the community. On this topic, Carnegie once said, “wealth, passing through the hands of the few, can be made a much more potent force for the elevation of our race than if distributed in small sums to the people themselves.”
In the case of Carnegie, he was a big promoter of providing opportunities for self-improvement through education, skill training, and easy access to knowledge. This is exemplified by the fact that Carnegie funded over 2,500 public libraries around the world. Carnegie believed that libraries gave everyone access to knowledge, the very thing that allowed him to elevate himself out of poverty. In the end, Andrew Carnegie donated over $350 million towards causes like education, scientific research, and peace.
Furthermore, Carnegie truly believed that the accumulation of wealth was not an end in itself, but rather a means to a greater purpose — the betterment of humankind. Hence, the reason why he believes that a rich man has the duty to give back to the community and to not be obsessed the concept of acquiring wealth. As he once said, “Man must have an idol—The amassing of wealth is one of the worst species of idolitary. No idol more debasing than the worship of money. Whatever I engage in I must push inordinately therefore should I be careful to choose that life which will be the most elevating in its character.”
Beyond the Book
Read "Compounding Knowledge" by Farnam Street
Read "Standing on the Shoulders of Giants" by Farnam Street
Read "The Gospel of Wealth" by Andrew Carnegie