#284 Andrew Carnegie and Henry Clay Frick

0:00 One of America's wealthiest men. His holdings value and more. than a hundred billion dollars in today's dollars. Sat up in his sick bed. In his Manhattan home.

0:09 And called to one of his caregivers for a pen and paper. Andrew Carnegie. Eighty three. Once the mightiest industrialist in all the world was now an influenza ravaged man.

0:22 He took up his pen and began to write as if possessed. When he was finished. He summoned to his chambers his longtime personal secretary James Bridge. Take this to Frick, Carnegie said.

0:34 as he handed the letter to his old confidant. It would have been enough to snap Bridge upright. Surprised enough to hear Carnegie mention that name. Much less hand over a letter to that person. True, Henry Clay Frick.

0:46 was a fellow giant of industry. And he and Andrew Carnegie had been partners once. Frick. had been the man Carnegie trusted. Above all others.

0:55 to manage the affairs of Carnegie Steele. But the two men had not exchanged a word in nearly twenty years. Not since Carnegie drove Frick out of the business. And Frick successfully pressed a monumental lawsuit against his former partner. The first

1:10 In a long string. A vengeful acts. Had Carnegie divulged the contents of this letter? The secretary's expression Would have likely turned.

1:20 To outright astonishment. Bridge left Carnegie and made his way down Fifth Avenue from the awe inspiring sixty-four room mansion. Across from Central Park. to an even more imposing structure. Some twenty bloc south.

1:34 Bridge arrived at the Frick Mansion. A modern day palace that its owner had vowed would make Carnegie's Place. Look like a hovel. Frick. Like Carnegie.

1:45 was white bearded By now as well. He would have never been mistaken for Santa Claus. Frick's countenance. Was intimidating.

1:53 You see That his head is there. For his triumph And your defeat.

1:59 One of his contemporaries observed. That's why Carnegie had gone to great pains to portray himself as a benevolent friend to his workers. He had delegated the job Of holding the line. On wages and other demands to frick. This is a fantastic metaphor.

2:13 A patent. To Carnegie's FDR. As it were. Frick tore open the envelope and scanned its contents. Frick glanced up.

2:23 So Carnegie wants to meet me, does he? A meeting was precisely what Carnegie had called for. Carnegie had reason that both he and Frick were growing old and that past grievances were beneath their dignity. They were first among equals. Surely it was time to meet and patch up the wounds.

2:37 They had inflicted upon each other. The words might have touched a cord. in almost any other man. But Henry Clay Frick Still the ranking board member of US Steel.

2:47 Show no sign of gratitude or relief. By this time Bridge might have been edging to the door. Frick's Ire was legendary. He had gone toe to toe with strikers. Assassins.

2:57 А івен Карнігі гімс. and had rarely met a grudge he could not hold. Long before Frick had constructed the mansion. that would dwarf Carnegie's up the street. He had gone out of his way to

3:09 to purchase a part of land in downtown Pittsburgh. Then he built a skyscraper tall enough to To cast Carnegie's own office building next door. In perpetual Shadow.

3:21 Yes, you can tell Carnegie I'll meet him, Frick said. Finally wadding the letter and tossing it back at Bridge. Tell him I'll see him in hell. Where we're both going. That was an excerpt from the book that I'm gonna talk to you about today, which is Meet You in Hell.

3:34 Andrew Carnegie, Henry Clay Frick. and the bitter partnership that transformed America. And it was written by Les Staniford. So the last seven to ten days I've done something that I don't normally do. I was traveling for the holidays and I usually read one book at a time.

3:46 I was actually reading three books at the same time. So I re read this book. Uh, because I just did the the last episode, which is episode two eighty three, which is on uh the autobiography of Andrew Carney. To prepare for that podcast, I re read my highlights, all of my highlights. uh and notes for this book and it made me realize how much I love this book and how great it was writ like what how great the writing was.

4:07 And I actually think this book is easier to learn about the life of Andrew Carnegie than his own autobiography. And it has to do with not only the quality of the author's writing, but also Uh the main focus of the book is on the relationship and the partnership. One of the most important partners partnerships. maybe the most important partnership. uh that Andrew Carnegie ever had, and that is with another formidable individual named Henry Clay Frick.

4:27 And so it's through the rereading the highlights, I was like, Oh, I'm gonna do this right now. While the autobiography of Andrew Carnegie is fresh in my mind. I also have been reading a uh book on the the founder of Rolls Royce. And another new book on uh Jay Gold. So those are gonna be the next two episodes after this one.

4:44 So if you listen to last week's episode, there's gonna be some review here, but there's a ton of new information. I wanna jump right into Less the author Less is a fantastic uh job of really setting the scene of what it was like the technol the multiple technological revolutions that are occurring in America in the mid to late eighteen hundreds.

5:02 Almost every single Robber Baron. uh makes a cameo, makes an appearance. In this book. But the part that I want to start with is why steel was so important. By the at the end of the book.

5:12 We'll go over Andrew Carnegie selling his Steel Company to JP Morgan. At once that transaction is done, it is said that Andrew Carnegie Had the largest liquid fortune in the world at that time. How is that possible when he starts out as a thirteen, a twelve or thirteen year old?

5:29 immigrant to Amer pennyless immigrant to America with no education. And a large part of that is what Jeff Bezos said in the shareholder letters. last week or the week before, where you should really pay attention to technological trends and use them as tailwinds instead of headwinds. So this is why steel was so important. It was a leading technology of the day. Remember, we define technology as it's just a better way to do something.

5:50 And so steel's going to be an incredibly important ingredient. in a large technological revolution that's occurring in America at the time, which is the the vast expansion of the nation's Railroad system. And so it says as the civil war began, there were fewer than thirty thousand miles of track. In all of the United States, and much of that was in varying gauges and states of repair.

6:10 So not only is it going to expand to many times that size, but also all those ra railroad uh tracks have to be redone because it has to be standardized. So it says the eighteen nineties, which is the this is occurs for the explosion. of Andrew Carnegie's steel company. Happens in the eighteen nineties.

6:25 The eighteen ninety saw the width of railway tracks standardized and nearly a hundred and sixty three. Thousand miles. of railways put into use. To build this vast network of track and bridges, no supporting industry is more important than iron and steel. There's dual technology.

6:41 Tailwinds here, you have this vast expansion of the railroad network, right? And then you also have The technological advancements That allowed for the mass production of steel and the vast expansion of the rail system proceeded hand in hand to the end of the nineteenth century.

6:57 By the time Carney is done. The United States goes from being behind most of Europe. More steel than Great Britain. France and Germany combined.

7:09 And so it says in less than half a century the United States had been transformed From a largely agrarian and underdeveloped federation of competing interests. to a relatively cohesive ear economic Jug or not. And then he ends the section with just excellent writing.

7:23 The age of remember we're we're at eighteen sixties to let's say eighteen ninety. The age of the founding fathers was over. And the age of Titans had begun. And this is when you start to see truly j for the first time in history truly gigantic businesses, they talk about standard oil, Rockefeller's obviously in here.

7:41 Uh, Vanderbilt's transportation network is obviously going to be in here as well. And of course, Carnegie's combination of his steel company with Morgan's JP Morgan's steel company creates the world's very first billion dollar corporation. There's also so those are like obviously the larger businesses, but Henry Clay Frick, you're still going to be able to br to produce and to create. really valuable businesses, even if they're not the largest in the world. So Henry Clay Frick He actually becomes partnership with

8:05 Carney. First by monopolizing the Coke industry. So Coke uh they're they're gonna refer to it this is Coke dot the book. It is baked bituminous coal. And this is why Coke is

8:16 important and how Henry Clay Frick was able to leverage his domination of Coke to be a major shareholder in Carnegie Steel, which makes him a ton of money. But anyways, uh Coke is a substance that could provide The fuel necessary for the economical production of steel in significant quantities. And so Henry Clay Frick's company is eventually gonna be valued. Uh and they think the valuation was modest, uh actually lower than the actual value, but It's gonna be uh eventually valued at seventy million dollars. Seventy million dollars and eighteen hundred dollars is, you know, m multiple billions today.

8:47 So before the author introduces us to Henry Clay Frick. He gives an overview of Andrew Carnegie's life. I'm gonna read it This is n there's gonna be some overlap between the this episode and the the and the autobiography of Andrew Carnegie, but uh they're in I consider them in addition to, not in replace of. But I want to read a bunch uh from this section because you see how There is massive growth occurring in

9:08 A ton of the new industries all at the same time. From railroads to telegraph to oil. to iron and then steel as well. And that's to say nothing of the the bunch of the bankers and the financiers.

9:19 uh that are in this book and that are building great wealth at this point in American history. So the first job Carnegie finds in America, he's working as a bobbin boy in a weaving mill. He's making a dollar twenty week. I'm gonna fast forward to the next job. It says Carnegie found a clerk's position in another mill, and then happened into a position as a delivery boy for a telegraph company in downtown Pittsburgh. For two dollars and fifty cents a week. Before long, Carnegie had picked up telegrapher skills.

9:43 Including the ability to translate the clicks and clacks of Morse code directly into text or speech. His skills and self confidence attracted the notice of of a number of influential customers. Including Thomas Scott. Who is then

9:54 Assistant Superintendent of the Pennsylvania Railroad. So I did think it was interesting how Carney's always taking advantage of the opportunities in front of him and that one opportunity is in front of him, he's doing the best job he can and leads up to his next opportunity. Really I'm skipping over a bunch of that because I covered that last week. But also the the main point, the real important reason that Thomas Scott the role he played that was really important in Tru Carnegie's life. is he introduced Carney to the larger world of business. And so a young Carnegie has a front row seat inside of an industry that is that is touching all different industries.

10:24 And that position that Carnegie has is going to lead to all kinds of business opportunities, investments and they really This is a scratch course on entrepreneurship and learning how to make money. The real benefit to Carney was the practical business education that he received from his association with Scott. And so what's occur gonna occur over the next few pages, the note I have here is this is where he becomes an entrepreneur. And one thing that

10:43 Carnegie did that was smart is he always knew that he's able to access these opportunities. Because of his position. with the railroad company. And his relationship with Thomas Scott. And so this is where Carnegie makes his first investment in oil. Carnegie was approached by a group of businessmen who persuaded him to visit the region north of Pittsburgh, where a new substance known as oil had been discovered.

11:03 Carnegie took a l one look at the mad scene in Pennsylvania's new oil country and made his decision. He was able to raise the necessary cash. and join a group of investors to found the Columbia Oil Company. Just two years later, he was receiving nearly eighteen thousand dollars in yearly dividends. from the new company.

11:21 So to put that in perspective, people working in the factories. are w making maybe a hundred to two hundred dollars a year. And Carnegie's making this much money and he's still got a full time job. with the railroad. It was a lesson that Carnegie would not forget. When another such venture presented itself in eighteen sixty two, he did not hesitate.

11:34 The incidence of sabotage on the North Rail lines had greatly increased during the civil war. With wooden bridges being uh vulnerable to arson. Carnegie's mentor Scott approached him with the notion that he might take advantage of his contacts around the Pittsburgh Iron Mills and Rail Yards to assemble a group that could make bridges of a substance far more difficult to burn.

11:54 And looking back on his career, Carnegie talked about how important this decision to start the bridge company was the Keystone Bridge Company was formed and to Carnegie it was the investment that turned out to be what he said, quote The parent of all other works. And so his business income is

12:10 Far outstripping. His salary. Uh, says Carnegie was earning more than$45,000 a year from this and all his other investments compared with just$2,400 from his railroad salary. Yet he understood. There was the contacts he made. And the information he derived from his association with the railroad.

12:27 That made everything else possible. So let's pause there before we go into the expansion of his of young Andrew Carnegie's empire. Think about it. He's al look at the the the different industries he's already touched, right? He learned how to be a telegraph operator. Telegraph is s the leading communication technology of its day, right? He's working for the railroad company, the leading transportation network and technology of its day. He's making investments in oil, the leading commodity of its day. He's working in iron, which leads him to steel. Which winds up becoming the most important ingredient in manufacturing of his day.

12:55 So it says Carnegie joined with his bridge building partners to form the Cyclops Iron Company, which would allow them to secure the raw material for their projects without dealing with a middleman this strategy. So Carnegie, like I said last week, he always wants to control over He wants control over anything that his business needs. More control means less cost and more profit is the way he thought about it. This strategy is going to what is what brings him to his life to intersect with Henry Clay Frick. Remember this part.

13:23 when JP Morgan later in the book is analyzing Carnegie's Steel company realizing uh uh. I don't want to compete with that. So this goes on for a few years. Eventually he's got he has no choice. He's gotta quit his job. He can't he he's like, I'm going for all in on this.

13:36 Determined to make a fortune and certain that he could never do as a salaried man, he tendered his resignation to the Pennsylvania Railroad. And turned his energies to iron. And then he also does something that's really smart. You have to go to where the action is. This is car Andrew Carnegie at age thirty three. Carnegie had made another significant decision. He had left his adopted hometown of Pittsburgh. Taking up residence in New York City.

13:56 He had decided that if he aspired to join the ranks of society's greats, he should have a presence among them. So this point in Andrew's career, he's got His hands on a bunch of different things. He's up it says he's operating at full throttle all the time. And this is where he comes to the conclusion that's like, Well, what's the best way to actually produce and generate the most amount of wealth? And so it says, uh, perhaps it made more sense to end the scatter shot approach to accumulating wealth.

14:18 And put all good eggs in one basket and then watch that basket. The question was Which eggs and which basket? So he takes a trip to England. This is where he meets with Henry Bessemer, but he's going to be the inventor. of the Bessmer process for producing steel.

14:33 Interesting enough. So that happened in the eighteen seventies. That trip is also where Carnegie met Junius Morgan, which is JP Morgan's dad. So on the same trip he meets JP Morgan's dad.

14:45 JP Morgan is going to buy the steel company that he's going to m spend the next two decades making. And he learns that he should be making A steel company on this trip. Both things happen on the same trip is very fascinating. Uh of the men with whom he had met on his in his for on his foray to England.

15:00 was the inventor Henry one of the people he met uh when he went to England was the inventor Henry Bessemer. As a result of a process for transforming iron to steel that bore his name A quantity of steel might that might have formerly have taken as long as two weeks

15:15 To produce. So let's go back to the definition of technology from earlier in the book. Technology is just a better way to do something. So the Bessemer process takes something that took

15:27 Two weeks and now they could do it in fifteen minutes. So Carnegie finds himself in the right place at the right time with the right set of skills. Because now he's like, Wait a minute, you can make steel so much faster than you could've And because of experience with the railroads and building bridges, he realizes, Oh, wow. The demand for this stuff is going to skyrocket.

15:44 To that point, it says Carnegie understood the industry's vast potential appetite for an improved form of iron. Not only did everything in the business move on iron rails, but But the cars and the engines were built of iron. as was the machinery that loaded and serviced them. As were the new bridges that span the rivers.

16:01 and chasms of the American West. If there were a cheaper and more durable substance than iron, it would lead to a revolution in the business. Not to mention a fortune. For those who got in on the ground.

16:14 Floor. That realization. That idea. Andrew Carnegie's giants.

16:20 Financial fortune. Rested upon. And so this is where it says Carnegie made up his mind, he returned to Pittsburgh intent. on building his own steel mill. So that happens in eighteen seventy two. There is a

16:31 There's a very famous Financial panic. It's called the Financial Panic of eighteen seventy three. And It seems so at the beginning it's like Oh my goodness. uh you know, as it turned out, he could not have chosen a worse time

16:44 to start his company. He is starting his company during a financial panic. Financial panics are just a name that they used to put on depressions and recessions. We call what they call financial panic, which is a way better name, by the way. uh we call recessions and depressions today. And so the note I left myself on this page, this is lessons from the financial panic of eighteen seventy three.

17:04 Turned out the best time to expand is when no one else is actually willing to take the risk. So it says the New York Stock Exchange would close its door for the first time in history. Remaining shuddered for ten days. Of the more than three hundred and sixty railroad companies in the United States, one quarter declared bankruptcy.

17:21 twenty thousand businesses of all types failed. and one sixth of the nation's workforce. Those are the economic conditions. that Andrew Carnegie is going to start his business. This business becomes one of the most valuable businesses

17:36 That has ever been created. That is insane to think about. So it says the depression actually played into Carnegie's hands. The decreased demand for materials and labor caused by the economic downturn resulted in nearly twenty-five percent savings over the costs Carnegie had originally projected for. For Carnegie, it was another invaluable business lesson. The best time to expand was when no one else dared to take the risks. So Carney is able to build this his very first steel mill, right, for twenty five percent cheaper than he

18:03 the than he originally thought. He's also able to get uh labor cheaper than he thought, but he did he was always willing to pay top dollar For the very best people. And maybe I shouldn't say always willing because this is the fight that he tries to screw over Henry Clayfrick, who is, you know It's like

18:19 One of the best entrepreneurs, you can get'em working in your company. Why would you do that to'em? But there's this weird, uh like ego thing going on. We'll go into that later, but Anyways for a at this point in his career, in Carnegie's career.

18:31 He realized the benefit of finding identifying the very, very best people. And paying. As much as much as you need to. Uh so he says there is no labor so cheap as the dearest in the mechanical field. meaning the people that are actually manufacturing and controlling his plants. The best of the best pay for themselves for key positions.

18:49 He hired the best and paid top dollar. Carnegie's success can be attributed to another lesson he had learned on the way up, the value of meticulous cost accounting. And so this is actually an idea that he applied in his previous businesses that he's now applying to steel. After forming the Cyclops Ironworks, Carnegie revolutionized the industry's practice by applying the same standards he had learned In freight hauling when he's working at the railroad.

19:09 Right, to the foundry's production line. As a result, when the Union Iron or Keystone Bridge, both companies that he owned and controlled, submitted a bid on a project, there was no guesswork involved. If Carnegie chose to undercut a rival's figure, he did so with absolute confidence. that he could deliver what he promised and make a profit. For his was the only firm in the field. With near fanatical devotion to cost accounting when he discovers

19:33 That Henry Clay Frick has the exact same ideas that Carnegie is applying to. Iron works. to steel works into his bridge company. Frick is applying those ideas to to monopolizing the coke industry. He's like, Oh, this is another me. He's just like a decade and a half younger. Frick is like a decade and a half younger than Carnegie.

19:50 As Charles Swab that's not Charles Swab winds up running Uh Carnegie Steele. Minds of being the first president of US steel. He is a protege of Henry Clayfrick. That is not like the Charles Schwab Like the broker guy, the finance guy?

20:02 As Charles Schwab. would later put it, Carnegie never wanted to know the profits. He always wanted to know the cost. And then this next part This is just like Jeff Bezos on episode two eighty two. Jeff and Amazon get Like a the highest rating that had ever been rated, uh in and I think it was service. I can't remember exactly.

20:20 And he's like, Oh, we're the best that's ever happened. Cool. I I still want to be better. So Carnegie is the best. And he still pushes. for more improvement, just like Jeff did, just Jeff Bezos did. Even his key employees were not spared Carnegie's heavy handed management style. To almost every positive report, Carnegie's response was good.

20:38 But let us do better. And so because he had a fanatical devotion to lowering cost. He had the lowest cost structure in his entire uh industry. This is something you and I've seen over and over again. Henry Ford Rockefeller, Carnegie.

20:51 Frick, they all do this. uh they were able to charge less. Lowering the price of the customer. got them more customers and this like virtuous cycle competes or uh uh repeats over and over again. I think Jeff Bezos said this beautiful in his shareholder letters. Uh I mentioned it on episode two eighty two. He said repeat

21:07 This loop. Uh, while other manufacturers were charging seventy dollars a ton for their rails, Carnegie offered his for sixty five dollars. Following another one of his n well known dictums, this is my favorite One of my favorite things he ever said, and I couldn't remember if he said it or Frick said it. Turns out Carnegie said it. Cut the prices, scoop the market, watch the costs, and the profits will take care of themselves.

21:26 And why could he charge? five dollars less per rail than his next nearest competitor. Because he was able to produce his Rails for less than fifty dollars. also interesting to know. What is the role that Carnegie Plate. He's not in the the he's not the one running the plants, right?

21:40 He actually was the principal salesman for his iron and steel companies. That was one of the most surprising things I learned when I read that fantastic uh Biography of the first thirty five years of Bill Gates' life. It's called Hard Drive. It's episode one forty. I'm gonna reread the book soon. But Bill Gates at the be very beginning of Microsoft, it was him His secretary, and I think twenty eight, I think the first thirty.

22:00 Uh employees of Microsoft, if I remember if I'm remembering correctly, was Bill Gates, his secretary and twenty-eight programmers. And it said Bill did all of the sales. He spent all his time. Just selling as much software as possible. He was maniacal about it. And so any time you're studying the history of business in like the eighteen fi the eighteen hundreds and early nineteen hundreds. You'll see that they do not like uh competition. They all try to collaborate, they try to fix prices.

22:24 But we'll see a little bit of this this is very similar to to Rockefeller's well. They're try to like essentially create like a steel pricing pool, right? They're gonna like they're I guess a cartel is the way to think about this. And so he's approached by this group and they're like, Okay, like let's all get together and we'll give you nine percent of, you know, the total uh profit and sales from this cartel. And he's like Are you insane?

22:47 Carnegie balked when he deemed the his proposed share was so far too small. Were they actually offering him nine percent of the total pie when he could make steel more efficiently than any of them? He asked in disbelief. Pounding the table? Preposterous.

23:01 What did he need with them? And so this relentless uh attention to cost cutting. Is where Carnegie and the lives of Henry Clay Frick.

23:10 are going to start to intersect and they'll they'll stay Intertwine for about twenty years. And what brought Carnegie Or excuse me, what brought Frick to Carnegie's attention. was the fact that Frick figured out a way to produce high quality Coke.

23:22 Way cheaper. than Carney tried to,'cause Carnegie wanted to control his like if it was important to his business, he wanted to control the process. And he's like, We could just buy it cheaper from Frick. Why are we doing this? And so that's eventually gonna lead to a partnership. Uh his quest to cut cost.

23:37 Focusing now on the raw materials demanded by the steel making process. The next indispensable substance For the production of steel was Coke. Carnegie has to have this. This is a non negotiable, a steady supply of high grade Coke. At a consistent price.

23:50 was essential to the efficient production of iron and steel. And had led Carnegie. To buy his own coke ovens. But their limited capacity meant that Carnegie could actually buy cheaper Coke From competing operators as a result, Carnegie decided to sell his own ovens.

24:04 And buy all of his coke on the open market. He dispatched his brother Tom, who's going to be his partner. to go meet with the principal manufacturer of Coke. One Henry Clay Frick.

24:16 So I covered the early life of Henry Clay Frick on I actually read a biography and it's all the way back on Founders uh episode number seventy five. Um, but I wanna jump into when he's a young man. and go over how Frick got into the Coke industry. There's Essentially like lots of borrowed money, like the early s years of

24:34 Rockefeller's career, right? He the uh there's a a line in one of Rockefeller's biographies where it said like he was the greatest borrower I've ever seen. So Frick is gonna have lots of borrowed money. And he's gonna wind up growing rapidly during an economic downturn.

24:47 So Frick is twenty one years old. He starts to work with uh to to partner with his cousin because his cousin was involved in the manufacturer of Coke. His cousin's name is Abraham Tinsman, but Tinsman was not a gift operator. He was not doing well at this. Kittsman was having a difficult go of it and was casting about for new partners. He needs money. So Henry Clay Frick goes and meets a bunch of bankers to Borrow money.

25:10 to get involved and to buy into this Coke business. And this is where he meets another legendary figure in the the the history of American business. This is Thomas Mellon. Thomas Mellon is the patriarch of the Mellon family family dynasty. His son Andrew is also going to be a very successful banker and entrepreneur. He's gonna be a lifelong Andrew's gonna be a lifelong friend of Henry Clay Frick. Uh, it was Henry Clay Frick who traveled to Pittsburgh to seek a loan for these activities and the banker considered the matter.

25:35 was a fifty seven year old man named Thomas Mellon. whose background as a judge He's uh always referred to as Judge Mellon throughout like in the history books. whose background as a judge must have enabled him to discern the potential of this whipper snapper.

25:47 Frick had little to offer as collateral beyond his confidence in the future of Coke. So here Thomas Mellon can only go on his judgment. Do I find this person trustworthy? Am I going to have is he gonna repay back the loan? He decided yes, he approved the loan. Before the first new oven had been completed, Their coke oven.

26:03 Frick was back to apply for a loan for a second. Uh second loan for a second oven, okay? One of Mellon's officers recommended the request be denied. Mellon asked a mining engineer for an independent opinion before making the final decision. The report soon came back. This is one of my favorite lines about Andrew Curly Frick. And it's a great way for you and I to think about our businesses.

26:23 Uh it says he knows his business down to the ground. It was enough for Mellon, who approved the loan. He would approve many more loans after that. By the end of eighteen seventy three, Frick and Company owned two hundred coke ovens. Selling everything it could produce.

26:38 To the rapidly expanding steelmakers in the region. Then came the economic collapse. As iron and steel declined, so did Coke. But Frick, who would later recall this as one of the most grueling times in his life, proved as undaunted in the face of adversity as Carnegie had been. Instead of turning tail, he used the depression and the confidence he had cultivated.

26:57 With Tom Mellon. To his advantage. He judiciously purchased the coal lands and cok ovens of his failed and failing competitors. That is a buying spree. That starts

27:09 in eighteen seventy three and continues for the next nine years. His relentless acquisitions continued. Until by eighteen eighty two the company owned some three thousand acres of coal lands. And operated more than a thousand coke ovens. About a quarter of all those in the area.

27:25 By the age of thirty. Frick reckoned himself a millionaire. and was fielding more demand for his coke than he could possibly handle.

27:35 And so Carnegie is obviously very, very impressed by Frick. Carnegie had done his homework on Frick and was impressed with what he found. Frick's company not only owned the best coal lands, in the area. It produced the best Coke from it. But also they had in Mr. Frick, this is what Carney said about Frick. but had in Mr. Frick himself a man with a positive genius for its management. Now keep in mind.

27:53 He's saying that many, many years before Frick is going to run. The entire Carnegie company. It's gonna take a while, but the this idea. He saw it's like okay, this guy is different. And this also touches on this idea that that Carnegie believed in a form of social Darwinism. Fricks rise from humble beginnings. was obviously intriguing to him.

28:11 It would have signaled to Carnegie that Frick was another one of the fellow fittest. Survival of the fittest. And those are the individuals with whom Carnegie sought to align himself. First version of their partnership is That Frick is going to become the exclusive supplier.

28:25 of Coke for all of Cartig's iron and steel works. eventually Carnegie is going to own more of Frick's business than Frick does. And that was intentional because Frick use Coke as to get as a way to get what he truly wanted. Which was steel. An interest in a steel in the premier, the best.

28:43 steel making company on the planet. So now the book goes into Frick, you know, it's just relentless. He's a relentless acquirer. Um, and he's bankrolling some of these acquisitions by selling equity of the company to Carnegie. Frick continued h to pursue acquisitions vigorously. That's one way to put it.

28:59 Bankrolling. uh his purchases with sales of his stock to Carnegie. In addition, the Carnegie's also set out buying up the stock of H C Frick. Owned by Frick's other partners.

29:08 with whom Frick had been involved with early on. Carnegie now owned fifty percent of the Frick Coke company. Uh the original Frick Associates hold held thirty three percent and Frick held the remaining sixteen percent. And the crazy thing is at this time Frick's company's actually making more in dividends. This is gonna change rapidly.

29:28 Uh, then Carnegie's Steel Company, eventually Carnegie Steel Company starts making like thirty, forty million a year. at the end of the eighteen hundreds or excuse me the beginning of the nineteen hundreds, like that's insane. Uh And that's in nineteen hundred dollars. You know, you can multiply by at least a hundred X.

29:41 So it says uh by eighteen eighty eight dividends from Fricks operations would total almost two million dollars, which is slightly higher than the total of those from Carnegie's iron and steel works themselves. So again speaks to the the operational uh genius and ingenuity of Henry Clay Frick.

29:57 And then to wrap up this section, this is what I just uh what I just mentioned. Why would Frick do this to you? Because he had lots of debt and he viewed Coke as a way to get what he really wanted, which was steel. Frick saw in their continued association an avenue to his own extravagant dreams. Coke was important, yes. But ultimately it was a secondary element in a much grander scheme. But Henry Clayfrick longed for.

30:18 was an entry into steel. He was willing to divest himself almost completely of his holdings in coal and coke. If that's what was what it took. to accomplish his goal. So initially f Carnegie was reluctant to

30:32 Include frick. As a partner. It actually took the early death of Carnegie's brother Tom. For frick. to be able to run the company. So it says while the death

30:41 of his brother and principal firm manager had been a severe blow. Carnegie saw advantages in promoting Frick, To fill the void at Carnegie Brothers. to hard charging Andrew Carnegie, his brother had sometimes proven to be a bit reluctant. And risk adverse as a competitor and entrepreneur.

30:56 There would be no such timidity with Frick. Of that much Carnegie was certain. And if it meant allowing Frick his wish to buy into the company It was a small price to pay. It had taken the death of Tom Carnegie to accomplish it.

31:09 But Henry Fli Frick. was now a partner in stil. Carnegie's brother had actually died. uh of pneumonia. Now, the reason I brought this to your attention is because something happens when

31:21 Uh, at the same time that his brother was really sick, Carnegie was sick, and they were worried that Carnegie might actually die. And so once Carnegie recovered they had this idea, the other partners in the steel company was like, Oh, we need to make this thing called the Ironclad Agreement. This is a really important part because this ironclad agreement

31:37 is going to be the linchpin that starts this Gigantic war. uh between Carnegie and Frick, a war that lasts until the day they both die. They went up dying a few weeks. Uh apart.

31:49 So I'm gonna skip over some parts and just gonna give you the summary here. It had been Andrew Carn but if it had been Andrew Carnegie who died instead of his brother Uh, his majority interest in the Carnegie companies would have required immediate liquidation of the entire enterprise. So the the Ironclad Agreement is the solution to this in case any of God forbid, uh Andrew Carney was to die early since he's the primary owner of the business, the Ironclad Agreement.

32:10 Function as a safety net. Ensuring that the company had ample time to arrange for the purchase of a deceased partner's shares. At book value, the book value is It's going to be artificially depressed later on. When the company is way more successful, I think at the time it's making like twenty one million a year in profit.

32:28 And Andrew's like, No, the business is only worth fifty million dollars. I don't know what you're talking about. And that is gonna cause A rupture and a war between these two partners. The agreement included a provision that required any partner, dead or living, to sell his interest upon a vote of three quarters of the other parties.

32:43 As a result, though he himself would never be subject to such provisions, Carnegie could easily marshal the forces of necessary to squeeze out any partner who became troublesome. That is exactly what he does with Frick. It is doubtful. They do their FIPs, this is another one of their partners. or Carnegie was pr uh was prompted to draft the clause

33:01 by the entrance of Frick into the firm. Though one day it would seem so. There is no record of Frip. Crick objecting to these terms, Like the other partners, he signed the agreement.

33:13 So a main theme of the book is this constant conflict between ownership and labor It was very common if you read any of the talk I've talked about this a bunch on the podcast in the past, but if you read any Um like business history books. From you know, the eighteen hundreds, early nineteen hundreds.

33:30 It's You can only describe it as a war. That's what it is. They literally kill each other. And so a main

33:37 Uh the the the the first rift that causes this war between Carnegie and Frick is over the handling of this thing called the homestead strike. That is how they refer to it. History refers to it as the homestead

33:50 Massacre. Two sides literally line up with guns and start murdering each other. The amount of violence in this book is shocking. But we're not there yet. We're still uh that happens in eighteen ninety two. But I need to bring out there's a there's a series of labor disagreements.

34:06 And we really see Frick's personality any time, not only is this guy like a very formidable hard guy. Any time that he feels he's like, Listen, if you gr if you want me to run the company, then I'm gonna run the company, but if you're constantly like going to second guess my decisions, He just constantly. threatens to resign and Carnegie doesn't want to run the company. And so a lot of times Carnegie gives in. I think Frick resigns a total of like three or four times. W I'm gonna get to the first part of this, or that this is actually the second time.

34:30 uh Frick resigns over a disagreement with Carnegie. Uh so says Carnegie was accustomed to obedience from his subordinates, but if he expected unquestioned subservience from Henry Clay Frick, he had gravely miscalculated. Frick had from the beginning of his career. been a hardliner on labor issues. He was incensed.

34:48 by the in interference of labor organizers and unions. in what he considered a process properly left to the discretion of the owners of the company. And so throughout Frick's career, he never backed down. Against Labor. This is back this is a th about sell story when he was running the co company. During an eighteen seventy seven strike that disrupted the shipment of coal and coke

35:07 His company Frick accompanied a sheriff's deputy to help evict a striker. Who lived on a shack on the property. Frick and the sheriff told the striker that he would have to leave, and the striker refused. Frick grabbed the striker by h by his hands and feet and flung him off the embankment where they'd been arguing and into a nearby creek. As the striker struggled to his feet, he found his belongings flying after him.

35:29 Including his mattress and his clothes. As a popular New York based publication once put it, mister Frick is a forceful self is is of a forceful self reliant nature. And in previous conflicts with labor organization has shown a determination to carry his point. At all hazards. So

35:44 the reason they're giving the background to you and I at this point in the book Is because Carnegie is insisting that Frick settles With The strikers.

35:53 That he gives in to their demands. And so Frick's like, Okay, that's what you want to do, I resign. Whatever the reasons, Frick responded in rather startling fashion to Carnegie's demands that he settle with the strikers. He writes a letter to uh Carnegie and the rest of the partners, as you hold a majority of the stock and are entitled to control

36:08 uh the uh in the company and in viewing what has passed between us on the subject, I feel compelled to vacate my position as president. I therefore enclose my resignation. And the problem with that is Carnegie knew there's nobody that he could replace Frick was. Frick was the best person for the job. And so This goes on for several pages, but what was shocking to me

36:27 is the end result of this giant disagreement they're having. You know, not the first time they have a d big disagreement. This is the largest in in their career so far, in their partnership so far. The actual end result of their disagreement was a closer partnership. So said the incident had taught both partners lessons about each other. Carnegie saw that Frick was no puppet. But rather a man willing to take considerable risks in defense of his principles. If Frick's actions made clear that he was less pliable than others in Carnegie's circle, and there's a lot of people that would just Yeah, just that Carnegie wanted

36:53 you know, unquestioned subservience from his from people around him for some reason. Uh, First Actions made it clear that he was no less pliable That he was less pliable. than others in Carnegie Circle, they also indicated a strength of will that might be useful if applied to others.

37:07 Carnegie was wise enough to grasp Frick's point of view. And because he had also seen in Frick a managerial capacity second to none, he was willing to overlook Frick's resignation. as the understandable act of a proud man. And so it says Carnegie determined to put Frick's managerial talents directly to work within the steel company and to share Frick's loyalty. Carnegie offered him an increased share of the company.

37:27 Frick was named chairman of Carnegie Brothers and Company. And as a result, he now owns eleven percent of Carnegie's company. Carnegie wrote Frick a glowing letter of congratulations. That ended with him saying Ам експрессимай транфільне. That I have found the man and he put the man in capital letters.

37:44 And it's said to Carnegie Frick represented something special. Not only had Frick risen up from nothing, as Carnegie had, and not only had he proven himself the master of an allied industry, Frick had an ambition A singleness of purpose and a lack of self doubt that Carnegie envied. And Frick is a crazy workaholic. What we'll see here is that Frick's approach to running Carnegie's business. He's running both the the a the Frick Co Company and Carnegie's Steel. Eventually it's gonna be m uh merged into one business that that happens after they have a falling out, though.

38:14 But anyways, Frick's approach to running Carnegie's business was the same approach he used to run his business. Uh the new chairman, meaning Frick, commenced the exercises of his duties with relish. Frick worked from dawn till dusk. Taking no holidays. And familiarizing himself with every detail of the company's business. And Carnegie and Frick had a lot of common

38:32 a lot in common in their business building philosophy. This is Carnegie's mantra. It could also be applied to Frick. Carnegie was always more interested in what it costs to produce goods than in revenues or profits. Carnegie would repeat the mantra time and time again. Profits and prices are cyclical, subject to any number of transient forces of the marketplace. Cost, however, could be strictly controlled. And in Carnegie's view, any savings achieved in the cost of goods was permanent. Another thing they also did, both Frick and Carnegie would constantly invest in technology to drive down costs. I talked about this in

39:00 uh last week's episode as well. Carnegie had become convinced that basic hearth furnaces represented the future of steelmaking. They're talking about a new technology that's developed. His his steel business had already been around, you know, for a decade, decade and a half at this point, but they're constantly they're relentlessly searching out. And investing in new technology that helps them become more efficient and drive down costs. That's the whole point of me reading the section to you. Although it meant scrapping hundreds of thousands of dollars worth of Bessemer converters.

39:23 Carnegie was undeter undeterred. Even if we save half a dollar per ton by the changes, it would justify a large additional expenditure right now. On this issue. The two men were of one mind. Frick had made his way in Coke by the same reckoning that Carnegie had in rail and then in steel. If you knew your cost down to the penny, you were always on firm ground. Furthermore, Frick had always understood how essential new technologies were in driving costs down. Cost control.

39:47 Became nearly an obsession. Furthermore, they shared a business philosophy that set them apart from their peers, most of whom were more concerned with net profits and dividends. Than with the reduction of fixed costs. And so then the author goes into great detail about all the strikes and what happens and like the reasons behind The Homestead Strike, the Homestead Massacre. I'm just gonna pull out a couple of things that

40:08 I think are just useful for us to um to keep in mind because I don't think we're ever gonna have to deal with something like this in our lives. But to me it's like okay, there's a clear loss of perspective. Sometimes your your your focus in your life can narrow so much. That you have a hard time seeing anything other than what's in right in front of your face. And I think stepping back. and detaching and taking an overall look at the situation.

40:30 Can cause you to avoid making these emotional Emotionally charge decisions that in this case you know, the very in in our case maybe causes us of loss of business, loss of money, or the case is In this case there was a literally loss of decades and decades of unlived life. These people died.

40:46 For no reason. And so the background is frickin' Carnegie, they're not budging. uh the union they're not giving it to union demand, so they're saying, Okay, we're gonna close down the plant the people that work at the plant refuse to leave. That requ that uh leads to

41:01 Frick hiring the Pinkerton detectives. Which is essentially like a private security, a private armed security force of like three hundred people. They're gonna show up the plant is right next to this body of water, so they're gonna show up on this boat. Boat's going to get to the edge of the water.

41:17 is going to be met by five thousand workers. And there's going to be a giant war. And so the head of the union is this guy named O'Donnell. You were gonna pick it up. Uh the story from there.

41:26 Uh he he's talking to the Pinkerton detective saying, Do not get off this boat. So he says on behalf of five thousand men, I beg of you to leave here at once. I do not know who you are. Nor whence you came, but I do know that you have no business here. We the workers in these mills are peaceably inclined.

41:42 We have not damaged any property and we do not intend to. But in the name of God and humanity do not attempt to land. Do not attempt to enter these works by force. Captain Hindy. is the leader of the Pinkleton force.

41:56 Step finally onto the deck of the boat to deliver his response. We were sent here to take possession of this property and to guard it. for this company. We do not wish to shed blood, but But if you men don't withdraw

42:08 We will mow every one of you down and enter in spite of you. You had better disperse. For land we will. O'Donald surveyed the scene around him, in addition to the armed thousands who had occupied the steep banks of the river, so that's his side. Hundreds more looked down upon the scene from a railroad bridge just upstream. O'Donnell had spent weeks and months in an attempt to engineer

42:28 A peaceful resolution to a dispute. that in his mind cried out for a meeting of reasonable minds. How had it come to this? And so the war, the shootout commences. I'm just gonna pull out one example. There's a d uh a ton of examples. People are literally getting shot by cannons. Disappearing.

42:44 There's a brother talking to another brother. Like it just turns into uh mist. But this is when I got to this section I just wrote down in the the book. This is he's dead for no reason.

42:56 Decades. Of unlived life lost for what? For nothing. John Morris, a twenty year old Welsh immigrant. was a skilled worker in the plants blooming mill.

43:05 He had taken a position atop the pump house. Overlooking the wharf. When more squeezed off around. So everybody's armed, right? They're all shooting and killing each other. They'll shoot each other, they'll stab each other, they're beating each other with clubs. It's it's unbelievable what's in this book. When Morris squeezed off a round that he thought had struck one of the Pinkerton detectives, he raised his head just to seek confirmation. His timing could not have been worse. As he rose, a rifle bullet split his forehead.

43:30 The force of the shot catapulted him off the tower. He fell sixty feet dead before he hit the ground. the things about these conflicts and the author does a fantastic job in the book demonstrating it's just like doesn't start it doesn't go from zero to one hundred. It's a slow accumulation of slights and disagreements and fights. And the pressure just builds and builds and builds to the point where

43:49 somebody thinks it's a good idea to get a gun, sit on top of a pumphouse, and start having a little shoot out over A job. And so eventually the Pinkertons are greatly outnumber, they have to Surrender.

44:02 And then when they try to surrender the people that are still living and surviving This is what happens. And I just wrote humans are wild animals in massive groups. Exhausted and sleepless, their nerves frayed by the tensions of some twelve hours of armed combat, and their passions inflamed by witnessing the shooting of scores of their fellows. This group of strikers snapped. The Pinkerton men scream for mercy.

44:21 They were beaten over the head with clubs and the butts ends of rifles. You could hear the skulls crack. They were kicked, knocked down, and jumped upon. Their clothes were torn from their backs. And when they finally escaped, it was with their fa it was with faces of ash and paleness. And with blood in streams rushing down the backs of their heads. Staining their clothes.

44:41 And deaths on both sides didn't change. the outlook from either the union or the owners. This is Frick's perspective perspective. Frick won on a teleporters that no man who had been known to raise a rifle or pistol in the battle would ever again be employed in his operations. Nor would any man asserting any claims to union membership. Carnegie Steele Would not be

44:59 Dictated to. And so that leads a few weeks later to Frick's assassination attempt. In the building where the operations of Carnegie Steel are housed, sits Henry Frick, engaged at this moment in a conversation with Carnegie Company Vice President. This guy named Leishman. Hearing a sound at the door behind him, Frick turns from a conference table with some annoyance.

45:17 at the interruption to find a man he had dismissed from his offices only a day or two before. Though the man had earlier represented himself As Simon Bachman. uh an employment agent. He is neither an employment agent, a reporter, a striker, an officer of law. Nor a business confidant.

45:31 He is in fact. Alexander Berkman. And he has come. To kill you. Frick.

45:37 And then in the book is Alexander's own recollection of this assassination attempt I'm gonna pull out it is really spooky. Um and I'm gonna pull out a couple of lines. I step into the office and I find myself facing Frick. With a quick motion I draw the revolver. As I raise the weapon I see Frick clutch with both hands in the arm of a chair.

45:55 An attempt to rise. I aim at his head. Perhaps he wears armor, I reflect. With a look of horror, he quickly averts his face and I pull the trigger. I hear a sharp, piercing cry and see Frick on his knees.

46:06 His head against the arm of the chair. I feel calm and possessed. He is lying under the large chair. Without sound or motion. Dead? Question mark?

46:16 I wonder. I must make sure. And so what happens next, there's different stories depending on who you ask and who was there. I'm gonna read the description that the author includes. Frick was not yet dead. As Berkman Advanced upon the prone frick.

46:29 Uh, who roused himself and began to crawl weakly towards the door. Berkman raised his pistol and aimed it between Frick's shoulder blades. Again he pulled the trigger. But as he did. The hand of Leischmann, that was the guy that Frick was talking to. Struck Berkman's arm and the second shot went astray.

46:44 Berkman and Leishmann struggled, but Berkman gained the upper hand. He pointed the pistol at a spot between Frick's eyes and pulled the trigger again. There was a dull click, but no explosion came. Berkman stared at the pistol in b disbelief. Berkman would have shot again. but he felt a rush of air, then a thunderous crack as a hammer

47:00 wielded by a company carpenter, drove into the back of his head. The man who would have killed Henry Clay Frick slumped unconscious to the floor. And so there's varying different accounts, whether a freak was shot once or twice. What was known is he's he was shot at least once in the neck.

47:15 There's also report that he was actually shot twice in the neck and that two bullets were removed from his neck. This is the crazy part. Uh the craziest part, uh Henry Clayfrick's life's Obviously insane. But this is the craziest thing one of the craziest things I ever heard.

47:29 When a surgeon was rushed to the office to tend his wounds, it was said that Frick refused any anesthetic. the bullets are gonna be removed and he's gonna be stitched up right there at the office and he's gonna insist on finishing the work he was working on. before going to the hospital. This is insane. With the removal of the bullets, the doctor advised that his patient be removed immediately to the nearest hospital. But Frick would have none of it.

47:48 He insisted that his wounds be sewed up then and there, and next had himself propped up in his chair Where he completed the letter he had been working on when Berkman attacked. Only after he was finished with his day's work did Frick permit himself to be carried from the office to an ambulance where he would take him to his home. And even then he stopped so that he might issue a statement to reporters. This is insane. Listen to this statement. This is after being shot in the neck.

48:09 This incident will not change the attitude of the Carnegie Steel Company towards the union. I do not think I shall die. But whether I do or not The company will pursue the same policy and it will win. After this assassination attempt, he is forced to spend

48:24 uh like I think the next like few weeks in bed. While this also happens He had a young daughter die about a year before. She had uh she had swallowed a pin. um when she was like two and there had been a series of infections, she winds up dying when she's seven. Then a year later, his wife had given birth to a uh newborn son.

48:41 that newborn son w unfortunately never made it. So I think he died. The son was like a few months old. And so it says reeling now from the loss of two children, Frick forced himself from bed to attend the funeral service of his infant son on August fourth. on the following morning he rode a streetcar to his downtown offices and began his day properly At eight AM thirteen days after being gunned down. And so the public relations fallout from the homestead massacre.

49:05 And everything that happens is the beginning of the end for the Frick Carnegie partnership. It's going to come A few years. uh in the future from where we are now, but it can be tra the author does a great job of tracing it back to This one event.

49:19 Before I get there, I just found a random paragraph that I really liked. It was actually good life advice from Henry Clay Frick to his protege Charles Schwab. You must not allow anything to discourage you in the least. Even if things do not go well, for some time to come, or even if you should get much or even if they should get much worse. Just keep at it, doing the best you can. Do not allow the fact that you're not getting along as well as you would like to lead you to put yourself

49:40 In a compromising Position. So about two years later, Frick is going to resign From running. So he's gonna still be involved in the company. I think he's like chairman or something. But uh he's not going to be running the company day to day.

49:53 He resigns because there's like again, this is what I meant about it's very uh beneficial to like detach to step back. They're like they have a a a series of like an accumulation of these small little fights In one case, Carnegie wants to buy one of Frick's former competitors, uh, this this company that produces Coke. Frick thinks this guy is like a thief and he's disreputable and he doesn't want to be involved. And

50:16 So again it it looks like he winds up um resigning because of this, but this is like the The straw that broke the camel's back. And then it's even another few years after this where they just have you know, they almost get into a fight where actually Frick chases Carnegie out of his office.

50:31 under the threat of violence. I just want to pull out An excerpt from the resignation letter. That Frick sends to Carnegie. And uh says it can only be described as a jaw dropper, that is for sure.

50:43 Mr Carnegie, it is high time you should stop this nonsensical talk about me being unwell, overstrained. and treat this matter between us in a rational, business like way. Why do you write such stuff? I warn you to carry this no farther with me. But come forward like a man and purchase my interest, and let us part before it becomes impossible to continue to be friends.

51:01 I desire to quietly withdraw, doing a little har doing as little harm as possible to the interest of others. Because I become tired of your business methods. Your absurd newspaper interviews and your personal remarks and unwarranted interference in matters that you know nothing about. And so it's crazy as he resigns. This is happening in eighteen ninety four. They wind up like getting even remember I said earlier like they fought and then they wind up being closer partners. They wind up being, you know, pretty

51:27 Like repairing their relationship. And the final fallout doesn't come for like another three years. And then the last few events that happen is just There it's it's remarkable to me. So you have Henry Clayfrick And Andrew Carnegie. They're some of the wealthiest people in the world. They're most formidable people.

51:43 Obviously very intelligent. And they're still capable of being petty and emotional And ego driven, all of this could have been avoided. Both of them do things that are very, very bizarre. And I think lead to again, it's this accumulation of these little slights and fights that have been happening for decade after decade.

52:01 And so the first thing is like why would Frick do this? Like this doesn't make any sense. Frick is still one of Andrew's trusted confidants. Frick and his partner Phip.

52:11 Fip's. Uh, they're both very interested in having this this is gonna relate back to the Ironclad Agreement that I mentioned earlier. Uh in the Toward the beginning of the podcast.

52:21 They're both interested in like, okay, let's find a buyer for this company, let's liquidate, like let's actually get our money out of this, right? We all know that the the I think they just made thirty or forty million in a year or whatever it was. We know this company's not worth fifty, it's worth, you know, five ten times that. Um, and so they're looking for a buyer.

52:38 And Why would you do this? They try to do it. Frickin' Phipps try to sell the company, but they won't tell Andrew who the bidder is. This is the weirdest thing. I don't even I can't describe it to you, so I'm just gonna read it to you.

52:49 And then maybe you can just share In my Misunderstanding. Frickin Phips might have sold their holdings even earlier, but the existence of the uh of one major stumbling block was the Ironclad Agreement of eighteen eighty seven, which they had all signed, according to the provisions.

53:02 Uh, which were meant to protect the partners in the event of Carn Carnegie's death. a partner who wished to retire could do so, but his shares had to be redeemed at book value. And payment made in installments, since Carnegie had always opposed. The reevaluation of the company, the book value of Carnegie Steel in eighteen ninety nine, remained fifty million dollars. Even though the most conservative estimates place this true valuation between two hundred and two hundred fifty million.

53:24 Remember it's going to sell for four hundred and eighty million. And it had m it had made a net earnings in eighteen ninety nine of twenty one million dollars. the impasse was finally broken in in April of eighteen ninety nine when Frick and Phipps informed Carnegie that they had pro uh been approached by a buyer. Willing to meet the two hundred and fifty million dollar price. Carnegie asked Frick and Phipps who their perspective buyers were. In Carnegie's mind, Rockefeller was one suspect and another was JP Morgan.

53:49 But Frick and Phipps told Carnegie that they had been sworn to secrecy. by their prospective buyer. And then they were acting solely as intermediaries. What the hell. It's taking place here. Could you imagine asking somebody

54:02 Carnegie th like Carnegie's the majority of owner. If they sell for two hundred and fifty million, he makes one hundred and fifty seven million. Like sell your just blindly sell your company. agree to selling it, but we're not gonna tell you who it's selling like what are you talking about? And so it winds up coming out anyways. that it's w in the eyes of Carnegie, it's this guy named Betamillion Gates, who's rather famous. He pops up in a bunch of um

54:22 books. They call him a notorious Wall Street speculator. He also built this giant like bar wire for business. and two other brothers. I think they're called the Moore brothers. So essentially like in in Carnegie's eyes these are like speculators. These are not Honorable people.

54:35 And he was absolutely mortified at the prospect of selling his business to people like this. And there's two things that make this even worse is one Gates and the Moore brothers had persuaded Phipps and Frick that if They could convince Carnegie to buy the business. they would get a broker's fee of five million dollars, which is really weird because they're supposed to be partners, right? So they're profiting off that and in in

54:55 This is bizarre. Like your shareholders in the company, your profit should just come from Us buying the business. And the second thing was that Gates and the Moore brothers didn't even have the money. necessary to make the purchase. They had nowhere near two hundred fifty million dollars. And so from Carnegie's perspective, I understand it says it was just that what Carnegie suspected, a despicable exercise of speculation.

55:14 And it made was made all the more distasteful by the secretive and self serving participation of his longtime partners. And so from there I'm like, Okay, that was a bad move on Frick's part. But this is what I meant. I was like this is really bad, like unbelievable what Carnegie does to frick here. And It's this accumulated disagreements.

55:33 over a long period of time that lead towards this lack of perspective, lack of detachment This giving into ego. And in some way some kind some form of revenge that Carnegie is seeking on Cr on Frick. What Frick wants is the company's valuation to increase to reflect The drastic increase in profits, right? So then he can then sell his earnings. He's forced to sell his earnings at book value, but he's saying, Hey, you're artificially depressing book value.

55:56 You know it's not worth this. And yet because you won't r uh uh have the company uh revalued You're screwing me out of a lot of money. So it says Frick replied through clenched teeth. Then he might be willing to permit a merger. provided that the newly formed company would be capitalized at no less than one hundred and fifty million.

56:12 So the figure was low in comparison. They know it's worth more than that. Carnegie would have none of it. There would be no such reevaluation of their holdings, he insisted. Now they're both very upset with each other. They start saying, you know, things across the line.

56:25 Frick went on to say that Carnegie had threatened to buy his own Coke lands and run Frick Coke Company out of business, and further suggested that Carnegie was less than a man For not voicing objections to his face. He demanded that Carnegie apologize personally. If Carnegie had entertained the slightest hopes of patching things up, Frick's latest invective dashed them completely. It was Carnegie's intention now to abolish the office of chairman once and for all. That means Carnegie is like we're going to get we're kicking Frick out of the company. And so Carnegie tells Charles Swab, who is now running the company, this is Frick's former prototype. He's like, Hey,

56:56 Tell Frick he needs to resign. He warned Frick of Carnegie's intention to abolish Frick's position at the next board meeting. That is Charles Swab. So Charles Swab winds up having a falling out with Frick later on, too. But he felt a sense of obligation to me, he did the right thing here. So it felt a sense of obligation to his to his mentor. And so he's like, I'm not just gonna spring this on Frick at the next meeting.

57:15 He went and saw Frick in person. He's like, Listen, this is what's happening. Like I I have to do this'cause I'm running the company, but I need to tell you You know, myself. So instead of mailing a letter to Frick, he actually goes to Frick and tells him directly. And so Frick sees he has no recourse, he's got in he's gonna start plotting it and get his revenge.

57:32 But he submits his resignation. So from Carnegie's perspective, it's like oh this is really th this went really smooth. It says never had a coup d'etag on more smoothly as so it or so it must have seemed. With the troublesome frick out of the way at last, Carnegie could envision only smooth sailing. But then so did the passengers on the Titanic. And so this is where Carnegie goes too far. He kicks him out of Carnegie Steel.

57:54 And he says, Hey, I'm gonna kick him out of this own company that he started And he's gonna try to to screw him over on the price. And because Carnegie owned most of the equity He uh essentially stacked the board and he says at the board meeting of the Henry Clay Frick Co Company

58:08 Carnegie saw to it that the new membership board membership was elected. One that reflected his and his loyalists' controlling interest in the company. The five new Carnegie men on the seven member board of The uh Henry Clayford Co Company. quickly got down to business, abolishing the office of chairman.

58:23 And leaving the company in control of its presence. So Again. Carnegie. kicks the frick out of the chairmanship role in the Carnegie. Uh company does the same thing in the Coke company as well.

58:32 Rick, though, still a member of the board, could do nothing. To pose for a second time. through the machinations of Carnegie and now dropped from the very company he had founded, he simply walked out of the meeting. It was not the final indignity. On the following day, Mr. Carnegie paid a visit to Frick's office. And this is crazy. I don't know what Carnegie was thinking here.

58:50 Carnegie drew a copy of a document from his coat pocket, Carnegie explained That on uh that the day before the meeting at which Frick had been deposed from his own company, there had been a special session of the Carnegie Board of Managers that he that Frick wasn't there because he'd already been kicked out of the company. And they had just one piece of business. What Frick read was as unmistakable as it was infuriating, as Frick had proven to be an obstruction to the continued and efficient operation of their mighty Leviathan of steel. This is what he's saying. He's like Frick is damaging the company.

59:16 The document stated the board had no choice but to invoke the provisions of the ironclad agreement. Frick's interest in the company must Be surrendered. His compensation fixed. At book value and not a penny more.

59:30 Frick would receive one point five million dollars For stock. That was worth at least ten times as much. That number is way lower. So Carnegie's like, I'm gonna pay you one point five million.

59:42 Th even at the lowest number. it's worth at least eleven, twelve million. He winds up getting thirty one million. And then because of the the sale and the recapitalization of The company with US Steel. his holdings wind up being worth over seventy million dollars. Carnegie's like, Yeah, that's only worth one point five million dollars. And Carnegie, this is what I mean, he's blinded by ego.

1:00:02 Because we'll see the smart strategies used by Frick to prove that you don't actually believe what your document says. And to me, this is a dishonorable act. You're one point five million For a person who helped you build at least a two hundred and fifty million dollar company, come on. Frick was undoubtedly the second most important person in the company. That's ridiculous. So says Frick was on his feet by now, he's chair tipping backward with a crash. For years I've been convinced there's not an honest bone in your body, he shouted at Carnegie.

1:00:28 Now I know that you're a goddamn thief. He crumpled up the document and tossed it aside. We'll have a judge and jury decide what you are to pay me. He spun around his desk, advancing on Carnegie with his fists raised. Carnegie literally has to run away and it says it was the last meeting. between Andrew Carnegie and Henry Clay Frick.

1:00:48 So this is happening in the year nineteen hundred. I started the book with The request of Carnegie having a meeting with Frick, that letter is written in nineteen nineteen. So twenty years passes and they never meet. Again, they both die in nineteen nineteen. So I just wanna pull out some smart strategies by Frick.

1:01:07 So Frick goes right to Phipps. Phipps has been Carnegie and Frick's partner. Phipps is the one that actually created the Ironclad Agreement. So F says Frix had Phipps Uh pouring over the fine print of the ironclad agreement. Since it was Fripp's brainchild in the first place, he was the logical person to discover its faults, and soon enough he found them. This is what I mean. This is just very

1:01:26 This is not a logical decision by Carnegie. This is an emotional decision. uh by Carnegie. Frick filed a lawsuit charging among other things that Carnegie had unjustly attempted to force him out of the company and acquire his holdings at a sum far below their value. And remember, Carnegie Still is like private company, right? So Fricks like, Okay, we're gonna air everything out, buddy. Most distressing to Carney was the fact that the details of the company's business affairs were laid out in the accompanying brief.

1:01:49 If the suit actually went forward, the public would for the first time learn details being generated by Carnegie's Enterprise. Frick's attempt to force a revaluation of the company was bad enough, but if documents held by Frick were widely publicized, Revealing that Carnegie had refused to renew the option.

1:02:05 For the Moore Brothers purchase, that's the uh the secret deal that Frick and Phipps were trying to broker. the to renew the option for the Moores brother purchase unless the value of the property was raised to a more rightful By Carnegie's own reckoning. five hundred million dollars. So Let me be clear there.

1:02:20 Frick is in possession of documents that he wants to make public saying, You're saying that the business is worth fifty million. That doesn't make sense because in this document you're saying that the valuation of your business is five hundred million dollars. And so it says if uh this document came out It would forever hamstring efforts to manipulate the value of his holdings and buy out troublesome partners for a song, which is exactly what he's trying to do to Frick. To Carnegie that such information concerning the inner workings of the company should be made public. was an affront, an embarrassment, and most important, a disadvantage to doing business.

1:02:46 Other prominent entrepreneurs wrote to urge him This airing of dirty laundry and privilege information to a speedy end. So she's saying, Hey, you just need to pay Frick. This is a bad decision. George Westinghouse is actually one of these guys. Uh I cover I I covered uh

1:03:00 He he's Went to war with Edison. In this fantastic book I cover back on uh episode eighty three, it's Empires of Light, Edison Tesla, Westinghouse, and the race to electrify the world. So George War uh George Westinghouse sent a letter calling it a calamity by reason of the fact that the private affairs of your company will undoubtedly be made public.

1:03:17 And she's like, You need to settle here. If he were to prove this is the crazy part. This is like the the the the biggest weakness that car that Carnegie that Carnegie's argument and his actions had. If he were to prove in court, for instance, that the value of Carnegie Steel was just a fraction of what Frick claimed. How on earth?

1:03:34 Would he attract a buyer? Willing to pay what he privately knew what the company was worth. And so eventually Carnegie gives in. Says the compromise would lay was laid out, Carnegie Steel was to be valued at two hundred fifty million. Henry Frick Co Company to be valued at seventy million and they would be merged as a result of the agreement.

1:03:52 Henry Clay Frick would remove himself from any role in the management of the new company. Perhaps it had cost him his job. And the friendship of Andrew Carnegie then again. He had thirty one million dollars. with which to console himself, that is thirty one million dollars in nineteen hundred money. And this is what I mentioned earlier, JP Morgan started a steel company, starts analyzing

1:04:12 Carnegie's business is like, Oh, I do not want to compete with that. And this is gonna lead to the world's first billion dollar corporation. Morgan understood the folly. Of a long term battle with the Carnegie Company. A firm that controlled its own sources of raw materials. Transport And manufacturer.

1:04:26 And that was far more deeply capitalized than his or any of the other steel upstarts. They might stay in the game for a while. And they might put a dent into Carnegie's armor. But in the end. Carnegie would run them into the ground.

1:04:39 Everyone. In Morgan's mind There was only one course of action, and he did not hesitate. Only one question remained. How much would it take?

1:04:48 To get Andrew Carnegie To sell. And so what Morgan does he does not approach Andrew Carnegie directly. He goes to Charles Schwab. Charles Schwab is the one running the Carnegie Company. Remember that is a former protege of Henry Clay Frick. And Morgan's like, Okay I need

1:05:03 Talk to Andrew for me. Tell me what it takes. And so Carnegie comes up with a calculation, he like writes it down on a piece of paper. Gives it to Schwab to take to Morgan. Remember, all these guys are in New York City.

1:05:14 It's like they just live blocks from each uh down the street from each other. It's it's a remarkable But the total price for the Carnegie company that Andrew Carnegie wrote down on this piece of paper that Schwab is about to take the Morgan is four hundred and eighty million dollars. Schwab glanced at the document only briefly. Carnegie had named his price. The next step was to go to Morgan. When Morgan examined this document, he said simply

1:05:34 I accept this price. With that one of the most storied deals in the history of American business had been done. Morgan then goes to Carnegie's house to finalize the deal. It says as he was leaving, Morgan took Carnegie's hand and said

1:05:46 Mr Carnegie, I want to congratulate you on being the richest man in the world. After the sale's complete, Carnegie is not gonna have any role in the company. He's like, Nope, this is it. Like I sold, I'm done. This is going to open up For Henry Clay Frick. To be back into

1:06:02 Now the the new combined company, the US Steel. Another beneficiary was one Henry Clayfrick. His interest in the newly formed United States Steel Corporation. was sixty one miljon dollars If Carnegie relished the prospect of retirement, Frick evidently did not. He made it known that he would be willing to consider

1:06:18 the possibility of the being the chief executive officer of the new company. Carnegie lobbied hard against that possibility. In the end. Charles Schwab. was elected president of the new company.

1:06:30 Though Frick was voted onto the board of directors. The arrangement did not last long. Less than two years into his tenure. And annoyed. By Frick's continuing influence on the board.

1:06:41 Schwab resigned. To be replaced. By Albert. Gary. Gary remained at the helm of the US Steel Company for more than twenty six years.

1:06:51 And for more than fifteen of those years. of its partner. Henry Clay. Frick.

1:07:00 And that is where I'll leave it for the full story. I highly recommend buying the book. I think this book should be in every entrepreneur's Library. If you buy the book using the link that's in the show notes in your podcast player, you'll be supporting the podcast at the same time. That it's two hundred and eighty four books down.

1:07:14 One thousand ago. And I'll talk to you again soon.

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