Autobiography of Andrew Carnegie
I decided not to return to the Barings, and although J.S. Morgan & Co.
had been bringing out a great many American securities I subsequently
sold the bonds to them at a reduced price as compared with that agreed
to by the Barings. I thought it best not to go to Morgan & Co. at
first, because I had understood from Colonel Phillips that the bonds
had been unsuccessfully offered by him to their house in America and I
supposed that the Morgans in London might consider themselves
connected with the negotiations through their house in New York. But
in all subsequent negotiations I made it a rule to give the first
offer to Junius S. Morgan, who seldom permitted me to leave his
banking house without taking what I had to offer. If he could not buy
for his own house, he placed me in communication with a friendly house
that did, he taking an interest in the issue. It is a great
satisfaction to reflect that I never negotiated a security which did
not to the end command a premium. Of course in this case I made a
mistake in not returning to the Barings, giving them time and letting
the panic subside, which it soon did. When one party to a bargain
becomes excited, the other should keep cool and patient.
As an incident of my financial operations I remember saying to Mr.
Morgan one day:
"Mr. Morgan, I will give you an idea and help you to carry it forward
if you will give me one quarter of all the money you make by acting
upon it."
He laughingly said: "That seems fair, and as I have the option to act
upon it, or not, certainly we ought to be willing to pay you a quarter
of the profit."
I called attention to the fact that the Allegheny Valley Railway bonds
which I had exchanged for the Philadelphia and Erie bonds bore the
guarantee of the Pennsylvania Railroad Company, and that that great
company was always in need of money for essential extensions. A price
might be offered for these bonds which might tempt the company to sell
them, and that at the moment there appeared to be such a demand for
American securities that no doubt they could be floated. I would write
a prospectus which I thought would float the bonds. After examining
the matter with his usual care he decided that he would act upon my
suggestion.
Mr. Thomson was then in Paris and I ran over there to see him. Knowing
that the Pennsylvania Railroad had need for money I told him that I
had recommended these securities to Mr. Morgan and if he would give me
a price for them I would see if I could not sell them. He named a
price which was then very high, but less than the price which these
bonds have since reached. Mr. Morgan purchased part of them with the
right to buy others, and in this way the whole nine or ten millions of
Allegheny bonds were marketed and the Pennsylvania Railroad Company
placed in funds.
The sale of the bonds had not gone very far when the panic of 1873 was
upon us. One of the sources of revenue which I then had was Mr.
Pierpont Morgan. He said to me one day:
"My father has cabled to ask whether you wish to sell out your
interest in that idea you gave him."
I said: "Yes, I do. In these days I will sell anything for money."
"Well," he said, "what would you take?"
I said I believed that a statement recently rendered to me showed that
there were already fifty thousand dollars to my credit, and I would
take sixty thousand. Next morning when I called Mr. Morgan handed me
checks for seventy thousand dollars.
"Mr. Carnegie," he said, "you were mistaken. You sold out for ten
thousand dollars less than the statement showed to your credit. It now
shows not fifty but sixty thousand to your credit, and the additional
ten makes seventy."
The payments were in two checks, one for sixty thousand dollars and
the other for the additional ten thousand. I handed him back the
ten-thousand-dollar check, saying:
"Well, that is something worthy of you. Will you please accept these
ten thousand with my best wishes?"
"No, thank you," he said, "I cannot do that."
Such acts, showing a nice sense of honorable understanding as against
mere legal rights, are not so uncommon in business as the uninitiated
might believe. And, after that, it is not to be wondered at if I
determined that so far as lay in my power neither Morgan, father or
son, nor their house, should suffer through me. They had in me
henceforth a firm friend.
A great business is seldom if ever built up, except on lines of the
strictest integrity. A reputation for "cuteness" and sharp dealing is
fatal in great affairs. Not the letter of the law, but the spirit,
must be the rule. The standard of commercial morality is now very
high. A mistake made by any one in favor of the firm is corrected as
promptly as if the error were in favor of the other party. It is
essential to permanent success that a house should obtain a reputation
for being governed by what is fair rather than what is merely legal. A
rule which we adopted and adhered to has given greater returns than
one would believe possible, namely: always give the other party the
benefit of the doubt. This, of course, does not apply to the
speculative class. An entirely different atmosphere pervades that
world. Men are only gamblers there. Stock gambling and honorable
business are incompatible. In recent years it must be admitted that
the old-fashioned "banker," like Junius S. Morgan of London, has
become rare.
Soon after being deposed as president of the Union Pacific, Mr.
Scott[31] resolved upon the construction of the Texas Pacific
Railway. He telegraphed me one day in New York to meet him at
Philadelphia without fail. I met him there with several other friends,
among them Mr. J.N. McCullough, vice-president of the Pennsylvania
Railroad Company at Pittsburgh. A large loan for the Texas Pacific had
fallen due in London and its renewal was agreed to by Morgan & Co.,
provided I would join the other parties to the loan. I declined. I was
then asked whether I would bring them all to ruin by refusing to stand
by my friends. It was one of the most trying moments of my whole life.
Yet I was not tempted for a moment to entertain the idea of involving
myself. The question of what was my duty came first and prevented
that. All my capital was in manufacturing and every dollar of it was
required. I was the capitalist (then a modest one, indeed) of our
concern. All depended upon me. My brother with his wife and family,
Mr. Phipps and his family, Mr. Kloman and his family, all rose up
before me and claimed protection.
[Footnote 31: Colonel Thomas A. Scott left the Union Pacific in 1872.
The same year he became president of the Texas Pacific, and in 1874
president of the Pennsylvania.]
I told Mr. Scott that I had done my best to prevent him from beginning
to construct a great railway before he had secured the necessary
capital. I had insisted that thousands of miles of railway lines could
not be constructed by means of temporary loans. Besides, I had paid
two hundred and fifty thousand dollars cash for an interest in it,
which he told me upon my return from Europe he had reserved for me,
although I had never approved the scheme. But nothing in the world
would ever induce me to be guilty of endorsing the paper of that
construction company or of any other concern than our own firm.
I knew that it would be impossible for me to pay the Morgan loan in
sixty days, or even to pay my proportion of it. Besides, it was not
that loan by itself, but the half-dozen other loans that would be
required thereafter that had to be considered. This marked another
step in the total business separation which had to come between Mr.
Scott and myself. It gave more pain than all the financial trials to
which I had been subjected up to that time.
It was not long after this meeting that the disaster came and the
country was startled by the failure of those whom it had regarded as
its strongest men. I fear Mr. Scott's premature death[32] can
measurably be attributed to the humiliation which he had to bear. He
was a sensitive rather than a proud man, and his seemingly impending
failure cut him to the quick. Mr. McManus and Mr. Baird, partners in
the enterprise, also soon passed away. These two men were
manufacturers like myself and in no position to engage in railway
construction.
[Footnote 32: Died May 21, 1881.]
The business man has no rock more dangerous to encounter in his career
than this very one of endorsing commercial paper. It can easily be
avoided if he asks himself two questions: Have I surplus means for all
possible requirements which will enable me to pay without
inconvenience the utmost sum for which I am liable under this
endorsement? Secondly: Am I willing to lose this sum for the friend
for whom I endorse? If these two questions can be answered in the
affirmative he may be permitted to oblige his friend, but not
otherwise, if he be a wise man. And if he can answer the first
question in the affirmative it will be well for him to consider
whether it would not be better then and there to pay the entire sum
for which his name is asked. I am sure it would be. A man's means are
a trust to be sacredly held for his own creditors as long as he has
debts and obligations.
Notwithstanding my refusal to endorse the Morgan renewal, I was
invited to accompany the parties to New York next morning in their
special car for the purpose of consultation. This I was only too glad
to do. Anthony Drexel was also called in to accompany us. During the
journey Mr. McCullough remarked that he had been looking around the
car and had made up his mind that there was only one sensible man in
it; the rest had all been "fools." Here was "Andy" who had paid for
his shares and did not owe a dollar or have any responsibility in the
matter, and that was the position they all ought to have been in.
Mr. Drexel said he would like me to explain how I had been able to
steer clear of these unfortunate troubles. I answered: by strict
adherence to what I believed to be my duty never to put my name to
anything which I knew I could not pay at maturity; or, to recall the
familiar saying of a Western friend, never to go in where you couldn't
wade. This water was altogether too deep for me.
Regard for this rule has kept not only myself but my partners out of
trouble. Indeed, we had gone so far in our partnership agreement as to
prevent ourselves from endorsing or committing ourselves in any way
beyond trifling sums, except for the firm. This I also gave as a
reason why I could not endorse.
During the period which these events cover I had made repeated
journeys to Europe to negotiate various securities, and in all I sold
some thirty millions of dollars worth. This was at a time when the
Atlantic cable had not yet made New York a part of London financially
considered, and when London bankers would lend their balances to
Paris, Vienna, or Berlin for a shadow of difference in the rate of
interest rather than to the United States at a higher rate. The
Republic was considered less safe than the Continent by these good
people. My brother and Mr. Phipps conducted the iron business so
successfully that I could leave for weeks at a time without anxiety.
There was danger lest I should drift away from the manufacturing to
the financial and banking business. My successes abroad brought me
tempting opportunities, but my preference was always for
manufacturing. I wished to make something tangible and sell it and I
continued to invest my profits in extending the works at Pittsburgh.
The small shops put up originally for the Keystone Bridge Company had
been leased for other purposes and ten acres of ground had been
secured in Lawrenceville on which new and extensive shops were