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The legendary Midas could turn any object (including the food he needed to survive) into gold. Andrew Carnegie bettered Midas; he turned iron into gold and lived to tell about it. Early on, Carnegie was involved in the iron business, owning shares in Andrew Klomans foundry and in the Keystone Bridge Company. Thanks to his position with the Pennsylvania Railroad and his service with Tom Scott in the Secretary of war's Transportation Department during the Civil War, Carnegie came to see the value of the railroad in the war effort. The essence of Carnegie's vision was to imagine the possibilities for the iron industry brought about by the railroads' need for rails, locomotives and cars, and bridges, and, later, the need for armor plate and other iron components for ships, as well as iron for agricultural, industrial, and construction uses.

When Carnegie resigned his post at the Pennsylvania Railroad in 1865, iron was selling at $135 a ton and the industry was characterized by small-batch production (such as the iron enterprise of Robert and Cyrus McCormick, which failed) that was the labor-intensive, and highly fragmented. Some firms owned the furnaces that smelted the ore into pig iron; others had the rolling mills and forges that converted the pig iron into bars or slabs; and still others took the bars or slabs and rolled them into rails, sheets, nails, wire, or whatever.

Between each of these independent operations, an intermediary took the output of one and sold it to the next producer, also taking a profit for providing this service.

Britain was the world's leader in the iron industry when Carnegie began. In 1870, for example, Britain produced 5,963,000 tons, the United States 1,865,000. The British also made better steel, and U. S. railroads preferred to buy their rails abroad. When the British did make a poor-quality batch, they would call it "American iron" and sell it cheaply. Carnegie traveled frequently to the United Kingdom and often took with him U.S. railway securities to sell in the British and European markets. These trips led to a friendship with the successful London investment banker Junius Morgan, whose son, John Pierpont Morgan, was gaining prominence in U.S. financial circles and who would play an important role in Carnegie's later years in the business.

On one of his trips Carnegie saw a demonstration of Sir Henry Bessemer's process for making steel, which involved blasting air through the molten iron, resulting in a spectacular shower of sparks and, more important, the removal of more impurities, making the steel harder than earlier iron-making processes could do. After Carnegie saw the Bessemer process in operation, he had a vision of how this improved technology could be used. In 1872 he stopped his stock speculations, sold his Pullman interests, and concentrated on steel because "every dollar of capital or credit, every business thought, should be concentrated upon the one business upon which a man has embarked. He should never scatter his shot.... Put all your eggs in one basket, and then watch that basket, is the true doctrine the most valuable rule of all."[5]

Carnegie was not the only one, however, to see the opportunities provided by the Bessemer process. Alexander Holley, an engineer of many talents, obtained Bessemer's U.S. patent rights; also operating under this license were companies such as Illinois Steel (later renamed Federal Steel), Joliet Steel, Cambria Iron, Bethlehem Steel, Jones and Laughlin Steel, and Pennsylvania Steel. All were larger than Carnegie's firm, were better-capitalized, and were eager bidders on contracts for all types of iron products. In the face of this competition, what advantage did Carnegie have?

His innovations in managing the business began with the construction of a mill using Bessemer converters, named the J. Edgar Thomson Works (after Carnegie's mentor on the Pennsylvania Railroad), at Braddock's Station, Pennsylvania. He hired Alexander Holley, who knew more about Bessemer's process than anyone else, to design the plant and get it operational. He acquired by merger the coke facilities of Henry Clay Frick; he employed a chemist to study the steelmaking process; he invested in a Siemens gas furnace when other steelmakers thought the initial cost was too high; and he hired talented subordinates such as William P. Shinn, who brought a knowledge of railroad accounting, and Bill Jones, an army captain during the Civil War, who served as superintendent. It was Jones who was responsible for designing and implementing the rapid flow through the plant, from the input of raw materials to the blast furnace and through the converters to the ingot-casting and rolling stages without reheating the steel. When visiting British iron maker said he would like to sit on an ingot while he watched the work, Carnegie told him to go back to England, for in his plant no ingot was ever cool enough for a person to sit on it.

Continuous improvement was Andrew Carnegie's goal. On the Pennsylvania Railroad, Carnegie had learned McCallum's lesson about the importance of an information system that provided costs on operations. In his steel business Carnegie instituted a system of weighing in raw materials, determining costs associated with wages and materials, and gathering reports on output for each furnace. A knowledge of costs would be Carnegie's obsession and one of his reasons for success, because with this information he could make more intelligent bids on contracts and seek areas where costs could be reduced. He was able, for example, to expand his market share during the 1873-78 depression because his costs for steel rails were lower than his competitors', so he could underbid them and still make a profit.

Carnegie's success abounded. His firm supplied the steel for the Home Insurance Company Building in Chicago, the world's first skyscraper; armor plate for the navy; and locomotives, rails, and train cars. New York City's elevated railway, the Washington Monument, and the Brooklyn Bridge were all made with Carnegie steel. In the 1890s he completed the full integration of the firm by leasing the Mesabi Range to extract its iron ore deposits from John D. Rockefeller for 25 cents per ton. Carnegie's firm could take iron ore, transport it, mix it with other needed materials, and convert it into anything from iron to river-spanning bridges, depending on what the customer wanted.

The stain on this rags-to-riches story came in the summer of 1892 at a Carnegie mill in Homestead, Pennsylvania. . .

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