Academic journal article The Quarterly Journal of Austrian Economics

Andrew Carnegie: An Economic Biography

Academic journal article The Quarterly Journal of Austrian Economics

Andrew Carnegie: An Economic Biography

Article excerpt



Entrepreneur Andrew Carnegie (1835-1919) emigrated to the United States from Scotland at age 12, working entry-level jobs (bobbin boy, messenger, telegraph operator) that taught him about the importance of initiative and self-taught education. At age 17, Carnegie became a railroad superintendent's personal secretary when his employer discovered he could read and write. He became privy to challenges faced by railroads, and was enterprising enough to grasp opportunities for improvement and self-enrichment. Trusted with greater authority, Carnegie learned about investments and cost-accounting, was promoted to railroad superintendent, and formed a company to manufacture iron for rails. Carnegie also invested in coal, express, horsecar and oil companies, and owned $400,000 in assets ($6.8 million today) by age 33 when he wrote a memo to himself vowing to set aside his business affairs and devote his time to philanthropy, formal studies and a public policy career. He achieved the philanthropic goal but not before playing a key role in creating the first billion-dollar U.S. corporation.

Non-economists (MacKay, 1997; Nasaw, 2006) have authored other Carnegie biographies. Univ. of Dallas Emeritus Professor of Economics Samuel Bostaph has written a biography that is engaging on several levels. First, Bostaph applies economic ideas about entrepreneurism, production and protectionism to Carnegie's commercial activities. He contrasts Carnegie's commercial acuity with his self-serving use of lobbying, tariffs and other forms of crony capitalism. Second, Bostaph explains, in some detail, technological advances within the iron and steel industries. Finally, he presents a side of Carnegie that should not be ignored: international peace advocate and opponent of imperialism who bought a replacement to avoid military conscription in the Civil War.

Bostaph begins by explaining three theories of entrepreneurship developed by Frank Knight, Israel Kirzner and Joseph Schumpeter. He uses the concept of Kirznerian entrepreneurial action for explanatory purposes to place Carnegie "firmly in the context of the market process." Bostaph identifies Carnegie as an entrepreneur in "a Schumpeterian sense: strong willed and eager to gain social power, yet innovative in his introduction of new products, processes and forms of business organization." These production processes are a recurring theme. Carnegie's father and ancestors were hand loom weavers paid piece rates for weaving damask. Weavers were vulnerable to downturns in the market for fine linen goods, centered in Dunfermline, Carnegie's hometown. Yet within two decades of Carnegie's birth the industry was virtually defunct due to technological advances. This experience and others made Carnegie alert to the future. He saw innovation as a key competitive means for increasing market share.

Following is Bostaph's description of the production process that led to construction, in the early 1870s, of one of the U.S.'s largest steel mills, 12 miles south of Pittsburgh:

With the availability of the low phosphorus iron ore of the Lake Superior region and the high quality coke made from the coal of the Connellsville area, he (Carnegie) decided it was now possible to use the Bessemer process to produce steel in the quantities needed, and at a low enough cost, to replace iron rails with those of steel. (p. 42)

He further describes the process as follows:

Coke was a key ingredient of iron and steel making. The anthracite coal of eastern Pennsylvania contained very little impurities and was viewed as a natural coke. Coke also could be made by heating the softer bituminous coal and cooking the impurities out of it. The bituminous coal of the Connellsville region made a superior coke because the production process left it honeycombed with pockets that gave more surface area for burning. …

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