Rockefeller v.s. Carnegie & Morgan

“I do not think that there is any other quality so essential to success of any kind as the quality of perseverance. It overcomes almost everything, even nature.” — John D. Rockefeller

In the 1890s, Rockefeller almost fortuitously stumbled into owning most of the iron ore on the Mesabi Range, a mining district in northeastern Minnesota. This would be one of the final colossal business ventures he carried out on a global scale. After being duped out of some cheese by his former advisors, Hoyt and Colby, he figured the ore mines he purchased in Cuba, Michigan, and Wisconsin would be worthless.

Not quite; all thanks to his buddy, Frederick Gates, for noting its massive potential while inspecting the 120 mile strip of land. This irked industry giants, namely Andrew Carnegie and his right hand man, Charles Schwab, who said they “couldn’t understand how [Rockefeller], without knowledge of the iron business, could invest money in ores that were useless— at least for a long time to come.” To which Rockefeller responded, “It was a surprise to me that the great iron and steel manufacturer’s didn’t place what seemed to be adequate value on these mines.” He believed that, much like the early days in oil, the steel industry was on the precipice of overproduction and would soon fall victim to cannibalized competition unless it could be stabilized by strong owners.

Rockefeller’s vast ascent in the steel industry wasn’t going unnoticed, as he acquired an additional fifty steel vessels making it the largest fleet on the Great Lakes and the worlds biggest aggregation of iron ore transporters. This gave him full autonomy in dictating rates on Lake Superior, much like they were dictated to him a few years earlier— a situation that galvanized rival Andrew Carnegie into organizing the Pittsburgh Steamship Company.

“I don’t think the Rockefeller’s will succeed in making ore a monopoly like oil, they’ve failed in every new venture and his reputation now is one of the poorest investors in the world.” — Andrew Carnegie

John’s glowing success on the Mesabi Range triggered a clash between the two wealthiest men in America; Mr. Rockefeller v.s. Mr. Carnegie. The two just couldn’t get along, for instance; each Christmas they would exchange gifts in desultory fashion. Rockefeller giving Carnegie a paper vest, while Andrew reciprocated with a bottle of expensive whiskey, knowing full well John doesn’t drink.

Their public differences aside, there are myriad similarities in their business approach. Both had a propensity to ruthlessly cut costs, prioritize attention to detail, and keep dividends low. Furthermore, both struggled with their Herculean ego and unresolved greed, borne in philanthropy, and took a great deal of pride in being united with the working man.

After failing to move aggressively, Carnegie watched Rockefeller apply to iron ore the same wisdom he had learned in oil, such as controlling an industry through transportation and down casting competitors with prices too low for them to match. Thus, the two industry trends compelled Carnegie to broker a deal with Rockefeller. As mergers consolidated the steel industry, it became essential to peg sure sources of supply. By 1896, the press speculated that Rockefeller would build a massive steel mill in Cleveland or south Chicago, forge a steel trait on the Standard Oil model, and wage war with Andrew Carnegie. Meanwhile, John deposited another $19 million into the Mesabi Range to support his railroad and shipping operations.

“I always tried to turn every disaster into an opportunity.” — John D. Rockefeller

It bewildered Carnegie that an oilman possessed such clever foresight in the iron ore industry. In private dialogues, he vented his frustration with the commonly referred to, “Rockafellow” or “Wreckafellow”. In 1896, a humbled Andrew Carnegie consented, and promised to consume the entire output of Rockefeller’s chief mines—a minimum 600,000 tons of ore— at a rock bottom rate of 25 cents per ton.

To complete their armistice, Andrew vowed to refrain from buying new Mesabi fields or transporting iron ore, while John repudiated any ambition to build a steel mill. A generation later, Carnegie still boasted of this deal before a Senate committee, “Don’t know you know, it doesn’t my heart good to think I got ahead of John D. Rockefeller on a bargain.” When, in fact, the bargain had been Carnegie’s belated attempt to redress his own mistake. Having said that, the alliance struck between the two rivals would prove to bigly profitable for both party’s, and the price of Lake Superior Consolidated Stock that Rockefeller had bought for $10 in 1984 skyrocketed to $60 in 1899, $70 in 1900, and $100 in 1901.

The merger wave revealed a newfound centrality in Wall Street investment houses, for the capital needs of the new trust dwarfed the bank roll of small town banks and private donors. Only big-whig firms like J.P. Morgan could tap the foreign and domestic funds needed to push these transactions through. Switching their focus from railroad bonds to industrial securities, they forged the new trusts, issued their stock, pocketed a few shares for themselves, and handpicked their executives.

“As I grow older, I pay less attention to what men say. I just watch what they do.” — Andrew Carnegie

In 1900, when J.P. Morgan decided to create a steel trust, he knew he’d have to square off with two confirmed Wall Street cynics; Carnegie and Rockefeller. Morgan was distressed at the thought of Carnegie diversifying finished steel products and jeopardize his newly established Federal Steel Company, while Carnegie was worried about a reverse maneuver by Morgan. Meanwhile, Carnegie and Morgan were both a little perturbed by rumors floating around that Rockefeller might diversify into steel mills.

Mr. Morgan wasn’t thrilled about playing second fiddle to Rockefeller, who mocked Wall Street by financing his trust from retained earnings and holding cash reserves equal to several big banks. In many ways, Rockefeller and Morgan were diametrically opposite, as Morgan was expensively educated in America and Europe and for more than 40 years, he had been the chief conduit for British Capital that financed American railroad and industry. He was both tempestuous and dramatic, with a waning attention span. He was headquartered at 23 Wall Street, known to be fond of luxury, obnoxiously large cigars, and ginormous steam yachts.

“Anyone can be a millionaire, but to become a billionaire you need an astrologer.” — J.P. Morgan

For Rockefeller, Morgan embodies pride, luxury, and arrogance. When they first met at John’s brother’s Hudson River mansion, they were instantly at odds. “We had a few pleasant words.” Rockefeller noted, “But I could see that Mr. Morgan was very much— well, like Mr. Morgan; very inclined to look down on other men. I looked at him. For my part, I have never been able to see why any man should have such a high and mighty feeling about himself.”

For Morgan, Rockefeller was too dry and puritanical, devoid of manly charms and vices. And how could he not bewail at the impudence of someone who had created a cartel without him? Nevertheless, both men abhorred competition as a destructive force, a dangerously antiquated notion.

When Judge Elbert H. Gary informed Morgan in 1901 that Rockefeller’s Mesabi interests had to form part of any steel cartel, Morgan eschewed, “We have got all we can attend to”. When Gary persisted, Morgan eventually agreed that they had to incorporate Lake Superior Consolidated Iron Mines and Bessemer Steamship into U.S. Steel. This would require Morgan reaching out to Rockefeller, which would be a dealbreaker. When Gary told him he would have to break bread with John, he responded “I wouldn’t think about talking to him . . . I don’t like him.”

“A man generally has two reasons for doing a thing. One that sounds good, and a real one.” — J.P. Morgan

It’s pretty likely Morgan’s attitude was merely a projection of his own cowardice, for Rockefeller was one of the few people he couldn’t intimidate. In embarrassing fashion, Morgan asked Rockefeller if he could swing by 26 Broadway. Rockefeller responded saying he seldom went into the office since retiring, but would be happy to have him at West 54th street. John knew the bargaining edge of a last-minute holdout and relished his manipulation of Wall Street’s most admired banker.

Soon after he arrived at Rockefeller’s house, J.P. brusquely inquired about the prices of his iron ore properties. Rockefeller threw his hands up in mockingly, reminded him he was retired, and told him to discuss these matters with his 27 year old son, John Jr., who would “undoubtedly be glad to talk with him.” This was an obvious insult, but Morgan reluctantly said that John Jr. should call him at his Wall Street office at his earliest convenience. What a debilitating burn.

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