Andrew Carnegie on Vertical Integration

The Wikipedia article on the Carnegie Steel Company records that Carnegie began construction of his first steel mill, the Edgar Thomson Steel Works, in 1872 at Braddock, Pennsylvania, that the works began producing rails in 1874, and that by a combination of low wages, efficient technology, infrastructure investment, and an efficient organization the mill produced cheap steel that sold for large profit in the growing markets of industrial development. The article records Carnegie's own estimate that forty percent was returned on the investment — a profit of forty thousand dollars on a hundred-thousand-dollar investment in the mill — and treats the figure as the seed capital for the entire Carnegie Steel system, since the profits from Edgar Thomson were substantial enough to let Carnegie and his partners, including Henry Clay Frick, his cousin George Lauder, and Henry Phipps Jr., buy other nearby steel mills.

The Wikipedia article on the Edgar Thomson Steel Works records that the works were built at Braddock, Pennsylvania, on the Monongahela River, beginning in 1872, and that they were named after J. Edgar Thomson, the president of the Pennsylvania Railroad, who had been Carnegie's mentor and whose railroad ran adjacent to the site. The article records that the works began producing Bessemer-process steel rails in September 1875 and that they were the first major American installation of the Bessemer process for steel-rail production at industrial scale, displacing imported British steel rails in the American market within a few years. The article treats the choice of location — adjacent rail, river, and coke supplies — as the foundational vertical-integration bet of the Carnegie system, the operating decision that made the cheap-steel advantage reproducible and that turned the Edgar Thomson works into the seed plant of the entire Carnegie Steel Company.

The Wikipedia article on Henry Clay Frick records that he built the H. C. Frick & Company coke business in the Connellsville coal district of southwestern Pennsylvania in the 1870s, that Carnegie brought him into the Carnegie Steel partnership in 1882 to supply coke and to manage operations, and that Frick became chairman of Carnegie Steel in 1889, the operating executive who expanded the firm through the critical decade preceding the 1901 sale. The article records that Frick's Connellsville coke ovens were a decisive element of the Carnegie vertical-integration strategy, since cheap and reliable coke supply was the bottleneck variable in pig-iron production, and that the Carnegie-Frick combination integrated iron ore, coke, transport, and steel-making into a single controlled system. The article treats the partnership as the central operating alliance of the Carnegie Steel period, and the rupture between the two men after the Homestead strike as the central personal fracture of Carnegie's career.

The Wikipedia article on the Carnegie Steel Company records that the firm acquired the Homestead Steel Works in 1883 and that Henry Clay Frick proposed the consolidation of the various plants and assets, including H. C. Frick & Company, into a single operating entity, a consolidation that occurred on July 1, 1892, with the formation of the Carnegie Steel Company. The article records that the company headquarters were located in the Carnegie Building, an early skyscraper in Downtown Pittsburgh later demolished in 1952, and that Carnegie Steel made major technological innovations in the 1880s, especially the installation of the open-hearth furnace system at Homestead in 1886, along with vastly improved material-handling systems including overhead cranes, hoists, charging machines, and buggies. The combination of consolidation and mechanization is the operational basis for the scale advantage that made the firm Morgan's acquisition target in 1901.

The Wikipedia article on the Edgar Thomson Steel Works records that Carnegie had visited Bessemer steel plants in England in 1872 and that he secured the American rights to the Bessemer process for rail production, that the works were designed by Alexander Lyman Holley, the leading American Bessemer engineer, and that the plant's two Bessemer converters and rail-rolling mill established the production template copied by later American Bessemer plants. The article notes that the Edgar Thomson works continued in operation under U. S. Steel after the 1901 acquisition and that the works were substantially modernized over the following decades with open-hearth furnaces and, eventually, basic-oxygen-process steelmaking. The article treats the works as the still-operating physical foundation of Carnegie's steel fortune, since steel has been produced continuously on the Braddock site from 1875 to the present, making it one of the longest continuously operating steelmaking sites in the United States.

Carnegie dated his entry into iron manufacturing to November 1861, when Thomas N. Miller, the pioneer of the group, lent Henry Phipps eight hundred dollars to buy a one-sixth interest in a small iron mill with Andrew Kloman in Allegheny City. Carnegie and his brother joined Miller, Phipps, and Kloman to insure uniform quality and to make shapes unavailable from other mills. He singled out Kloman, a German mechanic who had discovered that whatever was worth doing with machinery was worth doing well, as the first man in Pittsburgh to introduce the cold saw that cut iron to exact lengths, the upsetting machines that made bridge links, and the first universal mill in America. When Captain Eads could not obtain couplings for the St. Louis Bridge arches because contractors had failed to make them, Kloman said he could and did, rolling the largest semicircles to that date, which Carnegie treated as the proof of his German thoroughness.