The Tycoons: Carnegie, Rockefeller, Gould & Morgan

Andrew Carnegie, John D. Rockefeller, J. Gold, and J.P. Morgan were all in their late 20s or early 30s, all on the first rungs of their careers in the waning days of the Civil War. In an age of outsized business leaders, no others played so great a role in shaping and channeling the American boom. They forced the pace, drove the transition to ever-larger scales, and imposed personal stamps on the national economy that persisted well into the 20th century. They were quite different people. Carnegie, Rockefeller, and Gold tapped into the national predilection for speed, the obsession with moving ahead, the tolerance for experimenting, to create one of history's purest laboratories of creative destruction. Most businessmen of the time believed in orderly markets and gentlemanly, fair profits. But these three came with flaming swords. That's a great line. Morgan was the regulator, always on the side of reigning in what he called ruinous competition, most especially of the kind regularly unleashed by the other three. The American steel industry was settling into a comfortable cartel when Carnegie commenced his career of disruption. Carnegie's plans were always the biggest, the most automated, the most focused on pushing prices down. He had the simplest of business mantras, cut costs, take share, gain scale. Profits would take care of themselves. Jay Gold was a provocateur, a master of public security markets as no one before him and few since, always attacking, always pushing the possible to precarious new heights. Gold's arena was railroads and the telegraph, the critical infrastructure of his period. Rockefeller may have been the greatest visionary and the supreme manager. He took over world oil markets so quickly that it was over before most people noticed. He taught the world its first lesson in the power of large scale distribution. These four are the founding fathers of the American industrial superpower. That was an excerpt from a preface of the book that we talked about today, which is The Tycoons, How Andrew Carnegie, John D. Rockefeller, Jay Gold and J.P. Morgan Invented the American Super Economy. And this book was written by Charles R. Morris. So originally, when I picked up this book, I thought I was going to read a biography about four tycoons. What the book is really about is using the life and career of these four tycoons to explain this massive expansion and growth in the American economy that occurred after the Civil War. And the author makes the case that these four tycoons played a role in building out the economy on which all modern businesses actually rest. And so I want to he has a few good quotes here right before Lincoln dies. And it really sets up the difference between what I think about, like where the story is, like the difference between like almost like a startup and like an incumbent. America at the time is obviously younger, hungrier, way less money than most of Europe. And Abraham Lincoln talks about the difference in the mindset that Americans had at this point. Obviously, all four of the people that we're going to talk about today had this mindset as well. And really reminds me of one of my favorite maxims, which is that belief comes before ability. And so Abraham Lincoln says, we here in America think we discover and invent and improve faster than any European nation. So they do a good job of contrasting throughout the book the way that Americans were thinking about building their economy, creating and inventing new technology, building companies compared to their counterparts in Europe. And so what he does, what the author does here is throughout this entire book, you know, he kind of weaves in these stories of, again, the young version. What I love is there's pictures of the book in here of like Carnegie, JP Morgan, Rockefeller Gold. And I was thinking about them as like the older pictures that you see that they're way more prevalent online when they were maybe 50, 60, 70 years old. And there's actually pictures in there where, no, this is Carnegie when he's 30. This is Rockefeller when he was 25. So I pulled out a couple. Basically, what I thought was most interesting is this description, these like short descriptions of who they were as people and how they ran their business. And then the author does a great job of comparing and contrasting. You know, Carnegie built one of the most successful companies of all time. Rockefeller built one of the most successful companies of all time. There's some ideas that they shared, but there's also vastly different approaches. I think that's one of the most valuable things of reading the book and hopefully you getting out this episode. So we're going to jump right into Carnegie. When Lincoln died, Andrew Carnegie was turning 30 and was already wealthy, although he'd been a factory bobbin boy hardly a decade and a half before and had yet to even settle in on a career. John D. Rockefeller was only 26, but his Cleveland oil refinery was one of the largest and most profitable in the country, and he may have already formed his design of taking over the entire industry. Jay Gold was 29 and was trying his hand as a railroad turnaround specialist. J.P. Morgan was 28, quietly learning his trade within his father's banking network. These four would become the greatest of a generation of outsized business leaders by their sheer intelligence, their ambition and their forcefulness. They laid down the channels that other people followed. They were never friends. Carnegie, Rockefeller and Gold personified the unlimited entrepreneurial opportunities suddenly opened by America's vast resources and its freedom from constraints of class. For the man of fierce business ambition and massive talent, it was the one place and perhaps the one time where he could push as far as he could possibly go. Morgan stood apart from the others. He was not only born wealthy, but he defined his career in reaction to the great entrepreneurs. So it does a great job of contrasting the difference between the financiers and the entrepreneurs, building the products, building the businesses. Andrew Carnegie was the most irritating of tycoons. So this is going to come up a lot. I like reading about Carnegie. I've read his autobiography, I think twice. There's this great biography of the partnership that he had with Henry Clay Frick that's called Me, You and Hell. I've done an episode on that. This author definitely thinks that Carnegie, why we just called him he was most irritating. He also would make the case that Carnegie was a compulsive liar, which he'll bring up multiple times. But this is a great overview of Carnegie and where he's at when he's rather young. So he's the most irritating of tycoons. He was a petite five foot three. He was a tireless bundle of bouncing energy. He was quick in apprehension of anything that would advance his interests. He was as relentless in self-improvement as in everything else. He talks about he read it. He would read voraciously. He spent all his free time when he's not working, learning new skills. When he is 17, he actually starts working for this guy named Tom Scott. Tom Scott was one of this time period's greatest real world executives. And Tom Scott's going to change Carnegie's life. And this is where Carnegie is learning the technology of his day, the communication technology of his day, which is telegraph, which you have to learn how to program. Right. Since Scott did so much work by telegraph, he and Carnegie shared an office and the flow of messages allowed Carnegie almost to inhale the essence of the railroad business. It is very fascinating to think about the different path that that Carnegie could have taken. He definitely took the more ambitious path, but he was already entrenched and he's being mentored by one of the most successful railroad executives of the of all time. He could have just been building railroads or even working for them. He's promoted to the super from a relatively young age. He's promoted to be the superintendent of the Western Division. And this is where he starts. He's not just an assistant. He's also running one of the lines. And we see a trait of his, which is in a trait, I would argue, a trait of all of them. Maybe not Morgan, but their emphasis on speed and on essentially identifying the single most important thing in the business and spending all their time essentially removing bottlenecks for this. It sounds a lot like Elon. The core challenge for the railroad was to keep traffic flowing. Shortly after his appointment, he shocked his fellow executives by burning stalled cars to clear lines. It was the classic Carnegie technique. Focus on an objective, then cut brutally through any conventions. Competitors are ordinary people who stood in your way. Car burning was soon a standard method for clearing stalled trains. And this is something Carnegie would do over and over again. He wasn't really concerned about the opinions of other people. If he thought something was right, he would just act on it. And again, when they described like his one of his like techniques, one of his demos, focus on objective, then cut brutally through any conventions. Competitors are ordinary people who stood in your way. By the early 1860s, Carnegie was already a rich man in an age when conflicts of interest routine. Scott had carefully steered him to investments in companies doing business with the Pennsylvania Railroad, which is the one they're running, like a sleeping car company and a railroad bridge builder, often advancing him the purchase money to buy the stock. The core fact about Carnegie was the drive to dominate at all costs. But for some reason, although Carnegie, this is again where he talks about it's kind of like a bundle of contradictions. I mean, I would I would just basically say the author thinks that that Carney was unscrupulous and that would just lie if it was in his benefit. And here's an example. For some reason, although Carnegie was among the hardest of men, he always insisted on parading as a humanitarian idealist, as if his businesses were some kind of social welfare project. So when he was the world's greatest steel magnet, he loved to issue pro labor manifestos, even as he steadily ratcheted up the demands on his workers and cut their pay. Before we get back into this, I want to tell you about the presenting sponsor of this podcast, Ramp. I have been reading a lot about SpaceX lately. SpaceX is one of the most valuable businesses in the world. And one of the main themes in the history of SpaceX is constantly attacking and questioning your cost. Ramp helps many of the most innovative businesses in the world do exactly that. And they do this by using first principles thinking the median company running on ramp cuts their expenses by five percent. And one thing that SpaceX has demonstrated is that a religious dedication to controlling your cost helps increase revenue because you can pursue opportunities you couldn't otherwise. And we see that in the ramp data to the median company running on ramp also grows their revenue by 16 percent. So when you're running your business on ramp and your competitors are not, you have a massive competitive advantage that compounds over time. Ramp is the only platform designed to make your finance team faster and happier. Many of the top founders and CEOs that I know run their business on ramp. I run my business on ramp and you should too. Go to ramp.com today to learn how they can help your business save time, save money and grow revenue. That is ramp.com. Carnegie was often pointlessly cruel even to his most loyal associates. There's a reason why one of the biographies written about Carnegie is called meet you in hell. It's Henry Clay Frick that was his partner that in many cases I would argue is actually the managerial genius behind Carnegie Steel that that meet you in hell is because Frick felt Carnegie screwed him over. And that's one of the last things he ever said to him. He manipulated his underlings shamelessly, harping obsessively on their smallest failures and taking the credits for their every success. When Henry Frick retired, Frick, who had contributed as much to anyone is building his empire. Carnegie applied all of his trademark energy and obsessiveness to cheat him of his stake over a long career. The only fellow tycoon who fully matched up with Carnegie in a business setting was the man that he liked to call Rockefeller. And so then we go into a short overview of the early days of Rockefeller's career. Obviously, I think he's one of the most important if you could only study one person from business history. Right. I'm talking 100, 200 years in the past. I would definitely pick Rockefeller. I've done, I don't know, 10 episodes on him. So it talks about Rockefeller running his first refinery for the first time. Rockefeller could demonstrate his extraordinary ability to combine headlong expansion with fanatical attention to efficiency and cost. Under Rockefeller's management, still talking about the refinery. It was also the most consistently profitable. A few traits of Rockefeller pop out. He wanted to be in control. He's got these partners. He has an idea. He's like, hey, we're going to take on debt. We're going to rapidly expand. He wants to impose organization on this chaotic industry, which is the early days of the oil industry. And so it gives like this brief overview of Rockefeller essentially breaking up with his partners and then outmaneuvering them. As the frictions grew, the Clarks made frequent threats to dissolve the partnership. On what such occasion? Rockefeller disingenuously asked them if they really meant it, which they confirmed. The next day, to their shock, they read a notice of dissolution in the local newspaper. They were doubly shocked to find that Andrews had thrown in his lot with Rockefeller as one of their other partners. And then after they had agreed to an auction to settle the ownership of the refinery, were again shocked to find themselves coolly outbid by the 25 year old Rockefeller. So this is one of the craziest things. Bidding for this oil refinery hit seventy two thousand dollars. Once it hit that, they're like, this is too much money. Rockefeller is probably the greatest manager, business manager of all time. When I had dinner with Charlie Munger, I asked him who he thought was the greatest entrepreneur of all time. Obviously, it's a question near and dear to my heart. I think he knew more about business history than anybody else I've ever met. And he says, it's obviously Rockefeller. That's what Munger said. And here's a great example. So his partner's like, oh, it's seventy two thousand dollars. That's too much. I'm not like here. You can have it. The next year, the refinery had total sales of one point two million dollars. This is in the 1860s. This is insane. From the very start of his business career, he took enormous risks. But so calmly and matter of factly as to make them seem perfectly ordinary. Even during his first years in refining, the characteristic Rockefeller methods were on full display. Move with shocking speed and minimum fanfare. Act with total confidence, but turn on a dime if new facts warrant. March in service of a sweeping vision, but pay obsessive attention to details. Although he often played. This is just great writing. This next paragraph is excellent. I think it gives you a really good insight into Rockefeller. Although he often played very rough, he was surprisingly free of vindictiveness. When he took over another man's business, he genuinely paid a fair price. Indeed, he often overpaid. A typical ploy was to open his books to the target. Any sensible man would understand that competition was hopeless and make a deal. If a target was especially stubborn, rejecting all reasonable offers, a switch would finally turn. And Rockefeller would suddenly unleash total blazing warfare on every front. Price, supplies, access to transportation, land use permits, whatever created pain. When the target capitulated, and they always did, the fair price offer would still be available. Often with an offer to join the Rockefeller team. It was industrial conquest on the efficiency principle. He was simply better at the business than anyone else. That is just an incredible overview. And so then we go to Jay Gould. I've read, I think, two biographies of Jay Gould. I would say out of everybody, maybe everybody I studied on the podcast, he's the one that I understand the least on how he actually did what he did. And so here's a couple of other people that were working with him and against him, talking about him, says, of the rubber barons. None had as a dark reputation as Jay Gould. One of his competitors said that Jay Gould's touch is of death. JP Morgan, who in his early career was also outmaneuvered by Gould, was always torn between keeping him at a wary distance and chasing after his business. And so I don't think I can think of a single example where somebody else got the better end of Jay Gould. Talks about he did this with Rockefeller, he did this with JP Morgan, he did this with Daniel Drew. It just happens over and over again. Gould had one of the supplest business minds of his or any age. His career coincided with the great epoch of American railroads. Why is that important? Because these businesses were the first large investor finance publicly traded corporations ever. And why did that create an opportunity for financiers? He also operated businesses, maybe like a stock manipulator. I don't even know how you would describe him. Because he's not a financier like a JP Morgan was, but finance was his weapon. And stock was his weapon. But the reason the railroads created this opportunity for him is one, it's pretty wild how big railroads got. I think at one point they were 80% of the entire market cap of the stock that one industry was. But this sentence describes why. The railroad's thirst for capital was insatiable. This was the playing field Gould was born for. His subtle intelligence could flicker through every crevice and corner of the most convoluted financial constructions and divine exactly the points of leverage, the strategic positions that could make him by a few purchases, master of the entire enterprise. This is why it's so confusing what he did. And then he'd also do what Rockefeller did. He would like hide his maneuvers. So you wouldn't know what he was buying. In many cases, he did the same thing Rockefeller did. He had the secret ownership of companies, which we'll get to later. It is very, very confusing, but also really surprising because there's no other robber baron came from where he came from. Because, you know, JP Morgan came from a very rich family, essentially inherited this giant merchant bank. But Jay Gould was essentially abandoned by his dad. So the weapon he used to build his wealth was understanding financial markets, I guess, is what I'm trying to tell you. Railroads became the center of Gould's interest early in his career. And more than anyone else, he created the national railroad map that prevails to this day. Gould had a strange streak of self-destructiveness. More than once after a string of victories had left him in possession of the field, he would launch some new, seemingly pointless depredation that laid waste to everything he'd worked for, as if launching stock wars was simply what he did. He was a superb financial engineer, took a close interest in operational details, and usually outstrategized his competitors. Gould was barely five feet tall, even smaller than Carnegie. Burning ambition more than made up for Jay's lack of physical strength. He was essentially on his own from age 13 when his father registered him in a high school in a neighboring town and left him with a pile of clothes and $0.50. And then we have another paragraph that just gives this great overview of how he worked. This event highlighted the characteristics Gould would display his entire career. The ability to tackle any endeavor, master any field, and despite his frail constitution to work all the time. The constant pushing against boundaries and restraints. The impulse to expand in every direction at once. That idea right there, the impulse to expand in every direction at once is something that's repeated over and over again throughout the book, this book, and the biographies of Jay Gould. It's very important to understand. Sometimes beyond all reason. The unfortunate habit of leaving a trail of dazed and battered partners in his wake and the sharp reading of legal documents. One scholar has called him probably the most successful litigant in American history. Most extraordinary was Gould's ability to sustain reverses that would crush another man than to pull himself off the floor and carry on. Learning more, working harder, never complaining, just looking for his next chance. And then we go into a brief overview of J.P. Morgan. On this page, there just happens to be these four pictures of these young tycoons when they were young. I have to say, out of all four of them, J.P. Morgan's the one that aged terribly. He was a handsome young man. I don't know what happened when he got older. It says, J.P. Morgan was already an experienced banker at the time of Lincoln's death. Few young men had been as carefully brought up for their trade. So I read this book. I think it's probably a 600 or 700 page history of the Morgan family. I think it's called The House of Morgan, if I remember correctly. And most people focus on J.P. Morgan. He's by far the most famous member of his family. But I actually thought his dad, Junius, was by far the more impressive man. And so when they say no one's ever been brought up, carefully brought up to their trade as J.P. Morgan, it means the tutelage and the mentorship from his father, Junius. J.P. had Junius's flair for numbers and loved to spend his school vacations working in the accounting house as bank. The accounting house is just the back office of a bank. But he also had a raffish streak with an eye for the ladies and an appetite for risk that occasionally alarmed the very buttoned down Junius. J.P. was clearly well-prepared. He was endowed with a powerful intellect, great financial insight, and enormous personal forcefulness. In fact, they call him Jupiter. Later, his nickname was Jupiter because he was essentially the largest gravitational force in the entire finance industry. He was praised for conducting a first-rate business. And one of his mottos was that gentlemen pay their debts. Morgan's genius was that of the disciplinarian, not of the creator. He was the last of the great 18th and 19th century merchant bankers, rather than the pioneer of a new dispensation. He did what his father and other bankers had always done, but in broader strokes and on a bigger canvas. His fundamental drive was towards order and control, and he was appalled by the storm of creative destruction at the heart of this long American boom. He detested, and this is a direct quote from him, bitter, destructive competition that always led to demoralization and ruin. Carnegie, Rockefeller, Gold, and Morgan would have risen to the top in any age, but in post-Civil War America, business had acquired the sense of excitement and purpose that men had once associated with great feats of statecraft or conquest. And so then throughout the book, they also discuss a bunch of other businesses and entrepreneurs and inventors and engineers. I'm gonna skip over most of them. I wanna focus just on the main four to be like the center of our discussion. But I think this is really important because again, when I'm reading something about like the 1800s or the railroads, I'm not thinking about that. I was like, well, how does this echo the time that you and I are in? And so it makes a sense of like, if you were a classic nerd or a technology geek, okay? At this point, that means then you were then a machine geek and your version of inventing new technology would usually try to automate some kind of like physical aspect of labor. 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And then another important point from this book is if you do have that ambition, make sure you're in the environment which actually allows you to express that ambition. And so again, it goes back to what was happening in Europe at the time and contrasting it with America, that America was embracing new technology trying to invent new things and Europe in large part was trying to stop the technological progress, obviously it's futile. And so then we have a quote from somebody that's now working in America that had previously worked in England. Alfred Hobbes had experienced manufacturing in England and was convinced that British workmen were a major productivity obstacle. His direct quote from Alfred Hobbes. In America, they might set to work to invent machines and all the workmen in the establishment would, if possible, lend a helping hand. But in England, it was quite the reverse. If the workmen could do anything to make the machine go wrong, they would do it. There really does seem to have been a culture of invention in America. There were hundreds of water-powered sawmills in Massachusetts by the end of the 18th century when they were still relatively rare in England. Why? In part because of opposition from the Sawyers, the British woodcutting trade. Sawyers, that's the people working in the woodcutting trade, that's what they're called. Sawyers actually burnt down the new sawmills in 1825. And so then as the book progresses through time, the author does a great job of weaving in these little vignettes or anecdotes about all the four tycoons. So there's a great chapter, it's called Bandit Capitalism, which I thought was a funny line. It starts talking about what Jay Gould was doing. And it says, the greedy moneyed classes were irresistibly drawn to Wall Street in the 1870s. That is where Jay is setting up shop. And this is an incredible line to think about Jay Gould. And to a clever young trader like Gould, they look like so many sheep lined up to the horizon asking to be sheared. And so then it gives a brief overview of this war that Jay Gould is engaged in, him and his partner, Jim Fiske, with Cornelius Vanderbilt. Keep in mind at this time, Jay's in his early 30s, Vanderbilt's probably in his 70s. Vanderbilt is probably the most famous and definitely the wealthiest person in America. And again, Jay Gould just never backed down from anybody. They're fighting over control of the area railroad. And it says, Gould and Fiske had been forced to repair to the rigors of Jersey City Hotel because they were in the process of extracting one of the country's largest railroads and biggest companies from Cornelius Vanderbilt. So the reason they had to, one of the reasons they fled New York and were on the lam in Jersey is because when Cornelius Vanderbilt would have a business dispute, he would not resort to just business tactics. He would not just sue you. He literally set hitmen. He put prices on Jay Gould and Jim Fiske's head. That is not an exaggeration. This is what he did. Says the episode was all the more shocking since it was masterminded by Jay Gould, still in his early 30s and a virtual unknown on Wall Street. While Vanderbilt was the richest and arguably the most powerful man in the country with long experience of financial markets. Still, it was Gould who would emerge with the prize. Of our four fledgling tycoons, Jay Gould and John D. Rockefeller were the first to make their presence felt in the years immediately after the war. And so I just want to give you an insight into this. They said the supple mind of Jay Gould. So basically when they're competing, let's say Vanderbilt owns a railroad and Jay Gould owns a railroad, to steal traffic and to try to economically hurt one railroad, you drop the prices. And some people might drop by 10%, 50%. Cornelius Vanderbilt would drop it down to a penny. And then you see Jay would constantly respond to what was actually going on on the board. And says, once during an eerie and New York central price war on cattle shipping, Vanderbilt slashed rates to an absurd penny a head. So a penny for every piece of cattle, head of cattle, right? And he was laughing victoriously as his trains filled up with steers until he discovered that Jay Gould had cornered the cattle market and were making a fortune from his shipping losses. And so that's a great example of this supple and dynamic mind that Jay Gould had. And also another difference of him is a lot of people, there was a lot of financial shenanigans like financing railroads. They would water the stock, they would do hostile takeovers, but many people engaged in that kind of stuff did not actually wanna run the business. Jay Gould wanted to run the railroads. So it says, Jay Gould was actually interested in running the Erie. More importantly, he had a strategy. Even in its gravely wounded state, the Erie was the platform he needed to set about teaching the rest of the Northeastern roads, including Vanderbilt's, what their business was really about. The economics of railroads are the same as for airlines. And Jay Gould grasped that more quickly and clearly than anyone else. Gould decided to go after all four Western legs of the railroad at the same time. So it goes back to the idea that his MO was like, such a total warfare in every direction, all at once, at the same time. And what he understands is like, if I need to own more of this to have more control, to have more efficiency, you have all these like smaller jurisdictions, the ownership is broken up. They may only be able to serve like a tiny part of the country. And so he's going after every single thing. And it compares and contrasts that a strategy that might've worked a few years ago might be the exact wrong strategy you need to use today. This paragraph will hopefully make that clear. Strikingly, although their Western connections were crucial for both the Pennsylvania and the New York Central Railroad, neither had taken any steps to defend them. This is what Jay is going after. The Pennsylvania had actually been divesting its ownership interest in its Western connections. Gold strategy is exactly the opposite. If I own all of them, I will be in a much more powerful position. And he thought it was the only way he would survive. Its executives prided themselves, still talking about the people, instead of owning what is gonna be more valuable and going deeper, they're actually selling, which again, Jay, you're gonna prove is the exact wrong strategy at this point. And it talks about why the people on the other side had the wrong strategy. Its executives prided themselves on keeping debt low, extending lines cautiously, and conserving cash. In the pre-J. Gold days, this was the epitome of good management. The railroad bosses were like peacetime generals who would keep the troops fed and the equipment working. But they didn't have a clue about strategic maneuver or positional advantage like J. Gold did. And then a few pages later, it shows how Rockefeller had a lot of these same ideas, just hyper-competence, ruthless efficiency, and operational excellence is the way to think about this page. Rockefeller pressed on every front to reduce costs, cut waste, and sell more byproducts. No opportunity to pick up a nickel of margin was overlooked, creating his own hauling operation, building his own barrel plant, purchasing his own piping supplies. He was also obsessed with control. So that makes for, it was a good economic decision, but it also was completely in line with his personality. Even the most anti-Rockefeller muckrakers conceded the high quality of operations at Standard Oil. Rockefeller also may have been unique among oil executives for his understanding of distribution. Kerosene, again, this is what the oil industry is at the time in Rockefeller's career. This is before the invention of the mass-produced automobile. So kerosene is used for lighting at this point, okay? Kerosene was arguably the first global consumer product. Rockefeller pursued tightly integrated marketing and distribution operations from the earliest days, rapidly moving from contractual relationships to outright purchase and merger. His network acquisitions from the late 1860s through the first half of the 1870s included pipelines, crude gathering facilities, tank storage farms, tank loading facilities, domestic and overseas wholesale shipping and distribution operations, and coastal assemblage and ship loading facilities. This is just, I have a weird thought that came to mind when I was reading this, okay? So have you ever seen the movie, The Aviator? The Aviator is about Howard Hughes, right? And in that, he's trying to build this plane. And it's like this beautiful silver plane. I don't remember what it's called, but it has all these rivets. And he was just pushing his team. He's like, we want the fuselage, I guess is the word, to be as smooth as possible, right? And so in the movie, he is literally putting his hands over the fuselage. He's like, it has to be less. Just shave these down. Eliminate this drag as much as possible. I read this book on Jeff Bezos where he said he would give that advice inside of Amazon that you have to essentially do exactly what Howard Hughes was doing, played by Leonardo DiCaprio in The Aviator, to the product. You just take care of everything. You just look at every single thing. You try to shave everything down. Bezos obviously was a lot more eloquent than what I was just there, but I think you hopefully get the point. That's what I feel, not that Rockefeller did that about his product. He did that about his entire company. His entire company. It is so rare. The standard was therefore the only company positioned to balance refinery output, transportation, distribution, and squeeze marginal increments at every stage. That's why he's doing it. His super, this advantage he's gonna compound, because he knew he was gonna be in this business for the rest of his life, is gonna compound decade after decade. There's just no way you're gonna catch him once you start doing this. Since the standards distribution services were used by other shippers, competing refineries also contributed to the burgeoning standard cash coffers, the accumulation of minor efficiencies at so many points gradually mashed into a crushing profitability advantage. I double highlighted, or excuse me, double underlined that sentence. It's so important. I'm gonna read it to you again. The accumulation of minor efficiencies at so many points gradually amassed into a crushing profitability advantage. At one point, Rockefeller purchased a fleet of wide gauge tank cars from the cash strapped Erie Railroad. Naturally, the standard got the first dibs on the cars, paid a lower freight rate for their use, and collected rent when the railroad used them for other refineries. His competitors are making him stronger and harder to compete with over time. That, I would not wanna compete with that dude. He did this thing called the Cleveland Massacre. I've covered it in way more detail on other podcasts I did about Rockefeller. I'm gonna give you like just really two sentences here I think are most important. Essentially, in a span of I think a few weeks, I think you could say it's 25 or 26 refineries in Cleveland, does it rapidly, emerges on the other side of this massacre, I think is the largest refiner in the world. And he's in his mid-20s. But I think this is an important point to convey and this lesson I think is easy to understand. Most of their newly acquired businesses that Rockefeller bought were sold for scrap. As a total of 24 refineries were consolidated into six large state-of-the-art installations designed from the outset for efficient production of the full range of oil byproducts. See how that connects with the previous story on Rockefeller, right? From that point, Standard Oil was a money printing machine. And then a few pages later, this is again a really smart idea. He would overpay for control and speed. Rockefeller regarded almost all of his acquisitions as highly inefficient and made no secret that he was going to shut them down. He thought it was gracious to pay anything at all. He did so primarily to save time for he was marching to an insistent drummer. The quicker and cleaner the restructuring, the faster he could move on to the next arena. He was intolerant of slowness is the way I would think about that. And then this is a great description of Rockefeller on the next page. He won because he was faster in apprehension and more deadly in execution than any of his contemporaries. And then it goes into Carney, which we'll talk about more later as well. He really benefited from traveling around and constantly searching for the newest technology, the best methods of operating, the most efficient ways to run any kind of manufacturing. But then he obviously applied those ideas to manufacturing of steel. And at this time, I think he's 30, he's around 30 years old. He's relatively rich, at least on paper, but he's spread thin. He's got a bridge company, he's got investments in working with the railroad, and he's got some stock in some other stuff. And then he thought maybe he would retire and be a gentleman of leisure. I don't know if that would ever be the case. He seems super ambitious to me. But it's one of these trips that he's like, oh, wait, I need to mass produce steel. And he found the technology to do so when he was in England. So it says, Carnegie found his new religion during a bond-selling trip to England in 1872. He had visited the giant new steelworks at Birmingham, and here was an industrial scale that made his heart leap. Carnegie's life plan for the next 30 years was suddenly clear. And then here's that line that I already mentioned earlier that just blew my mind. This was a time when railroads accounted for about 80% of total stock market capitalization. And this is just a banger line describing Andrew Carnegie, John D. Rockefeller, and Jay Gold. It says, most businessmen reacted with fear at the violent disruptions of the 1870s. Top of the food chain feeders saw only a world ripe with opportunity. And then the author calls Carnegie, Rockefeller, and Jay Gold apostles of progress. And then here's a brief description of why Carnegie decided to close off every other business and focus on steel. He thought it was the biggest opportunity of his age. It says, if you believed in America, you believed in railroads. And if you believed in railroads, you believed in steel. It was insatiable demand for steel rails by American railroads that made steel a mass production business and led to its gradual supplanting of iron for most industrial purposes. So essentially, you could think about this as every single business is going to convert from iron to steel. Kind of reminds me what's going on in today's age where you have essentially Jensen being the Carnegie of his day. Everything's going from CPU to GPUs. Well, who are you buying the GPUs from? You're buying it from Jensen's company. Who are you buying the steel from? You're buying it from Carnegie's company. And this was the economic picture of Carnegie at this time. On paper, Carnegie was a wealthy man. His personal balance sheet showed 2.1 million in assets and a net worth of 1.7 million, but it was almost all in stock. Most of it illiquid securities in his own companies with railroad-related shares, the next largest category. His cash balance was under $5,000. And so maybe up until this point, the author has presented kind of a negative view on Carnegie. He's definitely worth, obviously worthy of UNI studying. At the time that he sells his steel company, J.P. Morgan, I think this is like 1905. I think he has the world's largest liquid fortune. I think he had like 250 million in cash in like 1905. He was obviously very good operator, very good at investing in technology, very good at recruiting top talent. He essentially acqui-hired Henry Clay Frick. But now the authors are starting to give us some overview of why Carnegie was such a formidable individual and why he said at the very beginning, the only person that could match Carnegie at this era was Rockefeller. Its great capital resources enabled it to keep pressure on during good times and bad. It's talking about Carnegie Steel Plant. He always had a huge war chest, just like Rockefeller. When demand slumped, the firm with the newest equipment, which was Carnegie's, again, he insisted on investing in the newest technology every single time. And a lot of the people he was competing with were older and they didn't understand why that was important. So Carnegie's company found that its losses were the least of its rivals when it had to reduce its prices so it could run the factory fully occupied. With the purchase of the Frick Coke Company, Carnegie Steel enjoyed a dominant position in Coke and its acquisitions of vast Lake Superior ore reserves gave it a near overwhelming advantage in high quality ore, which again, he needed Coke and ore, the raw materials for his product, right? He wanted to control those sources. The company's competitive advantage, it appears, was mostly Carnegie. His relentless pressure, his hounding to reduce costs, his instinct to steal any deal to keep his plants full, his insistence on always plowing back earnings into ever bigger plants, the latest equipment and the best technologies. Other companies went through cycles of rise and decline as founders got comfortable. Shareholders demanded payouts or good times allowing workers and managers to cruise a bit as almost the entire British steel industry did after the great rail boom of the 1880s. But for 25 years, Carnegie never let up. Carnegie also insisted on railroad-style cost accounting. So his competitors were actually ignorant of their costs. This is something that appears in every book that you'll read about Carnegie. So he insists on railroad-style cost accounting with impressive results. His monthly reports carefully spread labor costs over each product and process, tracked all raw material inputs and percentage of waste and scrap, as well as defective manufacturers and returns, uptimes and idling of major plant components like furnaces and converters. His other competitors literally had no idea what was going on inside their own company. Carnegie also understood the subtle absorptions of fixed costs that improve margins as production is pushed further. As he put it, "'Two courses are open for a business like ours. "'First, stand timidly back, afraid to break the market. "'Second, to make up our minds "'to offer certain large customers lots of figures "'which will command orders. "'For my part, I would run the factory full next year "'even if we made but $2 per ton.'" Since Carnegie traveled more than anyone else in the company, he was constantly on the lookout for new technologies. He was among the best-informed people within the company on technical developments. And then here's an interesting point that is related to the fact that he would work hands-on and then he would disappear and he'd come back and work. He's much more like a sprinter than a grinder. Carnegie always displayed an approach-avoidance relationship with his enterprises. When he had to, he could throw himself into the work, but one suspects it was a massive exercise of will for his instinct was always to recoil from the gritty reality and from ordinary workers. He usually stayed well-removed from Pittsburgh, preferring to manage through written reports and correspondence. In many cases, he was sending written reports and correspondence from like Scotland. It may have made him more effective. This is the interesting point. This may have made him more effective. By staying clear of operating responsibilities, he was free to criticize and harass without worrying about possible shortfalls in his own performance. Had he been more involved with more to account for, he may not have been so unreasonable, so unwilling to understand how there could be a defective shipment or a budget overrun or an unplanned furnace downtime. He might have been easier to live with, but he would have been a less successful tycoon. And then the book also talks about the development of a bunch of other businesses. This is not really related to any of the four tycoons that you and I are speaking about, but really goes to show like the building of this transcontinental railroad was like one of the greatest engineering feats in human history. So listen to this paragraph on building, this is building the Union Pacific Railroad through these mountains. This was one of the greatest and heroic engineering feats of the age. Mules fought through blizzards to haul rails up the rocky mountains. Tunnels of extraordinary length were blasted through solid rock and bridges flung over nearly bottomless chasms. Workers were killed by Indians, were taken by grizzlies and cougars, and died from falls or from exposure after becoming separated from their party in this trackless wilderness. And then a few pages later, we have Jay Gould's MO. His response had been to attack on every front against all his competitors all at the same time. And then we get an overview of how Jay Gould was operating at this time when he's trying to build his presence in railroads. We're gonna see the secret ownership like Rockefeller did with Standard Oil. But before I get there, I have this great description of somebody that had to compete against Jay Gould. It says, Gould is a one-man power, consults no one, advises with no one, confides in no one, has no friends, and wants none. Gould is bold. Jay Gould did not think like most railroad men. Like Carnegie and Rockefeller, he regarded pools as refuges for the weak, although useful for masking his predatory intentions. The solution for the fragmented state of the railroads was to consolidate, not to negotiate elaborate paper compacts. Roads that were willing to join his network would find him a fair purchaser. This sounds like Rockefeller. Holdouts would find themselves under attack in the securities market. Since railroads' enormous capital requirements could be met only by a wide distribution of securities, even the strongest roads were vulnerable. Gould chose his battles with discretion and never engaged in pointless warfare with men as capable and as determined as himself. By 1883, Gould had become the dominant owner of, or controlling shareholder in, of literally dozens of railroads. He moved so quickly and so silently that competitors who thought they had a truce with him would be shocked to find themselves under siege by Gould, discovering much too late that Gould was acting for the Kansas Pacific, or the Missouri Pacific, or any number of unnamed railroads. So that's comparing Jay Gould and John Dory Rockfell. This is comparing Jay Gould and J.P. Morgan. Unlike J.P. Morgan, who built an impressive staff of senior partners to work on his railroad restructuring in the 90s, Gould did most of the work himself. Gould did the heavy lifting on strategy and analytics were all his. At the same time, he somehow stayed actively involved in the strategic management of his primary roads, restructured their finances, launched major construction and extension programs, and reassured his investors. Like Rockefeller, Jay Gould never jeopardized a good deal by trying to squeeze out the last penny of advantage. And then a few pages later, it describes the business that Rockefeller is building as a machine. Rockefeller's initial targets were the most powerful and technically advanced in the industry. So he's talking about the fact that when he would do, let's see, when he's moving into a new territory and wants to buy up all of his competitors' refiners, he would start with the most competent, the best of his competitors. Because if you start taking out the top two, three, four, five, by the time you get down that list, everybody just falls in line. So it says the most powerful and technically advanced in the industry. Their executives had each won the top dog role in an important region of the country and were not used to taking orders. Yet they all seem to have bought into his quiet insistence that consolidation was the path to salvation, that the standard oil would be the only entity that survived the merges, and that he was the man to lead them. One of his target's sons recalled that his father was invited to examine the standard oil's books and was astonished at its profitability. And that guy agreed to be acquired for stock. The rollup was also managed with great stealth. An express condition of the first round of acquisitions is that they were to be kept secret. All of the acquired companies retained their management teams and their names. Each of them pursued a regional acquisition strategy in its own name, with its own stock or cash. Once the first couple of deals were done, the momentum for joining became irresistible. And then the author asked, did this secrecy give the standard an unfair advantage? Without question. To Rockefeller, speed was more important than price. He reported a deal almost every other day. And then this next section I think is, again, the core value of reading this book, because you have this constant comparing and contrasting of all these different tycoons. Carnegie's drive to the top of the steel industry feels almost hormonal. Boundless energy, aggression, and ambition fortunately channeled into something constructive. Rockefeller's seems much more of a matter of sheer intelligence in pursuit of an ever-large scale of elegance and order. Carnegie pushed and badgered, shamelessly playing executives against each other, and too frequently crushed his best men. Rockefeller's management style, by contrast, was quiet and reasonable, even though, unlike Carnegie, he never held a majority stake in the standard. If he had the final word, it was because his very talented executives believed in their hearts that he was smarter than everyone else. He always reached out for the ablest executives he could find, gave them plenty of running room and support, and kept most of them bound to him for the rest of their careers. For such an aggressive company, the relative lack of vendetta in takeover battles and the willingness to bring former enemies into the fold are further evidence of the consistently high order of intelligence at the company's center. Rockefeller's style was not to destroy good men or good companies, but to enlist them in his cause. And then one of the main points of the book that the author is making is that these people did not just build massive businesses, invented new technology. They essentially created platforms for which other businesses that without their inventions could not exist. So you could think about like, I want to talk about this quick story on P&G, Procter & Gamble, right? This is a business that could not exist without the other technology that was invented by these other tycoons. This is very interesting. So it says there was a lucky accident. This is Procter & Gamble now. That happened in 1879. A worker left a soap churn on for too long and that produced a soap that floated, which they dubbed ivory. After risking $11,000 in an advertising campaign, P&G found themselves as one of the first blowout national consumer brands. Within a decade, they were hawking more than 30 brands of soap. Sales had quadrupled and they were jockeying with Colgate and Palmolive for first place in the hearts and pocketbooks of Americans. None of the Morgans or any of the other bankers they name who shoveled billions. This is the whole point of this section. Who shoveled billions of dollars into American railroads and telegraphs and steel mills and iron and coal mines thought about selling wrapped and scented ladies soap. But that it emerged was what all the infrastructure was for. P&G used tree resin instead of animal tallow for the fatty acids in their soap. So Ivory's booming sales entailed big logging operations, wood processing and transport, steel machinery for soap making, coal fed steam generators and heating plants. And increasingly mechanized cooling, cutting, wrapping, storing and shipping operations. Again, you never can predict what the technologies you're building is going to be used by others and how it can enable businesses that could not exist without you first inventing the technology. This is incredible. Then there were small armies of drummers to fill the order books and legions of clerks and bookkeepers to track orders, send invoices, register payments and monitor production. Delivering low prices, greater variety and consistent quality as Wanamaker was promising. P&G invented this on the back of all these other inventions. Then the product gets more successful and that causes an increased demand for the raw materials that they need for the product. And then who's going to sell the product? Then you have this new invention, which has never been invented in history before, called these department stores. So that enables, because there's this proliferation of consumer goods now, you need a place to sell this in the most efficient manner. And that's what they're talking about here. As Wanamaker was promising, with a pleasing shopping environment to boot, it became possible only at scale. And big retail operations entailed even bigger scales all the way back through the line. And then this is one of my favorite paragraphs tying this entire section together. They're talking about these retail businesses that are now popping up because they're serving this exploding middle class. When you're building these giant companies, it wasn't that they just increased and enabled mass production. They enabled mass consumption, which in turn created even more businesses. All of these businesses, again, these are the retail businesses serving the exploding middle class at this point in American history. All of these businesses operated below the radar screen of mega capitalists like J.P. Morgan. Their primary capital expenses were for real estate and inventory, which could be financed by traditional mortgages and bank working capital lines. But that was true only because they could externalize the cost of all the shipping infrastructure that Morgan had already paid for. And then this is a great way to think about it. It's not just the average person had more money, but that technology creates entirely new classes of products while radically reducing the cost of products once available only to the elite. And that brings us to the final point in the book. Again, the subtitle is how Andrew Carnegie, John D. Rockefeller, J. Gold and J.P. Morgan invented the American super economy. Now, the size and the scale of businesses had never been this large. They are almost country level in size and therefore need new ways to finance the founding of and the growth of the company. So this is on financing these new companies at this point in history. And again, it's going to relate all the way back to why Morgan was able to be so powerful. For a long time, railroads have been virtually the only businesses that raise capital on semi-public markets. A new rail line, especially in the West, had to shell out millions for track and rolling stock before it earned a nickel. When Rockefeller went into oil refining, by contrast, he and a few friends could swing the cost of an oil refinery by themselves and get it online and churning out profits within a few months. Almost all of his growth from that point was financed internally. Rockefeller borrowed aggressively from banks, but these were mostly cash flow loans that were quickly repaid, not long term capital investment. Bridges and coal mines were usually financed with bonds, but investors treated them reasonably enough as railroad financings. Carnegie sold bonds to Junius Morgan to finance some of his biggest plants, but that was the exception. For the most part, Carnegie guarded his independence from investment bankers and security markets as jealously as Rockefeller did. J.P. Morgan was among the first generation of bankers whose clients were primarily private corporations instead of governments. This is the scale at which they're operating. His mediations among the tycoons were very much in the tradition of the financial and diplomatic service operated by the Rothschilds and the Barings in mid-century Europe. Despite their occasional huge profits from war finance, the great banking houses detested war. The business disruptions were simply not worth it. Their lead partners were in close touch with all the main ministries of the continent and regularly called upon the royal families. And while they never exercised their near dictatorial powers of legend, they could withhold finance from rulers and occasionally even brokered trades of port or railroads to head off a fight. Morgan played much the same role his entire career with the difference that he was heading off warfare among competitive private companies. Different players, same game. And that is where I'll leave it. Highly recommend reading the book. If you buy the book using the link that's in the show notes, you'll be supporting the podcast at the same time. That is 437 books down, 1,000 to go. And I'll talk to you again soon.