United States Steel: A Corporation with a Soul
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Title: United States Steel: A Corporation with a Soul
Author: Arundel Cotter
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*** START OF THE PROJECT GUTENBERG EBOOK UNITED STATES STEEL: A CORPORATION WITH A SOUL ***
UNITED STATES STEEL
_A Corporation With a Soul_
_PUBLISHER’S NOTE_
_This book is planned as an open and aboveboard presentation of the
development of a great business. The story of the steel industry is
the story of the United States Steel Corporation; one cannot be told
without the other. It is hoped that this frank presentation of facts
about our greatest corporation gathered from the records of the company
will be of interest to the general reader._
[Illustration: ELBERT H. GARY
“_The story of United States Steel is the tale of how Gary made his
dream come true_”]
UNITED STATES STEEL
_A CORPORATION WITH A SOUL_
BY
ARUNDEL COTTER
[Illustration]
GARDEN CITY, N. Y., AND TORONTO
DOUBLEDAY, PAGE & COMPANY
1921
COPYRIGHT, 1921, BY
DOUBLEDAY, PAGE & COMPANY
ALL RIGHTS RESERVED, INCLUDING THAT OF TRANSLATION
INTO FOREIGN LANGUAGES, INCLUDING THE SCANDINAVIAN
COPYRIGHT, 1916, BY MOODY MAGAZINE & BOOK CO.
FOREWORD
When, in 1914-1915, I wrote “The Authentic History of the United States
Steel Corporation,” which has been enlarged and brought up to date in
the present volume, the Government’s suit for the dissolution of the
Corporation had not been decided. In fact, the lower court handed down
its decision just about the time the book was going to press.
It was my good fortune to hear the testimony of the most important of
the more than 400 witnesses and argument of counsel in the suit and
to supplement the information so gained by conversations with steel
men, inside and outside the Corporation, with whom my work brings me
in constant contact. And all that I learned convinced me more and more
that the big company was not illegal, either technically or morally,
and that, in fact, its influence on industry was beneficent. It is
naturally a matter of personal gratification that the suit has resulted
in the complete vindication of the Corporation.
We live in a day of big corporations and the tendency seems to be to
concentrate still more capital and manufacturing facilities. It is
therefore important that we should know something of their activities,
not only economic but social.
I believe that the United States Steel Corporation is one enterprise
that endeavors always to live up fully to the responsibilities it must
perforce assume to its employees and to the public, as well as to its
stockholders. I believe that it has earned the title of “A Corporation
With A Soul”. And, so believing, I have not hesitated to tell the
story of United States Steel as I have learned it by years of personal
observation and contact.
ARUNDEL COTTER.
CONTENTS
PAGE
PROLOGUE. THE MAN AT THE HELM 3
CHAPTER
I. THE WHY AND HOW OF THE BIG COMPANY 6
II. THE BIRTH OF THE BIG COMPANY 22
III. EARLY HISTORY AND GROWTH, 1901 TO 1907 42
IV. THE TENNESSEE PURCHASE 70
V. MEN WHO MADE UNITED STATES STEEL 87
VI. DEVELOPING WORLD MARKETS 111
VII. THE SPIRIT OF THE CORPORATION 132
VIII. THE CORPORATION’S IMPLEMENTS 142
IX. THE STEEL TOWNS 160
X. HUMANIZING INDUSTRY 174
XI. INVESTIGATIONS AND DISSOLUTION SUIT 197
XII. QUESTIONS OF POLICY 217
XIII. STEEL FROM THE INVESTOR’S VIEWPOINT 235
XIV. THE GREAT STEEL STRIKE 246
XV. HELPING UNCLE SAM WIN THE WAR 269
XVI. THE MIDDLE PERIOD, 1907 TO 1914 283
XVII. THE WAR AND AFTER 295
APPENDIX 308
LIST OF ILLUSTRATIONS
Elbert H. Gary _Frontispiece_
“_The story of United States Steel is the tale
of how Gary made his dreams come true._”
FACING PAGE
Andrew Carnegie 40
J. Pierpont Morgan 41
Down in a Coal Mine 56
Open Pit Mining--Canisteo Mine 57
Mine Stables 72
Modern Coal Mining by Machinery 73
Bee-hive Coke Ovens 88
Mouth of Coal Mine--Coke Ovens in Background 89
James A. Farrell 120
Transporting 222 Tons of Bridge Material in China 121
“Drawing” Bee-hive Coke Ovens 136
Two Views of Modern By-Product Oven 137
The Original Jones Mixer 152
A Bessemer Blow 153
Interior of Gary School 168
Ore Cars at Proctor Yards 184
General View of Duluth Ore Docks 185
Ore Boat and Train 200
Ore Boats at Duluth Docks 201
A Trainload of Ingots in Molds 216
Ingot on Way to Rolling Mill 217
Rails on Cooling Bed 232
Pouring Ingots 233
Part of the Duquesne Works--Detail of Unloading Ore--
a Hulett Machine 248
Making Wire Rods--Old Method 249
Coils of Red Hot Wire 264
Annealing Wire 265
Drawing Fine Wire 280
Making Wire Fencing 281
Making a Steel Tube 296
Steel Transportation by Man Power in China 297
UNITED STATES STEEL
_A Corporation With a Soul_
UNITED STATES STEEL
PROLOGUE
THE MAN AT THE HELM
Every business enterprise, however great, reflects in its dealings with
its competitors, customers, employees, and the public generally, the
individuality of some one man. Curious as it may seem at first glance,
this personal touch, far from being lost, is particularly evident in
the greatest of all business enterprises, the United States Steel
Corporation.
Many men, including some of the ablest financiers the country has
produced, have assisted in a measure in making the Corporation what it
is to-day. Morgan, Frick, Perkins, all these and others, have helped
with their counsel in bringing the Corporation to the pre-eminent place
it holds in the industrial world. But one man has stood out among all
these--Elbert H. Gary, its chairman and chief executive officer.
Throughout its ramifications the Steel Corporation is everywhere a
reflection of Gary’s spirit. His influence, from the time of its
incorporation nearly twenty years ago, has shaped its policies and,
almost from the beginning, has dominated its counsels. For what
the Corporation is, whether good or bad, Gary must accept full
responsibility.
Judge Gary himself would probably object to the use of the word
“dominated.” He would doubtless prefer “guided”, for his dominance
has never been autocratic. But his colleagues, except perhaps in the
earlier days, have confidently accepted his opinion on all matters
pertaining to the Corporation’s welfare. And the events of the last few
years have proven that they were right in so doing.
Not the Corporation alone but the entire steel trade, the most
important manufacturing industry in America, has benefited from Gary’s
wisdom. As the chief executive officer of the leading interest in the
industry his competitors have always looked to him for leadership in
periods of stress. And whenever occasion arose, as in the dark days of
the panic of 1907, he proved his right to lead.
There have been times when this leadership was in question if not
doubt. One such occasion was as recently as 1919 when the great steel
strike threatened.
Gary’s attitude toward labor was well known. He believed in “leaning
over backward” in the matter of giving justice to the worker. And when
union organizers and radical agitators attempted to force the closed
shop on the industry many of his competitors feared that he would yield
to the demands of the labor organizers.
But Gary had never flinched from responsibility, however great. Here
was a question of principle involved, concerning not the rights of
the employer alone but those of the very large number of unorganized
workers. Although pressure was brought to bear upon him from high
quarters to compromise and avoid a strike, and later to settle it once
begun, the head of the Corporation unswervingly stood his ground and
led the steel trade to a signal victory. He proved to those who doubted
him that, though he might usually adopt the attitude of “suaviter in
modo” he knew how to assume that of “fortiter in re” when occasion
warranted.
On October 24, 1919, the annual meeting of the American Iron and Steel
Institute was held in New York City, at the Hotel Commodore. Some
sixteen hundred of its members, including the majority of the leading
figures in the steel trade, attended. The steel strike had been going
on for some weeks and the steel men were gathered to hear what Gary had
to say.
The entrance of the Judge into this gathering was the signal for a
most remarkable demonstration. For these staid, solid business men, on
catching sight of Gary, broke into a spontaneous salvo of cheers which
was enthusiastic and prolonged. It was a tribute to his generalship in
the struggle then being waged, an unequivocal admission of his right to
supreme command. In that storm of cheers were buried all doubts that
may ever have been entertained.
It is impossible to write of the Steel Corporation without writing
of its head. His influence on it is too direct, too personal, to be
ignored. The Corporation, in a sense, is Gary. He has infused it with
his spirit, a spirit which, it is to be hoped, will continue always to
animate it.
CHAPTER I
THE WHY AND HOW OF THE BIG COMPANY
Mere size, to the majority of us, presents a certain fascination.
Especially is this the case when it is the result of human endeavor.
Hence, were the United States Steel Corporation nothing but the largest
business aggregation in the world its immensity alone might justify
placing upon record the facts connected with its formation and its
subsequent history.
The Corporation’s vast capitalization, a billion and a half of dollars,
its yearly turnover exceeding its capital, its payroll of 275,000
workers, or, with their families, enough to populate a large city, its
productive capacity of more than 16,000,000 tons of finished steel
annually--to say nothing of other products--the volume of freight
carried in its fleet of ore boats, several times the tonnage passing
through the Suez Canal, its foreign trade of two hundred million
dollars--these alone might make the Corporation’s history worth the
telling.
But size, properly considered, is of minor importance in itself. Its
importance lies in the power it bestows to influence its surroundings.
The greatest of all industrial enterprises could not fail to affect
industrial history generally. And the management of the Corporation
has recognized its responsibility in this regard and has endeavored
to use its strength not selfishly but for the good of all concerned.
It is not too much to say that the organization of the United States
Steel Corporation marked the beginning of a new and a better era in
industrial history.
That this assertion may be challenged goes without saying. But the
facts will be permitted to speak for themselves.
The United States Steel Corporation was, in a modified sense, an
experiment in popular ownership, the ownership of industry by the
worker; it substituted for the ownership by a few men of a number of
more or less important organizations one gigantic unit owned by a
multitude. To-day the Corporation’s stockholders number around 160,000,
and this figure includes only holders of record. Perhaps 75,000,
possibly more, of its employees either own stock outright or are buying
it on the instalment plan. Counting five to the family it is probable
that close to 1,000,000 people are financially interested in the
success or failure of the Corporation.
At the time of the big company’s birth corporate publicity was
practically unknown. Important developments affecting the interests
of security holders were announced, if announced at all, at the
convenience of the so-called insiders. Curiosity into corporate
affairs was discouraged. But the new business giant set the example
of publicity by giving out at stated and frequent intervals detailed
information regarding profits, business on hand, and other facts of
interest to stockholders and the investing public. This example was
later followed by other important steel companies and, with the passage
of the years, the practice has become fairly general among large
corporate enterprises. Thus the organization of the Steel Corporation
may be said to mark the beginning of the era of corporate publicity.
But the most marked effect of the Corporation’s organization was
probably that respecting competition. In the old days of the steel
trade competition had been ruthless. The big steel merger, if the sworn
statements of its competitors may be accepted, put an end to this and
substituted an era, of competition still, but of competition clean and
aboveboard, governed not solely by greed but by the spirit of fair
play between manufacturer and manufacturer. It brought the dawn of the
epoch of the square deal between industrial competitors.
In order to get a true perspective on the events immediately leading
up to the formation of the United States Steel Corporation, it is
necessary to review briefly the history of the steel industry in the
United States during the latter half of the nineteenth century, and
especially during its closing decade.
In a short half century steel making in America had grown from the age
of swaddling clothes to full manhood, or rather gianthood. It stood
supreme among industries. From being unimportant among the iron and
steel producing nations, the United States, in a comparatively few
years, had forged its way to the first place. Its steel mills turned
out nearly half of the hard metal used by the world. Steel, from being
an industry composed of a few scattered mills situated as nearly as
possible to ore deposits with little regard to markets, had become one
consisting of great corporate entities each made up of many plants,
and these had in their service railroads and steamships plying to and
from ore fields situated sometimes hundreds of miles from the plants,
bringing to the mills such quantities of the raw metal as but a short
time before had not been known to exist. It had bent to its use every
modern invention, the newest discoveries of science. Fortunes had
been spent, won, and lost in building up these great structures. It
had at the same time been an industry subject to the most amazing
fluctuations, periods of feast being followed closely by periods of
famine.
This half century, or the last two decades of it, was, as has been
suggested, a period of war to the hilt between manufacturer and
manufacturer, war in which no quarter was asked or given. The history
of the steel industry in America bristles thick with the names of
millionaires who worked their way to fortune from the slag pile. And
for every one of these there were many, whose names are forgotten,
who sacrificed health, strength, and fortune in the mad fight for the
wealth that poured in unstinted stream from the glowing furnaces of
molten iron. The law of steel was essentially that of the survival of
the fittest.
Perhaps there is no other great industry that has been so subject
to fierce and unrestrained competition as steel making once was.
To understand why this is so it is necessary to get an idea of the
conditions influencing it. The discovery of the Bessemer process--about
the middle of the nineteenth century--by which steel could be made
cheap enough to permit of its general use found a world more than ready
for it, and the demand for the metal grew by leaps and bounds. The Age
of Steel did not dawn; like the tropic day, it broke with fierce glare.
The sudden demand naturally opened up vistas of previously undreamed-of
wealth for those who could supply it, and, in the desire to secure
this wealth, production sprang forward so quickly as even to outstrip
demand, strong and increasing as it was. Then ensued the inevitable
battle for what business there was, a battle that lasted until
consumption took another spurt, which, in turn, resulted in quickening
output and a resumption of the battle.
At that time the country was just opening up. Railways were stretching
their lines into the golden regions of the West; manufacturers of
farm implements were calling for steel to be fashioned into tools to
reap the rich crops of the wide prairie lands; inventors were each
day evolving some new use for the metal. Was it any wonder then that
steel became a world necessity and that the blast furnace became a
philosopher’s stone that transmuted dull ore into precious gold? More
and larger fortunes, it has been truly said, were made out of steel
in the second half of last century than ever came out of the mines of
the West or the diamond deposits of South Africa. And in the insane
struggle for this so-freely-poured-out wealth men lost all sense of
proportion.
It is inevitable that there should be a dark side to the picture.
The boom times of the steel trade were succeeded with disheartening
regularity by periods of dearth. One year steel manufacturers were
building themselves palaces and purchasing steam yachts, the next they
were mortgaging all they had to pay wages. One year the steel worker
was a man favored above all others of his class, the next he was
getting his meals on charity from the “soup houses.” To this day steel
veterans speak of the dull times of the trade as “soup-house days.”
At these times competition, always fierce, became more ruthless than
ever. The old adage regarding love and war was stretched to include
the steel industry, and everything was considered fair that might
help to keep the mills running full. Prices were cut--and wages with
them; steel was “dumped” on foreign markets at less than manufacturing
cost, and steel makers resorted to every means that offered to divert
orders from competitors to themselves. It was case of dog eat dog, and
failures, with their unavoidable accompaniment of unemployed labor,
were all too frequent.
These were the days when the steel “pools” flourished. These pools
were simply attempts on the part of the steel makers--who thoroughly
realized that the killing competition just described could benefit no
one--to protect themselves in times of stress by binding each other not
to sell below a certain price or more than a specified tonnage, and by
making it of no avail, from a viewpoint of profit, to do so. There were
rail pools and wire pools, shafting pools and plate pools, structural
pools, horseshoe pools, and in fact a separate and distinct pool for
nearly every steel product made. These pools were merely treaties,
but treaties in which no participant trusted the other and which
consequently were usually broken by each as soon as the opportunity to
get ahead of his fellow pool member presented itself--lest the other
should get a similar opportunity first and take advantage of it.
It is doubtful if a single pool agreement, and their number was
infinite, was ever honestly kept. Old steel makers chuckle to-day as
they relate how each representative of a company taking part in a pool
sought to gain an advantage over his competitors while the agreement
was yet a-borning. Listening to them one begins to wonder if these were
indeed men who bore high and honorable reputations in the business
world.
According to the statements of men who themselves took part in pools it
was no uncommon thing for a manufacturer to station a salesman outside
the building where a conference was being held and, as soon as a price
settlement was reached, to stroll casually over to a window and by
pre-arranged signal indicate to him the level agreed on, whereupon the
salesman would proceed to undercut the price which his employer was
even then pledging himself to maintain.
“Every man’s hand was against his neighbor then; we were all
Ishmaelites, every one of us,” said John Stevenson, Jr., a veteran who
had worked under Carnegie, in his testimony in the Federal suit for the
dissolution of the Corporation. Mr. Stevenson then went on to relate
the story of a wire pool conference at which a price of $1.50 a keg
for nails had been agreed on. After the morning conference he went to
the telegraph office to wire his partner and found one of his fellow
conferees there. He waited until the other had handed in his message
and walked away. While Stevenson was writing his own wire the operator,
in mistake, handed him his competitor’s, asking him to decipher a word.
And Stevenson discovered that the message was an offer to a large
consumer to sell him 10,000 kegs of nails at $1.40! Whereupon he tore
up the paper and substituted a bid of his own at the same price and got
the order!
Another instance, related by a large consumer, shows how these
agreements were evaded. He said that the company from which he
purchased his supplies of steel pleaded the force of a pool agreement
as an excuse against giving him a discount from the market price.
He then suggested that he be appointed agent of the steel company in
his town at a commission of a dollar a ton and this solution of the
difficulty was agreed to. He was the only consumer of steel in the
town and the commission was only a round-about way of giving him the
discount asked.
In the fierce and bitter struggle that was the steel trade only the
most daring or the most unscrupulous manufacturer could survive, and
under the strain for production that it necessitated only the strongest
workers could live. No one, unless he has been through a steel plant,
can imagine the conditions under which the steel maker works. The
visitor, unaccustomed to the heat that is flung from blast furnace or
rolling mill as from the gates of hell, must perforce hold his hands
before his face at times to mitigate the frying sensation. True, much
has been done of recent years to make the lot of the man at the furnace
or rolling mill easier, his work less trying on his health. But at
the time of which this is written such was not the case. Under the
most favorable conditions the steel mill, as a well-known steel maker
said once, is far from being a drawing room. Under the conditions that
prevailed toward the end of the last century, when men were worked to
the breaking point in the mad fight for “tonnage,” it was no wonder
that the majority of steel workers collapsed early under the strain and
were thrown on the human scrap pile, their vitality sapped and their
youth gone.
The one slogan of the industry then was “tonnage.” Everything was
sacrificed by the manufacturer to this single end. Machinery,
comparatively new, was scrapped to make room for more modern equipment.
Waste of this kind was not considered. Production was everything, and
nothing was spared to obtain increased output. And it must be admitted
that to this attitude on the part of producers, as much perhaps as to
her immense natural advantages, the United States owed her rapid rise
to the front rank of steel nations.
In the middle of the nineteenth century American steel making was in
its infancy. In fact, this is also true of the steel industry of the
whole world, for it was about this time that William Kelly in America
and Henry Bessemer in England discovered what is known as the Bessemer
process, which made the metal available for the numberless commercial
uses to which it is now put. As late as the early sixties the idea
of using steel for railroad rails was scoffed at. In 1867 there were
only three Bessemer plants in this country and open-hearth, the steel
of to-day, was unknown. Great Britain supplied the world’s steel. But
shortly after the third quarter of the century was passed the United
States forged to the lead, and has held it ever since. In the year
1900 the steel production of this country was 10,188,329 tons, Germany
coming next with 6,645,869 tons, and Britain third with a production of
4,901,060 tons. In 1913 the United States produced 31,300,874 tons of
steel, or more than Britain and Germany combined. In 1917 production
was 45,060,607 tons, more than two thirds the world output. To-day the
rolling mills of the Pittsburgh district alone turn out more than one
third of the world’s steel.
The name of Andrew Carnegie is inextricably bound up with the history
of steel in the United States--and the world. “The Iron Master,” the
“Steel King”--by these names he was known, and he earned them. For
more than a quarter of a century Carnegie was the most important and
spectacular figure in the world of steel and his name will not be
forgotten so long as there is a rolling mill in Pittsburgh.
Carnegie’s rise from utter obscurity until he became the dominating
figure in the leading manufacturing industry of the world reads like
a page of fiction. Only the briefest sketch can be given here. Born
in Dumferline, Scotland, in 1835, the future Monarch of Steel came to
the United States with his father at the age of thirteen and began at
the bottom of the ladder, his first job being that of bobbin boy in a
cotton mill, for which he received a weekly wage of $1.20. Two years
later he became a telegraph messenger and later an operator for the
Pennsylvania Railroad.
The youthful Scot’s ability soon attracted the attention of Col. Thomas
A. Scott, head of that great railroad system, and he made Carnegie his
private secretary, thus giving him his first foothold on the ladder of
fortune.
Industrious and saving Carnegie was soon in the investor class and
when an opportunity arose to invest in what, it seemed to him, was an
attractive business he was able to seize it, purchasing a one-sixth
interest in the Iron City Forge Co. and becoming his own man.
One of his partners in the enterprise was Henry Phipps, the playmate
of his boyhood and his friend through good fortune and through bad.
In every one of his subsequent ventures Phipps had a share, and
an important one, that of raising money to carry out Carnegie’s
manufacturing plans. In Pittsburgh they say that Phipps’ horse knew
every bank in town so often had his master stopped him before them when
seeking loans.
Those were the days of iron. Steel was still being made only “by the
spoonful.” But one day Carnegie saw in action one of the earlier
Bessemer converters, the implements that gave birth to the Age of
Steel, and this sight, impressive as it is even to the layman as a
mere spectacle, converted him from iron to steel. His keen mind saw
immediately the immense possibilities of the new process and he went
into the manufacture of steel on a large and growing scale.
And his success was phenomenal. Breaking down all obstacles in his path
to fortune he fought his way upward ruthlessly and became a terror to
competitors.
In 1901 Carnegie sold out the steel business he had created to the
organizers of the United States Steel Corporation for $303,450,000 in 5
per cent. bonds and $188,556,160 in preferred and common stocks of the
new company, a total price of $492,006,160!
The mark that Carnegie left on the industry will never be wiped out.
In his late days he set the pace for all to follow, and it was a fast
one. Although pitiless to his competitors he had the gift of drawing to
him men of high ability; he was a wonderful judge of men, and to his
intimates he was generous and open. A born commander, a Napoleon of
industry, he built up an organization that had no equal in its day, one
that was at the same time extremely efficient and utterly loyal.
Whether Carnegie made the best use possible of his unquestioned
abilities is for posterity to decide. Beyond doubt America’s
pre-eminence in steel was due largely to him. But he was also at least
partly responsible for the unstable condition that existed in the trade
of his day. Production, tonnage, was his fetish, for in this he saw the
means of reaching and keeping his supremacy, and to get it he did not
spare himself, the men under him or, least of all, his competitors.
His one effort was to keep the mills running full, and everything was
subordinated to that.
It is not generally recognized that Carnegie was to some extent
responsible for the formation of the United States Steel Corporation.
The part he played was behind the scenes. He wanted to sell out and
retire, to devote the rest of his life to philanthropy, education, and
the promotion of world peace. Even for such a master salesman as he the
task of finding a customer was gigantic, but he succeeded as he usually
did.
The frequent and prolonged periods of depression had forced upon steel
makers the conviction that some way of combining to prevent their
recurrence was desirable, even necessary, if the United States was to
keep and increase its lead in the manufacture of the metal most needed
by the age. Between the years 1890 and 1900 industrial combinations
were as thick as the leaves in autumn. And steel had not escaped this
tendency to amalgamate. The Federal Steel Company, with $100,000,000
issued capital, was the first large steel consolidation. The country’s
wire plants had been merged gradually into one company, the American
Steel and Wire Company of New Jersey, which controlled all but a small
number of mills. A somewhat similar situation existed in regard to tin
plate, tubes, and fabricated products. What might be called the steel
companies proper were themselves all mergers of small plants, the trade
being divided among several large competing units. A merger of these
units had been talked of time and again and its accomplishment was
considered inevitable, sooner or later, unless Carnegie first succeeded
in crushing all competition and establishing a virtual monopoly for
himself, as many thought he would. The time was ripe for a big steel
combine.
And the time being ripe, the man was provided, the man destined to take
Carnegie’s place as the central figure in the steel industry, not only
of this country but of the world. He was Elbert H. Gary, then president
of the Federal Steel Company, one of the Carnegie company’s largest and
most important competitors, whose operations centred in the Chicago
district.
Born on a farm near Wheaton, Ill., and educated to the practice of
the law, Gary’s work brought him into connection with many large
corporations including the Consolidated Steel and Wire Company and the
Illinois Steel Company, for which he was general counsel. When the
Federal Steel Company was organized in 1898 as a merger of the Illinois
and other companies, Gary, then a director of the Illinois company,
took the principal part in the organization activities. The executive
ability he displayed so impressed his associates and the Morgan
interests, who financed the merger, that he was unanimously chosen
president of the new company. His selection for this post, coming as
a great surprise to himself, first gave him a prominent part on the
industrial stage, on which he has been the most striking figure almost
ever since.
Gary’s ambition, like Carnegie’s, knew no bounds; but where the little
Scotch ironmaster worked to make the steel industry an empire over
which he should reign supreme, Gary dreamed of an immense Republic of
Steel. Where Carnegie sought to unify the control of the steel trade
and bring it into his own hands, Gary sought to make the industry one
owned by the people, and particularly by the workers. Where Carnegie
stopped at the ocean and gave his attention to world business only at
times when overproduction at home compelled him to seek foreign markets
temporarily, Gary sought to establish a world-wide and permanent market
for the product of the blast furnaces and rolling mills of the United
States.
And the history of the United States Steel Corporation is the story of
how Gary made his dream come true.
But the Federal Steel Company, its president soon found, was not an
instrument big enough or suitable for the carrying out of his plans.
In the first place, its plants were located at too great a distance
from the Atlantic seaboard to render an invasion of foreign markets
feasible. Freight rates to the ocean were prohibitive. And another
hindrance was encountered in the severe ups and downs to which the
steel trade in this country was subject. He saw that, if his dreams
were ever to be made realities, the Federal Steel Company must be
enlarged and expanded, must provide itself with plants able to export
steel in competition with Great Britain and Germany, the countries
which ruled the international markets, and must so strongly entrench
itself that it would not be too greatly affected by periods of stress.
One man there was who could provide the wherewithal for the expansion
which the head of the Federal Steel Company considered necessary. This
was the late J. Pierpont Morgan. To Morgan, then, Gary took his plans,
but the banker was not enthusiastic. Perhaps he saw that many steel
concerns were not making money and feared to put so large an amount
of capital as was required into the venture; perhaps other motives
governed him; but, whatever his reasons, the great financier hesitated,
would not permit himself to be convinced. Again and again Gary tried
to persuade Morgan, but in vain, and at length Gary, satisfied that he
must seek other means to his end, turned his attention toward raising
the necessary capital elsewhere. He had already prevailed upon his
fellow directors of the Federal Steel Company to pledge subscriptions
to a large sum for the purchase or erection of new plants when
circumstances played into his hands. Morgan decided to give his backing
to the formation of a giant steel merger on the lines Gary had proposed.
The story of how Morgan was won over is an interesting one. It has
already been suggested that Carnegie was anxious to sell out, and
Carnegie usually got what he wanted. After many attempts to conclude
a satisfactory deal with different syndicates Carnegie, like Gary,
arrived at the conclusion that Morgan, and Morgan alone, was able to
finance the purchase of his properties. Therefore, he decided Morgan
must be induced to buy.
At first Carnegie tried ordinary tactics. He had mutual acquaintances
suggest to the banker the advisability of a deal by which the Carnegie
company would be absorbed. Time and again this suggestion was made,
and on each occasion Morgan listened then sent for Gary. The latter,
seeing that this would be an excellent means of accomplishing what he
desired for the Federal company, as by absorbing the Carnegie company
it would not only secure a steel-making and steel-selling organization
without equal at the time but would also add to itself plants which
could and would give battle for world trade to Britain and Germany, did
all he could to induce the financier to accept the suggestions for the
purchase of these properties. But each time Morgan hesitated.
Then Carnegie resorted to coercion. Morgan was heavily interested
in the National Tube Company which was itself an amalgamation of a
number of smaller tube companies. Carnegie made no tubes. His entrance
into the business of manufacturing tubular products would undoubtedly
have brought the National Tube Company face to face with more serious
competition than it had ever encountered. And Carnegie threatened to
build a tube mill. This action had two purposes. It was apparently
intended to force Morgan to consider the purchase of the Carnegie
properties, and it was also a retaliatory measure against the decision
of the National Tube management to erect steel mills which would
render the company independent of the Carnegie Steel Company for its
supplies of raw material and would incidentally deprive Carnegie of
a large customer. Carnegie announced his plans for the proposed tube
mill publicly and bought a site for it at Conneaut, Ohio. But although
Morgan knew that the steel maker was able and ready to carry out his
project he gave no sign of having changed his mind.
Carnegie’s next step was more important and serious. He threatened
to build a railroad paralleling the Pennsylvania Railroad from
Pittsburgh to the coast, a project which, if carried through, would
without question have materially damaged the earning power of the
great railroad system and would have been a heavier blow to the Morgan
interests than the erection of a tube mill. But again Morgan paid no
attention. It is extremely doubtful if Carnegie, powerful as he was,
could have seriously intended to attempt such an undertaking, and
therein may have lain the reason for the banker’s seeming indifference.
On the other hand, those who knew Carnegie declared that he would have
found means to build the suggested road, even as he had in the past
done other things deemed to have been impossible.
That Carnegie had no desire to enter into a pitched battle with the
powerful Morgan interests seems to be fairly well established by his
next act. Coercion having failed, he again resorted to peaceful tactics
and fired what, possibly, was his last shot. And here it might be
interjected that, while the event that directly led up to the formation
of the Steel Corporation has been narrated scores, probably hundreds
of times, the part that Carnegie played therein has usually been
overlooked.
Among the Carnegie partners was a young man, Charles M. Schwab,
president of the Carnegie Steel Company. Schwab not only represented
the top notch of efficiency as a steel maker, a salesman, and an
executive, but he had a veritable tongue of gold. To listen to him was
to be converted to his views; he could talk the legs off the proverbial
brass pot. And Carnegie saw that if the man lived who could convince
Morgan to finance a purchase of the Carnegie Steel Company that man
was “Charlie” Schwab. Carnegie therefore decided to bring together the
financier and the president of the Carnegie Steel Company and to let
loose on Morgan the flood of Schwab’s eloquence.
On the night of December 12, 1900, Edward Simmons and Charles Stuart
Smith, both close friends of Carnegie, gave a dinner to which Morgan
was invited. And to Schwab was assigned the duty of making the speech
of the evening. Ostensibly the dinner was merely a social affair with
no ulterior motive, but in the light of subsequent events it may be
considered certain that it was arranged at the suggestion of Carnegie,
and that its purpose was the sale of his properties to Morgan.
Everything went off as planned. Schwab chose for his subject the steel
company of the future. He played upon this theme as upon a harp to an
attentive audience, not the least attentive of whom was the banker,
and, while he never referred directly to the Carnegie company, he made
it very clear that the concern which he described in glowing terms
would of necessity own and control the Carnegie plants.
Schwab foretold a future of wonderful brilliance for the steel
industry. He drew a word picture of a company big enough to insure
the greatest economies in the securing and distribution of its raw
material, but highly specialized by departments, each and every plant
confining its attention to one particular product so as to secure the
highest degree of efficiency. He described such an organization as able
to dominate the markets of the world and to set a pace that neither
England nor Germany could follow. The ideal structure he painted
was such an one as was well worthy the attention of the greatest of
bankers, an industrial enterprise for which even the great Morgan might
well be proud to stand sponsor.
And the youthful Carnegie president swept the financier off his feet
and along with him in the flood of his oratory. The United States
Steel Corporation was not actually incorporated for some months, as
an undertaking so immense naturally took a great deal of time to put
through, but it was by that speech that the idea of a vast steel
merger, sown in Morgan’s mind by Gary, was quickened into life. In
that half hour the United States Steel Corporation, to all intents and
purposes, became an actual fact.
CHAPTER II
THE BIRTH OF THE BIG COMPANY
A billion dollars!
During the past seven years the world has grown accustomed to big
figures. The enormous expenditures caused by the war and the growth
of the national debts of most countries, attributable to the same
cause, have made the mention of a sum expressed in ten or more figures
rather commonplace. But back in 1901 a billion dollars was an almost
unthinkable sum and it was hardly any wonder that the financial world
gasped when the plans for the new corporation, with an authorized
capitalization of $1,100,000,000 in stock and $304,000,000 in bonds,
were announced.
Wall Street had long been accustomed to treat millions with the dollar
sign before them as mere trifles and even tens of millions were more
or less commonplace. Hundreds of millions commanded respect. But a
billion, a thousand million--that seemed merely a row of figures,
something that could hardly be computed.
And, indeed, the mind cannot readily comprehend what a billion means.
Some concrete comparison is needed to give a faint idea of the
immensity of the capital of the “Steel Trust.” A king’s ransom? It
would have ransomed a hundred kings! The fabled wealth of Ormus and of
Ind, of Croesus, of Montezuma, all these fade into insignificance when
compared with this gigantic aggregate of money.
If the authorized capital of the United States Steel Corporation could
be turned into solid gold it would weigh 2,330 tons, or more than
5,200,000 pounds!
This gold would have a cubic content of 3,880 feet!
With it you could build a pillar six feet square and towering 108 feet
in the air; or a Cleopatra’s needle of virgin gold six feet square at
its base and tapering to a point at a height of more than 430 feet.
A train of fifty-eight railroad cars would be required for transporting
the precious metal, with two big engines, one at either end, to move
the train!
For storage room the gold would require a vault 8 feet high, 20 feet
wide, and 24½ feet long, and there wouldn’t be an inch of spare room!
Placed at one end of a scale the gold would need 34,666 men of average
weight to balance it!
If the Corporation’s capital were coined into five-dollar gold pieces
they would pave a road twenty-five feet wide for more than ten miles!
Stacked one on the other these coins would reach a height of more than
twenty miles!
If this huge sum were converted into pure silver it would weigh 87,500
tons, with a cubic content of 268,000 feet!
This silver would form a needle six feet square at the base and
piercing the skies to a height of 29,776 feet, or above the highest
crest of the Himalayas!
It would take 2,200 freight cars to load it, and about fifty-five
powerful locomotives to pull these cars!
This $1,404,000,000, changed into dollar bills, would measure 166,200
miles, forming a ribbon that would girdle the earth six times and leave
two streamers each 8,000 miles long floating behind! A ribbon that
would reach more than two thirds the distance to the moon!
These bills would cover an area of 228,317,433 square feet!
An expert bank teller working eight hours a day, Sundays and holidays
included, and counting one bill a second without rest, would take more
than 133 years to count them all. If he started to count on January
1, 1921, one of his descendants might count the last bill in the pile
about the end of June, 2054!
If the Corporation’s capital were divided evenly it would give every
man, woman, and child in the United States about $14!
The interest on this sum at 6 per cent. would keep some 35,000 American
families in comparative comfort without touching the capital!
From the date of the Simmons dinner to that on which the plans for the
new corporation were announced was a very short period. The birth of
the Corporation did not take long. Once convinced that a merger of a
number of large companies making various steel products was practicable
and desirable for the good of the industry and of the country--as well
as for the pockets of the consolidators--Morgan and his associates lost
no time in bringing it about. The dinner took place on December 12,
1900; United States Steel was formally chartered on February 25th of
the year following and began business as a corporate entity on April 1,
1901.
It is likely that Schwab himself did not foresee how far reaching would
be the effects of his speech. Morgan did not do things by halves. When
the young steel maker caught his attention and drew a picture of a
company big enough to manufacture all lines of steel and to specialize
on each one, powerful enough to enter and occupy foreign markets and
rich enough to expand to meet the growing demand for the metal without
danger of over-stretching its resources, he painted with his words
something which the banker thought it would be a proud thing to father.
Morgan saw before him unlimited possibilities, not of money making
alone--for this was by no means the ruling passion of his being--but
of creating an organization that should leave an indelible impress
for good on industrial history, a business so great that its actions
could not fail to force themselves upon the attention of the world
and to command imitation on the part of other industries. A business,
moreover, so powerful that it would not need to resort to the dubious
practices of the old days to succeed.
The great steel concern that Schwab discussed corresponded very closely
to the company that Gary had long been urging Morgan to assist in
creating by the expansion of the Federal Steel Co. Immediately after
the dinner Morgan drew Schwab aside and the latter then went more fully
into the subject of a vast steel merger than he had been able to in the
confines of an after-dinner oration. Finally the financier asked Schwab
if he thought Carnegie would sell, and upon receiving an affirmative
reply Morgan requested the terms. A few days later Schwab reported that
Carnegie’s price was $303,450,000 in bonds and $188,556,160 in stock of
the suggested new company. After a prolonged consultation with Gary,
Robert Bacon (one of his partners), and others, Morgan accepted these
terms.
As a nucleus of the proposed steel corporation, then, we have the
Carnegie and the Federal companies. But Gary’s plans had provided
for the manufacture of a number of products made by neither of these
two concerns, and Schwab, in his talk, had pictured an industrial
organization that would turn out from its mills every kind of steel
product, that would be able to supply its customers with everything
made of the metal from a nail to a railroad car. Morgan was not a man
of half measures. There was no need to make two bites of a cherry,
even though it was a mighty big cherry. Having once decided to finance
the formation of the new company he thought it might as well be
comprehensive in its products, and so negotiations were immediately set
on foot with the controlling interests in the leading concerns making
wire, tubes, tin plate, etc., with a view to bringing them all into the
consolidation.
The Morgan interests had financed the organization of the National Tube
Co., the principal figure in which was Edmund C. Converse, so the tube
company naturally was taken in. The other concerns and interests which
it was proposed to unify into the new corporation were the American
Steel & Wire Co., the chief figures in which were the late John
Warne Gates, Alfred Clifford, William Edenborn, and others; the four
companies forming the so-called Reid-Moore group, controlled by Daniel
G. Reid and William H. Moore--namely the National Steel Co., American
Tin Plate Co., American Sheet Steel Co., and American Steel Hoop Co.
By the early part of February, 1901, the negotiations were concluded
and the plans for the organization of the United States Steel
Corporation were announced. They provided for the amalgamation of
these eight companies, the smallest of which had a capitalization of
$33,000,000 and the largest of more than $300,000,000. Before the
plans were finally put through, however, two more units were added to
the list, the Lake Superior Consolidated Iron Mines, dominated by the
Rockefeller interests, and the American Bridge Co., at the head of
which was Percival Roberts, Jr. The absorption of the Lake Superior
Consolidated Co., with its vast ore holdings and steamship fleet,
was deemed necessary to ensure the Steel Corporation an adequate ore
reserve. The American Bridge Co., which secured most of its supplies of
steel from the Carnegie company, seemed to fit naturally into the plans
for the consolidation.
Thus there were ten large companies taken in, merged to form the
United States Steel Corporation. They had an aggregate capital of
$867,550,394, as follows:
=====================================================================
COMPANY | COMMON | PREFERRED
| STOCK | STOCK
--------------------------------------+--------------+---------------
American Bridge Co. | $30,527,800 | $30,527,800
American Sheet Steel Co. | 24,500,000 | 24,500,000
American Steel Hoop Co. | 19,000,000 | 14,000,000
American Steel & Wire Co. | 50,000,000 | 40,000,000
American Tin Plate Co. | 28,000,000 | 18,325,000
Carnegie Steel Co. | 160,000,000 | [A]160,000,000
Federal Steel Co. | 46,484,300 | 53,260,900
Lake Superior Consolidated Iron Mines | 29,424,594 | . . . . . .
National Steel Co. | 32,000,000 | 27,000,000
National Tube Co. | 40,000,000 | 40,000,000
+--------------+---------------
Total. | $459,936,694 | $407,613,700
---------------------------------------------------------------------
[A] Bonds. All other figures in this column represent preferred
stock.
The American Bridge Co., as its name implies, was a fabricator of
bridge material and structural steel generally. It was not a steel
company in the strict sense. It obtained a large proportion of its
supplies of steel from the Carnegie company and fabricated this
material. It had a capacity of approximately 600,000 tons yearly. The
company was incorporated in May, 1900, as a consolidation of a number
of smaller concerns and had a surplus of $4,030,331. Holders of its
preferred stock received $110 in preferred stock of the new corporation
for each $100 of their holdings, while the common stockholders received
$105 in U. S. Steel common for each $100 of their holdings.
Four companies, as has been stated, formed the “Reid-Moore” group.
The American Tin Plate Co. was chartered in December, 1898. Like all
the concerns forming this group it was considerably over-capitalized.
Nevertheless, its earnings in the first year of its existence were
approximately $3,600,000 or 20 per cent. on its preferred capital,
and in 1900 they exceeded $5,750,000, or about 32 per cent. on the
preferred capital. At its formation it acquired thirty-nine different
plants, embracing 279 mills, manufacturing tin and terne plates. Its
preferred stockholders received $125 in U. S. Steel preferred stock
for each $100 of their holdings and its common stockholders $120 in
preferred and $125 in common stock of the new corporation for each $100
of their holdings.
The National Steel Co., another of the Reid-Moore concerns, was the
maker of raw material for the other three members of the group. Its
production was largely confined to semi-finished products and it had
a capacity of about 1,700,000 tons of steel a year. It had some ore
holdings in the Mesaba Range as well as a twenty-year contract for a
one-sixth interest in the ore production of the Oliver Iron Mining
Co. The company was chartered early in 1899 and in the first year of
its existence earned approximately $8,750,000, or more than 32 per
cent. on its preferred stock. Of this amount, however, $3,617,000 was
written off for depreciation. At the time it was merged into the Steel
Corporation it had surplus and undivided profits of $6,910,995. Holders
of both its common and preferred stock for each $100 of their holdings
got $125 in the corresponding stock of the new corporation.
The American Steel Hoop Co., third of the group, was formed a month or
two later than the National Steel Co. It was a consolidation of nine
concerns manufacturing chiefly bars, hoops, bands, cotton ties, and
skelp, and had an annual capacity of about 700,000 tons. Its earnings
were not as large as those of the others of the group, its first nine
months’ operations yielding a return at the annual rate of slightly
under 7 per cent. on the preferred capitalization. Its accumulated
surplus on April 1, 1901, was $1,660,311. The two classes of its stock
were exchanged at par for the same classes of U. S. Steel stock.
Last of the Reid-Moore companies to be organized was the American Sheet
Steel Co., chartered in February, 1900. This company acquired 164 sheet
mills, nineteen puddling furnaces, and a number of open-hearth furnaces
and bar mills. It had a capacity of about half a million tons. Its
earnings, from the time it began business to April 1, 1901, amounted to
$1,676,480 and its surplus on the latter date was $705,757. Its stock
was exchanged for Steel Corporation securities on the same basis as
those of the Steel Hoop Company.
The National Tube Co., organized in June, 1899, was a merger of
thirteen smaller concerns having an aggregate capacity of about 850,000
tons of steel-wrought tubing. Its principal plants were located in the
Pittsburgh district. In the year 1900 the company reported net profits
after depreciation of more than $14,600,000, or about 35 per cent. on
its preferred capital stock. National Tube preferred stockholders
exchanged their holdings at the rate of $100 for $125 of U. S. Steel
preferred, while the junior stockholders received $8.80 in preferred
and $125 in common stock of the corporation for each $100 they held.
The Federal Steel Co., second only in size and importance to the
Carnegie Steel Co., was chartered late in 1898, as a merger of the
Illinois Steel Co., Minnesota Iron Co., Minnesota Steamship Company,
Mount Pleasant Coke Company, Lorain Steel Co., Elgin, Joliet & Eastern
Railway Co., and the Johnson Co. of Pennsylvania. The steel companies
it controlled brought to it some of the best-equipped steel mills,
manufacturing various products, in the country, as well as a number
of ore vessels and the principal ownership of the Duluth & Iron Range
R. R. Its earnings in 1899 were approximately $9,100,000, or about 17
per cent. of its preferred stock, and in 1900, $11,722,000, or about 22
per cent. Federal Steel preferred stockholders received new preferred
stock at the rate of $110 for each $100, and the common stock was
exchanged at the rate of $100 of Federal common for $4.00 of preferred
and $107.50 of the common stock of the U. S. Steel Corporation.
The Lake Superior Iron Mines, dominated by the Standard Oil interests,
was formed in 1893. It was merely an ore company and had ore reserves,
owned or leased, estimated at nearly 400,000,000 tons. The company also
owned the Duluth, Missabe & Northern Railroad, and it was affiliated
with the Bessemer Steamship Co., afterward purchased by the Steel
Corporation. The earnings of the Lake Superior company were enormous,
having been nearly 58 per cent. on its capital in 1900. For each $100
of its stock--there was only one class--$135 each of preferred and
common stock of the U. S. Steel Corporation were exchanged.
The American Steel & Wire Co., of New Jersey, was a consolidation
effected in January, 1899, of the majority of the country’s wire mills.
It had a rod mill capacity of more than 1,100,000 tons and a wire nail
capacity of more than 10,000,000 kegs, or more than 500,000 tons. It
also owned extensive ore and coking coal properties. In the first year
of its operation the wire company earned nearly $19.00 a share on its
common stock after an allowance of $1,200,000 for depreciation, and in
1900 its earnings applicable to the common stock were $4,202,129, or
nearly 8½ per cent. on the issue. Its preferred stock was exchanged on
a basis of $117.50 U. S. Steel preferred for each $100, and its common
stock on the basis of $102.50 of Steel common for each $100 of Steel &
Wire.
We come now to the largest and most important of the ten companies
originally merged into the monster Steel Corporation--the Carnegie
Steel Co., the great organization ruled by the Monarch of Steel and
turning out from its furnaces and mills practically one fifth of
all the steel made in the United States; and, incidentally, pouring
undreamed-of wealth into the pockets of Carnegie and his associates. A
company that realized profits in 1899 of nearly $24,000,000 and in 1900
of approximately $40,000,000!
The Carnegie Steel Co. was a merger of the Carnegie and Frick
interests. By its absorption the new corporation secured possession
of the greatest steel organization of its time, as well as of the
important coke holdings of the H. C. Frick Coke Co.--owning about
40,000 acres of coking coal lands, 11,000 coke ovens, and other
property--a controlling interest in the Oliver Mining Co. with its
large ore possessions, and the controlling interest in the Pittsburgh,
Bessemer & Lake Erie Railroad, not to mention a number of other
concerns and interests of less importance.
Unlike most of the other merged companies, the Carnegie Steel Co. had
all its steel-making plants concentrated in the Pittsburgh district.
It was in this locality that Carnegie had built up his great business
machine and his fortune. He had never attempted to build elsewhere,
with the exception of his threat to erect a tube plant at Conneaut.
Carnegie believed in the future of Pittsburgh. And he himself did more
than any one else to assure that future. Carnegie it was who had made
Pittsburgh the steel centre of the universe. And his plants there,
at the time they were taken over by the Corporation, had an annual
capacity of some 3,500,000 tons of steel ingots and more than 3,000,000
tons of finished products.
When the Carnegie company was reorganized in March, 1900--at which time
the merger with the Frick company took place--its capital was placed at
$160,000,000 in stock and a like amount in bonds. All the stock and all
but $50,000 of the bonds were taken over by the organizers of the Steel
Corporation and for these, as has been seen, a total of $492,006,160
was paid, as follows: for $159,450,000 Carnegie bonds an equal amount
of bonds of the new company was exchanged; another $144,000,000 in new
bonds was employed to take up $96,000,000 of the Carnegie stock while
$98,277,120 Steel preferred and $90,279,040 Steel common paid for the
remaining $64,000,000 Carnegie Steel stock.
In order to provide for the exchange of new stocks and bonds for
the securities of the constituent companies the new organization,
which it had been finally decided to name the United States Steel
Corporation, was given an authorized capitalization of $550,000,000
each in common and preferred stocks and $304,000,000 in bonds, a total
of $1,404,000,000. To ensure sufficient working capital at the start
a sum of $25,000,000 was put up in cash by the syndicate, headed
by the Morgan interests, which had financed the transaction. This
syndicate also turned over to the corporation $174,000 in securities
of the merged companies which had been acquired by means other than
exchange, and expended some $3,000,000 as syndicate expenses. For the
cash, stock, and its services the syndicate received 648,987 shares of
preferred stock and 648,988 shares of common stock.
Practically all the stockholders of the old companies, satisfied that
with the Morgan backing the new company its success was fairly well
assured, took advantage of the exchange offer, with the result that at
the end of the first nine months of its existence less than 1 per cent.
of the old securities were still held in the hands of the public and of
the Corporation’s capital as authorized $1,319,229,000 had been issued.
To-day only about three hundredths of one per cent. of the stock of the
ten companies is still held outside the Steel Corporation.
The steel-producing equipment controlled by this vast aggregation of
capital comprised 149 steel works of various kinds, having an annual
capacity of 9,400,000 tons of crude and about 7,700,000 tons of
finished steel; 78 blast furnaces with a pig iron capacity of 7,400,000
tons; more than 500,000 acres of coking coal lands; more than 1,000
miles of railroad and a fleet of 112 vessels engaged in traffic on the
Great Lakes, not to mention large areas of ore-bearing property with
uncounted millions of tons of developed and undeveloped ore, as well as
docks, natural gas, and limestone properties, etc.
Just as the Corporation’s capital, wealth, and resources had never
before been approached by any industrial organization so its board of
directors surpassed in aggregate wealth that of any other company.
The list of the men who guided the Corporation’s destinies included
J. P. Morgan, John D. Rockefeller, and a host of others whose gigantic
fortunes were exceeded only by those of the two kings of finance named.
The others were: Elbert H. Gary, H. H. Rogers, Charles M. Schwab,
Robert Bacon, Edmund C. Converse, Francis H. Peabody, Percival Roberts,
Jr., Charles Steele, William H. Moore, Norman B. Ream, Peter A. B.
Widener, James H. Reed, Henry Clay Frick, William Edenborn, Marshall
Field, Daniel G. Reid, John D. Rockefeller, Jr., Alfred Clifford,
Clement A. Griscom, William E. Dodge, Nathaniel Thayer, and Abram S.
Hewitt.
Their fortunes, if it were possible to add them together, would amount
to a sum greater even than the huge capital of the “Steel Trust.”
Of the original directorate of the Corporation only seven still survive
and only two are still directors. These are Gary and Roberts.
Charles M. Schwab was chosen president of the Corporation, Arthur F.
Luke treasurer, and Richard Trimble secretary. Elbert H. Gary became
chairman of the Executive Committee, and with him were Charles Steele,
Percival Roberts, and Edmund C. Converse. A Finance Committee was also
appointed with Robert Bacon at its head, and H. H. Rogers, Norman
B. Ream, Elbert H. Gary, and P. A. B. Widener as the other members.
The salaries of the president and of the chairman of the Executive
Committee were placed at $100,000 each.
It is hardly to be wondered at that many prophets declared the new
company was foredoomed to failure. Its very size, they claimed, would
render it unwieldy, and it would collapse of its own weight. And there
was a matter of something like half a billion dollars of common stock
represented by no tangible assets, pure water it was claimed. It was
questioned if dividends could ever be paid on this.
How could Morgan ever have been induced to back so great and so
impracticable an enterprise? Many asked this question, and found no
satisfactory reply. Some thought the banker had over-reached himself
at last, but the majority were convinced that the organization of the
Steel Corporation was merely a prodigious stock-jobbing scheme to put
money into the pockets of Morgan and his associates--and that, as such,
it would prove eminently successful. Few there were who had faith in
the “Steel Trust” as a practical business proposition.
But incredible as it may have seemed to those accustomed to the
vagaries of high finance as it was often practised in 1901, the
promoters of the United States Steel Corporation did not regard it as
a mere venture in financial legerdemain. They had the greatest faith
in it as a straightforward business enterprise. They believed in its
future. Judge Gary, who took an active part in the organization,
has always insisted that it would be successful and the enterprise
justified. And the reader of the history of the big company must judge
for himself whether it has justified its organization, not only from an
economic, but more particularly from a sociological standpoint.
Morgan, it has been said, considered the financing of the Steel
Corporation the crowning achievement of his career. Was he mistaken?
Or did he, in making possible this giant Corporation, erect himself a
monument more lasting than brass?
It has been admitted that a large part of the Steel Corporation’s
original capital was water. Just how much will never be decided.
Herbert Knox Smith, Commissioner of Corporations under President
Roosevelt, estimated that substantially half of the Corporation’s total
issue of securities was not based on any tangible property assets.
Other critics have gone further, while some have placed the amount of
over-capitalization at a lower figure. Mr. Smith’s figures, so far as
they go, are probably approximately correct, except that they made
little or no allowance for the enormous value of the Corporation’s ore
holdings.
But does the cost of tangible assets indicate actual value? Does the
cost of erecting a factory or a business indicate the value of that
business? Manhattan Island was originally purchased for twenty-four
dollars. A business that is losing money is seldom worth the investment
put into it, and conversely a money-making concern must be valued
on its earning power. Many of the companies merged into the United
States Steel Corporation were immensely profitable, and even though
they themselves may have been over-capitalized, their value to the
new corporation and to their stockholders was greater than their
capitalization.
The actual plant cost of the Carnegie Steel Co., to take one instance,
had been placed at about $75,000,000. That is, these plants in
1901 could have been duplicated for that sum. But the organizers
of the Steel Corporation bought not only the Carnegie plants; they
purchased an organization that was at the same time the most efficient
steel-making and steel-selling machine in the world, an organization
that the best-qualified witnesses have declared was worth anything from
$250,000,000 up. An organization, moreover, that had earned $40,000,000
in a single year. And what was true in the case of the Carnegie company
was, in part at least, applicable to most of the other concerns which
went to make the United States Steel Corporation.
Further, in organizing the big company, there were many conflicting
interests to be brought into harmony. It was necessary to secure
control of various enterprises in order to obtain the rounded-out
organization aimed at by Gary, Schwab, and the others. And each seller,
naturally, was holding out for all he thought it possible to get. It
was, therefore, a matter of bargaining and without doubt the result was
that in more than one case the final price was above the value of the
thing purchased.
In this connection it is related that shortly after the corporation had
been formed the old Iron Master and Morgan met on a steamship on their
way to Europe, and Carnegie in the course of conversation intimated
that he considered he had driven a shrewd bargain with the corporation
interests. To which the banker is said to have replied: “I would have
paid another hundred million if you had asked it.” The story, the
accuracy of which cannot be vouched for, concludes that Carnegie never
forgave himself for his too-modest demands.
The general consensus of opinion is that the Corporation’s bonds and
preferred stock were both amply protected by assets at the time of
its organization but that the junior stock had nothing behind it but
“blue sky.” Admitting the justice of this claim, which has never been
denied and probably cannot be, this state of things no longer exists.
Whatever water once permeated the capital of the Steel Corporation has
been squeezed out. Year by year the directors have voted large sums out
of earnings for the erection of new plants, the extension of old ones,
until approximately $900,000,000 has been expended in this manner, this
providing adequate--more than adequate--protection for the common stock
and putting the Corporation beyond reach of criticism to-day on the
charge of over-capitalization.
Not long ago Judge Gary, testifying at Washington before a Senate
committee, asserted that the Corporation’s properties then--October,
1919--were actually worth $2,200,000,000 in round figures, or well over
$700,000,000 more than its entire funded and stock capital. He asserted
they could not be replaced for that sum. And other steel men declare
his statement is justified.
When the Corporation began its existence the plants of its subsidiary
companies, as we have seen, had a capacity of more than 9,000,000
tons of steel ingots, while its furnace capacity was only 7,740,000
tons. It was compelled to purchase a large proportion of its pig iron
requirements in the open market. To-day its plants are capable, if
worked at full, of producing 22,350,000 tons of steel ingots and its
pig iron capacity is 18,400,000 tons. Practically all this gain in
production has been attained by “plowing” profits back into additions
and improvements with the object of putting actual plant value behind
every dollar of stock issued.
This consummation was arrived at about seven years ago and it was then
made known that the policy of using profits for building new mills and
furnaces or acquiring additional property had been abandoned and that
future expansion would be financed by the issuance of bonds, which
would permit stockholders to share more liberally in profits than they
had in previous years.
But although the Corporation, since the new policy was announced, has
put more than $400,000,000 into new plant, practically all expenditures
for extensions have been from earnings. The war, bringing about a
boom in steel, brought to the Corporation such large profits that
it was possible to use surplus earnings for extensions and yet pay
big dividends to stockholders, making new financing both unnecessary
and unwise. At present the Corporation is so strongly entrenched
financially that the possibility of borrowing for plant additions
becoming necessary has been put into the distant future, possibly
eliminated forever.
We have seen how the Corporation was formed as a consolidation of ten
of the most important steel-producing concerns in the United States,
with a combined capacity of nearly two thirds the country’s possible
output. So great an operation cannot be considered merely as a matter
of finance. The biggest of trusts must of necessity contain enormous
potentialities affecting the general welfare of industry and of the
State. Its organizers and managers, in consequence, cannot resent
fair-minded investigation into the use it makes of its powers. Has the
Steel Corporation’s existence been prejudicial to the interests of its
competitors, its customers, its employees, or the general public? These
questions will be treated in more or less detail in the course of this
history, but it might not be out of place to point out a few salient
facts on this subject at this point.
Since the Corporation began its existence a number of new steel
companies have sprung into being, grown and expanded, while the older
so-called independents have greatly increased their output. Although
the Corporation has added about 13,000,000 tons to its steel-making
capacity its competitors have added a still larger amount with the
result that the big company now controls less than half the steel
production of the United States.[B]
[B] See Appendix, page 308.
Enjoying the confidence of a number of steel manufacturers competing
with the Steel Corporation the writer has been unable after patient
investigation to find any evidence of its having at any time used
its immense wealth to undersell a competitor, large or small, with
the purpose of driving it out of business, while he has discovered
more than one instance where it has actually assisted competitors. A
company, especially one whose very size exposes it to envy and attack,
could not fail to earn the enmity of its competitors if its methods
were not at all times fair and above suspicion. The “Steel Trust’s”
competitors have time and again, privately and publicly and under oath,
declared that they have no cause of complaint against it.
That this attitude on the part of the independent steel men was
inspired solely by the fear that criticism levelled against the big
corporation would involve a trade war directed against the critic and
his consequent ruin has been suggested in irresponsible quarters. This
is a poor compliment to the heads of some of the country’s leading
industrial organizations. No one who knows Charles M. Schwab, John A.
Topping, James A. Campbell, Willis King, E. A. S. Clarke, and other big
steel “independents” would regard the charge as worthy of consideration.
How has the customer, the steel consumer, fared? The Corporation has
always been slow to advance prices and equally slow to lower them. It
has usually endeavored to prevent prices from reaching an abnormally
high level in “boom” times, when overwhelming demand had placed the
steel seller in control of the market, by setting a maximum quotation
at a fair level permitting any manufacturer a fair profit, and has thus
protected the consumer whose urgent need of the metal at a particular
time made him a prey to profiteering. Such a course was followed in
1914 and in 1917, both periods of ascending prices. And it is being
pursued again at the time this is written. To-day the steel maker who
has material for immediate or early delivery can get enormous premiums,
abnormally high prices, for his output. But the Corporation is selling
at the levels agreed on in 1919 with the Industrial Board appointed at
that time by the President and refuses to advance its price although
the Government itself abrogated the arrangement. And whether for quick
or deferred delivery it charges one price. It refuses to give delivery
preferment for any consideration, saying in effect “first come, first
served.”
And by endeavoring to prevent wild price reductions in periods of
depression it has afforded protection to consumers who made their
purchases at the top of the market, or near it, and who would have
suffered heavy losses from a break in the steel market not only from
the reduction in the value of their inventories but because their
competitors might be able to buy steel at much lower prices and
undersell them.
Has the public, which always pays the bill in the long run and whose
interest is paramount, been injured? In the thirteen years from the
Corporation’s organization to the beginning of the European war the
tendency of steel prices has been downward, not only as compared with
those of other commodities, which ascended, but on a dollar-and-cents
basis. This tendency of prices will be discussed more fully in a later
chapter. The war, it is true, brought about a decided advance in steel
prices, but in comparison with other commodities they still show
favorably. And there is no question that quality has improved.
No better illustration of the Corporation’s price policy can be found
than that afforded by a comparison of the weighted average of actual
prices received by it for the past eighteen years on ten principal
products with Dun’s index number of all commodity prices indicating
the fluctuations in living cost for the same period. In this comparison
1903 is taken as the base because, in that year, Dun’s index number was
99.456, or as nearly as possible 100.
===================================================
| DUN’S INDEX | CORPORATION’S | INDEX NO.
YEAR | NUMBER | PRICE RECEIVED | BASED ON
| | | CORP. PRICE
-----+-------------+------------------+------------
1903 | 99.46 | $37.56 | 100.00
1904 | 97.19 | 33.15 | 88.3
1905 | 98.31 | 32.89 | 87.6
1906 | 105.22 | 34.54 | 91.8
1907 | 113.66 | 36.59 | 97.3
1908 | 108.17 | 36.19 | 96.3
1909 | 119.02 | 32.52 | 86.5
1910 | 119.17 | 34.10 | 90.7
1911 | 118.13 | 31.88 | 84.8
1912 | 122.28 | 30.03 | 80.0
1913 | 116.32 | 33.25 | 88.5
1914 | 119.71 | 30.60 | 81.4
1915 | 124.96 | 30.67 | 81.6
1916 | 145.14 | 41.31 | 109.9
1917 | 211.95 | 60.08 | 60.0
1918 | 232.57 | 68.86 | 83.5
1919 | 233.71 | 62.66 | 167.0
1920 | 260.41 (nine mos.) 62.67 | 167.0
-----+-------------+------------------+------------
The ten classes of products used in arriving at the weighted average
are: Heavy rails; blooms, billets, slabs and sheet and tin bars;
plates; heavy structural shapes; merchant bars; bright coarse wire;
wire nails; black sheets; merchant pipe and oil country goods; black
plate.
[Illustration: Andrew Carnegie]
Nor has the steel worker been lost sight of. It is admitted by
all familiar with the subject that the Steel Corporation has been
responsible for the steady and decided advance in wages in the industry
that has been witnessed in the past nineteen years. Wages have been
increased voluntarily and without demand from the men whenever trade
conditions made increases possible. At the same time the Corporation
has steadily set its face against reducing wages in times of stress.
And what is more important it has spent immense sums of money in
sanitation, education, and other ways of bettering the wage earner’s
lot, has helped him to save and invest his money by offering special
inducements for so doing, and has set an example in industry generally
that has done more for the cause of common labor than has been
accomplished by the labor unions themselves.
[Illustration: J. Pierpont Morgan]
It may seem absurd to accuse the management of the Steel Corporation
of socialistic leanings. But among the 160,000 stockholders of the big
enterprise more than one third are men who work in its furnaces, mines,
mills, and offices, and these have become stockholders under the plan
that permits employees to acquire stock on the instalment plan and
offers a premium as an inducement to hold it. Does the history of the
industrial world contain another so striking instance of a step toward
ownership of the product of labor by labor itself, toward the highest
and best socialism?
CHAPTER III
EARLY HISTORY AND GROWTH--1901 TO 1907
It was perhaps natural that the early years of the big new corporation
were not entirely without their troubles. The work of bringing together
and making into one harmonious whole a number of different companies,
with the smoothing out of mutual jealousies and dispelling of distrust,
was a far greater task than the actual financial organization. And
it was only with the passage of years that this was successfully
accomplished.
It will be remembered that Schwab, in his speech at the Simmons
dinner, had pointed to the advantages of integration which would be
possible in a big steel merger, and the fact that a concern like
the Steel Corporation, and such a concern alone, could successfully
invade foreign markets and develop, in competition with European
manufacturers, a permanent outlet for American steel. This was the same
thought held by Gary when he had previously urged Morgan to finance a
big steel combine. Briefly, these were the principal reasons for the
Corporation’s existence; and these were the objects which its founders
immediately set themselves to attain.
The early history of the Steel Corporation, therefore, will naturally
be found to have concerned itself largely with achieving these ends.
It is to a great extent the narrative of the various steps taken to
coördinate the more or less divergent units brought together in the
new Colossus of Steel, of the work that had to be accomplished, the
difficulties that had to be overcome, before it could fulfil its
_raison d’être_ and win the place it now occupies as the most important
business enterprise in the world.
Many dangers faced the new-born Corporation. Not the least of these,
although it was not realized at the time, was that, glorying in its
giant’s strength, it might use that strength mercilessly, like a giant.
Had it chosen so to do there is little doubt that it would have reaped
some immediate financial benefits, but events of later years proved
conclusively that it would have but laid the seeds for its own eventual
destruction. That the Corporation chose a different policy, and up to
that time one almost unknown in business, was due to the insistence of
Judge Gary.
And here it might be said that he did not have by any means an easy
time in convincing all of his co-directors that the policies he advised
should be adopted. For years he had a constant struggle, but gradually
he won over all of his opponents to this point of view.
Another of the dangers that beset the path of the new Corporation lay
in the fact that it was not an operating company with a number of
plants controlled by one central management, but a holding company
controlling by stock ownership a number of industrial units which had
previously been owned by utterly conflicting interests and each of
which continued necessarily to operate under a separate management.
The natural corollary of this state of affairs was that the management
of each constituent, or subsidiary company, troubled itself solely
about the success of its own particular unit and took little interest,
if any, in the affairs of the other subsidiaries or the success of the
Corporation as a whole. And had this condition continued the attainment
of the ends for which the Corporation was organized would have been
rendered impossible, its very existence made vain.
To illustrate: the Carnegie Steel Co. and the Illinois Steel Co., a
subsidiary of the Federal Steel Co., had widely separated plants, and,
because of the important item of freight rates, sold for the most part
in different territories. But the two companies competed in a middle
ground and each had succeeded in encroaching on the other’s natural
territory, in some instances had attached to itself certain customers
therein. To retain these customers each company was compelled to sell
in a locality adjacent to the other’s mill at the same price as its
competitor was willing to offer. The Carnegie company, for instance,
might have achieved the custom of a railroad whose Eastern terminus
was Chicago. To supply the orders of this road it would have to pay
freight tariffs from its mills near Pittsburgh and deliver the goods
to the road at Chicago at the same quotation the Illinois company was
naming for deliveries from its mills in the very suburbs of Chicago.
It is extremely doubtful if such a situation was really advantageous
to either company in the long run. It is certain that its continuance
would have been distinctly disadvantageous to the Corporation that
owned the stock of both concerns; it simply meant that the Corporation
would have to pay freight for carrying steel hundreds of miles when it
was able to deliver it from a mill practically at the customer’s door.
The officers of each company were naturally unwilling to hand over
custom they had built up by years of effort to a concern long regarded
as a competitor. Even from the standpoint of the then-existing
conditions each must have felt that it was his job to make a good
showing for the company he managed; he had no concern elsewhere. But,
for the good of the whole organization, it was absolutely necessary
that these officers should be brought to realize that they were
working first of all for the United States Steel Corporation, that
inter-company jealousies must be buried for the common good and the
interests of the party made subservient to the welfare of the state.
And the way to do this was to make the interests of the Corporation,
the controlled company, and the individual worker identical.
Andrew Carnegie had built up the greatest steel company of its time
by appealing to the loyalty of his men through self-interest. Like
Napoleon’s soldiers, each man under him carried a potential marshal’s
baton in his knapsack. The Napoleon of Steel held dangling before
the eyes of his subordinates the hope of a partnership in the great
Carnegie company as a reward for meritorious service, and most of his
later partners won their way upward from the ranks. And the scheme
worked out by the Corporation’s management to bring about the desired
harmony, to assure loyalty to the United States Steel Corporation first
and last, was modelled to some extent on Carnegie’s method. It became
known as the Stock Subscription and Profit-Sharing Plan.
Before going into the details of the plan an example of its effects may
be illuminating. Journeying over the Corporation’s plants and mines the
author was impressed by this very spirit of loyalty and coöperation on
the part of officers and workers alike, and commented on it to William
A. McGonagle, president of the Duluth, Missabe & Northern Railroad.
And Mr. McGonagle related the following instance of this spirit of
coöperation:
When we were planning the big ore concentrator at Coleraine the
engineers and other officers of the various companies concerned
were called together in consultation and certain differences of
opinion arose regarding the plans, each of the men present urging
changes which he thought would be of benefit to the company he
represented. While the discussion was at its height somebody rose
and said, “Gentlemen, it is not a question of what is best for
the Duluth, Missabe & Northern, the Oliver Iron Mining Co., or
any other company; the whole question is, what is best for the
interests of the United States Steel Corporation!” That settled it.
All differences were smoothed out and a harmonious plan quickly
agreed on.
This result was due to the plan referred to which was devised to
give each employee the stimulus of personal ownership, an incentive
not confined, as it had been formerly, to a few individuals, but
distributed throughout the organization.
The plan, as finally worked out and put into operation, was designed
to accomplish three main objects: first, to interest employees in the
Steel Corporation as a whole and not merely in the operations of the
subsidiary for which they worked; second, to give them an incentive
to do everything possible to reduce expenses and correspondingly
increase profits; third, to offer them an inducement to stay with the
Corporation and identify themselves with it.
It is with the first, or stock subscription part of the plan, that
the public is most familiar. The benefits of this are extended to all
employees of the Corporation who desire to take advantage of it. It
is simply an effort to increase their interest in the Corporation and
at the same time encourage thrift by enabling them to purchase stock
at an attractive price and to pay for it in small instalments, with
the additional incentive of a bonus for holding for a certain time the
stock purchased. Usually the offering price has been a point or two
below the market, but in 1920, for the first time, the subscription
price was set slightly above it.
In effect the stock subscription plan makes for a capital-labor
partnership. It benefits both the worker and the employing company.
It, in a small way, makes the worker a capitalist himself and enables
him to see something of both sides of the case in capital and labor
disputes. This plan, and others more or less similar adopted by other
companies, have done more to bring into accord the relations between
capital and labor than thousands of sermons and theses by theoretical
reformers. It is a hard-headed, practical solution of the great problem.
The late George W. Perkins has generally been credited with the
conception and perfection of this plan. And unquestionably he had much
to do with it, and took a leading part in its consummation. He always
took a keen interest in anything that tended to better the conditions
surrounding the worker or to reduce the friction that, unfortunately,
exists between capital and labor. But, as a matter of fact, the plan
was largely Judge Gary’s, as was brought out in the testimony in the
Steel dissolution suit, and--to quote Perkins himself:
“Two men have been my especial inspiration--one of them Judge Gary,
the actual operating developer of corporation progressiveness as we
have it at its best; but he has a positive passion for doing good
things and big things behind the screen of somebody else’s personality;
and credit that belongs to him--tremendous credit--lands elsewhere.
Over and over he has made me protest against his insistence that I or
another should accept applause for accomplishment directly belonging to
himself; for instance, in employees pensions and profit sharing.”
In its application the stock subscription plan has been an unqualified
success. Particularly in recent years employees of all classes from
common labor to executives have shown eagerness to avail themselves
of its terms to acquire a personal financial interest in the big
Corporation. Subscriptions for years have far exceeded the amounts
of stock offered and all over-subscriptions have been honored. The
figures of the annual subscriptions to stock under the plan speak for
themselves:
===================================================================
| PREFERRED | | COMMON | | NO. OF
YEAR | SHARES | PRICE | SHARES | PRICE | EMPLOYEES
| TAKEN | | TAKEN | | SUBSCRIBING
-----+-----------+-------------+-----------+----------+------------
1921 | ---- | ---- | 255,308 | $81.00 | 81,710
1920 | ---- | ---- | 161,298 | 106.00 | 63,324
1919 | ---- | ---- | 155,098 | 92.00 | 59,792
1918 | ---- | ---- | 93,488 | 92.00 | 41,991
1917 | ---- | ---- | 66,519 | 107.00 | 38,326
1916 | ---- | ---- | 49,538 | 85.00 | 24,631
1915 | | No offering | | |
1914 | 42,687 | 105.00 | 47,346 | 57.00 | 45,928
1913 | 34,418 | 109.00 | 25,583 | 66.00 | 35,687
1912 | 30,613 | 110.00 | 30,528 | 65.00 | 36,575
1911 | 19,324 | 114.00 | 29,072 | 70.00 | 26,305
1910 | 24,679 | 124.00 | ---- | ---- | 17,381
1909 | 17,953 | 110.00 | 15,380 | 50.00 | 19,116
1908 | 30,398 | 87.50 | ---- | ---- | 24,527
1907 | 27,150 | 102.00 | ---- | ---- | 14,163
1906 | 24,001 | 100.00 | ---- | ---- | 12,192
1905 | 18,180 | 87.50 | ---- | ---- | 8,494
1904 | 31,644 | 55.00 | ---- | ---- | 9,912
1903 | 47,551 | 82.50 | ---- | ---- | 26,399
-----+-----------+-------------+-----------+----------+------------
NOTE: Above figures differ slightly from those given in annual
reports, a few employees having failed each year to go through
with their subscriptions.
Besides being given as much as three years to pay for stock purchased
employees who hold their stock receive an annual bonus for five
years. At first, when only preferred stock was issued, the bonus
was $5.00 a year. Later, when the common stock began to have a real
investment value, this, too, was offered with an annual bonus of $3.50.
But in recent years the investment value of the common stock still
further increasing, and it having become impossible to purchase any
considerable amount of preferred stock at a reasonable price, only the
junior security has been offered employees and the bonus on the common
has been raised to $5.00 a year.
Latest figures show that there are now more than 66,000 employees and
their families interested in the plan, that is, that number are either
paying for stock or, having paid, are drawing their annual bonuses. As
it is likely that there are still more employees not now on these lists
but owning stock bought more than five years ago it seems fairly safe
to assume that the number of employees who, as stockholders, have an
interest as part owners in the great organization that they work for is
not less than 70,000.
And in this number are included employees from all ranks, including
workmen, so-called office boys, elevator operators, and executives. The
plan was designed to be, and is, catholic in its scope.
Naturally, the stock subscription plan has not been regarded with favor
by those whose interests lie in fomenting dissent between capital and
labor and the plan has been attacked in many ways. One of these is the
charge that it is a money-making scheme under which the Corporation
purchases its own stock cheap and sells to the workers at a profit. As
a matter of fact, the operation of the plan is a continual source of
expense to the Corporation which has so far spent on it an aggregate
of $9,160,000. It has, however, profited from the plan in one
way--increased loyalty, efficiency, and coöperation.
Only “the men who occupy official or semi-official positions and who
are engaged in directing and managing the affairs of the Corporation
and of its several subsidiary companies” were concerned in the
profit-sharing portion of the plan, generally designated as special
compensation. This was more or less an adaptation of Carnegie’s method
of rewarding his assistants for good service, with the difference
that it held out no allure of return for effort selfishly directed,
but only that done for the good of the entire organization. It was a
yearly distribution to the men above described of a small percentage
of the profits above $80,000,000, part of the bonus being paid in cash
and part in stock of the Corporation. At the time of the promulgation
of the plan it was made plain that there would be no increases in
salaries of officials. All additions to salary would come through these
bonuses, and in basing them on the profits of the Corporation and not
of the separate subsidiary companies a powerful motive for loyal and
harmonious effort for the good of the Corporation was created.
Why did not the workmen generally share in this bonus distribution?
It would have been impossible to make anything like an equitable
distribution among the employees of every class, especially in view of
the fluctuating character of a large mass of the labor employed in the
industry. But the worker with his hands did share in profits in a more
definite way. His wage was increased time and again and he received the
benefits of these increases whether profits were large or small. This
was more satisfactory to him. And in the stock subscription part of the
plan, with its attached automatic bonus, he had an equal opportunity
with the men above him in authority.
But long before the Stock Subscription-Profit-Sharing Plan was
perfected steps had been taken to coördinate the work of the
Corporation and to bring about economies. First of these was the
institution of a system of comparative cost sheets immediately after
the Corporation began its existence.
The earning of profits for stockholders was the first object of the
big company, as it is in every business, and its formation had been
undertaken largely with the idea that the magnitude of its operations
would make greater economies possible, with a gain rather than a
sacrifice of efficiency and quality.
In the old steel days the calculation of costs had been more or less
haphazard, at least in most instances. Too often the entire operating
expense of steel making, from mining to the turning out of the finished
product, had been “lumped” at the end of the year, and there was no
means of arriving at the knowledge of just where profits, if there were
any, were made, while if they were non-existent or unsatisfactory it
was equally out of the question to fix the blame on any one department.
Moreover, such secrets of economy as were discovered by those in charge
of a furnace or mill were rigidly guarded as giving an advantage over
competitors; all of which did not contribute to a general high average
of efficiency and economy.
The Corporation’s management first set to work to ascertain the exact
cost of running each and every mine, furnace, or other department, the
costs being tabulated for the information of the whole organization.
The cost tables were made up in the most minute detail, the blast
furnace cost sheets alone containing more than 8,000 different items,
and by their aid the several departmental superintendents could see at
a glance what item in their operations was below the average, was too
costly, and could take the necessary steps to remedy matters. These
tables also created a spirit of emulation, of friendly rivalry, between
the various departmental units, which alone was a potent incentive
toward economy.
So immediate and so marked was the result of this system of cost
checking that, according to Charles M. Schwab, a saving of $4,000,000
was effected in the blast furnace department alone in the first year of
the Corporation’s existence!
As this history does not pretend to be a technical treatise on the
manufacture of steel detailed discussion of the many ways and means
adopted by the Corporation to achieve economies would be out of place.
But some of them are particularly worthy of mention.
One example of economical methods, interesting because of the fact that
is was possible only to a company engaged in operations on a tremendous
scale, is concerned with distribution of iron ore to its furnaces.
Steel, although much alike to the uninitiated, differs greatly in
quality and suitability for different uses. The difference lies not
alone in treatment during manufacture but in the kind and character
of ore used. And a plant that has large orders for a particular kind,
or analysis, of the metal, would find itself handicapped greatly if
its receipts of ore included a mixture of the many grades often found
deposited in the earth in close juxtaposition. The right ore for the
right use at the right time means better and cheaper steel.
Hence the Corporation maintains in the regions from which it receives
its ores well-equipped chemical laboratories for testing and sorting
the several varieties of ore. Probably the most important of these is
at Hibbing, Minnesota, on the line of the Duluth, Missabe & Northern.
As the long ore trains run through Hibbing small samples of the ore are
taken out of the cars and subjected to careful analysis. The trains go
on their way to Proctor where the extensive yards of the railroad are
located, but before they reach that centre the chemical analysis of the
ore in different cars has been ascertained and wired ahead, so that
the cars composing the train can be sorted and distributed in sidings
in accordance with the classification of the ores they contain. At
Proctor new trains are then made up and proceed to the ore docks at
Duluth where vessels are waiting to convey the ore to Gary, Chicago,
or, by further trans-shipment, by rail to Pittsburgh. And each ship
gets the kind of ore needed at the furnace to which it is destined.
This means not only better and more uniform quality in the finished
product; it means a saving of several hundreds of thousands of dollars
annually to the Corporation.
The Proctor yards themselves are interesting. Stretching two miles with
seventy-five miles of track and capable of accommodating 5,400 cars at
one time, as many as 469,555 fifty-ton cars of ore have passed through
them in one season destined for the Corporation’s hungry furnaces all
over the country.
Not least among the economies following in the wake of the
Corporation’s organization were the conservation effected and
additional profits earned by manufacturing into merchantable products
what had formerly been waste. The manufacture of the so-called
by-products of the steel industry had been practised in Germany for
many years, and to a limited extent in this country as well. But
to get the best results not only was a considerable outlay for new
plant equipment required, but the services of a corps of trained
and experienced chemists had to be engaged. And this meant such
an expense that, especially as the whole by-product idea was in a
somewhat experimental stage, companies even of a moderate size as
steel companies go hesitated to undertake it. With the Corporation’s
vast resources, many subsidiaries, and large output the expense of
experimenting and investigating was spread out so as to be hardly felt,
a careful study of the subject was made, and necessary plants were
erected. This has borne fruit not alone in increasing profits for the
Corporation and its stockholders but in blazing a path for the steel
trade of the United States as a whole (all the larger steel companies
have by-product plants to-day), and finally in effecting an important
conservation of the natural resources of the country.
Nor, as events of the last few years have shown, have the benefits
of the developments of by-product manufacture been confined to the
Corporation, the steel trade, or even the United States. Chemicals
derived from coke by-products are necessary in modern warfare. They
form the basis of high explosives, gases, etc., and when the European
war broke out the world at large realized that Germany, in protecting
and fostering her by-product industry, had really been preparing for
war. The benzol, toluol, and other chemicals manufactured at the coke
by-product plants of the Steel Corporation and other companies in this
country played an important part in stopping the German hordes and in
saving civilization.
Coke, the fuel used to make steel, is obtained, as is probably
universally known, from coal. In the old days of the trade, and to a
great extent still, the coal was burned in brick ovens with open tops,
known as bee-hive ovens, which produced about sixty tons of coke from
each 100 tons of coal and blew out in smoke into the air the oils and
gas contained in the coal. Even to-day, in the great coal fields that
lie near Pittsburgh, may still be seen the dense smudge that arises
in the air from thousands of these ovens. But their day is surely,
if slowly, passing. In the modern by-product coke ovens sixty-five
to eighty tons of coke are obtained from 100 tons of coal, a gain of
nearly 25 per cent. in the case of low volatile and about 8 per cent.
with high volatile coals. Nor is this saving all. The gases with their
oil content instead of being blown out into the air and burned are
conducted through pipes to an intricate apparatus where coal tar,
ammonium sulphate, a valuable fertilizing agent, ammonia, and benzol,
an important base for high explosives and dyes and also usable as fuel
for motor cars, as well as other products are extracted, and the gas
itself is made available for use in motor engines or in illuminating.
More than one city to-day lights its street with the gas from
by-product coke plants.
As it requires more than one ton of coke to make a ton of steel it is
plain that the 25 per cent. saving in the amount of coke obtained from
coal by use of the modern by-product ovens means an enormous economy
to the Corporation which produces from seventeen to twenty millions of
tons of steel a year, and the saving of four to five millions of tons
of coal to the country. Nor are the profits derived from the sale of
the by-products themselves immaterial.
How profitable is the manufacture of coke by-products is indicated by
the fact that for years before the World War, and possibly even to-day,
the patentees of one by-product process were usually willing to erect a
plant in connection with a steel plant, at a cost of several millions,
and to take their pay for it from the profits of the by-products alone,
handing the plant over to the steel company at the end of a stated
period. They said in effect: “You give us the coal and we will hand you
over the coke produced from it; and in twenty years we will give you
the plant.” The Corporation, however, has always erected its by-product
coke plants at its own expense.
Another important economy in its saving of both labor and material is
found in the generation, from what were formerly the waste gases of
blast furnace operations, of electric power for running the entire
steel mill.
Still another by-product of the steel industry, and one that means
material profits from waste, is Portland cement. In this is utilized
blast furnace slag, formerly not merely a waste but a source of expense
as it had to be freighted away from the mills and “dumped.” The
manufacture of cement from slag had been carried on before the Steel
Corporation was formed by the Illinois Steel Co. but only in a small
way. The big company extended the cement industry as a side line to
steel and erected several new plants, the largest being at Buffington,
Indiana. It now has a capacity of about 45,000 barrels a day.
Greater earnings for the Corporation, larger profits for its
stockholders, are represented by the extension of the manufacture
of these by-products. But, beyond this, the cultivation of this
part of the industry means an appreciable reduction in the cost of
manufacturing steel, and consequently lower prices to the consumer
and the possibility of higher wages to the worker, as well as the
elimination of waste and the conservation of the natural resources of a
continent.
Besides integration and the achievement of economies the early history
of the United States Steel Corporation is largely a narrative of
expansion, the building of new plants, and the acquisition of other
companies. First of these acquisitions was the purchase, consummated
about a month after the Corporation was organized, of the Bessemer
Steamship Co., a Rockefeller concern engaged in traffic on the Great
Lakes and which had been closely affiliated with the Lake Superior
Iron Mines. This company had a fleet of 56 vessels (included in the
number of vessels given as taken over by the Corporation in a previous
chapter). The new organization paid $8,500,000 for the stock of the
company, or about $150,000 for each vessel of the fleet.
In the same year control of the Shelby Steel Tube Co., a New Jersey
company owning the principal basic patents for the manufacture of
seamless tubes, and having an outstanding capital of $5,000,000 of
preferred and $8,150,000 of common stock, was secured, the exchange
of securities being made on the basis of one share of U. S. Steel
preferred for 2⅔ shares of Shelby preferred, and one share of Steel
common for four shares of Shelby common stock. Practically all the
stock of the Shelby company--$4,776,100 preferred and $8,018,000
common--was acquired, giving the Corporation a substantial controlling
interest.
In 1901 also the Corporation purchased by exchange of stock one-sixth
interest in the Oliver Iron Mining Co. and the Pittsburgh Steamship
Co. The Carnegie Steel Co. already owned the other five sixths of
the securities of both these concerns and this gave the Corporation
complete ownership.
In December, 1902, an important deal for the absorption of the Union
Steel Co. was consummated. This company was a merger, effected only
a month or so previous to its absorption by the Steel Corporation,
of the Union Steel Co., a $1,000,000 concern owning a large plant
for the manufacture of wire rods, wire, and nails at Donora, Pa.,
and the Sharon Steel Co., a $6,000,000 company making a similar line
of products and located at Sharon, Pa. The merged company had an
authorized capitalization of $50,000,000 and a capacity of 750,000 tons
of pig iron and 850,000 tons of ingots yearly. The purchase was carried
out on the following basis: The Steel Corporation guaranteed an issue
of bonds on the Union-Sharon properties amounting to $45,000,000, of
which $29,113,500 were issued to pay for the properties, $8,512,500
were purchased by the interests controlling the properties, $3,500,000
were reserved to retire bonds outstanding on the property of the
Sharon company, and the balance was reserved to provide for future
construction and improvements. The actual cost to the Corporation
was fixed at $30,860,501, as follows: bonds guaranteed and issued,
$29,113,500; underlying bonds assumed, $3,591,000; cash $497,990;
total $33,202,490; less liquid assets taken over with the properties,
$2,341,989; net cost, $30,860,501.
[Illustration: Down in a Coal Mine]
By this transaction the Corporation acquired five blast and twenty-four
open-hearth furnaces, two blooming and slabbing mills, four rod mills,
two wire and nail mills, one skelp works, one tube works, one plate
mill, one tin plate plant, one sheet plant, a by-product coke plant of
212 ovens, two modern ore steamers, 4,750 acres of coking coal, 1,524
acres of steam coal, and the ownership of two mines and leases
on another two in the Mesaba Range with an estimated ore deposit of
40,000,000 tons.
[Illustration: Open Pit Mining--Canisteo Mine]
The absorption of this entirely solvent and “going” competitor has been
criticized on the allegation that its only purpose could have been to
strengthen the larger company’s supposed control of the industry, and
to eliminate competition. The reasons for the purchase, testified to
by Judge Gary, in the Government suit were twofold. The Union Steel
Co., he said, owned blast and open-hearth furnaces the securing of
which obviated the necessity of the Corporation building others in the
same territory, which it needed, and its wire mill was particularly
well located for export business, a prime consideration with the Steel
Corporation; and perhaps a more cogent reason was to be found in the
desire of the Corporation’s management to centre the interests of
H. C. Frick in the Corporation. Mr. Frick was heavily interested in
the Union-Sharon concern and on this account, although a director of
the Corporation, he did not take a prominent part in the big company’s
affairs. His experience and ability made his full coöperation in
the directorship desirable and this had a great deal to do with the
purchase.
Seventeen months later, in May, 1904, the Clairton Steel Co., which
operated three blast and fifty open-hearth furnaces, a rolling mill,
billet mill, and blooming mill at Clairton, Pa., was absorbed. The
company, controlled by the Crucible Steel Co., was then in the hands
of a receiver and its stock was acquired by the payment to the owners
of $1,000,000 in U. S. Steel bonds (bought in the open market and
costing the Corporation $813,850), and the guaranteeing of bonds to
the amount of $10,230,000 outstanding against the Clairton company and
its subsidiaries. The purchase also brought to the Corporation a half
interest in one ore mine and a lease of another in the Mesaba Range,
about 20,000 acres of mineral lands in the Marquette Range, 2,644 acres
of coking coal lands, and working assets of nearly $3,000,000.
Smaller acquisitions by the Corporation in the early years of its
existence included the Troy Steel Products Co., which owned works at
Troy, N. Y., with a capacity of about 200,000 tons of slabs and skelp
a year, and the Trenton Iron Co., operating a rod mill with a capacity
of some 18,000 tons. The Troy company was bought in 1902 and operated a
very short time, it having proved unprofitable.
Hardly had the United States Steel Corporation commenced operations
than the directors found themselves faced with the necessity of
raising additional working capital. The $25,000,000 cash provided by
the under-writing syndicate proved insufficient for the needs of the
giant industry. Obligations entered into by the constituent companies
before the merger, it was discovered, called for the expenditure of
approximately $15,000,000, and fully $10,000,000 was needed to refund
what were classified as “purchase money obligations.” It was also
thought desirable that expenditures should be made for improvements and
additions which, it was estimated, would increase the big company’s
earning power at least $10,000,000 a year. Furthermore, it was deemed
advisable to add from $10,000,000 to $15,000,000 to the Corporation’s
fluid assets to provide for further expansion and to strengthen
reserves, as it was obvious that if the Corporation were to need ready
cash in a time of stress the amount wanted would not be a matter of a
million or so but of many millions and it would be impossible to obtain
a very large sum at such a time except at a great loss. By increasing
fluid assets the probability of the need for borrowing would be
minimized.
The issuance of $15,000,000 new preferred stock or second mortgage
bonds was discussed at length, but these courses were not favored as
either, aside from initial expense in commissions to underwriters,
would have increased fixed charges against earnings--a stock issue
permanently and a bond issue for the term of its life--while an
increase in capital in either of these two ways so shortly after the
formation of the Corporation would almost certainly have attracted
unfavorable comment and might have severely affected the value of their
holdings to owners of its stock.
Eventually what was known as the Bond Conversion Plan was adopted and
promulgated. It provided for the issuance of $250,000,000 new second
mortgage bonds and the redemption of $200,000,000 of the outstanding
preferred stock, holders of the stock being given the opportunity
to subscribe for the bonds to the extent of 50 per cent. of their
holdings, 40 per cent. through deposits of stock and 10 per cent. in
cash. A syndicate, headed by the Morgan firm, was formed and guaranteed
to turn in not less than $80,000,000 in stock and $20,000,000 in cash
in exchange for $100,000,000 of the bonds to be issued. For its work
the syndicate was to receive 4 per cent. on the total value of the
bonds actually issued under the plan, the house of Morgan receiving one
fifth of the commission, or four fifths of one per cent.
An actual, though not immediate, money saving, it was pointed out,
would be effected under the plan. Although the commissions to be paid
the syndicate, $10,000,000, would be larger than in the case of either
of the two other ways suggested for raising the new capital required,
the net saving in annual interest charges would be $1,500,000, which
would not only refund the commission in a comparatively short time but
would be more than sufficient to meet sinking-fund requirements for
paying off the entire second mortgage issue when it became due, or in
sixty years. The actual gain in working capital, should the plan prove
a success, would be $40,000,000.
(Redeeming $200,000,000 of 7 per cent. preferred stock would save
dividend charges of $14,000,000 yearly, for which would be substituted
a charge of 5 per cent. on $250,000,000 bonds, or $12,500,000. The
amount required for the sinking fund would be slightly more than
$1,000,000 or less than the net annual saving. And a permanent capital
reduction would be effected at the end of sixty years.)
No other action of the Corporation’s management, it would be safe
to say, has met with such widespread disapproval as did the bond
conversion plan, much of the criticism coming from financial experts
who questioned the propriety of increasing the bonded debt of the
company to so great an extent with so small an actual gain in working
capital or resources. It was characterized as dangerous financing and
it is known that not all the Corporation’s directors were themselves in
full accord with the operation. At a meeting held on May 19, 1902, the
plan was submitted to a vote of the stockholders and here considerable
opposition developed which led later to the bringing of four suits to
prevent its consummation. One of these suits which attracted a good
deal of attention was brought by J. Aspinwall Hodge, a New York lawyer.
But the Court of Errors and Appeals of New Jersey eventually dismissed
these suits and the offer to exchange stock for the bonds--delayed by
the suits--was finally made to stockholders in the spring of 1903.
In view of the fact that its avowed object was the raising of
$40,000,000 new cash capital, said to be necessary, the plan can hardly
be said to have been an eminent success. Exclusive of the syndicate
operations only $45,200,000 of preferred stock was exchanged by
stockholders for the bonds and the cash subscriptions for the issue
from the same source amounted to the insignificant sum of $12,200.
The syndicate, at its dissolution, turned in a total of $150,000,000
in preferred stock and $20,000,000 in cash (this, of course, included
the $45,200,000 stock and $12,200 cash of the outside stockholders),
a total of $170,000,000, and instead of the desired $40,000,000,
the actual cash gain to the Corporation from the transaction was
$20,000,000 less a syndicate commission of $6,800,000, or $13,200,000
net.
As the Corporation has been able to meet its full preferred dividend
requirements since its formation, however, it is obvious that as
matters turned out it has saved $2,000,000 a year in interest charges
or in eighteen years since elapsed $36,000,000, more than five
times the commission paid the syndicate. The yearly saving is also
approximately double the $1,010,000 which the sinking fund calls
for, so that the net gain to stockholders from the reduction of the
preferred capital is $990,000 a year. Looking into the distant future
the saving after the bonds are paid off in forty-two years will be
$10,500,000 annually.
One of the criticisms hurled at the plan was that its real object was
to enable the syndicate, and especially the banking house of J. P.
Morgan & Co., to make a profit at the expense of the stockholders.
The facts were that the syndicate took a big risk of the bonds
selling at less than par after issuance, which they did, and while it
is impossible to ascertain the exact gains or losses incurred, the
understanding is that Mr. Morgan and his associates in the syndicate
actually suffered a loss of something like $8,000,000 from the deal.
It was perhaps natural that the management of the Steel Corporation,
in its early existence, should have been more or less divided against
itself. This danger was one of the factors urged by its critics against
the possibility of its success. Among its directors were Phipps, Frick,
and Schwab, old Carnegie partners, and firm believers in the Iron
Master’s policy of getting your competitor before he got you. Gary
was the prominent figure in another faction that had the foresight to
perceive that a new day was dawning in industry, an era of coöperation
between manufacturer and manufacturer, to realize that the very size of
the Corporation rendered it subject to the enmity of smaller concerns
and to legal attack and public disapproval, and that the only way of
overcoming this danger was to gain the good will of all by an open and
straightforward policy. As the years passed these differences were
gradually smoothed out. The directors, as a whole, came to see that
Gary’s policy was right, in fact the only one to pursue, and harmony
was gradually brought out of the conflicting elements and opinions.
With the passing of the years Gary gained the ascendency in determining
the courses of action of the Corporation. Always its chief executive
officer he eventually became potential. And it is a high tribute to
his judgment and foresight that all of those who disagreed with him at
first have later admitted, as did Schwab, in a published speech, “He
was right and I was wrong.”
Charles M. Schwab did not long remain as president of the Corporation.
His health broke down shortly after its formation and, in 1903, he
resigned his position and sailed for a long rest abroad, later coming
back to America to purchase control of a small independent concern and
to build up an organization of his own that to-day ranks next to United
States Steel among the steel-making companies of the United States.
At the time of Schwab’s resignation the Executive Committee was
abolished, the position of chairman of the Board created, and Gary was
elected to that office. William Ellis Corey, President of the Carnegie
Steel Co., was chosen President of the Corporation to succeed Schwab,
on the latter’s recommendation, and continued in this capacity until
the end of 1910, when he resigned to be succeeded by James A. Farrell,
the man who had built up the Corporation’s export trade and who was
then president of the United States Steel Products Co.
Before the new-born Corporation had passed the first anniversary of its
birth Robert Bacon resigned as chairman of the Finance Committee and
was succeeded by George Walbridge Perkins, another Morgan partner. Mr.
Perkins continued in this office for several years, but later retired,
and since then Judge Gary has filled the offices of chairman of the
Finance Committee and chairman of the Board. He is by the Corporation’s
by-laws named “chief executive officer in general charge of the affairs
of the Corporation.”
In the first nine months of its operations the United States Steel
Corporation reported net profits of $84,779,298. After the payment of
sinking fund and interest charges on the bonded debt $61,420,304 was
left for distribution to stockholders. Dividends of 5¼ per cent. (at
the annual rate of 7 per cent.) on the preferred stock, and 3 per cent.
(at the annual rate of 4 per cent.) on the junior issue, were paid,
the balance after these disbursements, $19,414,497, being carried to
surplus account.
In 1902 a gross business of $560,510,479 was done and the net profits
therefrom were $133,308,764. The year was a fairly profitable one and
although a special appropriation of $10,000,000 for new construction
was made and more than $14,000,000 was put aside for depreciation and
extraordinary replacement, the big company was able to show the full
dividends earned on its stock of both classes and a surplus balance of
$34,253,657.
The following year was one of general business depression and the steel
industry, the barometer of trade, was seriously affected. The result
to the Corporation is shown best by the simple fact that on December
30, 1903, unfilled orders on the books of the subsidiary companies
aggregated 3,215,123 tons, against 5,347,253 tons a year previous.
This falling off in orders was accompanied by declining prices, and
the directors of the Corporation were impelled to reduce the quarterly
dividend on the common stock for the third quarter from 1 per cent. to
one half of 1 per cent. and to eliminate the junior dividend altogether
in the final quarter. Gross sales for the year were $536,572,871 and
net profits $109,171,152, the surplus for the period being $12,403,917.
Several changes in the make-up of the subsidiary companies occurred
in this year. The most important was the incorporation of the United
States Steel Products Export Co. (the “Export” was later dropped from
the title), headed by Farrell, to conduct the Corporation’s foreign
business. The Carnegie and National Steel companies and the American
Steel Hoop Co. were merged into one concern, known first as the
National Steel Co., the name being later changed back to the Carnegie
Steel Co. Lastly, the American Tin Plate Co. and the American Sheet
Steel Co. were consolidated as the American Sheet & Tin Plate Co.
The depression that began in 1903 lasted well into the year following
and affected earnings of the Corporation to such an extent that, for
the first and only time in its history, the wages of the men employed
in the plants were reduced. (Incidentally wages were quickly restored.)
Gross sales for the year were only $444,405,431, and net profits,
$73,176,522. No special appropriation for new construction was made
and, despite the small profits, the Corporation managed to show a
surplus after the payment of the full preferred dividend of $5,047,852.
But the wave of prosperity was returning. The first signs made
themselves felt in the late months of 1904 and the Corporation’s
earnings showed marked improvement in 1905. Gross sales amounted in
value to $585,331,736 and net profits of $119,787,658.
A surplus of $43,365,815 was reported after the preferred dividend
payment, but $26,300,000 was deducted for new construction in
contemplation so that the net amount added to surplus was $17,165,815.
In this year production reached the highest mark so far recorded by the
big company, the output of pig iron being 10,172,148 tons, of ingot
steel nearly 12,000,000 tons, and of rolled products 9,226,386 tons.
In the annual report for 1905 is found the following statement by Judge
Gary: “It has been decided to construct and put into operation a new
plant to be located on the south shore of Lake Michigan, in Calumet
Township, Lake County, Indiana, and a large acreage of land has been
purchased for that purpose. It is proposed to construct a plant of the
most modern standard....”
About the time those words were being written work on the new plant
was being started and the foundations of a new city, now having a
population of 56,000, were being laid. It is appropriate that the name
chosen for this town should have been Gary, although Judge Gary had
nothing to do with the selection of the name.
All previous records for production and profits were shattered in 1906.
The betterment in steel conditions that started in 1905 continued
throughout the ensuing year, and, indeed, until the latter part of
1907, when the disastrous panic occurred. The Corporation’s report for
1906 showed that it had increased its capacity for pig iron production
more than 63 per cent. and its steel capacity nearly 57 per cent.
between the date of its organization and January 1, 1907, and this
increase enabled it to take advantage of the business betterment and
to profit thereby. In 1906 the Corporation’s blast furnaces poured out
11,267,377 tons of pig iron, while its steel plants produced more than
13,500,000 tons of ingots and 10,578,000 tons of finished material. The
gross sales of the year amounted to $696,756,926, and the net profits
to $156,624,273.
These large earnings justified the resumption of dividends on the
junior stock and 2 per cent. on the issue was paid. The balance after
dividends was $62,742,860, but special appropriations for proposed
expenditures on the Gary plant and for other purposes were made,
calling for $50,000,000, this making the net carried to surplus account
only $12,742,860.
Another important event of the year in the Corporation’s history was
the incorporation of the Universal Portland Cement Co., which was
formed to take over the cement plants operated by the Illinois Steel
Co., and to erect new plants for the manufacture of this profitable
by-product. The production of cement had grown from 486,357 barrels in
1902 to 2,076,000 barrels in 1906. The Universal Company immediately
started work on the erection of two new plants, one at Buffington,
Indiana, within a few miles of the Gary plant, and the other at
Universal, Pa., near Pittsburgh. The results of this enterprise have
entirely justified the expectations of the Corporation’s management,
and the manufacture of the by-product has increased until an output of
11,197,000 barrels was reached in 1913.
But the most notable event of 1906 was the negotiation of a lease by
the Corporation on the ore properties owned by the Great Northern and
Northern Pacific Railway companies. This was commonly known as the Hill
Lease.
That the Corporation would eventually make some arrangement to secure
control of the mining rights on the Hill ore properties had long been
believed in the steel trade. It was pointed out by trade authorities
that the big company did not have ore reserves commensurate with its
immense output, and the obvious conclusion was that it would not
fail to secure such reserves sooner or later. The vast properties in
the Mesaba Range owned by the railroad dominated by James J. Hill
constituted, it was claimed, the only commercially valuable supply of
importance which had not yet been appropriated by one steel company
or another, so the natural conclusion was that the Corporation must
eventually attach to itself these supplies of ore.
Negotiations leading up to the lease went on for several years before
the matter was finally brought to a head in December, 1906. The lease,
which was probably the most voluminous document of its kind ever
written, gave the Corporation the right to mine the Hill ores until
exhaustion, or, at the Corporation’s option, until January 1, 1915, the
exercise of this option being contingent upon a two-year notice to be
given before that date. The Corporation positively declined to enter
into the lease unless it contained provision for cancellation, and it
later exercised this right, the directors at the close of 1912 serving
notice of their intention to abandon the lease in two years.
Comprised in the Great Northern ore land were some of the richest
and best iron deposits in the country. Of a total area of more than
65,000 acres owned or leased by the Hill interests, 39,296 acres
with an estimated ore content of something like half a billion tons
were included in the lease to the Great Western Mining Co., a Steel
Corporation subsidiary and the nominal lessee.
The volume of ore to be mined and the royalties to be paid were
arranged on an ascending scale. In 1907 the Western company was to take
out 750,000 tons of ore and this tonnage was to be increased by as much
again every year the lease continued up to 1917, when the tonnage to
be mined was fixed at 8,250,000 tons, at which figure it was to remain
thenceforward until the contract expired by reason of ore exhaustion.
Royalties on the ore mined were based on a price of eighty-five cents
per ton of dried ore with a metallic content of 59 per cent. for the
first year of the lease, this base price being increased by 3.4 cents a
ton each year--i.e., to 88.4 cents in 1908, 91.8 cents in 1909, etc. To
this royalty was to be added transportation charges of 80 cents a ton
to the docks at Superior, Wis., the contract providing that all the ore
was to be shipped via the Great Northern Railway. For each variation of
1 per cent. above or below the 59 per cent. metallic content, it was
further stipulated, the base price was to be increased or diminished by
4.82 cents a ton.
Critics of the Corporation have charged that the Hill lease was entered
into with a view of giving the big company a practical monopoly of
the ore reserves of the country. Those responsible for the deal have
strongly asserted that their sole object was to ensure an adequate
ore reserve for the future. The question resolves itself into one of
motives and is therefore not susceptible of proof. But whatever were
the motives of the Steel Corporation’s management the fact remains
that, according to the opinions of the best-qualified experts outside
the Corporation itself, the big company, at the time the lease was
made, did not have a supply of ore such as its vast output demanded,
and probably does not now have such a necessary supply although it
has acquired large reserves in Cuba and elsewhere. Further, it is
doubtful if, outside of the Hill holdings, a large enough reserve of
commercially available ore is to be obtained in the United States.
The claim that the royalties paid under the Hill lease were too high
is supported by the undisputed fact that royalties paid on other
ore deposits in the same territory at the time of the signing of
the contract were much lower than those paid under the lease by the
Corporation. Unusual conditions governed this transaction, however. The
lessors were well aware of the Corporation’s need of ore and that they
were probably the only ones in a position to fill this need. They were
therefore able to drive a hard bargain. The price originally demanded
by Mr. Hill and his associates, it is understood, was one dollar a ton
and it took some years’ negotiations before a price which both parties
to the matter would accept could be arrived at.
What was the reason for the cancellation of the lease? It is generally
thought that the directors of the Corporation were impelled to their
decision by the report of Commissioner of Corporations Herbert Knox
Smith, who conducted a searching investigation into the Corporation’s
activities and severely criticized the lease, and by the fear that
it would be made much of by the Federal Government in its suit for
the dissolution of the “Steel Trust.” This suit, it is true, had
not actually been filed when the lease was abandoned; but it was so
imminent that the Corporation’s directors must have believed it was
about to be instigated. And these considerations did have weight in
bringing about the decision. But the more cogent reason was a purely
business one--the lease had not proved as profitable as had been hoped.
The iron content of the Hill ores had not measured up to expectations,
the cost of concentrating the ore proved too high, and on the whole the
deal had become rather a burden than otherwise to the lessee.
Up to the end of 1906 the United States Steel Corporation had spent
more than $200,000,000 in the acquisition of new properties, the
construction of new plants and the extension of old. Its productive
capacity had been increased enormously. Its plants were now in
excellent shape, its organization in perfect working order. Prices were
high and it had, at the close of the year, nearly 8,500,000 tons of
business on its books. Its early difficulties were past and it seemed
about to enter into the heyday of its prosperity.
CHAPTER IV
THE TENNESSEE PURCHASE
On the events of the year 1907 the United States Steel Corporation
must, to a certain extent, stand or fall at the bar of public judgment.
This was the year of the panic and of the Tennessee Coal, Iron &
Railroad purchase.
The panic, enemies of the Corporation have asserted, was precipitated
by the big “trust” by the immoral use of its immense financial
resources to enable it to “gobble up” the properties of the Tennessee
company, a competitor said to have been making big inroads into the
business of the larger concern and which it had therefore become
necessary either to destroy or absorb.
The friends of the Corporation, on the other hand, are emphatic in
asseverating that the competition offered by the Tennessee company
was not such as to cause anxiety to the management of the Steel
Corporation, that it was not a very valuable property, and that the
Corporation purchased its stock only upon solicitation by the interests
controlling the company and their assurance that a refusal to do so
would result in the failure of an important security house, which
would add greatly to the severity and danger of the panic. They claim
further that the price paid was more than the actual value of the stock
and that, far from using any advantage it may have had to squeeze the
smaller concern, the “Steel Trust,” against the better judgment of
its management and with the single purpose of alleviating the panic
dangers, paid for the securities it took over something like 60 per
cent. more than good business practice seemed to warrant.
If the claims of the first are correct and the Corporation did use
its power to force a competitor to the wall, regardless of the fact
that in so doing it was bringing misery and calamity to the ninety
millions of people of the United States, this act alone must be more
than sufficient to convict it on a more serious charge than “monopoly
in restraint of trade”--of high treason and betrayal of the trust which
big business, willy nilly, undertakes. But if the Corporation, through
its directors, put the national welfare before all other considerations
this, conversely, should prejudice public opinion, properly informed,
in its favor. And this is why the year was by far the most important
epoch in the Corporation’s history and its events are worthy of careful
consideration.
After a careful search made by the writer through all the evidence
submitted by the Government to this end in its suit against the big
company, he failed to find one iota of evidence which connected the
Corporation with the panic or upheld the charge that it conspired to
force the Tennessee stockholders to sell. A man who had been a member
of the syndicate that controlled the fortunes of the Tennessee company
before it was absorbed and who, if the allegations referred to are
correct, was one of those who suffered at the Corporation’s hands, in
reply to the question: “Did the Steel Corporation use its power to
create the panic of 1907 so as to gain possession of the Tennessee
stock?” replied: “Absurd. The charge is baseless--except in politics.
The sale of the Tennessee company was an incident arising in the course
of the panic, not a cause. The Corporation was offered a chance to get
what I consider a valuable property and seized it. But let me tell
you,” he added, “the Corporation did not get the property cheap.”
And the Supreme Court, in its opinion, said on this subject:
“There is, however, an important circumstance in connection with that
of the Tennessee Company which is worthy to be noted. It was submitted
to President Roosevelt and he gave it his approval. His approval, of
course, did not make it legal, but it gives assurance of its legality,
and we know from his earnestness in the public welfare he would have
approved of nothing that had even a tendency to its detriment. And he
testified he was not deceived and that he believed that ‘the Tennessee
Coal and Iron people had a property which was almost worthless in their
hands, nearly worthless to them, nearly worthless to the communities
in which it was situated, and entirely worthless to any financial
institution that had the securities the minute that any panic came, and
that the only way to give value to it was to put it in the hands of
people whose possession of it would be a guarantee that there was value
to it.’ Such being the emergency it seems like an extreme accusation to
say that the Corporation which relieved it, and, perhaps, rescued the
company and the communities dependent upon it from disaster, was urged
by unworthy motives.”
[Illustration: Mine Stables]
The Tennessee Coal, Iron & Railroad Co. was a reorganization of an
earlier concern of the same name located in Alabama. The reorganization
brought into control of the company new and powerful interests, and
these spent a good deal of money in improving the plants, so that,
about the beginning of 1907, it was pointed to as a probable important
competitor of the Corporation. It was also considered as the nucleus
for a possible merger of the steel-making concerns of the South such as
would be able to cut severely into the Corporation’s business. Not long
before the panic broke the company secured an order from the railroads
controlled by the late E. H. Harriman for 150,000 tons of steel rails
and it was supposed by some that the loss of this order had caused
considerable worriment to the heads of the Steel Corporation--which
doubtless it did. Then came the panic, and when its dust cleared
away the Tennessee company was a subsidiary of the “Steel Trust.” The
sequence has served to lend plausibility to the charges made against
the Corporation in connection with the purchase. But a full recital of
the events bearing on the deal tends to throw a different light on the
matter, and an attempt to set down the more important of these details
will be made here.
[Illustration: Modern Coal Mining by Machinery]
Emphasis has been laid on the Harriman order, particularly because the
Tennessee company had contracted to supply the lines controlled by the
great railroad magnate with the new open-hearth steel rail, then coming
into popular favor with the railroad experts and which to-day are
used almost exclusively by the larger transportation systems. It has
been alleged that the Corporation was very desirous of adding to its
properties the plants making this new kind of steel rail and getting
immediate control of their manufacture. The facts are that the southern
company did not make a pure open-hearth rail, its steel being made
by a combination of the Bessemer and open-hearth processes, and the
Corporation at the time was engaged in building its new plant at Gary,
a plant which was to include a large rail mill to make open-hearth
rails exclusively. When the Corporation took charge of the Tennessee
properties it was found that the company’s rail mill was being operated
at a loss of nearly $4 a ton. Further, a very large percentage of the
rails which had been supplied the Harriman roads before the transfer of
the properties proved defective and the new management had to bear the
loss of replacing these.
It is unnecessary and futile, in this brief chapter, to go fully
into the story of the panic of 1907, or of the events that preceded
it. Suffice it to say that the panic followed a period of enormous
expansion and of extension of credit eventually carried to a point
where business overreached itself and, in a country lacking an elastic
currency system, such as the United States then was, financial
stringency was bound to follow. The first rumblings of the coming
storm went unheeded, and it was not until late in the year that there
was any realization of the desperate state of affairs. Then one big
trust company closed its doors and was followed by others. Banks
stopped specie payments, stocks tumbled headlong on the exchanges of
the country, industry halted, throwing thousands out of employment, and
the financial hurricane swept over the country, leaving ruin in its
wake and making its effects felt over the whole world.
While the panic came like a thunderclap to the average citizen, without
warning, the big bankers had seen the danger threatening and had made
an effort to prevent any occurrence which might precipitate matters.
In the latter part of October rumors gained circulation that the
Knickerbocker Trust Co., one of the leading financial institutions of
New York City, was in trouble and the late J. Pierpont Morgan, who had
assumed the leadership of the country’s bankers in the crisis, and
others had an examination made of the company’s affairs with a view to
rendering it assistance. Apparently the result of this investigation
was unsatisfactory. Anyway, the Knickerbocker Trust Co. was abandoned
to its fate and, at fifteen minutes to one, on October 22nd, closed
its doors after a sensational run, many stock exchange firms being
overwhelmed in the crash.
Thus did the panic storm break. Rumors of trouble in connection with
other institutions then came thick and fast, and one concern, the
Trust Co. of America, was especially talked of. This institution
had a capital of $2,000,000 and resources of $74,000,000, including
$12,000,000 cash in its vaults at the time. Under normal conditions
it was perfectly solvent and able to meet its depositors’ claims, but
that it was not in a position to withstand a prolonged run was proved
by subsequent events. Realizing that the failure of the Trust Co.
of America would make the crisis far more acute Mr. Morgan and his
associates resolved to come to its assistance, provided it could prove
that its statements of condition were correct.
Meanwhile, George Cortelyou, Secretary of the United States Treasury,
had hurried on to New York from Washington and on the night of the
22nd he held a conference at the Hotel Manhattan with Morgan, George
W. Perkins, one of his partners, James Stillman, and Henry P. Davison
of the National City Bank, and others. After the conference, which
lasted over the greater part of the evening, Perkins and Davison
adjourned to the Union League Club, where they were met by Oakleigh
Thorne, president of the Trust Co. of America, who had been summoned by
telephone.
These were strenuous days for bankers. No coming downtown late and
leaving early. The confab at the club started at nearly midnight and
lasted until long after. Thorne made a statement of the financial
condition of his company and the others promised that, if the facts
were as represented, he would be assisted. No time was to be lost.
Perkins immediately arranged for the examination and Thorne was at
his desk at half-past six on the morning of the 23rd. By seven the
examiners were at work.
But the newspapers were on the watch, and the fact that the Trust Co.
of America was in need of assistance was known and discussed over the
breakfast tables of New York, and, in fact, of the country. By the
time the company opened its doors that day there was a clamorous mob
outside, each individual seeking to save himself before the crash came,
and the crowd surged through the doors and up to the paying teller’s
window, demanding its money.
In vain did the officers of the company put seven tellers to work
instead of the usual one, in vain were all deposits paid promptly and
unhesitatingly. Denser and denser grew the crowd of depositors, and it
became obvious that the millions that had been passed over the counters
in the morning hours would not suffice to stem the tide. Thorne
hurried over to the Morgan offices and there succeeded in obtaining
$2,500,000 immediately. This loan was subsequently augmented by another
of $10,000,000 made a few days later, and a third of $15,000,000 made
early in November.
On this one day, October 23rd, $13,500,000 was paid out over the trust
company’s counters! But this was not enough to stem the run which
continued for more than a week and did not abate until, so far as can
be estimated, something between $30,000,000 and $35,000,000 was paid to
depositors.
But the Trust Co. of America was saved. It has been claimed that the
price of its salvation was the surrender by its president of some 5,500
shares of Tennessee Coal, Iron & Railroad stock which he owned. It
seems plain, however, that the suggestion that the Steel Corporation
should take over the control of the Tennessee company came first from
the people who had the majority stock of the company and after the
beginning of November, before which time the bankers, headed by Morgan,
had loaned the trust company $12,500,000 without any mention of or
question regarding the stock. It also appears that the transfer of
Thorne’s stock to the Corporation had no connection whatsoever with the
trust company’s difficulties and its extrication therefrom, but was
part of a separate and distinct transaction.
Particular attention has been given here to the affairs of the Trust
Co. of America, because of the allegations connecting the help
rendered the company with the Tennessee purchase. But it really
constituted only a small part of the situation with which Morgan and
his fellow-bankers were faced. There were many others that needed help,
banking institutions, investment houses, brokers, and so on. The whole
financial community had turned to Morgan as its Joshua to lead it out
of the desert. Upon his shoulders fell the burden of saving the country
from financial ruin.
The Morgan library became as the headquarters of an army. Here were
congregated at all hours of the day and night bankers, brokers,
business men of all kinds, both those who needed help and those who
could assist the banker in the work he had thrust upon him and the
arduous duties which he had assumed. Men rushed in and out of that
library, pleaded for help, begged for information and, awaiting their
turn, slept in its luxurious chairs.
The task that Morgan and his associates had undertaken was one of
exceedingly great difficulty. Despite all that had been done to dam the
torrent of financial disruption and the fact that each weak spot was
strengthened as soon as discovered, the banker knew that his herculean
efforts might be brought to nothing by one big failure which would let
loose the panic fears it was sought to allay. Hence it may be imagined
with what consternation the financier received the news, brought to
him by Lewis Cass Ledyard, a prominent lawyer and a close friend of
his, that Moore & Schley, one of the leading brokerage firms in the
“Street,” was in serious difficulties and needed several millions of
dollars to save it from disaster.
Moore & Schley was deeply mixed up with the affairs of the Tennessee
Coal, Iron & Railroad Co. One of the members of the firm was a member
of the syndicate that controlled the company, and Tennessee stock
constituted a considerable proportion of the collateral which it had
put up to secure loans for itself and its customers. This stock,
considered good collateral in normal times, failed to find favor with
the bankers to whom Moore & Schley was heavily committed in the time of
stress, and the brokers were called on to replace the securities with
others of a more approved character--which they were unable to do--or
to suffer the calling of their loans and consequent bankruptcy.
Only two courses were open to the brokers, either to borrow a sum large
enough to meet their loans or to negotiate an exchange of the Tennessee
stock for some other security which the banks would accept. They chose
the latter and, realizing that the United States Steel Corporation
was the only possible buyer of the Tennessee stock, approached Morgan
through Ledyard to that end.
Suggestions that the Steel Corporation should purchase control of the
Tennessee properties had been made in the past to the Corporation
interests by one or more of the directors of the southern company. It
does not appear, however, that these suggestions were authorized by the
Tennessee syndicate as a whole. Be that as it may, they came to naught,
as the directors in question seemed to have a very high idea of the
value of the Tennessee stock, and the divergence of opinion on this
question between them and the possible purchasers was so great that
no middle ground was possible. Never did the tentative offers to sell
reach a point where they were worthy of the term “negotiations.”
One of the reasons alleged for the Steel Corporation’s supposed fear
of the Tennessee company’s competition was that the company was the
potential basis for a merger of the steel concerns in the South which
would not only be strong enough to offer a stubborn fight to the
“trust” for business in the section below the Mason and Dixon line, but
would have a distinct advantage over it in exporting steel to Mexico
and Central and South America.
John A. Topping, head of the Tennessee Coal, Iron & Railroad Co. and
of the Republic Iron & Steel Co.--dominated by the same interests--had
actually taken steps for the establishment of a market on the Gulf
coast. In the Rivers and Harbors Act of 1899 the construction of locks
and dams and other improvements on the Warrior River so as to give
slack water communication between Birmingham, Ala., near which city the
mills of the Tennessee company were situated, and Mobile, was decided
on. But the matter rested there until Topping, by his efforts, secured
an appropriation to carry out the improvements, since completed. Not
only would the water route have been important to the Tennessee
company in regard to the markets mentioned, but it would have enabled
the company to enter the markets on the northern Atlantic coast of the
United States, from which it had been debarred by the high rail freight
rates.
Reports that a steel merger in the South was contemplated or actually
under way had been circulated from time to time. The three companies
mentioned as constituting the consolidation were the Tennessee Coal,
Iron & Railroad Co., the Republic Iron & Steel Co., and the Sloss
Sheffield Steel & Iron Co. Other less important concerns were also
suggested. The Sloss Sheffield company was engaged entirely in the
manufacture of iron and was a rather small concern as compared with
the steel giants of the day. But it was conservatively capitalized and
managed and had at the time an unbroken dividend record in respect to
its preferred stock. At its head was Colonel J. C. Maben, a veteran
iron maker and one of the best known and most respected figures in
the industry. Colonel Maben was approached by one of the Tennessee
directors with a merger proposition, but refused to consider it
because, as he has since said, he did not think the financial condition
of the Tennessee company sound. If there had ever been any possibility
of the merger going through Colonel Maben’s attitude would have
effectually stopped it.
From this it would appear that the proposal to merge all the larger
steel and iron companies of the South never developed beyond the
nebulous stage. However, a consolidation of the two largest of these
concerns, the Tennessee and the Republic companies, had been definitely
decided on. The two concerns were controlled by the same financial
interests and their managements were practically identical. While it
is not unlikely that some of the directors of the companies, among
whom were John Warne, or “Bet You a Million” Gates, looked upon their
investment therein first and foremost as a speculation and would, in
consequence, have regarded favorably the opportunity to sell out
at a fair figure, there were others who had implicit belief in the
possibilities for the expansion of the steel industry in that section
and considered that they had in their hands the opportunity to build
up a southern steel empire. The amalgamation of the two companies,
naturally, would have been the first step to this end, and, as has been
stated, it had been decided on and its consummation was being delayed
only until what seemed to be a favorable time should arrive. But their
dream of empire was doomed to disappointment.
Another reason advanced for the Steel Corporation’s supposed anxiety to
get its clutches on the Tennessee Coal, Iron & Railroad Co. was that
the latter concern owned ore mines estimated to contain some three
quarters of a billion tons of iron ore, besides coal resources placed
at two billion tons, as well as limestone and other raw materials
necessary in the manufacture of steel. The company also enjoyed the
undoubted advantage of having both its coal and iron in the ground
within a twenty-five-mile radius of its ovens and furnaces--it was
“sitting on its raw material”--whereas the steel mills in the North
were great distances from their raw supplies--Pittsburgh, for instance,
depending for its ore on the vast iron ranges of northern Minnesota.
The proximity of its mines is, of course, a material advantage to
the Southern company, as transportation charges on raw material play
a very important part in the cost of steel making. It is perhaps
not so generally known that this advantage is to a large extent
counterbalanced in other ways. Were it not for the saving thus gained
it is questionable whether it would be possible to manufacture steel
commercially in the South.
In the Hill lease the price which the Steel Corporation was to pay on
the ore taken out of the Great Northern holdings in the Mesaba region
was based on an iron content of 59 per cent. Northern ore averages well
over 50 per cent. metallic content and that yielding much under 50
per cent. is not considered commercially available, although some of
the lower grade ore is treated by a concentrating process and made so.
Moreover, much of the ore of the Great Lakes region lies in immense
bodies within a few feet of the earth’s surface and is mined by the
simple process of removing the top layer of soil--technically known as
stripping--and then putting a steam shovel to work.
But the ore beds from which the Tennessee company draws its raw
supplies average well under 40 per cent. in iron, actually from 36 per
cent. to 37 per cent.; nor does the ore lie near the surface, and the
process of making it into iron and steel is necessarily more tedious
and more costly than is the case with the richer and more easily
reached northern iron.
In the first place, more labor is required, particularly in winning the
raw materials, as the coal fields are badly disturbed geologically,
making the expense of mining very much higher. And the ore is nearly
all hard ore, requiring to be drilled, blasted, and crushed. Further,
the low iron content requires the use of about one and three quarter
times as much ore per ton of pig iron, and the poor quality of the
Alabama ore necessitates the use of about half as much again of coke to
make a ton of iron as compared with that coming from the Lake Superior
district.
The high phosphorous content of southern pig iron prevents the use
of the cheaper Bessemer process which is used on the low phosphorous
pig iron of the northern district and the fact that no Bessemer steel
industry exists in the South to furnish the scrap required in the
straight open-hearth process prevents the economical use of this
process in the South, a disadvantage which does not exist in the North,
where scrap is available. Hence it is advisable in the Birmingham
district to use a combination of the two processes, the iron being
first bessemerized, then worked through the open-hearth furnace. And
this adds greatly to the cost of converting a ton of pig iron into
steel.
Another difficult problem with which the Tennessee company had to
contend was that of labor. The large majority of the common labor
supply in the South is made up of negro labor and, while the colored
man often makes a satisfactory worker if properly “bossed,” he is
unreliable and too often has as his motto “never do to-day what you can
put off until to-morrow.” Given assurance of enough to eat for a day or
two and a dollar in his pocket, he is likely to refuse to work until
again urged by the spur of necessity--childlike, his vision of the
future is limited. And this disposition to take life from day to day
is, to put it mildly, trying to the manufacturer who needs a full force
to get out tonnage.
And even when the negro is reliable he is seldom fitted to take
positions of responsibility, so that workmen must be brought from
the North to undertake the skilled work or that requiring managerial
ability. And as the opportunities for such men are greater in the
North, the keeping of an efficient organization together means
a constant struggle on the part of the manufacturer, becomes an
ever-present and pressing problem.
The expansion of the steel industry in the South is further limited
by the fact that it is an agricultural, not an industrial, section.
A steel mill does not, in the main, make products to be sold direct
to the ultimate consumer. Its output must be manufactured by other
companies into machinery, locomotives, and a thousand and one other
things. Its customers are other industries, and there are comparatively
few industries in the South. Thus it would seem that the formation of a
great southern steel merger or the expansion of the Tennessee company
to a size sufficiently large to cause apprehension to the “Steel Trust”
was a very remote contingency.
It might not be out of place here to point to the significance of the
fact that the Republic Iron & Steel Co., which owns important tracts
of ore and coal lands in the South just as conveniently situated to
its furnaces as are the Tennessee’s holdings, has not made marked
use of the supposed advantages which it obtained from its southern
properties. The company’s expansion since 1907, under John A. Topping’s
able management, has been great, but it has been almost entirely in the
North.
These things, the conditions that surrounded and influenced steel
making in Alabama, were well known in the steel trade. Therefore it was
hardly to be wondered at that when Ledyard, through Morgan, suggested
to the directors of the Steel Corporation that the controlling interest
in the Tennessee company should be purchased by its bigger and richer
rival, the proposal was not enthusiastically received. The deal, for
any other reason than the saving of the financial situation, was
opposed by both Gary and Frick. The latter, in particular, seemed to
think that almost any other course was to be preferred to an absorption
of the Tennessee company, and it was he who suggested that a loan of
$5,000,000 be proffered Moore & Schley to save them from bankruptcy.
But the members of the firm rejected this offer.
It was not a time for delays, for dickering. The financial situation
was a seething volcano which might erupt at any minute. From Friday,
November 1st, when Ledyard first presented the matter to the banker,
meetings of the Steel Corporation’s finance committee and conferences
between Gary and Frick and representatives of Moore & Schley were held
almost continuously until Sunday, November 3rd, on which date the Steel
Corporation management finally yielded to the insistence of the brokers
and agreed to purchase the controlling stock of the Tennessee Coal,
Iron & Railroad Co. at par, or $100 a share, about twice the value that
had been set on the stock by Gary in his earlier talks with Ledyard.
Followed the now famous visit to Washington. The deal, though
practically completed on Sunday, was not formally closed. Gary insisted
that the President of the United States should be consulted and that
his attitude should be ascertained, and Frick demanded and received an
assurance from Morgan that every assistance possible would be rendered
other companies which were in difficulties before the purchase should
be consummated.
At midnight Sunday a special train left Jersey City bearing the two
Steel Corporation directors and they were delivered at the national
capital shortly after daybreak Monday. Theodore Roosevelt, then
President, was breakfasting when the two arrived at the White House,
but he gave them immediate audience and to him the steel men explained
the situation and asked whether the Government would be antagonistic
to the absorption of the southern company. Gary, who was spokesman,
told the President that he and his associates realized that the deal
might be used as a handle to attack the Corporation for attempted
monopoly--prophetic words--that they were only considering the purchase
because of the strained financial situation which it would tend to
alleviate, and finally that the taking over of the Tennessee properties
would still leave the big company with less than a 60 per cent.
control of the country’s steel trade. This percentage, Gary explained,
was the limit which the Corporation had set for itself and was one,
incidentally, from which it was gradually receding, its percentage
of the steel production of the United States having shown an almost
uninterrupted decrease from year to year.
With President Roosevelt at the interview were his private Secretary,
William Loeb, afterward Collector of Customs of New York, and Elihu
Root, Secretary of State. The President consulted with the head of
the State Department and decided that it was not in his province
to give formal approval to such a transaction. He nevertheless
gave satisfactory assurance to Gary and Frick that the Federal
Government would put no obstacle in the way of the completion of the
transaction. These views Mr. Roosevelt later repeated in a letter to
Attorney-General Bonaparte.
No sooner was Gary satisfied as to the President’s attitude than he
informed Morgan by long distance--a ’phone having been kept open in
readiness--of the course of the interview, and the banker announced
to the financial interests of New York that the Steel Corporation had
arranged to purchase control of the Tennessee Coal, Iron & Railroad Co.
That memorable morning, Monday, November 4th, had dawned dark and
gloomy for the financial world for which Wall Street is the nerve
centre, but no sooner had Morgan’s announcement become known than,
as Mr. Morgan often stated, a marked change toward a more optimistic
sentiment, a genuine improvement in the situation, became apparent.
Immediately on the return of the two steel directors to New York the
purchase was completed, Moore & Schley turning over to the Corporation
157,700 shares of common stock of the Tennessee Coal, Iron & Railroad
Co. and receiving therefor $18,774,000 in second mortgage bonds of the
Corporation, it having been agreed that the stock was to be paid for at
par, in bonds at a market value of 84. Other common stockholders of the
Tennessee company were offered the same terms, and the Corporation has
since acquired all but $68,092.50 of the outstanding common stock of
the southern company; $72,500 preferred stock and $123,100 guaranteed
preferred is still held outside the Corporation.
George G. Crawford, manager of the plants of the National Tube Co.
at McKeesport, was appointed president of the Tennessee Coal, Iron
& Railroad Co. under the new management. Crawford accepted somewhat
hesitatingly at first, knowing that a great deal of money was required
before it would be possible to put the company on a satisfactory
earning basis. Indeed, he had previously refused to consider an offer
of the position of manager under the former control. Under his guidance
the company did rather better than expected and by about the end of its
second year as a “Steel Trust” subsidiary was showing a small profit.
All earnings, however, were put back into extensions and betterments,
as was also a large amount of cash supplied by the controlling
Corporation, and it was not until the year 1914 that the first dividend
on the common stock, 1 per cent., was declared.
By that time the expenditures made by the Corporation in extending
the Tennessee properties and enhancing their earning power had begun
to show visible results, and when the enormous war demand for steel
started to make itself felt early in 1915, the southern company was
in a position to take full advantage of it and to reap large profits
therefrom.
The Corporation does not make public the operating results of its
separate subsidiaries, hence it is impossible to more than guess at the
probable earning power of the Tennessee company. But there is reason
to believe that its future operations will justify the expenditures of
the Corporation, both for purchasing and improving its plants--that the
investment will prove a paying one.
CHAPTER V
MEN WHO MADE UNITED STATES STEEL
ELBERT H. GARY
A year or so before these words were written the big office buildings
and apartment houses of New York City were tied up by a strike of
elevator operators. The Empire Building, at 71 Broadway, purchased
shortly before the strike by the Steel Corporation, however, was not
affected. Every man was at his post. And it was perhaps the only big
building in the city that showed no sign of the strike.
A newspaper man, visiting the building, asked one of the starters the
reason, and he was told:
“As soon as the Corporation bought this building our wages were raised.
We are getting as much as or more than the unions are demanding. Judge
Gary has treated us white. And you can just bet your life we are going
to stick by him, strike or no strike!”
This is only a little incident. But it serves to illustrate the most
important characteristic of the head of United States Steel: His sense
of justice, the supreme passion of his life. Judge Gary treats everyone
“white.”
Judge Gary is not a “glad hand artist.” He is, if anything, too
reserved, and hence he does not win popularity quickly with chance
acquaintances. But those who know him intimately or have business
dealings with him admire, sometimes even reverence him, for they know
he not only preaches but practises in every relation of his life the
square deal, and when there is any question of what is fair between
himself and another, leans over backward and gives the other the
advantage.
In the pages of this history the Steel Corporation’s policy of “the
square deal” to all has been emphasized time and again. It is the
Corporation’s policy because it was first Gary’s. He impressed it
on the Corporation, sometimes after a hard fight. To-day it is the
foremost policy of the big company as it is the guiding spirit of
Gary’s life.
Elbert H. Gary, chief executive officer of the United States Steel
Corporation, was born on his father’s farm near Wheaton, Illinois.
He was descended from old New England stock on one side, his father,
Erastus Gary, having sprung from the hardy Puritans who settled in
Massachusetts, while his mother, Abiah Vallette Gary, was a descendant
of one of the daring spirits who sailed from France as an officer
in the Army of LaFayette and fought with him for the freedom of the
American colonies.
The future head of the greatest industrial organization in the world
was brought up frugally. He was full of spirits and fond of play, but
his Puritan father was a believer in the discipline of hard work, and
the youthful Elbert had little time except for his lessons and for work
on the farm. “My father didn’t believe much in play,” he once remarked
to the writer; “we boys had our choice of working or studying, and
the time was divided about equally between the two during each year.”
But although Erastus Gary may have been stern and uncompromising he
was obviously also a fond and kindly parent. Asked what had been the
dominating influence of his life, Judge Gary replied: “My parents.
Whatever worth while I may have done I owe to their teaching and
example.”
[Illustration: Bee-hive Coke Ovens]
When Gary was fourteen the Civil War broke out. The story is told that
the news came to the farm one evening that the Union had been attacked
and Erastus Gary and his boys sat around the fire discussing
the situation and what their course of action should be. But their
mother had no such doubts. Walking to the fireplace the old lady took
therefrom a rifle and handed it without a word to her eldest son.
[Illustration: Mouth of Coal Mine--Coke Ovens in Background]
The Judge himself remembers nothing of the incident and it may be a
fabrication pure and simple. However this may be, the fact is that soon
after the young Elbert ran away from home and joined the Union ranks.
He never had the desired opportunity to fight for the Union as his
father discovered his whereabouts--this was probably not difficult as
he knew the boy’s spirit--and got him sent back home.
Among the friends of the elder Gary, and frequent visitors at the
Wheaton farm, were Col. Henry F. Vallette, an uncle, and Judge Hiram
H. Cody, members of the Illinois bar and of the firm of Vallette and
Cody, of Naperville, a neighboring town. They had both noticed Elbert
Gary’s ability and studious habits, and when the boy was about eighteen
years of age Vallette one day asked him: “Elbert, how would you like to
become a lawyer?”
Needless to say Gary did not wait to be asked twice. He entered the
firm’s office in 1865 and while working there began to read law. Later
he took a regular course in a law school at Chicago and was soon
admitted to the bar of his state, where his success was rapid and
pronounced. In course of time he became Judge of Du Page County and was
admitted to the bar of the Supreme Court of the United States.
Meanwhile, he had formed, with his brother Noah and one of his former
chiefs, the firm of Gary, Cody & Gary.
Gary became one of the leaders of the Chicago bar, and his ability in
handling difficult cases soon attracted to him a number of wealthy
clients, among whom were several large corporations, and it was through
his connections with one of these corporations that he eventually
connected himself exclusively with the steel industry, in which he has
since risen to be the most important figure.
In 1898 Gary, as general counsel for and a director of the Illinois
Steel Co., was called on to take charge of the organization of the
Federal Steel Co., a merger of the Illinois and other companies. It was
he who first suggested this amalgamation. Here he was for the first
time brought in touch with the late J. Pierpont Morgan, whose financial
assistance in the formation of the new company was being sought. The
business ability of the lawyer so impressed the New York banker that
he and others interested with him insisted that Gary should head
Federal Steel. The future head of United States Steel hesitated, for
his practice was lucrative and he had become financially independent,
but he finally yielded and gave up his legal business, then located at
Chicago, and moved to New York, devoting himself thenceforward entirely
to steel.
Speaking of the reasons for Morgan’s choice in this matter an old
business associate of the Judge’s said: “Legal judgment and business
acumen are seldom found in combination. Gary had both these qualities
and a higher degree than any man I have ever known. And it was this
happy combination that impressed the great banker.”
But more than this, Gary was, and is, a statesman in business. He
has the broad vision that distinguishes the statesman from the mere
politician and the really great business leader from the average run of
executives. He saw beyond immediate effects into the distant future and
based his course on this vision.
In writing of the vast majority of men who have achieved success in
one line or another it is easy to select some prominent characteristic
which particularly distinguishes them. But there are a few who owe
their eminence to a variety of well-blended attributes, and Gary is one
of these chosen few. This renders it difficult for the chronicler to
decide where the heaviest stress should be laid.
A prominent Chicago lawyer who in his youth had worked for years under
Gary was appealed to in this regard. And this is what he said:
“Judge Gary had the ability and courage to, whenever necessary, abandon
the old precedents which, by reason of changed times and conditions,
had been relegated to the scrap heap of progress. He was one of the few
attorneys who could, with almost prophetic vision, see the positions
which the courts of appeal must eventually be obliged to take with
reference to questions of public policy and the great industrial
organizations just then in their infancy.”
The lawyer then went on to tell an anecdote illustrating the fact that
the Judge though a member of the legal profession did not believe in
recourse to litigation when it could be avoided. He said:
“I recall that on one occasion a client called on the Judge in an irate
mood and asserted his intention of prosecuting a neighbor for slander.
He told Gary what the neighbor had said and asked his opinion and
advice. And this was the reply he received: ‘If you are guilty of what
he charges perhaps you had better sue; but if you are not--why, go home
and forget it.’”
Nor did Gary’s prophetic vision “extend only as regards the position
which the courts must take” but to the trend of human events generally.
There is nothing uncanny about this foresight or sixth sense. It is due
entirely to the fact that its possessor has a mind peculiarly capable
of estimating and sizing up the relative values of known causes and
deducting from them the natural, in fact, the inevitable results.
No better exemplification of this can be given than is afforded
by the policies which he advocated for the Corporation, and which
were gradually adopted and put into practice. He saw plainly, long
before any one else did, how subject to criticism was the gigantic
organization which he had helped to form, and of which he was the
head; he realized that its very size contained an element of weakness
in that it attracted enmity, and made it the subject of attack.
And in the face of powerful opposition, not only from some of his
fellow directors at first--an opposition that gradually diminished
and eventually vanished, or was converted into admiration and hearty
coöperation--but from subordinate executives of the subsidiary
companies who could not accustom themselves immediately to new business
methods, he insisted that the big company should so deal with all with
whom it came in contact, its competitors, its customers, its workmen,
as to make all of these its friends.
Such a consummation was regarded in the beginning as an impracticable
dream by nearly everyone of his colleagues, who could not realize that
a new industrial era was dawning, but Gary persisted and won out.
The good will he gained for the Corporation from those who otherwise
would have been its enemies proved a strong bulwark of defence in the
Government’s suit for the dissolution of the “Steel Trust.” Had Gary’s
early recommendations on questions of policy been overruled by his
associates it is a moral certainty that the Corporation would have been
dissolved instead of emerging victorious from the suit. It is difficult
to see how any one who had the opportunity to listen to or read the
evidence presented in this litigation could fail to have been impressed
with the fact that Gary seemed to have anticipated every possible
point of attack and to have taken steps to eliminate, or at least to
minimize, the danger therefrom. Whatever may have been the differences
of opinion in the beginning, for many years the policies advocated by
Judge Gary have been endorsed by all of his fellow-directors on the
Steel Corporation’s Board; particularly by the members of the Finance
Committee, who were more closely associated with him, had a better
opportunity of absorbing his viewpoint, and who stood behind him
solidly in carrying out his ideas. Gary himself was emphatic on this
point in his testimony in the Government suit.
The part played by Gary in bringing about the formation of the U. S.
Steel Corporation and in guiding its policies was clearly brought out
by the late Robert Bacon, one of the partners in the firm of J. P.
Morgan & Co., in his testimony in the suit in question. Mr. Bacon,
speaking of the organization of the big company, said: “Judge Gary, of
course, directed it all.” And later, in discussing the policies of the
Corporation:
“The facts are that the policy of the company from the beginning has
been to change the old methods of dealing with competitors. Judge Gary,
who has done more for the U. S. Steel Corporation in its development
and the benefits it has brought all hands than any one man since its
formation, has made it a cardinal point of his policy, and has tried
his best to inculcate it upon all the sub-companies, that there was
a new order of things come, that there were new rules of the game
dealing with competitors, as well as in other human relations. Judge
Gary has talked from the very first and has tried to compel the
actions of all the others in the Corporation toward dealing fairly and
decently with competitors, as being the only way in which any kind
of stability of prices or of conditions could be maintained. He has
from the beginning preached and practised the fairest kind of dealing
with his competitors, keeping them informed, as far as he legitimately
could, of all the conditions of the Steel Corporation, and by doing
so has gradually acquired a degree of confidence that, in my opinion,
has never existed before amongst competitors. The old conditions have
changed; the old destructive and ruinous and ruthless warfare of the
early days of the iron and steel industry has disappeared, and in its
place, by reason of the attitude of Judge Gary, more than any one else,
a condition has been produced among competitors in the iron and steel
business, and I believe in many other industries, that never before
existed.”
Judge Gary’s intense desire for doing justice to all, and his sincere
interest in the well-being of the worker, have already been referred
to. He is not a reformer in the ordinarily accepted sense of the term.
He does not prate about helping the working man, but in guiding the
big Corporation he has always seen to it that the man who labors shall
be given an opportunity for clean living and self-respect. And it is
significant that in arranging wage increases the Corporation has always
provided more generously for the lower-paid employee. As a mass, the
men who work for the Corporation recognize Judge Gary’s attitude and
appreciate it fully. And he sets a higher valuation on this recognition
and appreciation than on all the honors that have come to him.
Some years ago Gary, in urging on the subsidiary companies the
promotion of safety and welfare work for the Corporation’s employees,
said to the casualty managers of the different subsidiary companies:
“We (the Finance Committee) shall not hesitate to make the necessary
appropriations of money to carry into effect every suggestion that
seems to be practicable for the improvement of conditions at our
mills.” Later he wrote, repeating his former promise that all needed
money would be forthcoming and saying: “The safety and welfare of the
workmen is of the greatest concern.”
This promise has been kept sacredly. The writer has visited at one
time or another practically all the Corporation’s plants--some of
them several times. At each one he has always asked those who devote
themselves to welfare work this question: “Have you any difficulty
in getting appropriations from the Corporation for welfare work you
consider advisable?” And the reply has invariably been the same: “We
are never refused.”
In the vast organization that is the United States Steel Corporation
there are perhaps hundreds of thousands of men who have never set eyes
upon its head, who have no idea what he is like to look upon. But there
is probably hardly a man who does not feel his influence, and there are
few who do not look up to him with respect and often with something
like reverence. His personality has permeated this huge mass of men.
Another attribute of this great business leader is a broad and real
tolerance of the opinions of those who do not agree with him. He has
built up a vast and wonderfully efficient organization founded on what
he conceives to be principles of justice and fair dealing, but his
attitude toward those who criticize the structure he has erected is not
one of irritation, as might be expected, or of impatience. Rather he
endeavors, sincerely and patiently, to disarm criticism by a policy of
open dealing.
On one occasion, when certain acts of his had been criticized as
constituting a possible violation of the law, he, although believing
implicitly that he had not offended, forthwith abandoned the
continuance of these acts, so as to leave no shadow of doubt of his
intent to obey the law. He explained at the time that though every
citizen had the right to criticize legislation, and should seek to have
changed such laws as he deemed unjust or uneconomic, he was bound to
obey these laws so long as they remained on the statute books.
In physical stature Judge Gary is of medium height. He carries his
years well and appears yet in his prime. The impression he gives the
observer is that of a statesman rather than a man of affairs, an
impression heightened by his deliberate speech and his appreciation
of the finer meanings of words. Most of his portraits represent him
sitting straight up, just a little stiffly, but when interested in a
conversation, the Judge invariably stands, or rather paces deliberately
back and forth, his hands stuck in the waistband of his trousers, and
his head bent forward at an angle of deep thought. And as he warms to
his subject, he now and then gesticulates slightly, or, turning to his
listener, drives home some argument with pointed forefinger. At the
remembrance of some amusing incident his twinkling eyes light up what
is usually a decidedly serious countenance.
All those who during the World War were in touch with what was being
done by the Government to meet the enormous new manufacturing needs
created by the war know that the Steel Corporation, in the great
emergency, invariably put patriotism above profits and that its hearty
coöperation helped materially in bringing about the desired end. Judge
Gary was responsible for the Corporation’s attitude in this as in other
matters.
Honors have been showered upon the head of the Steel Corporation by
universities and colleges, and the American, French, Belgian, and
Italian governments, and the late Pope Pius X presented a gold medal
containing his profile portrait to Judge Gary in recognition of his
efforts for improving working conditions. But beyond all these honors
he values the esteem of the men under him, and the good will of his
competitors.
It would be hard to find a more suitable ending for this brief study of
the leading figure in the industrial world than the quotation applied
to him by the principal steel makers of the United States and Canada
on the occasion of a dinner given in his honor in October, 1909. Here
were men who had fought with him and against him, who had had every
opportunity to estimate him both as friend and foe, and who, after the
trying times of the 1907 panic, declared that he had “played the game
and played it fair”:
“Moderate, resolute, whole in himself, a common good.”
JOHN PIERPONT MORGAN
“The greatest banker the world has ever seen.” Thus the head of the
Deutsche Bank called the late J. P. Morgan during his lifetime, and as
the years pass students of finance are becoming more and more satisfied
that the German, himself a banker of no mean repute or ability, spoke
truly.
Without J. Pierpont Morgan the organization of the United States Steel
Corporation would, in all probability, have been an impossibility.
The carrying through of so vast a project required a financier of his
prestige and of his financial courage. There was no other banker big
enough or bold enough to undertake such a task, and no history of the
Corporation would be complete unless it contained a résumé of the work
of the former money wizard.
So large did Morgan loom in the public eye during his lifetime and so
much has been said and written of him since that it would be difficult
to say anything of him with which the reader is not already familiar.
But it has perhaps not been generally realized that Morgan was a
patriot of the right type. He was, to use a financial term, “a bull on
America.” His confidence in his country’s future was unbounded, and he
had the courage of his convictions to put his great fortune into the
development of American enterprises.
John Pierpont Morgan was the son of Junius Spencer and Juliet Morgan.
He was born on April 17, 1837, and educated at the English High School
of Boston and the University of Gottingen. He entered the banking
business at the age of twenty, with the firm of Duncan, Sherman & Co.,
and later, from 1864 to 1871, was a member of the banking house of
Dabney, Morgan & Co. Still later he helped to form the firm of Morgan,
Drexel & Co., which afterward became J. P. Morgan & Co. He died in Rome
within a few weeks of the close of his 76th year, on March 31, 1913.
Having a peculiar genius for financial organization and arriving at the
heyday of his power at the period when vast consolidations of capital
and industry were the order of the day it was natural that he should
have figured prominently in the carrying through of many of these.
Among the large concerns with the organization of which he was closely
identified was the International Harvester Co., and he took a prominent
part in the reorganization and refinancing of several large railroad
enterprises, notably the Erie, Reading, Santa Fe, and Northern Pacific.
He has generally been blamed for the New Haven débâcle and there is no
doubt that he occupied an important position in managing its affairs;
in fact, according to the former president of that system, he dictated
its policies and actions.
But the financing of the United States Steel Corporation was beyond all
question his _magnum opus_.
So great was Morgan’s influence in the management of most of the
companies with which he was connected that it was said of him, as of
the McGregor, that “where he sat was the head of the table.”
But so far as the Steel Corporation was concerned at least, it seems
to be fairly well established that, keen as was his interest and great
as was his pride in the big company, he never assumed an attitude in
the least dictatorial. He was the Corporation’s banker--nothing more.
Questions of operation and policy he left entirely to those having
direct charge of them. This was particularly true in the last six
or eight years of his life, by which time, other directors of the
Corporation have stated, he had come to place such implicit reliance on
the judgment of Judge Gary that he always accepted the latter’s ideas
upon all matters connected with the welfare of the great enterprise.
Morgan himself regarded the amalgamation of many of the country’s
leading steel concerns into United States Steel as the crowning
achievement of his career. He took a personal pride in his connection
with the Corporation’s organization--and who shall say it was not a
worthy pride? He lived to see it firmly established and exerting an
influence for good on the steel trade and on industry generally; to
see it gain the confidence of the public as evidenced by the growth
that was, even before his death, taking place in the number of its
stockholders, many of whom held only a share or two and regarded them
almost as gold bonds; to see it earn the good will of its competitors
and the loyalty of its--at the time--two hundred thousand odd employees.
But unfortunately he also lived to see it attacked by the Government.
No doubt this was a sore grief to the great financier. And its
vindication did not come until several years after his death.
To those who knew him by sight only Morgan appeared a solitary, stern
figure, perhaps a little too much inclined toward impressing his own
will on others. Those who enjoyed intimacy with him declare that under
his cold exterior beat a heart as tender as a woman’s, that he took the
keenest interest in all things human and that, while never figuring
publicly as a philanthropist, the list of his private benefactions was
enormous.
Newspaper men, who perforce had often to seek an interview with the
great banker, found him rather unapproachable. But when he consented
to talk his statements could be relied on absolutely. And he was not
without a subtle sense of humor. On one occasion a financial writer who
had been assigned to get Morgan to talk by hook or by crook invaded
his private yacht and was only saved from being ejected by the banker
himself who invited his visitor to the saloon and treated him like an
honored guest.
He discussed in the fullest detail the subject on which the writer
wished to interview him but--at the end, when his self-invited guest
was taking his leave, Morgan said with a shadow of a smile:
“Of course, you understand all I have told you is in confidence. You
have been my guest and I rely on you not to violate that confidence.”
Needless to say the interview was never printed. The scribe reported
to his office that the banker refused to be interviewed.
When Morgan died the leading business men of the country united in
testifying to his ability and character. Judge Gary, who had been
closely associated with him for years, said:
“As a constructive force in financial matters he had no equal. With
keenest perception, with indomitable courage, and with unbounded
confidence in the future he was a natural leader and as such was called
upon in times of financial stress to lend his influence to avert a
threatened storm or to overcome an existing difficulty. And he never
failed. His character was such that the greatest men of this country
and of other countries trusted him and followed his lead.”
Shortly before he last sailed from his home shores Morgan remarked
to a friend that his work was done. The utterance was prophetic. And
posterity is beginning to realize how great that work was. In these
difficult days of world reconstruction, more than ever before, is his
financial genius and particularly his faith and courage missed.
CHARLES M. SCHWAB
Perhaps of no other man in industry are as many anecdotes related as
of Charles M. Schwab, the first president of the United States Steel
Corporation, and now head of the Bethlehem Steel Corporation, the
second largest steel organization in America.
Schwab is the Peter Pan of American industry. His is the spirit of
perennial youth, his the philosophy of laughter.
“I try,” he says, “to be like Schulz. He was a foreman under me during
the Homestead strike. He stuck by the company and one day came into my
office dripping mud and water. To my inquiries he replied that some
strikers had thrown him into the creek.
“‘What did you do then, Schulz?’ I asked.
“‘Oh, I shust laff.’”
One of the old Carnegie “boys,” Schwab is like the former iron master
in his wonderful ability to infuse into those who work with him some of
the enthusiasm with which he is so richly endowed, and to get from them
loyalty and devotion. To this attribute, as much as to anything else,
Schwab owes his great success.
It is impossible to get an accurate concept of Schwab’s personality
without coming directly into contact with him. Many men have declared
that “C. M.,” as he is known to his friends, is “the best salesman
that ever stepped in shoe leather.” And this is not an exaggeration.
There is something about him--fascination, personal magnetism, call
it what you will--that captivates almost everyone with whom he comes
in contact. His infectious laugh disarms hostility and criticism. His
great ability compels admiration.
Numerous anecdotes illustrating Schwab’s magnetism are told in the
steel trade; the following is typical:
Several years ago, when Bethlehem Steel was a little known company, its
head visited a prominent New York banker to seek his aid in putting out
a bond issue. He told the banker all about the great future in store
for Bethlehem as he saw it--prophetically, as it has turned out--and
his hearer was fired with enthusiasm regarding the proposed issue. He
asked Schwab to go back to his office and dictate to a stenographer the
statements he had made regarding the security behind the bonds and the
future of Bethlehem Steel for the purpose of making up a prospectus.
With that, he declared, the bonds would sell like hot cakes.
When the banker received the typewritten prospectus he was dissatisfied
and rang Schwab up on the ’phone. The steel man’s arguments were not
nearly so convincing in black and white as when given in his inimitable
style, and the money magnate declared that the other had not included
in the written statement the facts related in the conversation. So
Schwab paid him another visit and went all over the matter again. The
banker said:
“Yes. You’ve got it all down here. But it doesn’t sound the same. I
tell you what we’ll do. You talk the bonds into a phonograph and we’ll
use the records to sell them.”
And here is another Schwab anecdote told by himself:
“On one occasion, when Bethlehem was still a struggling company, I
went to see a Philadelphia banker whom I knew very well and told him I
needed a great deal of money. He said:
“‘I can let you have half a million.’
“‘Why,’ I replied, ‘I can get at least a million from bankers in New
York who don’t even know me!’
“‘That’s the reason they lend you,’ he gravely returned.”
Charles M. Schwab was born at Williamsburg, Pa., on February 18, 1862,
and educated at St. Francis College at Loretto in the same state. His
father owned a livery stable at Cresson Springs, where Carnegie had a
summer bungalow.
One day the little Scotsman, who loved music, heard the boy singing,
and told Schwab, Senior, to bring the lad to him when he was ready to
go to work. At the age of eighteen Schwab entered the employment of the
Carnegie Company as a junior in the drafting room.
Schwab attributes his success largely to the interest which Carnegie
took in him. Carnegie, on the other hand, declared that Schwab was one
of the two men to whom he owed the bulk of his fortune, the other being
Captain William R. Jones, who was superintendent of the big Braddock
plant when Schwab enlisted in the steel army.
At the age of twenty-four Schwab was appointed superintendent of the
Homestead plant, which had just been acquired by Carnegie. When he
arrived there, the organization was in a terrible condition. The long
series of strikes which the original owners had had to contend with had
not only caused them to give up the plant in despair and to accept
Carnegie’s offer, but had resulted in bitter feeling on the part of the
workmen. But Schwab’s smile and good nature soon won them over, and
in a few months the organization had been restored and Homestead was
making money for Carnegie.
In 1889 Schwab returned to Braddock on the death of Captain Jones,
as his successor. Three years later occurred the bloody strike at
Homestead, and Schwab was again sent back there to take charge. When
the strike was over he was put in charge of both plants. He was the
only man that ever managed two plants for Carnegie.
One day Carnegie told Schwab that it had been decided to make him
vice-president of the Carnegie Company. But the young man replied:
“No, Mr. Carnegie, I am no good at carrying out another man’s orders,
and that’s about all a vice-president has to do. As superintendent I am
boss of the plants I manage; I prefer to remain that way.”
Next day Carnegie again sought out his superintendent. “Well, if you
won’t be vice-preside
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