The Project Gutenberg EBook of United States Steel, by Arundel Cotter This eBook is for the use of anyone anywhere in the United States and most other parts of the world at no cost and with almost no restrictions whatsoever. You may copy it, give it away or re-use it under the terms of the Project Gutenberg License included with this eBook or online at www.gutenberg.org. If you are not located in the United States, you'll have to check the laws of the country where you are located before using this ebook. Title: United States Steel A Corporation With A Soul Author: Arundel Cotter Release Date: March 12, 2015 [EBook #48465] Language: English Character set encoding: UTF-8 *** START OF THIS PROJECT GUTENBERG EBOOK UNITED STATES STEEL *** Produced by Charlene Taylor, Charlie Howard, and the Online Distributed Proofreading Team at http://www.pgdp.net (This file was produced from images generously made available by The Internet Archive/American Libraries.) UNITED STATES STEEL A Corporation With a Soul PUBLISHER’S NOTE T HIS 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. 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 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. v 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 vii ix E 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 very 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 x 3 4 M 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 ere 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. 5 6 7 8 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 9 10 11 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. 12 13 14 15 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. 16 17 18 19 A 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 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. 20 21 22 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 23 24 25 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 STOCK PREFERRED 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 A160,000,000 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 y...