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.