by Peter Krass
“I might be there Sunday evening,” said Schwab coyly.”41
The topic of discussion was to be the consolidation of the steel industry on a scale never before imagined—a future that was not to include the undisputed king of steel, Carnegie.
While an oblivious Carnegie went about his business in January 1901, Schwab took a train from Pittsburgh to Philadelphia. On arrival at the Bellevue Hotel, he was handed a message from Gates stating that Morgan was ill in bed, and Schwab should come to New York later in the week. Matters were already becoming disturbingly complicated, as he would now have to contend with Morgan on the banker’s home turf.
When Schwab entered Morgan’s lavish mansion at 219 Madison Avenue and was ushered into his mahogany-paneled study, he found himself surrounded by a forbidding trio that included Morgan, his partner Robert Bacon, and Gates, a dangerous speculator who once bet a million dollars on a poker hand and who possessed a few key cards in the steel game. Still relatively young at thirty-nine years of age, but a strapping man with a barrel chest, Schwab remained composed under Morgan’s glare. In fact, he couldn’t help but return the stare because of Morgan’s large and deformed nose, a grotesque attraction resulting from rhinophyma. Embarrassed by the disease, the banker conscientiously avoided the camera lens, but right now his much larger concern was Carnegie, the fiercely independent titan.
To kick off the clandestine meeting and to put Schwab at ease, he asked the younger man to elaborate on his December speech; specifically, to detail what companies should be included in such a consolidation. Naturally, there were the Morgan, Moore, and Gates properties—Federal Steel, National Steel, National Tube, American Steel and Wire, American Tin Plate, American Steel Hoop, American Sheet Metal, and American Wire—among others. It had to include the Carnegie Company, of course, for as one observer later put it, the cooks may have been “ready to bake the finest plum pudding ever concocted, but that Mr. Carnegie had all the plums.” It was then intimated by Morgan that if such an amalgamation were to occur, Schwab would be expected to head it. The wily banker was setting the hook, and before Schwab stepped into the cold night, Morgan had one last, all-important question. He turned to the young man and, with piercing eyes set behind his bulbous nose, asked in a terse voice, Would Carnegie sell? Schwab didn’t know, but he would find out. “Well,” Morgan said, “if you can get a price from Carnegie, I don’t know but what I’ll undertake it.”42
As early as January 13, rumors started circulating in the press that Morgan would buy out Carnegie; but in letters to Carnegie, Schwab gave no indication of his role in the matter. On January 24, he forwarded earnings statements and claimed, “I shall not feel satisfied until we are producing 500,000 tons per month and finishing same. And we’ll do it within five years. Look at our ore and coke as compared with the others. If you continue to give me the support you have in the past we’ll make a greater industry than we ever dreamed of. Am anxious to get at Conneaut. Are finishing plans rapidly & will be ready for a stand in the spring. Hope to see you next week.”43 On the same day, Carnegie wrote Dod: “There is no substance in the reports anent great combination—some talkee, talkee. . . . This years business is secured— 30 millions or thereabouts—we are all right.” Carnegie was talking about future profits, not selling, and Schwab was planning the next five years of his career, but someone had leaked the story.
Schwab was faced with a dangerous dilemma. Carnegie didn’t know of his meeting with Morgan, so he was hesitant as how to broach the topic of selling without getting himself fired for traitorous behavior. He did know that Louise, who was good friends with his wife, Rana, was eager for her husband to retire, so he approached her first. She suggested a golf outing at St. Andrews in Yonkers, New York, to relax her husband before raising the subject. If Schwab handled it clumsily, it would cost him his career and millions of dollars.
Carnegie and Schwab, wrapped in warm garments to ward off the late January chill, played golf and then repaired to Carnegie’s fairway cottage for hot drinks and a bite of food. Finally, Schwab found an opening in the discussion. “I talked quietly to him,” Schwab recalled, “suggesting that the time had come to make some disposition of his business that would guarantee its perpetuation and that would gratify his desire to put his wealth in such liquid form that he could do as I knew he wanted to do with it.” He then divulged his conversations with Morgan, and relayed that the banker was prepared to buy Carnegie out. After remaining silent for some time, his eyes glazing over as he looked out on the bland green fairway, Carnegie told Schwab he would think about it and Schwab should come by the house tomorrow.
The next day, when Schwab arrived at 5 West Fifty-first Street, Carnegie handed him a piece of paper with a series of numbers jotted down in pencil and said, “That’s what I’ll sell for.”
Schwab took his carriage down to 219 Madison Avenue and handed Morgan the piece of paper. “I accept,” said the banker simply. And so the transaction was agreed upon, with no haggling and no platoon of lawyers. On the slip of paper was an asking price of $480 million. Carnegie had broken down the means of payment: $160 million was to be in gold-backed 5 percent bonds; $240 million in stock in the new company; and $80 million in cash. Carnegie’s take was $225,639,000—enough to buy a few books—paid in 5 percent gold bonds and cash only.44 He wanted the safe haven of bonds to carry on with his philanthropy independent of worrying about fluctuations in the volatile stock market. Morgan was only too happy to oblige because if Carnegie took stock, he would have a voice in management—a meddling voice.
Well, Morgan had his plums, which included the Carnegie steelworks at Braddock, Duquesne, and Homestead, the Lucy and Carrie blast furnaces, the Upper and Lower Union Mills, the H. C. Frick Coke Company, the Oliver Mining Company, four small railroads, a natural gas company, the Pittsburgh Steamship Company, and a limestone company, among other morsels. Equally important, a disruptive force had been eliminated. (Incidentally, in a parallel story, rebel Philippine leader Emilio Aguinaldo was captured in March, the month the rebellious Carnegie would officially abdicate.) With Carnegie in the fold, Morgan could now go after the other companies Schwab had fingered to create U.S. Steel, the greatest amalgamation the world had ever known.
Carnegie’s first order of business was to triumphantly inform his board of managers, who immediately lavished praise on him in a formal letter: “Whatever pecuniary benefits we may derive from a new organization such as outlined, our first and most natural feeling is the keen regret to all of us in the severance of our business relations with you, to whom we owe so much. Your sound judgment and profound business sagacity have been the foundation stones on which has been built the fabric of our success. No expression, however sincere, can adequately voice our deep personal loyalty, and, with you, it is hoped the friendship of the past shall know no change.”45 The day after notifying his board, Carnegie bragged about the sale to John Morley: “I could as well had 100 millions stg. [$500 million for himself] in a few years, but no sir. I’m not going to grow old piling up, but in distributing.”46
“Well, you are the industrial Napoleon—and no mistake,” Morley replied. “I am rejoiced that you are trying to draw out of active trade, but I should rejoice far more confidently, and heartily if you had 1/2 or 1 million, instead of 40 or 50. Still you make the best of the burden, and nobody who knows you will doubt that you will do your best to diffuse happiness & to spread light.”47 Some burden.
Two days after he wrote Morley, it was time for an exultant letter to Dod, but he warned his cousin not to talk in case the deal didn’t go through.48 Meanwhile, Carnegie was telling everyone.
A few weeks later, Morgan telephoned Carnegie to invite him down to Wall Street for a celebratory chat, but never one to submit, Carnegie replied, “Mr. Morgan, it is just about as far from Wall Street to Fifty-first as it is from Fifty-first to Wall. I shall be delighted to see you here any time.” Shortly thereafter, Morgan appeared at his doorstep. The meeting lasted precisely fifteen min
utes—Carnegie’s secretary James Bertram timed it—and as Morgan stood to depart, he grasped Carnegie’s hand: “Mr. Carnegie, I want to congratulate you on being the richest man in the world!”
Legend has it that the two titans were aboard the same transatlantic steamer a couple of years later, and in the course of one discussion Carnegie said, “I made one mistake, Pierpont, when I sold out to you.”
“What was that?”
“I should have asked you for $100,000,000 more than I did.”
With a sly grin, Morgan said, “Well, you would have got it if you had.”49
After the official announcement in the newspapers on March 3, informing the stockholders of the affected companies that their stock was to be exchanged for U.S. Steel stock, it dawned on the public this was to be a billion-dollar concern—the first billion-dollar concern. To be exact, the capital of the company was set at $1.1 billion in common and preferred stock and $304 million in bonds, bringing the grand total to $1.4 billion. At the time, no one thought in billions or could even comprehend the magnitude of the company, and the uneasiness soon gave way to fear. In the April Cosmopolitan, author John Brisbane Walker published a piece entitled “The World’s Greatest Revolution,” full of dramatic rhetoric as he evaluated the impact of U.S. Steel on the world: “This momentous event did not concern itself with princes or even so-called statesmen. The world on the 3d day of March, 1901, had ceased to be ruled by such. True, there were marionettes still figuring in Congress and as Kings, but they were in place simply to carry out the orders of the world’s real rulers—those who control the concentrated portion of the money supply.”50 Other critics screamed MONOPOLY and assumed price gouging would commence at once.
The public had good reason to fear U.S. Steel. Its capital was twice the amount of the capital stock for all the national banks in the United States combined and amounted to 7 percent of the nation’s GNP. In one fell swoop, Morgan had captured two-thirds of the steel market, and Schwab confidently predicted they would soon own 75 percent of it. The company employed in its 170 subsidiaries more people than were living in Maryland at the time. It owned or controlled some 150 steel plants producing more steel than Britain or Germany, 115 steamships on the Great Lakes, 6 sizable railroad lines and several smaller ones, 80 percent of the quality iron ore found at the head of Lake Superior, over 75,000 acres of coal land, 18,309 coke ovens, and 98,000 acres of leased natural gas lands. Despite the tremendous assets, well-founded accusations of stock watering started ringing through Wall Street. Morgan was undeterred; nevertheless, to guarantee success, he hired a certain Mr. Keene, a stock promoter, or rather manipulator, extraordinaire, who would be responsible for bulling the stock so the Morgan syndicate could reap its millions.51 Considering common shares opened at $39 and within a month were at $55, Mr. Keene was doing his job. What would happen in subsequent years was yet to be seen.
Carnegie appeared to be unperturbed by the hoopla and cabled Dod: “All seems right about Steel matter—no hitch—so be it.”52 To Phipps, he offered a more reflective letter:
My Dear H. P.
Mr. Stetson has just called to tell me it is closed, all fixed—big times on Stock Exchange tomorrow.
Well, this is a step in my life—a great change, but after a time, when I get down to new conditions, I shall become I believe a wiser and more useful man, and besides live a dignified old age as long as life is granted, something few reach.
Yours,
A.C.
For Phipps, as it would for Carnegie, it took time for the magnitude of the transaction to sink in. “When I received this word I did not feel like cheering or hurrahing,” Phipps recalled. “It was so impressive that it did not seem possible to be true, and it took weeks and months to have a full realization of it.”53 One question tantalized observers and students of Morgan’s buyout: did Carnegie surreptitiously engineer the sale? While Morgan’s son-in-law, Herbert Satterlee, denied Morgan was scared into buying Carnegie Steel, Charles Flint and Willis King disagreed with that conclusion.54 In recalling his meeting with Carnegie, during which he had fished for information for Morgan, Flint wrote: “He then spent several hours describing to me his plans for increasing his production and fabrication of steel; Carnegie knowing my pleasant relations with J. P. Morgan & Co. may have shrewdly divined that I was gathering information in their interest. I cannot explain in any other way why he gave me so much detailed information about his business.”55 King also assumed Carnegie’s aim all along was to persuade Morgan to buy him out: “I believe fully that this fear of a competing railroad induced Morgan to undertake the putting together of the Steel Corporation, and am inclined to think that the final result was exactly what Carnegie was aiming at.”56 And then there was the December dinner to honor Schwab. Was it actually part of Carnegie’s plot to sell the company without even Smilin’ Charlie himself knowing? Carnegie had indicated to Dod that Schwab’s favorable impression at the dinner made him more valuable to them—more valuable for what? Selling the company. Carnegie’s threats to go into finished products were all calculated bluffs on his part, considering his profits were soaring despite the competition from Moore and Morgan’s consolidations. No one else was made privy to his intentions lest he gave it away. It was a brilliant game of poker for a man who didn’t play cards.
But Carnegie was hardly dancing with self-satisfaction. Yes, he had his millions, his castle, his dear four-year-old daughter, and a loving wife, but none of that mattered. For almost forty years he had been building an empire; he had survived tragedy and scandal, and then, with the flash of a pen, a signature, it was gone. Emotionally, it felt as though his child had been ripped from his arms; for a time, the hardened warrior was severely depressed. He wrote a memorandum to himself, more of a diary entry really: “Trial bitter— father bereft of his sons—abandoned & alone—no more whirl of affairs, the new developments in—occupation gone. Advise no man quit business— plenty retire upon nothing to return to—misery. Reading Scotch Am selections—the gods send thread for a web begun.”57
Notes
1. AC to Charles Schwab, July 11, 1900, quoted in Board Meeting Minutes, July 31, 1900, ACLOC, vol. 76.
2. AC to George Lauder Jr., June 3, 1900, ACLOC, vol. 75.
3. AC to Charles Schwab, June 4, 1900, ACLOC, vol. 75.
4. Quoted in Hendrick, Carnegie, vol. 2, p. 119.
5. Warren, p. 271.
6. AC to Charles Schwab, June 20, 1900, ACLOC, vol. 75.
7. AC to Board, June 22, 1900, ACLOC, vol. 76.
8. AC to Charles Schwab, June 26, 1900, quoted in Board Meeting Minutes, July 9, 1900, ACLOC, vol. 76.
9. AC to Charles Schwab, July 7, 1900, quoted in Board Meeting Minutes, July 9, 1900, ACLOC, vol. 76.
10. AC to Charles Schwab, July 11, 1900, quoted in Board Meeting Minutes, July 31, 1900, ACLOC, vol. 76.
11. Carnegie Company, Board Meeting Minutes, July 16, 1900, ACLOC, vol. 76.
12. New York Daily Tribune, September 5, 1900.
13. Henry C. Frick to AC, August 1900, quoted in Harvey, p. 257.
14. Henry Phipps to Henry C. Frick, September 11, 1900, quoted in Warren, p. 276.
15. John Morley to AC, July 23, 1900, ACLOC, vol. 76.
16. Samuel Clemens to Margaret Carnegie, May 28, 1900, ACNYPL.
17. AC to Andrew D. White, June 23, 1900, ACLOC, vol. 76.
18. Strouse, p. 392.
19. Diana Preston, The Boxer Rebellion (New York: Walker, 1999), p. 285.
20. New York Daily Tribune, August 11, 1900.
21. Andrew D. White to AC, June 18, 1900, ACLOC, vol. 75.
22. AC to Andrew D. White, June 23, 1900, ACLOC, vol. 76.
23. William T. Stead to AC, September 21, 1900, ACLOC, vol. 78.
24. AC to William T. Stead, October 4, 1900, ACLOC, vol. 78.
25. Herbert Spencer to AC, September 24, 1900, ACLOC, vol. 78.
26. AC to Herbert Spencer, October 10, 1900, ACLOC, vol. 78; Herbert Spencer to AC, October 10, 1900
, ACLOC, vol. 78.
27. New York Tribune, November 16, 1900.
28. Whipple, p. 86.
29. AC to George Lauder Jr., December 8, 1900, ACLOC, vol. 81.
30. Warren, pp. 277–278.
31. Hendrick, Carnegie, vol. 2, p. 123.
32. Warren, p. 275.
33. Flint, pp. 168–170.
34. AC to Charles Schwab, October 9, 1900, ACLOC, vol. 78.
35. Wayne McVeagh to AC, January 26, 1901, ACLOC, vol. 81.
36. Wayne McVeagh to AC, January 31, 1901, ACLOC, vol. 81.
37. AC to George Lauder Jr., January 24, 1901, ACLOC, vol. 81.
38. Hendrick, Carnegie, vol. 2, p. 128.
39. Willis L. King, “Recollections and Conclusions from a Long Business Life,” Western Pennsylvania Historical Magazine 23, no. 4, pp. 228–229.
40. Carnegie, “My Experience with Railway Rates and Rebates,” pp. 726–727. See Robert L. Frey, ed., Railroads in the Nineteenth Century (New York: Facts on File, 1988) for more details on Cassatt’s management of the Pennsylvania Railroad.
41. Whipple, pp. 87–88. Versions on the Morgan-Schwab meeting vary. Also see Robert Irving Warshow, Bet-a-Million Gates: The Story of a Plunger (New York: Greenberg, 1932), pp. 50–51, and Hendrick, Carnegie, vol. 2, pp. 132–133.
42. Hendrick, Carnegie, vol. 2, p. 135; Whipple, p. 88.
43. Charles Schwab to AC, January 24, 1901, ACLOC, vol. 81.
44. Wall, Carnegie, p. 792.
45. Board of Carnegie Corporation to AC, February 4, 1901, ACLOC, vol. 81.
46. AC to John Morley, February 3, 1901, ACLOC, vol. 81.
47. John Morley to AC, February 16, 1901, ACLOC, vol. 81.
48. AC to George Lauder Jr., February 5, 1901, ACLOC, vol. 81.