Five Years of the Steel Trust
HERBERT N. CASSON IN MUNSEY’S
This is the eighth uf Mr Cassons important series of articles on the history of steel in America. In this article he gives an impartial summarry cf the United States Steel Corporation’s record, of its present situation and its prospects. He outlines what this organization has dene for the iron and steel trade.
THE first annual report of the United States Steel Corporation was the most remarkable financial document that had ever been known in the long history of commerce.
It looked more like a magazine than an annual report, with its sixty-four pages and sixty-three illustrations of furnaces and steel mills. And it was sent to nearly sixty thousand stockholders—a larger circulation than many a magazine possescs. Its figures were those of an empire, rather than that of a private company of American business men. Its revenue of five hundred and sixty million dollars was equal to that of the ten kingdoms of Spain, Portugal, Holland, Rumania, Sweden, Norway, Greece, Denmark, Siam, and Turkey. The receipts of the United States itself, for 1902, exclusive of the postal business, amounted to only two millions more than those of the United States Steel Corporation.
This wonderful corporation was not a bank, yet it had more than fifty million in its vaults—a greater sum than the deposits in any of the New York savings banks, except five, or any of the national or State banks except seven.
It was not a railroad, yet it "perated five large railway systems, with nearly five hundred locomotives and more than twenty-six thousand cars. And these were not freight roads merely, as eighty-three of the cars were for passengers.
It was not a marine corporation,
yet it possessed a fleet of more than a hundred vessels, many of them the best of their kind, whose °arnlngs for the year furnished a nine-million dollar item to the report.
Without counting its sixteen docks, its seventeen thousand coke-ovens, its two hundred square miles of gas land, its hundred thousand acres of coal land, and its sixty ore mines in the Lake Superior region, this corporation reported itself as being the owner of nearly sixteen hundred manufacturing plants.
The grand total of assets—no human mind can transform this line of figures into an idea—was >.1,546,44,234.65.
Roughly speaking, labor got one hundred and twenty million dollars for the year’s work ; the *tockholders, fifty-six millions ; the machinery for improvements and depreciation, forty-five millions ; and Andrew Carnegie, the grand old pensioner, got eighteen millions, including the three millions set apart as a sinking fund for the payment of his bonds in the year 1952.
The 168,127 workmen received an average of $717 apiece ; the stockholders averaged about a thousand dollars. So far as profits were concerned, the little Scot, in spite of his abdication, still towered above all the newcomers.
The net profits of the corporation for the year were more than a hundred and thirty-three million dollars. Out of this twenty-five millions were taken for special improvements ’Glich were thought to be advisable though
not strictly necessary. Because of the use of this generic word “improvements/’ it is impossible to tell the exact percentage of profits. Just how much of the forty-five millions that come under this head was spent for the actual enrichment of the property, and how much of it went for political purposes, or to cover up mistakes and losses, no one outside of the corporation can tell. There is no cause for suspicion in the report itself ; but recent revelations concerning the methods of “high finance” have made the American public more sophisticated than it was.
The corporation began well, as a money-maker. For twenty-seven months it moved along as steadily as a clock, ticking out fourteen millions in dividends every quarter of a year. Then, in the middle of 1903, came trouble. It was a feast-andfamine year. The market had become surfeited with the stock of over-capitalized corporations. In two years the total capitalization of new companies had soared up to nearly eight billion dollars. There was an over-production of stock, and, when prices fell, the good suffered with the bad. The wreck of Schwab’s ship-building enterprise, and the governmental veto put upon the Northern Securities merger, made matters worse. “Steel preferred” went below fifty, and the common stock plunged to ten.
On New Year’s Day, 1904, the stockholders regarded the wish for a happy New Year as a cynicism. They had received a message notifying them that the profits for the preceding three months had dropped to the beggarly sum of two million dollars. Only by drawing upon the company’s surplus could the quarterly dividend be paid on the preH
ferred stock ; holders of the common stock, who had had their revenue halved three months before, were now cut off altogether. Down and down went the price of the corporation’s securities. “Steel common” was recommended as cheap wall-paper, and the comic papers reported that grocers were giving away a share with every purchase of a pound of tea.
There was a general outcry from those who saw their dollars cut in half. “The Steel Trust has robbed the people of five hundred millions in a single year,” said a Boston broker. “With its common stock at ten, it can pay its debts at the rate of twenty-five cents on the dollar,” declared a Chicago professor. Twelve thousand stockholders jumped overboard and swam ashore with heavy losses. If they had remained on board for a year longer, they would have lost nothing. But it was a time of panic, when men jumped first and thought afterward.
Capital lost thirty millions which it has been led to expect; but labor lost more. Twenty thousand workmen were discharged. Twenty thousand homes, into which twenty million dollars had flowed in the previous year, were left without resources. Twenty thousand workmen stood idle in the market, offering their skill for sale, and endangering the price of labor all along the line. It was a harsh step, but necessary from the standpoint of dividends.
It was a hard-luck year, and everybody grumbled—everybody except the Wall Street brokers. They did a merry business, pulling down what they had built up three years before. In fact, the stock exchange end of the steel business has grown until it is larger than the manufacturing end. It is a point of great significance, for better or for worse, that the buy-
ing and selling of steel stocks is today a business of greater volume than the buying and selling of steel.
In 1905 the horn of plenty was once more emptied on the heads of the steel men. It was a year of jubilee. Before it was half over, the preferred stock had climbed above par and the common to nearly forty. The twenty thousand workmen came back, and others with them. At the annual meeting the stockholders effervesced with delight, and passed a vote of thanks to Mr. Morgan, as the meeting happened to be on his sixty-eighth birthday.
Those who regarded the United States Steel Corporation as a finished product said, in the dark days of 1904, “Morgan has failed.” The wiser ones, who regarded it as a continuous process, said, “Wait.” Morgan’s supreme aim was to give stability to the iron and steel trade. He had against him not only natural forces, but artificial ones as well. He had to fight against a depression caused by bad crops, or a panic caused by some speculative buccaneer.
Now, if there is one thing that Morgan’s strong nature hates more than another, it is something that is small, flimsy and uncertain. He abhors makeshifts. His lasting honor will be that he has been the first American who deliberately made it his life-work to co-ordinate the various functions of industry and finance on a national scale. With a masterfulness which has never been surpassed, he linked together railroads, banks, steamship lines, industrial corporations, and two-thirds of the iron and steel trade. He had to use refractory materials. Neither his friends nor the public understood his purposes. He was compelled to work with many men who lied to him and betrayed him. His so-called partners
were, comparatively speaking, no more than clerks. He stood alone, a Gulliver among the Lilliputians of Wall Street.
In 1901 many critics pointed out that the demands for dividends by a mob of stockholders would be likely to take too much money out of the business and allow the plants to depreciate. There was good reason for this warning. Hundreds of iron and steel men had wrecked their fortunes on the big-dividend rock. Even the late Russell Sage, clever financial pilot as he was, could not steer past this peril. Sage was in the iron business in 1866—as early as Carnegie. He had a large share in Captain Ward’s Milwaukee rolling-mill ; but he made the usual mistake of demanding enormous profits at once.
“Sage made my life miserable because we did not pay higher dividends, although we paid from fifteen to twenty per cent, for several years,” said J. J. Hagerman, who was then an official of the company. Those who remained in that Milwaukee enterprise made millions ; but Russell Sage lacked the farsightedness to be a steel-maker. Like hundreds of others, he had his chanoe and lost it.
Every successful steel-maker knows that improvements must be made continually, whether any money is left for dividends or not. To look at the figures given out by the corporation was not convincing. In annual reports things are not always what they seem. Such has come to bo the public opinion. When fifty millions of preferred stock was changed into bonds in 1902, it was stated that thirty millions of it went for improvements. Ten millions a year were appropriated for “speciar’ work of this sort, and in each annual report there were several pages of
“improvements and extraordinary replacements” mentioned by name “Improving our own plants is the key-note of the United States Steel Corporation,” said its first vicepresident, James Gayley.
But the only way to know whether the property of the corporation is rising in value, or falling, is to go and see it. Consequently, in gathering the information for this series of articles, I was careful to ask at every stopping-place, “Show me what improvements have been made since 1901.” After nearly six thousand miles of travel, I have not found a single instance in which a property has been allowed to depreciate, or in which improvements have been made in a parsimonious way.
“Everything the United States Steel constructs is first class,” said one of Duluth’s leading business men.
“I want you to build that store for all time—no makeshifts,” said the vice-president of the Union Supply Company to a contractor.
The corporation operates fifty stores under this name in its coal and coke region, and the order given by the vice-president was not a mere phrase for effect, as I overheard it accidentally.
In regard to labor., the Morgan policy has been to secure stability by first destroying the trade unions and alterward permitting the employees to become stockholders.. Several months after the corporation was organized, the Amalgamated Association of Iron and Steel Workers—or what was left of it after the decisive defeat of Homestead—picked a quarrel over a small issue, and declared war on the big company. Probably not more than ten per cent of the workmen belonged to the union, but it issued manifestoes ordering a hundred thousand to quit work.
“We must fight or give up forever our personal liberties,” said one of the leaders. “The United States Steel Corporation thinks you were sold to them just as the mills were; but when you strike, Wall Street will tremble!”
On the contrary, Wall Street paid little or no attention to the strike. Stocks fell three per cent and rose again. The labor leaders found that going to Morgan was a different proposition from going to John Fritz or Captain “Bill” Jones. “Schwab treated us well—Morgan did not,” said one of the labor leaders as he came down the steps of the Morgan office. The probability is that Morgan knew the truth—knew that the Amalgamated Association was a lath painted to look like iron, and treated the leaders accordingly. After an ineffective strike of two months or more, all the workmen returned to work.
In three ways, at least, the strike had been a positive benefit to the corporation. It had demolished the Amalgamated Association, raised the prices of steel, and enabled Schwab to dismantle the out-of-date mills and concentrate the plants. Sincethen the corporation has been strictly non-union. Schwab went so far as to make antiunion speeches. There was to be none of the old mutualism between capital and labor under the new regime. The corporation was not a democracy in which the authority came from below. It was a fuedalism of capital, in which power moved from Morgan downward, through a series of distinct gradations.
But it was to be a “benevolent feudalism.” There was no intention of turning the wage system into a wage slavery. To keep the workmeB
loyal and content, a method of profits sharing was worked out. It is said that Perkins was its originator, having tried a similiar plan with his life insurance agents. He proposed to ofîer a certain quantity of preferred stock every year to the employees. To prevent speculative purchases, no one would be allowed to buy more stock at one time than onefifth of his yearly wages. Those who lacked the cash could pay in instalments, and special inducements were offered to those who remained in the employ of the corporation for five years. In this way the company forged another weapon against unionism and strikes.
As soon as this plan was seen to be a success—for more than twentyseven thousand employees subscribed for stock in 1903 alone—another step was taken. The wages of the men were “equalized.” The highly paid men were cut down from ten to fifty per cent, while the laborers were raised to $1.80 and $2.00 a day. In some of the works the hours of labor were increased. “I used to b¡e able to make six dollars a day, working seven hours,” said a Pittsburgh rougher. “Now I can only make three seventy a day, working twelve hours.”
In the American steel-mills the machine does more work than the man, and draws higher wages. Naturally the man feels that he and his machine are one, and not two. He wants the machine’s wages paid to him; and so, no matter how high his pay may be, he feels that there has been a maldistribution of profits when he thinks of what he and his machine produced.
On the whole, a larger sum is paid to iron and steel workers to-day than they ever received before. There have
been several voluntary raises of wages. Last year the Frick (’eke Company put seven per cent more in the pay-envelopes of its laborers. Thirty thousand men in the Pittsburgh region are drawing nine millions more this year than last. Pittsburgh remains the place of the heaviest work and the highest wages of any manufacturing region in the world.
“We have rollers and heaters at Homestead who are still making from ten to fifteen dollars a day,” said President Dinkey.
The United States Steel Corporation has made no attempt to build “model towns” for its workmen, after the fashion of the Krupps. Vandergrift, the only “model town” of steel-workers in the United States, is now a part of the corporation’s dominions, but it was built previous to 1901 by George G. McMurtry. This really picturesque spot lies thirty-eight miles east of Pittsburgh. It has been christened a “workingman’s paradise,” and overpraised by many writers; but it remains the most attractive town among the iron and steel communities. Frederick Law Olmsted, the late eminent landscape-gardener, planned it. His hand can be seen in the curving streets and decorative grass-plots.
Apparently, the corporation has solved the problem of stability, so far as labor is concerned. The workmen have neither union nor leader. They have not even a spokesman who is well known and respected. All their former leaders have been swallowed up by politics. Compared with the members of a well-organized trade live the bricklayers, for example, they are not highly paid for such work as they do and such risk as they run. The ten-dollar-a-day
men are few and far between. Strictly speaking, they are foremen rather than ordinary wage-workers. But the majority of the steel-workers are content for two reasons—they are making more money than they could earn in the average outside occupation, and their work is steadier than it used to be. If the “era of good feeling” has not been reached among the rank and file of the corporation, there has at least come the era of loyalty and obedience.
The danger, if there be any danger, in the. labor situation will come not from the discontented, but from the servile. I have found it to be the general opinion of practical steelmakers that the trade was being pulled down by the employment of such large numbers of unskilled immigrants, who can never be trained beyond a certain point. The sudden dearth of skilled steel-workers last year shows this to be a present danger, not a future one. In the great school of steel-making, the lower grades are filled entirely with pupils who can never be promoted. The Huns, Slavs, Finns and Italians who form the main body of the workers never rise above the position of common laborers, except in the most unusual instances. They have hands but no heads. Among them are no embryonic Schwabs or Coreys.
“Perhaps the reason why we have so little machinery in the coke business is because we have employed the non-inventive Huns and Slavs,” ad-
mitted a high official of the corporation. Most of the improvements have been originated by men like Jones and Fritz, who began at the bottom and worked their way up, improving as they went. It has also been found that cheap men and costly machinery make a dangerous combination. It is apt to kill the men and injure the machinery.
In the “good old days” of the puddlers, the labor force was unruly, but intelligent and teachable. To-day it is obedient, but stolid. The cokemaking squad is wholly': Hun and Slav. The ambitious Welsh have long since been driven out. The ore-mining squad is almost wholly Finn and Italian. Of these two, there is more hope of the Finn. In my whole investigation, I found no class of,laborers lower than the Italians of the Lake Superior ore region. At a Mesaba mine I found four Italian miners living in a log shant^ When I opened the door, three were in the one bed, with no clothing removed except their boots. The fourth was squatting on the floor, eating his breakfast. For a table he had the sawed-off end of a log. In one hand he held half a loaf of bread, and with the other he helped himself from a tin dish of macaroni. No knife—no fork—no spoon! It is not the work of such as these that has made the industry great and put American steel into all the markets of the world.