|Forging America: The History of Bethlehem Steel - Chapter 1 |
The King of Steel
Cherry trees brought to Washington as a gift from Japan were in wondrous bloom that spring of 1918. But they gave a false sign of hope, as the carnage of World War I continued and a terrible flu spread through U.S. military camps on the way to becoming an epidemic that would kill 20 million people around the world.
Charlie Schwab hadn't come to the nation's capital to see the blossoms or any other tourist sights. He was there on business as head of the second largest steelmaker in America, waiting in the Oval Office of the White House for President Woodrow Wilson to appear.
Schwab had just finished a tense lunch with his No. 2 man from the Bethlehem Steel Corp., Eugene G. Grace, and Bainbridge Colby, a member of the U.S. Shipping Board, the agency in charge of providing cargo and troop ships for the war against Germany.
The Shipping Board desperately needed Schwab's help.
With the Germans on the offensive in the First World War, disaster loomed in Europe. Unless many more U.S. troops and supplies could reach France quickly, the Allies might collapse on the Western Front. But America didn't have enough ships and couldn't build good ones fast enough. Dock workers wallowed in construction delays, unable to get all of the materials they needed, and bosses let poor workmanship pass.
The Shipping Board wanted a prominent businessman on deck to run the shipbuilding program and fire up the builders. Its first choice, automaker Henry Ford, gave a flat-out no.
Next was Charles Michael Schwab, the 56-year-old chairman of Bethlehem Steel, the largest shipbuilder in the world. Summoned to Washington in April, he met with three men from the Shipping Board who told him that he'd been drafted.
Oh no, I haven't, Schwab replied. I'm already building ships for the war, it's a full-time job, and I've put up millions of dollars of my own money so my plants can do the work. Besides, how can I give out government contracts to my own company?
We'll work something out, the board members said.
But a full day of bending Schwab's ear yielded only his promise to think it over, according to Robert Hessen's book, ''Steel Titan: The Life of Charles M. Schwab,'' the only biography of Schwab and the source for most of the information in this chapter.
Schwab went home. Called again to Washington soon afterward, on April 16, he still was not persuaded as Colby, at the lunch, tried earnestly to enlist him. Grace urged his boss not to give in.
Time was running out for a 2 p.m. appointment with the president, and Colby had exhausted his arguments, so he escorted the visitors to the Oval Office. As Schwab waited, he thought about how he would say no to the president, not because he hadn't supported him in the election, but because his company was busy producing ships and armaments. Bethlehem Steel needed him. He couldn't afford to turn away.
Wilson came into the office from an inner room and immediately strode to the portly Schwab, who was dressed in a modest suit and tie, stood about 5 feet 10 inches tall and had graying brown hair swept to the right over the top of his forehead.
Putting both hands out, the slim, bespectacled president greeted Schwab warmly, looked deep into his eyes, thanked him for agreeing to help the government and called him a patriot.
Schwab was stunned. He hadn't agreed to anything. Wilson's aides must have misinformed him, or he had heard them wrong.
Still, Schwab must have known why the president of the United States would assume he was willing to take on the challenge.
From his boyhood in the Allegheny Mountains of western Pennsylvania to the present, he had succeeded wherever he turned. Leading by instinct, with relentless energy and optimism, a magnetic grin and eyes that flashed with good humor, he had reached the pinnacle of the American steel industry.
He had been president of the Carnegie Steel Co. in the 1890s. Then at the turn of the century he helped organize the largest industrial company in history, the U.S. Steel Corp., and was its first chief executive. Then he took over a small enterprise, Bethlehem Steel, and in a decade made it U.S. Steel's main competitor.
The decision he made as he stood toe to toe with Wilson would catapult him to even greater heights.
Ahead lay the towering achievements of the 1920s and '30s, when Schwab's Bethlehem Steel Corp. would transform the American landscape with new beauty and utility, girding many of the nation's skyscrapers and long-span bridges. Among them are the Chrysler and Woolworth buildings in New York, the George Washington Bridge in New York and the Golden Gate Bridge in San Francisco.
Partly through his unique knowledge of steel, partly through the cult of personality that he helped promote, Schwab became synonymous with Bethlehem Steel's rise to greatness.
His friend, the inventor Thomas Alva Edison, called him ''The Master Hustler.'' He was a gambler who wore a lucky horseshoe stick pin and ''broke the bank'' at Monte Carlo. A publicity hound, he had an agent and used a clipping service so he'd know what the newspapers were saying about him. He loved many women, one of them happening to be his wife. He spent millions on a pair of fabulous mansions and traveled in a $100,000 private rail car. He professed to love the working man, but forced him to labor long hours for low pay while the executives got rich. In the pursuit of profits, he used cunning and brazen salesmanship. If he thought he could get away with cutting corners, he cheated rather than knuckle under to people he considered less knowledgeable about the making of steel.
His nurturing of the Bethlehem company would fortify it for the bloodiest conflict in history. With 283,765 people on the payroll during World War II, ''The Steel,'' as it came to be called, turned out more than a thousand ships and a vast store of armaments, cementing America's role as the arsenal of democracy.
Schwab didn't live to see his creation covered in glory. He died a few weeks after the Second World War began. And though penniless in the end, he had been wealthy and famous for much of his long life.
''As I sit and look back,'' he said in 1932, ''I cannot for the life of me understand the whole thing. All I can do is wonder how it all happened. Here I am, a not over-good business man, a second-rate engineer. I can make poor mechanical drawings. I play the piano after a fashion. In fact, I am one of those proverbial jack-of-all-trades who are usually failures. Why I am not, I can't tell you.''
He might not have been anything if his mother hadn't won an argument with his father, snubbing Abraham Lincoln's call to arms in April 1861. Pauline Farabaugh and John Schwab, both of whose parents were German-born Catholics, were married in western Pennsylvania a week after the president appealed for volunteers to put down the rebellious Southern states. John wanted to join the Union Army with his pals. Pauline talked him out of it.
Charles M. Schwab (no relation to the stockbroker of the same name) was born 10 months later, on Feb. 18, 1862, in Williamsburg, near the Juniata River. Seven other children would follow. His father and grandfather ran a mill that made blankets and coats for the Union Army.
When he was 12, his family moved about 30 miles west to Loretto, a small center of Roman Catholic piety where his father bought a livery stable and got a contract to carry mail. Charlie's job was to drive a wagon five miles to the railroad stop at Cresson, get the mail and deliver it to the people in the surrounding villages. Sometimes he took passengers.
The Schwabs' modest living allowed little Charlie few playthings. One Christmas, all he got in his stocking was a marble.
His family loved music, and Charlie had talent and self-confidence. He took singing lessons from a priest who had studied under composer Franz Liszt. His parents bought him an organ and paid his teacher with free meals. He jumped at opportunities to perform in front of an audience, often having major roles in school plays. When he had passengers in his mail wagon, he entertained them and got the nickname, ''The Singing Cabbie.''
Once, when relatives visited on a Sunday afternoon, he amused them with handsprings, magic tricks, jokes and songs, then told them when they got up to go, ''I can do something else yet!''
Doing ''something else yet, something plus,'' as Eugene Grace put it many years later, ''was a No. 1 Schwab principle.''
After grade school, Charlie's intelligence, determination and an almost photographic memory put him at the top of his class at local St. Francis College, which provided high school courses. But he didn't graduate. A torpedoed romance with a pretty, 16-year-old actress from Pittsburgh ended his formal education and led him toward a life in steel.
The girl, Mary Russell, was visiting her sister in Loretto, and Charlie started hanging around their house at all hours to see her. They got googly-eyed over each other, and Mary suggested that with his fine voice and acting ability, he could make the stage his career. He had visions of stardom.
When the pair got engaged, Charlie's parents yelped. They didn't want their bright son marrying an actress or making a living as a lowly entertainer. Charlie threatened to run away with her, but they managed to hold him back. And Mary's sister, believing Mary was too young to wed, sent her back to Pittsburgh.
The dashed affair left Charlie moping. His father thought he needed a taste of the real world to lift him out of his funk. So in 1879, with a year left to go at St. Francis, young Schwab went west to Allegheny County and worked at a grocery and dry goods store in Braddock, home of Andrew Carnegie's Edgar Thomson Steel Works. One customer who regularly came in for cigars was William R. Jones, the plant's general superintendent.
Jones, who was born in Catasauqua and apprenticed at the Lehigh Crane Iron Co. when he was 10, liked Charlie's spunk and hired him as a stake driver on a surveying crew for $1 a day. Charlie pretended to know more than he did and was so convincing and so quick to learn, that he soon rose to draftsman and then chief engineer.
For fun in his spare time, he studied Egyptology and the pyramids and read about his idol, Napoleon Bonaparte. For extra cash, he gave piano and organ lessons.
In 1883, when he was 21, he married Emma Eurania Dinkey despite his mother's disapproval. ''Rana,'' whose family had moved to Braddock from Weatherly in Carbon County, was Presbyterian, not Catholic like the Schwabs.
At the steelworks, Jones grew tired of delivering his daily report to Carnegie, who lived 10 miles away in Pittsburgh, and started sending Schwab instead.
On one trip, Carnegie was late getting to his parlor, where Schwab waited for him and started playing the piano. When Carnegie came into the room, Schwab stopped, but Carnegie told him to continue. He liked songs from his native Scotland and asked Schwab if he could play some at a party. Schwab said he could and spent the next three days learning Carnegie's favorites. With his smooth baritone voice and playing, he was a hit with the boss and his guests.
Carnegie also liked Schwab because he was fun to be around. When the boss checked on his mills, he saw dour managers with worried looks on their faces. But Schwab was different. He was easygoing, vibrant and uproarious. His jokes had Carnegie hooting and doubling over with laughter.
Always, Schwab tried to improve himself. To learn about metallurgy, he set up a chemistry lab in his house and experimented at night.
When Carnegie needed a new general superintendent at his Homestead Works, Schwab got the job. He was only 24. Three years later, after Jones was killed in a furnace explosion, Schwab succeeded him as head of the Edgar Thomson Works, the largest steel plant in the country.
Schwab proved himself a keen motivator. Instead of needling and punishing his employees when they didn't perform well, he encouraged them with incentives, bonuses and promotions. He believed that men respond to challenges, that it's their nature to be competitive.
His theory served him well. The workers, who considered him fair and honest, met his expectations, and Carnegie was delighted with the Edgar Thomson plant's productivity. Schwab, he saw, was a superb manager with an excellent grasp of the business.
After the bloody Homestead strike of 1892 had fizzled, but while relations between workers and management were still raw, Carnegie transferred Schwab to Homestead to patch the wounds. He succeeded. And when 200 diehard strikers gave up and returned to the plant, Schwab boosted his standing among the employees by personally welcoming each holdout.
''My feeling is that the average working man is a better man than the rest of us,'' he told Wall Street Journal owner Clarence Barron many years later during one of his annual steamship rides to Europe. ''He is a good, loyal citizen and family man.''
But for all of Schwab's skill at running a plant and managing people, he wasn't above cheating. One case was so serious, it came to the attention of President Grover Cleveland.
In 1893, the government accused Schwab of heading a conspiracy to defraud the Navy. While running the Homestead plant, according to the charges, he had knowingly sold substandard armor plate for ships, which some officials said could have put American sailors in peril.
Cleveland agreed with a Navy board of inquiry that the armor plate should have been of better quality. He endorsed a fine against Carnegie Steel, but the amount was less than the Navy wanted. His decision, in effect, was a compromise.
Critics weren't satisfied. In Congress, a House subcommittee was formed to investigate whether Schwab authorized or allowed fraudulent practices. The most serious charges were that he failed to follow the Navy's specifications for armor plate, that he falsified test results and covered up defects, and that he had secretly re-treated plates that were chosen for a ballistics test.
Schwab, in his testimony, said that because the Navy wasn't knowledgeable about steelmaking, it shouldn't be prescribing the armor-making process, but should only be concerned with results.
He admitted tampering with preliminary test results and hiding surface defects, but said that was to please Navy inspectors, who didn't know enough to see that the steel was actually of high quality. He said the plates for the ballistics test were re-treated as an experiment, and Navy officials weren't told because they ''were not practical men and they would not have understood this thing.''
The subcommittee found Schwab's arguments fell short and concluded that the results of his actions ''would be the sacrifice of the lives of our seamen in time of war, and with them, perhaps, the dearest interests of our nation.'' It upheld the Navy's original findings and the reduced fine set by the president.
Carnegie, who was lashed in the press, stood by Schwab and in 1897 made him president of the Carnegie Steel Co., which had four plants in the Pittsburgh area. He chose Schwab mainly because the two shared a belief in the importance of producing a high volume of steel at the lowest cost. Schwab swung the ax and drove up Carnegie Steel's profits.
Early in 1901, Schwab arranged a merger between Carnegie's interests and the steel interests of investment banker J. Pierpont Morgan to create U.S. Steel Corp., which combined 190 companies into the largest steelmaker in America and the world's first billion-dollar corporation.
Schwab had become rich working for Carnegie, who retired after selling out to Morgan, but the U.S. Steel deal made him even richer. Having owned 6 percent of Carnegie Steel, he got $25 million in the new corporation's bonds.
In April 1901, the 39-year-old Schwab became the company's first president and moved to the corporate headquarters in New York, which became his playground. He dived into the social scene and began building a block-long mansion modeled after a French chateau.
He called his new home Riverside. Situated on Riverside Drive between 74th and 75th streets in Manhattan, it was the biggest private residence in the city four stories high, made of steel and granite, with 90 bedrooms, a swimming pool, a bowling alley, a gymnasium, a wine cellar, an art gallery stocked with masterpieces, and its own power plant. It would take four years and $8 million to build, furnish and decorate.
Among the contents was a $100,000 organ on which Schwab had his personal organist, Archer Gibson, play classics. As a finishing touch, Schwab had 100 Flemish women brought to America to weave tapestries to cover the pipes.
Schwab kept three French chefs on call 24 hours a day, and masseurs were available at any time as well. He hired Metropolitan Opera players to come and perform highlights from arias he liked, because he didn't have the patience to sit through an entire opera.
''I suppose I am too much of a realist,'' he said, ''to appreciate a man or a woman taking 20 minutes to die, warbling all the time.''
Among the entertainers was famed tenor Enrico Caruso, who performed for Schwab and his guests for $10,000 a night.
For other pleasures, Schwab bedded Broadway showgirls. He had a long affair with Boston businesswoman Myrtle Hayes that ended when he learned she had forged his name to $24,000 in promissory notes. In 1924, she admitted her guilt in court.
Unfortunately for Schwab, his days at the U.S. Steel office weren't as lighthearted as his night life. Hoping to run the company the way he saw fit, he instead had to butt heads with a Morgan associate who was above him in the chain of command Elbert Gary, the chairman of U.S. Steel's Executive Committee.
Opposites in manner and business philosophy, Schwab and Gary scraped against each other like tectonic plates. Schwab was a boisterous libertine who gambled, craved publicity and had mistresses. Gary was a preachy, teetotaling Methodist, reserved and respectable.
Schwab, who had worked in steel plants since he was a boy, slashed costs and prices, offered bonuses to workers and managers for jobs well done, and liberally spent money for expansion.
Gary had been a lawyer and a judge with a reputation for honesty. As a businessman, he was a consolidator who wanted to make U.S. Steel's holdings more efficient, not add to them. He sought stable prices and harmony among competitors, and didn't believe in bonuses for individual performance.
As Schwab had demonstrated with the Navy in the armor-plate scandal, he hated having to deal with people he believed didn't know the practical side of steelmaking. He tried to sidestep Gary's authority, and Gary responded by reining him in.
''Judge Gary, who had no real knowledge of the steel business, forever opposed me on some of the methods and principles that I had seen worked out with Carnegie methods that had made the Carnegie company the most successful in the world,'' Schwab said later.
In May 1901, about eight weeks after joining U.S. Steel, Schwab bought the Bethlehem Steel Co. for himself. Bethlehem was a small, specialized company that made heavy steel forgings for guns and marine engines, and was the only company other than U.S. Steel that produced armor plate. It had 4,000 workers, a plant that stretched for a mile and a half along the Lehigh River, and substantial earnings that would total $1.4 million in 1901.
Bethlehem Steel's directors had taken steps to expand when they reorganized the company in 1899. But then came the U.S. Steel merger, which left Bethlehem out. Schwab later said Bethlehem wasn't included because it offered nothing but duplication.
Facing a giant with a lock on the nation's steel market, Bethlehem's directors decided to sell. Schwab got the company for $7.2 million.
He hadn't been the only party knocking on Bethlehem's door. Joseph Wharton, the company's largest stockholder, had been negotiating with Vickers' Sons & Maxim Ltd., the British maker of guns, armor plate and warships, which had teamed with the Cramp Shipbuilding Co. of Philadelphia. But Vickers-Cramp was shot down after offering $22.50 for each of Steel's 300,000 shares.
Robert Sayre, another large stockholder along with Robert Linderman and Elisha Wilbur, wrote in his diary that Bethlehem Steel rejected the offer because Vickers-Cramp ''wanted the time given for examination of the works extended. Damn foolishness.''
Meanwhile, Linderman was negotiating with Schwab. On May 30, 1901, two days after the Vickers-Cramp bid failed, Linderman sealed a deal with Schwab, who had made a counteroffer of $24 per share.
''It's such a strange thing,'' says Lehigh University technology historian John Kenly Smith Jr. ''Schwab makes an offer to Bethlehem which is slightly higher than Vickers' and they take it. Why don't they then go back to Vickers and say: We got a better offer. You want to come back with another offer? But no, they sell to Schwab.''
Several factors probably came into play. Bethlehem Steel's stockholders might have preferred Schwab as a way of keeping their company out of foreign hands. And Schwab, even though he bought Bethlehem Steel as a personal investment, was the president of U.S. Steel, which controlled 60 percent of the nation's steelmaking business and had an interest in seeing the Vickers syndicate thwarted.
If Vickers grabbed Bethlehem, the British conglomerate would have an opportunity to make deep inroads into the American steel and shipbuilding industries, cutting into U.S. Steel's dominance. The idea that Vickers was about to buy Bethlehem Steel ''was unpalatable to U.S. Steel,'' Smith says.
But America's largest steelmaker was helpless to prevent Vickers from taking over Bethlehem. As a mammoth corporate entity, U.S. Steel could not have bought the little company for itself, given the antitrust climate in Washington. President Theodore Roosevelt would not have allowed U.S. Steel to absorb its only competitor in the armaments trade, because that would have reinforced U.S. Steel's position as a monopoly.
''Here's Bethlehem Steel, a firm that's a major supplier of the government,'' Smith says, ''and all of a sudden it's going to be part of a monopoly? Politically, it couldn't have flown. Teddy Roosevelt and Congress were very suspicious of large new firms like U.S. Steel. They thought they were just going to use their power to jack up prices and profits.''
Another factor was national pride. Officials in Washington would not have accepted the idea of Bethlehem Steel being owned by British interests, Smith says. ''Is Congress going to be happy with the fact that we're buying all our battleship armor and guns from a British firm?''
So it was the offer from Vickers, according to Smith, that led U.S. Steel President Charles M. Schwab to buy Bethlehem Steel. The sale was completed smoothly during the summer of 1901. On Aug. 15, Bethlehem Iron's stockholders accepted Schwab's offer, and the lease between the iron company and its holding company, Bethlehem Steel, was canceled.
Bethlehem Iron, formed by Asa Packer, Robert Sayre and their associates four decades earlier to make rails for the Lehigh Valley Railroad, vanished from the ledger books. Schwab took over the Bethlehem Steel Co., which now had operational control of the iron company's properties.
But he didn't keep it.
J.P. Morgan, who owned the syndicate that underwrote the U.S. Steel merger, apparently frowned on Schwab's ownership of the Bethlehem company. Morgan might have thought Schwab couldn't run it and effectively carry out his duties as president of U.S. Steel.
Schwab turned Bethlehem over to J.P. Morgan & Co. for the price he paid for it, $7.2 million. It stayed in Morgan's hands for almost a year.
In that time, Schwab's grip on U.S. Steel began to loosen. The beginning of the end came with a public relations nightmare he tumbled into while vacationing in Europe early in 1902.
On Jan. 8, he tooled into Monte Carlo in a roadster and hustled to the roulette tables. A reporter spied him, and wild stories about Schwab's luck at gambling burned up the cables to newspapers on both sides of the Atlantic. ''Schwab Breaks the Bank,'' the New York Sun screamed on Page 1. His play at the tables, the stories said, whipped his audience into a frenzy.
His mentor, Carnegie, frothed in anger. He had always insisted on upright moral and social behavior by his lieutenants, and now Schwab his favorite had betrayed him.
Actually, Schwab had always brushed off Carnegie's rules of conduct, but had never gotten caught. Though he didn't smoke, and only drank occasionally, and never in excess, he was an ardent poker player and had fathered a daughter by a nurse working in his home. The nurse, a beautiful redhead, was tending to Rana's younger sister, Minnie, who was recovering from typhoid fever.
This time, though, Schwab was nailed in the press for all to see. Carnegie sent him cables laden with sharp rebukes that hurt him deeply. And though Schwab denied the reports of ''great winnings and losses,'' he couldn't calm down the old Scotsman. Back home in February, Schwab suffered an acute anxiety attack over Carnegie's badgering.
''I have been so depressed since my return,'' he wrote to his ex-boss, ''that I only forget your condemnation when plunged in work. It is a nightmare from which I never seem to wake. I don't care for the newspaper criticism I only mind yours.''
Not only had he alienated Carnegie, a friend who had lifted him up as a steelmaker for years, but he was in trouble with U.S. Steel managers who felt that publicity over his naughtiness in Monaco was smearing the company's name.
Only Morgan didn't seem to mind. He dismissed the fuss and told Schwab, ''Forget it, my boy, forget it.''
But Schwab couldn't. His doctors, concerned about the stress on his heart, told him that he had to get away and rest. So in August, he and Rana and his youngest sister sailed for France, where they would remain for six months.
Before he left, Schwab set the stage for another scandal, one that was far worse than the debacle over his gambling. It would call into question whether he could do business honestly and leave him cleaning out his desk at U.S. Steel. At the center of the controversy was the Bethlehem Steel Co.
Schwab got involved with some investors who were eager to build a construction empire. The investors picked seven shipyards on both coasts and a manufacturing company for a merger into one unit that would be called the U.S. Shipbuilding Co. Schwab offered to sell them Bethlehem Steel, even though he didn't own it at the time.
Dollar signs floated before their eyes. With Bethlehem as an anchor, the new company could build battleships complete with all of their armor, guns and equipment.
But the investors couldn't afford Schwab's $9 million price tag or any amount near it, so he hatched another idea: They could have Bethlehem Steel for $10 million in bonds and $20 million in stock, instead of cash. On top of that, Schwab would protect his investment. He wanted a second mortgage on all of the shipbuilding properties, full voting power on his bonds, and enough orders to guarantee a 6 percent dividend on Bethlehem Steel stock.
It's a deal, the investors said.
Schwab bought Bethlehem Steel back from J.P. Morgan for $7.2 million, then sold Bethlehem's stock to U.S. Shipbuilding. The new business, incorporated in June 1902, included the manufacturing company, the seven shipyards and Bethlehem Steel.
But U.S. Shipbuilding foundered during the next year. The only bright spot in the merger was the Bethlehem subsidiary, which did better than expected.
More trouble stirred when Bethlehem's directors and Schwab's representatives on the U.S. Shipbuilding board wouldn't let Bethlehem Steel throw a lifeline to the flailing parent company. Instead, Bethlehem's earnings stayed in South Bethlehem, where they were used to build up the plant and buy iron ore mines in Cuba.
In the spring of 1903, U.S. Shipbuilding was close to sinking. It was short $2 million to run the shipyards and make interest payments on Schwab's bonds.
Schwab came to the rescue, sort of. He agreed to put up the money, but only if his second-mortgage bonds were replaced with first-mortgage bonds, giving him the primary lien on all of the company's properties.
That was fine with U.S. Shipbuilding's chief executive and some investors who wanted the company reorganized. But first-mortgage bondholders fought the plan, not wanting Schwab's claims to have priority over their own. In a suit filed in federal court, they charged that U.S. Shipbuilding was insolvent, had been mismanaged and was fraudulently promoted and organized.
The newspapers vilified Schwab, giving front-page coverage to the scandal for a year. His critics saw him as a pirate who had engineered the company's failure so he could pick up the pieces.
Schwab countered it wasn't his fault that the shipyards were failing. He was determined to protect Bethlehem Steel, he said, and didn't feel obligated to risk his assets to salvage the merger. Still, his actions were curious.
''There's a shady deal here,'' says Smith, the Lehigh University historian. ''Why does the firm go under? Because Schwab demands that they pay him the interest on his bonds. But Schwab didn't have to foreclose on the company for not paying. He could have just said OK. Instead, he used a legal technicality to screw the firm. Why? There can only be one explanation: He wanted control of it.''
But it's unclear why Schwab would want to own poorly performing shipyards.
''Charlie Schwab was not a person whose motives were always rational,'' Smith says. ''He was not a cold, calculating capitalist. He was a romantic and a visionary and something of a speculator and a gambler, so his motives are rather hard to fathom sometimes.''
On June 30, 1903, a federal judge accused Schwab of ''ruinous extortion,'' ruled U.S. Shipbuilding insolvent and named a receiver to take over the company until its finances were put in order. That same day, U.S. Steel named an assistant to the president, citing Schwab's poor health.
The move was a first step toward Schwab's resignation, and Schwab had planned it himself. He knew that the shipbuilding scandal had hurt his leadership at U.S. Steel, and didn't want to be fired or asked to quit. Nor did he want to resign immediately, because that would look as though he were admitting guilt. Instead, he would drop out in stages, blaming illness.
A month later, on Aug. 4, Schwab resigned as president of U.S. Steel, saying he was too sick to go on.
In the fall of 1903, the receiver issued a report supporting the allegation that Schwab caused U.S. Shipbuilding to fail. He accused Schwab of cheating the public and bagging the profits. Schwab denied any wrongdoing, saying the charges were ''false and malicious.''
A trial examiner heard Schwab's testimony in the suit by the first-mortgage bondholders in January 1904. After that, the receiver suggested settling the dispute by dividing the stock between Schwab and the first-mortgage bondholders. Everyone agreed to the terms.
Schwab lost $996,000 but held on to his little gem, Bethlehem Steel. And little it was, with an ingot capacity that was less than 1 percent of the national total.
Yet Schwab, who had been savaged over Monte Carlo, hounded out of his top-of-the-world job at U.S. Steel and humiliated by the U.S. Shipbuilding fiasco, wasn't about to slink off into the shadows.
''I shall make the Bethlehem plant the greatest armor-plate and gun factory in the world,'' he said in August while touring the property.
Later, he expanded on that.
''I intend to make Bethlehem the prize steelworks of its class, not only in the United States, but in the entire world. In some respects, the Bethlehem Steel Co. already holds first place. Its armor-plate and ordnance shops are unsurpassed, its forging plant is nowhere excelled, and its machine shop is equal to anything of its kind. Additions will be made to the plant rather than changes in the present process of methods of manufacture.''
On Dec. 10, 1904, the Bethlehem Steel Co. took on a new form, becoming the Bethlehem Steel Corp. With $30 million in capital, it was incorporated in New Jersey as a holding company operating the Bethlehem Steel Co. and the wreckage of the U.S. Shipbuilding merger seven shipyards and the manufacturer.
As president of the corporation, Schwab sold off the unprofitable businesses, saving only three of the shipyards. He moved his office from New York to South Bethlehem.
''I was convinced that no great steel corporation can be managed from New York,'' he said a decade later, believing that U.S. Steel's directors tied his hands in New York when he should have been at the plants. ''I (was) determined to reorganize the Bethlehem Steel Co. and have it managed entirely on the grounds.''
He put together a team of 16 managers who were loyal to him, ''The Boys of Bethlehem.'' They created their own corporate community, centered on the boardroom and later the golf course at the Saucon Valley Country Club.
Schwab believed that Bethlehem's future would be in jeopardy if the company relied exclusively on U.S. government contracts for armor plate and ordnance. He pressed for and won a larger share of the European arms market, putting Bethlehem on a level with the big armament makers such as Vickers in Britain and Krupp in Germany.
To take advantage of commercial opportunities, he spent a few million dollars adding facilities U.S. Steel didn't have a crucible steel plant to make high-quality alloy steels and an open-hearth rail mill, which produced better steel rails than U.S. Steel's Bessemer converters.
He also wanted a product that would give Bethlehem an advantage in the increasingly competitive structural steel market. To get it, the gambler did what he did best he rolled the dice, betting that the nation was on the verge of a building binge and that the new structures would reach for the sky.
With real estate prices going through the ceiling in Chicago and New York, 19th century builders couldn't figure out the best way to add on to roofs. They started building up with stone, but the mass of the stone needed to support the walls left little interior space. They turned to iron and steel framing, which was used in 1885 to build the first skyscraper, the 10-story Home Insurance Building in Chicago.
Builders soon found that steel was stronger, more malleable and less brittle than iron. But architects were still limited in designing tall buildings. They needed stronger frames.
Engineers knew that beams with wide flanges were the answer. Plates and angles could be riveted together to form sturdy columns. But the process was time-consuming and expensive, and the beams weren't reliable for framing because they weren't uniformly shaped.
Then in 1897, an Englishman named Henry Grey developed a process for rolling wide-flange beams and columns in a single section directly from an ingot. These were beams that didn't need overlapping sections of steel that had to be riveted together. They were stronger, lighter, more adaptable and less expensive to make.
Still, no American steel producer dared to risk millions on a mill with an unproved product. Except Bethlehem.
Schwab realized Grey's beam was as innovative as John Fritz's ''three-high'' rail mill had been in the previous century. He had wanted to buy the rights to it when he was president of U.S. Steel, but couldn't get the company's Executive Committee under Elbert Gary to go along. Gary didn't believe the beams could be mass-produced.
Now as head of Bethlehem Steel in 1905, Schwab went to Luxembourg to see the first Grey mill in operation and decided that Bethlehem would build the beams and columns. As a courtesy, he informed Gary, whose response was: Go ahead, we're not interested.
The Panic of 1907 put a crimp in Schwab's plans. With the patent rights in hand, Bethlehem needed about $5 million to build the Grey mill. Schwab wanted to float a bond issue, but the stock market collapsed and the money wasn't there. Bethlehem's ''Boys'' suggested dropping the idea.
Disheartened, Schwab rode a train to New York to think about it. Early the next morning, he phoned his secretary, James H. Ward, and said, ''Get up, Wardie, we are going back to Bethlehem and talk to the boys. I've thought the whole thing over, and if we are going bust, we will go bust big.''
He talked his suppliers and contractors into providing their services without payment until after the mill was running and showing profits.
The Grey mill and related operations were built on land purchased along the Lehigh River in the Saucon Valley, about a mile east of the main blast furnaces. The mill would form the nucleus of the Saucon Division of the Bethlehem plant, which also included open-hearth furnaces that made the steel, ingot molds, soaking pit furnaces to heat the ingots, and blooming mills where ingots were reduced to blooms, which are semi-finished steel forms with a rectangular cross-section, and dog bone-shaped sections for further processing in the Grey mill.
Bethlehem began making Grey beams in January 1908, but within six months faced another crisis. It needed $1.5 million to keep operating the mill, and wherever Schwab held out his hand, no money plunked into it.
Enter Andrew Carnegie, who after four years had gotten over Schwab's Monte Carlo foibles and written him a nice letter that made them friends again. Carnegie lent Schwab U.S. Steel bonds as collateral for bank loans.
The new Grey beams would help erect buildings that seemed to kiss the clouds. Also known as ''Bethlehem beams,'' they became Bethlehem Steel's corporate symbol. The first building they supported was the new headquarters for the Gimbel Brothers' department store in New York City. They also went into the Chicago Merchandise Mart and the Chicago Opera House.
When architects and builders saw that the beams were effective, orders started pouring in. By the end of the decade, Bethlehem Steel was giving U.S. Steel stiff competition.
But then came a shock the company's first labor problem.
Both skilled and unskilled workers felt their pay was too low and their hours too long. Machinists worked 10 hours and 25 minutes a day for six days, including Sundays, and five hours and 20 minutes on Saturdays. They made up to 27 cents an hour. Unskilled laborers made 121/2 cents an hour and worked longer hours.
Long hours and dangerous work threatened safety. In the previous year, 10 percent of the 9,200 employees were involved in an accident, and 21 men were killed. When deaths happened, they were horrible. In 1903, Anton Reinfeld, a 43-year-old Austrian immigrant, was caught between two rail cars while working at the company's yards. ''The unfortunate man's body was crushed about the hips almost into a jelly,'' The Morning Call reported. ''Both legs were almost severed, and he was hurt about the head. He died soon after being taken to St. Luke's Hospital.''
On Feb. 3, 1910, machinists held a work stoppage. They were joined the next day by unskilled laborers. The day after that, the workers voted to strike, with the machinists and laborers supporting one another and vowing not to give in until both groups had gotten more pay.
But the strikers amounted to a minority of the plant's work force and didn't have much pull, even though they got help in organizing from two unions, the International Association of Machinists and the American Federation of Labor.
Schwab offered the machinists one cent more per hour, but they wouldn't take it. The machinists stood by the unskilled laborers.
The strike intensified and spread to other work groups. Two hundred riggers walked out after Schwab refused to raise their hourly pay from 12.5 cents to 20 cents. A picket carried a sign that jabbed at Schwab: ''May God Protect Our Homes Charlie Won't.''
Many strikers left Bethlehem for jobs that union organizers found for them. Some learned that Bethlehem Steel's tentacles extended far beyond Pennsylvania.
John Ofchus, a Polish immigrant who helped organize the strike, was no longer welcome at Bethlehem Steel. He tried to find work at a steel plant in Cleveland. He wrote down his name and, when asked where he worked previously, said ''Bethlehem Steel.'' Managers at the Cleveland plant found out that Ofchus was a leader of the Bethlehem strike and sent him away. He tried to find work in Chicago, but again his reputation preceded him.
At the U.S. Steel plant in Gary, Ind. the town was named for Elbert Gary Ofchus told managers that his last name was Wadolny, the surname of his half-brother, Ferdinand Wadolny. He got the job.
His half-brother's son, John Wadolny, who started work in a Bethlehem Steel forge shop in 1934, would go on to become one of the company's most respected union leaders.
The Bethlehem Steel strikers who stayed behind hoped to shut down the plant. Their anger turned away from Schwab to the men who were still working. Fearing violence, the governor sent in the state police.
One person died during the labor strife. A trooper chasing a rowdy striker guided his horse onto the sidewalk in front of the Majestic Hotel, headquarters of the union organizers. He fired into the hotel barroom, and the bullet killed Hungarian immigrant Joseph Szambo, a striker who had gone inside to buy wine to settle his wife's stomach. She had just given birth. Trooper John Moughan was charged with manslaughter and acquitted in a trial after witnesses could not identify him.
Schwab, who asked workers to call him ''Charlie,'' went up and down the streets, telling the strikers that he could outlast them. ''If you can stand it, I can,'' he taunted.
He loathed unions, believing they got in the way of managers' efforts to cut costs and keep the company competitive. ''I won't be in the position of having management dictated to by labor,'' he said.
By the end of March, about 500 men were still on strike and 1,000 strikers had left town for jobs in other cities, but the plant was still running at nearly full steam. To replace men who had left, the company had recruited workers from other cities. It's not known how successful that effort was, but strikers had identified 121 ''scabs.''
At Schwab's urging, Bethlehem's businessmen lashed out at the strike's leaders, accusing them of trying to wreck the local economy.
A federal Bureau of Labor investigation authorized by Congress confirmed that the strikers were right about low wages and long hours at Bethlehem Steel. That came as no surprise to Schwab, but he took issue with the report because it didn't note that these were conditions common throughout the U.S. steel industry.
The strike ended with a whimper on May 18, 1910. The workers no more than 600 still on strike had been unable to shut down the plant or hurt the company's business. After 108 days, they had little to cheer about. They accepted Schwab's offer of optional overtime and Sunday work, but got no wage increases.
Despite the agreement, more than a year later, workers who refused overtime were still being fired.
The strike was proof that Bethlehem Steel had entered a new era. Its Grey mill had doubled the size of the plant and altered its character. No longer a place inhabited mainly by craftsmen, the company now needed masses of workers to turn out steel. By 1910, Bethlehem Steel had more than twice as many employees as there were when Schwab took over. Many of them were European immigrants who lived near the plant and frequented the growing number of shops on Third and Fourth streets.
The infusion of workers transformed South Bethlehem into a rollicking, noisy, crowded frontier-like boomtown. Biographer Catherine Drinker Bowen, who lived there and was the daughter of an early Lehigh University president, said the borough was ''like another place and another planet, a Wild West of its own.'' Another resident declared, ''There was a vitality here, a basic industrial thrust, a roaring go-ahead, get-ahead atmosphere of America on the move.''
Inside the plant, ethnic groups worked in clusters. One department might have all Hungarians; another, all Slovenes. With foremen having the power to hire and fire, they could shape the character of their shops.
The company's leadership was different as well. Schwab, a Catholic from the western part of the state, tutored in steel by hardened industrialists Carnegie and Morgan, didn't fit in with the old Episcopal elite. Unlike Sayre and his Bethlehem Iron associates, Schwab was an outsider with no strong fealty to the workers or the community.
Nor did he try hard to fit in. His goal was to grow Bethlehem Steel so it could make lots of steel as cheaply as possible and keep using the profits to modernize and expand. In 1912, Schwab arranged for Bethlehem to buy the Tofo Iron Mines in Chile, important because they had large deposits of iron-rich ore. A purchase in 1913 made Bethlehem a major shipbuilder. It got the Fore River Shipbuilding Co., which had a yard in Quincy, Mass., near Boston. Now Bethlehem could build warships completely armored and equipped.
At first, Schwab's aggressive, hands-on style rankled veteran managers, who preferred the old way of doing things. One manager complained that Schwab's production goals were impossibly high. Schwab told him: ''If we can get our blast furnace operations to such and such a state of efficiency, I'll pay off the mortgage on your house.'' Within months, the man accomplished the feat and had a mortgage-free house. Other managers got the message.
The company's number-crunchers were amazed at Schwab's grasp of details. He could memorize a hundred pages of cost data in less than an hour and pluck one of the figures from his mind in an instant.
Around him, he created a meritocracy in which a man's position was defined not by religion or ethnic background, but by his place in the company pecking order.
''To us, Schwab was always a dirty name,'' says Robert Packer Linderman Frick, 88, grandson of Robert Linderman, the last president of the Bethlehem Iron Co. ''It was a nice, quiet little organization until he came along. Then they had the strike and called in the state police. We didn't have that kind of thing before. But this brash New Yorker had to come in and made us modern.''
Schwab bought, renovated and moved into the South Bethlehem mansion of Bethlehem Iron director Garrett Linderman the house where Garrett's son, Robert, was born. It became known as the Schwab House, but that didn't sit well with Robert's daughter.
''My mother used to have a fit every time they talked about the Schwab House,'' says Frick, of Bethlehem. '''I don't know what you're talking about,' she'd say.''
It was her father, Robert Linderman, who had negotiated with Schwab on Bethlehem Steel's sale. In January 1903, about two years after closing the deal, he died from blood poisoning after cutting himself while amusing one of his children with a mechanical toy, according to a newspaper account. Frick, however, says his grandfather got the blood infection from picking up broken Christmas tree ornaments.
Linderman's death left many local residents grieving.
''They did not realize that as they mourned, the age which Linderman symbolized had also passed away,'' according to ''Bethlehem of Pennsylvania: The Golden Years 1841-1920'' by W. Ross Yates. ''It succumbed to the era of organization which Schwab was bringing to the Bethlehems.''
Schwab's mind was set on building up Bethlehem Steel to make it ''the greatest steel plant in the world. By that I mean the largest, most modern, the best equipped, the most highly specialized, and I fear also the most expensive steel works anywhere.''
To do that, he was determined to direct the company his own way, without outside interference from anyone, especially from a union. The strike had stiffened his resolve. Eugene Grace, who became corporation president in 1916 and whom Schwab considered the best of his ''boys,'' stood with him.
In the summer of 1918, the National War Labor Board found serious morale and pay problems at Bethlehem Steel, and demanded the company start bargaining collectively with its workers. In Bethlehem, the order was ignored.
The government kept up the pressure, and in the fall, Grace and Schwab sought to deflect it with their own scheme a company union called the Employee Representation Plan. Hatched by Schwab's publicity agent, Ivy Ledbetter Lee, it allowed workers to choose fellow workers as delegates to present grievances to management. But it did not allow them to bargain as equals with the company or have the right to call a strike.
The idea was to make Bethlehem Steel look as though it weren't anti-union, when it was. As a result of the new policy and other issues, the Amalgamated Association of Iron, Steel and Tin Workers couldn't interest Bethlehem Steel workers in unionizing. And when the ''Great Steel Strike'' hit the nation in 1919, only about 2,000 of the Bethlehem plant's 13,500 workers walked out to demand union recognition.
Besides keeping out unions, Bethlehem Steel was off-limits to outsiders on its board of directors. Schwab and Grace refused to include influential people from other industries and professions, as other big companies did, insisting that only key Bethlehem men with firsthand knowledge of steelmaking should hold positions of authority.
The company's closed system served it well then.
In the five years after 1910, employment doubled, and a war that supercharged the company broke out in Europe.
World War I made Bethlehem one of the biggest and most profitable companies in the world. Within six months of the first shots fired in August 1914, the company received more than $50 million in ordnance orders from Britain and France, plus the largest order in Bethlehem's history $135 million from the British navy for howitzers, naval landing guns, shrapnel, shells and, most important, 20 submarines.
The submarine deal showed Schwab's stature and guile.
In October 1914, the British Admiralty secretly asked Schwab to come to London. He met with Winston Churchill, who, as the first lord of the admiralty, was the civilian head of the Royal Navy. Churchill and other negotiators asked Schwab to build the subs. Schwab wasn't sure Bethlehem could construct all of them at once, so he cabled his vice president for shipbuilding, H.S. Snyder, who checked with the company's subcontractor, the Electric Boat Co. of New York. Snyder told Schwab that half of the subs could be built at Fore River in Quincy and half at the Union Iron Works in San Francisco, which Bethlehem got when the U.S. Shipbuilding merger collapsed.
It usually took Bethlehem 14 months to build a submarine; Schwab promised to start delivering them in six months. In addition, he gamely proposed that Britain pay a $10,000 bonus per sub for each week Bethlehem beat a delivery deadline. If the company missed a deadline, it would forfeit $5,000 a sub each week. Churchill agreed, and Schwab went home with a $15 million down payment.
The deal hit a snag when details were leaked to the press, possibly by a German spy in the Admiralty. Schwab was called to Washington, where Secretary of State William Jennings Bryan told him on Dec. 2 that Bethlehem would violate U.S. neutrality if it delivered the subs to Britain. Vessels intended for belligerent countries could not be fitted out, armed and shipped from U.S. waters when the nation was at peace. (Private trade in weapons, explosives and other war materials was permitted, however.) Bryan asked Schwab to cancel the submarine order; Schwab said he'd think about it.
Schwab wasn't willing to give in. He had an idea for how to skirt the neutrality law. He traveled by train to Canada and found a shipyard in Montreal that he believed could assemble the subs from parts made by Bethlehem and Electric Boat. It was owned by Canadian Vickers, a subsidiary of the British munitions giant that was Bethlehem's failed suitor 13 years earlier.
On Dec. 4, Schwab phoned Bryan and said he ''would not build submarines for any belligerent country for delivery during the war.'' The next day, under a false name, he sailed for London to ask Vickers for permission to use the Montreal yard. But first he stopped in at the Admiralty.
Churchill had heard that the Wilson administration opposed the submarine contract. Puffing madly on a cigar and pacing, he scolded Schwab for making a deal Bethlehem couldn't fulfill and wasting Britain's precious time.
When Schwab got a chance to speak, he said there was no problem. Bethlehem would build the subs if it could use the Vickers shipyard.
Churchill and the professional head of the Royal Navy, First Sea Lord John Fisher, were astonished.
''If that's all you want,'' Fisher blurted, ''start back at once and take the yard.''
Under a revised agreement, 10 of the submarines would be built in Montreal and the rest at Fore River. Schwab wanted to use Fore River so he could finish the work quickly. He gambled that he wouldn't get caught. Bethlehem would get $100,000 more, or $600,000, for each of the subs fabricated at the Vickers yard. That would allow for what Schwab said was the higher cost of doing business in Canada.
Back in New York on Dec. 23, Schwab explained to reporters that he went to London to cancel the submarine deal. He hid what he was doing because Canada was an ally of Britain and a belligerent in the war.
Bethlehem sent two of its shipyard presidents and 500 workers and supervisors to Montreal, where they were sworn to secrecy. Executives told the press that the steel they were sending across the border would help replace bridges destroyed in Europe, and it was being shipped via Canada.
But the German ambassador to the United States wasn't fooled. Johann von Bernstorff complained to Bryan that Bethlehem Steel was secretly sending submarine parts to Canada, a breach of neutrality. When Bryan asked for an explanation, Bethlehem maintained that the materials were strictly commercial. Technically, the company argued, they weren't prohibited parts for a war vessel because they had to be further fabricated in Montreal before the subs were completed.
Bernstorff protested. He didn't believe what the Wilson administration was telling him: that the subs being built at Fore River and Montreal were not for delivery to Britain. But Wilson had stopped listening.
All 20 submarines were launched by September 1915, and Bethlehem Steel got $4 million in profits and bonuses for speedy delivery.
That year, the Bethlehem plant had 24,500 employees and covered 600 acres stretching for three miles along the Lehigh River. Among its major features were seven blast furnaces, three open-hearth furnace departments, two steel forging departments, seven machine shops, an electric furnace for melting tool steels, and the Grey mill.
Over the years, the plant had produced turbines for the Niagara Falls Power Co., a sewage disposal plant for Baltimore, a pumping station for Detroit, heavy-duty pumping engines for Pittsburgh, an armor-plate forging plant for the Carnegie Steel Co., a 338-ton armor-plate vault for the National Park Bank in New York. In the 1904-05 Russo-Japanese War, it was Bethlehem steel against Bethlehem steel, with the company supplying guns and armor plate for warships to both Russia and Japan.
Among Bethlehem Steel's holdings were the Philadelphia, Bethlehem & New England Railroad, a shipbuilding plant in Wilmington, Del., as well as the yards in San Francisco and Quincy, and ore mining operations in Cuba and Chile.
With the world war on, the company might as well have had its own money-printing machine. The price of its common stock had risen from $8 a share in 1907, to $30 a share in 1913, to $600 a share in 1915 and to a peak of $700 a share in 1916. It was the third largest industrial company in America, after U.S. Steel and Standard Oil of New Jersey.
''The most remarkable year in Bethlehem's history was 1916,'' Hessen notes in his book. ''Its earnings in that year over $61 million exceeded all the gross sales of the first eight, prewar years that the company had been under Schwab's direction.''
Before U.S. entry into the war, Germany's Kaiser Wilhelm II was so concerned about Bethlehem's production prowess on behalf of the Allies, he offered $100 million for control of the company. Schwab turned him down. Britain's leaders, hoping to guarantee that Bethlehem Steel would help them until the end, made a counteroffer of $150 million. Schwab rejected that, too, pledging to keep his commitment to the British.
Bethlehem workers labored day and night building ships and munitions, stepping up their efforts dramatically after America joined the fight in April 1917. They considered themselves in the vanguard of a crusade, as C.B. Meadway of No. 4 Shop wrote in a poem published in the company newsletter, The Bethlehem Booster, in October 1918. America, we're making guns for you,
America, they'll shoot both fast and true;
They'll kill a German every minute.
That is what they are made to do.
America, we'll help you win this war.
We'll work and save and fight.
For whenever you're in trouble,
We'll come marching on the double.
America, we're your might.
By the Armistice on Nov. 11, 1918, Bethlehem had produced 60 percent of the finished guns ordered by the United States, and 40 percent of the artillery shells. It made more than 65 percent of the finished artillery pieces manufactured by all of the allied nations. For Britain and France alone, it produced 20 million artillery rounds, 70 million pounds of armor plate, and 1.1 billion pounds of steel for shells.
To handle the work, the company spent more than $102 million on new buildings at the plant and hired women in significant numbers.
In 1918, the Bethlehem plant employed 31,000 people, a thousand of them at the company's Redington shell-loading plant and proving ground along the Lehigh in Lower Saucon Township. Today, the city of Bethlehem owns the Redington tract and leases it to the Steel City Gun Club.
Early in the war, Schwab had his company build row houses in South Bethlehem to ease what had been a decades-old housing shortage. Later, Bethlehem Steel bought 480 acres east of the plant, intending to build 1,500 houses. The project was turned over to the federal government, which bought Steel's property and set out to build 2,000 houses plus schools, churches, stores and a movie theater on the site. But fewer than 300 houses were constructed before the war ended, and the program was scrapped in 1919.
Bethlehem Steel offered loans to employees as well. In 1917, it provided $2.7 million to those who wanted to buy or build homes. To help accommodate immigrants, the company built a labor camp on the grounds of the coke works. It housed about 250 people in barracks and two-family frame dwellings.
Many of the immigrants came from countries that were America's wartime enemies Germany and Austria-Hungary, which along with Bulgaria and Turkey formed the Central Powers that opposed the Allies.
By 1916, people representing more than 30 nationalities half of them Germans and Austro-Hungarians lived in South Bethlehem. Schwab received death threats, presumably from some of these new residents, and agreed to have bodyguards. Then he amused himself by trying to shake them.
Meanwhile, his company took in a windfall of cash.
''It was the luck of history,'' historian Smith says. ''Bethlehem Steel is in the armaments business, and World War I turns out to be this unbelievable bonanza.''
The company didn't make its big money off the United States, because steelmakers agreed to stabilize their prices after America entered the war. As a result, they got more orders, but their profit margins were lower.
Rather, Smith says, the huge profits came from the ''desperate Europeans'' America's allies, the French, British, Italians and Russians who were willing to pay whatever prices Bethlehem set.
In the last eight months of the war, Bethlehem Steel was the largest munitions and ordnance maker serving the Allies.
But there was a dark and damning side to the company's pot of gold. The First World War was butchery on a scale never before known. Over four years, it killed 10 million people, wiping out an entire generation of young men in Europe. Pennsylvania, settled in the 17th century by peace-loving Quakers, was the home of a company that had provided a means for the warring nations to spill so much blood.
Schwab didn't see it that way. To him, Bethlehem Steel helped defeat his country's enemies.
Still, in 1934, Bethlehem and other arms-making companies were condemned as ''Merchants of Death'' after a congressional panel headed by Sen. Gerald P. Nye of North Dakota began investigating their role in World War I. The companies were accused of seeking a market for their munitions by urging countries to fight one another. The claim was popular with the public, but lacked proof.
Bethlehem Steel President Eugene Grace reacted to a similar charge in 1916 while Washington lawmakers were debating how much money to spend on the military. America was a year away from entering the war.
''It is the most absurd and poppycock thing I have ever heard of,'' he told a House committee, ''to think that, as citizens of the United States, because we have investments made in ordnance plants, we would advocate this country going into war so we could get business.''
Nonetheless, World War I became the singular event in Bethlehem Steel's history, according to Smith. ''The massive amount of money that came into Bethlehem Steel allowed it to grow,'' he says. ''Schwab and Grace in the '20s used that money to buy up a bunch of competitors that made them a secure No. 2.''
As early as 1916, the company bought the Pennsylvania Steel Co. at Steelton, on the east bank of the Susquehanna River just south of Harrisburg, and its Maryland Steel Co. subsidiary in Sparrows Point, at the confluence of the Chesapeake Bay and Baltimore Harbor. It also bought a major nuts and bolts maker, the American Iron & Steel Manufacturing Co. in Lebanon; coal mines in West Virginia and an interest in the Cornwall iron mines in Lebanon County.
His company's wartime prominence made Schwab a personality in the news. People wanted to know more about the ''King of Steel.'' He laid out his philosophy of life and work in 1915 for readers of the New York Herald.
''There is misery at every corner for the person who sets pleasure above work, and likewise for the person who attempts to live by his wits, minus the monotony and routine of relentless toil . If more persons became so engrossed in their work that they had to be reminded when it was meal time, there would be infinitely more happiness in the world, and probably much less indigestion.''
And in 1917, he published a how-to book, ''Succeeding With What You Have,'' which was mainly taken from his speeches because he hated to write.
With Bethlehem Steel's huge role in the Allied war effort, and Schwab's increasing popularity, it was no wonder President Wilson wanted Schwab helping the U.S. Shipping Board in the gloomy spring of 1918.
When the president put his hands out to Schwab in the Oval Office, earnestly acknowledged his sacrifices and called him a patriot, Schwab was deeply moved. In that moment, he agreed to take charge of the moribund agency that was providing Uncle Sam with troop and cargo ships. But Schwab wanted the president's pledge that he could run the Shipping Board's shipbuilding subsidiary, the Emergency Fleet Corp., his own way and without interference.
''Will you stand back of me?'' he asked.
Wilson placed both of his hands on Schwab's shoulders and said, ''To the last resources of the United States of America.''
Schwab, serving for a token dollar a year, saved the day. He packed his staff with men of proven business ability and set up headquarters in the shipbuilding center of Philadelphia. He changed the way government contracts were awarded, putting the onus on shipyard owners to operate efficiently, and offered incentives to workers and managers. He tripled the number of agency inspectors, and visited shipyards on his own to weed out wasteful practices and cheer on the workers.
The monthly production of ships nearly doubled in 90 days.
When the First World War ended, a grateful nation hailed Charlie Schwab as a hero for providing, in Wilson's words, ''a service of unusual value and distinction.''
By the time he left government service in December 1918, Schwab had a reputation for having the Midas touch, but not everything he put his fingers on turned to gold. Sometimes he made bad decisions that cost him thousands, perhaps millions of dollars.
One involved technologically advanced cars called Stutzes. They were the closest cars America had to European-style sports cars like the Bugatti and Alfa Romeo. Schwab thought the Stutz was the kind of car every American would want, so in 1919 he bought control of the Stutz Motor Co. But most American consumers who could afford a Stutz didn't want a high-strung sports car. They wanted to chug away to the opera or social clubs in beautiful, boat-like cars with engines that they could keep in one gear all day. Schwab's investment in Stutz went up in exhaust fumes.
He called himself a ''damn fool'' after a botched decision he made while still president of U.S. Steel. A Canadian machinist had developed a pneumatic hammer and an adding machine. Schwab chose to invest in the hammer and started Chicago Pneumatic Tool Co., which did all right. But he missed the far better opportunity. William S. Burroughs invested in the adding machine and made millions.
While Schwab was building up Bethlehem Steel, he was also engaging his workers' talents outside the plant. He gave the employees $25,000 to develop athletics among themselves, and the result was a championship soccer team. Between 1913 and 1930, the Bethlehem Steel Soccer Club won 11 national trophies.
Spalding's Soccer Guide saluted Schwab in 1916, saying he ''realizes the vast importance of a spirit of amity between the head of a great corporation and the army of men it employs.''
Bethlehem Steel also had a baseball league, but more than anything, it was a shelter for big-league players trying to stay out of the First World War. Schwab formed the league in 1917 with instructions that he wanted ''some good wholesome games that will furnish amusement and entertainment for the Bethlehem Steel Co.'s employees, and don't bother me about details of expense.''
At first, plant workers did get to play ball. But in 1918, pros covered the diamonds. The War Department had issued a work-or-fight order, saying men had to have essential jobs or else don a uniform. Pros looking for ways to avoid military service flocked to Bethlehem Steel and other companies, which were happy to have them. These companies promised the players undemanding jobs and better pay than many of them made at their ballclubs.
Among players who joined the Bethlehem Steel league were two of the game's all-time greats Shoeless Joe Jackson, who left the Chicago White Sox to work at Steel's Harlan Shipyard in Wilmington, and Babe Ruth, a Boston Red Sox pitcher whose name was added to the payroll at the company's Lebanon mill in mid-September. He apparently left town about eight weeks later, right after the Armistice.
Beyond encouraging sports, Schwab used his money and influence to help mold Bethlehem and its culture, mainly after the 1910 strike had stunned the community and left residents believing he was harsh and uncaring. He couldn't help but do something. After all, it was his company's explosive growth that quadrupled Bethlehem's population in one decade, from 12,800 in 1910 to 50,300 in 1920.
Schwab endeared himself to the upper class by enticing the Bach Choir's founder back to Bethlehem in 1911. J. Fred Wolle had started the choir in Bethlehem in 1900 to publicly perform the works of Johann Sebastian Bach. But five years later, he left the Valley for a job in California, and the popular choir disintegrated. Now Schwab was not only its savior, but its biggest financial supporter.
He also gave money to the Lehigh Valley Symphony Orchestra, and in 1910 started the Bethlehem Steel Co. Band, which gave free public concerts.
His company provided money to St. Luke's Hospital and to create a baby health center, after the daughter of Lehigh University's president was shocked to learn that the infant mortality rate in South Bethlehem was the highest in the state. The center opened in 1915 and had three branches by 1920.
Schwab provided a building for a free public library and promoted construction of the city's only public high school, Liberty High, in 1922 and the landmark Hill-to-Hill Bridge over the Lehigh River in 1924. He encouraged others to build the grand Hotel Bethlehem, completed in 1921, so he wouldn't have to send clients to the dowdy Sun Inn. He gave money to Lehigh University and served on its board of trustees.
He was the catalyst in getting the boroughs of Bethlehem and South Bethlehem to merge into a city in 1917. (Bethlehem had absorbed the borough of West Bethlehem in 1904.) The first mayor of the united Bethlehem was Steel executive Archibald Johnston. In 1920, the city annexed Northampton Heights, east of south Bethlehem. Northampton Heights was one of the richest boroughs in the state, because it contained valuable steel company and railroad properties.
In 1919, Schwab celebrated the completion of his estate in his boyhood home of Loretto Immergrun, German for ''Evergreen,'' a 44-room mansion on a thousand elaborately maintained acres that included a private golf course.
He also mourned the passing of his mentor, Andrew Carnegie, at age 84 in his mansion in Lenox, Mass. On Aug. 11, 1919, Carnegie asked his secretary to hand him a picture of Schwab. When he gazed at it, his lips curled into a smile, and he died. His affection for Schwab had run deep till the end, despite his fury over the Monte Carlo gambling trek.
Years earlier, he had given Schwab a painting that he said held a lesson for life. It showed an old monk happily rubbing his belly after a meal of nothing but an apple and a glass of wine.
''Any time that you feel blue or inclined to be despondent,'' Carnegie told Schwab, ''just look at this old monk's happy countenance and your depression will disappear. Always remember that good business is never done except in a happy and contented frame of mind.''
Schwab hung the painting in his company's boardroom and embraced its message. Not even the stock market crash of 1929 deflated him.
''Be not afraid,'' he told the press. ''The stock market cannot stop or stem the prosperity that extends throughout this great country of ours.''
He was wrong about that, but years later, he was still holding on to his sunny disposition and explained why.
''I am glad I have been optimistic,'' he said at a meeting of the American Iron and Steel Institute, a trade group with headquarters in New York, ''because it has resulted in so much pleasure in business, and because it has been true, and because it is the frame of mind that will make us all advance in our business progress, our human relations and our happiness in life.''
By the early 1920s, Schwab no longer had his hands on the daily management of Bethlehem Steel. He was in the catbird seat, getting $150,000 a year as chairman, holding many millions of dollars in stock and happy to have his ''boy'' Grace in charge.
The company continued to expand in the Roaring '20s while loaded with cash. In 1922, it bought the fourth largest steelmaker, Lackawanna Steel Co. on Lake Erie just south of Buffalo, N.Y., and iron ore mines in the Great Lakes region. The next year, it took over the No. 3 steelmaker, Midvale Steel Co. of Philadelphia, except for its armor and ordnance plant. Midvale's subsidiary, Cambria Steel Co., provided Bethlehem with steel operations and coal mines in the Johnstown area.
These acquisitions gave Bethlehem Steel an ingot-producing capacity of 7.6 million tons a year, or 14.5 tons a minute, about 15 percent of the nation's total. They encroached a little on U.S. Steel's turf, but with Bethlehem dominating the market east of Pittsburgh, Schwab didn't mean to do any more than nip at U.S. Steel. He and Elbert Gary generally steered their businesses to avoid competing head-on.
But early in 1926, their policy of tolerance broke apart. Under Gary, the No. 1 steelmaker had slipped from having two-thirds of the American steel market at the turn of the century to one third, and was planning to do something about it. Schwab found out that U.S. Steel was building a mill at Homestead to make Bethlehem Steel's patented Grey beam without permission. He confronted Gary, who denied that U.S. Steel planned to make the wide-flange beam.
''Gary, you're the goddamndest liar and double-crosser I've ever known,'' Schwab said in a rare flash of anger. ''Your word is no good, and I shall never trust you or have anything to do with you again.''
About a year later, Gary became ill and asked to see Schwab. Gary admitted that U.S. Steel had been in the wrong and apologized. The rift was repaired. Bethlehem Steel and U.S. Steel would work out the problem together.
But Gary died several months later, and the peace ended. Bethlehem Steel sued, accusing U.S. Steel of infringing on its patent. The suit was dropped in 1929, after U.S. Steel agreed to pay royalties for the right to make the Bethlehem beam.
From then on, Schwab sought to make inroads on U.S. Steel territory. He tried but failed to get a merger with Youngstown Sheet & Tube Co. in Ohio, which had new mills in the Midwest that might have broken U.S. Steel's stranglehold on the Chicago market. A minority stockholder sued to bar the merger, and a judge found that the proposed deal undervalued Youngstown and that Bethlehem hadn't provided Youngstown's directors with adequate information.
In 1930, Bethlehem expanded to the West Coast, getting small steel plants in Los Angeles, San Francisco and Seattle when it bought Pacific Coast Steel Co. and Southern California Iron & Steel Co. The next year, Bethlehem bought McClintic-Marshall Corp. of Pottstown, the largest steel fabricator and bridge builder in the world. It built the locks for the Panama Canal, which opened in 1914.
McClintic-Marshall had plants that bent, cut, twisted and riveted steel on the West Coast and in the Pittsburgh and Chicago areas, giving Bethlehem Steel a strong base on U.S. Steel's home turf. It used Bethlehem beams to make buildings and bridges, such as the Golden Gate Bridge.
Schwab's involvement with Bethlehem Steel and the industry in general wound down in the mid-1930s, as his health declined. Besides heart trouble, he had been diagnosed with diabetes in the early '20s. Though he continued as chairman of the company, it was an honorary post that got him $250,000 a year for doing nothing.
In 1934, at 72, he stepped down as president of the American Iron and Steel Institute, which he had headed since Elbert Gary's death. He bled his wealth until there wasn't any left, partly because of the Great Depression, which wiped out his investments, and partly because money simply ran through his fingers. He gambled or gave it away or lost it in speculative business ventures, such as a chain of roadside hot dog stands. One of his brothers estimated that Schwab's fortune totaled $25 million at the height of his career in the mid-'20s $274 million in today's dollars but Hessen, in his book, suggests that figure is too low. Schwab told a stockholder that he once had $40 million.
One of the biggest drains on Schwab's resources was the upkeep of his palatial homes in Loretto and New York. In 1936, he offered to sell Riverside to the city for $4 million, half what it cost him to build and decorate it, but officials weren't interested.
After his wife, Rana, died Jan. 12, 1939, he lost Riverside to Chase National Bank for back taxes and moved to a small apartment on Park Avenue. At 9:30 p.m. Sept. 19, 1939, he suffered a heart attack and died in his apartment. He was 77. He and Rana had no children, and his personal kingdom was gone he was $338,349 in debt.
Bethlehem Steel Corp. could have lifted its creator's estate out of insolvency. World War II broke out 21/2 weeks before Schwab's death. If his executors had waited a year or more to sell his stocks, instead of selling them immediately, the flood of steel orders for the war would have driven up the stock price.
In the next several years, Schwab's holdings were sold off. Prudential Insurance Co. bought Riverside for $1.5 million in 1947. The mansion was torn down and replaced by a pair of apartment buildings. The beams that supported them were made in Bethlehem.
The Immergrun estate in Loretto was sold in 1942 to St. Francis College and became a residence for seminarians.
In accordance with one of his last wishes, Schwab was laid to rest beside his parents in an unadorned vault at St. Michael's Cemetery in Loretto.
But in a former Moravian commune along the Lehigh River in eastern Pennsylvania, the king of steel left behind a magnificent castle, a corporation whose empire included major steel plants not only in Bethlehem, but in Johnstown, Steelton, Sparrows Point and Lackawanna, as well as shipyards on both coasts.
With these possessions during Schwab's rule, Bethlehem Steel left its mark across the land. Its beams formed the backbone of many of the nation's tallest buildings and long-span bridges.
''I love Bethlehem,'' Schwab once said. ''It is the great achievement of my life.''