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 CORfRIGUT DEPOSm 
 
CHARLES M. SCHWAB 
 
/ 
 
 THE 
 
 Story of Bethlehem 
 Steel 
 
 BY ARUNDEL COTTER 
 
 n 
 
 Author of "The Authentic History of the United States Steel Corporation^' 
 
 I916 
 
 The Moody Magazine and Book Company 
 New York 
 
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 .cpV' 
 
 COPYRIGHT, I916, BY 
 
 THE MOODY MAGAZINE AND BOOK COMPANY 
 
 ALL RIGHTS RESERVED 
 
 y 
 
 -' ^r^ 
 
 DEC 30 1916 "^ 
 
 ©Cl.A4r)7329 ^i^ 
 
TABLE OF CONTENTS 
 
 PAGE 
 
 Chapter I 1 
 
 Town Founded by Moravian Colonists — It Is named — 
 Iron Discovered in Saucon Valley — Early History of 
 Bethlehem Steel Organization and Failure of United 
 States Shipbuilding Company — Schwab Comes to 
 Bethlehem. 
 
 Chapter II 15 
 
 When Schwab Went Down to Bethlehem — Early Ex- 
 pansion — Rail and Structural Mills — Bonus Plan — 
 Lfean Years — Rail and Structural Mills Completed — . 
 Going Into Debt — Chile Ore Contract — Big War 
 Profits. 
 
 Chapter III 34 
 
 Bethlehem and the War Stock Boom — Why the Stock 
 Was Neglected — Plans for Export Trade — Schwab's 
 "Luck"— Schwab Refuses $54,000,000— Success of "Beth- 
 lehem Section" — Purchase of Pennsylvania Steel — Big 
 and Little Guns — Continuation of Dividends. 
 
 Chapter IV 53 
 
 Schwab's Theories — "The Boys of Bethlehem" — Eugene 
 G. Grace — Daily Meetings — Grace's "Luck" — Schwab's 
 Seeing Eye — Bethlehem's Future Assured. 
 
 LIST OF ILLUSTRATIONS 
 
 Charles M. Schwab Frontispiece 
 
 General View of Bethlehem Plant Facing page 1 
 
 Longest Trainload of Steel Ever Shipped Facing page 15 
 
 Argentine Battleship Rivadavia Facing page 31 
 
 Interior View of Bethlehem Gunshop Facing page 35 
 
 Big Guns in Process at Bethlehem Facing page 49 
 
 Eugene G. Grace Facing page 53 
 
 Archibald Johnston Facing page 61 
 
FOREWORD 
 
 A PREFACE is usually an apology or justifi- 
 cation, and I do not intend to apologize for 
 this work, believing that the wonderful suc- 
 cess of Bethlehem Steel completely justifies the 
 telling of its story. 
 
 On looking over the pages, however, it seemed 
 that more might have been devoted to a study 
 of Charles M. Schwab, the man. But in the final 
 analysis it is plain that when one writes of Beth- 
 lehem he writes of Schwab, who made it. 
 
 Arundel Cottee. 
 
 New York, November 1, 1916. 
 
CHAPTER I 
 
 THE STORY OF BETHLEHEM STEEL 
 
 Town Founded by Moravian Colonists — It Is Named — Iron 
 Discovered in the Saucon Valley — 'Early History of Beth- 
 lehem Steel Organization and Failure of United States 
 Shipbuilding Co. — -Schwab Comes to Bethlehem 
 
 ON the twenty-fourth of ' December, 1741, 
 late at night, a small body of men gathered 
 in a rude log hut in a tiny clearing in the 
 Lehigh Valley, on the banks of the Lehigh 
 River. They met, far in the wilderness, to cele- 
 brate the Christian feast and their voices, raised 
 in hymns, echoed throughout the virgin forest 
 and were answered only by the howls of wild 
 animals. 
 
 These men had fled from religious persecution 
 in Europe. Seeking a spot where they might wor- 
 ship in peace they had selected the Lehigh 
 Valley for their future home. And on this night 
 they had met not only to celebrate Christmas 
 Eve, but officially to found the settlement, for 
 during the day had arrived from abroad the 
 patron by whose aid they had escaped from per- 
 secution, the aged Count Zinzendorf. 
 
 At the approach of midnight the old count, who 
 had been leading the pilgrims in prayer and ex- 
 hortation, paused, and with the light of a great 
 idea shining from his eyes, said; 
 
4"^ ' '«Wi, 
 
2 The Story of Bethlehem Steel 
 
 ''Brothers, how more fittingly could we call 
 our new home than to name it in honor of the 
 spot where the event we now commemorate took 
 place. We will call this place Bethlehem." 
 
 How Bethlehem Was Named 
 And so was Bethlehem named after the birth- 
 place of the Man of Peace. Bethlehem, to-day 
 the home of the greatest war material plant in 
 the world! 
 
 The colonists were a sturdy and hard-working 
 race, and the new community prospered and grew 
 in size and importance. It became the home of a 
 new religious sect, known as the Moravians, a 
 people peculiarly devoted to peace. For more 
 than a century its inhabitants kept themselves 
 apart. None save those of the faith might own 
 property there or be buried within the town lim- 
 its. But gradually this changed and a more lib- 
 eral policy took its place, and Bethlehem was in- 
 corporated as a town about the middle of the 
 nineteenth century. 
 
 In the early fifties, shortly before the Civil 
 War, deposits of workable iron ore were discov- 
 ered in the Saucon Valley, near Bethlehem, and 
 local capitalists incorporated the Saucon Iron 
 Co. to develop these ores on April 8, 1857. On 
 March 31, 1859, the name was changed to the 
 Bethlehem Eolling Mills and Iron Co., and again, 
 on May 1, 1861, to the Bethlehem Iron Co. 
 
Early History 3 
 
 Apparently the original organizers of the com- 
 pany were so busy selecting a suitable name for 
 their enterprise that they had little time for any- 
 thing else, for it was not until July 16, 1860, 
 that ground was broken for the construction of 
 a plant at South Bethlehem, just across the river 
 from the original colony, and the site of the ex- 
 isting steel works. The disturbance caused by 
 the Civil War further delayed construction, and 
 it was not until Jan. 4, 1863, that the first blast 
 furnace was put into operation. The puddle fur- 
 naces started later the same month and in the 
 following September the rolling mill of South 
 Bethlehem turned out its first batch of iron rails. 
 
 The Beginning of Bethlehem Steel. 
 Bethlehem, says Casson, in his ''Romance of 
 Steel," was created out of the money of Joseph 
 Wharton and the brains of John Fritz. Fritz, 
 who died only a few years ago, was one of 
 the pioneers of American steel-making, and he 
 builded the Bethlehem plant soundly and well, 
 as his successors will testify. In the early sev- 
 enties Fritz saw the possibilities of the new Bes- 
 semer steel-making process, and it did not take 
 him long to grasp the importance of the discov- 
 ery of Kelly and Bessemer. He decided to make 
 steel at Bethlehem. Immediately the construc- 
 tion of the necessary converters was begun and 
 on October 4, 1873, the first heat of steel was 
 
4 The Story of Bethlehem Steel 
 
 made at the plant. Two weeks later the first 
 rolling of steel rails was completed. 
 
 Under Fritz's able management the plant grew 
 and prospered, but it is safe to say that not even 
 he ever dreamed how great it would one day be- 
 come. The changes of the years may best be il- 
 lustrated by the following balance sheets showing 
 the assets and liabilities of the old Bethlehem 
 Iron Co. as of July 1, 1862, and of the Bethlehem 
 Steel Corporation as of December 31, 1915, the 
 date of its last report. 
 
 
 Comparative Balance Sheets. 
 
 Bethlehem 
 
 Iron Co. 
 
 Bethlehem 
 
 Steel Corporation. 
 
 July 1, 
 
 1862. 
 
 December 31, 1915. 
 
 $121,303 
 
 
 Property account 
 
 $76,955,705 
 
 21,321 
 
 
 Current assets 
 
 66,663,721 
 
 
 
 Deferred items, etc. 
 
 2.160,424 
 
 $142,624 
 
 
 Total Assets 
 
 $145,779,850 
 
 $136,002 
 
 Capital Stock 
 
 $29,770,000 
 
 6.622 
 
 
 Current liabilities 
 
 52,329,314 
 
 
 
 Bonded debt 
 
 31,099,000 
 
 
 
 Reserves 
 
 1,303,146 
 
 
 
 Surplus (appropriated 
 
 
 
 
 and unappropriated) 
 
 31,278,390 
 
 $142,624 
 
 
 Total Liabilities 
 
 $145,779,850 
 
 The company has grown to 1,000 times its 
 original size, and more. Up to 1886 Bethle- 
 hem's output consisted principally of commer- 
 cial products of iron and steel, but in that year, 
 at the suggestion of W. C. Whitney, then Secre- 
 tary of War, it was decided to go into the manu- 
 facture of armor plate for the United States 
 
First Armor Plate Mill Built 5 
 
 Government, a mill was built for that purpose, 
 and for many years thereafter attention was de- 
 voted almost exclusively to the manufacture of 
 offensive and defensive articles of war. In fact, 
 it has only been within very recent years that 
 any important attempt has been made to return 
 to the regular steel products. 
 
 But while the Bethlehem plant was a well- 
 equipped and well-managed armor-plate factory, 
 and gave very satisfactory returns to its stock- 
 holders, it never attained prominence until re- 
 cently. Its early history was the humdrum, the 
 stodgy, rather than the spectacular. One thing 
 changed all this and converted Bethlehem from a 
 sleepy town to a wide-awake one, from a pros- 
 perous community to a rich one. This was the 
 coming of Charles M. Schwab. 
 
 Bethlehem Steel Company Organized 
 
 In 1899 the Bethlehem Iron Co. had grown 
 until it had a capital of $7,500,000. In that year 
 the Bethlehem Steel Co. was organized and ob- 
 tained control of the iron company's properties 
 on a 999 years' lease on a guaranty of 6% on the 
 outstanding stock. The new company also took 
 over the iron company's bonded indebtedness of 
 $1,351,000. Subsequently the stock of the Bethle- 
 hem Iron Co. was exchanged for bonds of the 
 steel company, paying 6%, and the lease was 
 
6 The Story of Bethlehem Steel 
 
 cancelled, the properties being transferred out- 
 right to the Bethlehem Steel Co. 
 
 Meantime the steel companies of the United 
 States had been merging into greater and still 
 greater units and, early in 1901, the greatest 
 combine that the world has yet seen, the United 
 States Steel Corporation, was formed. Schwab, 
 former president of the Carnegie Steel Co., was 
 made its president. No sooner had the new com- 
 bine started to operate, however, than Schwab 
 found his position an irksome one. He had ex- 
 pected to be in supreme command of the big com- 
 pany, and he found that he was not. Accustomed 
 to absolute authority, Schwab chafed under the 
 restraints of his position and on more than one 
 occasion was on the point of resigning. 
 
 In the fall of 1901 the late E. H. Harriman 
 conceived the idea of organizing a merger of the 
 Bethlehem Steel Co. and two or three other com- 
 panies, and asked Schwab to negotiate the deal. 
 It was never consummated, but Schwab himself 
 purchased the Bethlehem Steel Co., paying for 
 the stock $7,500,000. Shortly afterward, how- 
 ever, realizing that his position as president of 
 one large steel company and owner of a compet- 
 ing concern was an ambiguous one, he asked the 
 late J. P. Morgan to take the property off his 
 hands at the price he had paid for it. This Mor- 
 gan consented to. The banker later suggested 
 
U. S. Shipbuilding Co. Formed 7 
 
 that the Steel Corporation should purchase the 
 company, but opposition developed and the mat- 
 ter was dropped, Morgan remaining the nominal 
 owner. 
 
 Shortly afterwards, or in the Spring of 1902, 
 Lewis Nixon and others who were engaged in 
 organizing a shipbuilding merger, came to Schwab 
 with their plans, and he suggested that, to com- 
 plete and round out their proposed company, they 
 should obtain control of a steel company equipped 
 for making ship plate. He called to their atten- 
 tion that it would be easy to get Bethlehem, and 
 they decided to accept his advice. 
 
 So Schwab repurchased the property from 
 Morgan and transferred it to the new concern, 
 which was named the United States Shipbuilding 
 Co. In exchange for the Bethlehem company he 
 received $10,000,000 of each class of stock of the 
 shipbuilding company and $10,000,000 of its 
 bonds. 
 
 United States Shipbuilding Company 
 
 The United States Shipbuilding Co. was incor- 
 porated on June 17, 1902, eight concerns besides 
 Bethlehem Steel Ijeing brought into it. It had 
 a capital of $20,000,000 of preferred stock, 
 $25,000,000 of common stock, and $26,000,000 of 
 bonds as well as the underlying indebtedness of 
 the Bethlehem Steel Co. 
 
 The total stock capitalization of all the com- 
 
8 The Story of Bethlehem Steel 
 
 panies merged into the shipbuilding company was 
 $19,800,000, so that it was obviously heavily loaded 
 with water. Its organizers, in their prospectus, 
 estimated that yearly earnings might be placed at 
 well over $5,000,000. Lewis Nixon became its first 
 president. 
 
 A short life and a stormy one was the lot of 
 the new venture. Hardly a year had passed be- 
 fore it got into financial difficulties, and on July 
 1, 1903, James Smith, Jr., was appointed receiver 
 by the courts. 
 
 In the mean time, or about April, 1903, Schwab 
 had resigned the presidency of the Steel Corpo- 
 ration, although he did not actually leave the office 
 until somewhat later in the year. 
 
 Eeceiver Smith, in his report to the court, 
 severely scored the organizers of the shipbuilding 
 company. He said that earnings had been grossly 
 overestimated and pointed out that the actual 
 profits of the combine for the first year of its 
 existence had been less than half of the promised 
 amount, or $2,495,590, of which sum Bethlehem 
 Steel alone had earned $1,662,531. 
 
 Mr. Smith also reported that the profits of the 
 Bethlehem company did not necessarily benefit 
 the company supposedly controlling it, as the di- 
 rectors of the steel company were at liberty to 
 decide whether they should pay out such profits 
 in dividends or turn them back into the treasury 
 
U. S. Shipbuilding Co.'s Failure 9 
 
 of the Bethlehem company for new construction, 
 etc., and he found that all of Bethlehem's profits 
 had been so used, the shipbuilding company being 
 forced to rely on the earnings of its weaker sub- 
 sidiaries to meet its liabilities. 
 
 The receiver laid the responsibility for the 
 failure of the combine largely at Schwab's door. 
 He asserted that Schwab, as principal owner of 
 the Shipbuilding stock, had great influence in the 
 company, and he also found that, by the terms 
 of the sale of the Bethlehem company, Schwab 
 had practical dictation as to its directorate, so 
 that, in refusing to pay dividends to the nomi- 
 nally controlling company they might have been 
 supposed to be carrying out his orders. Schwab, 
 he said, was virtually the man behind the throne 
 in both companies, although he was not on the 
 directorate of either. 
 
 On the other hand, Schwab denied, and still 
 denies, any share of responsibility for the disas- 
 trous end of the United States Shipbuilding Co. 
 His claim is that he was merely the largest credi- 
 tor of that concern and took no active part in its 
 management. 
 
 In justice to the present head of the Bethlehem 
 Steel Corporation it should be stated that during 
 the period of the shipbuilding company's exist- 
 ence he was almost constantly ill. A victim of 
 neuritis, he spent a considerable portion of his 
 time abroad seeking relief, and so, whatever his 
 
 V 
 
10 The Story op Bethlehem Steel 
 
 powers regarding control of the company's affairs 
 might have been, it is hardly likely that he exer- 
 cised them to any extent. 
 
 Bethlehem Steel Corporation Organized 
 
 For some time it looked as if the failure of the 
 combine would lead to long-drawn-out litigation, 
 but eventually a compromise was agreed upon 
 and a new company was formed to take over the 
 several concerns that had gone to make up the 
 shipbuilding company. This concern, the exist- 
 ing Bethlehem Steel Corporation, was chartered 
 under the laws of the State of New Jersey on 
 December 10, 1904, with a capital of $15,000,000 
 of common and the same amount of preferred 
 stock, and $3,000,000 of bonds, subject to the 
 prior lien of the original Bethlehem bonds. The 
 stock of the corporation was exchanged for the 
 bonds of the Shipbuilding Co., the new bonds be- 
 ing offered to these same bondholders at 87i/2- 
 The terms of exchange were as follows : 
 
 Will pay 
 
 Holders of $10,000 1st 
 Mtge. U. S. Shipbuild- 
 ing bonds 
 
 If subscribing at 
 87i^ $875 
 
 Holders of $10,000 
 Bethlehem collateral 
 bonds 
 
 If subscribing at 
 871/4 $1,352.50 
 
 Will receive 
 
 
 New Pfd. 
 
 Com. 
 
 bonds stock 
 
 stock 
 
 
 $4,000 
 
 $6,000 
 
 $1,000 
 
 
 
 
 $9,000 
 
 $6,000 
 
 $1,500 
 
 
 
Organization of Corporation 11 
 
 The companies which went to make up the 
 Bethlehem Steel Corporation were: 
 
 Bethlehem Steel Co. This company's steel 
 plant at Bethlehem was equipped to make steel 
 rails and other products, but its output consisted 
 largely of armor plate and munitions. It had 
 an annual steel capacity of approximately 300,000 
 tons of ingots. Its capitalization was $15,000,000. 
 
 Harlan & Hollingsworth, $1,000,000 capital. 
 Owned and operated a shipbuilding plant and dry 
 dock, as well as a car-building shop, at "Wilming- 
 ton, Del. 
 
 Union Iron Works. Capital $2,000,000. Oper- 
 ated a shipbuilding plant and dry dock, machine 
 shops and foundries, at San Francisco, Cal. 
 
 Samuel L. Moore & Sons, Corp. Capital $300,- 
 000. Owned foundries and machine shops 
 equipped for marine repair work at Elizabeth- 
 port, N. J. 
 
 Carteret Improvement Co. Capital $300,000. 
 Owned unimproved real estate at Carteret, N. J. 
 
 Eastern Shipbuilding Co. Capital $300,000. Op- 
 erated a shipbuilding plant on leased property at 
 Groton, Conn., opposite New London. 
 
 Crescent Shipyard. Capital $300,000. Oper- 
 ated a shipbuilding plant at Elizabethport, com- 
 plementary to that of the Samuel L. Moore Cor- 
 poration. 
 
12 The Story of Bethlehem Steel 
 
 Bath Iron Works. $500,000 capital. Operated 
 shipbuilding plant at Bath, Me. 
 
 Hyde Windlass Co. Capital $100,000. Had a 
 plant at Bath, Me., where it manufactured steam 
 windlasses and other marine equipment. 
 
 The Bath Iron Works and the Hyde Windlass 
 Co. were sold in 1905, Bethlehem receiving for 
 them about $350,000 in cash and $475,000 in pur- 
 chase money bonds. In the same year the Carte- 
 ret and Crescent companies were consolidated 
 with the Moore corporation and, in 1907, the 
 Eastern Shipbuilding Co. was sold. 
 
 Charles M. Schwab, as already stated, had re- 
 signed from the presidency of the United States 
 Steel Corporation early in 1903. His intention, 
 or so he intimated, was to retire from business, 
 ill health being his excuse, but after spending 
 some time in Europe he returned home much im- 
 proved, able and anxious to throw himself into 
 the battle of industry again. So when the Beth- 
 lehem Steel Corporation was organized from the 
 debris of the shipbuilding wreck it was natural 
 that the former president of the Steel Corpora- 
 tion, who was also the man principally interested, 
 should be chosen as its head. 
 
 Schwab Assumes Presidency 
 
 Schwab's decision to assume the presidency of 
 the Bethlehem Steel Corporation was an impor- 
 tant one for its stockholders, as has since been 
 
Schwab Goes to Bethlehem 13 
 
 proven. It was an important one for the people 
 of Bethlehem, a statement which may be amply- 
 proven by visiting that extremely prosperous 
 community at any time. And, judging by the 
 part that Bethlehem has played in the present 
 war, it might not be too much to say that it was 
 not without importance to the world. 
 
 Once decided, Schwab did not do things by 
 halves. He had not long completed the erection 
 of a palace in New York at a cost of several mil- 
 lions of dollars. But, like his former chief, i 
 Andrew Carnegie, he believed that personal su- 1 
 pervision was necessary to eminent success in the 
 management of an industry, and he closed up the 
 costly mansion and took up his residence in quiet 
 Bethlehem, where he could be in constant touch 
 with the operations of the Bethlehem Steel plant, 
 the most important, by far, of the activities of 
 the corporation. 
 
 In December, 1904, the Bethlehem Steel Cor- 
 poration employed 9,461 workers. It now gives 
 work to approximately 60,000. Then the holding 
 company for a small steel plant, and little else; 
 to-day it is the second largest steel organization 
 of the world, and the largest producer of war 
 munitions. Created, as remarked above, frora 
 the debris of a failed company, it is now paying 
 30% on its common stock and earning many 
 times that, being probably the most prosperous 
 
14 The Story of Bethlehem Steel 
 
 of steel companies in the world, certainly in the 
 United States. During the same time Bethlehem 
 has changed from a somnolent town to a bust- 
 ling, active and wealthy one. 
 
 One thing was the cause of all these changes. 
 It was the coming to Bethlehem of Charles M. 
 Schwab. 
 
CHAPTER II 
 
 When Schwab Went Down to Bethlehem — •Early Expansion 
 
 WHEN Schwab went down to Bethlehem 
 he found a gigantic task set before him — 
 that of converting into a paying enter- 
 prise the relics of the failed United States Ship- 
 building Co. It was one that necessitated years 
 of hard work and many disappointments, but the 
 former Carnegie head threw himself into the job 
 with all the ardor with which he had once man- 
 aged the great business of the old Steel King. 
 
 For years it was an uphill fight. But Schwab 
 was determined to make the Bethlehem Steel Cor- 
 poration rank big among the steel-producing con- 
 cerns of the world. His ambitions for it had 
 scarcely any limits. And to attain his end he will- 
 ingly threw into the company the greater part of 
 his fortune and for years struggled on with hardly 
 any return. 
 
 Schwab, it has been said, had two ambitions re- 
 garding Bethlehem. One that the stock should 
 have behind it assets of $1,000 a share, and the 
 other that it should rival the great Steel Corpo- 
 ration in the multiplicity of its products. In fact, 
 Schwab saw in the Bethlehem Steel Corporation, 
 poor a vehicle as it might have appeared to one 
 
16 The Stoey of Bethlehem Steel 
 
 lacking his enthusiasms and his ability to realize 
 on them, a basis for erecting such another steel 
 company, if on a smaller scale, as he had out- 
 lined to Morgan on the occasion of the Simmons 
 dinner, in December, 1900, from which banquet 
 was born the United States Steel Corporation. 
 
 Schwab is one of those men who can dream and 
 not make dreams their master. His enthusiasms 
 are things to be reckoned with. A prominent 
 banker of Bethlehem said to me in this connec- 
 tion : 
 
 "I came to Bethlehem shortly after Schwab 
 did," he said. "Not long after my arrival I was 
 invited to a dinner at which Schwab was a guest 
 and he was asked to speak. During his talk he 
 made certain statements about the future of the 
 Bethlehem Steel Co. and of the community, which 
 caused me a great deal of secret amusement. 
 'This man,' I said to myself, 'is a dreamer; he is 
 promising the impossible.' But I have lived to see 
 everything that Schwab prophesied come true, 
 and even more. I am converted. Whatever 
 Charles M. Schwab says he will do, I know he 
 will." 
 
 The story of Bethlehem Steel is unquestionably 
 the story of Charles M. Schwab. The success of 
 the company has been his success, and no one 
 other's. What Bethlehem is to-day is due en- 
 tirely to the genius of Charles M. Schwab. He 
 
Rail and Structural Mills 17 
 
 himself denies this and gives much of the credit 
 to his assistants in the work, but it is so, never- 
 theless. 
 
 Some twenty years before the Bethlehem Steel 
 Corporation was chartered the old Bethlehem 
 Iron Co. had gone into the manufacture of armor 
 plate and other war material, largely at the solici- 
 tation of a member of the Cabinet of that period. 
 When Schwab took charge of the plant he found 
 that it was equipped almost exclusively for these 
 purposes and that there was not enough demand 
 from this source to promise continued earnings. 
 The United States was not purchasing enough 
 armor plate and similar products to support a 
 company of the size of Bethlehem devoting all its 
 energies to this end. So one of Schwab's first ac- 
 tions was to set about the remodelling of the plant 
 to manufacture commercial steel. 
 
 In 1905 Bethlehem Steel took contracts from the 
 United States Government aggregating $4,455,470. 
 In 1906 this decreased to $4,056,062, and in 1907 
 to $2,635,054, or not much more than half of what 
 it had been in 1905. But in the meantime the 
 company had been busy erecting a steel rail-mill 
 and structural mills, the first of which began op- 
 erations in the latter part of 1907 and the others 
 shortly after. Bethlehem, for many years, has 
 been an important producer of rails and one of 
 the leading producers of structural material in the 
 
18 The Stoky of Bethlehem Steel 
 
 country. Since the erection of the mills referred 
 to, which incidentally involved the building of a 
 new plant from the ground up, the company has 
 gradually and constantly expanded its output of 
 commercial material and is even now constructing 
 a large merchant steel plant. 
 
 Another handicap under which the new corpo- 
 ration suffered was that the old shipbuilding com- 
 pany, out of the ruins of which the Bethlehem 
 Steel Corporation was formed, had accepted con- 
 tracts for a number of ships, some of which were 
 for the United States Government, at prices which 
 foredoomed it to a loss. This necessitated the 
 deduction from surplus shortly after the new com- 
 pany began business of large sums to meet these 
 losses, and they were further added to by the San 
 Francisco earthquake, in January, 1906, which dis- 
 turbed the labor situation in that city where, at 
 the plant of the Union Iron Works, one of the 
 Bethlehem subsidiaries, the ships were building. 
 
 The Bethlehem Bonus System 
 The enormous success of the Bethlehem Steel 
 Corporation has been undoubtedly due in great 
 part to the bonus system, of which so much has 
 been written in the past year. This bonus system 
 is nothing more or less than the setting of a cash 
 premium on personal efi&ciency and endeavor. 
 The Schwab plan diifers from most other so-called 
 profit-sharing plans in that every individual com- 
 
Bonus Plan 19 
 
 ing within its scope gets directly the fruit of his 
 own efforts and gets it quickly. For the head of 
 the company believes that the average man can- 
 not become enthusiastic for a reward for applied 
 endeavor a year or more ahead, nor will he give 
 the best that is in him if his return is on a pro 
 rata basis with the entire organization. 
 
 The Bethlehem bonuses are paid monthly, veiy 
 shortly after the salary checks are sent out, and 
 so each man is constantly keyed up to the high- 
 est pitch of efficiency of which he is capable. And 
 payment is made for the work on which that par- 
 ticular individual was engaged — and no other. 
 This applies to each worker in the organization, 
 with the exception of the executive officers, whose 
 work covers the entire company and who must 
 therefore be paid on the general results. 
 
 Let us take a few instances of this bonus plan 
 and how it is worked. The figures given, be it 
 understood, are purely empiric. Suppose that the 
 worker is the superintendent of a blast furnace 
 and the average cost of converting ore into a ton 
 of pig iron is one dollar. If, for one month, the 
 superintendent in question succeeds in maintain- 
 ing an average cost of 95 cents, he receives an ad- 
 dition to his salary of one cent for each ton of iron 
 produced. If he reduces the cost to ninety cents 
 his bonus would increase progressively and be, 
 say, 21/^ cents a ton, while if he reduced cost to 
 
20 The Story of Bethlehem Steel 
 
 eighty-five cents his bonus would be, not three 
 cents a ton but five. Thus each reduction brings 
 still greater incentive to further effort. 
 
 A worker on shell castings, for instance, is paid 
 22 cents an hour and is given a job which should 
 take five hours and on which his pay would be 
 $1.10. If he got through the work in three hours 
 his pay would be $1.10. That is, the saving in 
 labor cost would come to him, the company gain- 
 ing by increased production. 
 
 Schwab has repeatedly remarked that he is not 
 in business to make steel, but to make money for 
 himself and the other stockholders of Bethlehem 
 Steel. The manufacture of steel is merely the 
 means to this end. This is exemplified by the 
 manner in which he applies the bonus system to 
 his salesmen. These men are paid not on the 
 tonnage they sell, but on the profits that accrue 
 to the company from the sales they make. This 
 discourages the salesman from cutting prices to 
 get business, encouraging him to use his wits to 
 obtain the best prices possible in the market. Let 
 us say that a certain steel product costs $20 a ton 
 to produce and the market is $22 a ton. A and B 
 are covering certain territories and A, in order 
 to secure an order for 10,000 tons, makes a price 
 of $21, while B, on another inquiry, refuses to cut 
 prices and, by brisk salesmanship, sells 4,000 tons 
 at $23; B's commission would be larger than A's, 
 
Bonus Plan - 21 
 
 although A would have sold more than twice the 
 tonnage that B sold. 
 
 What results may be obtained by the bonus 
 system can be illustrated by the results in a con- 
 crete case. Some time before the organization of 
 Bethlehem Steel Schwab had built in New York a 
 palatial residence on West End Avenue. He told 
 me that his monthly upkeep cost was around 
 $4,500 a month. Finally he decided to apply to 
 the management of this home the same plan by 
 which he had made the steel company profitable, 
 and, calling the superintendent of the property to 
 him he told him that he had figured the monthly 
 cost should not exceed so much, naming a certain 
 figure. ''For every hundred dollars of cost below 
 that I will pay you a bonus of so much," he said. 
 The result has been, according to Schwab, that 
 the total cost of running the property now does 
 not exceed $1,600, yet the superintendent is mak- 
 ing more money than he had ever hoped, more 
 than many men in what are usually considered 
 higher and more profitable positions, and the 
 property is as well, if not better, managed, than 
 ever before. Schwab simply gave the man the 
 opportunity to earn all he could, and every man 
 works best and most heartily under this urge. 
 
 A few years ago Bethlehem Steel absorbed the 
 Fore Eiver Shipbuilding Co. at Quincy, Mass., a 
 concern that was a failure. Without changing 
 
22 The Story of Bethlehem Steel 
 
 the men in charge, but simply by giving them the 
 incentive contained in the bonus plan and by his 
 own inimitable leadership, he succeeded in secur- 
 ing net profits of not far from $1,000,000 in the 
 first year in which the company was in his hands. 
 
 Wonderful tales have been told of the enormous 
 bonuses paid to officials of the company under 
 the plan. They are probably exaggerated, but in 
 1914, during which year Bethlehem Steel earned 
 about 321/0% on its common stock E. G. Grace, now 
 president of the corporation, drew down a bonus 
 of over $200,000, so that it is not at all improb- 
 able that his bonus in 1915, when some 1121/2% 
 was earned, was near the $1,000,000 with which he 
 has been credited. 
 
 Schwab believes in giving every man the oppor- 
 tunity to make good, and seeing that if he does 
 he realizes quickly and in cash. Every man in 
 the plant who comes under the operations of the 
 bonus plan has the chance to show his ability, and 
 if it be above the usual, if he has initiative and 
 courage, he is well in line for advancement. For 
 the work of each individual, by the very necessi- 
 ties of the plan, is watched carefully. This opens 
 up for each ambitious man the highest possible 
 returns and rewards. 
 
 One disadvantage of the plan has been urged 
 — that those sharing in it are inclined to drive 
 those under them, so as to realize its benefits. 
 
Expansion ^ 23 
 
 If this were true the disadvantage would go far 
 to offset the good results of the plan, but as the 
 plan has been worked out so that it now applies 
 even to the majority of the common laborers in 
 the plant, it can hardly work a hardship to any- 
 one. That it is extremely popular with the men 
 is proved by the fact that every worker who joins 
 the Bethlehem Steel forces is anxious to have 
 himself put in line to receive its benefits. 
 
 It is hardly necessary to point out that the bonus 
 plan, which makes it necessary to keep a careful 
 check on the work of each and every employe of 
 the big plant at Bethlehem, as well as of all the 
 other subsidiary companies, also serves to reveal 
 quickly what men are failing to keep up to what 
 should be expected of them, and so the inefficient 
 or idle workers are soon weeded out of the or- 
 ganization. 
 
 Schwab's Expansion Plans 
 
 Schwab began his plans for the expansion of 
 the Bethlehem plant as soon as he took charge 
 of it. For several years previous a gradual ex- 
 tension and modernizing of the old plant had been 
 going forward, but the new commander in chief 
 adopted a somewhat changed policy, beginning 
 immediately the erection of new and complete 
 steel-making units. About 250 acres of land ad- 
 joining the then existing plant was purchased and 
 
24 The Story of Bethlehem Steel 
 
 the new furnaces, rolling mills, etc., were con- 
 structed thereon. 
 
 In the year 1905 a total of $2,013,732 was ex- 
 pended for new construction work. $2,990,765 
 had been appropriated for this purpose but the 
 year's program was not completely carried out at 
 its close. Other extensions carried out by the 
 Bethlehem Steel Corporation during the year at 
 plants of other subsidiaries called for a total ex- 
 penditure of $428,750, so that the corporation 
 spent altogether for such purposes $2,442,482. 
 
 As the corporation was not in a particularly 
 strong financial condition it was necessary to 
 finance these operations by the issuance of bonds, 
 and so a new issue of $12,000,000 five-per-cent., 
 twenty-year first-extension mortgage gold bonds 
 was created. At about the same time the 
 $3,000,000 collateral-trust sinking-fund six-per- 
 cent, bonds were called in. The new bonds were 
 not actually issued until the following year. 
 
 The financial report of the corporation for 1905 
 showed gross sales of $14,554,117, and a total in- 
 come of $3,468,802, of which $153,673 was derived 
 from investments and rents. After interest 
 charges and allowances of $295,671 for probable 
 loss on the construction of the ships already re- 
 ferred to, with $400,000 depreciation a balance of 
 $2,365,399 was left for the stock. Preferred divi- 
 
Lean Yeaes 25 
 
 dends of $521,780 were paid, and a net surplus 
 of $1,843,619 carried to profit and loss. 
 
 The years 1906 and 1907 were hard ones for the 
 new corporation, notwithstanding the fact that 
 they were unusually prosperous ones for the steel 
 trade generally. Bethlehem, it should be remem- 
 bered, was at that time engaged almost entirely in 
 the making of certain specialties, and its rail and 
 structural mills, which later were very profitable, 
 had not even started operations until around the 
 close of 1907. In 1906, too, severe losses were oc- 
 casioned, as already explained, by the San Fran- 
 cisco earthquake. 
 
 In 1906 the corporation reported net manufac- 
 turing profits of $1,859,353, less $647,193, the es- 
 timated loss on the construction of ships taken by 
 subsidiaries before its incorporation. Other in- 
 come was $152,015, the total income being $1,364,- 
 175. Interest charges amounted to $601,426, leav- 
 ing a balance of $762,749. After the payment of 
 $894,480 preferred dividends a deficit of $161,323 
 was shown for the year. From the previous sur- 
 plus of $1,843,620 reserves for probable other 
 losses, depreciation, etc., were deducted to an 
 amount of $1,118,467, so that the actual profit and 
 loss surplus at the year's end was only $593,421. 
 
 In 1907 net income was $2,638,957, of which 
 $67,705 was derived from sources other than the 
 manufacture of steel. Interest charges were 
 
26 The Story op Bethlehem Steel 
 
 $1,020,168, leaving a net balance for dividends of 
 $1,618,789. 
 
 Only $111,810 was paid in dividends. These had 
 been declared towards the close of 1906. And 
 from early in 1907 until 1913 there was not a 
 single cent of dividends distributed to Bethlehem 
 Steel stockholders. 
 
 In 1907 Schwab adopted, and followed for 
 years, a policy of the most stringent conservation 
 of profits, using these for expansion. Although 
 a large part of his own fortune was invested in 
 Bethlehem Steel, he refused to consider the ques- 
 tion of dividends. The difficulties that the com- 
 pany met with in its early years had convinced 
 him that he could not eat his cake and have it, and 
 that if he wanted the corporation to be such an 
 organization as he had planned he would have to 
 sink back into new construction all earnings, 
 awaiting for returns until its position was unas- 
 sailable and there need no longer be any fear of 
 paying, and paying liberally. 
 
 Ploughing Back Earnings 
 
 It was to the undeviating following out of 
 this policy that Bethlehem Steel's earnings have 
 grown so enormously in recent years — for al- 
 though the huge profits of 1915 were largely at- 
 tributable to the war in Europe and the conse- 
 quent demand for the company's products, earn- 
 
Rail and Structural Mills Completed 27 
 
 ings for several years previous had been excel- 
 lent, and it was due to this very conservation of 
 profits that Bethlehem was in a position to take 
 full advantage of the war demand and to reap 
 the benefits therefrom. 
 
 Up to and including 1907 dividends had been 
 paid as follows on the preferred stock: 1905, 
 31/2%; 1906, 6%; 1907, three-fourths of 1%. 
 
 Although the corporation had not long before 
 disposed of $12,000,000 of bonds, chiefly for the 
 purpose of new construction, in 1907 it was again 
 found necessary, to carry on the new construc- 
 tion program, to issue $2,500,000 of notes and at 
 the close of that year the company showed a 
 funded debt of $21,366,000, while its total surplus 
 was only $2,100,000. 
 
 But meantime the extension policy was being 
 vigorously pushed, the annual report showed that 
 nearly $6,000,000 had been spent in carrying it out 
 during the twelve months, while in the three years 
 then ending a total expenditure of $12,960,993 
 had been made. The benefits of this new con- 
 struction first began to make themselves felt to- 
 wards the close of 1907 when, on September 3, 
 the newly completed rail mill was put into oper- 
 ation, rolling 33,754 tons before December 31. 
 The new structural mill started to produce on 
 January 8 the following year, while a second 
 structural mill was finished in the summer of 1908. 
 
28 The Story of Bethlehem Steel 
 
 Hard times were experienced in the steel trade 
 in 1908, following the panic year, and Bethlehem 
 suffered with the rest. Total net income was 
 $2,192,355 and the surplus after charges and de- 
 preciation was $366,864. No new bonds or notes 
 were issued during the year and $1,509,725 was 
 spent on capital account, making the total thus 
 spent since the company's organization up to the 
 end of 1908 close to $14,500,000. 
 
 During 1908 the Union Iron Works absorbed the 
 San Francisco Dry Dock Co., which owned three 
 floating and two graving docks. This was merely 
 a dock company, having no facilities for repairs, 
 and its merger with the Union naturally worked 
 to the advantage of both. For the property of 
 the Dry Dock Co. $312,500 was paid in cash and 
 $1,000,000 in bonds paying 6%, and in addition an 
 underlying debt of $500,000 in 5% bonds was as- 
 sumed by the purchasing company. This was 
 the first step in the expansion of the Bethlehem 
 Steel Corporation by purchase. 
 
 Eeturning prosperity began to make itself felt 
 by Bethlehem Steel in 1909, when earnings were 
 $2,836,593 and $800,811 was carried to surplus 
 after all charges. Perhaps the best indication of 
 the betterment was to be found, however, in the 
 fact that the corporation closed orders to a 
 total of $28,696,517 during the year, as against 
 $14,458,998 the previous year, and that orders on 
 
Going Into Debt 29 
 
 the books at the conclusion of the two periods 
 were $7,592,503 for 1908 and $14,073,834 for 1909. 
 
 Meantime Bethlehem Steel was going more 
 and more heavily into debt to erect new plants. 
 In November it issued $7,500,000 of 6% gold 
 notes, part of which was put out for the purpose 
 of redeeming the older issue of $2,500,000, while 
 the remainder was to be used for new construc- 
 tion. This brought the total funded debt of 
 Bethlehem up to $28,070,267 on Dec. 31, 1909. 
 
 One of the new improvements, or additions, 
 planned was the construction of Bessemer con- 
 verter to be used in conjunction with the open- 
 hearth furnaces in producing steel by the so-called 
 duplexing process. Additional open-hearth capac- 
 ity was also decided on and the work of building 
 the furnaces started during the year. Nor, while 
 attention was centered upon the steel plant, were 
 the other subsidiaries entirely forgotten. The 
 car plant of the Harlan & Rollings worth com- 
 pany was extended materially. 
 
 Early in 1910 Bethlehem Steel made an impor- 
 tant contract with the Didier-March Co., a Ber- 
 lin concern, for a supply of coke for twenty years, 
 the steel company having the option of purchas- 
 ing the coke plant at the expiration of the con- 
 tract time. The daily supply of coke contracted 
 for was 2,000 tons, although the steel company 
 
30 The Story of Bethlehem Steel 
 
 had the right to demand a greater, or accept only 
 a smaller, supply if trade conditions warranted. 
 
 Early in 1910, also, Bethlehem Steel succeeded 
 in closing a contract with the Government of 
 Argentina for armor plate and other naval 
 material amounting in value to approximately 
 $10,000,000. 
 
 In the company's report for 1912 we find the 
 statement that the construction program is about 
 completed with the work finished during the year, 
 or nearing completion at its close. Obviously a 
 drastic change in plans followed the writing of 
 the report, as Bethlehem's expenditures for new 
 construction since it was written have completely 
 dwarfed all that went before. 
 
 Earnings in 1910 were $4,343,862 and the net 
 surplus for the year $2,001,612. These were the 
 largest earnings so far reported by the company 
 and they brought the final profit and loss surplus 
 at the close of the year to $5,269,688. 
 
 But 1910 earnings were exceeded in the year 
 that followed, as indeed, the company has set a 
 new record for earnings every year since. The 
 gain in 1911 was perhaps all the more surpris- 
 ing as the year was far from being a prosperous 
 one for steel companies generally. Net earnings 
 of the Bethlehem Corporation were $4,579,565, 
 and the surplus after charges $2,038,979. 
 
 In 1912 earnings again reached a new top level. 
 
Chile Ore Contract 31 
 
 being $5,114,440, with a surplus of $2,063,640. 
 The corporation increased its funded debt during 
 the year by the issuance of $14,200,000 first lien, 
 refunding mortgage bonds, at the same time retir- 
 ing its short-time obligations amounting to $10,- 
 000,000. The Harlan & Hollingsworth Corporation 
 also issued $450,000 of bonds and, at the end of 
 1912 the total funded debt of Bethlehem and its 
 subsidiaries was $32,441,533. 
 
 An Epoch-Making Contract 
 
 About the end of 1912 Charles M. Schwab made 
 a trip to Europe and while there closed a deal 
 that is likely to have a great and lasting effect 
 upon the future of the company. This was the 
 obtaining for Bethlehem of the Tofo Iron Mines, 
 in Chile, supposed to contain, at the lowest esti- 
 mation, one hundred million tons of iron ore. 
 When Mr. Schwab announced the purchase he 
 said that the ore showed an iron content of 66% 
 per cent. Actual yield from what ore has been 
 used shows a content of over 67%. The impor- 
 tance of this supply of ore, possibly the richest 
 known deposit of its size, may perhaps be real- 
 ized when it is considered that most of the ore 
 of the Lake Superior region has an iron content 
 of around 511/2% and that every change of a 
 single point in the metallic content means a de- 
 cided difference in the cost of producing iron 
 therefrom. The contract provided that Bethle- 
 
32 The Story of Bethlehem Steel 
 
 hem Steel should mine not less than 1,000,000 tons 
 of ore a year, paying for all ore taken out of the 
 ground a royalty of 121/2 cents a ton, besides a 
 fixed annual payment of $200,000, whether any 
 mining was done or not. 
 
 Dividends on the preferred stock were resumed 
 in 1913, the rate established being 5%. Earnings 
 this year were $8,752,671 and the net applicable 
 to the stock $5,122,703. 
 
 The important happenings of this year, in the 
 way of expansion were the purchase of the Fore 
 River Shipbuilding Co. of Quincy, Mass., and of 
 the Titusville Forge Co. of Titusville, Pa. By 
 the purchase of the first-named concern Bethle- 
 hem was put in a position to build, on the Atlan- 
 tic seaboard, battleships completely armored and 
 equipped. The Fore River plant, with its ship- 
 building facilities, complemented and rounded 
 out the armor-plate and munitions plants at Beth- 
 lehem. 
 
 In 1914 earnings reached $9,649,668, and net 
 profits on the stock were $5,590,020. Notwith- 
 standing this it was not until after the close of 
 the year that Mr. Schwab and his associates de- 
 cided to restore the full 7% rate on the preferred 
 stock. Although earnings were largely in excess 
 of the amount required for the preferred dividend, 
 and a handsome balance would have been left 
 even if a small disbursement had been made on 
 
Big War Profits 33 
 
 the junior issue, the policy of returning all prof- 
 its possible to expansion was still being followed, 
 nearly every year seeing from $4,000,000 to 
 $6,000,000 thus expended. 
 
 Bethlehem's large earnings in this, the year 
 when the Great War started, and when all Ameri- 
 can industry was halted and steel-company prof- 
 its vanished, can only be explained by sales of 
 war material both before and after the beginning 
 of hostilities. Early in the year several big guns 
 for Germany were completed and towards its close 
 orders from the Allied Powers, then at grips with 
 Germany, began to come in. 
 
 Yet it was not until the following year that the 
 big influx of munitions orders came to this coun- 
 try. Bethlehem, the best-equipped of all Ameri- 
 can concerns to make shells, guns and other death- 
 dealing machines, naturally benefited more than 
 any one else. The American Krupps is reputed 
 to have actually closed contracts for well over 
 $350,000,000 of such material, and this figure is 
 probably correct. 
 
 After paying all charges Bethlehem Steel, in 
 1915, was able to report earnings on its stock of 
 $17,762,813. This was sufficient to pay the pre- 
 ferred dividend and to leave a balance of over 
 $112 a share on the common stock. 
 
 The war had put Bethlehem in the millionaire 
 class ! 
 
CHAPTER III 
 
 Bethlehem and the War Stock Boom^Policy of Conservation 
 OF Profits Adds to Value of Securities. Extension by Con- 
 struction AND Absorption — Offers to Buy Control. 
 The Question of Value. 
 
 JUST about a year ago, in a world war-mad, 
 the New York Stock Exchange was the scene 
 of the greatest ''boom" it had ever known, 
 the boom in the so called ''war brides." The flood 
 of munitions orders released by the allied powers, 
 and its effect upon the profits of munition and other 
 plants capable of being turned into munitions 
 factories, was just beginning to be realized; and 
 there was witnessed an enormous demand for the 
 securities of such concerns, such a vast wave of 
 buying, that many securities, formerly neglected, 
 almost forgotten in the trading of more peaceful 
 times, climbed upward to dizzy heights of value. 
 
 First and chief of these was Bethlehem Steel. 
 Bethlehem was the first American company to get 
 a "war order." Late in 1914 Charles M. Schwab 
 went over to Europe and brought back with him 
 contracts for about $50,000,000 of guns. Later 
 more orders, some of them larger, were placed 
 with the company, which up to that time had never 
 done a year's business of as great a gross as one 
 of these contracts, and the eyes of the investing 
 and speculating world began to turn toward 
 Bethlehem common. 
 
The Boom in Bethlehem 35 
 
 In 19Q7 Bethlehem Steel common sold as low as 
 $8 a share — and it is likely that this price did not 
 discount its actual value by a great deal. In 1913 
 and 1914 it sold, most of the time, around $30, and 
 was not regarded with great favor even at that 
 level. But in 1915, taking its legitimate place in 
 the van of the war stocks, it advanced by leaps and 
 bounds to $600 a share, while conservative in- 
 vestors, who had never seen a non-dividend pay- 
 ing stock sell at such a price — one that seemed to 
 be enormously inflated — held their breaths and 
 awaited the crash they deemed inevitable. 
 
 Bethlehem Steel common, once liberally water 
 soaked, if not, indeed, altogether composed of that 
 fluid, was having real assets, cash assets, put be- 
 hind it at an unprecedented rate. Of the two bil- 
 lions of dollars, or so, of guns and ammunition 
 that the Allies had ordered here, the company had 
 taken three hundred millions or more. And 
 Bethlehem, be it remembered, had been for thirty 
 years, an ordnance company. The business was 
 not a new one to its management, as it was to those 
 of many other companies. These orders repre- 
 sented profits, sure and large. 
 
 It was this that caused the boom in Bethlehem. 
 But even had the war not occurred, it was in- 
 evitable that, sooner or later, the stock would have 
 sold at high figures, for it had, at the end of 1913, 
 assets justifying far higher prices than were then 
 
36 The Story of Bethlehem Steel 
 
 offered for it, and it had one asset, intangible but 
 more valuable than all the rest, the leadership of, 
 and the organization created by, Schwab. 
 
 As far back at 1913 I expressed the opinion that 
 Bethlehem common would one day sell at $300 a 
 share. This opinion, naturally, was not based 
 upon the expectation of war profits, which made it 
 fulfil itself far earlier than I had expected. But 
 I believe, that war or no war, Bethlehem, would 
 have sold at that level, because I realized vaguely 
 what were Schwab's plans for Bethlehem, how he 
 was carrying them out by putting earnings back 
 into new construction, thereby creating a surplus 
 of assets which was bound to affect the company's 
 earning power, and therefore its stock value, in 
 the future. In 1913 Bethlehem's assets behind its 
 common stock were well above the amount of stock 
 outstanding, yet Schwab, although earnings of the 
 company might have been held to justify the pay- 
 ment of dividends, continued turning profits into 
 new assets. 
 
 Had attention been directed to Bethlehem before 
 the war the analytical investor would have quickly 
 realized its value. That the stock was overlooked 
 is proven by the fact that, in the years 1913-14 its 
 net earnings after deductions of all kinds, repre- 
 sented approximately 100% of the selling price of 
 Bethlehem Steel common. 
 
 The high and low levels for the security in the 
 
Why the Stock Was Neglected 37 
 
 twenty-four months of 1913-14 were 46% and 25, 
 but the general level was around $30 a share. In 
 
 1913 Bethlehem Steel reported a profit of $27.50 
 for each share of common outstanding, while in 
 
 1914 this was increased to $32.60 a share, an aver- 
 age of $30.05. I can think of no other company- 
 making public the record of its operations and its 
 balance sheet, the stock of which sold continuously 
 so much out of proportion to its earnings. 
 
 The principal reason for the failure of Bethle- 
 hem stock to respond to its large profits was, of 
 course, the common knowledge of the fact that 
 Schwab was determined not to pay any dividends 
 until the company was so solidly built up and its 
 future, so far as was humanly possible, so assured, 
 that dividends, once started, would only be changed 
 to a higher rate, and never passed. This meant that 
 to purchase Bethlehem was to wait a long time for 
 a return on your investment — but the return 
 promised was well worth the waiting for. 
 
 As it happened the wait was not too long. The 
 war came, and brought unexpected profits, and, 
 early in 1916, a dividend of $30 a share was de- 
 clared. 
 
 Up to the close of 1913, or seven months before 
 the war, Bethlehem Steel had put $40,000,000 into 
 new construction, and it had assets behind each 
 share of its common stock well over $200. But 
 construction went merrily forward, except for a 
 
38 The Story of Bethlehem Steel 
 
 temporary stoppage during the severe financial de- 
 pression in the first months of the war, and at the 
 end of 1915 Bethlehem reported net assets behind 
 its common stock of $310 a share. Up to the pres- 
 ent the total amount expended for new construc- 
 tion is $69,000,000, or 4% times the amount of 
 common stock outstanding. Bethlehem is greatly 
 undercapitalized ! 
 
 And still the building program is not completed. 
 The company is now spending $1,500,000 each 
 month for the erection of plants — it does not spend 
 more because it can't get more men to do the work 
 — and its directors have approved appropriations 
 to a total of $70,000,000 to be expended within the 
 next three years. This will mean so much more 
 earning power and value placed behind the com- 
 pany's securities, for every cent to be spent will 
 be taken from earnings. 
 
 Shylock, asked if his gold and silver were ewes 
 and rams, replied, ''I make them breed as fast.'^ 
 Schwab might say this of Bethlehem earnings. 
 
 That even these immense expenditures do not 
 satisfy the ambitious plans of the Chairman of the 
 Board of Bethlehem Steel is shown by his action 
 when Eugene G. Grace, president of the company, 
 handed him the memorandum of the proposed ex- 
 tensions, with their cost ; Schwab smiled and wrote 
 across the paper: ''I won't be quite satisfied until 
 this grows to $100,000,000." 
 
Plans for Export Trade 39 
 
 Through its recent purchase of the Pennsylvania 
 Steel Co. — of which more later — Bethlehem Steel 
 obtained control of the Maryland Steel Co., which 
 owns and operates a shipbuilding plant and rail 
 mill at Sparrows Point, Maryland. The location 
 of the plant is without peer in regard to foreign 
 trade advantages. It is possible to ship to it, at an 
 extremely low freight charge, the rich Mayari ores 
 from Cuba which it now uses — I understand that, 
 in normal times, this ore can be brought over for $1 
 a ton, with chartered vessels and the rate will be 
 materially lowered when Schwab builds ships 
 specially for the purpose — and will also be able to 
 use the ores from the Tofo mines, in Chile, now be- 
 ing exploited by the Bethlehem Steel Co. In at- 
 tempting foreign markets the Sparrows Point 
 plant will not be handicapped by return freights 
 on finished material to the seaboard, for it is right 
 on tidewater — a double saving — and it will there- 
 fore have an "edge" of $1.50 a ton or more on 
 every competitor in the United States. 
 
 More, steel may be shipped from the Maryland 
 plant to all points on the Atlantic coast of the 
 United States at a lower freight rate than from 
 Pittsburgh or any other steel center. It can be sent 
 in barges to New York, Philadelphia, Boston and 
 other seacoast cities, thus giving the plant the 
 benefit of a water rate as compared with a rail 
 rate. And, in steel competition, freight rates are 
 more than half the battle. 
 
40 The Story of Bethlehem Steel 
 
 With Schwab guiding its destinies Sparrows 
 Point will become a great steel center. Within the 
 next three or four years from $25,000,000 to 
 $30,000,000 will be spent there to make it so. Al- 
 ready 1,000 acres of land have been acquired for 
 extensions and a big tin plate plant, the first item 
 of new construction, is in course of erection. Later 
 a battery of by-product coke ovens will be built. 
 Still later, it is likely, a structural mill for making 
 the ''Bethlehem section," and possibly plants for 
 the manufacture of wire, tubes and other products 
 — for Schwab plans to make every line of steel 
 eventually. 
 
 Many years ago, in December, 1900, Schwab 
 told, in a speech, his dream for a steel company. 
 Out of this speech, among the listeners to which 
 was the late J. Pierpont Morgan, was born the 
 great United States Steel Corporation. But 
 Schwab is now realizing that dream for himself 
 with Bethlehem Steel as his instrument. The ex- 
 penditure of $70,000,000 recently authorized, will 
 go a far way towards making Bethlehem the com- 
 pany of which he spoke then. 
 
 Bethlehem has been the magnum opus of 
 Schwab's life. It has been, in so far as corpora- 
 tion can be, an expression of the man himself. He 
 nursed it through its infancy, guided it during its 
 adolescence, and now that it is, for its size, the 
 richest — it is one of the largest — steel company 
 
Schwab's ''Luck" 41 
 
 in the world, that he should regard its success with 
 pride is not alone justifiable but entirely natural. 
 He has made it; established its foundations se- 
 curely. "I am the old man of Bethlehem, the 
 younger men must now take charge," he says. 
 Nevertheless, he is the real man at the helm today. 
 
 When Schwab became President of the United 
 States Steel Corporation, the great billion dollar 
 company, at its organization in 1901, and when, 
 two years later, he resigned, there were many who 
 regarded his success as entirely a matter of luck, 
 attributing it to the fact that he happened to get 
 in the good graces of Andrew Carnegie, and the 
 story of Carnegie's attention being attracted to 
 him by his singing, was told to illustrate this luck. 
 As a matter of fact Carnegie was too shrewd a 
 man to be influenced to any great extent in that 
 way. He himself admits that he owed his great 
 success largely to Schwab's ability. 
 
 But the world at large did not think so then. 
 And Schwab was keenly aware of this, so when he 
 took charge at Bethlehem he was determined to 
 demonstrate that he had the ability to make a great 
 steel company out of rather unpromising material 
 — and he has done it. 
 
 How much of his private fortune Schwab ac- 
 tually put into Bethlehem since its organization 
 may never be known. In the company's early 
 days, before its credit was robust, he personally 
 
42 The Story of Bethlehem Steel 
 
 endorsed every note it issued — and it had at one 
 time $7,500,000 of notes outstanding. He himself 
 purchased one-third of the total of every bond 
 issue, and continued to do so until about five years 
 ago, when it was no longer necessary. More than 
 this, from time to time he lent large sums of money 
 to Bethlehem to tide it over temporary emerg- 
 encies, probably millions in all, and never even 
 demanded the company's note for these amounts. 
 Bethlehem was his to stand or fall by. No other 
 stockholder ever came to its assistance. Is it any 
 wonder, then, that he feels as he does about Bethle- 
 hem Steel? He had borne the burden; to him is 
 due the credit. 
 
 Had Schwab cared to take his profits from 
 Bethlehem he might have done so years ago by 
 paying dividends, amply justified by earnings, on 
 the preferred stock. But he refrained. In 1915, 
 when the company was the focal point of the finan- 
 cial world, he had many offers to dispose of his 
 holdings at exceedingly attractive prices. One of 
 these was from Grerman interests — possibly the 
 German Government itself — another from power- 
 ful New York bankers and capitalists. 
 
 These offered Schwab $200 a share for 90,000 
 shares of preferred and $600 a share for 60,000 
 shares of common stock, or $54,000,000 in all. 
 This gigantic offer naturally gave the head of 
 Bethlehem some pause for consideration, but never- 
 theless he refused to accept it. 
 
Schwab Eefuses $54,000,000 43 
 
 *'I asked for time and went home to talk it over 
 with Mrs. Schwab," he said. *'I told her of the 
 offer and requested her opinion." 
 
 "She did not hesitate for ,a minute, saying, *I 
 would never know what to do with all that money, 
 and you could not live without your work.' " 
 
 ' ' That settled it. I told the bankers that I would 
 not sell." 
 
 When Schwab told me that Bethlehem would 
 spend at least $70,000,000 within the next three 
 years or so in new mills, he also stated that every 
 dollar would be taken out of earnings, no new 
 financing being contemplated for the purpose. 
 And added with emphasis that every last cent 
 would be used for increasing the company's out- 
 put of commercial steel. 
 
 "I will spend nothing more for munitions," he 
 said. 
 
 This brings us to a subject that is of immense 
 importance. Bethlehem's place is among steel 
 companies proper, and not considered as a muni- 
 tion company. 
 
 For years steel men have regarded Bethlehem, 
 not as a steel company, but as an ordnance con- 
 cern — the American Krupp's. And there has been 
 a good deal of reason for this, for Bethlehem, al- 
 though producing a considerable tonnage of steel, 
 has used much of it in manufacturing guns, armor 
 plate and projectiles. And the greater part of 
 
44 The Story of Bethlehem Steel 
 
 its earnings have been thus derived. But for many 
 years past Bethlehem has been slowly and surely 
 working on a steel program proper. A program 
 outlined from the very day that Schwab took con- 
 trol, although he was unable to put it into effect as 
 he would have wished at the beginning because of 
 financial reasons. 
 
 It will be remembered that the first important 
 act of the newly organized Bethlehem Steel Cor- 
 poration was to start the erection of a rail mill at 
 Saucon, and of a structural mill at the same place. 
 The structural mill has been one of Bethlehem's 
 great successes. 
 
 Early in the present century Henry Grey invented 
 a structural steel section which he offered to every 
 important steel mill in the country. It was a design 
 for making in a single piece the big beams used in 
 erecting buildings, instead of riveting together a 
 number of different pieces of steel. But Grrey's 
 invention was not thought much of. The old way, 
 most steel men thought, was the best, could not be 
 improved upon, and so Grey's section was left on 
 his hands. 
 
 Schwab, however, had been impressed by the de- 
 sign, and, no sooner was he in the saddle in 
 Bethlehem than he negotiated with the inventor 
 and purchased the patents to the new beam. It 
 was to manufacture this that the big structural 
 mill at Saucon was erected. 
 
Success op ''Bethlehem Section" 45 
 
 I'he wisdom of his course has been proven. Since 
 the first day on which Saucon mill began to roll 
 what is now known commonly as the Bethlehem 
 section it has been operated at full capacity with- 
 out a single break. This through some of the most 
 serious depressions from which the steel industry 
 has suffered, periods during which every other 
 structural mill in the country was operating at a 
 very low percentage of full. 
 
 The popularity of the Bethlehem section is now 
 established. And its production will be increased. 
 Already the demand warrants this course. It has 
 no competitor, and Bethlehem is the only concern 
 able to make it. 
 
 During the past three or four years Bethlehem 
 Steel has expanded enormously, not alone by the 
 expenditure of money for new construction but by 
 the acquisition by purchase of other companies. 
 The first important purchase was that of the Fore 
 River Shipbuilding Corporation, at Quincy, Mass. 
 The Fore River Co. had been struggling along 
 under difficulties for years, and had at the time of 
 the acquisition contracts for two battleships for 
 the Government of Argentina on which there was 
 promise of a big loss. Schwab acquired control 
 for Bethlehem at a figure around $700,000, and 
 under his skilful guidance, succeeded in repaying 
 the purchase price out of the operations of the first 
 year following the sale. The Titusville Forge Co. 
 
46 The Story of Bethlehem Steel 
 
 was purchased about the same time as the Quinoy 
 company. 
 
 Next came the deal with the Schneider interests, 
 of France, giving Bethlehem control of the rich 
 and vast ore fields of Chile. Then came the war 
 and with it Bethlehem became rich, and has ex- 
 panded more rapidly since. 
 
 In 1915 the Detrich & Harvey Machine Co., of 
 Baltimore, was purchased. Early this year came 
 the purchase, by the Union Works, a Beth- 
 lehem subsidiary, of the Alameda plant of the 
 United Engineers Works, at San Francisco, and 
 later Schwab acquired by purchase the Baltimore 
 Sheet & Tin Plate Co. Finally came the biggest 
 deal of all — ^the purchase of Pennsylvania Steel. 
 
 A few short years ago if it had been stated that 
 Bethlehem Steel was buying Pennsylvania it 
 would have been regarded as a case of the tail 
 wagging the dog, for Pennsylvania Steel has long 
 been one of the most important steel producing 
 organizations in the country, with large plants at 
 Steelton and Lebanon, Pennsylvania, and the plant 
 of the Maryland Steel Co., at Sparrows Point. The 
 company also is rich in its ore holdings, both in 
 Cuba and at home. But within the past eighteen 
 months the financial world has come to regard 
 Bethlehem with something even more than respect. 
 
 A possibly unconscious tribute to Bethlehem's 
 financial strength was paid it by the leading finan- 
 
The Story of Bethlehem Steel 47 
 
 cial paper which, discussing the deal, suggested 
 that if the minority Pennsylvania shareholders 
 were not inclined to accept bonds for their hold- 
 ings, Bethlehem would pay them for the $4,000,000 
 or so of stock that they owned out of its ''petty 
 cash." Such a statement was not allowed to pass 
 without comment from the humorous paragraphers, 
 but, as the paper later replied, "Bethlehem can 
 afford it." It was all a matter of comparison. 
 
 Pennsylvania Steel had $20,560,800 preferred 
 and $10,750,000 common stock, and for this Beth- 
 lehem agreed to pay $23,460,800, or par for the pre- 
 ferred and $27 for the common. The total amount 
 agreed on, however, was $31,960,800, as $8,500,000 
 cash lent the Pennsylvania Steel Co. by the rail- 
 road company of the same name was to be re- 
 funded by Bethlehem. 
 
 Besides the stock capitalization bonds outstand- 
 ing of Pennsylvania and its subsidiary companies 
 total $25,214,000. To take up these securities a 
 new issue of 5% Bethlehem Steel Co. bonds has 
 been authorized. 
 
 By the purchase of Pennsylvania Steel Bethle- 
 hem, at one fell swoop, doubled its capacity for 
 making pig iron and steel, increased the variety 
 of its products, provided itself with a tidewater 
 plant and made itself the biggest shipbuilding con- 
 cern in America. 
 
 The combined pig iron capacity of the two com- 
 
48 The Story of Bethlehem Steel 
 
 panies is about 2,300,000 tons a year, and when 
 furnaces to be built are ready, will be about 
 4,000,000 tons. The combined steel ingot capacity 
 is 3,500,000 tons, and the capacity for finished steel 
 something over 2,000,000 tons. 
 
 By the purchase of the Maryland Steel plant 
 Bethlehem increased to five the number of its ship- 
 yards, as follows : Maryland Steel, Harlan & Hol- 
 lingsworth. Union Iron Works, Samuel L. Moore 
 & Sons and the Fore River Shipbuilding. On 
 March 31, just after the deal was put through, it 
 was estimated that there were building in Ameri- 
 can yards 901,000 tons of ship tonnage, and that 
 341,000 tons, or 38% of this total, were building at 
 the five plants named. 
 
 The figures given above illustrate forcibly the 
 growth of Bethlehem since 1904. In that year the 
 company's pig iron capacity was 120,000 tons. In- 
 cluding the blast furnace capacity of Pennsylvania, 
 it is now 2,300,000! 
 
 In 1905, the Bethlehem Steel Oorporation em- 
 ployed about 9,000 men. It now employs, includ- 
 ing the Pennsylvania Steel workers, nearly 60,000. 
 A year ago there were between 13,000 and 14,000 
 men employed at South Bethlehem alone. Today 
 there are 24,000. 
 
 The plant of the Bethlehem Steel Co. at South 
 Bethlehem, the American Krupp's works, covers 
 an area of 600 acres, stretching three miles along 
 
Big and Little Guns 49 
 
 the shore of the Lehigh River. This does not in- 
 clude the new plant at Reddington, a nearby town ; 
 and the company has 1,000 more acres of land 
 which will later be built on. 
 
 At this plant there are now being turned out 
 complete fully 25,000 shells of different sizes daily. 
 This figure refers entirely to shells made entirely 
 there, as the plant is shipping some 15,000 shells, 
 many of the parts of which were sublet to other 
 concerns. 
 
 The Bethlehem gun shops make almost every 
 kind of gun used from the small one-pounder, fir- 
 ing a one inch bullet (diameter), to the big navy 
 rifles used on the great British super-dreadnoughts 
 and firing a shell of a diameter of sixteen inches, 
 with a range of twenty miles. 
 
 In the armor plate plant is made every variety 
 the shape of armor plate, for purposes both peace- 
 ful and warlike, for bank vaults and battleships. 
 At this plant has been made the protective armor 
 for vessels of many nations. In 1914, at the out- 
 break of the war, it was completing an order for 
 armor plate for a big Greek warship — it was also 
 making the guns for this vessel at its big gun 
 plant — which was being constructed in Germany. 
 The Germans took over the ship — but they did not 
 get the armament. 
 
 What is the value of Bethlehem stock? This 
 question, after all, is the one of paramount inter- 
 
50 The Story of Bethlehem Steel 
 
 est to investors. Is it worth the price, between 
 $500 and $600 a share, at which it is selling? 
 
 My personal belief is that Bethlehem common 
 has an inherent value not far from $1,000 a share. 
 
 When Bethlehem Steel was incorporated its 
 common stock was all water. This is indisputable. 
 But since that time $60,000,000, in round figures, 
 has been spent for new construction — to the end 
 of 1915. With due allowances for depreciation 
 this represents actual addition to plant value of 
 over $300 a share, and to this must be added addi- 
 tions to working capital made since 1904. An 
 analysis of the company's balance sheet of Dec. 
 31, 1915, showed net assets for the common stock 
 equivalent to $310 a share. 
 
 Since the beginning of 1916 Bethlehem Steel has 
 spent at the rate of about $1,500,000 a month on 
 new construction, and will continue to spend at 
 this rate at Bethlehem alone until the end of 
 the year. This does not include recent appropria- 
 tions of $70,000,000, already referred to, for con- 
 struction at all the plants during the next three 
 years. 
 
 By the end of 1919, then, Bethlehem Steel will 
 have spent $89,000,000 in new construction — from 
 the end of 1915 — equivalent to six times, or $600 
 per share for its common stock. This construction 
 implies additions to working capital of not less 
 than $15,000,000, or $100 per share, in the same 
 
Continuation of Dividends 51 
 
 period, so that it may be expected that the book 
 value of Bethlehem common at the close of 1919 
 will be approximately $1,000 per share. 
 
 As a matter of fact the value of the stock will 
 increase more rapidly than these figures would in- 
 dicate, for most of the earnings to pay for this con- 
 struction work will be made within the next year. 
 Bethlehem is now making profits of well over 
 $5,000,000 a month, and should keep up this rate of 
 earnings, or better, until near the end of the year. 
 So that some $400 a share should be added to the 
 value of the stock before Dec. 31, 1916. 
 
 From this must be subtracted any dividends 
 paid. And here we come to "milk in the cocoa- 
 nut." Will Bethlehem continue to pay dividends 
 at the rate established early this year, or 30% 1 
 
 For several reasons I am inclined to believe that 
 it will. In the first place it has long been well 
 known that the chief objection of Schwab's to de- 
 claring a dividend on the issue in the past was his 
 desire not to establish a rate until it was practi- 
 cally certain that it could be maintained. Can a 
 dividend of $30 a share on Bethlehem common be 
 maintained? 
 
 I can see no reason why it should not. Bethlehem 
 Steel will have invested in plant and working 
 capital nearly $180,000,000 at the end of the next 
 three years. To pay the regular 7% dividend on 
 its preferred stock, and 30% on its common, a 
 total of less than $5,500,000 annually, would re- 
 
52 The Story of Bethlehem Steel 
 
 quire a return on this investment of about 3%. 
 This is far from a large yield, in fact it is a 
 very small one, and it is a safe bet that Schwab 
 and his associates will obtain one higher than 
 this. And the yield will be increased proportion- 
 ately with increasing capital expenditures with 
 the possibility of still larger dividends. 
 
 In 1913 and 1914, before the, war profits began, 
 Bethlehem's average earnings net for stock were 
 $5,356,361 on an investment of about one-third 
 the sum named. And the Bethlehem stockholder 
 may, in the future, confidently expect large re- 
 turns from the Pennsylvania purchase. 
 
 Bethlehem has successfully weathered its 
 storms. It has reached the crest of the hill, and 
 its future seems assured. 
 
EUGENE G. GRACE 
 
CHAPTER IV 
 
 Schwab's Theories — 'The "Boys of Bethlehem" — A Peep into 
 THE Future. 
 
 CHARLES M. SCHWAB is a man with a 
 theory. He has done much to prove it, but 
 there is one thing that prevents, that dis- 
 proves it absolutely — and that one thing is 
 Charles M. Schwab. 
 
 Briefly, his theory is this: That practically 
 every man, given an equal opportunity, would 
 reach as great success as another, that there 
 are no men of extraordinary ability. 
 
 He points to his ''boys" to prove his claim, to 
 the young men to whom, when he went down to 
 Bethlehem, he gave the opportunity to show 
 what was in them, and every one of whom has 
 ''made good." 
 
 But, so far as now appears, there is not an- 
 other Schwab among them. 
 
 The story of Charles M. Schwab's success has 
 been so often told that only a very brief synopsis 
 need be given here. Born in Williamsburg, Pa., 
 on Feb. 18, 1862, Schwab entered the steel trade 
 under Bill Jones, then manager of the Carnegie 
 steel plant, at the age of 18. Within a few years 
 he worked his way upwards, his unusual ability 
 drawing the attention and favor of the former 
 
54 The Story of Bethlehem Steel. 
 
 Steel King to him, and when only 30 years 
 of age was made manager of both the Homestead 
 and Braddock plants of the company. 
 
 In this position Carnegie gave him practically 
 a free hand, although the old Scot at times was 
 troubled at the bold steps taken by the younger 
 man in the way of spending money for expan- 
 sion. Success dogged his footsteps and Carnegie 
 eventually made him president of the Carnegie 
 Company. 
 
 At the close of 1900 Schwab, who, both his 
 friends and competitors say, is the greatest sales- 
 man that ever lived, put across the biggest sale 
 ever consummated — the sale of the Carnegie 
 properties to Morgan for $492,000,000. It was 
 Schwab who persuaded Morgan to finance the 
 organization of the monster United States Steel 
 Corporation which purchased the Carnegie Steel 
 Company. 
 
 At the age of 39 Schwab found himself presi- 
 dent of the largest corporate enterprise the 
 world had ever seen. But the new job was gall- 
 ing to him. He was accustomed to almost abso- 
 lute freedom of action and he did not long re- 
 main president of U. S. Steel. In 1903 he re- 
 signed, partly for this reason and partly on 
 account of ill health, and it was not until the 
 following year that the circumstances attending 
 the failure of the United States Shipbuilding Co., 
 
Schwab Selects His "Boys" 55 
 
 already related in an earlier chapter, caused Mm 
 again to enter the steel industry. 
 
 The world at large had credited Schwab's 
 success in great part to the undoubted friend- 
 ship which Andrew Carnegie bore to him. Schwab 
 knew this and, when he took up the reins of 
 management of the newly organized Bethlehem 
 Steel Corporation, he was determined that he 
 would make the company a success by his indi- 
 vidual efforts. 
 
 For this reason he decided to select for the 
 carrying on of the enterprise only men already 
 with the company; to bring in no new men. He 
 believed that there were quite a number of young 
 men at Bethlehem who, under his leadership, 
 could take charge of the company's operations 
 and make the proposition a paying one — and 
 events proved that he was right. 
 
 He selected fifteen of these men, the original 
 **Boys of Bethlehem." Of course his choice was 
 based upon a careful study of the abilities of the 
 human material which the company offered. Only 
 one of the ''boys," James H. Ward, came to 
 Bethlehem with him. 
 
 Not one of the fifteen has failed to justify 
 Schwab's faith in him. And Schwab, on the 
 other hand, has kept his promise to the fifteen. 
 When he selected them he told them that, if they 
 stuck to Bethlehem Steel, gave to it all their 
 
56 The Story of Bethlehem Steel 
 
 ability and energy, he would make them all mil- 
 lionaires. I am not sure that every one of the 
 chosen few is now the owner of millions, but sev- 
 eral, at least, are, and the rest are well on the 
 way to becoming so. 
 
 Of all the *'Boys" the one who has risen to 
 greatest prominence in Bethlehem Steel, and in 
 the steel trade, is Eugene G. Grace, now presi- 
 dent of the corporation. Grace, incidentally, 
 who was getting a very small salary at the time 
 of Schwab's arrival in Bethlehem, is now many 
 times a millionaire and is credited with having 
 received over one million dollars in salary and 
 bonuses in a single year — 1915. 
 
 Grace was born in the little town of Goshen, 
 N. J., on August 27, 1776. He entered the service 
 of the Bethlehem Steel Co. after graduating as 
 an electrical engineer from Lehigh University, 
 his first position being a very humble one — that 
 of crane operator. Later he worked his way up 
 to assistant superintendent of the electrical de- 
 partment. 
 
 But the actual business of making steel seemed 
 to exert a fascination over the young man and he 
 got himself transferred to the open hearth de- 
 partment, in which department he was working 
 when Schwab made his original purchase of the 
 Bethlehem properties. 
 
 At this time Schwab was president of the Steel 
 
Eugene G. Grace 57 
 
 Corporation. Grace was now head of the yard 
 department, which he had thoroughly reorganized. 
 
 Grace's first meeting with Schwab was on tiie 
 occasion of the latter 's first visit to the plant 
 after the Bethlehem Corporation was organized 
 in 1904. As head of the yard department he had 
 to attend to the switching of the ''big boss's" 
 car, and it was while hanging onto the back of 
 the car that he first saw the man who was to ex- 
 ert so powerful an influence on his destiny. 
 
 It did not take Schwab long to recognize and 
 appreciate the thoroughness with which Grace 
 had executed the work of the reorganization of 
 his department, and when, shortly after, the com- 
 pany's mines in Cuba proved unnecessarily ex- 
 pensive to operate, Grace was selected to reor- 
 ganize them. Which he did with entire satisfac- 
 tion to all concerned. 
 
 But his abilities were soon needed nearer 
 home. One of the first acts of the Bethlehem 
 Steel Corporation was to build a big structural 
 mill at Saucon, for making the Grey beam, of 
 which mention has already been made, and 
 Schwab selected Grace for this work. He was 
 put in charge of the erection of this plant, which 
 has been an unqualified success. 
 
 In 1909 Grace took still another step upward, 
 becoming general superintendent of the Bethle- 
 hem plant. Shortly afterwards he became a di- 
 
58 The Story of Bethlehem Steel, 
 
 rector of the company, then its president, and 
 finally president of the corporation while still 
 under the age of 39. 
 
 Says James H. Ward, who went down to Bethle- 
 hem with Schwab : ' ' When other men had to refer 
 to records for details of many subjects connected 
 with their work, Grace's storehouse of information 
 was his own head. He knew and had ready at all 
 times the details of every matter connected with 
 his job, and not only that, but of most of the affairs 
 of the company." 
 
 As president of Bethlehem Steel Corporation 
 Grace is in practically full charge of all the 
 company's affairs, and it will be part of his work 
 to reorganize and make a profitable enterprise of 
 the Pennsylvania Steel Co., recently purchased 
 by Bethlehem. 
 
 For Schwab does not believe in reining in the 
 abilities of anyone. He selects a man for re- 
 sponsibility, places it on his shoulders and then 
 leaves him pretty well to his own devices. ''It is 
 better," he says, "for a man to make a mistake 
 now and then. There never was a man that 
 did not. Men learn by their mistakes. And if 
 they are the right kind of men they never repeat 
 one mistake. That is all one can expect." 
 
 Incidentally, the "Boys" of Bethlehem are all 
 directors of the Bethlehem Steel Co. They con- 
 stitute its board of directors. And they are al- 
 
Daily Meetings 59 
 
 ways in direct personal touch with the affairs 
 of the company. Every day they meet in the 
 big lunch room on the top floor of the Bethlehem 
 Steel office building at South Bethlehem and, 
 after luncheon, over their cigars and coffee, dis- 
 cuss details of the company's business in every 
 particular, from the hiring of a man for a va- 
 cant position to the purchase of properties in- 
 volving millions. 
 
 And around this table every man is equal in 
 authority, for each is a director, and no more. 
 Upon leaving it they each assume their respec- 
 tive official positions, but while in friendly con- 
 tact with it they are all on the same footing and 
 express their opinions with absolute freedom. 
 
 One of Grace's chief characteristics is his 
 great power of concentration. When engaged in 
 any work, confronted by any problem, he is able 
 to put from his mind every other thought and 
 engage his entire energies in the job at hand. 
 To this attribute, more than to any other, those 
 who have watched his success attribute it. 
 
 ''Grace concentrates on everything he does," 
 Schwab told me, "whether work or play. He 
 plays the best game of golf of anyone in the 
 neighborhood — around par — and it is because 
 when he plays golf his every faculty is work- 
 ing on one thing alone, playing the game." 
 
60 The Story of Bethlehem Steel 
 
 Grace himself dismisses reference to the mat- 
 ter easily. ''Any man who wants to succeed in 
 his work has got to concentrate on it — that's all 
 there is to it," he says. 
 
 When Grace was appointed president of the 
 Bethlehem Steel Co. his first action was to call 
 together its sales managers and to inform them 
 that he expected the most absolute integrity in 
 all their dealings on behalf of the company. He 
 informed them that Bethlehem Steel would make 
 no contract to which it did not intend to live up 
 to fully, and that any man who made a contract 
 of sale in which he gave evidence of failing to 
 realize this fact by inserting a clause giving the 
 company a loophole to escape from so filling the 
 contract would be given ten minutes' notice. He 
 has never had cause to enforce this threat. 
 
 ''Grace is a man of the most unswerving integ- 
 rity," says Schwab. "Some of us at times may 
 not be absolutely exact, but if Grace says a thing 
 it is SO; if he promises, his promise will be ful- 
 filled to the letter, and to the spirit." Perhaps 
 Grace's integrity might not be worthy of mention 
 but for this fact: that in answer to a question 
 which I put to every one of his associates that I 
 met, "What is Grace's principal characteristic?" 
 the answer invariably was, "integrity — and after 
 that, concentration." 
 
 Besides being an excellent golfer Grace is an 
 
ARCHIBALD JOHNSTON 
 
Grace's ''Luck" 61 
 
 ardent baseball "fan." I am told that he has 
 at his fingers' ends the names and averages of 
 all the prominent players on the major leagues; 
 that the first part of the morning paper he turns 
 to is the baseball score. 
 
 Grace has the reputation of having been born 
 lucky, but those who know him do not attribute 
 his success to luck. In the steel trade the opin- 
 ion is expressed that but one thing has kept him 
 from being better known to the public — the over- 
 shadowing fame of Charles M. Schwab. Yet he 
 is not jealous. 
 
 Archibald Johnston is, perhaps, the best known 
 of the Bethlehem "boys." Unlike most of the 
 others he had already attained a position of 
 prominence with the company at the time that 
 Schwab took personal control. For some years 
 he was president of the company, until succeeded 
 by Grace, but his specialty has been and still is 
 the closing of big foreign deals. A man of the 
 world, suave, courteous, but ever keeping an 
 eye out for the nimble contract for steel or any- 
 thing made of steel that is made at Bethlehem, 
 Johnston is recognized by competitors as a 
 dangerous man to fight against in foreign trade. 
 
 John McGregor, possibly, has no actual right 
 to a place among the "boys" as his job is far 
 removed from Bethlehem. McGregor is president 
 of the Union Iron Works of San Francisco, one 
 
62 The Stoey of Bethlehem Steel 
 
 of Bethlehem's paying subsidiaries. But never- 
 theless he is a striking instance of the result of 
 ability and hard work combined with opportu- 
 nity, as well as of Schwab's seeing eye in select- 
 ing his men. 
 
 For several years after the organization of the 
 Bethlehem Corporation the Union Iron "Works was 
 one of, if not, its most unsatisfactory branches. 
 Every effort to make it pay had proved a failure. 
 One day Schwab suddenly told the fifteen that 
 he had selected a new head for Union. 
 
 *'We have a young clerk named McGregor in 
 the office," he said. ''I have been watching him 
 and I am going to make him president of Union 
 Iron Works." The idea seemed fantastic and 
 Schwab was not unopposed in his selection, but 
 he was determined, and soon after the young 
 clerk found himself pitchforked into a new posi- 
 tion of responsibility. Within a year after his 
 arrival at San Francisco Union was paying. 
 Schwab's choice was justified, his almost un- 
 canny power of picking men for the right job — a 
 power exercised by all really great leaders 
 whether in industry or in war — proven. 
 
 All of the Bethlehem ''boys" avoid the lime- 
 light. They prefer that it be focused on their 
 leader. But of all, there is probably none quite 
 as shrinking as James H. Ward. Ward went 
 to Bethlehem with Schwab as his private secre- 
 
Schwab's Seeing Eye 63 
 
 tary, and is still known to the newspaper men of 
 New York, who go to get news from the head of 
 Bethlehem Steel, in that capacity. But Ward is 
 also a vice-president of the company — and Schwab 
 does not promote men for any reason but genuine 
 merit. 
 
 C. Austin Buck, vice-president in charge of 
 raw material, is another graduate of Lehigh 
 University who went to work for Schwab as 
 soon as he graduated. Henry S. Snyder, another 
 vice-president, started as a stenographer. Now 
 his special job is to keep tabs on the corpora- 
 tion's shipbuilding plants, and he has at least one 
 stenographer at his call. 
 
 W. Frank Roberts, another graduate of Lehigh, 
 started in the boiler room. He is now vice-presi- 
 dent in charge of operations. Barry H. Jones, 
 also a Lehigh product, hoped when he was young 
 to make his mark as a mechanical engineer, but 
 he now acts as secretary and treasurer of the 
 corporation, and manages to hold down the job 
 with eminent satisfaction to all concerned. 
 
 F. A. Schick, comptroller, was acquired by 
 Bethlehem from another steel plant, but in his 
 ten years or so of service at Bethlehem the 
 others have almost forgotten that he did not start 
 in with them, as they have in the cases of G. H. 
 Blakeley and E. S. KJnisely, whose jobs are to 
 sell the steel that the Bethlehem mills make. 
 
64 The Story of Bethlehem Steel 
 
 J. E. Matthews, manager of the ordnance de- 
 partment, has been kept busy of late closing con- 
 tracts for munitions for Europe. He is right on 
 the job all the time, and what Schwab himself 
 does not get Matthews brings in to Bethlehem. 
 
 W. M. Tobias, who has charge j of the pur- 
 chasing of all supplies for Bethlehdm, is another 
 of the "boys," and more recent additions to 
 their ranks are H. E. Lewis, assistant to the 
 president, and E. A. Lewis, superintendent of 
 the Lehigh plant. 
 
 Former members of this select coterie of abil- 
 ity and push were A. D. Mixsell, who died in 
 1915, and J. D. Hagenbuch, who died recently. 
 
 The ''boys" of Bethlehem, who, of course, are 
 now boys only by courtesy, are every one of them 
 at their desks before eight each morning. Schwab 
 himself, when he is in town, sets the example, 
 and the lazy clerk who wants to roll over for 
 ten minutes more sleep of mornings is discour- 
 aged by the knowledge that all the bosses are 
 punching the clock — so he usually decides in 
 favor of rising. He is helped in this decision 
 further by the knowledge that there is always 
 a place around that lunch table at the plant for 
 one more — one who shall have proved his worthi- 
 ness to sit at the board. 
 
 He knows, more, that if he proves his worth, 
 no outsider will be brought in to supplant him. 
 
Bethlehem's Future Assured 65 
 
 for Bethlehem's policy still is to recruit its offi- 
 cials from the ranks of its promising juniors. 
 
 On the "Boys of Bethlehem" depends the fu- 
 ture of the company. And here is something 
 that there seems to be a general misapprehen- 
 sion about: Bethlehem is not a one-man concern. 
 There is a more or less widespread feeling that 
 if the company should lose from any cause the 
 guidance of Charles M. Schwab its greatest asset 
 would be destroyed and its value as an earner 
 of dividends materially lessened. Now Schwab 
 is a valuable asset, beyond peradventure, but he 
 himself indignantly denies that his *'boys" are 
 not competent to carry on his work at Bethle- 
 hem by themselves. 
 
 And having met Grace and the rest I believe 
 that he is right. That is why I am confident in 
 the future of Bethlehem Steel. 
 
LIBRARY OF CONGRESS 
 
 iiiiniir nil