One man there was who could provide the wherewithal for the expansion which the head of the Federal Steel Company considered necessary. This was the late J. Pierpont Morgan. To Morgan, then, Gary took his plans, but the banker was not enthusiastic. Perhaps he saw that many steel concerns were not making money and feared to put so large an amount of capital as was required into the venture; perhaps other motives governed him; but, whatever his reasons, the great financier hesitated, would not permit himself to be convinced. Again and again Gary tried to persuade Morgan, but in vain, and at length Gary, satisfied that he must seek other means to his end, turned his attention toward raising the necessary capital elsewhere. He had already prevailed upon his fellow directors of the Federal Steel Company to pledge subscriptions to a large sum for the purchase or erection of new plants when circumstances played into his hands. Morgan decided to give his backing to the formation of a giant steel merger on the lines Gary had proposed.
The story of how Morgan was won over is an interesting one. It has already been suggested that Carnegie was anxious to sell out, and Carnegie usually got what he wanted. After many attempts to conclude a satisfactory deal with different syndicates Carnegie, like Gary, arrived at the conclusion that Morgan, and Morgan alone, was able to finance the purchase of his properties. Therefore, he decided Morgan must be induced to buy.
At first Carnegie tried ordinary tactics. He had mutual acquaintances suggest to the banker the advisability of a deal by which the Carnegie company would be absorbed. Time and again this suggestion was made, and on each occasion Morgan listened then sent for Gary. The latter, seeing that this would be an excellent means of accomplishing what he desired for the Federal company, as by absorbing the Carnegie company it would not only secure a steel-making and steel-selling organization without equal at the time but would also add to itself plants which could and would give battle for world trade to Britain and Germany, did all he could to induce the financier to accept the suggestions for the purchase of these properties. But each time Morgan hesitated.
Then Carnegie resorted to coercion. Morgan was heavily interested in the National Tube Company which was itself an amalgamation of a number of smaller tube companies. Carnegie made no tubes. His entrance into the business of manufacturing tubular products would undoubtedly have brought the National Tube Company face to face with more serious competition than it had ever encountered. And Carnegie threatened to build a tube mill. This action had two purposes. It was apparently intended to force Morgan to consider the purchase of the Carnegie properties, and it was also a retaliatory measure against the decision of the National Tube management to erect steel mills which would render the company independent of the Carnegie Steel Company for its supplies of raw material and would incidentally deprive Carnegie of a large customer. Carnegie announced his plans for the proposed tube mill publicly and bought a site for it at Conneaut, Ohio. But although Morgan knew that the steel maker was able and ready to carry out his project he gave no sign of having changed his mind.
Carnegie’s next step was more important and serious. He threatened to build a railroad paralleling the Pennsylvania Railroad from Pittsburgh to the coast, a project which, if carried through, would without question have materially damaged the earning power of the great railroad system and would have been a heavier blow to the Morgan interests than the erection of a tube mill. But again Morgan paid no attention. It is extremely doubtful if Carnegie, powerful as he was, could have seriously intended to attempt such an undertaking, and therein may have lain the reason for the banker’s seeming indifference. On the other hand, those who knew Carnegie declared that he would have found means to build the suggested road, even as he had in the past done other things deemed to have been impossible.
That Carnegie had no desire to enter into a pitched battle with the powerful Morgan interests seems to be fairly well established by his next act. Coercion having failed, he again resorted to peaceful tactics and fired what, possibly, was his last shot. And here it might be interjected that, while the event that directly led up to the formation of the Steel Corporation has been narrated scores, probably hundreds of times, the part that Carnegie played therein has usually been overlooked.
Among the Carnegie partners was a young man, Charles M. Schwab, president of the Carnegie Steel Company. Schwab not only represented the top notch of efficiency as a steel maker, a salesman, and an executive, but he had a veritable tongue of gold. To listen to him was to be converted to his views; he could talk the legs off the proverbial brass pot. And Carnegie saw that if the man lived who could convince Morgan to finance a purchase of the Carnegie Steel Company that man was “Charlie” Schwab. Carnegie therefore decided to bring together the financier and the president of the Carnegie Steel Company and to let loose on Morgan the flood of Schwab’s eloquence.
On the night of December 12, 1900, Edward Simmons and Charles Stuart Smith, both close friends of Carnegie, gave a dinner to which Morgan was invited. And to Schwab was assigned the duty of making the speech of the evening. Ostensibly the dinner was merely a social affair with no ulterior motive, but in the light of subsequent events it may be considered certain that it was arranged at the suggestion of Carnegie, and that its purpose was the sale of his properties to Morgan.
Everything went off as planned. Schwab chose for his subject the steel company of the future. He played upon this theme as upon a harp to an attentive audience, not the least attentive of whom was the banker, and, while he never referred directly to the Carnegie company, he made it very clear that the concern which he described in glowing terms would of necessity own and control the Carnegie plants.
Schwab foretold a future of wonderful brilliance for the steel industry. He drew a word picture of a company big enough to insure the greatest economies in the securing and distribution of its raw material, but highly specialized by departments, each and every plant confining its attention to one particular product so as to secure the highest degree of efficiency. He described such an organization as able to dominate the markets of the world and to set a pace that neither England nor Germany could follow. The ideal structure he painted was such an one as was well worthy the attention of the greatest of bankers, an industrial enterprise for which even the great Morgan might well be proud to stand sponsor.