Charles M. Schwab

Chicago Daily News,
Courtesy of the Chicago Historical Society

If horatio alger myths could take human forms, they would appear as Charles Schwab, who started as a day laborer in a steel mill in 1879, became the president of U.S. Steel and Bethlehem Steel, accumulated a personal fortune of $50-200 million, and died in bankruptcy.

Born in Williamsburg, Pennsylvania, Schwab first worked in 1879 as a stake driver at Andrew Carnegie’s Edgar Thompson Steel Works in Braddock, Pennsylvania. By 1889, Schwab became the mill superintendent and, in 1892, Carnegie appointed him to supervise the Homestead Works after the strike that crushed unionism in the industry for another 45 years.

In 1901, Schwab convinced J.P. Morgan to supply capital for a holding company known as U.S. Steel, which controlled 213 steel mills and transportation companies. Schwab became president, the self-made man who ran what was popularly known as the Steel Trust. As a “production man,” Schwab was frustrated by his lack of total authority and quarreled with the so-called money men, symbolized by Judge Elbert Gary. In 1904, Schwab incorporated the existing Bethlehem Steel Company (in which he had a controlling interest) to form the Bethlehem Steel Corporation and became its first president. The company quickly became become the world’s second-largest steel producer.

At the time, Bethlehem Steel was a major supplier of military goods, such as armor plate and artillery, but Schwab recognized the importance of the new I-beam created by Henry Grey to provide structural strength to new skyscrapers. In spite of the Panic of 1907, Schwab gambled by raising capital for a new mill to produce the I-beams, proclaiming, “If we are going to go bust, we will go bust big.” He campaigned zealously among architects for the I-beam’s adoption and supported its use in new construction projects, such as the Empire State Building and the Golden Gate Bridge.

Schwab brought enormous business and income to Bethlehem Steel by concluding secret contracts to build submarines for the British Navy in 1914, clearly violating the U.S government’s Neutrality Act. President Wilson subsequently “drafted” Schwab to serve as a “$1-a-year-man” to head the government’s emergency Fleet Corporation when the U.S. entered World War I. Congressional inquiries proved that Bethlehem Steel gained enormous profits from the war effort and Schwab’s personal holdings soared into the millions. By 1922, his salary as Chairman of the Board was $150,000 a year (about $ 1.5 million in 2004 dollars).

He continued to expand Bethlehem Steel, purchasing shipyards and iron ore mines. The purchase of Pennsylvania Steel in 1916 not only allowed Bethlehem to double its capacity for pig iron and steel, but brought the Pennsylvania Steel’s Sparrows Point facility in Baltimore County under Schwab’s control. Despite his ambitious financial strategies, Schwab remained at heart a production man. In an oft-repeated anecdote, Schwab was conducting a tour through one of the mills for a group of investors when a foreman informed him that a blast furnace was down and could not be restarted. Schwab put on a pair of overalls, crawled through the furnace, and repaired the breakdown.

From 1927-1934, Schwab served as President of the Iron and Steel Institute, speaking for the whole industry at a time of enormous social disruption. Although he backed Herbert Hoover in the 1932 election, Schwab realized that the National Recovery Agency encouraged the suspension of antitrust laws to allow precisely the price-fixing and market-sharing arrangements that he had secretly supported for years.

Schwab was a man who said, “I disagreed with Carnegie’s ideas of how best to distribute wealth. I spent mine.” He built an enormous estate in Loretto, Pa., with a waterfall at the entrance, nine-hole golf course, and a 75-room mansion in New York City. He indulged in mistresses and gambling junkets to Europe, while keeping down the wages of the men in the mills. In the 1930s, a popular verse reflected the social conflict which Schwab symbolized.

            Schwab, Schwab, Charlie Schwab
                Life and happiness you rob
            From the workers in the mills
                To the miners in the hills

Charles Schwab spent the last years of his life on retainer from Bethlehem Steel, but his spending and the Great Depression caught up with him. By 1936, his finances were so desperate that he tried to sell his mansion in New York, and when he died, on September 19, 1939, his debts far exceeded his assets. He had, in fact, gone bust big.

Hessen, Robert. Steel Titan: The Life of Charles M. Schwab. England: Oxford University Press, 1975.

Holbrook, Stewart H. The Age of the Moguls. Garden City, N.Y.: Doubleday and Company, Inc., 1953.

Reutter, Mark. Making Steel: Sparrows Point and the Rise and Ruin of American Industrial Might. Chicago: University of Illinois, 2004.

Tarbell, Ida. The Life of Elbert H. Gary: The Story of Steel. New York: D. Appleton and Company, 1924.