Charles M. Schwab
Feb. 18, 1862 —
Sept. 18, 1939
Introduction
Charles M. Schwab may be presently best-known for its association with the investment company of the same name was born in Williamsburg, Pennsylvania on February 18, 1862 and died in New York City on September 18, 1939. Schwab began his carer in steel in the late 1800s, working for Andrew CArnegie. However, it was with the dawn of the new century that Schwab realized his first significant milestone and made a name for himself in the steel industry
Schwab and U.S. Steel
“From 1900 to 1903, Schwab gained national recognition from putting together and heading the United States Steel Corporation.”[1] Schwab’s dealing with unions and his ability to bring about significant mergers was noted and appreciated by Carnegie. Schwab’s work in consolidating multiple steel companies came right up to the edge of monopolization. This included not including Bethlehem Steel in the United States Steel Corporation so that Schwab could by it and then re-sold it JP Morgan. Schwab claims in his diary that he left Bethlehem Steel out of this deal as “they would have provided nothing but duplication and an ideal corporation would have no duplication of any sort in it.”[2] Schwab had presented the idea of a consolidated enterprise at a dinner that Carnegie had hosted for him to help Schwab become better known outside of the steel industry. Schwab presented his idea for United Steel at this point and this particularly caught the attention of Morgan who was competing with Carnegie and was looking to stop Carnegie’s near-constant expansion. Schwab acted as the go-between for Morgan and Schwab, brokering the sale of Carnegie Steel into U.S. Steel for four million dollars.[3]
“US Steel controlled nearly 50 per cent of America’s steel-making U.S. Steel was not an operating company, but a holding company. It controlled 213 steel mills and transportation companies, including 78 blast furnaces; 41 iron ore mines and a fleet of 112 ore barges; as well as 57,000 acres of coal and coke properties in the Connellsville region of Pennsylvania, with nearly 1000 miles of railroad tracks to service the region.”[4]
Schwab would later repurchase Bethlehem Steel and sell it once again to the United States Shipbuilding Company which would go bankrupt in 1903 forcing Schwab to resign as president of U.S. Steel. In a contemporary account from 1916, Cotter writes that this resignation was due to Schwab, as beholden to the other members of the corporation, “restricted and, to a man of his nature there was only one thing to do, resign, which he did.”[5]
Schwab and Bethlehem Steel
Schwab reorganized the United States Shipbuilding Company into the Bethlehem Steel Corporation. Schwab moved to Loretto, PA and proceeded to turn Bethlehem Steel an innovative and world-known supplier of steel. Schwab’s “winning manner, backed up by great ability and genuine honesty of purpose, compels admiration and confidence” was key to convincing banks to invest in Bethlehem Steel in the early years.[6] Schwab was known to say that he purchased Bethlehem Steel when it was poor shape: “He found the Bethlehem Steel Co. in a run down condition and he poured his personal wealth and all the money he could borrow into it.”[7] This was certainly true prior to 1904. However in “1904 to 1916, the company’s sales rose from $10 million to $230 million.”[8] A brief summation of some key company metrics as reported in 1918 follow below.
| Bethlehem Steel Corporation business data, 1913–1918 [15] | Steel products shipped (thousand net tons) | Orders on hand ($thousands) | Net earnings ($thousands) | Average number of employees |
| 1913 | 605.9 | 24,865 | 8,753 | 15,052 |
| 1914 | 460.5 | 46,513 | 9,650 | 15,586 |
| 1915 | 579.9 | 175,433 | 24,821 | 22,064 |
| 1916 | 1,300.8 | 193,374 | 61,717 | 47,013 |
| 1917 | 1,900.0 | 453,809 | 53,979 | 64,782 |
| 1918 | 1,816.7 | 328,946 | 57,189 | 93,964 |
Schwab was documented as saying that he purchased Bethlehem Steel in a run-down condition; “He found the Bethlehem Steel Co. in a run down condition and he poured his personal wealth and all the money he could borrow into it.”[7] This was certainly true prior to 1904. However in “1904 to 1916, the company’s sales rose from $10 million to $230 million.”[8] The primary reason behind this meteoric rise was World War I. “Lord Kitchener, the British minister of war, asked Bethlehem Steel to supply a million shells in the course of a year.”[9] Schwab accepted the order and it was completed in ten months, even though up to that point the entire US steel market had only produced 100,000 shells per year. Between April, 1916 and December, 1918 Bethlehem had produced 22 percent of the entire country’s output of merchant shipping.[10] There was significant money to be made in steel during wartime and Bethlehem took full advantage of it. While the war produced significant opportunity Schwab, and the other Bethlehem Steel executive were also planning for the post-war era where they expected a significant down-turn in demand. “To meet the challenge they had planned a well-rounded, thoroughly integrated steel operation, producing a full line of commercial products.”[11] Because of this planning Bethlehem would suffer the “…smallest decline in net earnings between 1920 and 1921” across steel companies in the US.[12]
Schwab and the Great Depression
Ten year later Schwab’s own fortunes would be in an entirely different state. In the midst of the Great Depression Schwab continued investing and would provide monetary help to those who asked. Schwab, having lived through previous economic depressions, publicly stated on multiple occasions that this would pass and an era of prosperity was just around the corner. Thus as the Depression worsened, Schwab lost considerable amounts of money as he “…made the mistake of judging all businesses by the standards he used in the steel industry. He believed that he could make any business yield a profit solely by reducing production costs.”[13] Instead the weight of the Great Depression caused what would have been successful business to close, taking Schwab’s investments with them.
At Schwab’s death, he owed debts of $1,727,858 against the $1,389, 509 in assets, leave a net deficit of $338, 349.[14] While Schwab was not a wise investor there are multiple accounts of his supporting small business as well as providing employment at generous wages throughout the 1920s and 1930s on his estate to the men and women living in the area. Schwab was a shrewd businessman who profited significantly from the first World War and learned much from working with Carnegie. However he also was generous to friends, family and those in need, serving to complicate the work and legacy of Charles M. Schwab.
[1] Yates, W. Ross. “Schwab, Charles Michael (1862-1939), steel executive.” American National Biography. 1 Feb. 2000; Accessed 17 Nov. 2021
[2] Hessen, Robert. Steel Titan: The Life of Charles M. Schwab. Pittsburgh, PA: University of Pittsburgh Press, 1975. 117.
[3] Yates. “Schwab, Charles Michael.”
[4] Yates. “Schwab, Charles Michael.”
[5] Cotter, Arundel. The Authentic History of the United States Steel Corporation. Moody Magazine and Book Co. 1916. 91.
[6] Cotter, Arundel. The Authentic History. 87
[7] Cotter, Arundel. The Authentic History. 92.
[8] Yates, W. Ross. “Schwab, Charles Michael (1862-1939), steel executive.”
[9] Kenneth Warren. Bethlehem Steel: Builder and Arsenal of America. University of Pittsburgh Press, 2008. 104
[10] Kenneth Warren. Bethlehem Steel. 106.
[11] Kenneth Warren. Bethlehem Steel. 110.
[12] Hessen. Steel Titan. 266.
[13] Hessen. Steel Titan, 288.
[14] Hessen. Steel Titan, 303.
[15] Source: Bethlehem Steel Corp. annual report for 1918. Reproduced from Kenneth Warren. Bethlehem Steel: Builder and Arsenal of America. University of Pittsburgh Press, 2008. 106.
Jeremy McGinniss 