- Historic Sites
The Farthest Fall
July/August 1991 | Volume 42, Issue 4
Named the first president of the new U.S. Steel, Schwab, at the age of thirtynine, presided over an empire that encompassed 213 steel mills, 78 blast furnaces, 41 iron-ore mines, 112 ore barges, 57,000 acres of coalfields, and almost 1,000 miles of railroad trackage. He became a national celebrity, sought after for interviews and after-dinner speeches, lauded as a self-made man who rose to the top by his own exertions. It all went straight to his head.
While working for the puritanical Carnegie, he had always lived modestly. Now Schwab bought an entire square block on New York’s Riverside Drive and built the gaudiest palace of the Gilded Age. He sailed to Europe and caused a scandal when reporters spotted him gambling heavily at Monte Carlo. (Carnegie, who loathed gambling, was outraged, but the more easy-going Morgan was unperturbed. When Schwab explained to him that he had done nothing wrong or behind closed doors, Morgan had only harrumphed, “That is what doors are for.”)
Schwab did not flourish at U.S. Steel. A born manager, he found his authority sharply circumscribed, and he profoundly disagreed with the old-fashioned management philosophy of Elbert H. Gary, who represented the Morgan interests on the board. Before long Schwab left U.S. Steel and became head of Bethlehem Steel. The public and financial press saw this as a great setback in Schwab’s career. He had, after all, been president of the two largest steel companies in the country, and now he was president of one of the smallest. As one writer put it, it was rather like the King of England abdicating to become Prince of Monaco.
Named the first president of U.S. Steel, the thirty-nine-year-old genius presided over 213 mills, 78 blast furnaces, and 41 iron-ore mines.
But Schwab personally controlled Bethlehem and was, at last, his own boss. He soon turned It into the second-largest steel company in the country. He did it by managing the company superbly, by pursuing the potential in a new process for manufacturing steel beams that he had been forced to turn down at U.S. Steel, and, of course, by being very lucky.
Bethlehem had long specialized in the manufacture of ordnance. This had been a weakness before Schwab had diversified, because it made the company very dependent on government orders. But World War I proved a bonanza almost beyond imagining. Before August 1914 the largest single deal Bethlehem Steel had ever made had been a $10 million contract signed with the Argentine navy. In October 1914 Schwab signed a contract with the Royal Navy worth $135 million.
When the United States entered the war, Schwab was appointed head of the Emergency Fleet Corporation, the government’s shipbuilding agency, and became a national hero for the speed and efficiency with which he turned out ships.
After the war Schwab retired from the active management of Bethlehem Steel. Like Andrew Carnegie, Schwab had spent a lifetime building a great fortune in the steel industry. Like Carnegie, he would spend his last years ridding himself of it. But there the resemblance stops, for when Carnegie had coined his famous maxim “The man who dies rich … dies disgraced,” he certainly did not have an end such as his beloved protegee’s in mind.
Schwab built a huge country estate in Pennsylvania, complete with a ninehole golf course and a replica of a French village he had admired. He traveled frequently and gambled constantly on roulette, cards, and stocks. Profoundly knowledgeable about the steel industry and shipbuilding, he often invested in other industries acting on tips alone, just like the rankest amateur.
When the Depression hit, Schwab changed his habits not one whit, convinced that renewed prosperity was always just around the corner. The vast wealth he had created melted away. When at last he tried to cut back, it was too late.
He tried to sell his house on Riverside Drive to the city for use as a mayor’s residence. But Fiorello La Guardia (who only reluctantly moved into the far more modest Gracie Mansion a few years later) would have none of it. He said the city preferred the $110,000 in annual property taxes to owning the property. The mayor did not know that Schwab was no longer paying the taxes because he could no longer afford to. When he died a few years later, in 1939, Schwab’s estate had a negative net worth of $338,349.