The United States Steel Corporation

WHAT are the social consequences of current business policies? To what extent are human values subordinated in the effort to secure large returns on invested capital? Do the workers receive an adequate share of the proceeds of modern industry? How shall we determine an equitable adjustment of profits and wages? Wherein resides the dominant power in the control of modern business?

This study of one of our large corporations is an attempt to shed light upon such questions as these. The United States Steel Corporation was selected for this purpose because of its magnitude and the important part which it plays in one of our basic industries. A preliminary draft of this manuscript was sent to Judge Elbert H. Gary, Chairman of the Corporation, with the request that he point out any statements that he regarded as inaccurate or unfair. He very kindly arranged that I might have an interview with three of the Corporation officials, and later that I might have a personal interview with him. He most generously set aside an hour and a half for an informal discussion of the subject matter of this article. For this interview he also invited in Mr. James A. Farrell, President of the Steel Corporation; Mr. William J. Filbert, Comptroller; Mr. C. L. Close, head of the Bureau of Safety, Sanitation, and Welfare; and Mr. George K. Leet, his secretary.

There are many statements herein with which these gentlemen do not agree, some of which they regard as inaccurate or misleading. I have endeavored to note the most important of these in footnotes. The officials of the Corporation emphatically disagree with the general viewpoint of this article. Perhaps I ought to state that I do not regard the policies of the Steel Corporation as unique, but rather as a fair illustration of practices which are widely prevalent in modern business circles. It seems highly important that a vigorous effort be made to discover the social consequences and ethical implications of these policies.

‘A Corporation with a Soul'

This is the subtitle of a recent book dealing with the United States Steel Corporation. There is much to be said in favor of the contention that this Corporation has a soul. Ninety-five millions of dollars have been spent by the Steel Corporation in various kinds of welfare work for its employees.

It is estimated that safety-devices installed and precautionary measures taken have reduced the number of accidents in its plants approximately 55 per cent.

Much attention has been given to the protection of the health of its workers. Twenty-five base hospitals have been erected and supported.

Large sums have been expended for sanitation, toilet and locker facilities, lunch-rooms, club-rooms, playgrounds, athletic fields, and other recreational features.

Fifty schools and twenty-six churches have been built. Many thousands of dollars have been appropriated for the building of houses for its employees.

Employees have been given the opportunity to purchase stock in the Corporation, and thousands of them are now small stockholders.

The Corporation has been tremendously successful in its business. Its products have found their way into all parts of the world. Regular dividends have been paid and a huge reserve has been built up. Enormous sums have been paid to the Federal Government in taxes. High wages are paid to its skilled mechanics. The average earnings of all employees during the year 1920 were approximately seven dollars per day.

Hours of Work

There are other factors, however, which need to be taken into account. First of all, let us inquire as to hours and working conditions. In his testimony before the United States Senate investigating committee, Judge Gary, Chairman of the Steel Corporation, said: ‘Twenty-six and a half per cent of all employees work the twelve-hour turn, and the number is 69,284.'

Concerning the proportion of those actually employed in the processes of steel-making who work the twelvehour day, Mr. Horace B. Drury,1 after an extensive investigation, says: —

So far as concerns these continuous operation processes which make up the heart of the steel industry, such as the blast furnace, the open-hearth furnace, and most types of rolling mills, together with the various auxiliary departments necessary to keep these processes going, and make a complete plant, the bulk of the employees work 12 hours. All the men whose presence is essential to the carrying-on of the processes, from the chemist and boss down to the lowest helper, — the technical graduate, the American-born roller, and the unskilled foreigner, — all these, with very few exceptions, work 12 hours. Most likely the percentage of 12-hour workers for the whole plant — which, we are assuming, is entirely, or almost entirely, devoted to the more fundamental steel processes—will be considerably over 50 per cent; in some cases two thirds. . . . For them and for their families, numbering perhaps a half or three quarters of a million of people, the 12-hour day has become a fixed industrial habit, firmly intrenched in the traditions of the industry and in human lives and habits.2

As to the necessity for the twelvehour shift, Mr. Drury reminds us that in England, France, Germany, Sweden, Italy, Belgium, and Spain, it has been abandoned, and that twenty steel plants in America are now running on three shifts.

As to the increased cost of steel under an eight-hour day, Mr. Drury says: ‘If all the departments in a steel plant were to lie changed from two to three shifts, the increase in total cost for the finished rail, bar, or plate could not, on the average, be more than about three per cent.3

As to the effects of the twelve-hour day, President Farrell said that the situation, is not so bad as it is often pictured. He said that many of the men actually work only half of the time they are on duty. The other side of the case is presented by Mr. John A. Fitch in these words: —

Some of the twelve-hour men, such as blooming-mill rollers, for example, are busy practically every minute of the full twelve hours of work. Others work under conditions of such strain, or under such heat, that ‘spell-hands’ are provided. Others, as in the open-hearth furnaces, have periods of idleness between heats. When these men work, however, they work under conditions of terrific strain and in great heat.

Judge Gary said that the Corporation is endeavoring to abolish the twelvehour day and hopes to succeed within the near future.

It does not require a vivid imagination to picture the consequences of the twelve-hour day. Twelve hours at the mill, one half-hour going to and one half-hour coming from work, one halfhour for breakfast and one half-hour for supper, eight hours sleep — add these up! A scant two hours are left for domestic duties, home life, social and civic life, reading and study! What sort of a husband, father, and citizen is a twelve-hour worker likely to be? How much energy and interest is such a worker likely to have left for intellectual and spiritual matters?


Let us next analyze the wages paid by the Steel Corporation. Surely wages must be adequate if the average for all employees in 1920 was approximately seven dollars per day. There is no doubt that skilled labor is paid well, in comparison with other industries. But how about unskilled labor? According to the Interchurch Report on the Steel Strike of 1919,

The annual earnings of over one third of all productive iron and steel workers were, and had been for years, below the level set by government experts as the minimum subsistence standard for families of five. The annual earnings of 72 per cent of all workers were, and had been for years, below the level set by government experts as the minimum of comfort level for families of five. This second standard being the lowest which scientists are willing to term an ‘American standard of living,’ it follows that nearly three quarters of the steel workers could not earn enough for an American standard of living.

That was the condition in 1919. What are the facts at the present time?

Three successive wage-cuts during 1921 reduced the wages of unskilled labor in the employ of the Steel Corporation slightly more than 40 per cent, the rate now being 30 cents per hour, with no extra pay for overtime.4 Eight hours a day, six days per week, at this rate amounts to $14.40 per week — $748.80 per year, if no time is lost from sickness or otherwise. Is this a partial explanation of the reluctance of the employees to give up the twelvehour day, about which we hear so much ?

Ten hours a day at this rate amounts to $18 per week, or $936 per year. Twelve hours a day at this rate amounts to $21.60 per week, or $1123,20 per year.

The numbers of workers in normal times receiving this lowest wage is about 70,000. About 30 per cent of the steel workers are unmarried. These figures mean that about 50,000 married men are unable to earn as much as $1150 per year, even by working 12 hours per day and 52 weeks per year. The size of the average American family is five — father, mother, and three children under fourteen years of age. The average family of the foreign steel worker has 6.63 members.5

Family Budgets

Persons who are interested in human and community welfare will pause to inquire as to the standard of life these thousands of families are able to maintain. Extensive investigations have been made by a number of agencies as to minimum health and decency budgets, among which are those of Professor Ogburn, Professor Chapin, the New York Factory Investigation Commission, the New York Board of Estimate. These estimates were made at different periods, but it is possible to reduce them to a common date. At the average prices prevailing in June, 1918, they varied from $1317 to $1395 per year. According to the National Industrial Conference Board, an organization maintained by employers’ associations, the cost of living in June, 1918, was 52 per cent higher than in July, 1914. The High peak was reached in July, 1920, when the increase over 1914 amounted to 104 per cent. In July, 1921, the increase over 1914 was 63 per cent, an increase of 7 per cent as compared with July, 1918.

Reduced to the prices of July, 1921, these minimum budgets vary from $1410 to $1490, the average being $1465. In the opinion of these authorities, a family of five cannot maintain a minimum health and decency standard on less than $1465, at July, 1921 prices. During August and September, 1921, there was a slight upward trend in the cost of living. At the prices of July, 1921, $1465 was the equivalent of $898 at July, 1914 prices. Any reader who has had experience with family budgets during this period of high cost of living will recognize that $1465 is an exceedingly limited annual budget for father, mother, and three children under fourteen.

Fifty thousand married workers in the employ of the United States Steel Corporation in normal times, by working twelve hours per day, six days per week, and fifty-two weeks per year, can earn only $1125 — $340 less than this minimum health and decency budget. As a matter of fact, the actual earnings of a large proportion of these men are much less than $1125 per year, because of lost time and unemployment.

Our next inquiry is, of course, whether or not the Steel Corporation could afford to pay its married workers a living wage. To increase the annual pay of these 50,000 married men $340 each, would require $17,000,000. In the scale above these men is a group of 60,000 semi-skilled workers, of whom approximately 40,000 are married men. To increase the annual pay of this group the modest sum of $200 per year, would require $8,000,000.

If the annual wages of 50,000 married men in the unskilled class were increased $340 each, and those of 40,000 married men in the semi-skilled class were increased $200 each, the additional cost to the Steel Corporation would be $25,000,000 a year.6

Cost of Abolishing the Twelve-Hour Day

This would still leave the twelvehour day undisturbed, however. Can the Steel Corporation afford to pay these wages for an eight-hour day?

To change from two shifts to three shifts per day would not require a 50 per cent increase in the number of employees, because eight-hour workers are more efficient than twelve-hour workers. After investigation, Mr. Drury estimated that the change to three shifts would not require more than a 35 per cent increase in the working force.

With regard to the cost of changing to an eight-hour day, Mr. John A. Fitch says, in the Survey:

If the Steel Corporation had introduced the three-shift system in 1920 by increasing its force in the departments affected by 35 per cent, and had paid each man as much for eight hours as he formerly had received for twelve, the addition to the pay roll would be something over $61,000,000. This statement is made without taking into account a probable increase in efficiency that would cut down the cost very materially.

As a matter of fact, however, the actual increase would probably be very much less than $61,000,000. After his investigation of the twenty steel plants in the United States which have already adopted the three-shift system, Mr. Drury says: —

There seems, in fact, to be substantial reason for believing — in view of results already accomplished in some of the plants — that, when the three-shift system once gets into fair running order, the labor-cost need not be to any great degree higher than it has been under two-shift operation; and, indeed, a rather fair argument might be drawn up to show that all of the increase in labor-costs might in time be wiped out.7

Earnings of the Steel Corporation

Now let us look into the question of the financial ability of the Corporation to stand higher wage-costs. The annual report for 1920 shows that the total earnings were slightly more than $185,000,000, and the net income $130,000,000.

The first annual report of the Corporation was for the year ending December 31, 1902. In the eighteen years following, ending December 31, 1920, the total earnings of all properties, after deducting all expenditures incident to operation, including ordinary repairs and maintenance, also interest on bonds and mortgages of the subsidiary companies, employees’ bonus and pension funds, corporation excise tax, Federal income tax, and excess-profits tax, amounted to slightly more than $2,817,000,000. Of this amount some $574,000,000 were set aside for depreciation, depletion, sinking and replacement funds, leaving $2,243,000,000 as the net income for nineteen years.8

Out of this net income a total of $1,002,000,000 has been paid in dividends. A regular 7 per cent dividend on preferred stock has been paid each year. The dividends on common stock have been as follows: two years no dividends were paid on common stock, one year1¼ per cent, three years 2 per cent, one year 3 per cent, one year 3½ per cent, two years 4 per cent, six years 5 per cent, one year 8¾ per cent, one year 14 per cent, one year 18 per cent — making an average for these years of a fraction less than 5 per cent on common stock, and 7 per cent on preferred stock. Regular 5 per cent interest has been paid on bonds.

The total net amount expended for additional property, and construction and development work, amounts to more than $991,000,000.

As far back as 1911, Mr. Herbert Knox Smith, United States Commissioner of Corporations, in referring to the Steel Corporation, said: —

During the period from April, 1901, to December 31, 1910, the Corporation has made an additional net investment in its properties of no less than $504,928,653. Of this amount, roughly, $435,000,000 was virtually provided from earnings. These amounts, it should be noted are over and above the allowance for ordinary maintenance and repairs and for actual net depreciation.

In his recent book, United States Steel: A Corporation with a Soul, — the library copy of this book which the present writer consulted bears the inscription: ‘Presented by Elbert H. Gary,’—Mr. Arundel Cotter says in this connection: ‘Practically all this gain in production has been attained by “ploughing” profits back into additions and improvements. Practically all expenditures for extensions have been from earnings. Approximately $900,000,000 have been expended in this manner.’

At the end of 1920, the total undivided surplus of the Steel Corporation amounted to more than $523,000,000.


Another factor must be considered. At the time of its formation the Corporation was heavily overcapitalized. In this connection, Mr. Herbert Knox Smith, United States Commissioner of Corporations, said: —

In 1901 the fair market value of its tangible property was about $700,000,000, slightly less than one half of its capitalization. The figures show clearly that the entire issue of approximately $508,000,000 of common stock of the Steel Corporation in 1901 had no physical property back of it; and also a considerable fraction, say from one fifth to two fifths, of the preferred stock was likewise unprotected by physical property. Even granting that there may have been a considerable value in intangible considerations, it is reasonably clear that at least the entire issue of common stock, except in so far as what may be termed ‘merger value’ may be considered, represented nothing but ‘water.’

In his book, Mr. Cotter admits that the common stock of the Corporation ‘had nothing behind it but blue sky.’

He says that this claim ‘has never been denied and probably cannot be.’9

In spite of the fact that this issue of $508,000,000 of common stock was all ‘water,’ regular dividends have been paid upon it. During the nineteen years, the total amount, of dividends paid on this ‘watered’ common stock amounts to more than $480,000,000.10 We are not attempt mg to say that this common stock is heavily watered at the present time. We are merely pointing out the fact that it has value only because more than $900,000,000 of earnings have been ‘ploughed’ back. If the Corporation had not been heavily overcapitalized, a large part of this $900,000,000 could have been paid out in increased wages to unskilled workers, without jeopardizing the financial position of the Corporation.11

Summary of Earnings

Let us summarize these figures: total earnings in eighteen years, $2,817,000,000; total net income, $2,243,000,000; total dividends $1,002,000,000 — 7 per cent on preferred stock and 5 per cent on common stock, including $480,000,000 on common stock, which was originally all ‘water’; 5 per cent ou bonds; a total of $574,000,000 set aside for depreciation, depletion, sinking and replacement funds; a total of more than $900,000,000 from earnings ‘ploughed’ back, in the form of new property and improvements.

The average net income of the Corporation from 1901 to the end of 1920, after deducting all operating expenses, ordinary maintenance and repairs, and generous appropriations for depreciation, depletion and sinking funds, was approximately $118,000,000 per year. This means that the returns on the $868,000,000 of common and preferred stock have been at the rate of approximately 13½ per cent annually — this in spite of the fact that originally more than half of this stock was ‘ pure water.’

If the rate of return on capital stock had been reduced to 10 per cent, the additional amount available for wages would have been more than $30,000,000 annually; and if the rate had been reduced to 7 per cent, the additional amount available for wages would have been more than $56,000,000 annually. Either of these sums would have gone a long way toward making possible the abolition of the twelve-hour day, and raising the wages of unskilled workers to a point where they could maintain a decent standard of living.

Causes of Low Wages and Long Hours

Why, then, does the Corporation continue to pay its unskilled workers about $340 a year less than a minimum health and decency standard, and in normal times compel approximately 70,000 of its employees to work the twelve-hour day?

The first reason is, because it follows the usual procedure of not basing wages upon the needs of the workers but upon the market rate. The market rate is paid for labor as for any material commodity. The size of the Corporation enables it to play an important part in determining the market rate. Unskilled workers can now be secured for 30 cents an hour, and therefore it is not necessary to pay a higher wage. Judge Gary told the present writer that he regards it as utterly impracticable to base wages upon family budgets.

He said that wages respond to the law of supply and demand.

The second reason is that, from the viewpoint of the management, it is more important to pay regular dividends, and to build up a huge reserve than it is to pay workers in excess of the market rate, even though this rate is insufficient for the maintenance of a decent or comfortable standard of life. Judge Gary said that capital invested in manufacturing properties is entitled to a return of 15 per cent annually, and pointed out that the earnings of many manufacturing concerns are greatly in excess of this rate. He said that the Steel Corporation could not afford to raise wages, since this would reduce the returns on capital below a fair rate, that is, below 13 to 15 per cent.

The third reason is that adequate pressure has not been brought to bear upon the Steel Corporation by the workers themselves or by public opinion.

Labor Policy

What is the labor policy of the Corporation? On June 17, 1901, six weeks after the Corporation was organized, the Executive Committee passed the following resolution: —

That we are unalterably opposed to any extension of union labor, and advise subsidiary companies to take a firm position when these questions come up, and say that they are not going to recognize it — that is, any extension of unions in mills where they do not now exist; that great care should be used to prevent trouble, and that they promptly report and confer with this Corporation.

This policy has been rigidly adhered to. ‘Whereas, in 1901, one third of the Corporation’s mills dealt with unions, in 1919 these and all other unions had been ousted; no unions were dealt with.’ Judge Gary, the Chairman, refused to confer with representatives of the American Federation of Labor in the face of an imminent strike, even when requested to do so by President Wilson.

On April 18, 1921, Judge Gary thus expressed his attitude toward unions: —

As stated and repeated publicly, we do not combat, though we do not contract or deal with, labor-unions as such. Personally, I believe they may have been justified in the long past, for I think the workmen were not always treated justly; that because of their lack of experience or otherwise, they were unable to protect themselves, and therefore needed the assistance of outsiders in order to secure their rights. But whatever may have been the condition of employment in the long past, and whatever may have been the results of unionism, concerning which there is at least much uncertainty, there is at present, in the opinion of the large majority of both employers and employees, no necessity for labor-unions; and that no benefit or advantage through them will accrue to anyone except the union-labor leaders.

Some years ago Mr. Andrew Carnegie, in his Gospel of Wealth, said: —

Now the poorest laborer in America or in England, or indeed throughout the civilized world, who can handle a pick or shovel, stands upon equal terms with the purchaser of his labor. He sells or withholds, as it may seem best to him. He negotiates, and thus rises to the dignity of an independent contractor. Not only has the laborer conquered his political and personal freedom, he has achieved industrial freedom as well.

It will be worth while to look into this matter a little further. Does the unskilled worker, with his ‘pick or shovel,’ stand upon equal terms with the United States Steel Corporation? Does he ‘ negotiate ’ and has he ‘ the dignity of an independent contractor’?

Power of the Corporation

In attempting to answer this question, let us consider the size and strength of the Steel Corporation. Its total assets are listed at $2,430,000,000.

Its gross volume of business during 1920 was $1,755,000,000. It owns 145 steel works, approximately 800,000 acres of coal and coke properties, 993 miles of railway, 1470 locomotives, and 112 steamers.

In addition to these huge holdings, the Corporation is represented in many other industries. Some years ago, an investigating committee of the House of Representatives found that

one or more of the directors of the Steel Corporation are also directors in terminal, steamship, express, and telegraph companies having a total capitalization of $1,271,778,890; in industrial corporations with a combined capitalization of $2,803,509,348; and in banks and trust companies having a capital, surplus, and undivided profits aggregating $3,314,811,178; of $18,417,132,238 invested in railways of the United States, the directors of the United States Steel Corporation have a voice in the directorates of, or act as executive officers of, railroad companies with a total capitalization or bonded indebtedness of $10,365,071,833.

The policies of the Corporation are determined by a Board of Directors, composed of thirteen members in 1921, and a Finance Committee of six members. The total number of stockholders is over 100,000, but a majority of the stock is held by less than two per cent of the stockholders. The vast majority of the stockholders take no active part whatever in determining policies. Actual control is in the hands of the thirteen directors, six of whom are also members of the Finance Committee.

The degree of this control was brought out by Judge Gary in a recent interview with Mr. Whiting Williams: —

Some years ago, in 1912, I believe, Mr. Charles Cabot of Boston arose in a stockholders’ meeting and proposed a committee to study the hours of work. I asked him how many shares he had. He replied that he had ten or twenty, I have forgotten which. I reminded him that, as I held the proxies of a majority of the voting shares, I could very easily outvote his motion. Nevertheless I was glad to vote for it, and so the committee was put into action.12

This concentration of control is brought out even more vividly in the address of Judge Gary at the annual meeting of the stockholders of the Corporation on April 19, 1920, in these words: ‘Since the United States Steel Corporation commenced business on April 1, 1901, there have been held, including the present one, nineteen regular and also ten special stockholders’ meetings. I have had the honor of presiding at every one, and of voting the major part of all the outstanding capital stock. For the confidence reposed and the uniformly courteous treatment accorded I am appreciative and grateful.’

Consequences of Anti-Union Policy

In the light of the facts obtained, the Commission of Inquiry of the Interchurch World Movement summarized these consequences as follows: —

Maintaining the non-unionism alternative entailed for the employers, (1) discharging workmen for unionism; (2) black lists; (3) espionage and the hiring of ‘labor detective agencies’ operatives; (4) strike breakers, principally negroes. Maintaining the non-unionism alternative entailed for communities, (1) the abrogation of the right of assembly, the suppression of free speech, and the violation ot personal rights (principally in Pennsylvania); (2) the use of state police, state troops and (in Indiana) of the United States army; (3) such activities on the part of constituted authorities and of the press and the pulpit as to make the workers believe that these forces oppose labor. In sum, the actually existent state of the steel industry is a state of latent war over rights of organization conceded by public opinion in other civilized countries.

Concluding Questions

The present writer desires to state emphatically that this article is not intended as a specific attack upon the officers and directors of the United States Steel Corporation. This discussion deals with policies and not with personalities. The facts set forth herein are used as conspicuous examples of widely accepted policies and practices in modern business life.

Let us conclude this discussion by asking five fundamental questions upon which the people of America will do well to deliberate.

First: Should labor be regarded as a commodity to be purchased at the lowest possible rate, or should the cost of maintaining a decent and comfortable standard of life be used as the basis of determining the lower rates of wages?

Second: What arc the costs to society of driving mothers and children under sixteen into industry because of the inadequacy of the father’s wage?

Third: Is invested capital ethically entitled to an annual return of 13 per cent, or even 10 per cent, if this involves the payment of inadequate wages to unskilled workers?

Fourth: What should be our attitude toward overcapitalization, the ‘watering’ of stock, and the concealing of profits?

Fifth: What should be our attitude toward employers who hold in their hands an enormous concentration of economic power, and who refuse to bargain collectively with their workers through representatives of the workers’ own choice?

The material and spiritual well-being of a large proportion of our population, the stability and prosperity of industry, the growth of real democracy, and the progress of mankind depend upon the answers given to such questions as these.

  1. Recently with the Industrial Relations Division of the United States Shipping Board; formerly of the Economics Department, Ohio State University.
  2. Bulletin of the Taylor Society, vol. vi, no. 1, Feb. 1921. The Three-Shift System in the Steel Indistry, by Horace B. Drury, pp. 3, 4. Concerning this report, Mr. C. L. Patterson, Secretary of the Bureau of Labor, National Association. of Steel and Tin-Plate Manufacturers, said: ‘Mr. Drury has given us the most illuminating and thorough analysis of the subject that I have ever heard or read.’
  3. Mr. Wm. J. Filbert, Comptroller of the Corporation, said to the present writer that the increase in labor-costs would greatly exceed three per cent.
  4. Literary Digest, October 1, 1921, p. 58. Judge Gary pointed out to the present writer that some of the independent steel concerns are paying only 25 cents an hour to unskilled workers.
  5. Steel Corporation officials say that the average family has more than one wage-earner. It is undoubtedly true, however, that there are many thousands of families with small children in which there is only one wage-earner.
  6. Judge Gary told the present writer that he regards it as utterly impracticable to pay different rates to single men and married men. He said that wages cannot be determined on a basis of family budgets. He said that rates of wages respond to the laws of supply and demand.
  7. Judge Gary expressed the opinion that there would be a heavy increase in labor-costs under the three-shift system. He pointed out that a number of steel plants have changed back to the two-shift system after experimenting with three shifts.
  8. These figures were secured by adding the totals of earnings in the nineteen annual reports of the Corporation.
  9. Judge Gary said to the present writer that, if ‘good-will’ and other considerations were taken into account, he did not think the Corporation was overcapitalized at the time of its organization.
  10. See Cotter, p. 308. His figure of approximately $455,000,000 plus the $25,000,000 paid on common stock in 1920, gives the above figure.
  11. Mr. W. J. Filbert, Comptroller of the Corporation, emphatically disagrees with this statement.
  12. Collier’s Weekly, July 23, 1921, p. 7.