Waldorf 11

Bet-You-A-Million Gates

(Originally printed in 1931)

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They called the Waldorf, in the old days, “Uptown Wall Street.” In many respects it was equally as important, in the world of finance, as “the Street.” It was in this hotel—in the bar, in the lounges, and in private, sumptuous suites—that the leaders of the financial world gathered and discussed business, planned great mergers, and fought competitors. This, indeed, was their head-quarters far behind the lines, where they directed the mighty financial conflicts that took place three miles to the south, in New York’s money district.

If you could have looked into one of those suites you would have seen the most daring speculators of the day scheming and planning. You would have heard them speak in terms of millions of dollars with as much certainty as a general refers to a regiment or a division of troops. Far down on the “front,” in Wall Street, they waited for these generals of industry to give new orders for attack or retreat.

Metaphor, I think, is not out of place in this picture, for the Waldorf, between the years 1897 and 1910, saw financial history made at close hand. It was a rallying point for big business. It was not unusual to see J. Fier Pont Morgan, the elder, hurrying through the hotel to the elevator on an important mission. You soon realized, after noticing the figure of Charles M. Schwab, that the Waldorf-Astoria was for a time his New York head-quarters. It was not mere coincidence that the late Elbert H. Gary, chairman of the board of the United States Steel Corporation, lived at the hotel until he built his Fifth Avenue residence. Close observers looked a bit closer when they saw Henry C. Frick, George F. Baker, Judge William H. Moore, or Daniel Reid go there, and wondered what would happen. Often it meant that the next day, or a few days later, the newspapers would be re-porting some new important financial deal.

One day, for instance, they announced a deal that proclaimed the greatest single industrial unit in the world, the United States Steel Corporation. And behind that, discounting Morgan himself, was the figure of John W. (“Bet You a Million”) Gates.

He disliked that appellation, by the way, in his later years. Yet his own activities and mannerisms supported it and justified the journalistic use of it. It was first gained, perhaps, when he offered to wager $1,000,000 on a horse race with his partner, John W. Drake. His performances on race-tracks in this country and abroad had given him considerable publicity in this respect. It was said that at Ascot and the Derby one season his winnings ran into millions. But the alleged bet with Drake attracted the attention of the newspapers. And, since Gates didn’t deny it, the newspapers took up the “bet-a-million” idea and he was unable to escape the characterization since. Indeed, he had a wide reputation for betting on anything that suggested itself or somebody else suggested.

One story is told of how he, Drake, and John W. Lambert, another associate, were watching a heavy rainstorm come up. It was thundering and lightning terrifically.

Gates stood in front of the window and watched the rain-drops slip down the windowpane. He observed that not all of them moved at the same speed. Turning to Drake, he pointed out that two raindrops, moving down evenly, offered a good chance to make a bet. Gates bet that the right drop would reach the bottom first. The stake was $100. As the race of the raindrops continued the stakes went up into the hundreds of dollars and the men cheered those raindrops with as much enthusiasm as they ever did a horse. Gate’s “horse” won the race.

Gates was a vital part of the Waldorf-Astoria. You thought of him and you thought of the hotel. If you were a friend of Gates’, or had some highly important business to do with him, you usually saw him and negotiated that business in his $20,000 suite of rooms in the hotel.

He was the sort of person who, in appearance, you immediately took as the synonym for joviality and wholeheartedness, qualities which he did, indeed, possess. But there was another side to him—a ruthless, driving force.

He was born on a farm in Du Page County, Illinois, in 1855, and after a common-school education began business life as proprietor of a small hardware store in Turner’s Junction, Ill. Later he branched out as a sales-man for a barbed-wire concern. When he had mastered the business he started a manufacturing plant of his own in St. Louis. He organized two small wire companies and in 1892 combined with other factories into the Consolidated Steel and Wire Company.

Finally he determined to consolidate the wire industry. He believed that all individual companies could be organized into one great industry, and how he almost accomplished this is now history. His secretary, Mr. O. A. Owen, was kind enough to give me in detail some of the factors behind this and subsequent deals, elaborating, by the way, on his article of six years ago in the Saturday Evening Post. Working with Gates on the consolidation plan were I. L. Ellwood, L. L. Smith, and J. H. Parks. Sitting in Gates’ suite of rooms in the Waldorf-Astoria, he and his helpers worked night and day. Mr. Owen tells me that he remembers those hectic nights in the Waldorf when Gates and his companions seemed to sit up all night and all day, either at work or at play—cards being their favorite form of recreation—and taking off only a little time for sleep.

Eventually they succeeded in banding together all but one prominent wire company into what Gates called the American Steel and Wire Company. The capital stock of this organization was more than $100,000,000, stupendous for that day.

One of Gates’ valuable helpers in this operation was Judge Elbert H. Gary. Gates recommended him to the elder J. Pierpont Morgan. Later Gary became head of the United States Steel Corporation, although, contrary to popular assumption, he was no vital figure in the original consolidation plan. Oddly enough, as we shall see, Morgan failed to honor Gates with any important place in the new company. The quiet financial feud between Morgan and Gates is still a mystery, even to Wall Street. Yet, but for Gates, it is doubtful that the United States Steel Corporation would have become such a powerful factor in the industrial world.

What precipitated the big consolidation is known, of course, to those who have studied closely our industrial development. Andrew Carnegie, it was rumored in steel circles, had threatened to ruin the steel business for every-body else by monopolizing it. He purposed to do this by cutting prices, building railroads of his own in and around his mills, etc. Other than this fact, the real story of his intentions is too long to be set down here.

But all the other steel companies found it necessary to take drastic self-defensive measures. They were determined to buy him out and, in doing this, consolidate and merge the Carnegie plants into the one big company,

Thus we see the fallacy in the popular belief that Gates was the guiding genius and founder of the United States Steel. He was, in truth, only one (but an important one) of the figures that brought about the consolidation. Even he would not have been able to swing the deal but for the financial backing of J. Pierpont Morgan, the elder.

There is no question, however, that a great deal of the planning did go on in the Waldorf under the direction of Gates. His support, of course, was vital and it was through the overtures of his associates that the idea of consolidation was born and gained momentum until it was realized.

Gates’ cronies, who visited him in his Waldorf suite, were powerful in the financial world. Frick, then owner of large coke and steel properties, was drawn into the deal through conferences there. Frick, by the way, was the only man Gates ever thought of addressing as “Mister.” Not even Morgan, they say, received that polite attention from him. The others didn’t expect it; they were all close friends and addressed one another

How chummy they were is revealed in one instance when, in Gates’ offices (Harris Gates & Co.) a pie was served. It was made by the wife of a telegraph operator named Kane. He was eating his lunch in the office when R. M. Rogers, who became general manager of the Cincinnati, Richmond, and Muncie Railroad, passed by his desk and, feeling hungry, asked for a taste of the pie. He liked it so well that he invited the telegraph operator to have his wife make a pie for himself, Gates, George F. Randolph, Theodore P. Shonts, later Governor-General of the Panama Canal Zone, and a few others. Gates liked the pie immensely. Shonts made a motion to do some-thing about it.

The result was that the diners directed the purchase of one hundred shares of Northern Pacific stock, for which they would stand responsible, to be turned over to Mrs. Kane as a gesture of appreciation for her pie. The day afterward Northern Pacific stock began its sensational advance, but Kane was skeptical. Supposing the market should take a downward turn? It was suggested that he toss a coin. The toss favored a sale of the stock. He sold out for $2,000-the price for Mrs. Kane’s pie. But had the stock been held just a few days more that pie would have cost exactly $88,000!

Gates and his cronies were always doing things like this when not involved in larger affairs. The United States Steel consolidation plan, of course, fired their enthusiasm. John W. Lambert and Max Pam were sitting informally in the corridor of the Waldorf-Astoria when Gates came along. They suggested to him that he could make a lot of money and a great name in the financial world by consolidating the United States Steel Corporation. Gates laughed. As if he needed a great name! The financial world knew him well enough and was afraid of him. Even Morgan’s eyes flickered when he heard the name. It was not yet forgotten that his first “dabble” in Wall Street had netted him more than $1,000,000.

Even in meeting Gates for the first time it was evident that he had the ability, shrewdness, and daring of a speculator, a speculative pool manager relentless and ready for battle to the end. On the surface he did pretty much everything to confirm the impression. He had long ago demonstrated his readiness to wager with anybody on anything: cards, billiards, trap-shooting—he was a crack shot—horses, which he loved as a sportsman, cotton, grain, coffee.

On the exchanges his campaigns were always spectacular. ‘When the market had been “bulled” until it would “bull” no more and the banking elements suddenly presented hostile front, Gates scented the calling of his loans. He sold every share of his speculative holdings in one session, causing a drop of over ten points. In striking a balance he found he had lost $8,000,000, which he acknowledged to his intimates without reserve.

On the Chicago Board of Trade he was well known. He lost and made staggering fortunes—sometimes lost, however, more than he made. The New York Cotton Exchange was several times put into paroxysms by Gates’ operations. The Brazilians were twice thrown into a panic by his maneuvers in coffee. Once he ran a corner in hops successfully.

But he was not merely a speculator. He was also one of the country’s greatest industrialists, and this a good many men, even in Wall Street, seemed unable to
understand. He was an organizer par excellence, a promoter of the first grade, and a creator of genuine wealth. He was credited solely with the power of the Texas Company, which meant the city of Port Arthur, Texas, with its Texas Oil Company, which for a time made the Standard Oil Company nervous.

In constructing and reconstructing railways he played a salient part. The Kansas City Southern was chiefly his work. The capture of the Louisville and Nashville from the Rothschild-Belmont syndicate was one of the most dashing coups in the annals of Wall Street. In this he was an investor at the outset. He had appraised the property personally and found it a good investment. In buying the stock he discovered that August Belmont had shortened it to the extent of nearly $10,000,000. The discovery incited him to get control, which he did, to the permanent pain and immense monetary loss of his rivals.

Gates knew values, and in putting this really rare knowledge to practical tests, in creating an infinite number of splendid industries, he became and remained a nabob among nabobs.

A great name! Yes, indeed, Gates, knowing of his achievements, must have laughed that night when his associates told him that participation in the steel consolidation plan would give him a great name. Why, there was hardly a person in the whole financial world who didn’t know him. How he must have laughed! And when Gates laughed, everybody around him felt the power of his mirth. It rang with the defiance of a warrior’s readiness for combat. A great name!

He told Lambert and Pam and the others, as they talked informally, that he would do his part in organizing the United States Steel. There already was, incidentally, a United States Steel Company, but it was an insignificant business entity and not to be confused with the corporation of the same name. The biggest job of Gates, meanwhile, was to get his stockholders in the American Steel and Wire Company to agree to the plan.

Gates was worried by the fact, his secretary, Mr. Owen, tells me, that his stockholders were numerous and scattered. Whether he and his associates could locate and control 51 per cent of the stock was a puzzle. He tried to get his intimates to meet the situation, but they were in-different. Events were too big for them. Besides, large blocks of wire stock had been purchased by “somebody quietly acquiring a controlling interest through the brokers.” Gates had been outgeneraled for once.

Nevertheless, he worked hard and assiduously, night and day, in his Waldorf suite. But great as he was, to Morgan he was but a part of the raw material. He did not, as Mr. Owen says, fit into Morgan’s final conception of the United States Steel Corporation. And so, much to the astonishment of everybody in the financial world—except Morgan—the great man Gates was left off the board of directors. In the end Gates sold out his steel and wire company for $120,000,000.

He eventually went to Port Arthur. One rumor was that J. Pierpont Morgan had banished him. His adventures in Port Arthur, of course, were not successful. People in the financial world began to forget him.

But many had not forgotten his excellent and littletalked-about benefactions. He didn’t “endow” things on the grand scale. His charity usually was never known to the public. For instance, there was the young, struggling lawyer to whom he sent a fee of $30,000 for work on a nominal case. There were the stock brokers he saved from bankruptcy, the banker he rescued from social and business disgrace, the literally hundreds of young men he set up in business.

For some time, in Paris, during the summer of 1911, it was evident that he was ailing, even when he moved about. He fought off illness. When death was near he summoned the best physicians and through powerful stimulants and oxygen held off the end. But finally all the medical men summoned availed him nothing.

Yet it is almost appropriate to say that, had he the stamina and the energy, he might have leaned up on one elbow an hour before his death and bet you a million that he would not die. He was like that.

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