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Monopoly in Barbed Wire: The Formation of The American Steel And Wire Company

Published online by Cambridge University Press:  11 June 2012

Joseph M. McFadden
Joseph M. McFadden
Affiliation:
President, Northern State College
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Abstract

Of the myriad end products of the steel industry, none played a more strategic role in the evolution of the modern, vertically integrated enterprise than barbed wire. A unique solution to America's unique agricultural problem, the product attracted numerous manufacturers in the 1870s and 1880s. Profit margins, despite efforts to limit production and fix prices by means of pools, declined steadily, and firms that were not integrated backward into the production of rods (from which wire is drawn) had difficulty competing. Excess capacity and depressed prices convinced industry leaders like John W. Gates, Isaac L. Ellwood, and Charles F. Washburn that what was needed was a modern, fully integrated corporate holding company embracing every barbed wire manufacturer of consequence. The result was the formation of American Steel & Wire Co. in 1899 which, two years later, became an important component of the U.S. Steel Corporation.

Type
Research Article
Information
Business History Review , Volume 52 , Issue 4 , Winter 1978 , pp. 465 - 489
Copyright
Copyright © The President and Fellows of Harvard College 1978

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References

1 The following data on barbed wire production indicate that the invention had by the beginning of the 1880s satisfied the quest for an inexpensive and effective fence:

See DeKalb County Manufacturer (DeKalb, 1882), 26.

2 Meaker, G. L. and Bailey, L. C., “History of the Manufacture of Barb Wire,” unpublished manuscript in the American Steel and Wire Collection, 1822–1895, MSS 596, p. 10Google Scholar, Baker Library, Harvard University. (Hereafter referred to as the ASW Collection.)

3 Ellwood to Sanborn, April 17, 1875, DcC 759, ASW Collection.

4 Letter Book A, 1878–1883, DcA 35, ASW Collection.

5 Ellwood to Washburn, October 14, 1887, EWH, Earl W. Hayter Collection, Northern Illinois University, DeKalb, (Hereafter referred to as EWH Collection.)

6 Gates to Ellwood, December 5, 1887, EWH Collection.

7 L. C. Bailey, and G. L. Meaker, “History of The Manufacture of Barb Wire,” p. 86, ASW Collection. Three others not mentioned in this source failed in Joliet, Illinois in 1893.

8 Iron Age, LIX (May 27, 1897). See also Iron Age, LIX (June 3, 1897). See also Boston Transcript, November 23, 1896. This integrative process was one of the most characteristic features of American industry in the 1880s; see Chandler, Alfred D. Jr, The Visible Hand: The Managerial Revolution in American Business (Cambridge, Mass., 1977)Google Scholar, chs. 9 and 10.

9 Lambert to Ellwood, February 2, 1897, EWH Collection.

10 Pleading, etc., in the case of John H. Parks v John W. Gates, (New York Supreme Court, County of New York, 1901), p. 3. See also testimony of John W. Gates, p. 78.

11 American Steel and Wire File, August 24, 1897, EWH Collection. The fourteen companies to be included in the consolidation were as follows: Consolidated Steel and Wire Company; Washburn and Moen Manufacturing Company; Cleveland Rolling Mill Company; Newcastle Wire Nail Company; Oliver Wire Company; American Wire Company; Pittsburg Wire Company; H. P. Nail Company; American Wire Nail Company; Salem Wire Nail Company; Superior Barb Wire Company; Ellwood Wire and Nail Company; Continental Wire and Nail Company; and Kilmer Manufacturing Company. See also, Pleading, etc., in the case of John H. Parks v John W. Gates, Plantiffs exhibits, agreement between Gary and Tenbroek, September 23, 1897, p. 132.

12 American Steel and Wire File, August 24, 1897, EWH Collection.

13 Ibid.

14 Pleading, etc., in the case of John H. Parks v John W. Gates, pp. 22–24. Parks later acquired options from the H. P. Nail Company; the Cleveland Rolling Mills; the Newcastle Wire Nail Company; the American Wire Company; and the American Wire Nail Company.

15 American Steel and Wire File, August 24, 1897, EWH Collection.

16 Pleading, etc., in the case of John H. Parks v John W. Gates, p. 3.

17 Iron Age, LXI (February 24, 1898), 23.

18 “Report of Burley B. Ayers,” January 3, 1898, American Steel and Wire File, EWH Collection.

19 Gary to Ellwood, January 31, 1898, and February 7, 1898, EWH Collection.

20 Iron Age, LXI (January 24, 1898), 23.

21 Yearly adjusted profits for the companies to be included were as follows: 1895, $2,797,669.95; 1896, $3,024,675.80; 1897, $1,564,907.76. Three companies in 1897 showed losses for that year's operation. See “Report of Burley B. Ayers,” January 3, 1898, American Steel and Wire File, EWH Collection.

22 United States v united States Steel Corporation, et al. Testimony. I, 196–197.

23 Parks to Ellwood, October 4, 1897, EWH Collection. Washburn and Moen wanted 200 shares for every 100 shares of Washburn and Moen stock. Their capital stock authorization was for $4,000,000. Gates offered 150 shares in the new company for every 100 shares of their stock.

24 Iron Age, LXI (March 10, 1898), 19–23.

25 Owens, O. A., “Bet-You-A-Million Gates,” Saturday Evening Post, November 7, 1925, p. 225.Google Scholar

26 Pleading, etc., in the case of John H. Parks v John W. Gates, Gary testimony, 91–93.

27 Ibid.

28 John H. Parks later unsuccessfully sued John Gates for being excluded from the group that consolidated the Illinois Company. The New York Supreme Court ruled in Gates's favor, since his agreement with Parks included only the plans to underwrite a wire consolidation with the support of J. P. Morgan and Company. See Pleading, etc., in the case of John H. Parks v John W. Gates.

29 Iron Age, LXI (March 24, 1898), 32. The importance of the role of pioneer barbed wire manufacturers in the new consolidation was demonstrated by the fact that six of the eleven members of the board began their industrial careers in the barbed wire industry.

30 United States v United States Steel Corporation, et al. Government Exhibits (Washington, D.C., 1914), II, 873. See also “New Basis for Wire Consolidation,” March 10, 1898, American Steel and Wire File, EWH Collection.

31 Commercial and Financial Chronicle, LXVI (March 26, 1898), 615–616.

32 Iron Age, LXIII (January 5, 1899), 11, 24.

33 Rumors had it that the American Steel and Wire Company was about to combine with the Federal Steel Company to form a $200,000,000 concern. See Iron Age, LXII (September 8, 1898), 30, and Iron Age, LXII (September 15, 1898), 20.

34 Pleading, etc., in the case of John H. Parks v John W. Gates, Testimony of Gates, pp. 118–120.

35 Ibid.

36 The following pioneer barbed wire manufacturers supported Gates and invested the indicated amounts in the subscription: J. W. Gates, $2,150,000; I. L. Ellwood, $2,000,000; J. Lambert, $2,000,000 S. H. Chisholm, $1,500,000; W. Edenborn, $700,000; A. Clifford, $500,000; G. T. Oliver, $500,000; H. W. Oliver, $500,000; W. H. Rowe, $250,000; C. Douglas, $250,000; E. C. Lott, $200,000; A. Henley, $100,000. See United States v United States Steel Corporation, et al. Government Exhibits, I, 351–356.

37 “Syndicate Agreement,” January 5, 1899, American Steel and Wire File, EWH Collection.

38 United States v United States Steel Corporation, et al. Government Exhibits, I, 351–356.

39 U.S., Report of the Commissioner of Corporations On the Steel Industry, (Washington, D.C., 1911), 130. The new corporation was to purchase or acquire at least a majority of stock in the following companies: American Steel and Wire Company of Illinois; Washburn and Moen Manufacturing Company; Worcester Wire Company; Pittsburgh Wire Company; Cleveland Rolling Mill of Ohio; Cincinnati Barb Wire Fence Company; Shenango Valley Steel Company; Consolidated Barb Wire Company; Newburg Wire and Nail Company; Laidlaw Bale Tie Company. See also “Syndicate Agreement,” January 5, 1899, American Steel and Wire File, EWH Collection.

40 Iron Age, LXIII (January 19, 1899), 18. During operations in 1899, the firm paid its 7 per cent obligation on the preferred stock and also a dividend of 7 per cent on the common stock. See Stanley Steel Report, U.S., Congress, House, Hearings before the Committee on the Investigation of the United States Steel Corporation, 62 Congress., 2nd Session, 1912, H.R. 1127, p. 132.

41 Stanley Steel Report, U.S., Congress, House, Hearings II, 6.

42 United States v United States Steel Corporation et al. Testimony. IV, 1724–1728. Testimony of Frederick Strauss. See also U.S., Report of the Commissioner of Corporations on the Steel Industry, pp. 5–6, 127, 132, 251.

43 United States v United States Steel et al Government Exhibits, VIII, 2259–2263.

44 Worcester Evening Gazette, January 9, 1899. See also, Washbum and Moen Company agreement, March 11, 1899, American Steel and Wire File, EWH Collection. In February, Gates also purchased the A. R. Whitney Company and the Puget Sound Wire and Steel Company of Everett, Washington. See also Iron Age, LXIII (February 9, 1899), 31.

45 United States v United States Steel Corporation et al. Government Exhibits, IX, 2307–2309. Larmon and Belmer, of the Cincinnati Barb Fence Company and J. A. Henley and A. Henley, of the Consolidated Wire Company were pioneer barbed wire manufacturers who agreed to these terms.

46 The three companies were the Janesville Barb Wire Company, which produced 1.57 per cent; the Dillon-Griswold Wire Company, which produced 1.97 per cent; and the J. A. Roebling's and Sons Company, which produced 0.30 per cent. See G. L. Meaker and L. C. Bailey, “History of the Manufacture of Barb Wire,” unpublished manuscript in the American Steel and Wire Collection, 1822–1895, MSS 596, II, 88, Baker Library, Harvard University.

47 U.S., Report of the United States Industrial Commission (Washington, D.C.,1899), testimony of Gates, November 14, 1899, p. 1009. Gates might have added that they also controlled manufacturing facilities which produced approximately 96 per cent of barbed wire in the United States.

48 Iron Age, LXIII (January 12, 1899), 20–21.

49 U.S., Report of the Industrial Commission on Trusts and Industrial Combination (Washington, D.C., 1911), II, 1033.

50 Nelson, Ralph L., Merger Movements in American Industry (Princeton, 1959), 85–96.Google Scholar

51 Ibid.

52 Meade, Edward S., Trust Finance (New York, 1910), 190–194.Google Scholar

53 Stockholders' List, American Steel and Wire of New Jersey, February 1899, EWH Collection.

54 Iron Age, LXII (September 15, 1898), 7.