in the same way? Each had its own sphere of operations? They did not impinge one upon the other to any great extent?

Mr. GATES. Well, I would have to explain by making a statement. Mr. Morgan, along about 1899 or 1900, organized the National Tube Co. by the acquisition of the stock of the National Tube Co., just out of Pittsburg, and the Riverside Steel Co., near Wheeling, and two or three more tube concerns, and they were making a good deal of money in the manufacture of tubes. Mr. Carnegie took it into his head that he would build a railroad from Lake Erie points-from some point on Lake Erie to his various works around Pittsburg-and that he would also build a tube. works; and he proposed to build this tube works, if my memory serves me aright, at Ashtabula, Ohio, where a great deal of the ore is unloaded. Mr. Hill and Mr. Morgan had dined together-James J. Hill and Mr. Morgan had expressed to Mr. Hill the fear that if Carnegie went into the building of railroads he would demoralize the entire railroad situation as he had demoralized the steel situation, and that if he built a tube works at Ashtabula it would result in a demoralization of the prices of tubes. Mr. Morgan had just put the National Tube Co. together. After considerable talk between Mr. Hill and Mr. Morgan, Mr. Hill suggested to Mr. Morgan that he talk to me. Mr. Morgan said that we were not very friendly, and he asked Mr. Hill to come over to see me and see if I would meet him and talk about the situation, which I agreed to do. I had a talk with Morgan, and he asked me how I would suggest we could stop Carnegie from building this railroad and building this tube works; and I told him in my opinion there was only one man to talk to that had any influence with Mr. Carnegie, and that was Charley Schwab. He wanted to call in Frick. I said, "If you do, you will never make a trade with Mr. Carnegie." Well, he said, "Will you get Schwab on for a conference?” I said I would. I asked him where he wanted the conference, and he said he would prefer to have it at Philadelphia at the BellevueStratford Hotel-no, the Bellevue Hotel. The Stratford was not built. I called Charley up on the telephone from New York and asked him if he would come over to Philadelphia, and intimated to him it was something pretty important. He said he would come over that night.

Next morning was very stormy. It snowed and blew and was very cold, and Mr. Morgan called my son up and asked him to

come over.

He went over, and Mr. Morgan explained to him that he had got a severe cold and his doctor would not let him go out; that he was afraid he would catch more cold; and would he go back and get me to arrange to have Schwab come on to New York. My son came back and reported to me, and I called Mr. Schwab up-he was at the Bellevue Hotel at Philadelphia-and asked him to come over. He came over and dined with me at the Manhattan Club, and we went up to Mr. Morgan's house about 9 o'clock in the evening. We discussed the possibility of pouring oil on the troubled waters and saving the situation. I think Mr. Schwab and I stayed there until about 6 o'clock the next morning. When we left a tentative plan had been drawn up for the purpose of getting the various corporations into one concern. Judge Moore, who was in the National Steel Co.

The CHAIRMAN. I do not want to interrupt you, but the one concern to which you referred was the embryonic United States Steel Corporation?

Mr. GATES. The United States Steel Co. Judge Moore and Mr. Frick felt very sore over the $1,000,000 that they had paid to Carnegie, for which they got nothing. Schwab stated that Mr. Carnegie would agree to anything he would suggest. He pulled a letter out of his pocket and showed it to Morgan and me, showing that he had a contract with Carnegie to pay him $1,000,000 a year for five years. We went on and laid out the plan of the United States Steel Corporation without consultation with Frick, who was a large owner. Then, as I understood it—but this only hearsay evidenceThe CHAIRMAN. Explain that plan as you go along. Mr. GATES. It was the plan that was adopted.

The CHAIRMAN. That is, for a holding company?

Mr. GATES. For a holding company. Judge Moore got hold of Carnegie, I was told, and said to Carnegie: "If you are going to take bonds in payment of your property, make those bonds cover the National Steel Co. as well as your own.' Now, Mr. Carnegie demanded that of Morgan, and it enabled the National Steel Co., in my opinion, to get $50,000,000 more for their property than it was worth, because Carnegie would not turn his over unless they had a mortgage on the National, and the rest of us had to suffer. That is about the history of the United Steel.

The CHAIRMAN. You spoke about pouring oil on the troubled waters and relieving the situation. What was the trouble with the situation?

Mr. GATES. The trouble was that Carnegie had threatened to build the tube mill at Ashtabula and a railroad to haul his own ore down.

The CHAIRMAN. He was going to build a railroad to come into competition with the existing railroads?

Mr. GATES. Yes; and a tube plant to tear the National Tube, that Morgan had just put together, all to pieces.

The CHAIRMAN. He was going to give Morgan trouble, both in his manufacturing industry and with his common carrier? Mr. GATES. It looked that way.

The CHAIRMAN. And it was to obviate this anticipated competition that this tentative plan was drawn up that afterwards became the United States Steel Corporation?

Mr. GATES. Yes, sir.

The CHAIRMAN. How long was it from the time you got started until this industrial accouchement actually occurred?

Mr. GATES. It was 60 days, I should say, or less-maybe 40 days. We worked pretty fast.

The CHAIRMAN. There was a thorough understanding, except as to details, as to the method of operation and what each man was to get, and what his relations were to be to his fellows, before the articles of incorporation were ever drawn up, was there not?

Mr. GATES. I think they drew up the articles of incorporation for the United States Steel Corporation originally for $10,000, and then they gradually extended it as necessity arose. As each concern came in they would increase a few million or hundred million. The CHAIRMAN. Mr. Carnegie, I believe, got $320,000,000 in bonds, did he not, for his property-for the Carnegie Co.?

Mr. GATES. He got $320,000,000 for what he had offered at $100,000,000 or $160,000,000 the year before, and got $1,000,000 forfeit.

The CHAIRMAN. I am now trying to get at what was the trouble. Was it not competition and threatened competition between these companies?

Mr. GATES. It was the threat of Carnegie to build a railroad from Ashtabula to his works at Pittsburg and to build a tube plant in competition with the National Tube Works, which Morgan had just

finished.

The CHAIRMAN. Was not he also threatening to go into the entire iron and steel business-that is, to compete with the Bridge Co. and with the Steel Hoop Co. and the Sheet & Plate Co.? Was he not threatening to do all those things?

Mr. GATES. Mr. Carnegie had been in the wire business and we bought him out. He put in $1,000,000 and we bought him out for half a million. [Laughter.]

The CHAIRMAN. Was he not threatening to go back into that business?

Mr. GATES. We never had any fear of Carnegie.

The CHAIRMAN. Mr. Carnegie was also threatening to go into the tin-plate business, was he not, at that time?

Mr. GATES. I guess he was threatening the whole line.

The CHAIRMAN. He was threatening the whole line?

Mr. GATES. He was trying to sell out, and he bought, you see, at a good price. [Laughter.]

The CHAIRMAN. And the result of this threat along the whole line enabled him to sell this property that he had given an option on at $150,000,000 for about $500,000,000?

Mr. GATES. That is inference on your part. The facts are that he gave an option for $100,000,000 or $160,000,000 and got $320,000,000 a little later.

Mr. BEALL. The real cause of complaint against Mr. Carnegie was that he would not abide by the agreement, but would insist on cutting the price?

Mr. GATES. He was like a bull in a china shop. He would get a thing into his head once in a while and go and do absurd things, that I really think he did not think much about.

Mr. BEALL. Would those absurd things usually result in reducing the price of steel products?

Mr. GATES. It might, or it might advance them. You could not tell what he would do.

Mr. BEALL. The fear was that if he carried out his plan there would be a competing line of railroad, as well as

Mr. GATES. I can not state it any plainer than Mr. Morgan stated it to Mr. Schwab and me-that if Mr. Carnegie should build this tube works at Ashtabula and a railroad from Ashtabula to his works in the Pittsburg district it would demoralize the whole situation. That was Mr. Morgan's statement and not mine.

EXHIBIT 2

TESTIMONY OF ELBERT H. GARY1

Mr. LITTLETON. J. Edward Simmons?

Mr. GARY. Yes; J. Edward Simmons. Mr. Simmons, I think, at the request of Mr. Frick, gave a dinner in New York, and invited Mr. Schwab, Mr. Morgan, and various other people to the dinner. Mr. Schwab made a little statement at that dinner concerning the steel business that made quite an impression on Mr. Morgan. Mr. YOUNG. Do you remember what the nature of that statement was what it related to?

Mr. GARY. It was concerning the great ability of the Carnegie Co. and concerning its cost of production, concerning its export business, which at that time, though small from the present standpoint, was considerable; and of course I have no doubt what Mr. Schwab had in mind was the idea of showing that it would be a great thing in the Federal Steel should see its way clear to acquiring the Carnegie Steel Co.

Mr. YOUNG. Did he say anything about the conditions of competition in the steel business at that time?

Mr. GARY. I was not there, and I do not know that he did. I am not sure about that. I doubt it. But the next thing I heard about it, one Sunday morning early, Mr. Robert Bacon came to my home. Mr. YOUNG. Who was that?

Mr. GARY. Mr. Robert Bacon, who was then a partner in the firm of J. P. Morgan & Co.-then a member of the firm-came to my home early Sunday morning, and said that the night before Mr Schwab had surprised Mr. Morgan by bringing him a letter from Mr. Carnegie stating that he, Mr. Carnegie, would sell his properties and take his pay in bonds secured on the properties, as I remember. He did not say anything to me about Mr. Gates having been there with Mr. Schwab. I can not deny that; I have no knowledge on the subject, but I am very sure that Mr. Schwab is mistaken in his statement.

Mr. YOUNG. You mean Mr. Gates is mistaken in his statement? Mr. GARY. I mean Mr. Gates is mistaken in his statement that during that night a plan was formulated for the organization of the 1 Hearings before the Committee on Investigation of United States Steel Corporation, 62nd Cong., 2nd Sess. 1911-1912, pp. 205-211, 219–221. 2 Thus in original.—Ed.