Bethlehem Soared In Depression, War With Eugene Grace

In 1939, Bethlehem Steel Corp. President Eugene Grace was starting a round of golf when a caddie ran up and announced that World War II had just begun in Europe.

It was a familiar feeling for Grace, who had already steered the company through World War I.

Nothing seemed to knock Grace off course. Tall, autocratic and hardworking, he molded Bethlehem Steel into the nation’s second-biggest producer of the metal and the biggest shipbuilder, reshaped America’s skyline during the skyscraper boom, and transformed his company into an Arsenal of America in wartime.

After starting as a crane operator from a financially meager background, Grace finished his four-decade reign as Bethlehem’s leader in the pantheon of great capitalists.

“He was the kind of person you think of when you picture a tycoon,” Frank Whelan, longtime reporter at the Allentown (Pa.) Morning Call, told IBD. “He was like a Daddy Warbucks character.”

Born in Cape May, N.J., Grace (1876-1960) was the son of a sea captain turned merchant.

He was valedictorian of his 1899 class at Lehigh, the Bethlehem, Pa., college where he was an electrical engineering major and star on the baseball team.

After turning down an offer from the Boston Braves to play for $200 (worth $5,500 now) a month, he took a job as a $45-a-month crane operator for Bethlehem Steel. By 1902 he was in charge of the yards.

Good Graces With The Boss

While inspecting a blast furnace one day, company President Charles M. Schwab was surprised to see the yards landscaped with trees, plants and bushes. Turning to Grace, he said:

“Whose idea was this?”

“Mine,” Grace answered. “Why let the mill look like a shambles?”

The boss soon made Grace one of his proteges, and the rapid rise continued in 1906 when Schwab needed someone to manage the company’s mines in Cuba. Everyone in Bethlehem management turned him down, until he got to Grace.

“When do you want me to leave?” asked the 30-year-old.

In Cuba, Grace found that the mine operation was inefficient because it wasn’t mechanized. He installed machines, which increased production and cut costs.

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Schwab knew he had a winner and wanted him in Pennsylvania.

“You go back to Bethlehem and stay here,” Schwab instructed. “I shall have work for you to do.”

In 1913, Grace became president at age 36, with Schwab staying on as chairman of the board.

In less than two decades, Grace had gone from a $1.80-a-day machinist to company president making more than $1 million (worth $23 million today) a year.

During Word War I Grace and Schwab worked as a team.

Using his contacts with world leaders and vast charm, Schwab secured munitions deals with foreign leaders. Grace was the inside man, transforming the plant into the largest ordnance and munitions supplier to the Allies.

“Charles Schwab was the publicity man, the front man,” Whelan said. “Grace was the behind-the-scene production guy. He was very instrumental.”

The company tripled its steel output during the war, with its stock price going on a four-year run of 2,000% by 1916 while it supplied the Allies ahead of America’s 1917 march to the European front.

Its earnings in 1916 — $61 million (worth $1.3 billion today) — exceeded all the gross sales of the first eight years under Schwab.

With its massive revenue from the war, Bethlehem Steel bought new mills, shipyards and mines.

By the end of World War I in 1918, Grace was effectively CEO, with Schwab becoming a roving ambassador for Bethlehem.

“After World War I, Grace more or less took control of the company,” Smith said.

He worked feverishly as boss. He read newspapers three hours a day to keep up with business developments. He pored over accounts to see where the company could save.

He pushed ambition on his underlings: “Let it be your guiding, impelling aim to take your boss’ job away from him.”

He sent out photos of himself to plant managers, with this inscription: “Always More Production.”

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“He was austere, aloof, abrupt. He could be pugnacious. He was really kind of a mystery man in many ways,” said John Smith, professor of history at Lehigh University.

When skyscrapers shot up in the 1920s, Grace pushed the production of the company’s revolutionary H beams, which became the skeletons for iconic buildings and suspension bridges. The beams were lighter and more flexible than their predecessors, yet could bear unprecedented weight.


“It drove Bethlehem Steel and the industry to skyscrapers,” said John Lovis, a former Bethlehem Steel employee and co-author of a photographic history of the company. “The skyscrapers and monumental buildings that were built from the ’20s to the ’50s used a tremendous amount of the beams that the Bethlehem plants rolled out.”

Under Grace’s leadership, Bethlehem fabricated the steelwork for the Chrysler Building, Waldorf Astoria, U.S. Supreme Court, Rockefeller Plaza, Golden Gate Bridge and George Washington Bridge.

In 1905 the company had one plant. By 1925 it had seven and had increased its steel furnace capacity 40 times in those two decades.

“I don’t like to think backward,” Grace said. “When a man starts thinking forward, he’s done.”

Grace, the king of skyscrapers and bridges, shifted gears again in 1941. One week after Japan’s Dec. 7 attack on Pearl Harbor, Bethlehem Steel became the nation’s top defense contractor, with more than $1.3 billion in orders.

Two years into America’s WWII entry, Bethlehem was pouring out ships. Now Grace upped the ante, promising Roosevelt one ship per day. The steel man ended up topping that goal by a total of 15 ships in 1943.

Bulking Up The War Effort

The year before, at the Battle of Guadalcanal in the Pacific in November 1942, an American sailor could be standing on a ship built out of steel from a Bethlehem yard, propelled by engines built at one of its plants, protected by armor plates from its factory and firing guns and shells produced by it.

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By war’s end, the company had provided 70% of the airplane cylinder forgings, 25% of the ship armor plates, one-third of the big-cannon pieces and one-fifth of the shipbuilding material for the Navy’s two-ocean fleet. In 1945, the last year of WWII, Bethlehem Steel had revenue of $1.3 billion (worth $16.2 billion today) and profit of $35 million ($437 million now).

Wrote Life magazine: “Bethlehem is in effect the steel skeleton of Mr. Roosevelt’s famous Arsenal of Democracy and Grace … runs a large section of the U.S. war effort.”

In the decade that followed, Grace retooled for the booming postwar economy. “He so dominated the company for so long that no one did anything without his permission,” Smith said.

Not that any Bethlehem executive had reason to gripe. In 1956, 11 of the country’s 18 top-earning executives worked for the company.

Salaries provided for large homes on sprawling acres, memberships at plush country clubs and five-star meals in the company’s ornate, private dining rooms.

Yet in the thick of the ’50s, Bethlehem Steel balked at accepting innovations in steel technology while German and Japanese steel makers adapted to better efficiency.

“The world changed, and he didn’t really understand that,” Whelan said. “When someone told him in the mid-’50s that Japan and (East and West) Germany were reviving their steel industries and coming back, he said: ‘I refuse to believe they could ever compete with Bethlehem Steel.”’

By 1957, an ailing Grace had retired as chairman. He probably never imagined that Bethlehem Steel would file for bankruptcy four decades later, in 2001, disappearing as an entity in 2003.

Still, Grace left a tall legacy. As boss of Bethlehem Steel during both world wars, the Depression and America’s skyscraper boom, he was one of the towering capitalists of the 20th century. “He was a real steel man,” Whelan said.

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