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Bulls And Bears

( Originally Published 1940 )



MORE THAN ONE STORY HAS BEEN TOLD AS TO why John Gates was known from coast to coast as Beta-Million. The best authenticated deals with a trip by Gates and his friend Isaac L. Ellwood to Pittsburgh in 1897 to purchase a steel mill at a "bargain of a million dollars."

Gates was bored during the ride. Great drops of rain were beating against the window panes of the car. Gates, watching them slide down the glass, challenged Ellwood: "I'll pick a drop and you pick a drop, and I'll bet you a million mine gets down first."

Ellwood accepted the wager, with the conservative amendment that the amount be a thousand instead of a million, and until they reached their destination they continued betting. Gates won $22,000.

The tale has plausibility, for John Gates stood ready to make a bet at any time, anywhere, on anything in which he believed he could guess the odds. Poker, faro, whist, the stock market, promotions, manipulations — he would gamble at them all, and the sky was the limit. Habitues of Canfield's famous gambling house next door to Delmonico's restaurant in New York said that his white chips, when he played faro there, each represented a thousand dollars.

From the time he was born, May 8, 1855, on a farm near Turner Junction, Du Page County, Ill., until he made his first public financial appearance as part owner of a threshing combine, Gates consistently displayed traits that presaged his future success. His formal education, some biographers claim, ceased in a rural school's fourth grade. But his restless mind was never satisfied.

While doing chores at home and on neighboring farms, he swapped small articles and made plans to capitalize on efforts of other boys with whom he worked. After a few seasons' labor, he purchased a small interest in a threshing machine, but soon bought out his partners.

Gates was eighteen and in love with a farmer's daughter. He needed a thousand dollars immediately in order to get married. The threshing outfit was an asset, but he preferred not to risk his own capital. Buying without down payments, he developed a corner on wood in his county, sold for cash, cleaned up the thousand, and was wed.

His days were spent selling grain and his nights in busily calculating ways of making a fortune. Several biographers recount that he felt the need of additional education and entered Wheaton College, and later, Northwestern University. He is said to have graduated from the latter, but as to this he was always vague, and the story may be that of some hard-pressed publicity agent.

At the age of twenty, he opened a small hardware store in St. Charles, Ill., where he came into contact with Ellwood, wholesale hardware dealer. Ellwood had obtained rights to the recently invented barbed wire fence, but had been unable to market it successfully, and engaged Gates to be his salesman. The young man arrived in Texas in 1876, where he found thousands of cattle roaming the ranges and virgin territory for his product.

There is a story that he prepared himself for his selling campaign by going to a race track and betting $15,000 on a horse named Under-the-Wire, which won at odds of two to one. Whether or not this is true, he had sufficient capital to demonstrate his product in a spectacular way to the big-hatted, skeptical San Antonio ranchers. He rented one of the plazas and built a three-strand, barbed wire corral. Then he sent word to ranchers to "bring in your worst fence-busters."

The cattle tried to break through the wires but soon learned to respect the tiny barbs, and Gates left Texas with bulging order books. Thereupon he demanded a one-half interest in Ellwood's factory, and when Ellwood refused, he went to East St. Louis and with Albert Clifford, a friend, started his own plant. Within a year the sales made capital from six more partners necessary, and the firm of John W. Gates E.? Company was formed. Gates finally bought out his associates after what was described as "a take it or leave it proposition," at figures much lower than they thought reasonable.

Ellwood secured injunctions against Gates, but found the results unsatisfactory, agreed to compromise, and they again became associates.

By 1881, Gates was head of his own Southern Wire Company. When the plant burned, a year later, he entered the steel market. Assisted by Ellwood, Henry Weil, Joseph Leiter, and others, he conducted stock manipulations that ended abruptly in 1900 when his directors informed him that if he did not cease, they would resign in a body. By 1896 he controlled the American Steel and Wire Company of Illinois. Meantime he had gained the antipathy long afterward tb have a shattering climax — of J. Pierpont Morgan.

Arthur Stilwell and Gates had known each other in St. Louis when Stilwell sold life insurance. They met again in Chicago when Stilwell's companies were at the height of their financial success, and Gates, as an investment of idle funds, bought stock in them for $270,000. When some reorganization of the companies was felt to be advisable, he demanded and was given the chairmanship of the committee to effect it. In this capacity, accompanying Stilwell, he arrived in Port Arthur on December 3, 1899, to inspect the Canal, elevator, wharves and docks.

The next evening the visitors were guests at a public banquet at the Hotel Sabine. Gates made a speech in which he said that Stilwell's only mistake had been not getting in contact with him sooner for funds to carry out his projects. A newspaper story of the event said, "Prior to Mr. Gates' arrival and investments, Port Arthur was a proposition. Now it is an established, prosperous fact." During the week twelve lots were bought for $12,000 by Gates, Stilwell and Ellwood, who soon afterward commissioned George C. Nimmons, well-known Chicago architect, to build five cottages on the Sabine Lake front and to erect, for Gates and Ellwood, two $500,000 mansions.

Meantime, reorganization of the Kansas City, Pittsburg Es' Gulf Railroad had attracted what the Kansas City Journal described as "more attention than any venture of similar magnitude in the country." The road came under control of the Federal courts, and on March 19, 1900, was sold at auction in Joplin, Mo., to Silas W. Pettit, chief counsel of the reorganization committee, for $12,500,000. Its name was changed to the Kansas City Southern Railroad.

With a group of interested financiers, Gates returned to Port Arthur on April 3 to undertake improvements aimed at increasing rice acreage in the vicinity. When plans were outlined to him for the erection of an $80,000 rice mill by public stock subscription, he said, "I'll take $10,000 worth, and you can put Ike (Ellwood) down for $1n 00n If he does not want it, I'll take the. $20,000." Ellwood took his share.

Charles G. Gates, son of the promoter, came to Port Arthur in June to look after his father's interests and to buy equipment for the nearly-completed rice mill. By July rails were being laid to the plant and young Gates had gone to New Orleans to make further purchases.

The hurricane which on September 8, 1900, devastated the city of Galveston, was felt at Port Arthur, where streets were flooded, wooden sidewalks washed away, and rowboats were pressed into service for transportation. Port Arthur was the first coast town to send supplies and medicines to stricken areas. Food, clothing, and a carload of ice were obtained from citizens by Mayor Charles E. Smith, and borne to Galveston on a chartered ship. Melted ice was important, since the amount of drinking water in Galveston until the pumping station could be repaired was limited to the contents of two standpipes.

Operation of the rice mill began on November 22, with enough rice in the warehouses to keep it running several months. This undertaking being out of the way, and an electric plant having been destroyed by fire recently, Charles G. Gates was granted a franchise to provide electricity for the city. A contract called for completion of a powerhouse within 120 days, to be of brick, with the latest type of machinery and three times the capacity of the former plant.

John Gates, meantime, was moving to obtain full control of the Stilwell interests. Representing minority investors who claimed that money they had paid for stock had been improperly used to promote the newest of Stilwell's dreams, the Kansas City, Mexico & Orient Railroad from Kansas City to Mexico City, he filed a suit in a Federal court at St. Louis that aimed at his gaining domination of the Guardian Trust Company. The court's decision, on December 1, was in favor of the Gates interests, and the trust company went into receivership.

By now a colonial mansion for Gates and a Pompeian villa for Ellwood had been completed at Port Arthur, and following this important legal victory Gates returned to the city accompanied by Mrs. Gates, the Ellwoods, and several other associates. A newspaper story of their arrival demonstrated how Stilwell's influence had been altered, by referring to Gates as holder of the "controlling interest in the Kansas City Southern Railroad."

Port Arthur's second boom was well advanced when the Spindle-top oil field, fifteen miles north, roared in on January 10, 1901. Drillers, lease hounds, teamsters, promoters, gamblers, swindlers, and their camp-followers swarmed into the new field, and when there was no longer any room for them in Beaumont, overflowed into Port Arthur. T. brought back in many ways, scenes of the period of the homeseekers and land spectulators. Now, however, there were well laid out streets, frame and brick houses, substantial business buildings, schools and churches.

Frank Hammon, plant wizard, announced that he had for rent or sale any amount of land from one acre to 300 acres near Nederland, on which could be grown fine rice crops. The Townsite Company offered to donate eighty acres of land for a waterfront refinery, which the Standard Oil Company immediately accepted. The Pittsburgh (Pa.) Press announced: "Col. James M. Guffey has purchased 110,000 feet of pipe for a line from his wells to Port Arthur tidewater."

By April a contract had been issued for construction of a $16,500 school building; canal and drainage bonds had been sold, and work started; a new Pleasure Pier was to be completed by June 15; and foreign stockholders of the Port Arthur Townsite and Land Company refused $250 an acre for land made valuable by the nearby oil discovery.

Shining rubber-tired stanhopes and phaetons, the knees of their occupants covered by ornamental lap robes, moved briskly over dirt streets, drawn by glossy, well-fed horses, sometimes with spotted coach dogs at their heels. Women, on the narrow board walks, wore picture hats, leg-of-mutton sleeves, high-collared, long-sleeved shirtwaists, sweeping skirts, and carried parasols as protection against - the sun. Religious services were held on the Pleasure Pier, the churches in the crowded town being inadequate to accommodate the worshippers.

Following the $15,000,000 incorporation of the J. M. Guffey Petroleum Company on May 17, a limited amount of stock, par value $100, was offered at $66. When this announcement was made, employees of the company, who were receiving $2.75 and $3 a day, struck successfully for a 25 cents increase.

The first locomotive of a Texas railroad in which fuel oil from Texas fields was used went into service June 21 on the Kansas City Southern Railroad between Port Arthur and Lake Charles, La.

Residents of Beaumont and Orange, long anxious for inland harbors, began intensive agitation for channels to connect with the busy Port Arthur Canal. Following a meeting of the Port Arthur Board of Trade, November 29, 1901, the president of the board announced that Port Arthur was "ready to join Beaumont and Orange in an effort to get Congress to make an appropriation for the digging of a canal to connect the river cities with the Port Arthur Canal."

Minority stockholders, headed by Gates, had thrown the Port Arthur Channel and Dock Company into receivership, and late in the year legal notice was given that on January 7, 1902, the company's assets would be sold in Beaumont at public auction. The upset price was $500,000, but it was common belief that the property would bring nearer $2,000,000. On the day preceding the sale, the Beaumont Enterprise announced that "sensational developments may be expected."

Representatives of both the Gates and Stilwell interests were in Beaumont, and the auction took place at the courthouse at 11 o'clock in the forenoon. The proceedings, which finally eliminated Stilwell from Port Arthur's development, were thus described by the Enterprise:

Commissioner H. H. Haley announced that he was ready to make the sale of the Port Arthur Channel and Dock Company property to the highest bidder. . . . Promptly following . . . came the announcement that he was ready for the bids and Stuart R. Knott, who is president of the Kansas City Southern, and Max Pam, who is the general counsel of that road and is also general attorney for John W. Gates and the Philadelphia and New York interests, announced a bid by themselves jointly for the bondholders of $500,000. There was a pause for a few moments and there being no other bidders Mr. Haley announced that he then and there made the sale and asked a deposit of $50,000 in money or its equivalent and they promptly handed him $50,000 in receiver's certificates which in the eyes of the law is the same thing as the money because they are the first debts to be paid.

Officials departed the same night for Austin to seek a charter for a new $1,000,000 company.

Shipments by water were steadily increasing. The big tank steamer Strombus arrived at the Guffey Company docks in Port Arthur on February 17, 1902, and loaded 60,000 barrels of petroleum products including desulphurized oil, and 5,000 barrels of distillate. The ship, equipped for burning fuel oil, used the Spindle-top product on her Atlantic trip. The Beaumont Enterprise remarked:

What oil is doing to run up the shipments out of Sabine and Port Arthur would not have been thought credible one year ago. More vessels are now entering for oil than for all other commodities combined, and it is only yet in its infancy. For instance there were sixteen vessels moving in the harbor at one time last Thursday, nearly all of which were in some manner connected with the oil industry. . . . With these sixteen vessels in motion at one time the harbor did nut present a crowded appearance.

Expansion plans of the Texas Company included a refinery and tank farm on eighty acres of land south of Nederland, fifteen large steel reservoirs were being erected near Spindletop, and their pipe line to the Port Arthur Docks had been completed. The Gulf Refining Company had two refineries in operation, a third under construction, and a barrel factory and cannery nearing completion.

within three days late in June a quarter million barrels of oil were loaded at Sabine and Port Arthur.

A group of Port Arthur men, during the latter part of 1902, formed their own oil company, "to make a thorough, complete and convincing test of the lands near Port Arthur," and drilled several wells. Drinking water in large quantities was found at 500 feet.

A survey in 1902 listed 500 good homes, 250 business houses, two depots, four churches, two more churches under construction, and one public school. Nearly all classes of business were represented, including two banks and eight hotels. The figures did not include buildings located between the city plat and the docks. The J. M. Guffey Petroleum Company and the Gulf Company had two refineries completed, handling 62,000 barrels daily, 55 steel tanks of 55,000 barrels each, and 79 smaller tanks with a capacity from 500 to 25,000 barrels each. Two oil docks had been completed, one for the Guffey Company and one for the Port Arthur Channel and Dock Company. The Texas Company had 937,500 barrels of oil in storage, and one refinery. The rice mill processed 1,000 barrels of rice daily. Population was estimated at 3,500.

During week ends, trains running into Port Arthur were crowded with pleasure seekers, coming to partake of Colonel Furlong's cuisine, swim in Lake Sabine, and fish along the shell reefs close to the shore. Thirty Negro waiters were employed at the Pleasure Pier. Wrote the correspondent of the Enterprise:

Just now Port Arthur is making a rapid increase in the amount of ocean tonnage that is being handled and a visit to the docks last Sunday revealed the fact that there was every kind of craft in port that goes to make up the great merchant marine. . . . Great steamers for carrying oil; schooners which do the coastwise business, square rigged ships which set their sails for the trade winds and find every port, and last but not least, the steamer Lawrence which brought down a big excursion from Orange. . . . Good concrete sidewalks are being put down and drainage is being perfected.

On July 17, fire destroyed one of the city's institutions. As reported by the Port Arthur Herald:

The Hotel Sabine, which has had a world wide celebrity as one of the very best hotels in the South, burned to the ground yesterday morning. The fire originated in the kitchen and was discovered before any great headway had been made, and at one time it was thought to he under control. The alarm was given about 4 o'clock, and the fire department responded as quickly as a volunteer fire department could respond. There was trouble in getting an active flow of water, the engine, which was bought second handed, refusing to force water through two nozzles at the same time with any force. Later the engine broke down and the fire department was powerless. . . . The loss is estimated at eighty thousand dollars, and the insurance is between forty and fifty thousand.

Another serious fire followed an explosion on the steamer City of Everett, September 8, by which the captain, a mate, and several of the crew were injured seriously. The ship, loading at the Texas Company docks, burst into flames which spread to the wharves. All were a total loss.

But progress offset tragedy. Port Arthur was becoming a great seaport. The Kansas City Southern Railroad and Simpson, Spence and Young, steamship owners, agents and brokers of New York, signed contracts for a regular line of steamers to ply between Port Arthur and foreign ports. Said the Port Arthur News: "This means the entire reorganization of ocean traffic through this port on fixed and definite lines. . . . Twenty steamships have been assigned .. . operated under the Port Arthur Texas Trans-Atlantic Steamship line."

On October 4, 1903, the Beaumont Enterprise, in the course of a long story, said:

Port Arthur, the terminus of the great Southwestern through line, the Kansas City Southern railway, is the most feasible natural port for the vast territory, west of the Mississippi, and all that a generous outlay of money can accomplish is being done to perfect a system whereby all the enormous fields of grain, etc., of the great west can find a quick and ready waterway to the markets of the world. . . . The Port Arthur of today is indeed not the one of a year ago. . . . The great rice and oil fields of Texas have added their strength and the west has poured its surplus products through this waterway. . . . All pipelines lead to Port Arthur. All refineries except one are at Port Arthur, and all oil ships enter and clear at Port Arthur.

Three pipe lines belonging to the Guffey Petroleum Company, the National Oil and Pipe Line Company, and the Texas Company, were delivering oil from Spindletop. Four refineries were in operation, while ninety-seven ocean-going ships and barges were delivering oil from Port Arthur to various United States ports. An average of one ship a day cleared, while in the town itself the construction of the waterworks and of ice and cold storage plants neared completion.

As the year drew to a close, the Port Arthur Chamber of Commerce was incorporated. Debris was being removed from the site of the Hotel Sabine to make way for a newer, more modern hostelry. The year's production of the Port Arthur rice mill had eclipsed the annual output of other Texas mills. Buildings were going up in all parts of town. The Tralle saloon was advertised as a "pleasant resort." Gates' yacht, Roxana, arrived safely after a rough trip from New Orleans. The city's new combination chemical fire engine arrived three days after Christmas and was made ready for immediate use to protect the city "independent of the waterworks."

Expansion of the port had been so rapid that by 1904 the five docks, two of which were being used for oil and the others for other business, were inadequate.

Most of the business activity of the town centered at the port and refineries. Arrangements were completed for construction of an electric line from Port Arthur to the docks to facilitate shipments. During March a bill to make Port Arthur a full port of entry was urged in Congress. Test work was started on the construction of a canal along the west bank of Lake Sabine to the mouths of the Sabine and Neches Rivers.

A fire, caused by the blowing out of a fuse, threatened the entire plant of the Gulf Refining Company on April 16. The loss was estimated at about $125,000, including six agitators and three steel tanks, containing 48,000 barrels of petroleum products.

Efforts to restore the town to its old resort popularity were made by the newly-formed $10,000 Port Arthur Catering Company. Beaumont papers heralded the company's formation with the suggestion that "promoters of amusements on the lake, with the view of securing moonlight excursions from this city to Port Arthur . . . are making a mistake. . . . they should induce the Kansas City Southern to put on a 5 or 5:30 train. Beaumonters can get all the moonlight they want at home, and nn the bosom of the placid Neches."

The Norwegian steamship Iris, first vessel of the new Mexican-American Steamship Company, cleared Port Arthur on August 12 with a cargo of 500,000 railroad ties consigned to Mexico. Records for quickness and dispatch in loading a vessel were broken on September 13, when the British steamship Cairncrag cleared for Holland with a cargo of 2,020,000 feet of sawed timber, loaded in 58 hours. Benjamin F. Moss, newly appointed immigration inspector of the United States for Port Arthur and Sabine, and the first with headquarters at Port Arthur, arrived to take over his duties on November 22.

Announcement was made on New Year's Day, 1905, that the Port Arthur Channel and Dock Company had been mortgaged for $1,000,000, and a deed of trust filed by the company in favor of the Equitable Trust Company of New York, in which Gates held an interest. The mortgage was given to secure a 50-year bond issue, bearing 5 per cent interest.

Port Arthur was thrown into a near panic during the summer by a yellow fever epidemic in Louisiana. Texas declared a quarantine against that state, and placed armed guards at all inlets, but when Johnson's Bayou Settlement on Lake Sabine in Cameron Parish, La., set up a rigid quarantine against the rest of Louisiana, dwellers in the community appealed to Port Arthur and Beaumont for provisions and supplies, and the quarantine was lifted sufficiently to care for them.

Plans advanced for construction of the Sabine-Neches Canal, which the Government now proposed to build—a new channel that would connect Taylor's Bayou with the Sabine and Neches Rivers, along Lake Sabine to the Pass. A hearing was set in the office of Secretary of War William H. Taft for December 16, which leading citizens of Port Arthur and Beaumont were to attend. Gates had threatened to block every move the Sabine-Neches Canal interests might make, but the matter was settled amicably as the Port Arthur delegation made a written tender of right-of-way along the edge of the Lake for the entire distance of the proposed canal.

The Journal of December 19 thus commented:

John W. Gates has been led squarely to the manger. There will be no longer opportunity for him to delay the channel. . . . If within twenty days John W. Gates furnishes the war department with deeds for the right of way along the land, the canal will be built on the land. if not, it will be built in the lake.

Of importance to the development of trade and labor organizations was the chartering on the same date of the Port Arthur Central Trades and Labor Council. Represented were units of the carpenters, painters, sheet metal workers, and plumbers unions and several locals of the International Longshoremen's Association.

Final adjustments pertaining to the right-of-way for the canal were made at Port Arthur January 12, 1906. Gates assured United States Engineers and Beaumont representatives that he would "deliver deeds for the right-of-way within a week after the field notes were delivered to him."

Two days later, the hydraulic dredge Sealey arrived at Port Arthur and tied up ready to begin work. The survey was completed on January 31, and Port Arthur's Mayor J. P. Landis delivered abstracts of title for the canal route to Beaumont attorneys on February 23 to be forwarded to Washington.

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