Sunday, August 24, 2014

John Warne Gates: From Barbed Wire to Riches

John Warne Gates
Barbed wire is a small tool that changes the world. It changed how ranchers grew their livestock. It’s a tool used to keep prisoners inside their prison. It changed the faces of battlefields forever. During the advent of this small but decisive tool, many took the opportunity to make some money from it. But one man stood to dominate the industry. A man that did not invent barbed wire but used it to made a fortune from it. A fortune that so huge that a million dollars can be easily loss in one poker game. 

John Warne Gates (May 18, 1885 – August 9, 1911) was born at a farm in Turner Junction at West Chicago, Illinois. He was born to the family of Asel and Mary Warne Gates. He received his education in a local public school and managed to acquire higher education in Napierville Academy. In the Academy he learned business law, giving him a background about the field.

At the age of nineteen, he began to work; and while working, he would discover a product that would give him a fortune – barbed wire. In St. Charles, he took a job at a hardware store. While working, he notice an increasing sale of a particular product, barbed wire.  By 1876, his entrepreneurial spirit made him to look for a partner to establish a company that sells barbed wire.

Gates wanted to have a company that would sell barbed wire, but fate had other plans. He proposed a partnership with Col. Isaac Ellwood of Washburn-Moen Barb Fence Company that had a license over the Gilden patent for barbed wire. Ellwood, however, declined. But it was not the end for Gates because Ellwood then offered him a job to work for his company. Gates agreed to be a travelling salesman for Ellwood. Immediately, he found himself selling barbed wire in Texas.  

In 1876, as a salesman for Washburn-Moen Barb Fence Company, he launched an outstanding promotion of his employer’s product that increased the sale of it. Some ranchers of cattle were pessimistic about the effectivity of barbed wire. Gates created a stunt that would destroy this pessimism. He rented a plaza in San Antonio and surrounded it with barbed wire. He then challenged doubtful ranchers to place their wildest cattle inside the fences. If the cattle leaves the plaza, the product is a failure; but, if otherwise, the product is successful and the criticisms would disappear. The stunt, eventually, became very successful. It resulted to massive orders for barbed wars being made by customers. The number of barbed wire being ordered was so staggering that the amount surpassed the capacity of Washburn-Moen Barb Fence’s factory. At the same process, Gates made a lot of money as the salesman. However, he also realized that manufacturing barbed wire could be more profitable than just selling it.

With mind aimed at establishing a factory of barbed wire, he went to Missouri. He then started to look for a business partner by placing an ad at the St. Louis papers. Sooner or later, he found one in form of the wealthy Alfred Clifford. Using $16,000 as capital, the partners established a barbed wire company called the Southern Wire Company. The partnership continued until 1880 when Gates bought out Clifford from the company. The company prospered; however, it faced a serious problem. They were sued by competitors for patent infringement of the Gilden Barbed wire patent. The court battled continued for years ever since the company’s foundation. His competitors, soon enough, thought that they could not defeat Gates in the legal battle. What then followed can be said as if you can’t beat them, join them.

In 1882, Gates expanded his company by merging with his competitors. His rival, William Edenborn, negotiated for a consolidation of his barbed wire company and Gates’. The combination of two companies resulted to creation of Braddock Wire Company. Six years later after the merger, more rival companies joined. The result was the establishment of the Consolidated Steel & Wire Company. This horizontal integration allowed Gates to acquire power and influence. Which he used to demand for discounts from suppliers as well as railroad companies. But if he failed to get his rebate, he bought them and utilized what is now today called vertical integration or one company owning transportation, raw materials, and other materials that were related to the main product. For example, he acquired Illinois Steel Company in 1894, and added in his portfolio the Minnesota Iron Company. After much more consolidation, in 1898, Gates reach his pinnacle. His great company, the American Steel & Wire Company was formed with a capital of about $90,000,000.

His newfound status however found itself in midst of criticism. The public accused Gates of making the American Steel & Wire Company into a monopoly. If his company was criticized, much criticism he received was on his business practices. Gates was said to have stolen money from the company via stocks. For example was the incident where he shut down a plant and throwing out workers just to get stock prices down. Using the situation, he bought more stocks and then opened the closed plants, driving the prices up again, giving him a huge profit. Gates also became notorious on using his money in gambling. One of his infamous gambling games was when he bet a million dollars in a single poker game and lost, earning him the nickname “Bet-a-Million.”

Besides gambling in poker games or horseracing, he also began to speculate in the New York Stock Exchange. Through NYSE, he became involved in formation of Federal Steel. Also, he attempted to take over the titanic Carnegie Steel. However, he failed. However, on the process, he met an influential financier in Wall Street, J.P. Morgan. Morgan, along with his Elbert Henry Gary, and Gates, they founded the Republic Iron Steel & Company.

Gates in 1901, took part on the creation of the first billion-dollar corporation in the world, US Steel. J.P. Morgan acquired Carnegie Steel from Andrew Carnegie with a price of $500 million. Gates, an ally of Morgan, sold also the American Steel & Wire Corporation to Morgan who consolidated it to US Steel. Gates, however, was not made to become part of the US Steel.

Nevertheless, Gates continued to be a player in the business world. He took part in the foundation of several companies; for example, the American Tin Plate Company and the National Steel Company. By 1900’s, he also invested without unwanted criticism in Port Arthur, Texas. Gates spent millions in Port Arthur to established banks, roads, railroad, ports, and other basic infrastructure. He also invested to the newly discovered Spindletop Oil Field nearby. Seeing opportunity from the oil field, Gates invested in oil refining and transport. Ultimately, he became part in the foundation of the Texas Company or Texaco.

Wealth continued to flow towards Gates. He managed to acquire a medieval castle in France during the late 1910’s. However, he would not be able to enjoy it for long. In August 9, 1911, John Warne Gates, died in Paris France during his supposedly visit to his castle.  

Carey, C. American Inventors, Entrepreneurs, and Business Visionaries. New York: Facts On File, 2010.

Cohn, G. ed. The New Encyclopedia of American Scandal. New York: Facts on File, 2001.

Onofrio. J. Texas Biographical Dictionary. New York City: Somerset Publishers, Inc., 1996.

“John W. Gates.” Museum of the Gulf Coast. Accessed October 31, 2013.

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