Executive Times






2007 Book Reviews


Mellon: An American Life by David Cannadine








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I first “met” Andrew Mellon in 1965 when I entered the National Gallery of Art in Washington, D.C. It was through his gift of that building and a core art collection that the nation’s capital obtained an art gallery of international stature. He didn’t want his name on the building, having learned from watching other collectors use their name, and not be able to attract the collections of other donors. Despite his name not being on the building, someone on that 1965 day referred to the gallery as the Mellon, and it stuck with me. Thanks to David Cannadine’s excellent and comprehensive biography, Mellon: An American Life, I know the rest of the story of this great American. One section of the book explores his business success with banks, Alcoa, Gulf Oil and other enterprises. Another section highlights his government service as Secretary of the Treasury. Another section focuses on his pictures, his interest in art and the collection he assembled. Throughout, there’s the story of a complex character with the challenges of a personal life out of balance with his work life. Here’s an excerpt, from the beginning of Chapter 11, “Carrying On With Hoover: Great Ideas to Great Crash 1927-29,” pp. 356-360:


I had never failed in anything on which I had set my mind so far, and why might I not succeed in this also?

Thomas Mellon and His Times, p. 154





By the beginning of 1927, Andrew Mellon’s work at the Treasury was largely done. Taxes had been cut, government spending had been halved, and the debt had been reduced by $6 billion. The surplus for fiscal year 1927, at first estimated at $18o million, had been revised to $300 million; but it eventually attained the record level of $636 million, which speaks better of the government’s capacity to generate revenue than its ability to make projections.1 Fewer poor people were paying taxes; more rich people were doing so; the national economy was full speed ahead. “I see nothing to indicate that business will not be good throughout the country,” Mellon observed in late March 1927, before embarking on a brief trip to Europe:


The stock market seems to be going on in very orderly fashion, and I see no evidence of over-speculation. There is an abundant supply of easy money throughout the country which should take care of any emergen­cies which should arise. I do not look for any change in the Federal Reserve Rate for some time to come, because I can see no reason for changing it. . . Our government will have about $500,000,000 surplus on hand as of June 30. . . All signs and indications at the moment point to the country enjoying a successful business year.2


Until the time of the presidential election early in November 1928, Mellon remained generally pleased with the economy, and thus relatively relaxed about it.3 But while the boom continued, its nature was changing. Previously, it had been largely based on productive investment in the growth of resources and output. But with unprecedented deposits and accumulating surpluses, banks and businesses now began to lend to bro­kers and speculators, who promised high returns based on buying and selling shares, encouraged by Wall Street’s and Main Street’s belief that prices could only go up. One select group of stocks, averaging 186 on March 23, 1927, reached 196 on April 5, 200 on April 12, and 217 on June 2, a gain of 31 points in ten weeks.4 Mellon did not generally approve of stock speculation, and scarcely understood the greedy, gambling men­tality behind it. But he did not wish to take any corrective fiscal action that might cause the economy to stumble before an election, and the Fed­eral Reserve Board likewise showed no inclination to raise interest rates, which fluctuated between 3.5 percent and 4 percent from the beginning of 1925 until the end of 1927. Yet for the board, for Mellon, and for Ben­jamin Strong, the reason for holding rates down was increasingly inter­national rather than domestic: the need to encourage gold to flow to Europe to support the newly stabilized currencies there. (Herbert Hoover would later denounce Strong as “a mental annex to Europe.”)5

Much of Mellon’s business at the Treasury during 1927 and early 1928 thus seemed predictable and routine. Having only recently succeeded in having his tax reforms included in the Revenue Act of 1926, he wanted to wait to see how they worked out. Arguing that the massive federal surplus of 1927 would not reappear the following year, and with his best estimates putting it at only $252 million, he proposed only minor tax reductions, to the extent of $225 million, in the next revenue bill he sent to the House.6 He sought a reduction in corporate income tax from 13.5 percent to 12 percent, the first notable relief for business since the repeal of the excess profits tax in 1922. He proposed that surtaxes on those earning between $10,000 and $70,000 be adjusted downward, and he urged that the federal estate tax be repealed altogether, leaving it to states to tax inheritance if they wished. In the autumn of 1927, these proposals were discussed by the House Ways and Means Committee, but Mellon pre­ferred to let his undersecretary do most of the talking: Ogden Mills had been a member of the committee earlier in his career, and would increas­ingly become the Treasury Department’s front man.

But once again, Mellon (and Mills) met with resistance, for with elec­tions pending in 1928, the Democrats now took up the very cause of tax reduction they had previously so derided. The House minority leader, John Nance Garner, wanted the corporation tax rate lowered to i i per­cent and the automobile tax repealed, along with all wartime excise taxes. Meanwhile, the Ways and Means Committee came up with its own pro­posals: there should be no repeal of the estate tax or adjustment of sur­taxes, but a reduction in corporation tax greater than Mellon wanted but less than Garner proposed. The resulting bill got bogged down in the House, and Mellon became increasingly worried that, with the surplus dwindling and additional tax cuts likely, the balanced budget was in jeop­ardy. It was, he maintained, in a public letter to President Coolidge, “an essential element of any sound fiscal system, and as long as I am Secretary, the Treasury Department will resist the undermining of the princi­ple.” He also took issue with the Chamber of Commerce’s advocacy of $400 million in tax cuts.7 That a Republican organization should be sup­porting the Democrats seemed to Mellon both reckless and opportunis­tic, and in letters and speeches he made it plain the business community could expect no special favors from him.

By spring of 1928, the revenue bill had finally reached the Senate, where it was batted back and forth between the Finance Committee and the floor. Eventually, the corporate income tax rate was set at 12 percent, the surtaxes remained unchanged, the estate tax was preserved at current levels, and an attempt to make tax returns public again was successfully beaten off. Meanwhile, Democrats in both chambers complained that the Treasury estimates of the surplus were being constantly manipulated in order to make the case against further tax cuts. The eventual legislation was a tepid compromise. The Democrats had failed to make political hay by reducing taxes as sharply as they wanted, while the Republicans could claim that they had reduced taxes for the fourth time since they had taken power, although this cut was relatively small. Assisted by Senator David A. Reed on the Finance Committee, Mellon had successfully fended off calls for greater cuts which would have depressed federal revenue by as much as $500 million, thereby making it impossible to balance the bud­get. The secretary who had wielded the tax ax with increasing determina­tion in 1921, 1924, and 1926 was now more concerned with trying to hold the line.

During the same period, the enforcement of Prohibition remained an intractable problem. Since mid-1925, the reorganization of the Prohibi­tion Unit had been in the hands of Brigadier General Andrews, who was by now an assistant secretary of the Treasury.8 He was eager to dismiss all Haynes-era political appointees, and Mellon generally approved; but he was not eager to wrangle with Congress over political appointments, or to reactivate his (temporarily quiescent) “dry” critics. In March 1927, Con­gress finally passed the Mellon-Andrews Reorganization Act, establishing a new Prohibition Bureau within the Treasury but putting it under the authority of Haynes, the very figure Mellon and Andrews had tried to sideline. Relations between Haynes and Andrews were predictably uneasy, and so amid continuing criticism of the Treasury’s lack of zeal, Mellon eventually had to sack both men. In their places, he promoted chief chemist James Doran to commissioner and brought in Seymour Low-man, former lieutenant governor of New York, as assistant secretary. Both were capable, but given such pervasive flouting of the law, real enforce­ment of Prohibition remained a fantasy. And the secretary was still branded the owner of a distillery by the drys, no matter how often he denied it.9

By early 1928, the stock market “began to rise, not by slow, steady steps, but by great vaulting leaps,” and the volume of shares traded broke one record after another. With Mellon’s approval, the Federal Reserve Board—recently unburdened of Harding crony Donald Crissinger, who had been replaced by Roy A. Young, for eight years governor of the Min­neapolis Federal Reserve Bank—now reversed its low-interest policy and sanctioned three separate increases of 0.5 percent in the first half of the year, bringing the rate to 5 percent by the summer of 1928, the highest since 1921. 10 These measures proved ineffectual: stock speculation inten­sified, and gold began returning to the United States for the first time in three years, not only feeding the domestic speculative frenzy but also threatening to destabilize the recently restored international economy. But Mellon saw no cause for great worry. In February 1928, he wrote an article in praise of American capitalism and its work ethic, which might have been penned by his father. There had, he insisted, been “built up in this country an economic and industrial organization under which we have achieved not only a vast amount of wealth, but a distribution of it that is unprecedented, and a standard of living that is the best justifica­tion, if any is needed, of the American system.” So long as Americans believed that “work is the only honorable occupation, and that life has more to offer than merely the spending of money on selfish enjoyment,” then there was nothing to fear.” 11

As Calvin Coolidge’s term of office drew to a close, there was wide-spread political speculation about whether he would run for re-election. Mellon had no doubt that he would, or that he would win. But on August 2, 1927, with Mellon away in Europe on his summer holiday, the president stunned Washington by announcing “I do not choose to run.” 12 What did this characteristically cryptic statement mean? Had he decided that he would not seek re-election under any circumstances? Or was he testing his popularity, and perhaps angling to be drafted at the Republican convention? In fact, Coolidge had made a firm decision not to run again under any circumstances; he meant what he said when he urged the Republican National Committee to “vigorously continue the serious task of selecting another candidate.” Mellon, fervently hoping that Coolidge would reconsider, expended a great deal of time, effort, and political cap­ital trying to persuade him to do so. It was a mistake, both in retrospect and at the time: in the first place, Coolidge “was serious and firm in his conviction not to be a candidate”; in the second, promoting Coolidge would likely disadvantage Mellon with whoever eventually became the Republican nominee. 13

In the wake of Coolidge’s announcement, there was a brief bubble of support for Mellon himself, which lasted until the spring of 1928. The Hearst press and the Pittsburgh Republican machine both boosted his presidential prospects, and so did such independent journals as the Denver Post, the New York American, and the Los Angeles Examiner News of this possibility even reached England. “Should your ambition include the presidency of the USA,” Percy McMullen wrote to him, “no one prays for your attainment of it more fervently than your humble servant.” 14 Early in 1928, Henry A. Rose of the National News Service produced a widely distributed pamphlet citing Mellon’s achievements, and one bankers’ journal issued an editorial explaining “why the times call for a president of Mellon’s type.” Henry Ford expressed his enthusiasm for the idea, and one of Mellon’s foremost congressional critics, John Nance Garner, who would later be FDR’s first vice president, insisted that he was the logical Republican nominee. “Mr. Mellon,” he told the House of Representa­tives, “has dominated the financial, economic and fiscal relations of the United States for the past four years.” “Every Republican in the adminis­tration,” he observed with considerable exaggeration, “has done his bid­ding.” As such, Mellon was the most powerful man in the world, and Garner doubted “whether the Democrats could beat him.” 15


There are successful business leaders who will think twice about government service after reading this book. A life of integrity ends with litigation and public humiliation as Mellon is blamed for the Great Depression. Mellon is a well written biography that will leave readers thinking long after the final page is turned.


Steve Hopkins, April 25, 2007



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