Sunday, August 24, 2014

"After us the deluge"—Apt Theme for Mellon Years at Treasury

Chapter 18 from Mellon's Millions by Harvey O'Conner (New York, N.Y.: Blue Ribbon Books ©1933, pages 362-368)

The Fortune Goes Marching On

IF his years in public office seemed fruitless after Congress had torn down the Mellon Plan of taxation and the voters, in 1932, had repudiated his theory of business-in-government, they at least rescued from obscurity the processes by which Andrew Mellon had quietly reared the nation's largest
fortune.

In one way, the Mellon fortune was unique. It embraced the widest diversity in the methods of accumulating wealth that acquisitive art had yet attained. The Rockefellers based their millions on petroleum, the Fords on automobiles, the Du Ponts on explosives and chemicals, the Vanderbilts on railroads, and the Morgans on finance. The Mellons ran nearly the whole gamut. Segments of their billions represented gains from real estate, money lending, steel, railroad equipment, oil, coal and its myriad by-products, aluminum, carborundum, utilities.

Andrew Mellon's distinction was that he greeted eagerly yet cautiously each opportunity placed before the head of the banking house of T. Mellon & Sons. He supervised minutely the growth of infant enterprises, selected with uncanny precision those able subordinates to whom he entrusted the management of his corporations, insulated himself from humanity so that his cold, amoral spirit could not be swayed by those warm considerations that halted many on the march to millions.

He entered the business world from the finest training school in America, that kept by Judge Mellon. From the first he was armed with power, the power of his father's millions. He was born to command, to use with dexterity the tools by which entrepreneurs manipulated natural resources, labor power, the
needs of consumers.

Before the banker who controlled a reservoir of capital in the center of the nation's heavy industrial district came an endless procession of opportunities. Necessitous men with ideas, others with unique access to natural resources, laid their potential wealth at his feet in return for his financing. Charles M. Hall and his aluminum process, Colonel Guffey and the Lucas gusher, Doctor Koppers and his by-product oven, formed the tripod on which the Mellons' industrial empire was to rest.

Andrew Mellon neglected few of the techniques by which money could be made. Basic to all in his scheme was the use of money to make money. Union Trust stood at the very center of the world he ruled. The first few thousands wrung by Thomas Mellon from mechanics' liens, notes and mortgages grew in seventy-five years to hundreds of millions, were hired out to eager borrowers, and secured by underlying mortgages on choice property and industries.

The keystone to his industrial fortune was the use of monopoly, the restriction of output, the raising of prices to artificial levels, the tying up of processes by patents. Andrew Mellon disliked vulgar competition with others, preferred to corner a raw material or process and force consumers to bargain with him for access to their requirements. Aluminum's profits of $100,000,000 in the six years from 1926 to 1931 testified to his success. Gulf Oil with profits of $175,000,000 between 1925 and 1930 justified his price and output alliance with Standard Oil. Koppers grew to such lusty vigor under the Government's favoring patent laws that later none other could compete.

Where monopoly was impossible, the Mellons speculated discreetly. Their early millions arose from the soil of Pittsburgh. They foresaw the growth of the city toward its present suburbs, cannily gained large tracts of land, and exacted their price when the pressure of population forced home-seekers to
the Mellon realty offices. Mellon traction lines guided the direction of growth. Mellon lumber and coal firms reaped a second harvest.

The manufacture and manipulation of stocks opened a new avenue to wealth for the proprietors of Union Trust. Their first triumphs, when the corporate age bloomed early in the Twentieth Century, were Monongahela River Coal & Coke and Pittsburgh Coal, sadly over-capitalized firms which were doomed from the start to cheat the hopes of investors who placed their faith and funds in them.

Later adventures of the House of Mellon far outran its earlier efforts: the apex was participation in the syndicate which floated Kreuger & Toll debentures. The only worth in this worthless security was the names of the eminent firms, including Union Trust, which sponsored it. Error in such a matter could have been remedied by full and prompt reimbursement of aggrieved investors. Judge Mellon would have insisted on that, his sons, like the other sponsors, made no such move.

The public need for gas and electricity was not overlooked. Not only were prices charged consumers which represented a generous profit—even the Mayor of New York was obliged to denounce rates charged by a Mellon company—but these profits were made the base for a dizzy structure of holding companies, in the best Insull-Byllesby-Mitchell manner. Quotations ranging from 2.875 to 8.75 on Eastern Gas & Fuel Associates common in the first half of 1932 betrayed the hazards which confronted those who bought utilities' stock.

If monopoly and speculation were basic ingredients in the Mellon millions, marriage played its modest share. Sarah Jane Negley's contribution to the incipient fortune firmly rooted Thomas Mellon in East Liberty and its promising realty business. By advantageous marriages in realty and iron and
steel families, later Mellons followed the Founder's example.

Underlying all these techniques of acquisition was the simple and obvious fact that as an employer Andrew Mellon bought labor cheap and sold its products dear. In the Pittsburgh region, noteworthy in fat America for its destitution and misery, the Mellons became a billionaire family. The explanation lay in part in the miserable towns in which his steel, coal and aluminum workers lived, in the poverty of their lives, in the glaring inequalities of opportunity between the children of Andrew Mellon and those of his workers.

If native labor was too expensive, the Mellons and their fellows used thousands of Southern and Eastern European workers, imported to do America's dirty work. If these in turn rebelled, the Mellons imported hordes of Negroes from the South to work their coal mines and steel mills.

The engine of state power stood at the Mellons' command, not merely to wring petroleum concessions from semi-colonial governments, to bless the acquisition of monopoly privileges and to shift tax burdens, but for the everyday protection of the family's property. A formidable army in the
Pittsburgh district alone—state troopers, city police, coal and iron police, deputy sheriffs, spies—was hired to guarantee the Mellons and fellow employers against the success of movements aimed at better wages and living conditions.

Not merely police, but the laws too stood sternly in the way of radical workers who sought to substitute new ideas for the old in social relations. When workers, goaded to desperation by the hopelessness of their lot—as Judge Mellon had so fearfully predicted—advocated the drastic substitution of capitalism by socialism, the state of Pennsylvania was alert to imprison them in the name of the Flynn anti-sedition law.

The Mellon fortune weighed heavily in the political, social and cultural life of America. It was felt preeminently in Pittsburgh and western Pennsylvania. Linked with Frick, U. S. Steel and the Pennsylvania Railroad, it controlled Pennsylvania from the 1880s. The Keystone State became the patrimony of the Mellons and their allies, as it once had been of the Penns'. And if Pennsylvania's political life became synonymous throughout the nation with cynical corruption, that was but one aspect of the operation of social principles upon which the Mellon fortune was reared.

Pittsburgh, the Mellons' home town, was under their unchallenged dominion for decades. What city surpassed it in municipal sloth and corruption, in ramshackle housing for workers, in spiritless environment? Endowed by nature with a site on magnificent hills, where the historic Allegheny and
Monongahela meet to form the Ohio, Pittsburgh seemed to have thrown away indifferently the opportunity to build a notable, even splendid center. The shores of the rivers were fouled with the debris of a disheveled individualism. The Golden Triangle was golden only in the eyes of the Mellons
and other realty owners; actually it was a maze of narrow, traffic-choked streets, cluttered with smoke-grimed monstrosities of the late Nineteenth Century, unadorned in any part by a park, save for an acre or so of unkempt land at the Point. Old Judge Mellon disapproved of such municipal
extravagances as parks. Back of the steel mills huddled drab miles of dejected frame structures.

All this mattered little to the city's masters. Dirt and grime are inseparable from steel mills; vice, misery and poverty are problems of the individual; municipal slovenliness is the price paid politicians for their services.

        Such were the standards which Andrew Mellon brought with him in 1921 to Washington, after fifty years of "well doing" in his native city. Twelve years later the more conscientious were astounded to read of evasion of the nation's tax laws by money eager of the highest rank. A former
Under-Secretary of the Treasury, right hand man to A. W. Mellon, testified unhesitatingly in federal court that he had advised Charles E. Mitchell on income tax evasions. Any artful subterfuge, if devious reasoning could construe it as legal, was countenanced by a "liberalized" Bureau of Internal
Revenue. The entire apparatus of Government had become permeated with the morality of the businessmen; the processes by which a Mellon or a Morgan made millions had become the highest ethic. By such standards, indeed, Pittsburgh was the very flower of American civilization, for had it not produced the mightiest Midas in the land?

There was no disputing the success of Mellon's sleek and efficient corporations, lubricated so exquisitely that their proprietor might have died an unknown billionaire had he not decorated his life by public service. His public life was more difficult to appraise. Many felt that because the Mellon
Plan, the keystone of his achievements in the Treasury, was wiped out at one stroke in 1932, his services in behalf of the dominant classes in America had been nullified.

Such an estimation failed of the full truth. The Mellon Plan of taxation which he sponsored saved for the wealthy billions of dollars. Thus entrenched, the stronger were able to ride the more securely through the crisis, tightening their hold on the industrial life of the nation. If the Mellon Plan and the
wild speculative era it encouraged plunged millions of workers and farmers deeper into misery and wiped out a section of the middle class, it consolidated the power of the men at the top. Gulf Oil picking up choice bits of petroleum properties for a song in 1931-32 was merely part of that picture.

The wealthy also looked hopefully across the abyss of the collapse to better days when it would be necessary to return to "normalcy" in public finance. Once again the familiar arguments would be heard that excessive taxation was drying up the sources of industrial investment, preventing the full swing of business enterprise, blocking the chances for employment of tens of thousands in new factories. Then, they fondly hoped, Secretary Mellon's hard fight in the years 1921-26 would bear luscious fruit in a more rapid return to lower taxes for the higher brackets.

Although Mellon's main function in the Treasury was to lend the weight of the authority he had gained in finance and industry to the reduction of taxes on the upper claws, his admirers pointed to his other achievements in reducing the public debt, refunding a portion of it at lower interest rates, and settling the war debt question. The refunding operations however would hardly have taxed the ingenuity of any experienced banker, given the favorable money market existing at the time.

If the reduction of the public debt by $3,000,000,000 during his first ten years of office was a laudable achievement, what was to be said of the staggering deficit of nearly $4,000,000,000 accumulated in his last years? Nor could it be urged that Mellon's part in the reparations and war debt
settlements added to his stature. He applauded both the Dawes and Young Plans, which, after they served their transitory purpose, tumbled flat. He solemnly went through the hocus-pocus of binding three generations of Europeans to pay the United States $22,000,000,000 within sixty-two years.
European diplomats signed the settlements with tongues in cheek, but it was plain that Secretary Mellon regarded the farce seriously and looked upon debts incurred by the erstwhile Allies in a joint war against a common enemy in much the same light as a loan by Union Trust to a hard-pressed coal
company in his Pittsburgh bailiwick.

Even the Saturday Evening Post, whose plaudits of the Secretary had tested the limits of language in the halcyon days, conceded in 1932 that "no hasty or sweeping statement can be made as to how great a man Mr. Mellon is. . . . We may admit that Mr. Mellon was not necessarily the financial genius which he was once advertised to be by his loving admirers."

The eminent financier, for example, had an excellent opportunity as Secretary of the Treasury to straighten out the banking laws, and restore public confidence both in the banks and in the copybook maxims on thrift and saving so beloved of Thomas Mellon. Actually, during his term of office, 9,300 banks failed, against 2,900 in the years 1904-1920, and the entire banking structure collapsed in 1933.

Indeed, when an attempt was made to appraise his years in the Treasury, the motto of the French Bourbons, "After us the deluge," came to mind.

Once a system of economic enterprise based on the philosophy of rugged individualism and the practice of monopoly should begin functioning again, there was promise that the Mellon fortune, immensely fortified during the critical years, would again stride boldly forward. The Mellon corporations, with the passing of Thomas Mellon's sons, would be run by hired men in the interests of a motley group of descendants whose claim to a division of the imperial dividends was apparently to be justified only by the lucky accident of birth.

None showed the amazing executive ability of Andrew Mellon, nor even any consuming desire to manage the family's wealth. A nation was to pay tribute for the privilege of using aluminum, oil, coal's by-products, merely that a score of descendants of vigorous, thrifty old judge Mellon might enjoy more or less useful leisure, and that the unconsumable portion of the earnings might be reinvested to spread still further the ever-widening scope of the Mellons' millions.

Unless, indeed, the Deluge should descend on both the Mellons, and their millions.

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