Wednesday, August 27, 2014

What About Those Kreuger & Toll Gold Debentures?

Chapter 17 of Mellon's Millions by Harvey O'Conner (New York, NY: Blue Ribbon Books, 1933)

Exile in England

 CHARLEY DAWES was impatient with the unending formalities, the flunkeyism, the polite palaver of the Court of St. James'. Dukes and duchesses found his efforts at drollery not amusing. Out of his own pocket he spent thousands of dollars to hire, among others, leading Broadway comedians to spill liquor down the necks of the British nobility, and their only response was annoyance. Charley was fed up. He longed to end his exile, to be back in the rough fray of American politics and finance, to be talking business with the hog butchers of Chicago, the lamb butchers of Wall Street. He quit cold on January 8, 1932.

To the White House, his resignation was heaven-sent. At last a post was open that was not beneath the dignity of the Secretary of the Treasury. He was sticking tenaciously to the Treasury, Hoover discovered, in lieu of anything else to do. Return to Pittsburgh he would not. There was emptiness, a barren waste of idle steel mills, of dead machinery and of men who were better dead.

There had been hints and snubs sufficient to indicate that he was no longer needed in the Administration. But Pittsburgh training was not calculated to produce sensitivity. Or perhaps if he were embarrassing the President, the Secretary got some satisfaction from that negative achievement.

The delicate task of inducing Mellon to transfer the seat of his activities from the Exchequer to the London Embassy was entrusted to Dave Reed, whose affection for the Pittsburgh banker was balanced by his solicitude for the Administration, soon to face a trying Presidential election. He had a difficult job.

Mellon did not care to be budged from the acceptable routine or Washington, to be precipitated into the social whirl of diplomatic life in London. More important, he regarded Reed's suggestion as Hoover's capitulation before cheap and demagogic politicians. How despicable the man's attitude! When Mellon had faced far more serious attacks, the imperturbable Coolidge had ignored them, or risen to the occasion with a stinging message to Congress. But this President cowered before a Texarkana Congressman and an unstable California Senator.

There was nothing left but to accept the London post, Mellon could see. Otherwise he might be sacrificed on the Patman-Johnson altar. On February 2, 1932, Dave Reed was able to report success to the White House. Most important problems of unusual gravity awaited his coming to London, the Secretary had been told. Only a public servant with his acumen could grapple with those problems. He agreed. The White House lost not a moment. The announcement said:
"The critical situation facing all countries in their international relations, the manifold economic and other problems demanding wise solution in our national interests calls for experience and judgment of the highest order. The importance to our country of the sound determination of these world-wide difficulties needs no emphasis.

"I have decided therefore to call upon one of our wisest and most experienced public servants to accept a position which will enable him after many years of distinguished public service at home to render equal service to his country in the foreign field.

"I have asked Mr. Mellon to undertake the Ambassadorship to Great Britain. I am happy to say he has now expressed his willingness to serve."
The issue of the Secretary's acceptance had been so doubtful up to the last minute that the State Department was not given opportunity to inquire of the British Government if the appointment were acceptable. That however was a mere formality. The Secretary, wealthy and distinguished, soothingly conventional, was doubly welcome.

The impatient Mills was almost immediately vested with the Secretary's robes, marking the satisfaction of desires which had been poorly concealed since he announced himself for Hoover before the 1928 convention. The new Secretary, also wealthy estimates of his possessions ran up toward $100,000,000 --brought into the Treasury the open and unabashed Wall Street leadership from which Harding had shrunk in naming a Pittsburgh banker.

Whatever the mixed emotions of Pittsburghers might be, the Pittsburgh newspapers, loyal to the local Croesus, were indignant over the unceremonious dismissal of Mellon. The Sun-Telegraph's political editor wrote that "the effort of President Hoover to camouflage the split between the White House and Secretary of the Treasury A. W. Mellon has failed completely. Mr. Mellon's effort to cooperate in this political deception, his sense of party loyalty stronger than his personal feelings and disgust with the trend of affairs in Washington, has proved equally futile. Mr. Mellon accepted appointment as Ambassador to Great Britain as an alternative to a complete severance of his participation in public life and a return to his private business affairs in Pittsburgh. The episode," he concluded, "has created a tremendous stir in Pittsburgh among Mr. Mellon's associates in finance and will have widespread repercussions in Pennsylvania politics. It is positively known that many financial leaders here affiliated with the Mellon enterprises feel that the former Secretary has been shabbily treated by the President. They are highly resentful, and political sentiment in this group, never warm toward Mr. Hoover, has cooled perceptibly in the past two days."

The Washington correspondent for the Pittsburgh Press wrote of Mellon that "now there are few to do him homage. President Hoover also has concluded that Secretary Mellon should have retired sooner, because on the eve of his campaign for reelection Hoover finds another job for him. Hoover has left the impression that whereas Mellon was an asset to him four years ago, he will be a liability this year. Many in Washington feel today that Mellon's passing is a tragedy--a tragedy of a broken and disillusioned man."

The New York Times was polite. "The list of our Ministers and Ambassadors there [in London] is starred with brilliant names," that journal remarked. "It is difficult to think of Mr. Mellon as easily taking his place in that distinguished company. He is not a literary man like Lowell. He is not a speaker like Choate. He is not a great lawyer like Phelps. But, after all, he has a distinction of his own, a great reputation which he has honestly won ... "

"If Mr. Mellon," commented the Times' financial editor, "had suddenly decided in 1927, 1928 or 1929, to give up the portfolio of Secretary of the Treasury, the Stock Exchange would have been jarred to its foundations, it was remarked by persons who recalled the sharp reactions that were once produced by mere rumors that he might resign. The news . . . of his impending transfer to the Court of St. James's caused not even a ripple in the stock market--a fact that did not escape the attention of Wall Street. Obviously, it was pointed out, the market's sensibilities have been dulled and, furthermore, the idols of yesterday are no longer worshiped as in the halcyon days."

The former Secretary slipped quietly out of Washington to take a vacation in Georgia, leaving few behind to mourn, save perhaps Congressman Patman, who had been cheated of his quarry. The fiery Texan asserted that Mellon's transfer to London had "saved the Republican Party from a scandalous exposure that would have rocked the pillars of our Government." The appointment he regarded as a "presidential pardon." The Teapot Dome scandal was a "molehill compared with the Mellon-acquired Barco concession in Colombia." "Mr. Mellon," he summed up, "has violated more laws, caused more human suffering and illegally acquired more property to satisfy his personal greed than any other person on earth without fear of punishment and with the sanction and approval of three chief executives of a civilized nation." The nation paid scant attention to Patman and seemed glad to forget about the alleged scandals, without bothering to inquire into details.

The House judiciary committee took advantage of Mellon's confirmation to withdraw gracefully from the impeachment proceedings which Patman demanded. It was impossible to impeach a Secretary who had resigned, and idle to investigate him. Nevertheless for two heated hours the committee wrangled over an insurgent effort to insert in the resolution a statement that Mellon had held office illegally. The final vote was 17 to 4.

Senator Norris took a parting shot at his old political enemy. "Poor old Andy," he said. "Our Ambassadors, when you take their social activities away from them, are only stool pigeons. One of these bright page boys, taking away their social perquisites, could perform the duties equally as well as the greatest Secretary of the Treasury since Alexander Hamilton.
"I understand Ambassador Dawes left his knee-breeches over there in London. Picture Andy, on his diminutive pipe stems in Dawes' knee breeches in the presence of aristocracy. It does seem that the President has not treated Mr. Mellon with the respect due one of such long service."
The new ambassador was not without a quip, flecked with bitterness, when he was sworn in. "This isn't a marriage ceremony," he said, "it's a divorce." He accepted his new position with as much grace as his philosophic nature permitted. He was an old man now, a pawn in the hands of politicians, too
symbolic of might to be tossed aside, too well disciplined in upholding the established order to revolt, too old to reenter the hurly-burly of trade and finance in Pittsburgh, too disinterested in life to care to.

London and Paris speculated endlessly. Mellon's earlier statement that the British war debt to the United States should perhaps be scaled down in view of the decline of the pound had roused hopefulness. His intimate acquaintanceship with problems of international finance was another good point. His custom for many years before becoming Secretary of spending the summers in England had given him a sentimental attachment to the land, the political writers believed. They attached to him a vast power. As a multi-millionaire, he gave orders to the American politicians, his whim was law and his word could reduce or wipe out the debt.

Why, the man and his family were worth $1,600,000,000! A French paper cut the fortune into bricks of gold and found there were 160,000 bricks worth 1,000,000 francs each. Three thousand bricks would build a house, and the Mellon fortune in golden bricks would construct 52 such houses of gold.

But when the reporters clustered about the envoy in the Ambassador's room at 14 Prince's Gate, overlooking Grosvenor Gardens, they were disappointed if they expected the biggest story of the year--reduction in the debt to America--to break there. "They say, Mr. Mellon," ventured one, "that your appointment to London has a special significance in view of the European debt situation."

The Ambassador's deft reply was worthy of his position. "Who says this?" he asked blandly. The question died on the lips of its propounder.

While the populace in London gaped in awe at tales of the imperial fortune of the new Ambassador, the American press titillated the fancies of its readers with the consideration, from every angle, of the engrossing problem, would Mellon wear knee breeches? War debts faded into secondary importance. At first he was inclined to be good-natured about inquiries. Later, under the provocation of repeated questions, he became annoyed about the attention paid an "unimportant matter." Breeches won. Would the Embassy serve liquor? the curious American public next demanded to know. It would. The new envoy had never been ranked with the prohibitionists.

And the social question. Ailsa, now the 29-year-old Mrs. D. K. E. Bruce, once again shone in the bright lights of the social columns. The "Dollar Princess," herself presented first to the Court, in turn introduced 21 American women culled from a mass of hundreds. The Ambassador, on presenting his credentials to the King, was tendered the unusual honor of being invited to stay for luncheon at Windsor. Later there were dinners with the Prince of Wales and other dignitaries. Socially at least, the son of an Ulster immigrant could aspire no higher.

Andrew W. Mellon was not the "broken and disillusioned" old man he was pictured when he left Washington. The Mellon fiber was tougher than that; a graceless dismissal was disgusting but it did not break his spirit. As for disillusionment, the family made it a point to cherish no illusions, so there were none to be shattered.

The Ambassador's fall from the heights was well cushioned. He was not a vain or overly ambitious man. Praise and scorn were subject to the same discount in the hard Mellon philosophy. At the height of his prestige he had been able to jest at the Alexander Hamilton comparisons and now, shunted to one side by Hoover, he could smile bitterly at the unseemly haste in which he had been pitched into the Court of St. James'. A man of Hoover's caliber could not wound the financier deeply; he had only contempt for the fretting and petulant figure who paced his study in the White House, wrestling with ogres of panic.

The tragedy of Andrew Mellon ran deeper than that. It was the tragedy of a man who had come to the end of his world, and now looked forth into a void space which harbored no warmth for an old man's declining years, no assurance that the "wen doing" of his grandparents would march on to new, victories and high triumphs. All about him lay the wreckage caused by the impact of modern technique upon ancient principles and prejudices. The one an irresistible force, the other an immovable body: in the crash both had been pitiably shattered. The triumphs of science in enriching the world counted for naught to starving millions who benefited not at all from the embarrassing abundance of food and goods; the stem old principles of rugged individualism, free competition, dog-eat-dog, were palpably anachronistic but the owners of machinery could devise no other to suit the facts of private ownership.

The world seemed crazily out of joint. The Mellon banks enjoined the virtue of thrift, while Secretary Mellon urged free spending to set the wheels going again. In one breath, he counseled that hard work would pull the nation through, and then closed his mills and factories so that none could work. Wages were to be maintained, he advised, but costs of production in Mellon industries must be cut. Government must get out of business, but his Government lent billions to banks and railroads. There must be stringent federal economy, he insisted, but it was found necessary to appropriate millions to keep people from rioting for bread and shaking the pillars of the social order.

The Mellon philosophy tottered. In its cherished individualism, every money-eager man was to have equality of opportunity in amassing wealth; but an ambitious Haskell or Uihlein was beaten or bribed from breaking Aluminum's monopoly. The Government was to keep its hands strictly out of business; but it must aid oil concessionaires in Mexico, Venezuela, Colombia and Iraq, even to the point of armed intervention. Honesty is the best policy, Judge Mellon had said. So his son had sent Union Trust tellers to prison for defalcations, while he himself maintained intimate relations with the Magees, the Flinns, the Quays and Penroses. Prudent investment was the very bulwark of independence; but hundreds of customers of Union Trust and Mellon National Bank bought Kreuger & Toll debentures at the solicitation of those institutions.

     Nowhere was the break-up of the old order of values more, painfully evident than in international relations. Tariffs were the keystone of Pennsylvania's industrial supremacy; now they were held partly responsible for the slow paralysis which gripped international trade. A true son of judge Mellon, the new Ambassador was insistent that intergovernmental war debts must be paid, in part at least. Yet these very payments were blamed for the stagnation of world commerce, and finally they bogged down under the contradictions they inspired. And if Governments could practically repudiate debts owed each other, why could not individuals adopt the same easy code of morals? It was a mortal blow at the basis of the Mellon fortune.

The new Ambassador had plenty of opportunity to study these contradictions in his system. He had wrestled with the vexatious problem of war debts before, as head of the War Debts Commission. His assistant, Garrard Winston, and a corps of Treasury and State Department officials had worked out the terms for debt settlements with Britain, France, Italy and the smaller debtors. After they had finished their work Mellon found himself under two fires. On one side the cancellationists, international bankers, traders and academicians echoed the European cry of Uncle Shylock. On the other the Hearst newspapers and Senators Hiram Johnson and James A. Reed of Missouri asserted that American taxpayers were being burdened to pay debts the clever Europeans had evaded.

It all depended on how you calculated the rate of interest. At 5 per cent, the amount agreed upon at the time the loans were made to Europe, 60 per cent of the French war debt had been canceled; 80 per cent of the Italian; and 30 per cent of the British. Figured at 4.25 per cent, the amount it cost the United States Government to raise the money through Liberty Bond issues, the French cancellation was 53 per cent; the Italian 75 per cent; the British 20 per cent. But at 3 per cent, Mellon's estimate of interest rates during the next 62 years of debt collection, Italian cancellation covered but 36 per cent of her debt; French 35 per cent; and Britain was actually paying 4.4 per cent more than her actual borrowings, with interest.

In answer to the cancellationists, Mellon said that the pre-armistice debts of France, Italy and Belgium had virtually been wiped out. He had little patience with the argument that the loans were really contributions to a common cause in the emergency of war. It was clearly stated in the bond that they were to be repaid, he pointed out. If it were true that American money had been used instead of American blood, at least, he urged, the post-armistice borrowings of the Allies must be repaid. As for the allegation that Uncle Sam was rich and Europe was poor, he retorted that a creditor is never popular, but a debtor without access to credit is in an unenviable position. He sympathized with Europe but felt that "recognition of their external obligations, and undertaking bravely to meet them within their capacity, is a moral force of great service to permanent prosperity of the world."

The controversies in which Secretary Mellon had been embroiled six years earlier in regard to the British war debt settlement gave some piquancy to his appointment as Ambassador in 1932. He had stated then that the British post-armistice loans were largely to bolster the Indian rupee and to meet obligations in the United States to buy food. Winston Churchill and Philip Snowden, alternate guardians of the British Exchequer, arose to give the lie direct. Every penny borrowed was for war purposes and the U. S. Treasury had so certified, retorted Churchill. Snowden assailed the "richest country in the world which entered the war last," and declared it would be paid for the whole of the war, even at the cost of mulcting $320,000,000 a year from Europe. Mellon, arriving in Cherbourg a bit later, said that his statement on the British debt had been for domestic consumption only.

Professors at Columbia and Princeton entered the lists, protesting that world trade and world recovery were being imperiled by war debts. Mellon answered their strictures about loss of transoceanic good will with a statement that "affection is not a purchasable commodity, neither in international relations any more than in private life." Of that he was well qualified to speak. He told the professors that England would receive more in debt payments from her Allies than she would pay the United States. Chancellor Churchill dispatched a denial to Secretary Kellogg. Kellogg replied that the new  controversy was purely domestic. The professors found Mellon a difficult antagonist; if his statements left them confused between conflicting interpretations that America had been generous in cancellation, or had stuck doggedly to the principle of recognition of debts, he had no further explanation to offer. The Times was obliged to confess that Mellon had tried to discourage discussion of the war debt issue, but had actually provoked it by confusing figures and shifting grounds. In view of the unfortunate echoes from London every time he spoke, the State Department apparently counseled that silence was golden.

The golden silence continued when he crossed the ocean as envoy. It was believed in the capital that the Administration had sent up a trial balloon when the Washington Post announced, in an inspired story, that Ambassador Mellon would find adjustment of the war debt question his most immediate and pressing problem. The response in Congress was so sharp that the President, facing a desperate campaign for reelection, decided not to broach the subject at all, even going to the length of barring the war debts question from the agenda of an international economic conference, called to set the shattered world on the road to recovery.

Tenacious in his convictions, the new Ambassador would not admit, before the Pilgrims Society of Great Britain, that his system of production was doomed. He maintained his faith in "capitalism, or whatever name may be applied to the system." We have had depressions before and have always recovered, to press on toward new heights, he said. Yet be seemed to contradict himself by asserting that the crisis beginning in 1929 was different from preceding smash-ups.

"Part of our difficulty," he told the Anglo-Americans, "arises because we look on the present industrial economic crisis as merely a sporadic illness of the body politic due to conditions in some particular country or section of the world which can be cured by application of some magic formula. Greater difficulty arises because we who are left over from the last century continue to look on the last decade as merely a prolongation of all that has gone before. We insist upon trying to make life flow in the same channels as before the war whereas the years since the war ended are in reality the beginning of a new era, not the end of the old."

It was an intriguing idea, but unfortunately the Ambassador did not expand its significance or point the path to the new era. He reverted to the explanation that industrial crises were caused by war, that deflation must open the way for recovery. "We still have much to learn," be conceded, "in the maintenance of a stabler equilibrium in production and consumption and the better distribution of labor so we shall not always have the painful spectacle of men willing to work but unable to exchange their services for the food and clothing they need which the world now produces in such abundance." But the financial-industrial genius of Union Trust, Aluminum, Gulf Oil and Standard Steel Car offered no indication that any course but reliance on immutable economic laws would help any. "Just now," he concluded, "all of us are hoping for signs of improving conditions as evidence that the world will soon be on the mend."

The events following his address to the Pilgrims did not suggest that Mellon's hopes were securely based. Bank failures and insolvencies, receiverships and financial scandals followed each other in the United States with monotonous regularity. European correspondents in New York, gloating at the strange course of events which had plunged the one-time Eldorado into an abyss of despair, picked up the most tempting morsels of news and cabled at length. In Washington, their brothers were able to tell a story of a deficit that daily mounted by millions, of an unhappy Treasury Department unable to forecast from one week to the next what any given tax would bring in, of a Congress which raced in circles in an effort to pin the increased tax burdens on the most desirable victim, from the political viewpoint. These malicious cables, had they merely tended to amuse the victims of "Uncle Shylock," would have caused no concern in Washington or Wall Street. Unfortunately, they, and the events they portrayed, shook the confidence of Europe in America, caused American securities to be dumped on the market, caused gold to flow out of Wall Street, and most alarming of all, tended to undermine that majestic symbol of solidity--the United States dollar.

Hoover, hardly less panicky than the business classes he served, appealed to the Ambassador to reassure the City. He responded ably at a luncheon given May 6, 1932, in his honor by the Lord Mayor at the Mansion House. His hundred auditors represented the top ranks of British finance and industry. "Whenever I come to the City," he told them, "and find myself once more in the congenial, familiar surroundings of the business world, my new, unaccustomed role of Ambassador seems to leave me and, reverting to type, I think and talk again as a business man with the outlook and anxieties which weigh so heavily just now on all those charged with carrying forward the business of the world. And it is as a former business man and banker, therefore, that I would like to say a word here, so close to the heart of the City, about conditions in my own country and the progress of events there in recent months."

Reporters, he reminded his audience, gave highlights on foreign affairs that were apt to mislead the unwary. Britain, if the cables were to be credited, had tottered on the brink in the autumn of 1931 when it went off gold and faced the need for a National Government. He, though, never doubted England's capacity. just so in America. The commotion in Congress did not betray an unwillingness to balance the budget, but merely an earnest inspection of the various ways to do it. If many banks were failing, that was confined to "smaller, weaker institutions." Organized labor, the farmers and every section of the populace, he added, had accepted wage cuts.

"A great patriotic American," he concluded, "who lived much in England and loved this country, once said to a compatriot, 'Never sell America short.' I would reiterate now, what Mr. Morgan said then, and would apply it to England no less than to my own country. None of us has any means of knowing when and how we shall emerge from the valley of depression in which the world is now traveling. But I do know that, as in the past, the day will come when we shall find ourselves on a more solid economic foundation and the onward march of progress will be resumed."

Despite the Times' plaudits for "this exhibition of cheerful optimism over our institutions," matters mended not at all, and on May 31 the Ambassador was obliged to make another effort to calm European fears about America going off the gold standard. Before the English-speaking Union he asked Britain to remember that "America is a young country in outlook as well as in years. Many of our faults are the faults of youth, but we have also the energy and under ordinary circumstances the boundless optimism that goes with youth, and a belief in our capacity to achieve that which we set out to do. Today, like other nations, America is bewildered in the face of forces which have overwhelmed the world. We have found that the machine civilization which has been evolved in recent years cannot be made to function with ever-increasing speed, and that new inventions and over-production have necessitated a period of slowing down until the world adjusts itself to the conditions that have arisen since the war.

"At such a time it is well to remind ourselves that the principles upon which our English-speaking civilization was founded have not changed, and that, being true to those principles, we should weather this storm as we have weathered our other storms before."

Such words apparently offered little palpable evidence to indicate that the men who owned the machinery which had broken down knew how to repair the damage or set the wheels in motion. Nevertheless they had a comforting, sedative effect on those who listened and read, and so perhaps served an humble purpose. Said one English editor, after listening intently: "It was like trying to catch the whisperings of a ghost, and when you caught what he had said, he had said nothing particular." Commented another: "In an almost inaudible voice he carefully read platitudes to the assembled company."

The crisis deepened.

The eminence of his position and the might of his millions raised to a higher tragic level the spare shrunken form of Andrew Mellon as he wandered through the economic blizzard hugging to his breast his cherished beliefs in the best of all possible social systems. In much the same words he used before the Pilgrims (for Mellon believed in economizing on speeches, with the result that favorite snatches of his composition were heard over and over) he told the International Chamber of Commerce of his faith.

"I do not believe," he said, "in any quick or spectacular remedies for the ills from which the world is suffering, nor do I share the belief that there is anything fundamentally wrong with the social system under which we have achieved, in this and other industrialized countries, a degree of economic well-being unprecedented in the history of the world. Capitalism, or whatever name may be applied to the system which has been evolved in adapting individual initiative to the machine age, has its defects, of course, and may be, as has been suggested, still in its infancy, but there is no disputing the fact that it has produced an abundance of food and clothing and all the necessities of life, so that our basic problem is not one involving a basic inability to produce goods needed to satisfy human wants. We still have much to learn in the maintenance of production on an even keel and the achievement of a process of orderly and broad distribution of products and services. These defects in the present system we shall overcome as we find some way to achieve greater equilibrium between production and consumption, and a better distribution of labor, so that we shall not always have the painful spectacle of men willing to work but unable to find a market for the only commodity which they can exchange for food and clothing which they need and which the world can produce in such abundance.

"We shall succeed in time in working out our economic salvation in accordance with the special needs of our own people, and the social and industrial system which has been built up. But it will be done in the future as in the past by individual initiative, and not by the surrendering of business and industry to the Government or to any board or group of men temporarily entrusted with overhead authority. Conditions today are neither so critical nor so unprecedented as to justify a lack of faith in our capacity for dealing with them in our accustomed way." The assembled international bankers applauded appreciatively.

"Our present experience," he continued, "indicates that the machine cannot be made to function at full speed at all times. Some day, perhaps, we shall have mastered our economic machine so as to have it under better control." In conclusion he confessed that "I have no means of knowing when or how we shall emerge from the valley in which we are now traveling." But he was sure that eventually "the onward march would be resumed." Undaunted by the avalanche of disaster that gathered force in the early. months of 1933, the Ambassador, in his farewell address to the Pilgrims on February 21 reiterated his confidence in the scheme of things. "The economic system in America," he gravely assured his listeners, "is in no danger of breaking down, but on the contrary has such inherent strength that it continues to function efficiently in the face of the greatest maladjustment the world has ever seen. There is no lack of production and the processes of distribution continue to operate as usual, notwithstanding unemployment and reduced buying power." It was an extraordinary statement, in face of the want of 50,000,000 Americans, and the imminent collapse of the banking structure, but the Mellons had faced economic crises in America for more than a hundred years and had come forth from each greatly refreshed in fortune and confidence.

It cannot be said that the Secretary-Ambassador enlightened his listeners by presenting new ideas to them or indeed any concepts not hallowed by time. Adam Smith's economics and Herbert Spencer's sociology were good enough for Thomas Mellon and they were good enough for his son. He dabbled little in the fields of pure speculation that had occupied his father's active mind in his declining years. Being a practical man, he was interested not in theories but in deeds. Confronted in 1924 by "political quackery" in his opponents' taxation proposals, he called to mind, in rebuttal, Italy's experiences. That country, he warned in his main speech of the 1924 campaign, had been threatened with the same evils after the war. Socialism became a power. There were strikes. There was unemployment. Workers seized factories. "A strong hand has since come in to reestablish the Italian Government upon sound principles and Government by party and not by bargaining," he said. "Steps have been taken to abandon Government operation of the railroads and to cut taxes, and the budget this year will be practically balanced." Two years later he had not changed his opinion. "Mussolini," he said, "is making a new nation out of Italy. He is one of the world's most vigorous personalities. Many of his measures are unique indeed, but they are effective."

Confronted by that other experiment in new forms of government, Soviet Russia, Mellon lost his patience. His opinion of Russia, unlike that of Italy, was not based on personal observation. Warning of the evils of taxation in the higher brackets, he declared that "in Russia the experiment [of Socialism] has brought destruction, final and complete. There is no trade, no industry, no agriculture, no religion--a return to barbarism," he explained. "The millennium was promised to the Russian peasant; he has received tyranny, starvation and death." Curiously enough, within a few years of this observation, his Koppers Company was supervising--in the land of final and complete destruction--the erection of the largest coke and gas plant in all Europe; his Massachusetts utilities were accused in Congress of importing Soviet coal; his Canadian aluminum company was bartering aluminum wire for Soviet oil; and he himself was obliged as Secretary to embargo the importation of Soviet matches as likely to injure the American industry.

Bolshevism was no danger in Germany, he felt sure, because it was "incompatible with the German temperament." The doles in England, he reported, militated against the unemployed voluntarily going to work. Worse, it had played a part in strikes, he had been told, because strikers receiving the dole found that a more agreeable way of making a living than working honestly.

If working men would save, a large part of the so-called labor problem would disappear, Mellon believed. By thrift they could accumulate enough to climb out of the mills and factories and assure themselves a modest living and a competence against indigence in old age. Congratulating a trade union bank on its second anniversary--it went under in 1931--he wrote: "Institutions such as the Federation Bank of New York bear reassuring testimony that the average man and woman is learning the necessity of saving and accumulating capital if they would get the comforts of life for themselves and their families."

He expanded these ideas in an address before the National Electric Light Association. "Both labor and capital," Mellon asserted, "are beginning to realize that they have common interests in building up great industries which are sources of wealth for all, and that in America with the opportunities it offers and the constant transition from poverty to wealth, there is no Place for class antagonisms or class warfare. Labor in this country, unlike labor in some of the European countries, long ago learned that no man can lift himself by his bootstraps, that industry cannot pay high wages even under the threats of strikes unless that industry is prosperous. Labor as well as capital must think in constant terms and must act in harmony with and not in antagonism to those great economic laws which work so inexorably whether we like them or not. Labor in America is not only maintaining a high standard of living but it is also banking a part of its wages, as evidenced by the steady growth of savings deposits. It is organizing  its own banks and buying shares in corporations in which it works, and in this way workers are acquiring a real partnership in the business in which they are employed."

While Mellon's servants packed up the choice bits of furniture and art treasures which were to grace the Embassy building in London given the United States Government by J. Pierpont Morgan, his successor in the Treasury wrestled with fiscal problems still unsolved. The Greatest Secretary since Hamilton had achieved another distinction, that of leaving the greatest peace time deficit in the history of the country. Ogden Mills estimated it at nearly $2,500,000,000 for 1931-32, and for 1932-33 at somewhat under $2,000,000,000. The deficit for the year ending June -31, 1931, was $902,000,000 against Mellon's estimate of a $30,000,000 surplus.

What followed now was the bitterest blow of all. Mellon had not been away from the Treasury four months when all the results of his ten-year struggle for easier burdens on wealth had been wiped out. In one stroke, Congress, searching desperately to balance the budget, jerked up rates to the levels which existed when the Pittsburgh banker first went to Washington. Gone was the 20 per cent maximum surtax on incomes of $100,000 and more for which he had fought with all his prestige and resourcefulness from 1921 to 1926. In its place was imposed a 55 per cent levy on incomes above $1,000,000. The inheritance tax was lifted from 25 to 45 per cent. The corporation tax, which had been pared down to 12 per cent, went up to 13.75 per cent and an added impost was piled on consolidated returns, to make it 14.5 per cent.

The bare millionaire with an income of $50,000 a year now would pay $8,600 a year, against the Mellon Plan levy of $4,588,75. The plutocrat with his $1,000,000 yearly income, would Pay $571,100 to the Treasury, against a former $240,768.75

Nor could a man give away his fortune, scatheless of Government tax, as in the halcyon days of Mellon rule. The Government now insisted on $140,000 from a $1,000,000 gift and $3,333,333 of a $10,000,000 gift.

The immediate exactions of the law did not worry the financier so much as its implications. Fortunately the Mellons would not have to pay much of a tax in these hard times. But there was always a lag in Congressional action; once the country emerged from the "valley," it might take another few years' fight by another sturdy champion of fiscal normalcy to restore the easier rates.

By December, 1931, Mellon saw the inevitability of the tax rise and agreed that the surtax maximum would have to go up to 40 per cent, and the corporation tax to 12.5 per cent. After he quit office however it became apparent that even the doubling of the surtax was not enough. In common with other Administration leaders, Mellon favored the sales tax rather than increased income taxes. The superiority of the sales tax was immediately apparent: people were still buying food and clothing, and some could still afford the necessary luxuries of the machine age. Such a tax was certain to return substantial income. Its psychological effects would be even better. People would realize that they were paying directly for Governmental expenditures and would demand a drastic curtailment in general social expenditures. That would curb extravagance and a too open-handed dispensing of federal charity which hither-to the populace supposed was coming from the pockets of the rich. It was uncertain however whether such a general tax would react favorably upon the electorate in the coming 1932 Presidential election, and Mellon made no overt recommendation.

While the Mellon Plan of taxation was being discarded overnight, the Mellon political machine creaked on, rebuffed by Pittsburgh voters but still maintaining control of the Pennsylvania legislature by virtue of alliance with Joe Grundy's Manufacturers Association. The defeat late in 1931 of Joe Armstrong and James J. Coyne, the Mellon candidates for county commissioner, plumbed the depths of the Mellons' fall from popular favor in their own home city. A few months later Mayor Charley Kline, Mellon henchman, was convicted of graft and saved from a six-month sentence in prison only by grace of the court, which heeded physicians' counsel. He was ousted from office and fined $5,000.

The Mellon machine made a quick comeback. Coyne, a state senator, acknowledged leader of the Mellon forces in western Pennsylvania, dissolved the Kline apparatus and took charge of the city. In the state legislative session called in the desperate winter of 1932-33, the Mellon-Grundy machine scored brilliant victories in defeating old age pension, minimum wage and child labor bills demanded by widespread public agitation. When Roosevelt's election roused the Pittsburgh Democratic party from its somnolence, it was discovered that the local Democratic leader and the engineer of the Mellon machine were political bedfellows. Postmaster-General Farley, advising his cohorts in the Iron City, exhorted them to assert their independence of entangling alliances. The cynical, however, maintained confidence in the ability of the Mellon machine to cope with the resurrected local opposition party through adroit manipulation of its leaders, long content with crumbs from the machine's generous table.

Among the commonalty of Pittsburgh, the Mellon name had never excited that glow of local pride which an outsider might have expected. Perhaps, as the Secretary remarked in the field of international affairs, a creditor is never popular; certainly in the course of sixty years a family of money lenders can arouse its fun share of distrust and animosity in a city dependent upon its local dei Medici for ready cash.

A variety of reasons conspired to raise the mob against its magnificos. Perhaps the failure of the Bank of Pittsburgh aroused the liveliest resentment, uniting those of high and low degree, outside the Mellon hierarchy, into a solid ring of bitter criticism against the family.

The Bank of Pittsburgh was the pride of the city's better classes, a token of Pittsburgh's solidity, a tie that bound the great industrial center at the head of the Ohio with its early days when it was little more than a trading post on the western frontier. Established in 1810 it was the oldest bank west of the Alleghenies. The building which it occupied in 1831 was the first bank building to be erected in the United States outside New York and Philadelphia. In a glow of patriotic pride, the Pittsburgh Chamber of Commerce in 1931 asserted that "it is the rare and most enviable distinction of the Bank of Pittsburgh that among other banks of the country, it is one of the very few which never suspended specie payments. In the devastation of the panics of 1837 and 18574 it not only excited astonishment of banks all over the country by maintaining regular dividends, but met every obligation with dollar for dollar in coin." When T. Mellon & Sons suspended payments in 1873, the Bank of Pittsburgh was doing business as usual.

Its president in 1931 was Harrison Nesbit. By some he was considered an aggressive banker who was pushing the Mellons hard by his liberal credit policy. Others held him to be a plunger. In any event the catastrophes of 1931, complicated by boom time realty purchases in downtown Pittsburgh, shoved his bank into an insolvent position.

The shoguns of finance in the Iron City, the Mellons and the Hillmans, considered the plight of their city's oldest bank. It was unthinkable that it should be allowed to stagger to ruin. The collapse of the Bank of Pittsburgh would bring crashing down about it a score of smaller banks which deposited with it. Examiners for the two banking chains surveyed the institution's assets and submitted offers for its consolidation with theirs. The Hillman interests finally withdrew when it seemed that the Mellons were the more eager.

Richard B. Mellon, W. L. Mellon and H. C. McEldowney conducted the negotiations. True, there would be some loss involved, but the good will of the many thousands of depositors in the Bank of Pittsburgh and the dozen or more little banks which clustered about it was a tangible thing, to be appraised in dollars and cents and in the Mellon family's prestige. An agreement was made to protect the insolvent bank's depositors within the shelter of the Mellon financial structure. Only A. W. Mellon's approval was needed now to complete the deal.

The Secretary turned thumbs down. The bank was not a good investment. And anyway, its depositors would have to turn to the Mellon National Bank. "We'll get their money anyway," was a paraphrase of the Secretary's logic.

The Bank of Pittsburgh was allowed to fail. Within a month a score of smaller banks closed their doors. Tens of thousands of Pittsburghers, most of them workers and small business people, found their savings and reserve funds tied up in the bitterest winter in the city's memory.

In one regard Andrew Mellon was right. The Mellon National Bank had to hire extra clerks and open extra windows to take care of new accounts. Terror-stricken people took their savings out of still solvent banks to entrust them with the institution whose proprietor was Secretary of the Treasury.

Fury swept through the ranks of Pittsburgh business and industrial leaders. President Crawford of the McKeesport Tinplate Company, a few days after the failure of the Bank of Pittsburgh, switched his company's huge account from the Mellons to the Hillmans, and others followed. When the bank statements were filed at the end of 1931, it was found that the Mellon National Bank's deposits -- despite the influx of small accounts -- had dropped from $181,000,000 to $153,000,000. On the other hand, the Hillmans' First National Bank had held its deposits practically intact in that trying period.

Opposition bankers, finding the Mellon charm broken, became openly critical of the workings of the National Credit Corporation in Pittsburgh. President Chaplin of the Colonial Trust Company, in the Hillman orbit, spoke bitterly of the Mellon control of the federal agency which had been erected hastily by Hoover and the Treasury to save certain banks. A. E. Braun, president of the Farmers Deposit National Bank, generally regarded as a Mellon bank, was director for the Pittsburgh area, and with two Mellon bankers comprised a majority on the board of five members. Pittsburgh banks had subscribed $3,300,000 to the National Credit Corporation, only to see the Mellon-controlled board send much of it to the Pacific Coast while banks languished and expired at home. President Chaplin was fearful that the new Reconstruction Finance Corporation would work no better in the Pittsburgh area if the ruthlessly deflationary Mellon policy were to be followed. In the winter of 1932 Pittsburgh depositors suffered a second major shock when the Diamond and the Monongahela, old-established banks, went under.

Whatever Richard B. Mellon may have thought of the wisdom of his brother's course in the Bank of Pittsburgh debacle, it was safe to assume that the Secretary himself was unperturbed, as usual. The weak and the failures would always hate the strong and the successful. In trying times like these each man and each institution must stand on its own legs. The strong owed little to the weak in such an emergency; indeed it was the result of immutable economic laws that the strong became stronger after such cataclysms.

When Union Trust in 1929 joined the banking syndicate which sold to American investors $50,000,000 in Kreuger & Toll debentures, it added no luster to the name of the most distinguished financier of his time. Old judge Mellon, had he known that his sons' bank was peddling a pig in a poke to trusting investors, would most certainly have marched out of his grave to give them a lesson in a banker's responsibility to his clients.

Times had changed though since judge Mellon confessed that his inability to meet his obligations in 1873 was the most humiliating experience in his life. So far as the public knew, neither Andrew Mellon nor his brother felt the slightest compunction about Union Trust having sold over its counter at 98 debentures which later were quoted at 1/32 on the New York Stock Exchange. In any event Union Trust did not bother to apologize to investors for its carelessness in helping Ivar Kreuger swindle American investors out of $250,000,000.

The banking syndicate which passed off the so-called Secured Gold Debentures of Kreuger & Toll lacked nothing in reputability. Its members were Lee, Higginson & Company, Guaranty Company, National City Company, Brown Brothers & Company, Dillon, Read & Company and Union Trust Company of Pittsburgh. Securities worth $60,000,000 were pledged for the loan. It was provided however that other securities could be substituted. It was astonishing that financial gentlemen of such justly high rating as the partners of Lee, Higginson and the proprietors of Union Trust, together with their legal advisers, could have permitted such an extraordinary choice of eligible substitute securities. Even the German Forced Loan of 1922--worth $5 on the million--was acceptable. Kreuger, hard-pressed, took advantage of this feature and substituted $22,000,000 in Jugoslav and $23,848,000 in Hungarian Cooperative Society issues, along with similar treasures, for the original solid Belgian, French and Prussian securities.

At the bottom of the advertisement in the Pittsburgh newspapers inviting investors to share in Union Trust's offering of these precious debentures appeared, in small type, the following words: "The statements contained in this advertisement while not guaranteed, are based upon information and advice which we believe accurate and reliable."

After Ivar Kreuger turned his pistol on himself, it was found that very few of his statements were either accurate or reliable. The hard-headed American bankers who passed his securities along to the investing public had never bothered to inquire. Their gullibility was amazing. Kreuger had told them that his Swedish bank would resent foreign accountants prying into its books. The American bankers agreed that such inquisitiveness would be sheer impertinence.

Guardians of the people's faith in investment bankers were properly shocked. Bertie C. Forbes, financial columnist for the Hearst papers, wrote: "Any crook who issues spurious money is sent to jail for a long term of years. But any Tom, Dick or Harry can issue spurious bonds or stocks without fear of punishment. . . . They do these things better in Britain. There security buyers are protected by law. There the issuers of prospectuses must swear that every fact and figure is strictly true. If events prove that any factor figure was not true, the offenders are slapped into prison."

Forbes was not specific, and no one ventured to suggest that the Mellons be held personally responsible for their small type assurances to investors. Indeed had it not been specifically stated that their information about Kreuger & Toll and its debentures was "not guaranteed"?

Union Trust, in its own investments, was more prudent. When in conjunction with National City, Bankers Trust and Continental Illinois, it lent $4,000,000 to another Kreuger creation, the International Match Company, it very wisely insisted on cold security of 350,000 shares of Diamond Match Company stock, for which nothing else could be substituted. When International Match was thrown into receivership, Union Trust and its associates proceeded to sell the pledged stock in satisfaction of their loan. It was noted, too, that when the list of principal holders of Kreuger & Toll debentures was made public, the name of Union Trust was absent. It was a tribute to the business judgment of the Mellons that their bank declined to share in the feast which it spread for Pittsburgh investors.

Apparently it required no superhuman penetration to ascertain the real status of Ivar Kreuger's ventures. As far back as 1929 Maehler's Bank in Amsterdam had been requested to lend the match king 20,000,000 kroner. The Dutch bankers investigated, turned thumbs down, and quietly disposed of whatever Kreuger holdings they already had. In America however the billion-dollar promoter hobnobbed with the elite of Wall Street and was the honored guest of Herbert Hoover until within a few weeks of his death.

The possibility that Union Trust and its fellow syndicate members might have unpleasantness ahead was seen when Bainbridge Colby and Samuel Untermyer formed an independent protective committee for Kreuger & Toll debentures holders. "Our Counsel," they said, "advise that if Kreuger & Toll debentures were purchased in reliance upon material representations which on investigation are found to have been false, a purchaser on discovering the falsity thereof may rescind or cancel his purchase and recover back the purchase price paid by him." According to judicial decisions, it was not even necessary to prove that the bankers knew their representations to be false when they made them. The simple fact that the goods were not as represented was held sufficient to void the contract. Such an action was begun by an International Match debenture holder against Lee, Higginson & Company and Guaranty Company in New York.

Kreuger & Toll debentures were merely one of a list of choice offerings laid before the Pittsburgh investors by the Mellon banks. There was also stock in the Alleghany Corporation, a Morgan tidbit, sold at 24 and quoted three years later at .375. Or Lone Star Gas, sold at 98.75, quoted at 7.625.

Not even the securities of Mellon corporations, in which the Pittsburgh banks specialized, escaped the deflation. Those who bought Aluminum stock in 1925 at 97.5 saw its market value shrink to 22 in 1932. Koppers Gas & Coke issues, sold at 96, withered to half that market value. Solvay American Investors Corporation declined from 100 its sales price, to nearly half. The 1929 issue of $20,000,000 in Pittsburgh Coal bonds, sold at 100, was quoted in 1932 at 68.

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