Andrew Mellon

Early life

Mellon was born in Pennsylvania on March 24, 1855. His name is listed on the 1860 Census as "William A. Mellon." His father was Thomas Mellon, a banker and judge who was a Scots-Irish immigrant from County Tyrone, Ireland; his mother was Sarah Jane Negley Mellon. He had three older brothers, Thomas A., James R. and Samuel, and he also had a younger brother named Richard B. Mellon. He was educated at the Western University of Pennsylvania (now the University of Pittsburgh) and left before graduating.

Business career

Mellon demonstrated financial ability early. In 1872 his father set him up in a lumber and coal business, which he soon turned into a profitable enterprise. He joined his father's banking firm, T. Mellon & Sons, in 1880 and two years later had ownership of the bank transferred to him. In 1889, Mellon helped organize the Union Trust Company and Union Savings Bank of Pittsburgh. He also branched into industrial activities: oil, steel, shipbuilding, and construction.

Areas where Mellon's backing created giant enterprises included aluminum, industrial abrasives ("carborundum"), and coke. Mellon financed Charles Martin Hall, whose refinery grew into the Aluminum Company of America (Alcoa). He became the partner of Edward Goodrich Acheson in manufacturing silicon carbide, a revolutionary abrasive, in the Carborundum Company. He created an entire industry through his help to Heinrich Koppers, inventor of coke ovens which transformed industrial waste into usable products such as coal-gas, coal-tar, and sulfur. He also became an early investor in the New York Shipbuilding Corporation.

Mellon was one of the wealthiest people in the United States, the third-highest income-tax payer in the mid-1920s, behind John D. Rockefeller and Henry Ford. While he served as Secretary of the U.S. Treasury Department his wealth peaked at around $300–$400 million in 1929–1930.

Mellon was a member of the South Fork Fishing and Hunting Club (whose earthen dam failed in May, 1889, causing the Johnstown Flood), and he belonged to the Duquesne Club in Pittsburgh. Along with his closest friends Henry Clay Frick and Philander Knox (also South Fork Fishing and Hunting Club members), Mellon served as a director of the Pittsburgh National Bank of Commerce.

Old Overholt whiskey

Mellon also was one-third owner with Frick and one Charles W. Mauck in the Old Overholt whiskey distillery in West Overton, Pennsylvania. At the time, Old Overholt was one of the largest and most respected whiskey producers in the country. In 1907, as prohibition became more popular across the country, Frick and Mellon removed their names from the distilling license, although they retained ownership in the company. It is believed that Mellon's connections in the Treasury Department are what allowed the company to secure a medicinal permit during Prohibition. This permit allowed Overholt to sell existing whiskey stocks to druggists for medicinal use.

When Frick died in December 1919, he left his share to Mellon. In 1925, under pressure from prohibitionists, Mellon sold his share of the company to a New York grocer.

Secretary of the Treasury

Andrew Mellon was appointed Secretary of the Treasury by new President Warren G. Harding in 1921. He served for 10 years and 11 months; the third-longest tenure of a Secretary of the Treasury. His service continued through the Coolidge and Hoover administrations. Along with Secretary of Agriculture James Wilson and Secretary of Labor James J. Davis, he is one of only three Cabinet members to serve in the same post under three consecutive Presidents.

Harding, in his inaugural address on March 4, 1921, called for a prompt and thorough revision of the tax system, an emergency tariff act, readjustment of war taxes, and creation of a federal budget system. These were policies Mellon wholeheartedly subscribed to, and his long experience as a banker qualified him to set about implementing these programs immediately. As a conservative Republican and a financier, Mellon was irritated by the manner in which the government's budget was maintained, with expenses due now and rising rapidly, with the failure of income or revenues to keep pace with those expense increases, and with the lack of savings.

In 1926 Mellon was involved in drafting the Mellon-Berenger Agreement to set the amount of French debts to the United States arising from loans during World War I and define the repayment schedule. The agreement was named after him and the French Ambassador Henry Bérenger who signed the agreement in April 1926 subject to ratification by the French parliament. The agreement greatly reduced the amount owing, but was felt to be as much as the French would be able to pay.

Mellon was a key negotiator on Germany's war debt, even traveling to Paris in the summer of 1931 to conduct talks on it. He responded to fears that Germany might strike out against its debt plight with: "everything will work out all right".

Mellon plan

Mellon came into office with a goal of reducing the huge federal debt from World War I. To do this, he needed to increase federal receipts and decrease federal spending. He believed that if the tax rates were too high, people would try to avoid paying them. Mellon also believed that by reducing taxes the federal government could actually increase receipts, an idea he termed "scientific taxation." He observed that as tax rates had increased during the first part of the 20th century, investors moved to avoid the highest rates, by choosing tax-free municipal bonds, for instance. As Mellon wrote in 1924:

The history of taxation shows that taxes which are inherently excessive are not paid. The high rates inevitably put pressure upon the taxpayer to withdraw his capital from productive business.

If the rates were set more reasonably, taxpayers would have less incentive to avoid paying. His theory was that by lowering the tax rates across the board, he could increase the overall tax revenue. This is similar to the Laffer curve.

Andrew Mellon's plan had four main points:

1. Cut the top income tax rate from 77 to 24 percent – predicting that large fortunes would be put back into the economy.
2. Cut taxes on low incomes from 4 to 1/2 percent – tax policy "must lessen, so far as possible, the burden of taxation on those least able to bear it."
3. Reduce the federal estate tax – large income taxes tempted the wealthy to shift their fortunes into tax-exempt shelters.
4. Efficiency in government – lower tax rates meant few tax returns to process by few government workers; cutting the actual size of paper bills to fit into wallets saved expenses in paper and ink.

Mellon believed that the income tax should remain progressive but with lower rates than those enacted during World War I. He thought that the top income earners would willingly pay their taxes only if rates were 25% or lower. Mellon proposed tax rate cuts, which Congress enacted in the Revenue Acts of 1921, 1924, and 1926. The top marginal tax rate was cut from 73% to 58% in 1922, 50% in 1923, 46% in 1924, 25% in 1925, and 24% in 1929. Rates in lower brackets were also cut substantially, relieving burdens on the middle-class, working-class, and poor households.

By 1926, 65% of the income tax revenue came from incomes $300,000 and higher, when five years prior, less than 20% did. During this same period, the overall tax burden on those that earned less than $10,000 dropped from $155 million to $32.5 million.

Mellon also championed preferential treatment for "earned" income relative to "unearned" income. As he argued in his 1924 book, Taxation: The People's Business

The fairness of taxing more lightly incomes from wages, salaries and professional services than the incomes from business or from investments is beyond question. In the first case, the income is uncertain and limited in duration; sickness or death destroys it and old age diminishes it. In the other, the source of the income continues; the income may be disposed of during a man's life and it descends to his heirs.

Surely we can afford to make a distinction between the people whose only capital is their mental and physical energy, and the people whose income is derived from investments. Such a distinction would mean much to millions of American workers and would be an added inspiration to the man who must provide a competence during his few productive years to care for himself and his family when his earning capacity is at an end.

Mellon's policies helped reduce the overall public debt (the national debt skyrocketed from $1.5 billion in 1916 to $24 billion in 1919 because of World War I obligations) from $33 billion in 1919 to about $16 billion in 1929, but then the Depression caused it to rise again because of reduced revenue and increasing spending. The top tax rate went to 80% by 1935 and the federal government increased excise taxes in an attempt to make up for the lost revenue.

Mellon's tax plan also had social ramifications on society and the cultural development of the American people. The tax reforms exemplified the transition from a 19th-century rural society to the industrial capitalist power the country had become into the 1920s. Populists and rebellious Republicans representing constituencies from the South, West, and mid-West, all opposed Mellon's tax reforms because they were resistant to trend toward an urban society. Since the tax system is a legal system bound by the law, the economic ramifications of its implementation transformed society's interaction and contribution to the overall economy. Mellon's tax plan replaced the United States main source of revenue from national tariffs and general state property taxes to a progressive income tax system. Combined with a pro-big business dominant political ideology and the reformation of the federal government's revenue stream, Mellon's tax cut on the wealthy and big corporations encouraged greater investment by wealthy individuals and big companies. He believed the tax cut's effectiveness on encouraging investment spending was more beneficial to the economy than placing a higher tax burden on the rich. As Mellon had postulated, reducing tax rates on the wealthy class encouraged wealthy individuals to invest more into projects that contributed to the infrastructural development of cities and neighborhoods within. In New York City during the 1920s, the social ramifications were realized as many neighborhoods sprang up and were settled by people of different ethnicities and income that has given the city the cultural diversity for which it is known today.

Great Depression

Mellon became unpopular with the onset of the Great Depression. Herbert Hoover, in memoirs published decades later, wrote that Mellon advised him as President to "liquidate labor, liquidate stocks, liquidate farmers, liquidate real estate... it will purge the rottenness out of the system. High costs of living and high living will come down. People will work harder, live a more moral life. Values will be adjusted, and enterprising people will pick up from less competent people." Hoover claimed credit for disregarding this advice and intervening in the market, though with little success. There is no corroboration that Mellon ever said such a thing, however, and the claim that he did is inconsistent with his published speeches, which supported anti-recessionary measures by the Federal Reserve. As Treasury Secretary, Mellon was an ex-officio member of the Federal Reserve Board. There, he successfully urged the Fed to cut its discount rate after the stock market crash in October 1929, and supported subsequent rate cuts, although only a third of the commercial banks were a part of the Federal Reserve and could benefit from the rate cuts. In November 1929, he recommended a cut of 1 percentage point in personal and corporate income tax rates. He supported Hoover's proposal to increase federal construction spending as an antirecession measure.

In 1929–31, Mellon spent much of the time overseas, negotiating for repayment of European war debts from World War I. In 1928 Mellon issued a denial to allegations made by a speaker for the Democratic Party in North Carolina that he held an interest in a liquor distillery, and that he was the largest distiller in the world prior to Prohibition. In a letter written to the Republican executive committee of Mecklenburg County, North Carolina, Mellon admits having stock in a distillery, but that he had disposed of all interest in the company prior to becoming Secretary of the Treasury.

Impeachment proceedings

In January 1932, 25,000 jobless men from Pennsylvania (Cox's Army) marched to Washington to petition Congress and Hoover to start a job program. Hoover, fearing Communist agitation, ordered an investigation. The investigation discovered that while the march was not financed by Mellon, he did write a personal check so that 276 participants in the march could return to Pittsburgh. This action may have undermined Hoover's faith in his Treasury Secretary and, coupled with the impeachment hearing (below) led to Mellon's resignation.

In January 1932, Rep. Wright Patman (D-TX) (later an F.D.R. New Deal supporter) and others introduced articles of impeachment against Mellon, with hearings before the House Judiciary Committee at the end of that month. After the hearings were over, but before the scheduled vote on whether to report the articles to the full House, Mellon accepted an appointment to the post of Ambassador to the Court of St. James and resigned as Treasury secretary in February. He served for one year as ambassador and then retired to private life. Representative Louis Thomas McFadden (R-PA) invoked Mellon's appointment while an impeachment was pending in his subsequent attempt to impeach President Hoover.

Personal life

In 1900, Mellon, then 45 years old, married Nora Mary McMullen (1879–1973), a 20-year-old Englishwoman who was the daughter of Alexander P. McMullen, a major shareholder of the Guinness Brewing Co. They had two children, Ailsa, born in 1901, and Paul, born in 1907. Their marriage ended in a bitter divorce in 1912, which was granted on grounds of Nora Mellon's desertion and her adultery with Capt. George Alfred Curphey, an English soldier, and other men. Mellon did not remarry. In 1923 his former wife married Harvey Arthur Lee, a British-born antiques dealer 14 years her junior. Two years after the Lees' divorce in 1928, Nora Lee resumed the surname Mellon, at the request of her son, Paul.

Philanthropy

In 1913, along with his brother, Richard B. Mellon, he established a memorial for his father, the Mellon Institute of Industrial Research, as a department of the University of Pittsburgh. In 1965, the institute merged with the Carnegie Institute of Technology to form Carnegie Mellon University. Mellon also served as an alumni president and trustee of the University of Pittsburgh, and made several major donations to the school, including the land on which the Cathedral of Learning and Heinz Chapel were constructed. In total it is estimated that Mellon donated over $43 million to the University of Pittsburgh. During World War I he participated in many fundraising activities such as the American Red Cross, the National War Council of the Y.M.C.A., the Executive Committee of the Pennsylvania State Council of National Defense, and the National Research Council of Washington.

During his retirement years, as he had done in earlier years, Mellon was an active philanthropist, and gave generously of his private fortune to support art and research causes. In 1937, he donated his substantial art collection, collected at a cost of $25 million and valued at $40 million, plus $10 million for construction, to establish the National Gallery of Art on the National Mall in Washington, D.C. The Gallery was authorized in 1937 by Congress.

The Mellon tax trial

The administration of President Franklin D. Roosevelt subjected Mellon to intense investigation of his personal income tax returns. The US Justice Department empaneled a grand jury, which declined to issue an indictment. Roosevelt hated Mellon, as the embodiment of everything he thought was bad about the 1920s; Mellon vehemently denied the charges. A two-year civil action beginning in 1935, dubbed the "Mellon Tax Trial", eventually exonerated Mellon, albeit several months after his death.

Death

Mellon died on August 26, 1937, in Southampton, Long Island, New York, and was buried at Trinity Episcopal Church Cemetery, Upperville, Virginia.

Legacy

The Andrew W. Mellon Foundation, the product of the merger of the Avalon Foundation and the Old Dominion Foundation (set up separately by his children), is named in his honor, as is the 378-foot US Coast Guard Cutter Mellon (WHEC-717). Washington, D.C.'s Andrew W. Mellon Auditorium and Andrew Mellon Building were both named in Mellon's honor as was the National Gallery of Art during its early years. The Andrew W. Mellon Memorial Fountain in Washington D.C., located just north of the National Gallery of Art, at Pennsylvania Avenue, Constitution Avenue, and 6th Street NW was created by Sidney Waugh and dedicated on May 9, 1952, by Harry S. Truman as a memorial to Andrew Mellon.

Books

In popular culture

Andrew W. Mellon appears in the HBO drama series Boardwalk Empire, in the fifth, eighth and twelfth episodes of the third season, in his capacity as Secretary of the Treasury. His character is played by Carnegie Mellon alumnus James Cromwell.

In the alternate history/time travel story "A Slip in Time" by S. M. Stirling, featuring a history in which the First World War was avoided and the Austro-Hungarian Empire survived, Andrew Mellon was the President of the United States in 1926.