Published by EH.NET (December 2008)
David Cannadine, Mellon: An American Life. New York: Vintage, 2008. xvi + 778 pp. $20 (paperback), ISBN: 978-0-307-38679-3.
Reviewed for EH.NET by Robert Whaples, Department of Economics, Wake Forest University.
During the dark days of the Great Depression, Andrew Mellon?s son, Paul, found this quatrain scribbled on a gas station bathroom wall: Mellon pulled the whistle, Hoover rang the bell, Wall Street gave the signal, And the country went to hell.
If Hoover was the villain of the hour, Mellon was surely the nation?s number two scapegoat. Mellon struck the nation as Lionel Barrymore?s Henry F. Potter writ large. Here was a stern banker, with an unsentimental worldview. Suspicious of the unwashed mob, he was always on the lookout for a sharp deal and didn?t seem to worry if what was good for himself and his cronies was bad for the broader public. One of the wealthiest men in the world, he had even betrayed his home town by refusing to add $1 million to a plan to rescue the tottering Bank of Pittsburgh in 1931, simply because the deal wouldn?t meet the condition of giving his family a controlling majority of the bank?s stock ? cementing the Mellons? domination of Pittsburgh banking. The bank?s subsequent failure triggered the collapse of several other area financial institutions. ?Here, in cameo, was the sort reaction afflicting the whole national financial system at this time? (p. 440-41) and Mellon played the Scrooge.
Yet, the Andrew Mellon who emerges from David Cannadine?s even-handed biography is no Capraesque or Dickensian villain. Even though the author finds Mellon to be ?an unsympathetic person with unappealing politics? (p. xvi), his portrait of Mellon strikes the reader as fairly sympathetic, especially as Mellon mellows with age, becomes a generous public benefactor, and endures the unfairness of political reactions to the world-wide economic meltdown that was clearly beyond the grasp of period?s leaders.
Above all else, Cannadine is comprehensive. For nearly the first hundred pages the biography?s dominant figure is Thomas Mellon, Andrew?s Scots-Irish father, who rose to become a leading Pittsburgh businessman. Bewailing his inability to find competent and trustworthy business partners, Thomas Mellon?s ingenious business model was to make his talented sons his primary partners. This worked especially well in the case of Andrew, who eagerly learned about loans, mortgages, bookkeeping and foreclosures in his early teens, fulfilling his father?s hopes by learning ?an alertness to money making opportunities at the earliest possible age? (p. 36). In 1872 Thomas Mellon provided seventeen-year old Andrew and his younger brother, Dick, with $40,000 to develop real estate. Andrew moved quickly and competently, then sensing that Pittsburgh?s economic boom would soon collapse, he leased the lumber yard he?d developed to a fire-stricken competitor, just before the economy fell into recession. Three years later Andrew was given a one-fifth interest in his father?s bank, T. Mellon and Sons, and by age 21 he was given power of attorney to run the business on a day-to-day basis. By 1882 Judge Mellon had essentially turned the business almost completely over to Andrew and the family deferred to him and his virtually unfailing business judgments.
Andrew?s enterprises expanded as he acquired control of the Pittsburgh National Bank of Commerce (in partnership with his friend Henry Clay Frick), the Union Insurance Company, and other financial institutions in the 1880s, but his greatest successes came as a venture capitalist beginning in the late 1880s. In 1889 the founders of the fledging Pittsburgh Reduction Company approached Mellon for a $4000 loan to pay off a note owed to another Pittsburgh bank. Mellon was impressed by these men and captivated by the potential of their product ? aluminum. He offered them a loan of $25,000, bought a large block of shares in the company, became a director, and urged and financed the company?s expansion and the opening of a new plant powered by Niagara Fall?s hydroelectricity. The company, eventually renamed Alcoa, grew and prospered. Cannadine identifies Mellon?s ?extraordinary gift for spotting and nurturing outstanding individuals with promising ideas,? (p. 98), with Alcoa as exhibit A. Mellon?s name and fortune was made by repeated successes that paralleled Alcoa. Exhibits B, C, D, E and F are his vital roles in funding and nurturing the Carborundum Company (which produced silicon carbide, an abrasive that?s nearly as hard a diamond and which became widely used for the precision grinding of metal parts); the New York Shipbuilding Company (which built the U.S. Navy?s first dreadnought); McClintic and Marshall (which became the leading steel-fabricating business in the world, making the construction machinery for the Panama Canal locks); the Koppers Company (which brought German chemical science to the U.S., turning waste products from coke into industrial chemicals like benzene and toluene ? vital to the Allied effort in World War I); and most spectacular of all, Gulf Oil. As in the case of Pittsburgh Reduction, Mellon and his brother answered when opportunity knocked. This time the sound was two long-time associates, James Guffey and John Galey, seeking funding for their wildcatting ventures in Texas. Mellon loans enabled the breathtaking Spindletop strike in 1901. Mellon money and direction helped turn the wildcatters? floundering business into a thriving multinational corporation.
Mellon emerges as a ?creative enabler.? ??How can I help you?? … was invariably his professional greeting? (p. 113). Mellon was known as ?the best listener in Pittsburgh? ? shy, aloof, self-sufficient, with an ?incorrigible determination to live unostentatiously? (p. 231). In almost every case, his enterprises were closely held, secretive in their dealings, increasingly vertically integrated and stinting in their dividends, as profits were plowed into long-term investments.
Mellon reluctantly agreed to become Secretary of the Treasury under Warren Harding in 1921, recording in his diary that he accepted the position on account of his nineteen-year-old daughter?s social ambitions. He dutifully resigned his directorships of over sixty companies, and made over all his bank stock to his brother Dick, but Cannadine provides convincing evidence ? from Mellon?s diary ? that he continued to play an active role in directing his enterprises during his decade-long tenure as Secretary, in violation of the spirit (and probably the letter) of the law. Mellon immediately made his mark in the Treasury Department by refinancing the nation?s vast war debt at lower interest rates, saving taxpayers about $200 million per year. As a banker, he recognized that the Allies were in no position to repay their war debts to the U.S. unless the terms were restructured. Although the Mellon-led Debt Commission clearly overstepped its Congressional mandate, the generous terms it negotiated with Britain in 1923 were ratified, establishing the pattern of agreements reached with other nations and helping to return international financial arrangements to ?normalcy.? Mellon has always been given considerable credit for pushing through major tax reforms during the 1920s, which cut top marginal income tax rates from wartime highs of 77 percent down to 25 percent and which expanded the zero-tax bracket so that most Americans paid no income tax, although Cannadine makes it clear that Congress was not putty in his hands and his power and influence in these matters have been exaggerated.
In retrospect, the public scapegoating of Mellon (and Herbert Hoover) for the Great Depression was as predictable as it was unfair. Mellon tried to carefully talk the stock market down in early 1929 and was a strong advocate of boosting interest rates to curb speculation. My reading of economic historians? research on the Great Depression is that the key policy moves which might have curtailed the meltdown ? like the U.S. going off the gold standard at an early date ? were simply out of the realm of policy possibilities until it was too late. As Mellon became a political liability, ?reviled as a false prophet, a plutocrat who fiddled while the world burned around him,? (p. 451) and Congress began an investigation, Hoover offered him the position of ambassador to London, shunting him off stage. Ironically, Mellon?s greatest investment coup came during these catastrophic years, as his fortune dwindled from its peak of $300-$400 million. During this period he covertly purchased twenty-one of the finest paintings from the Soviet Union?s Hermitage collection. It was a buyers? market and he paid rock bottom prices.
The denouement of the story comes when Mellon was held up as one of the ?malefactors of great wealth? by the Roosevelt Administration. In 1935 Mellon was charged with having knowingly falsified his tax returns. Cannadine concludes that ?the record generally bears out the views of Mellon?s relatives and friends that the tax trial was politically motivated by an administration which … was ?entirely lacking in an elementary sense of decency?? (p. 534). He was ultimately and unequivocally exonerated of the charges (after his death) and Cannadine lays to rest the canard that ?Mellon gave his art and built his gallery [the National Gallery of Art] in tacit exchange for his acquittal at the tax trial? (p. 566).
Although not trained as an economic historian Cannadine, best known for The Decline and Fall of the British Aristocracy, has a strong grasp of the American economy that Mellon helped to build and direct. His understanding of the events of the Great Depression is sure-footed and I have only a handful of quibbles from the perspective of an economic historian ? e.g., his contention that Mellon earned ?excessive profits? from his sale of Union Steel and his repeated claims that from 1873 to 1898 economic times ?were generally hard? in the U.S. (Sam Williamson and Louis Johnston?s calculations at Measuringworth.org show real GDP per capita rising by 64 percent during this quarter century.) And I caught only a few factual errors ? e.g. the mistaken assertion that the Molly Maguires operated in the coal fields of western Pennsylvania.
Portions of Cannadine?s biography won?t appeal to economic historians, especially minute details of his personal life and art collecting. However, like Ron Chernow?s Titan: The Life of John D. Rockefeller, Sr. or Maury Klein?s The Life and Legend of Jay Gould, it authoritatively rewrites and rehumanizes the life of an economic heavyweight who has been misunderstood and maligned by earlier generations.
Robert Whaples is the former Director of EH.NET. His lecture series, Modern Economic Issues is available from The Teaching Company at http://www.teach12.com/ttcx/coursedesclong2.aspx?cid=5610&pc=SiteIndex. It includes 36 30-minute lectures on CD and DVD. The topics range from productivity growth and inflation to global climate change, immigration, Wal-Mart, conspicuous consumption and economists? expectations about the future.
|Subject(s):||Macroeconomics and Fluctuations|
|Geographic Area(s):||North America|
|Time Period(s):||20th Century: Pre WWII|