Whaples on Cannadine, _Mellon: An American Life_

[Book Reviews in Economic and Business History]

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.

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