-Caveat Lector-
an excerpt from:
Mellon's Millions
Harvey O'Conner©1933
Blue Ribbon Books
New York, N.Y.
--[16]--
16
The Crash
DID Andrew W. Mellon aspire to the Presidency? Did the adulation heaped upon
the sponsor of the Mellon Plan by grateful business men and their press in
1927 awaken in him a desire to step from the exchequer into the White House?
If so, it was an audacious dream, but not so fantastic as it seemed later.
Why should not the dominant classes, which worshiped at the Stock Exchange
and believed that the dollar was the touchstone of all human virtue, seek to
elevate to the Presidency the most successful practitioner of the art of
acquisition?
Certainly the Mellon Machine in Pennsylvania did not view the proposal as
either an idle or a futile gesture. Its leaders proceeded methodically to
prepare the ground for the nomination of their chief. The trial balloon was
sent up August 13, 1927, by Samuel S. Lewis, State Treasurer of Pennsylvania.
The Secretary, he declared, was the only person with the necessary
"experience, acumen, self-control, breadth of view and other manifold
qualities of mind" for the post of Chief Executive. He was responsible for
Coolidge's popularity and the success of his Administration. "A safe, sane
and conservative man endowed with special equipment and experience along
financial and economic lines is needed," Lewis summed up.
Two days later, Governor John S. Fisher, just returned from a seance with the
inscrutable Coolidge in the Black Hills, seconded the nomination. Mellon he
felt was the "ideal man to manage the great business operations of the
Government."
The boom grew. Old Guardists hailed with delight the pros pect that the
Secretary of the Treasury might head openly the Government he had guided. The
Hearst papers spoke out for his candidacy. John Garner, Democratic leader,
agreed that Mellon "is the most powerful man in the world today. . . . He has
dominated the financial, economic and fiscal relations of the United States
for the past five years. If the Republicans are looking for a strong
candidate, they should name Mellon. I doubt very much whether the Democrats
could beat him. He believes in the moneyed interests, and they would support
him."
The pre-nomination campaign got under way with the "thoroughness
characteristic of the Mellons," said press dispatches from Pittsburgh. A book
was to recount the Secretary's achievements. James Francis Burke, Republican
National Committee counsel and Mellon lawyer, was to aid in preparing
"educational material." The writers had been promised big money. Approached
for comment, State Chairman W. L. Mellon said that "the Secretary would have
to make any announcement of that kind when he was ready to do so."
Eastern financial and political leaders read the news joyfully. If Calvin
Coolidge did "not choose to run" in 1928, then Mellon was certainly the man.
They liked Coolidge, not only for his abhorrence of rocking the ship of
state, but because of his intimate rapport with Andrew Mellon. Certainly this
master of finance, whose steadfastness had been proved by seven years under
fire, was preferable to Herbert Hoover, officious, egotistic, shifty
Secretary of Commerce who was pulling all wires that would lead him to the
White House.
Charley Schwab even thought that Mellon would be a better vote-getter than
Hoover, whose chances he doubted against Al Smith. "I think," he confided to,
Barron, the financial journalist, "that Mellon-may be the next President. I
don't think he is too old. The people have been educated to see how he has
reduced expenses, handled national finances, and what a success he has made."
Whether he would be next President or not, the Secretary was regarded as the
dictator of Republicanism and the Warwick of the party. If he rejected the
crown himself, it was his prerogative to choose Coolidge's successor. The
Chicago Tribune professed to know that he really favored Chief justice
Hughes. Acknowledging him as the "big chief of the Eastern G. 0. P. and the
spokesman for big business," the Tribune declared his choice was decisive.
But Mellon denied the Hughes report.
His own candidacy left the more judicious conservatives agape, It fell
afoul deep-seated political prejudices, the lag in the public mind which now
accepted plutocracy but shied at a plutocrat in the White House. The
wealthiest American aspiring openly to the Presidency, what a target he would
be for the Democratic and Progressive rabble-rousers to shoot at!
Moderates felt that industry and finance assured themselves advantage enough
in picking and training the players and giving them the general line of
strategy. For the appearance of things, it would be better for the magnates
to stay on the sidelines, confident that the game was in the bag. The New
York Times viewed Mellon's nomination as "absurd to the point of
impossibility." The Secretary himself denied that he was a candidate, and W.
L. Mellon hastily retreated from his equivocal statement. No more was heard
of the "characteristically thorough" preparations in Pittsburgh in behalf of
the Mellon candidacy.
With the Mellon movement apparently stopped, the Hoover forces advanced
boldly within the Treasury itself. Ogden Mills announced his conversion, and
the country assumed that the Under-Secretary would hardly have done so
without consulting his chief. The press circled impatiently around the
Secretary. He was testy. "I am not obliged to take any position now, or to
tell what I think or what I expect to do," he snapped. "I am not going to
give the information at this time."
The High Tories regained confidence. Perhaps Hoover was not inescapable
after all. Perhaps Coolidge's "I do not choose to run," was capable of
varying interpretations. The DraftCoolidge movement gained headway, and
Mellon was considered its general.
It was ironic that beer started the political downfall of Andrew W. Mellon.
It proved a poor lubricant in the political machine guided by the president
of Gulf Oil, especially when Boss Vare of Philadelphia tossed mugfuls into
the mechanism. Between the Vares and the Mellons there were no ideological
differences but political exigencies demanded that the Vares be wet and the
Mellons discreetly moist, if officially dry. Vare's new threat to the Mellon
Machine arose out of the Hoover candidacy—Hoover again, the man was becoming
the bugbear of Secretary Mellon's life, contesting his war debt policy,
challenging his dominance of the Cabinet, grabbing the spotlight to which he
had become accustomed. Boss Vare, dripping wet, had swung to Hoover, who was
still attached to the dry bandwagon. The situation would have been merely
ludicrous had not Vare entertained delusions of grandeur—delusions that he
could wrest control of Pennsylvania from the Secretary of the Treasury.
Vare demanded that Pennsylvania Republicanism assure Hoover's nomination by
announcing its support before the convention met in Kansas City. The
Mellon-Atterbury-Stotesbury strategy was to leave the delegation
uninstructed. That gave them a bloc of 79 votes to be swung to the Sage of
Northampton if he should give in at the eleventh hour to a Draft-Coolidge
movement. Vare insisted on a Hoover pronouncement. Mellon fenced for time. He
conceded Hoover could beat Smith. That didn't appease Vare. Mellon then
ventured to say that Hoover "comes closest to the standard that we have set
for the Presidency." But still no endorsement.
Vare, whose hope of finally gaining his contested seat in the Senate hung on
his swinging the Pennsylvania delegation, struck back savagely at the
Pittsburgh contingent. He blocked W. L. Mellon's advancement to the national
committee. The Mellons retrieved by electing their man Edward Martin state
chairman to succeed "W. L." Nevertheless the reputedly omnipotent Mellon
Machine was running into dirty weather in home waters. The press buzzed with
comment about Mellon's rebuff in his own state.
Still custodian of the Draft-Coolidge movement, despite his lip service to
Hoover, Mellon was off on June 10 for Kansas City. The Old Guard hoped
against hope. Secretary Mellon's Suite at the Muehlebach became the scene of
earnest conferences with Everett Sanders, Coolidge's private secretary, and
William M. Butler, the Massachusetts mill owner and Presidential confidant.
Would it be possible to stampede the convention for Coolidge? It would be an
inglorious end for his regime if the stubborn Hooverites defeated such a
move. It was a delicate question, to which Boss Vare held the answer. Mellon
opposed meeting the issue in caucus; every hour of added uncertainty damaged
the Hoover candidacy and encouraged the Coolidge drafters. The audacious
Philadelphia politician sensed the crisis. He decided to become spokesman for
his wing of the Pennsylvania delegation, smashing unit rule and the iron
regularity for which the Keystone state was noted. He called in the
reporters, told them that "the representatives of Pennsylvania, in my
judgment, are for Herbert Hoover for President."
Mellon was astounded. His position as chairman of the delegation and
therefore its spokesman, the key position in the entire Republican
convention, had been usurped by a cheap politician whose command Of 400,000
unwavering votes in the Quaker City made him independent of the Mellon
machine and its financial support. Mellon's anger was reported. "Let the old
boy try chewing his mustache," advised the cool Mr. Vare.
Vare stopped the Draft-Coolidge movement dead in its own tracks. The
Pennsylvania delegation perfunctorily indorsed Hoover, and he was nominated
on the first ballot in the convention. Then Vare followed up his victory. The
delegation adopted the resolution of the rejected Senator-elect that
"Pennsylvania should select and elect its own members of the Senate," without
veto by that body.
The press blared the news that another tycoon of politics had passed from
power. When the chairman of the Keystone delegation appeared on the platform
of the convention, he was unnoticed, unhonored—four years before he had been
greeted by cheers and stamping of feet by frenzied delegates. Back in
Philadelphia the best Republicans exploded with anger to see humiliation
brought upon the great Secretary by a mere beerhouse politician. Vare himself
thought an apologetic attitude the better course. He had tried to get in
touch with the Secretary en route to Kansas City but their cars had been
hitched on to different trains, and somehow it had been impossible to see Mr.
Mellon at Kansas City. He was very sorry though. As the Times said, the Vare
forces "disregarded and discredited and apparently ended his [Mellon's]
leadership, but they did it with the utmost regret and with the kindest
feelings for him personally."
Defeat however was not a rout. The high moguls of Eastern Republicanism who
had yielded to the efficient Hoover votecatching machine at Kansas City,
exacted a price for their support. There must be, they insisted, no change in
the Treasury. But would Mellon serve under a man who had been a junior
Cabinet officer, a pushing, bustling go-getter of uncertain background and
unknown stability? His insatiable drive for power irked Mellon, who had in a
manner been born to the purple, and who always proceeded to his own conquests
with an assurance of victory that made Hoover's sweating and panting after
the fruits of office seem demeaning. The decision presented some
difficulties. Early in 1928 he told newspaper men he expected to retire at
the end of the Coolidge Administration. What then? "Oh, I think Providence
will look after me," he replied.
It was sweet though to know that High Republicanism still remained faithful
to him, despite the Vare affront. He would yield to their entreaties. What,
after all, was the alternative? "At my age," as he told the reporters, "I
might as well work here as anywhere else. I have no plans about retiring."
It was not exactly true, as Senator Norris said, that three Presidents served
under Mellon. The new President was hardly fitted by his training in the
Orient to brook the presence in his Cabinet of a man whose authority was
independent of his. He demanded subordinates. It was difficult to cast the
wealthiest man in America in a role secondary to that of a mine promoter
suddenly catapulted into high office. The prospect wore on Hoover's nerves.
Hardly was the election over than it was learned from "sources close to
President-elect Hoover," that Under-Secretary Mills, an original Hoover man,
would succeed Mellon within a year or two. The Old Guard was indignant.
Inspired stories from financial circles served notice that Secretary Mellon
was the custodian of the Coolidge policies. "Mr. Mellon has had a more
dominating part in shaping these policies than any others of President
Coolidge's advisers, not even excepting Mr. Hoover," the President-elect was
reminded.
A scant four days after Hoover's inauguration, the rumors sprang up again and
Secretary Mellon felt constrained to deny them publicly. Under the
Harding-Coolidge regimes, these rumors had become hardy perennials at which
Mellon smiled. Now he was "embarrassed." He had no intention, he said, of
resigning, and whether he would remain in office one year, two years, or
more, was a matter for the future to decide. It was a strange answer from a
Cabinet member whose tenure lay entirely in the discretion of the White House.
The first open break between them showed Hoover in command. He wanted Robert
H. Lucas, a Louisville politician, as Commissioner of the all-powerful
Bureau of Internal Revenue. Mellon objected, wishing to advance a Bureau
employee. Lucas spurned an assistant postmaster generalship, and Hoover
thereupon appointed him
Commissioner of Internal Revenue. It was the affront direct. Hoover overrode
the Secretary again in naming an Assistant Secretary over Mellon's protest.
It was extraordinary, the President's insistence on naming Mellon's
subordinates. His protests being unavailing, the only course left open was
resignation. But he did not resign.
Under-Secretary Mills came to the fore as spokesman for Hoover in Mellon's
department. It was he, not the Secretary, who was consulted on the new tax
programs, flotation of Treasury issues, appointments to the Department. He
stood beside the aging Secretary in press conferences, answering when the
Secretary faltered, interrupting when he was not explicit or informed. In
committee hearings at the Capitol, Mills did the talking while Mellon puffed
his small cigars, silent and a trifle grim.
Defied at home by the insolent Vare, and in Washington by his own President,
the Secretary's political power had seemingly vanished by early 1929. His
prestige as a financier however had not waned, nor was the country acutely
aware of what was taking place in Washington. Business men still buried their
hands in the bottomless pot of gold and cried benefactions on the sere, wise
head of Mellon. Delegations arrived from Europe to seek the secret of
prosperity. They observed a fat country, whose upper strata spent half its
time piling up the tokens of wealth, the other half trying to spend a portion
of it. Near the top were thousands of men who talked only in millions, who
bought and sold large parcels of America's wealth, fitted public service
corporations and industrial units into jigsaw puzzle patterns, commuted to
Europe and advised their countrymen to invest in Peru, International Splinter
and Interworld General Securities.
Critics of Secretary Mellon in those days found their tongues drying in their
mouths when they sought to point out the folly of his policies. They had lost
their audience, and many decided to climb on the bandwagon. As for Mellon,
his frail body floated on a golden cloud, and caricaturists placed a greatly
magnified gold piece over his head as a halo. After all, prosperity was his
handiwork. He had come into the Treasury when the country was in the trough
of post-war depression, he had prescribed the medicines which effected the
miraculous cure. The incredulous had only to look at the United States to be
convinced that prosperity for the wealthy percolated down through the social
layers benefiting all—or nearly all.
Those few economists and fewer business leaders who viewed with alarm were
tolerated with an amused condescension. When such a shogun of finance as S.
W. Straus warned of overbuilding in January, 1927, he found the country
impatient of warnings. Secretary Mellon noticed his remarks and replied
quietly that while the saturation point might have been reached in some
cities, in others such as Pittsburgh there was a shortage of buildings,
resulting from the war. He gave earnest of his observation by Planning two
giant business structures in the Iron City for his Koppers and Gulf companies.
On March 26, 1927, bound for Europe, he found "no evidence of
over-speculation" in the stock market, which was "going along in very orderly
fashion." "I see nothing," he told the ship reporters, "to indicate that
business will not continue good throughout the country. Brokers' loans give a
very good insight into the stock market situation and they appear to be in a
very healthy state."
Later in the year there was some recession in business, but Secretary Mellon
took an optimistic view. His survey reflected "no sign of an impending
depression." He was right. Foundations were laid in Manhattan for higher and
higher buildings after the Straus pronunciamento, and the Straus company
obligingly passed along building bonds to the public as investments. The
March, 1927, level of stock market quotations now appeared very low.
The market broke a bit in June, 1928, but Jove merely commented that politics
had nothing to do with it. Academicians observed the ebb and flow of the
market and Mellon's statements and deduced a correlation. Dr. Ralph W. Robey,
lecturer at Columbia in banking, remarked in the Atlantic Monthly that rises
in the stock market followed bull tips by President Coolidge and Secretary
Mellon, and declines brought forth reassuring statements from the Treasury
which resulted in renewed confidence. If prices broke on the Straus
statement, they recovered immediately after Mellon's comment. If a little
later they faltered again, the Secretary was ready with an announcement that
eight months hence 4.25 per cent Liberty bonds would be retired by 3.5 per
cent notes. Inasmuch as it was most unusual to announce such operations so
far in advance, the stock market believed it was merely an assurance that
money rates were to remain low. Prices rose with vigor. Toward the end of
1928, the market suffered another sinking spell, to be revived by another of
Mellon's reassuring shipboard interviews. Stocks leaped to unprecedented
heights.
The pronouncements of Chairman Mellon of the Federal Reserve Board also had a
soothing effect on the market. On June 5, 1928, the Federal Reserve Board
urged caution and stocks broke badly. Chairman Mellon stated that the break
lacked significance. On January 6, 1929, the Board again warned Wall Street,
but Chairman Mellon later explained that its purpose was not to "bring about
a sudden slump in stocks." He was reported bitterly opposed to an increase in
the rediscount rate to discourage speculation.
While the 1928 campaign was in full swing, the Secretary informed his party
that "business is in a satisfactory position and on a sound basis." He saw
"no indication of a depression or slump." To be utterly candid, there were
bad spots such as coal and textiles, but the coal industry was on an "upward
trend." It usually was-on the approach of winter.
During the campaign the Secretary's Keystone associates, General Atterbury
and Samuel Vauclain of Baldwin Locomotive, with others, signed an
advertisement for the papers headed, A CHICKEN FOR EVERY POT. "The Republican
Party isn't a 'poor man's party,'" it stated frankly. "Republican prosperity
has erased that degrading phrase from our political vocabulary. Republican
efficiency has filled the workingman's dinner pail-and his gas tank
besides—made the telephone, radio and sanitary plumbing standard household
equipment. And placed a whole nation in the silk stocking class. Republican
prosperity has reduced hours and increased earning capacity, silenced
discontent, put the proverbial 'chicken in every pot' and a car in every
backyard to boot."
The Secretary repeated the substance of his associates' advertisement in a
speech couched in more restrained language. "In no other nation and at no
other time in the history of the world," he said, "have so many people
enjoyed such a high degree of prosperity." This was the result of an economic
administration on "accepted business principles," as embodied in four tax
reductions in seven years totaling $1,800,000,000 a year or $5,000,000 a day.
"Productive business," he expounded, "by being freed of oppressive rates has
been taken out of a strait-jacket and permitted to expand in an orderly
manner, unhampered by artificial restraints." "Construction," he warned,
"does not consist, as opponents of the Administration seem to think, in
following every new and untried social and economic theory that may be
presented."
On January 1, 1929, the soothsayers looked expectantly in the direction of
the Treasury for the usual New Year statement. The unprecedented speculative
activities in Wall Street and the rapid pace of industry had awakened alarm
and apprehension. It was time, thought the more conservative elements, for
someone to apply the brakes.
The Treasury however faced the future with calm assurance. "Industry is
proceeding on an even keel," said the Secretary. Prices were not unduly high,
"nor does there seem to be any immediate danger of excessive demand sending
prices to such high levels as to make a slump in activity and consequent
prices inevitable."
The mad frenzy continued on the Exchange. By March 14 brokers' loans stood at
$5,669,000,000. Other members of the Cabinet were worried and thought the
Treasury might well indicate that some caution was needed. For a time, the
Secretary doubted whether it was the business of the Government to give out
warnings. After all, in a nation of rugged individualists, each person was
competent to take care of his own investments and official warnings smacked
too much of paternalism. Nevertheless he did make a statement. The gist of it
was that now "the time was opportune for the prudent investor to buy bonds."
As expounded by a semi-official publicist, "it was assumed by the
Administration in general, as well as by Mr. Mellon, that if the people bad
any sense left they would infer that stocks were too high." The Secretary
himself was dubious whether any advice would cause money to shift from the
stock to the bond market. It was explained, three years later, that Mellon in
private conversation in 1928 and 1929 had deprecated in the "most unmeasured
terms" the speculation then under way. "But he felt it was unsafe to make
public predictions. At that time it was a very serious responsibility for
high Government officials to issue what might be construed as bearish or
pessimistic statements."
It would have been rather foolish, too. Aluminum in September, 1929, reached
the dizzy height Of 539.5; Aluminium, Ltd., 280; Gulf, 209. Pessimistic
statements would have impaired the high quotations on such stocks and
lessened their worth to their holders-certainly no kind service to an
investor.
The business community's faith in the august Secretary was never greater.
Business men gathered in the summer session of Harvard's business school
voted him the third greatest business man in the country, outranked only by
such active industrialists as Owen D. Young and Henry Ford. He led by a large
margin the engineer, Herbert Hoover.
On October 15, 1929, Irving Fisher, Yale business wizard, declared that stock
prices have reached "what looks like a permanently high plateau." He
pooh-poohed Rival Roger Babson's prediction of a 50-60 point drop in the near
future.
Then the walls came tumbling down.
The greatest financier of his time surveyed the wreckage on the Stock
Exchange. It was too bad, of course, but he had warned the country to buy
bonds. A little bloodletting among the shakier speculators would do no
lasting harm. The Federal Reserve Board met with the Secretary and decided
that the "avalanche of selling on the New York stock market had not resulted
in a situation serious enough to call for any immediate e formal
declaration." The Secretary let it be known that the severe break in prices
was due to speculation and not to any basic weakness in the business
situation. By October 28, the "storm had blown itself out," leading bankers
announced. The following day however "stock prices virtually collapsed, swept
downward with gigantic losses in the most disastrous trading day in the stock
market's history," the Times reported. Aluminum lost 74 points, to be quoted
at a little more than half its September high. Gulf had relapsed to 132.
Political enemies of the Secretary, held in leash for years because of the
irrefutable results of his sway, now rushed to the forum to reproach him.
Senator Robinson of Arkansas led the pack. "It may be well to trace the
beginnings of this calamity," he said in the Senate the day following the
second descent into Avernus. "If the foundation of belief of ruined investors
was their faith in the strong position of American industry, it was also true
that the prophets and high priests of American prosperity, represented by no
less personalities than a former President of the United States, the
Secretary of the Treasury, and a former Secretary of Commerce, now President,
contributed by unduly and repeated optimistic statements to the creation of
enthusiastic if not frenzied ventures in stocks. . . . Whatever causes may
have contributed to the trouble, it must be admitted that neither the present
Secretary of the Treasury (the greatest since Alexander Hamilton, we are
told) nor any other leader or agent of the Administration took adequate steps
to prevent the collapse, which they should have known must follow the orgy of
speculation stimulated by their utterances." Senator Robinson of Indiana
replied that Mellon had not "suggested in any way that the people should
gamble in the stock market."
The buoyancy of the Treasury Department was irrepressible. Two days after the
Second Disaster, Secretary Mellon was optimistic. Things would be back to
normal shortly, and the country would be all the better for the "shaking out
of the lunatic fringe," as Irving Fisher bad called it, in another of his
felicitous postmortems. Undismayed by the sodden downward drift of the market
during the rest of 1929, the Secretary was able to write his usual inspiring
New Year greetings. "The Nation," he predicted, "will make steady progress in
1930." There might be some sectional unemployment during the winter months,
but spring would witness a revival. Government finances were sound. "I see
nothing in the present situation," he summed up, "that is either menacing or
warrants pessimism."
The business classes, tormented by falling industrial indices and a
demoralized stock market, read the Secretary's message, and felt better.
After all, he was as infallible as mere mortals might hope to be. For eight
years his New Year oracles had spoken aright, so why doubt the ninth gaze
into the crystal ball? The more so as the business classes were still devout
disciples of Doctor Coue.
By June, 1930, he was by no means so certain that prosperity lurked around
the corner. It is impossible, he said, "to forecast general business
conditions over the period of the next twelve months." The insistent demand
by veterans for the cash payment of their bonus resulted in this temporary
lull in the Secretary's faith. He was always inclined to be pessimistic about
public finance when that issue came up. The Senate finance committee beard
Ogden Mills read a message from the Secretary describing the financial ruin
that faced the country if the veterans were paid. He estimated that the bonus
bill would require a $3,400,000,000 bond issue, which would depreciate
Government securities and ruin the bond market just when business recovery
was setting in. This would increase unemployment and Government bondholders
would, in effect, pay a capital levy on their depreciated bonds.
This cheerless statement was followed by an abrupt break in the bond market.
Ogden Mills denied next day that his chief's statement was the cause. It was
the consideration of such devilish bills by Congress that dismayed
bondholders and made them rush to realize cash. Final debate on the measure
revealed the sad fall of Mellon's prestige. The House, roared with derisive
laughter when John Garner referred to the "Greatest Secretary of the Treasury
since Alexander Hamilton," in connection with a $900,000,000 miscalculation
in Government income in 1924
Five weeks after Mellon had predicted disaster in a bond issue, a Treasury
offering of $1,400,000,000 in 3.375 per cent bonds was 250 per cent
oversubscribed.
The House turned to the tariff. Partly to strafe the foreigners who had
brought on the crisis, partly to increase revenue, partly to revive
employment in domestic factories, rates were jacked up. Secretary Mellon
lacked confidence in any of these announced ends of the Smoot-Hawley tariff.
Hoover wobbled and then signed the bill, and asked his Chancellor to reassure
business. Mellon damned the new tariff with faint praise. At least, he said,
the enactment of the law removed uncertainty which had prevailed for fifteen
months over its provisions.
Secretary Mellon's New Year prediction for 1930 had so far failed to be
realized by August that the New York Times spoke out caustically that "the
conclusion at which most people of sense and judgment will arrive is that
prediction of this sort is no business of the Government." Nevertheless the
Secretary still held out hope.. "I believe," he said cautiously in
Pittsburgh, "that just as soon as much of the products in the market at
present are disposed of, the business depression will better itself.
Curtailment of output, without question, will correct the present condition
within a short time." Was this all that the greatest financier of his time
could suggest? asked the impatient. He did not deign to answer in words, but
his own mills and factories pointed to his sincerity. His aluminum, oil and
other enterprises were curtailing sharply, laying off thousands, cutting
wages indirectly and directly. Their proprietor was unperturbed. The panic of
1873 had been worse, he said privately.
Herbert Hoover became more worried and petulant as the fall election of 1930
approached. He ordered his Chancellor to contradict a Treasury news release
that the decline in revenues ended any hope of further tax reduction. Mellon
merely stated that the release was "premature." The President, vexed, stated
there was "no ground now for predictions." In the campaign, the Treasury
Nestor delivered but one speech. It was a curious one. Depressions, Mellon
now confessed, always follow over-expansion, regardless of the party in
power. It was futile to blame the Republicans, because no party could control
the tidal flow of economic currents. Wall Street speculation had not caused
the panic,' he added, but over-production, especially of raw materials. The
Democrats congratulated him on his frankness, and referred to his speech of
1928, that a vote for Hoover was a vote for prosperity.
The brilliance of the Secretary's tax policies in prosperous years was sadly
tarnished when the winds of adversity blew upon them. Nothing in his eleven
years of incumbency though reflected less credit on the Secretary's sagacity
than the rather shabby political trick into which he had been forced by the
frantic occupant of the White House on November 13, 1929. The market had been
breaking wildly since the first crash. The business classes were groggy from
the blows to their confidence in never-ending prosperity. Unhappy Herbert
Hoover thrust forth statement after statement, to no good effect. On November
13 he had called on the Wizard of the Treasury. Secretary Mellon must make a
statement. But it must not merely be a thing of words, it must breathe and
assure confidence by its internal evidence.
He did. The purport of his statement was that the President, the Secretary
and Roy A. Young of the Federal Reserve Boardchoicest of choice minds-had
come together to consider the country's tax problem in the light of present
conditions. They had pondered the meaning of the stock market flurry and had
ruled it out as unimportant to the country's fundamental position. Business
was not only good, it would be better. Therefore, there would be tax
reductions for 1930, a 1 per cent cut in both the corporation and individual
income tax rates. This statement had been submitted to a board of strategy of
both parties, and approved.
Secretary Mellon stated that "our estimates indicate that the Government
should close both the fiscal years 1930 and 1931 with a surplus." Tax
reduction for 1930 would amount to $160,000,000, of which corporations would
keep $100,000,000 and individuals the rest.
"That such a statement of Government confidence in the business structure of
the country might well tend to check further liquidation in the stock market,
as well as to reassure business that the way was paved for continued activity
under more favorable conditions, was generally accepted here," wrote the
Washington correspondent of the Times. Percy H. Johnston, president of the
Chemical Bank & Trust Company of New York, applauded officially on behalf of
the financial classes. "Mr. Mellon," he said, "is a wise and able Secretary
of the Treasury. He knows what he is about. His statement indicates a very
forward looking program. Business after the present slump would have been
facing the future with a good deal of uneasiness but this very constructive
program of Mr. Mellon's will be a splendid stimulation to business people. It
is a good thing."
It was a nicely executed play and soothed Wall Street for a few days. Then
the market broke lower than ever. Thereupon the Secretary estimated, on
December 4, 1929, that the 1930 surplus would stand at $225,000,000 and the
1931 surplus at $122,000,000. Wall Street was reassured again-for a few days
The treatment was heroic and the physician hazarded his entire reputation on
the result. But reputations were to be at a heavy, discount for several
years, so perhaps it didn't matter much.
Hoover's panicky order for more tax reductions merely emphasized the reckless
reductions that had been imposed before he became President. Even Secretary
Mellon protested in 1927 when the Chamber of Commerce of the United States
bellowed for a $400,000,000 reduction. Its arguments, he said, were "hardly
worthy of a business man's report." He himself advocated cutting the
corporation tax from 13.5 to 12 per cent, a loss of $135,000,000 in revenue,
repealing the inheritance tax altogether, and permitting partnership returns
to small corporations with fewer than ten stockholders.
Secretary Mellon was apprehensive for the nation's taxation scheme, not
primarily because revenues were being sliced too drastically, but because it
leaned too heavily on the income tax payer. If in prosperity a high surtax
impaired private capital and hampered the expansion of industry, in bad times
even a reasonable income tax disorganized Governmental finance. When there
were no profits, the income tax revenue declined out of all proportion to
other levies, and left the Government seriously embarrassed. If taxes were
spread out to include the entire population, Government income would be
steadier. The income tax had become that dread bogey of Mellon's fiscal
policy-class taxation. Out of 120,000,000 people only 2,500,000 paid income
taxes, and of these 380,000 paid 97 per cent of the total.
Democratic Leader Garner, sweating for bigger tax reductions, declared Mellon
bad fooled Congress for years with estimated revenues that constantly ran
hundreds of millions under actual receipts. He wanted to eliminate the filing
of consolidated returns for affiliated companies. Mellon objected. Garner was
vituperative. "It means more taxes for Mr. Mellon, it is not tax reduction
according to his viewpoint," said Garner. "It will mean more taxes to him and
his companies, and I challenge him to deny it." Garner put the figure at
$1,000,000.
Mellon's proposed repeal of the estate tax brought a jibe from the Democratic
leader. "When Mr. Mellon recommended the repeal of the estate tax," said
Garner, "he was looking forward a little bit further, with an estate Of
$500,000,000, part of which may have to go to the Treasury."
Mellon's lecture on the follies of the income tax served to palliate, in his
eyes, the humiliating confession he was forced to make on May 23, 1931, that
the nation faced thumping deficits, instead of the sizable surpluses he had
predicted. It seemed now, when the economic tide had turned, that the
Secretary overestimated, rather than under-estimated, possible revenues.
But neither his lecture on taxation nor his distressing error in
miscalculating revenues for 1931 and 1932 aroused much interest. Nobody any
longer paid much attention to the Secretary save to berate him. The glamour
had departed from his name in Republican counsels; to the Democrats he was a
gleaming target. In July, 1931, the authors of Washington Merry-Go-Round
devoted a chapter to the Man Who Stayed Too Long. The faithful Times
repudiated the authors' suggestion. "If ever his advice and skill were
needed," it observed, "they are at the present time. Should he prove his
ability to wrestle with the acute financial difficulties pressing upon the
United States Treasury as successfully as he took advantage of the prosperous
days to reduce the public debt, his record of achievement would be still
higher. . . . His friends ought to be glad that he is still at it with the
opportunity to show his countrymen how to ride the whirlwind and direct the
storm."
The final figure of speech was a trifle grotesque to those in Washington who
knew what was happening at the Treasury. The rider of the whirlwind and the
storm had been pushed into a corner by Hoover and Mills, where he was ignored
and even laughed at. In press conferences, Mills would interrupt his chief to
say, "Now what Mr. Mellon really means is—"
It was not that Mellon had suddenly become senile. He was sterile. The truth
was that the whole structure of Governmental finance which he had reared in
the Harding and Coolidge administrations had come tumbling down with the
panic. If some of his warmest admirers expected him to pull surpluses out of
the Treasury in hard times, they were due to be disappointed. The man had
been represented as a wizard, and now when wizardry was needed, he was found
to be just a tired, aging banker whose magic formulae no longer worked.
Economists attacked him for his short-sighted policy in casing taxes in lush
days when they could have been used to liquidate the national debt, whose
interest burden now proved crushing. Higher taxes, they said, would have
halted the rapid accumulation of huge capital reserves in the hands of the
few. E. R. A. Seligman of Columbia denounced the "absurdly inadequate"
revenues from the inheritance tax, which Mellon had estimated in 1931 at
$22,000,000. The tax now went up to a maximum of 20 per cent on estates of
$10,000,000 and more. Abroad, said Seligman, estate taxes ranged from 50 to
75 per cent and in France even up to 98 per cent. If this country used the
British rates, it would be assured an average income of $650,000,000 a year
from that source, he contended. Dr. John H. Gray, former president of the
American Economic Association, suggested that Secretary Mellon's policies
were directly responsible for "continuing and extending the mania of
speculation" which preceded the panic. Less absentee ownership, a more
equitable distribution of wealth, higher inheritance taxes, led his list of
reforms.
His tarnished financial crown was not Mellon's main liability for the
Administration now. If anything, he had come out of the last two years with a
shred more respectability than the President and other Cabinet officers whose
peeps around the corner had revealed more revivals than the country bad
enjoyed since its founding. The trouble lay deeper. Notice had been served,
soon after the President's inauguration, that the Secretary had fulfilled his
purpose and his early withdrawal would be appreciated, both by the White
House and the impatient Mills. Added to that was the drumfire of attack now
directed against Mellon. Both Congress and the country were anxious to find a
personal scapegoat for the calamity that broke with the crack of doom in the
Wall Street crash. Mellon, personification of the policies and precepts of
the Golden Age now passed, was the inevitable target.
No sooner had the thin-skinned Hoover entered office than the Senate began to
discuss Andrew Mellon's right to hold office. Then Wright Patman, energetic
young Congressman from Texarkana, product of the untamed Southwest, champion
of the bonus, elected to cross swords with the Secretary. An older colleague
would have told Patman there had been no nourishment in such attempts and one
less audacious would have been dismayed by the solid ring of legal defense
that surrounded the Smithfield Street Magnifico.
Times had changed though. No one had dreamed in 1926 of daring to impeach the
Second Greatest Secretary of the Treasury. Now it was not only proposed, but
there seemed every chance that a big political scandal was in the offing even
if impeachment were prevented. The White House was at first annoyed, then
frightened.
Hoover's troubles with Mellon started before March 4, 1929. On March 2,
Senators McKellar, Wheeler and Couzens announced they would oppose
confirmation of the Pittsburgher. The new President sidestepped the issue by
declaring that a holdover Cabinet officer did not need to be confirmed by the
Senate. The Senate Committee agreed, but another question was now raisedwas
Mellon eligible to hold office under Section 243, Revised Statutes, enacted
by the First Congress of the United States? It was provided that no Secretary
of the Treasury shall directly or indirectly be concerned or interested in
carrying on a business or trade or commerce, or be owner in whole or in part
of any sea vessels. Violation was a high misdemeanor and the penalty was a
$3,000 fine and removal from office, and the culprit shall "forever
thereafter be incapable of holding any office under the United States."
The issue had been raised by McKellar in 1924 and parried by David A. Reed.
This time Mellon retraced his defense, in a letter to Reed. He had resigned
all his business directorates in 1921, and he owned very much less than a
majority interest in the various so-called Mellon companies. "My active
connection with them was severed in 1921 as completely as if I had died at
that time," he wrote.
As for that provision of the Federal Reserve Act which forbade him, as an ex
officio member of the board, to own bank stock, he had sold his interests in
Union Trust and other Pittsburgh banks, and in the National Bank of Commerce
in New York.
A third point of attack based on Statute 243, forbade a Secretary to be
interested in distilling liquors. Here Mellon repeated his oft-told tale of
his disposal of Overholt to Union Trust as trustee.
Senators Walsh and Norris submitted a minority report to the Senate judiciary
committee holding that Mellon was certainly ineligible, if the King's English
meant what it said. "Is a person owning stock in a corporation, even
indirectly, concerned or interested in the business of such a corporation?"
asked Norris. "The question answers itself. When in addition such stocks plus
that in the family give control and in some cases practical ownership, we
have reached a point where no reasonable mind by any possibility can conceive
that the owner of such stock is not only indirectly but directly and
positively interested in the business of the corporation. There is positively
no way for such a person to avoid such interest or to disassociate his
interests from such a corporation, except in good faith to dispose of his
stock therein."
The Nebraskan held that the danger to the country's finances involved in
removing the Secretary had been greatly exaggerated. "If however," he
continued, "the country has reached the condition where only men owning
millions of stock in business corporations are qualified to hold the office
of Secretary of the Treasury, then instead of trying to nullify the law and
set a precedent before the people, we should amend or repeal it so that at
least we could truthfully say that those whose duty it is to enforce the law
are not themselves looking for technical means by which the law could be
nullified."
Senator Reed produced statements from five living ex-Secretaries of the
Treasury that they had held stock while serving the Government. Three were
Democrats. Reed argued that a man could hold stock and still not be
interested or concerned in the conduct of his company, and the committee
agreed with him, 8 to 5, Borah, Blaine, Norris, Walsh and King dissenting.
Borah held that "any activity or concern in carrying on the business in which
he was a stockholder would be in violation of the law" but that the short
inquiry had not been able to find out whether Mellon bad "actually counseled
or advised or been interested in carrying on the businesses of which he is a
stockholder."
The issue died down. The Bull Market was still in full fling.
On April 27, 1931, the issue flared up again when Wright Patman announced
that he intended to impeach the tired, sadeyed little man in the Treasury.
Patman was satisfied that he had found the dragon, and he, St. George,
intended to haul him out of his lair and slay him with certain pieces of
paper he held in his hand. "I am assured the support of the American Legion
members and of people who want to see prosperity restored and who believe the
present business depression is due to the official acts of Mr. Mellon."
On January 6, 1932, Congressman Patman advanced to the speaker's dais: "Mr.
Speaker, I rise to a question of constitutional privilege. On my own
responsibility as a member of this House, I impeach Andrew William Mellon,
Secretary of the Treasury of the United States, for high crimes and
misdemeanors, and offer the following resolution." The resolution recited
that the Secretary was the owner of stock in 300 corporations with resources
of $3,000,000,000. "Said corporations are engaged in the business of trade
and commerce in every state, county and village in the United States, every
country of the world, and upon the seven seas; said corporations are
extensively engaged in the following business: Mining properties, bauxite,
magnesium, carbon electrodes, aluminum sales, railroads, Pullman cars, gas,
electric light, street railways, copper, glass, brass, steel, tar, banking,
locomotives, water power, steamship, shipbuilding, oil, coke, coal, and many
other different industries; said -corporations are directly interested in the
tariff, in the levying and collection of federal taxes, and in the shipping
of products upon the high seas; many of the products of these corporations
are protected by our tariff laws, and the Secretary of the Treasury has
direct charge of the enforcement of these laws."
Patman listed four Norwegian, fourteen Venezuelan and thirty-six American
ships used by Gulf and Aluminum, as owned by Mellon in direct violation of
Statute 243. He recounted that Mellon had charge of tax refunds to Mellon
companies, owned bank stock, was in the whisky business, had encouraged a
Treasury magazine to advise the use of aluminum in public buildings, and bad
an interest in the Koppers Company, which was supervising erection of gas
plants in the Soviet Union despite charges that goods imported from that
country were made by convict labor.
In short, the indefatigable Congressman had been studying the Secretary's
record and had thrown everything he could find against him into the
inquisitory hopper. An incredulous judiciary committee gathered January 13,
1932, to see just how the new St. George intended to dispatch his dragon.
Present also were A. W. Gregg, the young wizard of the Treasury Department
and D. D. Sheppard, representing the Secretary. St. George tried to provoke
the dragon into exposing himself by insisting that the presence of the Mellon
men was in the nature of a demurrer to charges. The gentlemen should be heard
on points of law, he suggested. That feint failed, and Patman proceeded to
his case.
All talk of impeachment, he said, had been in the Senate, which lacked the
right to impeach. His was the first serious effort to test Mellon's right to
be Secretary. He recited Section 243, enacted in 1789. He noted that
President Grant had been obliged to withdraw the nomination of A. T. Stewart,
New York merchant, as Secretary of the Treasury in 1869 when the statute was
called to his attention. Alexander Hamilton had likewise realized the import
of the law and had refused to appoint a broker as purchasing agent for the
Government because it would violate the spirit if not the letter of the law.
While the Mellon men made notes and Administration members of the committee
tried to fluster him, Patman marshaled his evidence. When he read Mellon's
deposition in the Haskell aluminum suit, even the regulars were impressed.
Gregg replied for the Secretary. Yes, it was true that Mr. Mellon owned stock
in quite a few corporations, whether 300 or not mattered little. But Mr.
Mellon did not "control" these companies. As for the holdings of the "Mellon
family," he knew nothing about that.
Mr. Bachmann: Do I infer from what you say, Mr. Gregg, that Mr. Mellon and
his family do not own the control of these corporations?
Mr. Gregg: I do not know.,
Mr. Bachmann: You do not know?
Mr. Gregg: I know that Mr. Mellon does not.
Mr. Bachmann: But whether his family do, you do not know?
Mr. Gregg: Whether his family and his business associates do, I do not know;
whether he and his family, I do not know.
The Chairman: Mr. Gregg, on that point, the statement has been made by you
that you do not know. Do you mean that you do not purpose to meet that
issue-if you regard it as an issue?
Mr. Gregg: I do not regard it as an issue, Mr. Chairman.
Mr. Gregory: When you use the word "control," do you mean that Mr. Mellon
does not own more than 50% of the stock of the corporation?
Mr. Gregg: Yes, sir; that is exactly what I mean.
The rest of Gregg's testimony was in the same vein. Mr. Mellon owned
personally no boats; he personally imported little merchandise. Members of
the committee were not satisfied with his definition of control of a
corporation.
Mr. Cellar: Do you not think that where stock is widely scattered, 30% of it,
or even 2070, might give control, particularly where there are a great many
stockholders who are scattered and unorganized? They might control it with
2570 of the stock and there are cases where even 20% is sufficient for
control.
Mr. Gregg: It would give them control over the election of directors and
officers, and over the very few things that have to come before the
stockholders, such as a sale of assets of the corporation, or dissolution,
consolidation, or merger. But while the corporation is operating a 99%
ownership is not any better, as a matter of law, than a 1% ownership.
Mr. Cellar: Except that if they have the power to elect directors, and then
they have that minority interest which is unified, they have the power to
control the operations of the company?
Mr. Gregg: That is very true. They have the power to elect directors. But
after the directors are elected they have no power whatever over them,
whether they have 99%' or 1% of the stock.
In another committee room at the same time, Senator Johnson was inquiring
into the sale of foreign bonds in the United States and had just reached the
point where State Department officials and private promoters were telling
about the connection-if any-between Secretary Mellon's huge Barco concession
and the National City's loans to Colombia. Johnson's and Patman's evidence,
in conjunction, created a sensation.
Coolidge would hardly have been more than annoyed. But the two
investigations, both of which pointed to his Chancellor, quite upset the
irritable Hoover. He had plenty of trouble trying to explain the collapse of
prosperity in a Republican administration, without this Mellon mess coming
up. Ogden Mills watched the discomfiture of both Hoover and Mellon with no
little secret satisfaction. He had waited long enough for his chance to be
the Third Greatest Secretary, and now be thought he saw it.
pps. 301-323
-----
Aloha, He'Ping,
Om, Shalom, Salaam.
Em Hotep, Peace Be,
Omnia Bona Bonis,
All My Relations.
Adieu, Adios, Aloha.
Amen.
Roads End
Kris
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